Categories: Intellectual Property, Life Sciences, Pharma, Biotech, Litigation and Arbitration, Blog
How can CMO protect themselves from lawsuits?
Pharmaceutical contract manufacturers ("CMO"[1]) have a duty to ensure that their activities do not infringe patent rights of third parties. It is irrelevant whether or not CMO carry out their activities solely for their customers, i.e. typically for marketing authorisation ("MA") holders ("Customers").
Therefore, CMO are exposed to the risk of preliminary injunctions[2] by third parties who own patents whose scope includes activities of the CMO. This exposure applies particularly, but not only, to CMO of generics and biosimilars.
The Swiss Federal Patent Court's judgment S2022_003 of 3 January 2023 (preliminary injunction proceedings, "Judgment S2022_003"[3]) for the first time provides some guidance how CMO can mitigate this patent litigation risk.
1. Contract Manufacturing is an Act Relevant Under Patent Law
The exclusive effect of a patent in general covers any commercial use, in particular manufacturing, storing, offering, placing on the market, import, export and transit as well as possession for these purposes. Thus, activities of CMO who manufacture intermediates of a medicinal product and/or the final product for Customers may also be covered by patent protection.
2. Exception: Acts Required for the Admission Procedure
However, acts that are a prerequisite for the MA in Switzerland or in countries with equivalent medicinal product control[4] remain excluded from the effect of the patent ("Swiss Bolar Exemption").[5]
In particular, all activities for the purpose of preclinical and clinical trials to obtain data for the MA, the production, import and submission of samples (containing a protected active substance) for the admission authority as well as the production of validation batches required for the MA are exempt under the Swiss Bolar Exemption.
By contrast, acts that are not necessary for obtaining the MA under the applicable regulation are not exempt from the Swiss Bolar Exemption; this in particular applies to the production of a patented product for stockpiling with a view to placing it on the market after the expiry of the patent protection period.
According to the Swiss Federal Patent Court[6], CMO can also invoke the Swiss Bolar Exemption for activities relevant to authorisation.
3. Patent Litigation Risk Exposure of CMO
As the case constellation underlying the Judgment S2022_003 shows, it can, from a tactical point of view, be worth considering for a patent owner to sue the CMO (and not the Customer) for preliminary injunctions. If successful, the patent owner can use this route to obtain a provisional ban on the CMO's activities for the Customer in question – and thus prevent or at least significantly delay the competing product already at the development stage.
In particular, a patent owner may obtain preliminary injunctions against a CMO if they credibly show that the CMO
- has already carried out acts within the scope of the patent which are outside the Swiss Bolar Exemption (risk of repetition) or
- intends to carry out such acts (risk of first infringement).[7]
In case of such lawsuit, the CMO is forced to undergo the patent proceedings, even though the CMO's interest is actually limited to merely providing development and production services for the Customer.
4. How Can CMO Protect Themselves Specifically?
In many cases, CMO do not have information on the IP rights situation of the activities they carry out for Customers. To clarify the IP situation themselves, CMO would have to carry out/have carried out a freedom-to-operate (FTO) analysis for each Customer order.[8]
However, as the Swiss Federal Patent Court clarified in the Judgment S2022_003, the CMO may refrain from having carried out an independent FTO analysis, if they take other precautions to rule out a risk of repetition and a risk of first infringement:
- Arrangements to Rule Out a Risk of Repetition
In order to rule out a risk of repetition, the CMO must ensure that no activities outside the Swiss Bolar Exemption take place before the IP right situation has been clarified. Suitable for this purpose are contractual regulations with the Customers regarding- the clear distinction between activities (i) for obtaining the MA and (ii) the commercialisation of the pharmaceutical products, and
- clarification that activities aimed at commercialisation will only be undertaken after the Customer (MA holder) has provided evidence of freedom to operate by means of an independent FTO analysis.
The CMO is required to ensure the implementation of these contractual regulations in their business in a documented manner, for example by means of instruction of the responsible staff that activities aimed at commercialisation require the explicit approval of the management once the IP rights situation has been clarified.
- Arrangements to Rule Out a Risk of First Infringement
In order to rule out a risk of first infringement, the CMO must ensure in a documented manner that activities outside the Swiss Bolar Exemption only take place after the Customer has submitted an independent FTO analysis confirming the freedom to operate.[9] - Arrangements for Indemnification
Finally, it is advisable for the CMO to include a comprehensive indemnification clause in the contractual provisions with the Customer in the event that the CMO has to defend themselves in court or out of court against patent infringement allegations by third parties.
[1] The term includes Contract Manufacturing Organisations (CMO), Contract Research Organisations (CRO) and Contract Development and Manufacturing Organisations (CDMO).
[2] Of relevance here are preliminary injunctions aimed at provisionally prohibiting the CMO from development and/or production activities for a Customer due to threatened patent infringement.
[3] The authors point out that they acted in the proceedings S2022_003 as party representatives. The Judgment S2022_003 is available (in German) at www.bundespatentgericht.ch.
[4] This currently includes Australia, EU and EFTA countries, the UK, Japan, New Zealand, Singapore and the USA (Swissmedic, List of all countries with equivalent medicinal product control, as of 28 February 2023, available at www.swissmedic.ch).
[5] The Swiss Bolar Exemption is inspired by the "Bolar Exemption" of the US Hatch-Waxman Act, but its content goes further in that it is not limited to activities for the introduction of generics or biosimilars. In principle, it covers all actions that are required from a regulatory point of view in Switzerland or in countries with recognised equivalent medicinal product control in order to obtain the MA under the law on medicinal products.
[6] Judgment S2022_003, cons. 24.
[7] Judgment S2022_003, cons. 23.
[8] It should be noted that before the court, only an FTO analysis prepared by an independent expert may rule out a risk of repetition or a risk of first infringement. An FTO analysis that is merely internal (i.e. prepared by the Customer or the CMO itself) is not suitable for this purpose (Judgment S2022_003, cons. 26).
[9] Judgment S2022_003, cons. 25. and 26.
