Case Study Questions(600 words minimum)

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Penelope Chan prepared this case under the supervision of Professor Zhigang Tao, Professor Shang-Jin Wei, Dr Yahong Li and Dr Jiangyong Lu for class discussion. This case is not intended to show effective or ineffective handling of decision or business processes.

© 2010 by The Asia Case Research Centre, The University of Hong Kong. No part of this publication may be reproduced or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise (including the internet)—without the permission of The University of Hong Kong. This case was developed jointly with Columbia Business School and appears as case #100303 in the Columbia CaseWorks collection.

Ref. 09/463C

YAHONG LI JIANGYONG LU ZHIGANG TAO SHANG-JIN WEI

VIAGRA IN CHINA: A PROLONGED BATTLE OVER INTELLECTUAL PROPERTY RIGHTS

I believe in terms of IPR protection, the Chinese government has a firm attitude and we hold a firm stance about combating IPR infringements. However, we must admit that IPR only has a history of some 20 years [in China].

- Wang Jingchuan, commissioner of China’s State Intellectual Property Office1

In April 1998, Pfizer Inc (“Pfizer”) launched Viagra, a prescription drug for treating erectile dysfunction, in the US and Europe with huge success. Chinese media worldwide started calling Viagra by a Chinese nickname, “ ” (“Weige”), meaning “Great Elder Brother”. One month later, Guangzhou Viamen Pharmaceutical Company (“Guangzhou Viamen”), a local company in China, registered “ ” (“Weige”) as its trademark. Genuine Viagra pills illegally imported from overseas and locally produced counterfeits soon began to flood the market. It was not until July 2000 that Pfizer was approved to sell Viagra in China, and the company was officially granted its patent for Viagra in September 2001. However, this patent was jointly challenged by 12 local companies within a month and became invalidated in July 2004. Meanwhile, Guangzhou Viamen had launched its independently developed erectile dysfunction drug using the “ ” (“Weige”) trademark and Viagra’s three-dimensional trademark (“3D trademark”).

Pfizer appealed for its patent right through the court in Beijing, and sued Guangzhou Viamen and its business partners for infringing Pfizer’s unregistered well-known trademark, “ ” (“Weige”), and its 3D trademark for Viagra. It won the 3D trademark and patent lawsuits in December 2006 and September 2007, respectively, but lost in the “ ” (“Weige”) trademark litigation in July 2009. These outcomes were not expected to affect Viagra’s 1 Ma, J. (19 May 2005) “Give Us More Time to Beat Piracy, Urges Official”, South China Morning Post.

HKU902

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09/463C Viagra in China: A Prolonged Battle over Intellectual Property Rights

meagre sales in China because counterfeiters, who copied from both Pfizer and its competitors, had reaped most of the market share since 1998. In late 2009, Pfizer’s management was trying to figure out what had gone wrong in its market entry strategy for Viagra, how to generate more sales before its patent in China expired in 2014, and what should be done to better protect the intellectual property rights (“IPR”) for the new drugs it would launch in the country.

Market Dynamics of the Global Pharmaceutical Industry

The global pharmaceutical industry was worth approximately US$740 billion in 2008.2 It was expected to grow at a compound annual rate of 8% to reach US$1,043 billion in 2012. North America was the biggest market, with a share of almost 48%, followed by Europe (30%) and Japan (9%).3 However, patent expiration of major drugs and increased usage of generics was expected to hamper growth in North America. Asia Pacific was projected to become the most lucrative region in the future because of a huge untapped population and strong economic growth in major countries.4 Research and development (“R&D”) investment for drugs was costly with high risk of failure, and it often took many years before a new drug could be launched. The R&D costs for a new drug launched in the US in 1994 2000 were around US$71 million to US$118 million on average.5 The most expensive class of new drugs, self- originated new chemical entities (“SNCEs”), were created entirely in-house by single drug companies. The average R&D cost for an SNCE was estimated at US$802 million.6

To decrease the risk associated with developing new drugs and to achieve economies of scale, many drug companies pursued a growth strategy of acquiring competitors that manufactured proven drugs. Such industry consolidation resulted in a few mega-sized global players, such as Pfizer, Sanofi-Aventis, GlaxoSmithKline Plc and AstraZeneca Plc. These companies increasingly relied on a few billion-dollar blockbuster drugs to generate most of their revenues. For example, Pfizer generated 60.5% of its pharmaceutical revenues from nine drugs in 2008 [see Exhibit 1]. To recoup the high R&D costs of these drugs, a premium pricing strategy was usually adopted. The resulting high gross profit margin made counterfeiting an attractive business. Therefore, most global drug companies invested substantial legal resources to protect their IPR through trademarks and patents.

Trademark Protection for Drugs A trademark was a visible sign that enabled people to distinguish the products or services of a company from those of others. It had to be used on the company’s products or their packaging, or in the services7 provided by its suppliers. Possible formats of a trademark included words, graphics, letters, numbers, 3D symbols8 and colour combinations, as well as combinations of these elements. Besides having trademarks in the form of words and logos, some key drugs were designed in specific shapes and colours with a 3D trademark. Unauthorised use of a trademark similar or identical to a registered trademark on similar or identical goods was 2 Pharma and Biotech Industry Reports (May 2008) “Breakdown of the Global Pharma Market”, http://www.pharma-

reports.com/shop/item.asp?affillink=UFM&itemid=317 (accessed 15 September 2009). 3 PRLog (2 October 2008) “Global Pharmaceutical Market Forecast to 2012”, http://www.prlog.org/10124036-global-

pharmaceutical-market-forecast-to-2012.pdf (accessed 15 September 2009). 4 Ibid. 5 Public Citizen, “Critique of the DiMasi/Tufts Methodology and Other Key Prescription Drug R&D Issues”,

http://www.citizen.org/congress/reform/drug_industry/articles.cfm?ID=6532 (accessed 17 September 2009). 6 This figure was compiled from 68 drugs launched in the US in the late 1990s by 10 drug companies. See: Ibid; Tufts Center for

the Study of Drug Development (1 November 2001) “Backgrounder: A Methodology for Counting Costs for Pharmaceutical R&D”, http://csdd.tufts.edu/NewsEvents/RecentNews.asp?newsid=5 (accessed 17 September 2009).

7 For example, the trademark of a courier company appeared on envelops provided to customers for putting their documents being couriered.

8 An example of a 3D symbol was Coca-Cola’s contoured bottle.

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09/463C Viagra in China: A Prolonged Battle over Intellectual Property Rights

deemed trademark infringement. However, a trademark registered in a particular class of products might be hijacked for use by another company in a different product class,9 except for well-known trademarks. Hence trademark protection for drugs was not always bulletproof.

Patent Protection for Drugs Global drug companies usually applied for multiple patents for a major drug, such as patents for its chemical ingredients, composition, production process and applications. After a drug’s patent expired, cheaper generic versions launched by other companies would lead to a rapid drop in its revenue [see Exhibit 2]. Therefore, drug companies tried to extend patent protection through product reformulations and upgrades. High drug prices resulting from patent protection had triggered heated debates on patent rights versus patients’ rights of access to life-saving medications, especially in developing countries. To make drugs more affordable to the public, some countries did not grant drug patents, while others only allowed short patentable periods or imposed compulsory licensing for low-priced generic versions. Differential pricing among countries often resulted in a gray market with parallel imports, posing financial threats to global drug companies.

China’s Pharmaceutical Industry and IPR Protection for Drugs

China’s population was 1.3 billion people, of which 450 million lived in cities and roughly 175 million belonged to the middle class.10 In 2008, China’s drug market was the world’s fifth-largest,11 with total revenues of US$24.5 billion. It was expected to grow by 22% per year to reach between US$68 billion and US$78 billion by 2013, making China the third- largest market, behind the US and Japan.12 Despite this huge market size, there was no billion- dollar blockbuster drug in China. Products of global companies accounted for about 20% of drugs sold in the country.13 It was estimated that 97% of drugs produced by local companies were generics or counterfeits.14 The proliferation of fake drugs posed serious threats to public health and had resulted in reputation damage to legitimate drug manufacturers. In 2001 alone, 192,000 patients were killed by fake drugs.15

Patent Protection for Drugs in China The Patent Office of China’s State Intellectual Property Office (“SIPO”) was responsible for processing patent applications [see Exhibit 3A]. There were three types of patents in the country: invention, utility model and design patents [see Exhibit 4]. A first-to-file system was adopted as opposed to a first-to-invent system like that of the US. Patent protection for pharmaceutical products had only been available since January 1993, after the first amendment to China’s Patent Law. Drug companies could apply for method-to-use 16 invention patents to protect the IPR of prescription drugs, but the review process of such patents required in-depth investigation by SIPO and often took a few years. In August 2000,

9 For example, a non-well-known trademark for a sleeping pill that helped people fall asleep much faster might be hijacked by

another company for its pillow products, or by a company that sold sleeping bags. Because these products would be in a totally different product category, usage of the same trademark as a drug would not constitute trademark infringement.

10 Yuan, R. (15 April 2007) “Pharmaceutical Operations Expand in China”, Genetic Engineering and Biotechnology News, 27 (8), http://www.genengnews.com/articles/chitem_print.aspx?aid=2098&chid=4 (accessed 2 September 2009).

11 The top four countries were the US, Japan, Italy and Germany. 12 China Daily (24 August 2009) “Pharmaceutical Giants Eye China’s Booming Market”. 13 Ostrow, N. and Ying, T. (29 September 2004) “Pfizer Fights Revocation of Viagra Patent by Chinese”, National Post. 14 Wu, Y. and Labwu, Z. (1 November 2007) “Protect Your Patent Rights in China”, PharmaAsia,

http://www.pharmaasia.com/article-6659-protectyourpatentrightsinchina-Asia.html (accessed 2 September 2009). 15 In-Pharma Technologist (14 March 2005) “One in Seven Drugs Fake Worldwide, Claims Report”, http://www.in-

pharmatechnologist.com/Industry-Drivers/One-in-seven-drugs-fake-worldwide-claims-report (accessed 2 September 2009). 16 Such a patent applied to a new use of a pharmaceutical compound which itself might not necessarily be novel.

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09/463C Viagra in China: A Prolonged Battle over Intellectual Property Rights

China’s Patent Law was amended a second time in order to comply with the TRIPS 17 agreement of the World Trade Organisation (“WTO”) [see Exhibits 5A and 5B]. Article 26 of the amendment required information disclosure for invention patents and utility model patents [see Exhibit 5C]. Patent protection for specific chemical compounds was introduced, but compounds had to be novel in order to qualify for an invention patent.

Under Article 45, a request for invalidating a patent could be filed with the Patent Re- Examination Board (“PRB”) of SIPO at any time after it was granted. Possible grounds for invalidation included lack of novelty and inventiveness, insufficient information disclosure, and unsupported patent claims [see Exhibit 5D]. Companies that disagreed with a ruling by the PRB could appeal to a court [see Exhibit 3B]. According to government statistics released in 2005, one in 10 of such appeals succeeded.18 Pharmaceutical companies were amongst the first to engage in patent litigation in China due to the large financial investments at stake. However, ineffective IPR protection remained one of the major concerns for foreign companies due to lax law enforcement, government bureaucracy, local protectionism and corruption in the country. On the other hand, most pharmaceutical patents in China were filed by manufacturers of traditional Chinese medicines, and were often generic-type utility model patents that did not represent major pharmaceutical innovation or R&D investment. These patents were typically approved without substantive review by SIPO.19

Trademark Protection for Drugs in China The Trademark Office of SIPO handled trademark applications and related issues. Under China’s first-to-file trademark system, a trademark application would be approved by SIPO, after which other companies could file an objection with the Trademark Review and Adjudication Board (“TRAB”) within three months. Possible grounds for invalidating a trademark included lack of distinctiveness, violation of the non-conflict principle between trademarks, and direct indication of certain characteristics of the products [see Exhibit 6]. According to Article 11, paragraph 2 of China’s Trademark Law, the trademark for a pharmaceutical product was not allowed to indicate the drug’s potency or superior functions. Companies that disagreed with a ruling by TRAB could request judicial review at the court.

Under Article 13 of China’s Trademark Law, a small number of well-known trademarks were protected by their first-to-use trademark rights [see Exhibit 7A]. The criteria for being classified as a well-known trademark depended on a trademark’s reputation, duration of use, geographical scope of publicity, history of protection as a well-known trademark, and other factors contributing to its reputation. Application for the recognition of a well-known trademark could be made only when a trademark dispute occurred and a request for special protection of a well-known trademark had been filed with SIPO, or when a well-known trademark was recognised by the court in litigation.20 Under China’s Anti-Unfair Competition Law, unauthorised use of the trademark and packaging of another company’s well-known products, or making false representation as to the manufacturer and place of origin of the goods produced by another company, constituted unfair competition.

If a registered trademark had not been used for three consecutive years, other companies could file a request with the Trademark Office for its cancellation. It was therefore advisable

17 TRIPS was the World Trade Organisation’s Agreement on Trade-Related Aspects of Intellectual Property Rights, which was

formulated in the 1986–1994 Uruguay Round of multilateral negotiation. This agreement introduced intellectual property rules into the global trading system for the first time.

18 Zamiska, N. (3 June 2006) “Beijing Court Backs Patent Protection for Viagra”, Wall Street Journal. 19 Hobbs, M. (5 June 2006) “First Global IP Forum in China Sparks Interest”, Law.com,

http://www.law.com/jsp/law/LawArticleFriendly.jsp?id=900005549663 (accessed 2 September 2009). 20 Hong Kong Trade Development Council (2005) Practical Guide to IPR Protection in China: How to Protect Your Brand, 1st

Edition, TDC Research: Hong Kong, pp. 60 61.

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09/463C Viagra in China: A Prolonged Battle over Intellectual Property Rights

for a company to retain evidence of using its trademarks in its products or services in case any dispute occurred. A mere statement of use was not sufficient to prevent cancellation of an idle trademark.21

Pfizer’s Global Launch of Viagra

Pfizer was a research-based global drug company based in New York. It had achieved rapid growth through acquisition starting in 2000,22 and in 2004 became the world’s largest drug company in terms of revenue [see Exhibit 8]. Its R&D expenses amounted to 15.3 16.8% of its revenues in 2002 2008.

Viagra: The First Erectile Dysfunction Drug in Pill Form Erectile dysfunction was one type of male impotence in which the penis failed to become erect during sexual intercourse. This symptom was caused by insufficient increase in blood flow to the penis due to factors such as cardiovascular problems, enlarged prostate glands, taking certain medications, stress, depression and aging. Smoking and excessive alcohol consumption also increased the risk of having this problem. It was estimated that around half of men over 40 had at least mild or occasional erectile dysfunction. The percentage of sufferers increased with age and almost all men over 80 were affected. Nevertheless, typical users of related drugs were married men in their early 60s who wanted to maintain their sex lives.23

In the early 1990s, Pfizer had been conducting research on a chemical called sildenafil24 for treating hypertension and other cardiovascular diseases. In clinical trials, sildenafil failed to generate the expected results, but some male patients experienced erection under certain dosages. Pfizer developed this chemical into an erectile dysfunction drug named Viagra [see Exhibit 7B for photo]. Viagra was first launched in the US in April 1998 at a retail price of US$10.00 per 50mg pill. Other erectile dysfunction drugs available were either administered via injection or applied topically, whereas Viagra was a pill that could be easily administered orally. Aided by widespread media coverage and references in racy comedies on late-night television, Viagra took the market by storm, with over US$1 billion in sales in 1999 [see Exhibit 8B]. In November 1999, it accounted for 92% of new prescriptions for treating erectile dysfunction in the US.25 Although the total R&D costs of Viagra exceeded US$1 billion26, any good-sized drug company would be able to manufacture sildenafil, Viagra’s active ingredient.

How Viagra Worked and Its Patent Protection Phosphodiesterase type 5 (“PDE5”) was an enzyme that constricted blood vessels in the penis. The active ingredient in Viagra, sildenafil, worked by inhibiting the activity of PDE5. This resulted in an increase in blood flow to the penis, facilitating erection upon sexual stimulation. Viagra had relatively few side effects and it worked about 70% of the time.27 After ingestion, it took 30 minutes for the drug to take effect, after which it remained effective for around four 21 Ibid, pp. 50 52. 22 Pfizer’s major acquisitions included the Warner-Lambert Company in 2000, Pharmacia Corporation in 2003 and Wyeth

Pharmaceuticals in 2009. It had also acquired many small- and medium-sized drug companies and biotechnology firms. 23 Berenson, A. (4 December 2005) “Sales of Impotence Drugs Fall, Defying Expectations”, New York Times. 24 The full chemical name of this compound was sildenafil citrate, hereafter referred to as “sildenafil” for simplicity. 25 Keith, A. (March April 2000) “The Economics of Viagra”, Health Affairs, 19 (2), pp. 147–157,

http://content.healthaffairs.org/cgi/reprint/19/2/147 (accessed 9 September 2009). 26 (2005 1 18 ) “‘ ’ ‘ ’ ”, [Mei, L. (18 January 2005)

“Contentions in the ‘Weige’ Litigation: ‘Battle between Standards’ is the Critical Force Behind”, China Economic Weekly], http://media.163.com/05/0118/13/1ACOT0SR0014180O.html (accessed 13 August 2009).

27 Berenson, A. (4 December 2005) “Sales of Impotence Drugs Fall, Defying Expectations”, New York Times.

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09/463C Viagra in China: A Prolonged Battle over Intellectual Property Rights

hours. However, Viagra would not increase sexual desire or enhance the sexual experience for normal men. It mainly catered to those who were sexually aroused but unable to achieve erection in a natural way. People taking other drugs that contained nitrates were advised not to take Viagra, and those over 65 or having certain medical conditions28 were recommended to take a low dosage of 25mg for safety reasons.

In June 1993, Pfizer filed a patent (“First Patent”), titled “Pyrazolopyrimidinones for the Treatment of Impotence”, in the UK. This patent covered the whole class of phosphodiesterase (“PDE”) chemicals, which included sildenafil, for oral treatment of erectile dysfunction.29 In May 1994, Pfizer filed a PCT application30 for sildenafil in treating erectile dysfunction. Because the novel usage of sildenafil was for cardiovascular disorders, this patent had to be a “second-use” invention patent. However, this patent was turned down in countries including Bolivia, Columbia, Ecuador, Peru and Venezuela because they did not allow second-use pharmaceutical patents.31

Meanwhile, other major drug companies began researching alternative PDE5 inhibitors for treating erectile dysfunction. In 2000, Lilly ICOS LLC (“Lilly”) challenged the validity of Pfizer’s First Patent filed in the UK in 1993 because this patent would prohibit the launch of erectile dysfunction drugs developed by other drug companies based on a PDE5 inhibitor other than sildenafil. Lilly submitted evidence of three research studies on the effect of PDE chemicals in relaxing the smooth muscles of blood vessels, all of which had been published before Pfizer’s patent application.32 Thus the patent was invalidated in the UK in November that year because it was based on knowledge already in the public domain before it was granted.33 Pfizer failed in its appeal in the British High Court in January 2002.34 Another similar patent also became invalidated by the European Patent Office, but Viagra was protected against generic versions in these places by Pfizer’s patent on the sildenafil chemical compound. On the whole, Viagra was still patent-protected in most large markets.

Turbulence Prior to Viagra’s Launch in China

In China, around 74% of men aged 60 69 suffered from erectile dysfunction [see Exhibits 9A, 9B and 9C]. In 2004, the potential market size of erectile dysfunction drugs was estimated to be between US$7.2 billion and US$12.0 billion35.36 According to Professor Wang Yixin of

28 Such medical conditions included serious liver or kidney problems, high blood pressure, heart disease and prostate problems.

See: Viagra.com, “Safety”, http://www.viagra.com/viagra-safety.aspx (accessed 19 September 2009). 29 Castellano, R. (2006) “Patent Law for New Medical Uses of Known Compounds and Pfizer’s Viagra Patent”,

IDEA Intellectual Property Law Review, 46 (2), pp. 283 315. 30 A PCT application was a single filing of an international patent application under the Patent Co-Operation Treaty (“PCT”),

formulated in 1970. A preliminary search would be conducted by the International Searching Authority to verify the patentability of the invention submitted in a PCT application, after which each signatory country would handle the patent examination and grant procedures independently. China acceded to this treaty in November 1993.

31 Andrews, J. (2006) “Pfizer’s Viagra Patent and the Promise of Patent Protection in China”, Locke Lord Bissell & Liddell LLP, http://www.lockelord.com/files/News/ab9ebdd4-621f-4432-a383-1cae37df9ea1/Presentation/NewsAttachment/c5a9d67e- bdd9-4c7e-97e9-1d6efb6314dc/Andrews_Pfizers%20Viagra%20Patent.pdf (accessed 2 December 2009).

32 The three documents submitted were: J. Rajfer et al. (1992) “Nitric Oxide as a Mediator of Relaxation of the Corpus Cavernosum in Respect to Nonadrenergic, Noncholinergic Neurotransmission”, New England Journal of Medicine; Murray, K. (1993) “Phosphodiesterase VA Inhibitors”, Drug News and Perspectives; Bush, M. (1993) “The Role of the L-Arginine- Nitric-Oxide-Cyclic GMP Pathway in Relaxation of Corpus Cavernosum Smooth Muscle”, Ph.D. Dissertation, University of California, Los Angeles. See: Ibid.

33 CNN (8 November 2000) “Pfizer Loses U.K. Patent”, http://money.cnn.com/2000/11/08/worldbiz/pfizer/index.htm (6 November 2009).

34 Kyne, P. (8 July 2004) “Pfizer Overturned by China”, Wall Street Journal. 35 US$1 = Rmb 8.28. From 1994 to July 2005, Rmb had been pegged to the US dollar at this rate. For simplicity, this rate was

used throughout this business case, though the Rmb had increased in value against the US dollar since July 2005. 36 (2004 4 12 ) “ ”, [Teng, C. (12 April 2004) “Yi Le Enters

Market with Extra-Low Price. Battle Resumes in China’s Weige Market”, China News], http://www.chinanews.com.cn/n/2004-04-12/26/424179.html (accessed 13 August 2009).

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09/463C Viagra in China: A Prolonged Battle over Intellectual Property Rights

Shanghai Second Medical University, there were a few key misunderstandings of erectile dysfunction in China: that it was not related to health, that it could not be healed, and that treatment was prohibitively embarrassing. On average, sufferers who came to hospitals to seek proper treatment only did so 22 months after onset, and those who did were just 3 10% of total sufferers.37 Many patients were inclined to use unregulated, non-clinical means of treatment instead. This was due partly to conservative social attitudes towards sex and sexual dysfunction, and partly to strong preferences for traditional Chinese medicines, which were credited with having fewer side effects than Western drugs. A wide range of herbal aphrodisiacs were available as health supplements, containing ingredients such as snake, the penis of deer or goats, and the bile of bears.

Pfizer’s Patent Application for Viagra in China In December 1995, SIPO’s Patent Office began processing Pfizer’s patent application for sildenafil in China [see Exhibits 10 and 11]. Two types of forms were required for pharmaceutical patent applications in the country: the Right Request Form ( ), which explained the functions of the drug’s active chemical ingredients, and the Patent Description Form ( ), which contained laboratory data on the drug’s chemical ingredients.38 Because patents for specific chemical compounds were not available in China at that time, Pfizer applied for a method-to-use invention patent instead. Its patent application described nine preferred individual compounds, including sildenafil citrate, and stated that these compounds were useful in the treatment of erectile dysfunction and that one of the preferred compounds induced erections in impotent men.39 Pfizer had filed the patent claims with the following appropriate wording:40

The use of a compound of formula (I) or a pharmaceutically acceptable salt thereof, or a pharmaceutical composition containing either entity, for the manufacture of a medicament for the curative or prophylactic treatment of erectile dysfunction in a male animal, including man.

- Pfizer’s application to patent Viagra in China41

This patent was a second-use invention patent in which the compound itself was not a novel one. Both first-use and second-use patents for pharmaceutical compounds were allowed under China’s Patent Law.42 However, because Pfizer had not yet started local clinical studies for Viagra, its patent application did not contain relevant clinical data.

37 (2005 6 21 ) “ ”, 21 [Shi, Y. (21 June 2005) “Four

Pharmaceutical Giants Gather in China’s Market to Compete for Weige”, 21st Century Business Herald], http://media.163.com/05/0621/12/1MP5CVEK00141EQ2.html (accessed 13 August 2009).

38 (2005 1 18 ) “‘ ’ ‘ ’ ”, [Mei, L. (18 January 2005) “Contentions in the ‘Weige’ Litigation: ‘Battle between Standards’ is the Critical Force Behind It”, China Economic Weekly], http://media.163.com/05/0118/13/1ACOT0SR0014180O.html (accessed 13 August 2009).

39 Wise, M., Wang, Z. and Zhu, J. (12 September 2005) “Functioning Well”, China Daily. 40 Claims had to be drafted in the form: “Use of sildenafil citrate in the preparation of pharmaceuticals against male erectile

dysfunction”, but not in the form “Use of sildenafil citrate for treatment of male erectile dysfunction”. The latter form was regarded as a patent on a treatment for disease, and this type of patent protection was not recognised under China’s Patent Law. In contrast, the US patent for Viagra directly claimed the process of the treatment: “A method of treating erectile dysfunction in a male animal, comprising administering to a male animal in need of such treatment an effective amount of a compound of formula (I).” See: Andrews, J. (2006) “Pfizer’s Viagra Patent and the Promise of Patent Protection in China”, Locke Lord Bissell & Liddell LLP, http://www.lockelord.com/files/News/ab9ebdd4-621f-4432-a383- 1cae37df9ea1/Presentation/NewsAttachment/c5a9d67e-bdd9-4c7e-97e9- 1d6efb6314dc/Andrews_Pfizers%20Viagra%20Patent.pdf (accessed 2 December 2009).

41 Ibid. 42 Ibid.

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09/463C Viagra in China: A Prolonged Battle over Intellectual Property Rights

Media Hype over “ ” (“Weige”) before Viagra’s Launch in China

Compared to the original translation of Viagra as “ ” [“Mighty and Strong”], “ ” [“Weige”, meaning “Great Elder Brother”] is more subtle and more imaginative. This name allows users to forget about their original health problem, and at the same time addresses the emotional and psychological needs43 of women.44

- Comment by a Chinese journalist45

In mid-1996, the US media started to report that Pfizer’s new impotence drug, Viagra, was undergoing the final stages of clinical trials and would be ready for launch soon. 46 The upcoming launch of Viagra quickly became a hot topic around the world. In May 1997, Pfizer filed an application with SIPO for Viagra’s Chinese trademark to be “ ” (literally, “Mighty and Strong”). The third Chinese character, “ ”, could also mean “firm”. Because the hardness of the penis during erection was one of the major factors affecting the quality of sexual experience, 47 this trademark was deemed to contain sexually explicit connotations, which were generally not allowed by the Chinese authorities. In addition, it violated Article 11, paragraph 2 of the Trademark Law, which forbade any direct indication of a drug’s potency or superior functions. The application was turned down by SIPO’s Trademark Office. Pfizer then filed to trademark another name, “ ” (“Wanaike”), which was pronounced similarly to “Viagra” but had no particular meaning in Chinese. This trademark was approved and used by Pfizer in China, but in Hong Kong48 and Taiwan, the traditional Chinese version of “ ” (“Mighty and Strong”) was used instead.

On 30 April 1998, World Journal ( ), a popular Chinese newspaper in North America, referred to Viagra by a Chinese nickname, “ ” (“Weige”), in reporting the drug’s brisk sales in the US. The name was a near homophone of “Viagra” that literally meant “Great Elder Brother”. Chinese people often added “ ” (meaning “elder brother”) at the end of someone’s name as a gesture of affection and respect, while “ ” (meaning “great”, “grand” or “competent”) was commonly used in Chinese names. Chinese-language newspapers in China and abroad quickly followed suit, using “ ” (“Weige”) in their reporting. This name was well received because the subtlety of its implication of a wonderful sex life was well in line with conservative Chinese attitudes towards sex.

Around one month after Viagra’s launch in the US, genuine pills were illegally imported into China for sale on the black market through sex shops, nightclubs and local pharmacies. Some mongers even touted the pills on the streets of major cities such as Guangzhou and Shenzhen,

43 In China, a woman might refer to her boyfriend, partner or spouse in a more affectionate way by adding “ ” (“brother”) after

his name. The “emotional and psychological needs of women” referred to such an expression of affection by women towards their spouses.

44 The original comment in Chinese was: “‘ ’ (Viagra ‘ ’ ”

45 (2006 4 6 ) “ ‘ ’(Zest) ‘ ’ ” [Commercial Field (6 April 2006) “‘Zest’ from P&G: Plots of Mythical ‘Sex Appeal’ in Marketing”], http://www.1628.cn/newview.asp?id=1587 (accessed 13 August 2009).

46 For an example of related news, see: Anita, M. (6 May 1996) “New Pill May Relieve Impotence”, USA Today. 47 In a global survey, men identified three of the most important elements of a satisfying sexual experience as the hardness,

timing, and the ability to maintain an erection. See: Viagra.com, “About Viagra”, http://www.viagra.com/ (accessed 19 September 2009).

48 Hong Kong, a city in southern China, had been a British colony before it was handed over to China in July 1997 as a special administrative region. The city maintained its own set of laws and judicial system. Companies had to submit separate applications for patents and trademarks to Hong Kong’s authorities for protection in the city.

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09/463C Viagra in China: A Prolonged Battle over Intellectual Property Rights

fetching prices as high as US$60 per 50mg pill, a high premium compared to US$10 for the same pill being sold in the US.49

Fight among Local Firms to Trademark “ ” (“Weige”)

Between May 1998 and March 1999, a total of 43 local companies submitted applications to SIPO’s Trademark Office for the “ ” (“Weige”) trademark.50 Guangzhou Viamen51 (

) was the first company to do so, on 20 May 1998 [see Exhibits 10 and 12]. It also applied for more than 10 other trademarks at the same time, including “ ” (“Great Elder Sister”), “ ” (“Great Man”) and “ ” (“Great Lady”). 52 Hunan Dourui Pharmaceutical Company Limited ( ) and Shenyang Feilong Company ( ) (“Shenyang Feilong”) came second and third, respectively.53 It was not until 12 August 1998 that Pfizer applied for this trademark in China, though it had filed for another version of this trademark in traditional Chinese characters54 at Hong Kong’s Trademark Office on 29 May 1998.55

While SIPO was still processing the applications for the “ ” (“Weige”) trademark, Shenyang Feilong made a false announcement on 25 December 1998 that it had obtained the trademark right for “ ” (“Weige”) and launched its own independently developed impotence drug with the “ ” (“Weige Kaitai”) trademark in 27 cities and provinces. The company also spent a substantial amount of advertising dollars on marketing this drug. As a result, rather than referring exclusively to Viagra, “ ” (“Weige”) quickly became a metonym for the entire category of erectile dysfunction drugs in China. In response, Pfizer declared that the company had no relation to this drug and would explore any possible trademark infringement. On 29 March 1999, the China State Food and Drug Administration (“CSFDA”) issued an urgent notice banning all fake drugs being sold as “ ” (“Weige”), stating that “ ” (“Weige”), with the English name “Viagra”, was a drug produced by Pfizer and that, except those products under clinical trial in certain hospitals, all drugs claiming to be “ ” (“Weige”) in the market were fake. 56 This order was initially interpreted as targeting counterfeits of Viagra in China, and was unrelated to Shenyang Feilong’s product. As a result, this ban effectively boosted the sales of (Weige Kaitai) to a new high. However, the CSFDA issued another urgent notice on 16 April 1999 ordering Shenyang Feilong to recall all products identified as “ ” (“Weige Kaitai”) within a month.57 As of this date, US$7.2 million worth of this drug had been sold.58

49 (2005 10 17 ) “ ” [China Tobacco Net (17 October 2005) “Battle Over Weige”],

http://manage.16888.com.cn/200510/20051017175356_1.htm (accessed 13 August 2009). 50 (2002 8 16 ) “‘ ’ ” [China News (16 August 2002) “First

Trial for ‘Weige’ Trademark. Local Version of New Drug for Erectile Dysfunction is Coming Soon”], http://edu.beelink.com.cn/20020816/1185459.shtml (accessed 13 August 2009).

51 Guangzhou Viamen was jointly owned by China Pharmaceutical University ( ) and Sinopharm Group ( ). See: Ibid.

52 (2003 8 5 ) “‘ ’ ”, [Li, W. and Bai, Y. (5 August 2003) “Fight between Local and Foreign Companies for Weige is Poised to Restart”], WCC Daily, http://www.wccdaily.com.cn/2003/08/05/200308055225742383266.htm (accessed 13 August 2009).

53 (2005 10 17 ) “ ” [China Tobacco Net (17 October 2005) “Battle Over Weige”], http://manage.16888.com.cn/200510/20051017175356_1.htm (accessed 13 August 2009).

54 There were two sets of Chinese characters. Simplified Chinese characters were used on the Chinese mainland, while traditional Chinese characters were used in Taiwan, Hong Kong and Macau.

55 Pfizer’s trademark application in Hong Kong was approved on 7 September 1999. 56 (2006 12 30 ) “

” [Peking University Center for Legal Information (30 December 2006) “Pfizer Inc Sued Beijing Health New Concept Pharmacy and Others for Unfair Competition and Infringement of Unregistered Well-Known Trademark”], http://vip.chinalawinfo.com/Case/displaycontent.asp?Gid=117515760&Keyword=%BB%D4%C8%F0 (accessed 19 September 2009).

57 O’Neill, M. (17 April 1999) “Beijing Slaps Ban on Leading Viagra-Style Drug”, South China Morning Post.

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09/463C Viagra in China: A Prolonged Battle over Intellectual Property Rights

Court Battles over Viagra’s Patent and Trademark

In July 2000, the CSFDA granted Pfizer permission to sell Viagra in China. The drug was priced at US$11.80 per 50mg pill and US$15.50 per 100mg pill [see Exhibit 13]. However, Viagra was classified by China’s Ministry of Health as a controlled substance, which prohibited advertising and restricted the drug’s sales to certain types of hospitals. Only a few doctors in specific hospital wards were allowed to prescribe the drug [see Exhibit 14].

Challenge by Local Firms of Pfizer’s Patent In September 2001, Pfizer’s patent for Viagra was approved by SIPO. By that time, more than 20 local drug companies in China had been conducting research on producing sildenafil. It was estimated that Viagra’s patent would cost these companies US$2.9 billion in market share.59 However, a manager at Pfizer’s Beijing office said that this estimate was exaggerated, because China only contributed less than 0.5% of Viagra’s worldwide sales of US$1.3 billion in 2000.60 Within a month after Pfizer’s patent was granted, 12 leading local drug companies jointly challenged its validity for failing to fulfill the novelty requirement in Article 22 of China’s Patent Law [see Exhibit 5C]. They claimed that sildenafil had been a known chemical ingredient for a long time, and that Viagra had been developed from a medicine for heart disease and high blood pressure.61 This argument was deemed unsound because Pfizer’s patent was a second-use invention patent, which did not require that the chemical compound itself be newly discovered.

Guangzhou Viamen Granted the “ ” (“Weige”) Trademark

On 21 June 2002, Guangzhou Viamen’s application for the “ ” (“Weige”) trademark was approved by SIPO. The intangible brand equity of this trademark was estimated by analysts to be between US$85 million and US$120 million.62 Pfizer filed an objection to this trademark approval with TRAB in mid-September. In response, Guangzhou Viamen’s spokesperson said that the translation of “Viagra” into “ ” (“Weige”) by the local media did not imply that it was Pfizer’s legal trademark, and that Guangzhou Viamen’s ownership of this trademark was in full compliance with China’s law.63 TRAB upheld the decision of the Trademark Office in granting Guangzhou Viamen the right to the trademark.

In September 2003, Guangzhou Viamen started selling its independently developed erectile dysfunction drug with the “ ” (“Weige”) trademark. The drug’s active ingredient was phentolamine mesylate,64 which could relax the smooth muscles surrounding blood vessels to increase blood flow. Shanghai Dongfang Pharmaceutical Company Limited (

) (“Shanghai Dongfang”) was authorised to manufacture this drug, while Beijing Health New Concept Pharmacy ( ) (“Beijing Health”) was licensed as the drug’s distributor. The pill’s appearance and the shape of its packaging were very similar to Viagra’s blue, diamond-shaped 3D trademark, which was granted to Pfizer by 58 Ibid. 59 Asiainfo Daily China News (6 September 2002) “Patent Right of Viagra in Dispute”. 60 Ibid. 61 Ang, A. (6 Dec 2002) “Local Firms Seeking to Overturn Patent for Viagra in China”, Associated Press. 62 (2003 9 22 ) “ ‘ ’ ”, [Ho, S. and Huang, D.

(22 September 2003) “Pfizer Raises Objection. ‘Weige’ Trademark Falls Back into Uncertainty”, Information Times], http://finance.anhuinews.com/system/2003/09/22/000448627.shtml (accessed 13 August 2009).

63 (2003 8 5 ) “‘ ’ ”, [Li, W. and Bai, Y. (5 August 2003) “Local– Foreign Fight for Weige is Poised to Restart”], WCC Daily, http://www.wccdaily.com.cn/2003/08/05/200308055225742383266.htm (accessed 13 August 2009).

64 In the US, phentolamine mesylate was approved by the Food and Drug Administration for use as an anti-hypertension medication administered through intravenous and intramuscular injection. See: National Institutes of Health, “Phentolamine Mesylate”, http://dailymed.nlm.nih.gov/dailymed/drugInfo.cfm?id=1013 (accessed 9 September 2009).

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09/463C Viagra in China: A Prolonged Battle over Intellectual Property Rights

SIPO on 28 May 2003. A two-dimensional logo derived from this 3D trademark was also used on Guangzhou Viamen’s website. Guangzhou Viamen aimed to achieve sales of US$48.3 million in the first year. Viagra’s estimated revenue in China was US$9.7 million in 2002, while its counterfeits generated sales of around US$48.3 million in the same year.65

Invalidation of Pfizer’s Patent From the very beginning, when Pfizer applied for the patent, their application had shortcomings. The application didn't include sufficient data and clinical examples.

- Li Shunde, deputy director of the intellectual property centre at the Chinese Academy of Social Sciences66

In September 2002, the PRB began investigating a request filed by 12 local companies to invalidate Pfizer’s patent. During the re-examination hearings, these companies cited the same evidence used by the British High Court in invalidating Pfizer’s First Patent filed in the UK, and submitted the following reasons to support their request for invalidating Pfizer’s patent for sildenafil in China:67 • The technical solution of the patent possessed neither novelty nor inventiveness in light of

the references they had obtained. • The amendments to the claims went beyond the original disclosure of the specification.68 • On 17 June 2002, the House of Lords in England had declared the patent right of Viagra

filed by Pfizer to be invalid.

However, there had been no prior publication indicating sildenafil’s possible usage in treating erectile dysfunction, which might challenge the novelty or inventiveness of the technical solution of Pfizer’s patent in China. Moreover, this patent only covered sildenafil, and not the whole class of PDE chemicals as in the First Patent. This made it difficult to use previous research studies on PDE, which had been used as evidence in the patent invalidation case in the UK, to attack Pfizer’s patent for sildenafil in China.69 The only disputable item left was the patent’s clarity and sufficiency of disclosure.

In July 2004, the PRB officially invalidated Pfizer’s patent for Viagra due to insufficient information disclosure on sildenafil in Pfizer’s patent application, specifically the lack of concrete experimental data for this chemical. Under Article 26, paragraph 3 of China’s Patent Law [see Exhibit 6], the patent required description of “the invention or utility model in a manner sufficiently clear and complete, so as to enable a person skilled in the relevant art of technology to carry out.” SIPO ruled that the description for sildenafil in Pfizer’s patent did not satisfy this criterion.70

Pfizer had originally planned to launch 15 novel drugs in China over the next five years, including drugs for treating major illnesses such as cardiovascular, neurological and infectious diseases and arthritis. Upon SIPO’s ruling, Pfizer expressed its hesitation to make

65 (2003 9 22 ) “ ‘ ’ ”, [Ho, S. and Huang, D.

66 Zamiska, N. (3 June 2006) “Beijing Court Backs Patent Protection for Viagra”, Wall Street Journal. 67 Beijing Sanyou Intellectual Property Agency (2002) “Case to Invalidate the Patent Right of Viagra on Trial”, Sanyou IP

Newsletter, 13 (4). 68 The original filing of Pfizer’s patent application did not contain laboratory data of sildenafil. Such data were added through

amendments at a later stage. 69 Castellano, R. (2006) “Patent Law for New Medical Uses of Known Compounds and Pfizer’s Viagra Patent”, IDEA-

Intellectual Property Law Review, 46 (2), pp. 283–315. 70 Wise, M., Wang, Z. and Zhu, J. (12 September 2005) “Functioning Well”, China Daily.

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09/463C Viagra in China: A Prolonged Battle over Intellectual Property Rights

future investment in the country, saying: “[Pfizer] is extremely disheartened by this recent action. The company noted that appropriate intellectual property protection is essential to these plans.”71 This ruling also triggered grave concern among other foreign companies with investments in China. The American Chamber of Commerce said in its statement: “Domestic competitors have violated the issued patent and sold their products illegally. The overall impression left by this decision is that China is not committed to enforcing existing patents and can invalidate them at will to ensure the protection of domestic drug manufacturers.”72

Local drug companies, of which around 15 were capable of producing sildenafil, took SIPO’s ruling as a green light for generic versions of Viagra, and at least six companies filed applications with SIPO for related production licenses in the same month.73 If approved, the retail price of the generics was expected to be around US$2.70 per 50mg pill,74 equal to that of low-end counterfeits without any sildenafil [see Exhibit 13]. The production of a generic pill cost US$0.12 in China,75 making the net profit very attractive. This high-profile patent invalidation case and its impacts were widely reported in the local media. In the following month, prescription restrictions for Viagra were significantly relaxed by the authorities and Pfizer was permitted to sell the drug through local pharmacies [see Exhibit 14], though these measures failed to significantly increase Viagra’s meagre sales in the country.

Pfizer’s Defence of Viagra’s Patent The information they say we didn't submit was not asked for at the time we were granted the original patent. We think we have a strong case.

- Bryant Haskins, a spokesperson for Pfizer76

In September 2004, Pfizer defended its patent right by filing a court case against SIPO with the Beijing First Intermediate People’s Court (“BFIPC”). Such a move was not common among foreign companies due to concerns of publicly challenging government bodies. SIPO insisted that its ruling was in line with similar decisions made by the British High Court and the European Patent Office.77 Regarding Pfizer’s appeal through the court, Liu Zhurong of Diao Ao pharmaceutical group said: “Pfizer has monopolised the Chinese market for three years. If the patent case cannot be dealt with quickly, Chinese producers will suffer.78 The foreigners will profit from that.”79

In its legal defence for Viagra, Pfizer had hired Xu Guowen ( ), a legal expert who had previously worked at SIPO, to be its attorney. Xu argued the case in terms of a change in legal standards due to the second amendment to China’s Patent Law in August 2000. The requirement for sufficient information disclosure in Article 26 was newly added. Before this amendment, the laboratory data claimed to be missing in Pfizer’s patent description were not required, and this patent had been granted without them. Xu said: “‘No ex post facto legislation’80 ( ) is a fundamental legal principal. If SIPO had completed the 71 Kynge, J. (7 July 2004) “China Overturns Pfizer”, Financial Times. 72 Collier, A. (20 July 2004) “Patent Blow for Pfizer as Impotence Drug Gets Cold Shoulder”, South China Morning Post. 73 Kynge, J. (7 July 2004) “China Overturns Pfizer”, Financial Times. 74 Ibid. 75 Ibid. 76 Sanford, J. (8 21 November 2004) “Knock-Off Nation”, Canadian Business, 77 (22), pp. 67 70. 77 MIP Week (11 July 2004) “China Deals Blow to Viagra Patent”, http://www.managingip.com/Article/1258783/China-deals-

blow-to-Viagra-patent.html (accessed 18 September 2009). 78 During Pfizer’s appeal of SIPO’s ruling through the court, its patent for Viagra remained valid and local companies were

prohibited from launching generic versions of the drug. 79 Kynge, J. (7 July 2004) “China Overturns Pfizer”, Financial Times. 80 Ex post facto legislation was retroactive application of a new law to acts committed in the past or the legal status of facts and

relationships that existed prior to the enactment of the law. In most common law jurisdictions and countries with a well- established bill of rights or a written constitution, ex post facto law was prohibited or highly restricted.

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09/463C Viagra in China: A Prolonged Battle over Intellectual Property Rights

patent evaluation process before the new standard was available, then the old standard should be followed.”81

Influence through Diplomatic Channels on Pfizer’s Patent Case A foreign diplomat following Pfizer’s case warned that the US and European Union might retaliate with tariffs aimed at China’s domestic pharmaceutical industry if Pfizer lost its patent for Viagra, and several high-level US officials had raised the case in meetings with Chinese leaders.82 In January 2005, when the US secretary of commerce, Donald Evans, visited China, he said in a public speech that the PRB’s stated grounds for invalidating Pfizer’s patent indicated that the process for obtaining patents was not transparent or predictable, and this made China a risky market for innovation.83 In April the same year, the Office of the US Trade Representative (“OUSTR”) released its 2005 Special 301 Report, in which China was elevated to the Priority Watch List due to “serious concerns about China’s compliance with its WTO TRIPS obligations”.84 The report stated that “China’s inadequate IPR enforcement is resulting in infringement levels at 90% or above for virtually every form of intellectual property.” 85 In OUSTR’s 2005 annual report on intellectual property enforcement, “counterfeit pharmaceuticals” was cited as a major area of infringement in China.86

Waging Two Trademark Lawsuits In October 2005, Pfizer sued Guangzhou Viamen, Shanghai Dongfang and Beijing Health in the BFIPC for unfair competition and infringement of its unregistered well-known trademark, “ ” (“Weige”). Evidence used by Pfizer to support its claim to the unregistered well- known trademark in China included the company’s two “ ” (“Weige”) trademarks, granted in Hong Kong and Taiwan in September 1999 and January 2002, respectively. Pfizer also submitted to the court news clippings in China and overseas that used “ ” (“Weige”) to refer to Viagra, and a photocopy of the urgent public notice issued by the CSFDA on 29 March 1999 that referred to “ ” (“Weige”) as a drug produced by Pfizer. Meanwhile, Pfizer had filed another lawsuit against Guangzhou Viamen, Shanghai Dongfang and Beijing Health for infringing Pfizer’s 3D trademark with their (Weige) erectile dysfunction drug, seeking compensation of US$6 million.

Court’s Rulings on Pfizer’s Patent and Trademark Cases On 2 June 2006, the BFIPC overturned SIPO’s ruling and upheld Pfizer’s patent for Viagra in China. Wang Wei, a lawyer for the Chinese drug companies, commented: “Of course, I’m upset, but it’s reasonable. If I were them, I would not appeal. It’s too difficult to predict the consequences of the appeal.”87 Some of the local drug companies appealed to the Beijing High People’s Court, which upheld the ruling of its lower court in September 2007. This ended the seven-year litigation on Pfizer’s patent.

On 25 December 2006, the BFIPC ruled that the (Weige) product manufactured by Shanghai Dongfang and sold by Beijing Health had infringed Pfizer’s 3D trademark. It issued

81 (2005 1 18 ) “‘ ’ ‘ ’ ”, [Mei, L. (18 January 2005)

“Contentions in the ‘Weige’ Litigation: ‘Battle between Standards’ is the Critical Force Behind It”, China Economic Weekly], http://media.163.com/05/0118/13/1ACOT0SR0014180O.html (accessed 13 August 2009).

82 Kyne, P. (8 July 2004) “China Overturns Pfizer for Impotence Drug Viagra”, Globe and Mail. 83 Barraclough, E. (October 2007) “Pfizer Victorious over Viagra in China”, Managing Intellectual Property. 84 Ibid. 85 Tech Law Journal (29 April 2005) “USTR Releases 2005 Special 301 Report”,

http://www.techlawjournal.com/topstories/2005/20050429.asp (accessed 24 August 2009). 86 Hobbs, M. (5 June 2006) “First Global IP Forum in China Sparks Interest”, Law.com,

http://www.law.com/jsp/law/LawArticleFriendly.jsp?id=900005549663 (accessed 2 September 2009). 87 Zamiska, N. (3 June 2006) “Beijing Court Backs Patent Protection for Viagra”, Wall Street Journal.

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09/463C Viagra in China: A Prolonged Battle over Intellectual Property Rights

a permanent injunction to these companies to stop producing and selling this product, and ordered Shanghai Dongfang88 to pay Pfizer US$38,000 in damages.89 However, there was not sufficient evidence to claim that Guangzhou Viamen had instructed these two companies in their infringement acts. In January 2007, the BFIPC rejected Pfizer’s claim that Guangzhou Viamen’s “ ” (“Weige”) trademark had infringed Pfizer’s unregistered well-known trademark and that it constituted unfair competition. Pfizer filed an appeal at the Beijing High People’s Court, which upheld the decision of its lower court in April 2008.90 Guangzhou Viamen indicated that the company was open to negotiation with Pfizer on using the “ ” (“Weige”) trademark. Some media outlets reported that Guangzhou Viamen had been conducting secret talks with Eli Lilly and Bayer on possible sale of this trademark at an exorbitant price, but that these two companies were not sufficiently interested. 91 Pfizer continued its fight at the Supreme Court, but lost this final appeal in July 2009.92 This ended Pfizer’s 11-year trademark dispute with local companies that had started in mid-1998.

Competition Faced by Pfizer in China

Competing Prescription Drugs from Bayer and Eli Lilly In 2003, two competing drugs that acted as PDE5 inhibitors were launched in Europe and the US: Levitra from Bayer AG93 (“Bayer”) and Cialis from Eli Lilly and Company94 (“Eli Lilly”) [see Exhibit 15]. These products partly contributed to a decline in Viagra’s global sales in the following two years [see Exhibit 8A]. Viagra’s relative global market share among the three drugs dropped gradually to 50% in 2008 [see Exhibit 16]. Bayer claimed that Levitra was the strongest PDE5-inhibiting drug in the market, and that its 10mg pill had the same potency as Viagra’s 50mg pill.95 Cialis was effective up to 36 hours after consumption, as compared to four hours for the other two drugs. Cialis was nicknamed “the weekend pill” because it remained effective from Friday night till Sunday morning. Leveraging this key differentiator, Cialis became the top prescription drug for erectile dysfunction in 22 countries as of December 2006, including France and Mexico.96 In 2007, a once-a-day version of Cialis was launched in the US and subsequently in Europe. This product allowed the patient to have sexual activity any time throughout the dosing period, further enhancing the drug’s competitive edge.

88 Shanghai Dongfang had filed for bankruptcy before this ruling. 89 (2006 12 27 ) “

” [Peking University Center for Legal Information (27 December 2006) “Pfizer Inc Sued Beijing Health New Concept Pharmacy and Others for Trademark Infringement”], http://vip.chinalawinfo.com/Case/displaycontent.asp?Gid=117515757&Keyword=%BB%D4%C8%F0 (accessed 19 September 2009).

90 (2008 4 9 ) “ ‘ ’ ”, [Ho, S. (9 April 2008) “Pfizer Loses in Final Appeal of ‘Weige’ Court Case”, Information Times], http://news.xinhuanet.com/legal/2008-04/09/content_7943689_1.htm (accessed 13 August 2009).

91 (2008 8 ) “ ” [Information Times (August 2008) “Litigation between Pfizer and Guangzhou Viamen Not Yet Finished. Attempt to Change Hands for the Weige Trademark”], http://www.xmtm.cn/open_view.asp?id=9126&Type_num=18 (accessed 13 August 2009).

92 (2009 07 10 ) “ ”, [Zhang, Q. (10 July 2009) “Local–Foreign Fight for Weige Concluded”, Nanfang Daily], http://www.chinanews.com.cn/cj/cj-cyzh/news/2009/07-10/1769212.shtml (accessed 7 October 2009).

93 Levitra was manufactured by Bayer and was co-marketed by Bayer and GlaxoSmithKlein Plc, hereafter referred to jointly as “Bayer” for simplicity.

94 Cialis was initially developed by Lilly ICOS LLC, a joint venture between Eli Lilly and a biotechnology start-up ICOS Corp. Eli Lilly acquired ICOS Corp in early 2007, hereafter referred to jointly as “Eli Lilly” for simplicity.

95 (2005 6 21 ) “ ”, 21 [Shi, Y. (21 June 2005) “Four Pharmaceutical Giants Gather in China’s Market to Compete for Weige”, 21st Century Business Herald], http://media.163.com/05/0621/12/1MP5CVEK00141EQ2.html (accessed 13 August 2009).

96 Stevens, S. (13 July 2007) “Eli Lilly Getting Ahead of Rivals”, UKMedix Health News, http://www.ukmedix.com/cialis/cialis- lilly-once-day.cfm (accessed 10 August 2009).

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This document is authorized for use only by Pak Yiu Fung in Doing Business in Greater China Spring 2018 taught by Lihua Wang, San Francisco State University from January 2018 to May 2018.

09/463C Viagra in China: A Prolonged Battle over Intellectual Property Rights

In China, Bayer launched Levitra in November 2004 and gained sales permission for retail channels in January 2006. Eli Lily started selling Cialis in the country in June 2005 and entered into 5,000 local pharmacies in February 2007. As of the end of 2008, the once-a-day version of Cialis had not yet launched, but was expected to in the near future. These products threatened to erode Viagra’s market share. One comparative advantage of Viagra was its longest market history and safety record among the three drugs. It had gone through 103 research studies and had been used by 23 million people worldwide by mid-2005.97 These factors had boosted the confidence of doctors in prescribing Viagra to their patients.

On the other hand, the male urino-genital system and the mechanisms for erection involved very complicated and fragile biochemical processes. Manipulation of these processes by any type of PDE5 inhibitor might result in a number of side effects such as headache, flushing, difficulty in breathing and blurred vision. According to a review of 49 published studies on Viagra, data on potential long-term harm from taking Viagra were still lacking.98 Researchers found that men who took Viagra were 56% more likely than those given a placebo to experience any side effect. They concluded by saying: “More efforts should be directed toward achieving an optimal balance between the degree of effectiveness and safety of sildenafil use in men with erectile dysfunction. For example, consideration of flexible dosing regimen of sildenafil to minimize the occurrence of adverse events may be an option.”

Counterfeits and Herbal Aphrodisiacs with Drug Analogues Actually, the existing erectile dysfunction drugs, whether imported or domestically produced, have a practical problem of being too expensive. Such high prices enable the “black-market Weige” 99 to take up a large market share.

- Lu Shengfeng, distributor of the erectile dysfunction drug Yi Le in southern China100

In 2004, around 70 80% of erectile dysfunction drugs consumed in China were counterfeits,101 and a conservative estimate of the market for counterfeit Viagra in the country was over US$240 million [see Exhibit 8C],102 while Viagra’s revenue in China was estimated at a mere US$12.1 million that year. 103 In April 2008, Sun Minjie, chief executive of Guangzhou Viamen, said that even though his company had won its “ ” (“Weige”) trademark litigation, almost the entire erectile dysfunction drug market had been lost to counterfeiters, who were the real competitors of both his company and Pfizer [see Exhibit 17]. 104 Erectile dysfunction drugs of both local and foreign companies were targeted for counterfeiting. Guangzhou Viamen failed to achieve its original sales target, despite using the

97 Ibid. 98 This review was conducted by researchers from the Ottawa Health Research Institute in Ontario, Canada. The results were

published in the medical journal Urology in October 2009. See: Reuters (8 October 2009) “Long-Term Risks of Viagra Use Unclear”.

99 In this context, “Weige” was used to refer to erectile dysfunction drugs in general. 100 (2004 4 12 ) “ ”, [Teng, C. (12 April 2004) “Yi Le Enters

Market with Extra-Low Price. Battle Resumes in China’s Weige Market”, China News], http://www.chinanews.com.cn/n/2004-04-12/26/424179.html (accessed 13 August 2009).

101 (2004 7 2 ) “ ED ” [China Economic Times (2 July 2004) “Pharmaceutical Giants Fight for the Erectile Dysfunction Market. Foreign Weige Encounters Chinese-Style Versions”], http://www.chinapharm.com.cn/html/hyyw/13401020040701.html (accessed 13 August 2009).

102 (2004 4 12 ) “ ”, [Teng, C. (12 April 2004) “Yi Le Enters Market with Extra-Low Price. Battle Resumes in China’s Weige Market”, China News], http://www.chinanews.com.cn/n/2004-04-12/26/424179.html (accessed 13 August 2009).

103 Ibid. 104 (2008 4 9 ) “ ‘ ’ ”, [Ho, S. (9 April 2008) “Pfizer Loses in Final

Appeal of ‘Weige’ Court Case”, Information Times], http://news.xinhuanet.com/legal/2008-04/09/content_7943689_1.htm (accessed 13 August 2009).

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09/463C Viagra in China: A Prolonged Battle over Intellectual Property Rights

“ ” (“Weige”) trademark. As for Viagra, Cialis and Levitra, counterfeiters not only supplied their fake copies for local use but also for the entire global market.

Another phenomenon in China was the increasing number of herbal health supplements that contained the active ingredients (or their drug analogues) of prescription drugs for erectile dysfunction.105 In surveys conducted by the health authorities in several Chinese cities in 2002, more than 80% of men’s health supplements were found to contain some undeclared sildenafil. 106 Many older men were more comfortable taking these traditional Chinese medicines than foreign-branded pills. In 2007, another survey in Hong Kong of 26 men’s health supplements found that one product (4%) had undeclared sildenafil, while 14 products (54%) contained drug analogues of sildenafil and verdenafil (Levitra’s active ingredient).107 However, these products had not gone through stringent drug testing, and their adverse effects were largely unknown and unpredictable. Their hidden active ingredients also posed health threats to people with certain medical conditions, such as heart disease.

Battles Ahead

China’s drug market was so huge that no global pharmaceutical company could afford to ignore it. Pfizer had made a major investment of US$500 million in China for production facilities in Dalian, Suzhou and Wuxi, as well as an R&D centre in Shanghai.108 However, since SIPO had awarded Pfizer a domestic patent for Viagra in September 2001, the sales volume of this drug remained small in China. The invalidation of and successful appeal for this patent had not made a big difference because of the prevalence of counterfeits. Moreover, Viagra’s Chinese trademark failed to generate the expected brand recognition in China. Some websites even illegitimately used the combined name “ ” (“Wanaike-Weige”) to promote Viagra, and to distinguish the genuine pills from other erectile dysfunction drugs claiming to be “ ” (“Weige”) on the black market.109

After Pfizer’s setback in the final appeal for the “ ” (“Weige”) trademark in July 2009, its management was trying to figure out what had gone wrong in its market entry strategy in China for Viagra, how to generate more sales before its patent expired in 2014, and whether it should negotiate with Guangzhou Viamen over using the “ ” (“Weige”) trademark. With ambitious plans to launch a large number of novel drugs in China in the coming years, what more could be done to protect the IPR of these products and to ensure financial success? How could Pfizer prevent its future patents from being invalidated due to insufficient clinical data in patent applications?

105 Drug analogues were compounds with chemical structures similar to the active ingredients of the original drugs. 106 Rosenthal, E. (23 April 2002) “An Age-Old Quest Could Be at an End: Chinese Hail Viagra”, New York Times. 107 Poon, W., Lam, Y., Lai, C., Chan, A. and Mak, T. (October 2007) “Analogues of Erectile Dysfunction Drugs: an Under-

Recognised Threat”, Hong Kong Medical Journal, 13 (5), pp. 359 363. 108 Yuan, R. (15 April 2007) “Pharmaceutical Operations Expand in China”, Genetic Engineering and Biotechnology News, 27

(8), http://www.genengnews.com/articles/chitem_print.aspx?aid=2098&chid=4 (accessed 2 September 2009). 109 For an example of these websites, see: http://www.viagra-weige.cn/ (accessed 1 November 2009).

For the exclusive use of P. Fung, 2018.

This document is authorized for use only by Pak Yiu Fung in Doing Business in Greater China Spring 2018 taught by Lihua Wang, San Francisco State University from January 2018 to May 2018.

09/463C Viagra in China: A Prolonged Battle over Intellectual Property Rights

EXHIBIT 1: PFIZER DRUGS WITH GLOBAL REVENUES OVER US$1 BILLION IN 2008

RevenueDrug Function US$

million As a Percentage of the Total Pharmaceutical

Revenue (%) 1. Lipitor To lower cholesterol 12,401 28.07 2. Lyrica For epilepsy 2,573 5.82 3. Celebrex For arthritis and pain 2,489 5.63 4. Norvasc For Hypertension 2,244 5.08 5. Viagra For erectile dysfunction 1,934 4.38 6. Xalatan/Xalacom For glaucoma and ocular

hypertension 1,745 3.95

7. Detrol For overactive bladder 1,214 2.75 8. Zyvox For bacterial infection 1,115 2.52 9. Geodon/Zeldox For schizophrenia and bipolar

disorder 1,007 2.28

Sub-total of the top 9 drugs 26,722 60.49 Total revenue from the Pharmaceutical Division 44,174 -

Source: Pfizer Inc (2008) “Annual Report”.

EXHIBIT 2: EFFECT OF PATENT EXPIRATION ON THE GLOBAL REVENUES OF TWO SELECT PFIZER DRUGS

Revenue from Neurotonin (for epilepsy)

Revenue from Zoloft (for depression)

Year Ended 31 December

US$ million % Change US$ million % Change 1998 - - 1,836 21.83 1999 913 - 1,997 8.77 2000 1,334 46.11 2,140 7.16 2001 1,751 31.26 2,366 10.56 2002 2,269 29.58 2,742 15.89 2003 2,702 19.08 3,118 13.71 2004 2,723 0.78 3,361 7.79 2005 639 (76.53) 3,256 (3.12) 2006 496 (22.38) 2,110 (35.20) 2007 431 (13.10) 531 (74.83) 2008 387 (10.21) 539 1.51

Note: The patent of Neurotonin in the US expired in 2005 and the patent of Zoloft in the US expired in 2006.

Source: Pfizer Inc (2004 2008) “Annual Report”; Pfizer Inc (2000, 2002) “Form 10-K”, http://www.pfizer.com (accessed 18 August 2009).

For the exclusive use of P. Fung, 2018.

This document is authorized for use only by Pak Yiu Fung in Doing Business in Greater China Spring 2018 taught by Lihua Wang, San Francisco State University from January 2018 to May 2018.

09/463C Viagra in China: A Prolonged Battle over Intellectual Property Rights

EXHIBIT 3A: ROLES OF SIPO AND THE COURT FOR PATENT AND TRADEMARK PROTECTION

Role State Intellectual Property Office Court Process Applications

• The Patent Office of SIPO processes patent applications and grants patents.

• The Trademark Office of SIPO processes trademark applications and grants trademarks.

Handle Request for Invalidation

• The Patent Re-examination Board of SIPO handles and rules on requests for invalidating patents.

• The Trademark Review and Adjudication Board of SIPO handles and rules on requests for invalidating trademarks.

• The court of first instance conducts judicial review of the rulings by the Patent Re-examination Board on patent invalidation, and of the rulings by the Trademark Review and Adjudication Board on trademark invalidation.

• The court of second instance handles appeals on rulings made by its lower court.

Handle Infringement

• Resolves straight-forward cases of patent and trademark disputes through administrative means.

• Resolves more complicated cases of patent and trademark disputes through civil litigations.

• Handles criminal litigations for cases of egregious infringement.

EXHIBIT 3B: COURT SYSTEM FOR PATENT AND TRADEMARK LITIGATION IN CHINA

Role of the Court Type of Court Number Amount of Claims

Smaller than Rmb 100 million1

Amount of Claims Greater than

Rmb 100 million Supreme Court 1 Supervision Court of second instance High Court 31 Court of second instance Court of first instance Intermediate Court Around 4002 Court of first instance Not involved County Court Around 2700 Not involved Not involved

1 Rmb 100 million = US$12 million at an exchange rate of US$1 = Rmb 8.28. 2 This referred to the total number of intermediate courts in China, of which only 50 handle patent

litigations.

Source: Gao, L. (19 May 2006) “Getting to Grips with China: A Business Imperative for the 21st Century”, Association of Corporate Counsel, http://webcasts.acca.com/handouts/Dr._Lulin_Gao_Slides.pdf (accessed 19 September 2009).

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This document is authorized for use only by Pak Yiu Fung in Doing Business in Greater China Spring 2018 taught by Lihua Wang, San Francisco State University from January 2018 to May 2018.

09/463C Viagra in China: A Prolonged Battle over Intellectual Property Rights

EXHIBIT 4: TYPES OF PATENTS IN CHINA

Types1 Nature and Requirement Duration2 Invention Patent

Applicable to “any new technical solution relating to a product, a process or improvement”. In depth investigation has to be conducted by SIPO on the novelty, inventiveness, and usefulness of the innovation before a patent is granted, which may take up to a few years.

20 years

Utility Model Patent

Applicable to “any new technical solution relating to the shape, the structure, or their combination, of a product which is fit for practical use”. Relative to the invention patent, less information is required in the patent application. With properly done paperwork, a patent is usually granted after limited investigation by SIPO, which can be as quickly as one year after the filing. The majority of patent applications in China are for utility model patents.

10 years

Design Patent Applicable to “any new design of the shape, pattern, color, or their combination, of a product, which creates an aesthetic feeling and is fit for industrial application”. With properly done paperwork, a patent is usually granted after limited investigation by SIPO.

10 years

1 China’s invention patent and design patent were similar to the utility patent and design patent in the US, respectively. China’s utility model patent was somewhere between the utility patent and design patent of the US. There was no equivalent of the plant patent, which covered distinct and new plant varieties, available in the US.

2 The duration was calculated from the date of filing an application.

Source: Babel, T. (30 April 2008) “Patents in China Is There Any Real Protection?”, ipFrontline, http://www.ipfrontline.com/depts/article.asp?id=18723&deptid=3 (accessed 2 September 2009).

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This document is authorized for use only by Pak Yiu Fung in Doing Business in Greater China Spring 2018 taught by Lihua Wang, San Francisco State University from January 2018 to May 2018.

09/463C Viagra in China: A Prolonged Battle over Intellectual Property Rights

EXHIBIT 5A: MAJOR AMENDMENTS TO CHINA’S 1984 PATENT LAW

Amendment Date

Effective Date

Major Changes Related to Pharmaceutical Companies

4 Sept 1992 1 Jan 1993 • Patent protection for pharmaceutical products was first included in the Patent Law.

25 Aug 2000 July 2001 The law was updated to meet the TRIPS requirements of WTO. • Article 26 on the requirement of adequate information

disclosure was added. • Patentable subject matters for pharmaceutical products were

expanded to include specific chemical compounds. 27 Dec 2008 1 Oct 2009 The law was updated to heighten the patent-granting threshold

[see the first bullet below] and to adopt a tougher stance on restraining counterfeits.1

• The novelty requirement for invention patent and utility model patent has been tightened. Before a patent application is submitted, an innovation must not be publicly disclosed, used or known worldwide, instead of just in China as stipulated in the previous version of the patent law.

• China can grant mandatory licensing for manufacturing and exporting patented medicines according to international conventions.

• Only one patent will be granted for one innovation. Applicants can still apply both invention patent and utility model patent simultaneously, but have to give up the utility patent granted earlier when the invention patent is approved.

1 For more information, see: Cai, R., Liu, S. and Moore, K. (23 February 2009) “Elevating Standards: China’s Newly Amended Patent Law”, Davis Wright Tremaine LLP, http://www.dwt.com/LearningCenter/Advisories?find=66335 (accessed 2 September 2009).

EXHIBIT 5B: PATENTABLE SUBJECT MATTERS FOR PHARMACEUTICAL PRODUCTS UPDATED IN THE SECOND AMENDMENT TO CHINA’S PATENT LAW IN 2000

1. New pharmaceutical compounds, preparations, compositions

2. Processes of producing pharmaceuticals

3. Use of chemical and natural substances in the production of pharmaceuticals

4. New medical use or indication of a known compound or preparation

5. Micro-organisms

6. Biotechnologies

7. Methods of obtaining new varieties of animal or plant

Source: Wu, Y. and Labwu, Z. (1 November 2007) “Protect Your Patent Rights in China”, PharmaAsia, http://www.pharmaasia.com/article-6659-protectyourpatentrightsinchina-Asia.html (accessed 2 September 2009).

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09/463C Viagra in China: A Prolonged Battle over Intellectual Property Rights

EXHIBIT 5C: ARTICLES 22 AND 26 OF CHINA’S PATENT LAW, AMENDED IN 2000

Article 22.

Any invention or utility model for which patent right may be granted must possess novelty, inventiveness and practical applicability.

Novelty means that, before the date of filing, no identical invention or utility model has been publicly disclosed in publications in the country or abroad or has been publicly used or made known to the public by any other means in the country, nor has any other person filed previously with the Patent Administration Department Under the State Council an application which described the identical invention or utility mode1 and was published after the said date of filing.

Inventiveness means that, as compared with the technology existing before the date of filing, the invention has prominent substantive features and represents a notable progress and that the utility model has substantive features and represents progress.

Practical applicability means that the invention or utility model can be made or used and can produce effective results.

Article 26.

Where an application for a patent for invention or utility model is filed, a request, a description and its abstract, and claims shall be submitted.

The request shall state the title of the invention or utility model, the name of the inventor or creator, the name and the address of the applicant and other related matters.

The description shall set forth the invention or utility model in a manner sufficiently clear and complete so as to enable a person ski11ed in the re1evant field of technology to carry it out; where necessary, drawings are required. The abstract shall state briefly the main technical points of the invention or utility model.

The claims shall be supported by the description and shall state the extent of the patent protection asked for.

Note: Article 22 was the same as the former version of Patent Law, while article 26 was newly added.

Source: People’s Republic of China (August 2000) “Patent Law of the People’s Republic of China”, http://www.rucipr.com/ArticleView.aspx?id=773 (accessed 21 August 2009).

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This document is authorized for use only by Pak Yiu Fung in Doing Business in Greater China Spring 2018 taught by Lihua Wang, San Francisco State University from January 2018 to May 2018.

09/463C Viagra in China: A Prolonged Battle over Intellectual Property Rights

EXHIBIT 5D: POSSIBLE GROUNDS FOR INVALIDATING A PATENT IN CHINA

Ground Patent Law

Detail Reason for Patent Invalidation

Article 5 No patent right shall be granted for any invention-creation that is contrary to the laws of China or social morality, or that is detrimental to public interest.

1. Non- patentable subject matter

Article 25 No patent right shall be granted for scientific discoveries, rules and methods for mental activities, methods for diagnosis or treatment of diseases, animal and plant varieties, and substances obtained by means of nuclear transformation.

Article 22 An invention or a utility model patent does not possess novelty, inventiveness and practical applicability.

Novelty means that the subject matter has not been previously disclosed in publications in China or abroad, has not been publicly used or made known to the public by any other means in China, and has not been filed for an identical patent in China.

Inventiveness means that the invention has prominent substantive features and represents notable progress, while the utility model has substantive features and represents progress.

2. Lack of novelty, inventiveness or practical applicability

Article 23 A design patent is identical or similar to another design that, before the date of filing, has been publicly disclosed in publication in China or abroad, or has been publicly used in China, or is in conflict with the prior lawful right another person.

3. Insufficient information disclosure

Article 26.3

The description of an invention or utility model patent is not sufficiently clear and complete to enable a person skilled in the relevant field of technology to carry it out.

4. Mismatch between patent claims and the subject matter

Article 26.4

The claims of a patent are not supported by the description being filed.

Source: Compiled from China’s Patent Law (August 2000).

For the exclusive use of P. Fung, 2018.

This document is authorized for use only by Pak Yiu Fung in Doing Business in Greater China Spring 2018 taught by Lihua Wang, San Francisco State University from January 2018 to May 2018.

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For the exclusive use of P. Fung, 2018.

This document is authorized for use only by Pak Yiu Fung in Doing Business in Greater China Spring 2018 taught by Lihua Wang, San Francisco State University from January 2018 to May 2018.

09/463C Viagra in China: A Prolonged Battle over Intellectual Property Rights

EXHIBIT 7A: EXAMPLES OF WELL-KNOWN TRADEMARKS OWNED BY FOREIGN COMPANIES IN CHINA AS OF JANUARY 2006

Country of Origin

Foreign-Owned Well-Known Trademarks in China

US Barbie ( ), Band-Aid ( ), Gillette ( ), Sprite ( ), Disney ( ), McDonald’s ( ), Du Pont ( ), Hyatt ( ), American

Standard ( ), Wrigley’s ( ), Monistat ( ), Caile ( ), the M- shaped logo of Motorola, Wal-Mart ( ), Honeywell ( )

France Lancome ( ), Montagut ( ), YSL / Yves Saint Laurent, a floral logo for clothes.

Netherlands Cartier( ), F1 Formula 1, Philips ( ) UK The logo of Jaguar, De Beers ( ) Switzerland Tudor ( ) and logo, Tissot ( , Rolex ( ) Japan Nissan ( ), YKK, Nippon ( ) Germany Boss1

Italy Ferrari ( ) British Virgin Islands

Shangri-La ( )

1 This referred to the brand of Boss for clothes.

EXHIBIT 7B: PHOTO OF VIAGRA PILLS

Pills of Viagra with its colour and shape registered for a 3D trademark

For the exclusive use of P. Fung, 2018.

This document is authorized for use only by Pak Yiu Fung in Doing Business in Greater China Spring 2018 taught by Lihua Wang, San Francisco State University from January 2018 to May 2018.

09/463C Viagra in China: A Prolonged Battle over Intellectual Property Rights

EXHIBIT 8A: GLOBAL REVENUES OF PFIZER

Revenue (US$ million) Net Income R&D Expenses Year Ended

31 December

Company Total

From Pharmaceutical

Division

US$ million

% of Total

Revenue

US$ million

% of Total

Revenue 2002 32,294 28,275 9,126 28.26 5,208 16.13 2003 44,736 39,425 3,910 8.74 7,487 16.74 2004 48,988 46,121 11,361 23.19 7,513 15.34 2005 47,405 44,269 8,085 17.06 7,256 15.31 2006 48,371 45,083 19,337 39.98 7,599 15.71 2007 48,418 44,424 8,144 16.82 8,089 16.71 2008 48,296 44,174 8,104 16.78 7,945 16.45

Note: From 2005 2008, 91.4 93.4% of Pfizer’s total revenue came from its pharmaceutical division, with the rest generated from the animal health division and other corporate income.

Source: Pfizer Inc (2004 2008) “Annual Report”.

EXHIBIT 8B: GLOBAL REVENUES OF PFIZER FROM VIAGRA

Revenue from Viagra Year Ended 31 December US$ million % Change

1998 788 - 1999 1,016 28.93 2000 1,344 32.28 2001 1,518 12.95 2002 1,735 14.30 2003 1,879 8.30 2004 1,678 (10.70) 2005 1,645 (1.97) 2006 1,657 0.73 2007 1,764 6.46 2008 1,934 9.64

Source: Pfizer Inc (2004 2008) “Annual Report”; Pfizer Inc (2000, 2002) “Form 10-K”, http://www.pfizer.com (accessed 18 August 2009).

EXHIBIT 8C: ESTIMATED SALES OF VIAGRA AND ITS COUNTERFEITS IN CHINA

Estimated Sales of Viagra Estimated Sales of Viagra’s Counterfeits Year US$ million Rmb million US$ million Rmb million

2002 9.7 80 48.3 400 2004 12.1 100 241.5 2,000

Source: (2003 9 22 ) “ ‘ ’ ”, [Ho, S. and Huang, D. (22 September 2003) “Pfizer Raises Objection. ‘Weige’ Trademark Falls Back into Uncertainty”, Information Times], http://finance.anhuinews.com/system/2003/09/22/000448627.shtml (accessed 13 August 2009); (2004 4 12 ) “ ”, [Teng, C. (12 April 2004) “Yi Le Enters Market with Extra-Low Price. Battle Resumes in China’s Weige Market”, China News], http://www.chinanews.com.cn/n/2004-04-12/26/424179.html (accessed 13 August 2009).

For the exclusive use of P. Fung, 2018.

This document is authorized for use only by Pak Yiu Fung in Doing Business in Greater China Spring 2018 taught by Lihua Wang, San Francisco State University from January 2018 to May 2018.

09/463C Viagra in China: A Prolonged Battle over Intellectual Property Rights

EXHIBIT 9A: PERCENTAGE OF MEN WITH ERECTILE DYSFUNCTION IN CHINA

Age Range Percentage of Men with Erectile Dysfunction 40 to 49 32% 50 to 59 36% 60 to 69 74%

Source: (2004 4 12 ) “ ”, [Teng, C. (12 April 2004) “Yi Le Enters Market with Extra-Low Price. Battle Resumes in China’s Weige Market”, China News], http://www.chinanews.com.cn/n/2004-04- 12/26/424179.html (accessed 13 August 2009).

EXHIBIT 9B: POPULATION OF MEN OVER 40 YEARS OLD IN CHINA IN 2007

Age Range Estimated Population of Men (in millions) 40 49 110 50 59 80 60 69 45 70 79 36 80 89 7

90 and over < 1

Source: US Census Bureau (2007) “Population Pyramids for China”, http://www.census.gov/ (accessed 1 September 2009).

EXHIBIT 9C: PER-CAPITA MONTHLY INCOME FOR URBAN HOUSEHOLDS AND FARMERS IN MAINLAND CHINA IN THE FIRST HALF OF 2008

US$1 Rmb Per-capita monthly disposable income 162.3 1,344

Urban Households Per-capita monthly consumption expenditure 110.5 915

Farmers Per-capita monthly cash income 49.8 421

1 US$1 = Rmb 8.28.

Source: National Bureau of Statistics of China (25 July 2008) “Income and Expenditure of Urban Households Surged in the First Half Year”, http://www.stats.gov.cn (accessed 28 August 2009); National Bureau of Statistics of China (25 July 2008) “Per Capita Cash Income of Farmers Kept Growth in the First Half Year”, http://www.stats.gov.cn (accessed 28 August 2009).

For the exclusive use of P. Fung, 2018.

This document is authorized for use only by Pak Yiu Fung in Doing Business in Greater China Spring 2018 taught by Lihua Wang, San Francisco State University from January 2018 to May 2018.

09/463C Viagra in China: A Prolonged Battle over Intellectual Property Rights

EXHIBIT 10: TIMELINE OF MAJOR EVENTS

* This application was rejected by SIPO and Pfizer later applied for the “ ” (Wanaike) trademark.

For the exclusive use of P. Fung, 2018.

This document is authorized for use only by Pak Yiu Fung in Doing Business in Greater China Spring 2018 taught by Lihua Wang, San Francisco State University from January 2018 to May 2018.

09/463C Viagra in China: A Prolonged Battle over Intellectual Property Rights

EXHIBIT 11: MAJOR EVENTS IN PFIZER’S PATENT DISPUTE

Date Legal Proceedings and Other Patent-Related Events 13 May 1994 Pfizer files a PCT application1 for sildenafil. 8 Dec 1995 The Trademark Office of China’s SIPO started to process Pfizer’s patent

application. July 2000 Pfizer was granted permission to sell Viagra in China by China State

Food and Drug Administration. 20 Apr 2001 Pfizer received the notice of patent allowance. 19 Sept 2001 Pfizer was granted the domestic patent for sildenafil in China by SIPO. Late Sept 2001 12 local drug companies jointly challenged the validity of Pfizer’s patent

due to its lack of novelty and inventiveness. Sept 2002 The Patent Reexamination Board (“PRB”) of SIPO started to investigate

the patent invalidation request by the 12 local drug companies. 5 July 2004 PRB invalidated Pfizer’s patent. 10 July 2004 SIPO issued a statement a statement saying that the drug did not conform

to Article 26 of China’s Patent Law, which required description of the drug “in a manner sufficiently clear and complete so as to enable a person skilled in the relevant field” to manufacture it. SIPO insisted that its action was in line with similar decisions taken by the UK High Court and the European Patent Office. Many local drug companies started to apply to SIPO for production licenses for generic versions of Viagra.

8 Sept 2004 Pfizer sent a formal request to SIPO to reconsider its ruling. 28 Sept 2004 Pfizer filed an appeal to Beijing First Intermediate People’s Court

(“BFIPC”) for a judicial review of PRB’s ruling.

2 Jun 2006 BFIPC revoked PRB’s decision and upheld Pfizer’s patent. Some of the local drug companies filed an appeal in the same month to Beijing High People’s Court.

7 Sept 2007 Beijing High People’s Court upheld the ruling of its lower court and ended the seven-year litigation on Pfizer’s patent for Viagra.

For the exclusive use of P. Fung, 2018.

This document is authorized for use only by Pak Yiu Fung in Doing Business in Greater China Spring 2018 taught by Lihua Wang, San Francisco State University from January 2018 to May 2018.

09/463C Viagra in China: A Prolonged Battle over Intellectual Property Rights

EXHIBIT 12: MAJOR EVENTS IN PFIZER’S TRADEMARK DISPUTE

Date Legal Proceedings and Other Trademark-Related Events May 1997 Pfizer applied to SIPO’s Trademark Office for Viagra’s Chinese trademark as

“ ” (Mighty and Strong). This application was turned down, hence Pfizer later applied for the “ ” (Wanaike) trademark.

30 Apr 1998 A Chinese newspaper in the US referred to Viagra as “ ” (Weige). 20 May 1998 Guangzhou Viamen applied to SIPO for the “ ” (Weige) trademark. SIPO

acknowledged the receipt of its application on 2 June. 29 May 1998 Pfizer applied to the Hong Kong’s Trademark Office for the traditional

Chinese version of the “ ” (Weige) trademark, which was approved in September 1999.

12 Aug 1998 Pfizer applied to SIPO for the “ ” (Weige) trademark. 3 Sept 1998 SIPO acknowledged receipt of Shenyang Feilong’s application for the “ ”

(Weige) trademark which was submitted in early August. Dec 1998 Shenyang Feilong announced that it had been granted the trademark of “ ”

(Weige), and started selling its self-developed erectile dysfunction drug with the “ ” (Weige Kaitai) trademark.

29 Mar 1999 China State Food and Drug Administration (“CSFDA”) issued an urgent notice to ban and destroy all fake drugs sold as “ ” (Weige).

16 Apr 1999 CSFDA issued an urgent notice to order Shenyang Feilong to recall all products of “ ” (Weige Kaitai) within a month.

July 2000 Pfizer was granted permission to sell Viagra in China by CSFDA. 2001 Pfizer applied to Taiwan’s Trademark Office for the traditional Chinese

version of the “ ” (Weige) trademark. It was approved in January 2002. 21 Jun 2002 SIPO’s Trademark Office approved Guangzhou Viamen’s application for the

“ ” (Weige) trademark. 18 Sept 2002 Pfizer filed an objection to the Trademark Review and Adjudication Board

(“TRAB”) regarding Guangzhou Viamen’s “ ” (Weige) trademark. NA TRAB upheld Guangzhou Viamen’s right to the “ ” (Weige) trademark. 28 May 2003 SIPO approved Pfizer’s blue, diamond-shaped 3D trademark for Viagra. Sept 2003 Guangzhou Viamen started selling its self-developed erectile dysfunction drug

under the trademark “ ” (Weige). The product’s appearance was similar in shape and colour to Viagra’s 3D trademark. This 3D trademark was also used on the product packaging and Guangzhou Viamen’s website.

Oct 2005 Pfizer sued Guangzhou Viamen, Shanghai Dongfang and Beijing Health at Beijing First Intermediate People’s Court (“BFIPC”) for unfair competition and trademark infringement by using the “ ” (Weige) trademark. It also sued them for infringing Viagra’s 3D trademark in a separate court case.

Dec 2006 BFIPC ruled that Shanghai Dongfang and Beijing Health had infringed Pfizer’s 3D trademark. It ordered them to stop producing and selling the products, and Shanghai Dongfand had to pay Pfizer US$38,000 in damages.

Jan 2007 BFIPC rejected Pfizer’s claim that Guangzhou Viamen’s “ ” (Weige) trademark constituted unfair competition or had infringed Pfizer’s trademark. Pfizer filed an appeal to Beijing High People’s Court (“BHPC”).

Apr 2008 BHPC upheld the ruling of its lower court regarding the “ ” (Weige) trademark and rejected Pfizer’s claim of trademark infringement.

July 2009 The Supreme Court rejected Pfizer’s appeal for the “ ” (Weige) trademark.

For the exclusive use of P. Fung, 2018.

This document is authorized for use only by Pak Yiu Fung in Doing Business in Greater China Spring 2018 taught by Lihua Wang, San Francisco State University from January 2018 to May 2018.

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For the exclusive use of P. Fung, 2018.

This document is authorized for use only by Pak Yiu Fung in Doing Business in Greater China Spring 2018 taught by Lihua Wang, San Francisco State University from January 2018 to May 2018.

09/463C Viagra in China: A Prolonged Battle over Intellectual Property Rights

EXHIBIT 14: PRESCRIPTION RESTRICTIONS ON VIGRA IN CHINA

Date Prescription Restrictions on Viagra Jul 2000 Pfizer was approved by China State Food and Drug Administration to sell

Viagra in China. Prescription of this drug was restricted to principal doctors in urology1 wards and wards for male diseases at grade II or above hospitals.

2002 Doctors in five more hospital wards were permitted to prescribe Viagra. These included wards of endocrinology, cardiovascular diseases, neurology, psychiatry and geriatrics.2

Aug 2004 Pfizer had completed more than 2,000 clinical cases (stage IV) for Viagra, and was granted permission to sell this drug through retail channels. Prescription rights in hospitals were relaxed downward up to the level of resident doctors. Specialist hospitals for male diseases, cardiovascular diseases and psychiatry were allowed to prescribe Viagra.

1 Urology referred to the study of the urino-genital system. 2 Endocrinology, neurology, psychiatry and geriatrics referred to the study of the hormonal system,

nervous system, mental illnesses, and elderly diseases, respectively.

Source: (2005 6 21 ) “ ”, 21 [Shi, Y. (21 June 2005) “Four Drug Giants Gather in China’s Market to Compete for Weige”, 21st Century Business Herald], http://media.163.com/05/0621/12/1MP5CVEK00141EQ2.html (accessed 13 August 2009).

EXHIBIT 15: FEATURE COMPARISON OF VIAGRA, LEVITRA AND CIALIS

Viagra Levitra Cialis 1. Onset time 30 minutes 1 hour 30 minutes 2. Effect of eating

fatty food Absorption of the drug is reduced

Not affected

3. Duration that the drug remains effective after onset

4 hours. A relatively short time window leads to more time pressure for the patient.

36 hours. Sexual activity can be more spontaneous with less time pressure.

4. Dosing schedule Take the drug before each sexual activity. The patient’s sexual partner has to be notified in advance.

Two dosing schedules: • Take the regular version of the drug

before each sexual activity. • Take the once-daily version of the

drug everyday, which facilitates erection anytime. The patient does not need to alert his sexual partner.

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09/463C Viagra in China: A Prolonged Battle over Intellectual Property Rights

EXHIBIT 16: GLOBAL SALES AND RELATIVE MARKET SHARE OF THREE MAJOR PRESCRIPTION DRUGS FOR ERECTILE DYSFUNCTION

Viagra Cialis Levitra Global

Sales (US$

million)

Relative Market Share1

(%)

Global Sales (US$

million)

Relative Market Share1

(%)

Sales2 (

million)

Global Sales (US$

million)

Relative Market Share1

(%)

Total Global Sales (US$

million) 1998 788 100 - - - - - 788 19993 1,016 100 - - - - - 1,016 2000 1,344 100 - - - - - 1,344 2001 1,518 100 - - - - - 1,518 2002 1,735 100 - - - - - 1,735 2003 1,879 82.1 203 8.9 144 206 9.0 2,288 2004 1,678 66.9 552 22.0 193 277 11.0 2,507 2005 1,645 59.5 747 27.0 260 373 13.5 2,765 2006 1,657 53.8 971 31.5 314 450 14.6 3,078 2007 1,764 51.0 1,216 35.2 332 476 13.8 3,456 2008 1,934 50.0 1,445 37.4 341 489 12.6 3,868

1 The figures only referred to the relative market share of the three prescription drugs. 2 1 = US$1.4331 on 24 August 2009. 3 In November 1999, Viagra accounted for 92% of new prescriptions for erectile dysfunction in

the US. See: Keith, A. (March April 2000) “The Economics of Viagra”, Health Affairs, 19 (2), pp. 147–157, http://content.healthaffairs.org/cgi/reprint/19/2/147 (accessed 9 September 2009).

Source: Pfizer Inc (2004 2008) “Annual Report”, http://www.pfizer.com (accessed 18 August 2009); Eli Lilly and Company (2003 2008) “Annual Report”, http://www.lilly.com (accessed 24 August 2009); Bayer AG (2003 2008) “Annual Report”, http://www.bayer.com (accessed 24 August 2009).

EXHIBIT 17: COMPETITIVE LANDSCAPE FOR ERECTILE DYSFUNCTION DRUGS IN CHINA

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