The Supreme Court ruled in supportive of public health policy in olanzapine patent dispute

In Olanzapine patent disputes, the Supreme Court ruled as we claimed. See, decision in Lilly Korea v. Hanmi and decision in Lilly Korea v. Myung-In (all in Korean). The Court did not recognize that generic companies are liable for the reduction of upper price limit of patented product, Zyprexa (Olanzapine) even when the reduction was triggered by generic companies’ entrance into market. The generic entrance was made on the basis of the Patent Court’s ruling to invalidate the Olanzapine patent, and the price reduction was made by the discretionary measures by the Minister of Health and Welfare under the National Health Insurance System. Therefore, there is no causal link between the harm of patentee and the activity of generic companies.

Further, the Supreme Court rejected Lilly Korea’s argument that it is entitled to a so-called “exclusive non-exclusive licensee” of the olanzapine patent. Lilly Korea sought damages, in addition to damages of patent infringement awarded to Eli Lilly, for the loss generated by the price erosion.

Implication of the Ruling

By this rulings, the generic entrance will not be unduly delayed even when the entrance causes price erosion of patented pharmaceutical product and the price erosion is made under the drug price regulation. In many jurisdictions, the price erosion triggers the liability of generic companies. For instance, the Tokyo District Court awarded in 2017 patent infringement damages for the patentee’s lost profit stemming from prescription drug price reduction made by the governmental measures under the drug price regulations.

Excerpt of the Decision

Concerning the Liability of Generic Companies

Since the application of generic pharmaceutical companies was on the basis of the patent court’s ruling to invalidate their patents, it is not illegal for the generic companies to apply for a change in the timing when they can sell generic drugs under the National Health Insurance System.

The application of generic pharmaceutical companies is not a request to lower the upper price limit of the plaintiff’s product, it is hard to say that the defendant intended to cause a harm such as the reduction of the upper price limit of the plaintiff’s product. It is at the discretion of the Minister of Health and Welfare whether to lower the upper limit of the plaintiff’s product or when to implement the cut.

The upper limit of the plaintiff’s product was lowered from January 1, 2011, because the Ministry of Health and Welfare announced the public notice to cut the upper price limit, but because the defendant manufactured and sold the defendant’s product, and therefore, the manufacture and sale of the defendant’s product cannot be attributed to the reduction of the upper limit of the plaintiff’s product.

Considering the public policy nature of the National Health Insurance System and the purpose of the relevant regulations to continuously ensure the drug price regulation in the public interests and the financial soundness of NHIS, the disadvantage the plaintiff has faced was the outcome of public policy under which the Minister of Health and Welfare may lower the price of original product and register and approve the sale of prescription drug when the possibility of invalidating patent of the original product is justified. In the end, the plaintiff’s interest in the upper price limit of the plaintiff’s product is only protected within the boundaries of the public regulations, and even if the consequences of the procedures set by the regulations are unfavorable to the plaintiffs, they will not be held liable to the defendant.

Concerning the Lilly Korea’s Entitlement of a “Exclusive Non-Exclusive” Licensee

It is hard to say that the patentee, Eli Lilly and Company Limited, has agreed to bear an obligation not to grant third parties other than the plaintiff a non-exclusive license of the subject patent. The grounds that the plaintiff was able to import and sell the olanzapine product in Korea seems to be in accordance with Section 2.4 of the Master Supply and Distribution Agreement, which was signed in with the Eli Lilly. However, this Agreement is not a patent license contract to grant the working of patented invention. The entity who pays the licensee royalties to Eli Lilly is not the plaintiff but Eli Lilly S.A., and there is no objective data on the royalty rate and the amount of royalties. Accordingly, it is difficult to see that Eli Lilly has received from the plaintiff such a high fee in return for the above obligation not to grant third parties a non-exclusive license. Further, it is difficult to find any other circumstances in which Eli Lilly bears the above obligation.

What We Claimed in Submissions to the Supreme Court

Concerning the Liability of Generic Companies

“If a generic producer is liable for a price reduction made under NHIS, the generic producer has to bear an excessively large amount of damages compensation. This may discourage generic producers from entering the market after all of the patent matters are completely cleared by the highest court. At the same time, this may encourage a patentee to delay court proceedings in a patent dispute. None of them is in line with public policy objectives expressed in TRIPS and Doha Declaration.”

“Lilly Korea sought additional compensation on the basis of the reduction of upper price limit of Zyprexa made by a governmental agency under the National Health Insurance System (NHIS). Regardless of Lilly Korea’s entitlement, this additional compensation is, if awarded, an overcompensation that exceeds actual damages caused by patent infringement.”

Concerning the Lilly Korea’s Entitlement of a “Exclusive Non-Exclusive” Licensee

“Yet, there is no evidence supporting that Lilly Korea is an “exclusive non-exclusive licensee” of the subject patent. The only fact that can be admitted is that Lilly Korea is an exclusive importer and distributor of Eli Lilly’s products including Zyprexa. According to Eli Lilly, there is no written contract granting Lilly Korea a license of the subject patent. Instead, the Master Supply and Distribution Agreement was signed in 1995 by four entities: Lilly Korea, the patentee, Eli Lilly and Company (a US company), and Eli Lilly S.A. (ELSA, an Ireland company). Under this Agreement, the patentee has manufactured and provided for Lilly Korea with Zyprexa through ELSA, and received from the Lilly Korea royalties amounting to 27% of net sales of Zyprexa depending on the volume of its import and sale in South Korea. If Lilly Korea was a patent licensee, the royalty rate of 27% should have been dramatically reduced after the subject patent expired on April 24, 2011. However, none of the appeal court and their lower court considered this.”