Latest trends in Bolar exemption rules in Europe

Late last year two national courts in the EU provided very different answers to questions about the scope of the Bolar exemption. Justyna Ostrowska and Dorthe Minde analyse the rulings and explain how the CJEU might approach the issues

One-minute read

In recent cross-border litigation before the Polish and German courts, the scope of the Bolar exemption was on trial. The German court seemed to accept that the Bolar exemption should also benefit third-party suppliers of active pharmaceutical ingredients not themselves engaged in the carrying out of clinical trials. This is clear from questions referred to the CJEU relating to the exact scope of the Bolar exemption. Since that referral, Astellas withdrew the lawsuit. The commercial and legal significance of the questions raised by the referral, however, mean that it is only a question of time before the Court is asked to consider the issues and weigh up the competing claims of patent owners and generic rivals.

For the time being, however, generic companies and third-party suppliers will have to respect and consider the different rules established in each member state until the CJEU resolves the scope of the Bolar exemption.

Based on the Bolar exemption, generic drug manufacturers are allowed to conduct clinical trials for the regulatory approval of medicinal products which are still under patent protection. Such use of the invention is not a patent infringement.

The scope of the Bolar exemption varies between different EU member states. The core protection has been defined consistently throughout the EU by Article 10(6) of Directive 2001/83/EC (the Medicines Directive). This allows generic drug manufacturers to conduct clinical trials and studies for the purpose of obtaining regulatory approval (marketing authorisation or MA) of medicinal products based on active pharmaceutical ingredients (API) and processes protected by a patent and/or a supplementary protection certificate (SPC) before such protection expires. There is, however, a long-standing debate around the question of whether the Bolar exemption also allows third-party API suppliers to produce, advertise and sell to generic companies such protected API for the carrying out of clinical trials.

Over the past decade, the Polish and German courts have followed a rather strict approach with regard to the scope of the Bolar exemption for third-party suppliers of API. They took the view that as long as the supplier is not itself engaged in the clinical trials, it could not benefit from the Bolar exemption. However, the Dusseldorf Court of Appeal, having doubts as to the narrow interpretation of Article 10(6) of the Medicines Directive, recently referred a case ( Astellas Pharma Inc v Polpharma SA Pharmaceutical Works ) to the Court of Justice of the European Union (CJEU) for preliminary rulings on this issue (Case no. 661/13).

Practical importance of the Bolar exemption

Undoubtedly, the definition of the scope of the Bolar exemption has significant practical implications. In contrast to innovator pharmaceutical companies (so-called big pharma), generic manufacturers are often smaller companies and thus unable to produce the necessary API for all their products on their own. Even the bigger generic manufacturers often cannot produce all the APIs they need for their large product ranges. Generic companies therefore often depend on third-party supplies of API.

The problem is that such third party supply may well be considered a patent infringement in many jurisdictions where the supplier itself does not carry out the clinical trials. This leads to a de-facto extension of the patent/SPC protection by forcing the generic manufacturers to wait with procuring the API, conducting the trials and - in consequence - with applying for regulatory approval until the patent/SPC has expired. As the carrying out of the trials and the regulatory application process take years (during which time the generic manufacturers are barred from the market), the de-facto extension of the patent/SPC lifetime can have an immense commercial effect.

Bolar exemption in EU law

The Bolar exemption was introduced into Community law in 2004, based on the model of the American Patent Term Restoration Act of 1984. Due to the lack of a unitary patent system in the EU, this exemption was introduced as Article 10 (6) to the Directive 2001/83/EC (Medicines Directive) on the Community code relating to medicinal products for human use by the amending Directive 2004/27/EC. According to this provision, "Conducting necessary studies and trials with view to the application of paragraph 1, 2, 3, and 4 [of the amended Article 10 of the Medicines Directive] and the consequential practical requirements shall not be regarded as contrary to patent rights or to supplementary protection certificates for medicinal product".

The use in this provision of such vague, ambiguous, and widely understood concepts like "the necessary examinations and tests" or "the consequential practical requirements" lead to disputes as to its scope under EU law.

One case scenario, two different approaches

Polpharma SA Pharmaceutical Works (Polpharma), a Polish manufacturer of API, advertised and sold a patented API (solifenacin succinate) to generic manufacturers, including Hexal in Germany. The advertisement did not state that the API would only be delivered for use in clinical trials and studies for obtaining a MA. The patent owner, Astellas Pharma (Astellas), sued the API manufacturer for patent infringement both in Poland and Germany. Polpharma argued non-infringement on the basis that its acts fell within the Bolar exemption as the addressees of the advertisement and the purchasers of the API would only use it for the purpose of carrying out clinical trials. In addition, Polpharma claimed that the API would only be delivered to purchasers on the condition that they would be used solely for carrying out clinical trials for the purpose of obtaining an MA. Astellas challenged all these arguments.

The Polish ruling: Third-party manufacturers excluded from Bolar exemption

In its decision of October 23 2013, the Polish Supreme Court, in line with the previous judgment of the Court of Appeal in Gdansk, found that Polpharma had infringed the Astellas patent. The Supreme Court dismissed the appeal, holding that the Bolar exemption (Article 69(1)(4) of the Polish Industrial Property Law, PIPL) only exempts generic drug manufacturers carrying out the necessary studies or trials themselves, and cannot be extended to third-party suppliers merely selling the patented API for use in trials carried out by others.

Implementation by EU member states

Scope of implementation EU member state

Narrow implementation United Kingdom, Belgium, Ireland, Netherlands, Sweden, Luxembourg, Greece, Cyprus

Broad implementation Germany, Spain, Italy, France, Austria, Romania, Czech Republic, Poland, Slovakia, Finland, Lithuania, Bulgaria, Denmark, Latvia, Malta, Portugal and Slovenia

* There has been no specific implementation in Estonia and Hungary due to the already existing law.

The implementation of the provision of Article 10 (6) of the Medicines Directive into national law was not carried out in a uniform manner by all member states. The differences concern the type of medicinal products covered by the application for marketing authorisation (generic or innovative drugs), the type of release into circulation (i.e. the abridged procedure, hybrid applications, as well as biosimilar applications, as in Article 10 (6) of the Medicines Directive), or territory to which the application for marketing authorisation refers to (EU, EEA, or any country).

These differences are summarized in the table below, where " Narrow implementation " means that the exact wording of Article 10 (6) of the Medicines Directive has been included in national law, and " Broad implementation " where more than the minimum requirements resulting from this directive have been implemented into national law (i.e. the national exemption has been extended to any drugs - not only generic medicines, the marketing authorisation does not need to be obtained from the abridged procedure, hybrid applications, or biosimilar applications, or does not need to be sought in an EU/EEA country).

The Polish Supreme Court reasoned that the Bolar exemption should be interpreted narrowly because of its nature as an exception to the general rule of patent protection. Furthermore, the court pointed out that only if the manufacturer of the API seeks regulatory approval itself will it sufficiently ensure that the manufacturing activities are closely linked to the purpose of the Bolar exemption. In contrast, control over the use of API supplied by a third-party manufacturer would be illusory. The court also held that the manufacture of a patented API for the purpose of offer and sale is not an action necessary for obtaining an MA. Thus, there is no reason to deprive the patent owner of its rights in relation to such a manufacturer.

This decision aroused a lot of controversy. Some commentators in Poland criticised it on the basis that it unfairly deprives generic companies, not being manufacturers of API themselves, of their chance to launch a new product into the market immediately upon patent expiry. When introducing the Bolar exemption into Polish law, the main purpose of the Polish legislator was to facilitate market entry for generic companies in order to ensure competition between pharmaceutical companies and broad access to reasonably-priced medicines for patients. A restrictive interpretation of the PIPL, which excludes third party supplies of API from the exemption, could undermine this purpose. In particular, the wording of this provision does not limit the scope of the Bolar exemption only to those entities conducting clinical studies to obtain marketing authorisation for their own purposes.

Article 69(1)(4) of the PIPL states: "the exploitation of an invention to a necessary extent, for the purpose of performing the acts as required under the provisions of law for obtaining registration or authorisation, being, due to the intended use thereof, requisite for certain products to be allowed for putting them on the market, in particular those being pharmaceutical products" shall not be considered acts of infringement of a patent. Given this wording, the Polish Supreme Court could have interpreted this provision in a way that would not generally exclude third party supplies of API from the Bolar exemption under Polish law, even if the activities of Polpharma, in this particular case, were considered to fall outside the scope of this exemption.

Although there is no common law system in Poland, the decision of the Polish Supreme Court, being the first decision of this court pertaining to the circle of entities enjoying the privilege of Bolar exemption, will likely become a guideline for Polish courts deciding on patent infringement by third party suppliers of API. This could adversely affect the business activity of Polish API suppliers.

The German ruling: Referral to the CJEU

Like the Polish Supreme Court, the Dusseldorf Court of Appeal also reasoned on the scope of the Bolar exemption (Section 11(2b) of the German Patent Act) in its decision of December 5 2013. As a first step, the Court of Appeal made a strict formal interpretation based on the exact wording of the German Bolar provision and on the legislator's intention to facilitate market entry for generic companies. This led to the conclusion that the German legal provision would cover third-party suppliers under the Bolar exemption if certain safeguards were taken regarding the use of the API. As a second step, the Court of Appeal also construed the German provision in the light of Article 10(6) of the Medicines Directive.

Before this decision of the Court of Appeal, the German first instance court (Dusseldorf Regional Court) found that third-party suppliers could only benefit from the Bolar exemption if they themselves pursued the conduct of the trials. A mere commercial interest would not be sufficient. Instead, the third-party suppliers would rather need to have an own interest in the studies. Such objective interest could be expressed by co-organised studies conducted by both the generic company and the third-party supplier.

Turning away from its prior case law and from the decision of the first instance court, the Dusseldorf Court of Appeals now considers that the Bolar exemption may cover third-party suppliers under certain circumstances. Hence, and due to the fact that EU law is involved, the Dusseldorf court referred various questions to the CJEU for clarification. In its referral, the Dusseldorf Court of Appeal asked the CJEU whether the Bolar exemption covers third-party suppliers of API, and, if so, what particular conditions must be met by third-party suppliers to benefit from the Bolar exemption (see box).

It is clear from the questions asked and the reasoning in the referral that the Dusseldorf court now favours a broader scope of the Bolar exemption covering third-party suppliers even if such supply is only based on a "reasonable expectation" that the API will be used for marketing authorisation trials and studies. The Dusseldorf court suggested that the supplier must ensure, however, that the API is properly used under the Bolar exemption by evaluating the circumstances of the individual situation and through different levels of safeguards, depending on whether the supplier merely advertises or already sells the API. The specific safeguards would again depend on the circumstances of the individual case.

In the case of selling API, the court assumes that the purchaser would have to give a warranty, enforceable by a contractual penalty, that the API is only to be used for purposes covered by the Bolar exemption (that is, clinical trials and studies for obtaining an MA).

A new Bolar exemption in the UK and Ireland

At present, under UK law, only activities relating to obtaining marketing authorisation for generic medicinal products are exempted from patent infringement. According to guidelines issued by the UK Intellectual Property Office, the following activities should be covered by the exemption: manufacturing or importing active substances and final compositions in order to validate the manufacturing process; the development, testing, and use of the associated analytical techniques for the above; the manufacture and supply to the competent authorities of samples of active substances, their precursors, intermediates, or impurities, and of finished product samples; the compilation and submission of an MA or Variation application and application for an MA; and conducting the necessary pre-clinical tests, clinical and bioavailability trials, and stability studies of the medicinal product. However, there is a lack of UK case law to confirm this understanding of the scope of the Bolar exemption under UK law. In October 2012, The UK IPO began formal consultation on proposed changes to legislation relating to patent infringement in clinical trials. Following a number of consultations, a draft of the Legislative Reform (Patents) Order 2014 was presented to the UK parliament. This reform is aimed at extending the scope of the Bolar exemption to activities of preparing or running clinical or field trials involving innovative pharmaceutical products for the purpose of obtaining regulatory approval in any country. The new law is expected to come into force on October 1 2014. The Irish government also decided to launch new legislation to widen the scope of the Bolar exemption available under Section 42(g) of the Patents Act 1992. The new legislation is aimed at including into the research exemption provided by the Patents Act 1992 all studies, tests, experiments, clinical and field trials, and the consequential practical requirements for obtaining marketing authorisation for new and generic products also in non-EU countries.

A hypothetical CJEU ruling

Although the German case had been referred to the CJEU for a preliminary ruling, unfortunately the CJEU will not decide on these questions on this occasion. Astellas withdrew the lawsuit pending before the Dusseldorf Court of Appeal with the result that the action has been dismissed.

The questions referred by the Dusseldorf Court of Appeal mainly related to generic pharmaceuticals. However, as the Bolar exemption also covers biosimilars or even innovative medicinal products in several European jurisdictions, a clarification of its scope by the CJEU would have contributed to legal certainty in the European pharmaceutical sector.

It is not easy to predict what the decision of the CJEU would have been. However, if the CJEU were to have followed the strict approach of the Polish Supreme Court and the old German case law, the ability of those generic companies not producing their own API to launch their medicinal products immediately after expiry of the relevant patent or SPC would have been significantly impeded. In short, generic companies would then not have been able to obtain API from third-party suppliers within the EU.

Further reading

What's behind the drug patent furore in South Africa?

Protecting life science patents in Latin America

A strategic guide to declarations of non-infringement

As the intention of Article 10(6) of the Medicinal Directive is to increase the competition with generic companies, and to increase the competitiveness of such companies in the EU as against those in the United States or Asia, it is reasonable to assume that the CJEU could have decided in favour of generic companies. If the CJEU had construed the Bolar exemption more liberally, that would have followed the tendency to extend its scope in those member states which initially took a narrow approach when implementing the exemption into national law (such as The Netherlands, UK and Ireland).

The main argument for the CJEU to include commercial third-party suppliers in the scope of the Bolar exemption should be the rationale behind Article 10(6) of the Medicines Directive. Considering its wording, prima facie, the provision does not exclude supply activities of third parties. Thus, the decisive criterion at hand is the connection of the delivery of the API to the purpose of using it for the clinical studies exempted under the Bolar exemption. Such connection needs to be interpreted based on the history of origins and the legislative intention for the relevant provision. The rationale for Article 10(6) is to enable MA trials and studies while patent protection is still in effect in order to ensure the competitiveness between generic and innovative companies on the market.

The Commission has stated that it considered it necessary that generic manufacturers should be able to enter the market directly after expiry of the patent to ensure open competition in the pharmaceutical sector. In addition, trials and studies for obtaining MAs should no longer be conducted outside the EU due to legal obstacles.

Taking this into account, the CJEU could well have concluded that many MA trials could not readily be carried out without the commercial supply of API by third parties. Many generic manufacturers do not produce API themselves or at least not all of the API necessary for their broad product range. Thus, market entry by generic companies can only be facilitated if all generic companies can make full use of the Bolar exemption, not only those which are API manufacturers themselves.

However, the interests of patent owners have to be considered by the CJEU as well. A very liberal interpretation of the scope of the Bolar exemption under EU law could result in reducing the value of patent rights held by innovator pharmaceutical companies. For this reason, a fair and balanced interpretation of Article 10(6) of the Medicines Directive is essential. This should lead the CJEU in due course to set out certain safeguards to ensure the proper use of API manufactured by third parties, for example that third-party suppliers limit their sales and distribution activities to those necessary for obtaining an MA.

In this regard, the CJEU could rely on the guidelines already suggested by the Dusseldorf Court of Appeal: the supplier would have to ensure that no reasonable doubt remains as to the use of the API. Decisive factors here could be the business focus of the purchaser on generics, small amounts of delivered API (i.e. just enough to manufacture the products for clinical trials), and positive or negative experiences regarding reliability of the purchaser in question. In addition, the supplier would have to take effective measures to avoid wrongful use of the API. For example, by making it clear in advertisements that the API would only be delivered for trials to obtain an MA; and in case of delivery of API, obtaining a warranty from the purchaser, enforceable by a contractual penalty, that the API would only be used for MA trials.

Questions referred to the CJEU by the Dusseldorf Court of Appeal

1) Is Article 10(6) of Directive 2001/83/EC 1 to be interpreted as meaning that the exclusion from patent protection also applies to acts of provision by which a third party for purely commercial reasons offers or supplies to a manufacturer of generic medicinal products a patent-protected active substance which that generic pharmaceutical undertaking has planned to use for conducting studies or trials for a marketing authorisation under medicinal product law as provided for in Article 10(6)? 2) If the first question is to be answered in the affirmative: a) Does the third party's enjoyment of the exemption depend on the manufacturer of generic medicinal products who is supplied by him actually using the provided active substance for exempted studies or trials under Article 10(6) of Directive 2001/83/EC? Does the exclusion from patent protection apply in such a case even where the third party has no knowledge of the intentions of his customer to use the active substance for purposes covered by the exemption and has also not satisfied himself in this regard? Or, in order for the third party to enjoy the exemption, does it matter only that at the time of his act of provision he can legitimately assume on the basis of all the circumstances (for example, the focus of the undertaking supplied, the small quantity of the active substance provided, the imminent expiry of the patent protection for the active substance in question, experiences as to the customer's reliability) that the generic pharmaceutical undertaking supplied will use the active substance provided exclusively for exempted trials or studies in the context of a marketing authorisation? b) Must the third party, in connection with performance of his act of provision, take measures of his own to ensure that the active substance is actually used by his customer only for exempted trials or studies and do the measures to be taken by him differ according to whether the patent-protected active substance is only offered or also supplied?

The future

In view of the importance of the Bolar exemption to the European pharmaceutical industry, particularly to generic companies and third party API suppliers, it is only a matter of time until a similar case is brought before the courts again and the same issue will is again referred to the CJEU.

A decision as to the exact scope of the Bolar exemption under EU law will be even more necessary when the Agreement on a Unified Patent Court (UPC) eventually comes into force. Article 27(d) of the UPC Agreement introduces the Bolar exemption into the unitary patent system by direct reference to Article 10(6) of the Medicines Directive (that is, the same narrow exemption implemented in the national laws of member states such as The Netherlands, the UK and Ireland).

For the time being, however, generic companies and third-party suppliers will have to respect and consider the different rules established in each member state until the CJEU resolves the scope of the Bolar exemption. In the case of Poland, this means that third-party suppliers which are merely selling the patented API for use in trials conducted by others run the risk of patent infringement. In contrast, for activities in Germany it is possible that applying the guidelines and safeguards suggested by the Dusseldorf Court of Appeal would lead to a stay of the patent infringement proceedings and a new referral to the CJEU. It has to be noted, however, that other German courts could still find patent infringement of a third-party supplier of API in contrast to the approach of the Dusseldorf Court of Appeal because its decision is not a binding precedent across Germany.

Justyna Ostrowska Dorthe Minde

(c) Justyna Ostrowska and Dorthe Minde 2014. The authors are associates with DLA Piper