According to the current drug regulatory system, drugs considered traditional Chinese medicines (TCM) are categorized as Chinese patent drugs, the extracts of crude drugs and their preparations, and artificial imitations of Chinese medicinal herbs. In today’s market the majority of the domestic TMC manufacturers are profit-driven companies. Most drug makers produce Chinese medicines, compound drugs and/ or biological products. These companies find TCM drugs attractive in light of both market demand and governmental policies encouraging TCM production. Since intellectual property rights (IPR’s) have become the competitive edge for corporations, it is essential for drug making management that market exclusivity and profit maximization be obtained. IPR’s are the only legal means to establish the exclusive market dominance of a technology in order to achieve a monopoly over a product in the marketplace.

 

Undeniably, modern IP systems around the world originated, as market rules for free competition, in the western developed countries, and the patentregime was established specifically for compound drugs. The Chinese IP system is basically consistent with international laws and rules. As it is being further perfected, Chinese TCM manufacturers should be clearly aware of its advantages and disadvantages, in order to maintain absolute or comparative exclusivity and maximize their interests in the TCM market.

 

By studying the market for TCM drugs and the existing laws and systems, one can easily find that in addition to conventional means, such as advertising and in-hospital solicitation, Chinese TCM manufactures also utilized the following five measures to achieve market dominance and compete for interests and, in this process, form their own IP rights.

 

 

According to the Notices on Related Matters of Application for and Approval of State Secret Technical Projects for TCM Drugs (GSYJZ [2005] No. 176) of the State Food and Drug Administration (SFDA) , “Only TCM drugs listed as state secret technical projects can bedetermined as secret drug varieties. …. Drugs for which the State Secret Technical Project Certificate have been obtained will be treated as secret drugs by the SFDA. During the secrecy period, no applications will be accepted or approved for registration of a national standard drug in the secret drug variety, or for any change of its formula or administration method.” Thus, any drug, as a state secret technical project, has achieved market exclusivity for the drug variety.

 

Yunnan Baiyao and Pien Tze Huang formulae and processing techniques are kept as national top secrets. Because they are considered state secret technical projects by the Ministry of Science and Technology (MOST) and the State Secret Bureau (SSB), the SFDA will not disclose their prescription, dosage and preparation methods in the quality standards. According to the Law on State Secret Confidentiality , as amended on the fourteenth session of the 11th NPC Standing Committee on April 29, 2010, state secrets are categorized as Top Secret, Secret and Classified. Each category has a different period of protection for market exclusivity. The period for Top Secret information is not more than 30 years; Secret information is not more than 20 years; and Classified information is not more than 10 years.

 

Currently, Top Secret drugs include Yunnan Baiyao, Zhangzhou Pien Tze Huang and Jidesheng Snake Tablets. Secret drugs include Liushen Pills, Huatuo Zaizao Pills, Angong Niuhuang Boluses, Guilingji, Shexiang Baoxin Pills, Suxiao Jiuxin Pills, Minzhi Yiweixiao, and Qingchunbao. Classified drugs have a large varity, including Wang’s Baochi Pills, Babaodan Capsules, Naoxueshu, Qizheng Xiaotong Plaster. In 2005, upon issuance of the Notice on Classification of State Secrete Technologies 2005 (GKJ(M) H (2005) No.1) of MOST , the SFDAbegan to clean up the TCM drugs in all state drug standards whose formulas, dosages and preparation methods were not partialy or completely disclosed. MOST and SSB received applications for more than 1,200 TCM drugs. This is an indication of the importance drug manufacturers place on achieving the protection of drug classification and market exclusivity.

 

However, declaring a technology to be a state secret in accordance with the Law on State Secret Confidentiality and the Regulations on Science and Technology Confidentiality is an administrative act intended to protect national security and interests. It is not intended to be the right or interest of a company. It cannot be used as an IP right of the company. When a company receives an authorization of production from the state, it comes with an obligation to maintain its secrecy, a breach of which will cause damages to national interests, along with possible criminal punishment. Recently, Yunnan Baiyao Group expanded the product scope of Yunnan Baiyao, by using its active ingredients in the toothpaste. In the advertising campaign for the toothpaste, the company used such words as “national secret formula.” They were sued by Zhao Jianlei, a resident of Beijing.

 

 

In February 2009, SFDA issued the Guidelines for TCM Variety Protection in accordance with the Regulations on TCM Variety Protection , in order to enhance the protection over TCM varieties. The guidelines set out specific procedures and conditions for an application for state protection protection, raising the bar on applicable TCM varieties. The regulations have been criticized in the past decade or so by legal and medicinal circles. Critics argue it is an administrative restrictive on competition, powerless beyond territorial boundaries, outmoded due to historical development and objective conditions, unnecessarily burdensome on businesses for extraneous costs, and proving ineffective for exclusive market dominance in light of relevant patent. Despite these criticisms, the pharmaceutical industries still lend a favorable opinion to the practical significance of the Regulations on TCM Variety Protection under the current legal framework. They use it as one of their main weapons to implement their marketing strategies. They try their best to obtain the protection for their blockbuster products and do everything they can to prolong the protective period.

 

To prevent excessive protection and inefficiency in TCM varieties, the state drug administration will raise thetechnical bar to truly protect well-known time-honored TCM drugs and improve the quality of TCM varieties. In practice, a few difficult problems still exist in the TCM variety protection. They should be avoided, if possible, when companies apply for protection.

 

First, the protective period is short. Currently, most of the protected TCM varieties are Level II, which offers a seven-year protection. Although the Regulations on TCM Variety Protection provides that “upon expiration, the protection for TCM va r iet ies on Level II may be renewed for another seven years,” this requires obvious clinical, pharmacological, toxicological or pharmaceutical advancement or improvement since the protection was granted. This requirement causes many TCM manufacturers not improve and seek extended protection due to financial or technical difficulties. Some well-known time-honored TCM drugs, which are especially effective for certain diseases, are placed in an embarrassing situation, because they will be open to copying when the protective period expires, for example, the Baoji Pills of Wanglaoji Group.

 

Second, no market exclusivity is really granted. The TCM variety protection does not mean exclusivity on the market, unless and until the drug is elevated to be a state technical secret. This is because if an equivalent variety exists, the manufacturer of the equivalent variety may obtain the same protection, and the number of such manufacturers is not legally restricted. In addition, amanufacturer can obtain a license to manufacture the protected TCM variety, by changing the dosage or administrationmethod or even by changing the drug into a food variety, for example, theXiasangju Granules of Guangzhou Xingqun Pharmaceutical Co., Ltd. In the case of TCM compound preparations which do not have an observation period (for new drugs), the manufacturer can rarely achieve market exclusivity after developing and launching them on the market.

 

Third, trade secrets cannot be protected. The Regulations on TCM Variety Protection only provides for the formula composition and processing method of TCM varieties on Level I, where relevant information is kept confidential and no unauthorized disclosure is permitted. The responsibility lies in the manufacturer with the TCM Variety Protection Certificate, the related administrative departments for drug manufacturing and operation, the health administration, and other companies and individuals concerned. Also, the TCM variety with Level I protection qualifies for the protection of the state technical secret project. Very few TCM varieties obtain Level I protection. Most are Level II where the SFDA requires the technical information to be disclosed.

 

 

The Chinese patent system, which was set up more than 20 years ago, is in line with the international system. It has now been generalized among pharmaceutical companies. Currently, all Chinese TCM manufacturers own different numbers of patented technologies. In this way, they seek the 20-year protection of market exclusivity for certain technologies, particularly some newly-developed TCM drugs. The patented Longmu Zhuanggu Granules of Wuhan Jianmin Pharmaceutical Group, and the patented Jizhi Syrup of Taiji Group are typical examples.

 

However, some time-honored TCM drugs cannot obtain the patent protection because they do not fulfill the novelty requirement of the patent law. Even if a new technical feature is created to improve the processing technique or technical standard, the manufacturer rarely obtains protection for market exclusivity as a result because, as a rule, technologies in a drug standards are not patented. To some extent, this has dampened the passion of TCM manufacturers to improve these drugs.

 

On the other s ide, one of the fundamental features of Chinese patent medicines is the formula concept. To crack the formula concept means to crack the patented technology. As a result, the existing patent system is insufficient to protect TCM compounds, or works only as a passive defense. It cannot help the technological patent of TCM compound drugs to achieve absolute market exclusivity. In recent years, there have been more patent infringement cases involving TCM drug patents. Examples include the Jiangxi Puzheng Pharmaceutical Co., Ltd. v. Xi’an Chiho Pharmaceutical Co., Ltd. , a suit to invalidate the invention patent of Xueping Capsules; Tianjin Tasly Group v. Dongguan Wancheng Pharmaceutical Co., Ltd . for infringement of the Yangxue Qingnao Granule patent; and the case involving Shanghai Leiyunshang Xinglin Technology & Pharmaceutical Co., Ltd. to invalidate the Xinglin Granule patent. Thus, the key issue in TCM patent application is how to describe the technical features of TCM compound technologies. Both the R&D staff and law practitioners should work to the full advantage of the patent system, by significantly covering the formula concept.

 

 

Before 2001, Article 41 of the Drug Administration Law provided that “except for Chinese medicinal materials or Chinese medicine tablets, a drug must have a registered trademark. Any drug without a registered trademark shall not be sold on the market.” Tradmarks are compulsory. The registered trademark makes it possible to find manufacturers and in event of liability after a drug is marketed. With the furthering of the reform and opening up policy, the Drug Administration Law , the Unfair Competition Law, the Consumer Rights and Interests Protection Law , and the Product Quality Law were amended in succession. They became fully capable of supervising companies of their product quality to protect the rights and interests of consumers. As a result, the compulsory trademark registration requirement was removed when the Drug Administration Law was amended in 2001. That is, trademarks on drugs are now voluntary.

 

Despite this, pharmaceutical companies still attach much importance to the role of trademark. They link their trademarks to their trade names and even try to apply the trademarks onto their product names (or even generic names). For example, the 999 Weitai Capsules of 999 Group. Research found that most of the existing TCM manufacturers have registered their trade names as trademarks in multiple categories. They also try to represent the trademarks, together with the design, on the outer package of their products, to differentiate their products from other similar products with respects to quality and efficacy; for example, Chenliji, Pangaoshou, Leiyunshang, Caitongde, and Tonghanchun. Going even further, Beijing Tong Ren Tang Group has included its brand name Tong Ren (as in Category V) in its product names, for example, Tong Ren Bezoar Sedative Bolus, and Tong Ren Wuji Baifeng Pills. Some companies combine their trademarks with anti-forgery digital technologies, anti-forgery printing technologies and anti-forgery materials, to make their own products different and distinctive, and to completely prevent passing-offs by others.

 

However, the drug regulatory authority requires that the drug shall have a generic name and a product name; the generic name shall not be registered as a trademark; on the outer package, the font size of the corporate product name must be two times less than the generic name; and a space shall be kept between the generic name and the product name, and the two shall not be linked up. Also, the Methods on Drug Registration Administration goes further to provide that only new chemical drugs, new biological products and drugs with a compound patent may have a product name. It diminishes the possibility for TCM drugs to be identified with a product name and to a certain extent, limits the role of trademark. This is less so in Hong Kong, where law does not prohibit the registration of a generic name as a trademark. For example, Quinwood Limited registered Baoji Pills as a trademark in many countries. In the Mainland China, it is registered under another name, Puji Pills, as a trademark. This has significantly limits the export of Baoji Pills from the Mainland China.

 

V. Seeking design patent protection, and this protection remains to be fully exploited

 

In Chinese patent history, the design patent has consistently been the main patent type for TCM manufacturers and accounts for 40-60% of their patents. Some companies have design patents only. For example, Yunnan Baiyao Group has 191 design patents, and Beijing Tong Ren Tang Group has 116 design patents. These design patents basically encompass the entire product lines of the two companies. This indicates that the product design is essential to the popularity and sales rate of the products on the market. The typical cases also include Longmu Zhuanggu Granules of Wuhan Jianmin Pharmaceutical Group, the Compound Danshen Dripping Pills of Tianjin Tasly Group, and Weisu Granules of Yangtze River Pharmaceutical Group.

 

Because of strict SFDA regulations on drug labeling, particularly the use of generic names, product names and trademarks on the packaging label, pharmaceutical companies pay more attention to the package design, in order to make their drugs different and distinctive from the same varieties of other companies. But, the recently amended Patent Law 2009 provides higher requirements for design patents. I t requires that in a patent ability examination, the product concerned will be compared, in a comprehensive way, with products of the same or similar categories. It also requires a comparison between the claimed design and the combined features of prior designs in different categories. Thus, the TCM manufacturers should note that the rising of the bar means that the drug package design patent will be one of the ways to develop their own IP rights.

 

However, although focused on designs, not all of TCM manufacturers apply for design patents (or their designs have lost the required novelty because of prior use), and some of them only use a commonly designed product package. To defend against passing-offs, they rely on Article 5.2 of the Unfair Competition Law which provides that a business operator shall not “use, without authorization, the name, package or decoration unique to a wellknown product, or use a name, package or decoration similar to that of a wellknown product, causing confusion with the well-known product and resulting in buyers to mistake it for the well-known product.” But, the protection that the article provides is limited to well-known products and does not apply to common ones.

 

The TCM manufacturers, as representative national enterprises, now witness natural low-carbon living styles, the strong hope that people place on TCM drugs, and a benevolent ecological environment where traditional cultures are protected. But, the ideological changes and legal reforms that the social innovations bring do not always benefit the growth of the TCM manufacturers or the development of TCM drugs. These national enterprises should, utilizing the full utilization of the existing legal system, work with each other synergistically and build a new international order advantageous to their sustainable development.

 

(Translated by Ren Qingtao)