Pharmaceutical patent issues in Indonesia

Indonesia is South East Asia’s largest pharmaceutical market and its Ministry of Health has been actively looking to lower prices and attract more investment in the sector. Viewed within this context, it is clear that Indonesia’s 2016 patent law is set to have a major impact on the nation’s burgeoning pharmaceutical industry

In a Presidential Instruction dated 8 June 2016, the Indonesian President made clear his intention to increase the availability of affordable drugs through foreign investment and incentives to the pharmaceutical sector.

To attract this investment, the government has also removed the manufacture of active pharmaceutical materials (APIs) from the list of negative foreign investment. Furthermore, the promotion of raw pharmaceutical material production was included in the 11th Economic Stimulus Package of 2016.

These initiatives are intended to support the nationwide health insurance plan (Jaminan Kesehatan Nasional or National Health Insurance) started in 2014. By boosting affordability, the government hopes to counter the growing deficit currently encountered by the National Health Insurance system.

Perhaps a notable example of this new government initiative occurred in October last year, when state-owned pharmaceutical company Kimia Farma announced a deal with South Korea’s Sungwun Pharmacopia to build a facility for the production of raw materials, including Simvastatin, Atorvastatin, Rosuvastatin, Pantoprazole, Esomeprazole, Rabeprazole, Clopidogrel and Sarpogrelate.

In addition to meeting local demand, it is expected that these products will be exported to Korea, Japan and the USA. Certain generic-friendly provisions of the new patent law also appear to be in line with these initiatives.

Second medical use excluded 

The new law excludes the following from definition of inventions: new use of existing and/or known products, and new forms of known compounds that do not offer a significant increase in efficacy. The elucidation to the law clarifies that “existing and/or known products” includes compositions, formulae and compounds, whether still protected by a patent or already in the public domain. Second medical indications for a known compound will therefore not be patentable.

Although such inventions were previously allowed by using “Swiss-type claims” to get around the exclusion of medical treatment methods, this new exclusion means that such claims will no longer be allowed. Both exclusions suggest that Indonesia intends to follow the lead of other nations by taking a stance against “evergreening,” the practice of patenting new formulations of an existing drug.

   

Genetic source and traditional knowledge disclosure

There is now a requirement to disclose genetic sources or traditional knowledge relating to a patented invention’s origin. Although this appears to be a positive move in terms of governance, there remains concerns for pharmaceutical patents as it is not clear how to do this and what level of detail is needed.

It remains to be seen what guidance the Patent Office provides with regard to the level of disclosure necessary. As a patent can be invalidated for not disclosing genetic sources, pharmaceutical companies will be well-advised to monitor the implementation of this provision closely.

Compulsory licenses

The new patent law expands the scope of compulsory licenses to include the importation of patented products by the licensee applicant, as well as exporting patented pharmaceutical products to developing or under-developed countries in need of certain pharmaceutical products.

These revisions stand in contrast with the old law, wherein compulsory licenses only provided for exercise of the patent by the applicant/licensee, suggesting that the licensee would be the one practising the patent. Under the expanded scope of the new law, however, the licensee can import a patented drug sourced from a third party.

The Indonesian government has previously invoked the “government use” provision on a number of occasions, most notably whilst appointing state-owned enterprises in the procurement of drugs to treat HIV and Hepatitis B. As it stands, the government has never granted an “ordinary” compulsory license.

The World Trade Organisation (WTO) will have a chance to review Indonesia’s compliance with the Trade-Related Aspects of Intellectual Property Rights (TRIPS) provisions on Compulsory Licenses once the government notifies it of the new patent law.

Bolar provisions and the parallel import of pharmaceutical products

Under the old law, it was a legitimate defence in criminal proceedings for a third party to import a patented pharmaceutical product for the purpose of seeking marketing approval during the last 2 years of the patent term. The new law increases this period to 5 years and provides a defence in relation to both criminal and civil actions, thereby significantly protecting Indonesia’s Bolar provisions.

Whilst admirable, the concern remains that products purportedly shipped to Indonesia under the Bolar provisions may find their way into government hospitals as substitutes for patented drugs by patent holders. Rights holders must be vigilant in ensuring that the Bolar provision is not abused, especially around the time when the patent is due to expire.

The new law also allows for the parallel import of legally marketed patented pharmaceutical products from overseas markets. The elucidation to the new law explains that this provision has the objective to “maintain reasonable prices and fairness of access to pharmaceutical product is urgently required for human health.”

The criteria of “legally marketed” in the foreign country is unclear however. The Indonesian parallel import provision is not tied to the concept of consent from the IP owner in the overseas market. As a result, the term “marketed legally” might unintentionally include situations wherein a product is marketed legally for other reasons, such as when the patent holder did not file a patent in that country or because of compulsory licensing.

The overall aim of this new law is to ultimately make pharmaceutical products more accessible

Obligation to practice a patent in Indonesia

Article 20 of the new law states that a patent holder shall produce a product or use processes in Indonesia. It further provides in Article 20(2) that such manufacture or use of processes shall support technology transfer to attract investment and provide employment. This longstanding patent provision was transferred from previous laws and was intended to encourage local manufacturing.

Historically, however, this has been far from successful, as until now there has been no sanction — meaning unworked patents were not a concern to manufacturers. The new law is a departure from this, as Article 132 outlines that a patent may be revoked for non-compliance with Article 20.

 

Despite the fact that the only parties that may apply for revocation on this ground are the public prosecutor, a party representing Indonesia's national interest or a compulsory licensee, this provision represents the first attempt to enforce sanctions for a breach of Article 20. It will certainly be interesting to witness the impact this has in advancing the local pharmaceutical industry.

Criminal penalties

The new patent law introduces enhanced punishments in cases when an infringement results in damage to health and/or the environment: up to 7 years of imprisonment and/or a maximum fine of IDR 2 billion. When a death occurs, the punishment is further increased to up to 10 years of imprisonment and/or a maximum fine of IDR 3.5 billion.

Despite this renewed stringency, however, it remains to be seen how this will be implemented. This point is especially valid when it is considered that public prosecutions are exceedingly rare, owing to the complexity of criminal patent enforcement processes.

In conclusion

The everlasting concern with Indonesia has been the weak implementation of its IP laws. Whilst this new law requires all implementing regulations to be put into effect within 2 years, in the past many provisions remained unimplemented. Furthermore, the courts have traditionally only heard a handful of mainly mechanical patent cases, so pharma issues have yet to receive much judicial consideration. It remains to be seen whether this new legislation instigates any judicial vigour in the pharmaceutical arena.

The overall aim of this new law is to ultimately make pharmaceutical products more accessible. For operators in this field to take full advantage, increased co-operation with government and a good relationship with the Ministry of Health will prove to be critical assets in the years to come.