Sandoz v. Hansoh: An application to join a collective pharmaceutical procurement project may constitute an infringing offer for sale

It has been the subject of some debate in China as to whether a generic drug maker’s public quotation and related activities on a platform established for pooled procurement of drugs - a government’s bargain-maximizing means of seeking both a reduction in unit price and an increase in availability by pooling the demand and supply of pharmaceutical products in a certain geographical range - amounted to an act of offer for sale. Often, in an attempt to delay the market entry of generic versions, the patent holder will file a patent infringement complaint against such a bid of a generic drug. The lower courts and the local patent authority will in most cases affirmatively identify such activities as being offers for sale with a risk of infringement. Some local platforms will even talk the generic competitors into withdrawing the applications. Nevertheless, the procedural process and substantive requirements for a procurement bid can be very different depending on the level or scale of a specific project. Different provinces and cities in China have different procedural requirements, from the application for the eligibility assessment and the announcement of conclusion of the eligibility assessment, quotation and bidding to the final signing of tender contracts, purchase, and delivery. This leaves a considerable grey area as to the stage at which a specific action involving a bid becomes infringing. Some argued that providing a quotation after winning a bid or after eligibility assessment should be considered an offer for sale in view of the readiness of a product’s entry. On the contrary, as others would maintain, a mere application for eligibility assessment at the earliest stage may not constitute an infringing act because there still remains a period of time before the generic maker must decide when or whether to publicly provide a quote in reaction to the date of  patent expiry.

In a recent case between Sandoz Pharmaceutical and Hansoh Pharmaceutical in February, the Supreme People’s Court’s IP Tribunal ruled for the first time that, during the term of patent validity of a brand-name drug, an application by way of submitting pharmaceutical product quality certifications-related documents to a local health authority in order to bid for a centralized drug procurement contract constituted a patent-infringing act of offer for sale.[1]

Vildagliptin, sold by Novartis under the brand name Galvus, is popularly used to treat type two diabetes by effectively reducing hyperglycemia. In China, it corresponds to patent CN99814202.6, granted in 2004 for an “N-substituted 2-cyanopyrrolidines compound” which was later licensed to Novartis’s subsidiary Sandoz. On the other hand, Hansoh—a Jiangsu Province-based pharmaceutical company focusing partly on drugs for chronic diseases—obtained marketing approval for its generic version of Vildagliptin in 2019. The company subsequently placed a bid for the tenders of pooled drug procurement contracts in at least Guangzhou, Fujian, Shangxi and Qinghai. Hansoh was alleged to have sponsored medical seminars by offering free bottled waters with customized labels advertising the generic product. Furthermore, Hansoh was alleged to have requested its employees to post recruiting advertisements on social media platforms for hiring new sales representatives who would be tasked with marketing said generic product. Sandoz sued and claimed CNY 616,340.

Fuzhou Intermediate People's Court—the trial court—found that Hansoh’s listing of its generic drug as a role of a bidder was an expression of its intention to sell the same to the medical institutes in the Fujian province and was therefore a form of offer for sale. On the opposite, the recruitment ads were not offers for sale, since they were not substantially related to the sale of a product.

Both Sandoz and Hansoh appealed.

In an appellate review, the Supreme People’s Court approached this case by answering two main questions.

For the first question, the court analyzed whether the application for a pooled procurement project was essentially an offer for sale. The answer was yes. The court began by characterizing the patterns of offer for sale as non-exhaustive, diversified and atypical, rather than referring to some customary stereotypes. The Beijing High Court’s 2017 Patent Infringement Determination Guidance and other dictates have defined an offer for sale as an act of "advertising", "displaying in a shop window" and "displaying at a trade fair". The court stressed, however, that these were no more than examples, while any forms of expression of commercialization to introduce a product to the market by any perceivable means—be they oral narrations, technical specs in writing, product demos or webpage showcasing, among others—can be understood as an offer for sale so long as they are accompanied with the mindful intention of selling a product to any specific or unspecified persons. In the present case, for one thing, the defendant undertook the associated activities to apply for or submit the required documents in order to make preparations in advance for the commercialization and market debut of its generic version drug. For another, the associated activities revealed the intent to supply the defendant’s own products to unspecified persons, such as its competitors, health authorities offering a centralized procurement project, or the public medical institutes who could be potential counterparties in subsequent purchase deals. Whether such an application would be approved or whether the drug product would be successfully listed on a procurement platform were not deemed to be consequential in defining an act as being an offer for sale.

The second question was whether Hansoh’s application for a pooled procurement was subject to the Bolar exemption, even if it constituted an offer for sale. The answer was no. The court reasoned that the Bolar provision applies only when an entity or an individual exploits a patent by “making, using or importing” for the sole purpose of seeking regulatory approval from the health authority. Notably, as early as 2000, China singled out “offer for sale” as being one particular type of infringing act. By contrast, China did not introduce the Bolar provision until 2008 with limited types of acts—only those involving “making, using or importing” are eligible — of which the offer for sale was not one. In view of the chronology of these events, the offer for sale was deliberately excluded from the scope of China’s Bolar provision at the time of law enactment. As a result, the Bolar provision had no role to exempt the defendant’s activities.

To conclude the case, the court comprehensively assessed the injury caused by the defendant Hansoh’s accused activities in Guangzhou, Xiamen, Nanchang, Sha’anxi and Qinghai, the costs incurred by the plaintiff Sandoz during enforcement, and the weight of evidence supporting Sandoz’s monetary claim. Damages of CNY 300,000 were ultimately awarded.

In a milestone judgment, the Supreme People’s Court ruled affirmatively to bring forward the offer for sale to the time that documents are submitted to bid for procurement tender; it is now not necessary to wait until a quotation for the drug product has been proposed. The conclusion of the judgment apparently favors the patentees of new drugs, since they may take necessary enforcement measures at an earlier stage.  

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