5. Proposed Guidelines Will Encourage Frivolous Litigation Against Generic Companies and Create a Chilling Effect on the Generic Industry

The proposed Guidelines pose a serious threat to local generic companies and the development of Malaysia’s generic industry. In particular, Category 4 exposes generic companies to frivolous litigation by patent-holding originator firms. Even where there is no genuine patent infringement, originator companies have a strong incentive to initiate legal proceedings, as doing so will automatically trigger a suspension of the registration process. They may then prolong these proceedings to benefit from the full 12-month delay. Such delays enable originators to maintain market exclusivity, sustain high prices, and maximise profits. In effect, NPRA’s proposal creates a structural incentive for increased litigation against generic companies in Malaysia and will significantly delay the entry of affordable generic products.

The proposed Guidelines also undermine a very important business strategy of generic companies i.e. to “launch at risk” where they are aware that the remaining patents are weak and/or will not be infringed.

Most generic companies in Malaysia are small and medium enterprises (SMEs) that lack the financial capacity to withstand repeated or prolonged legal challenges. As a result, the threat of litigation alone— even in the absence of any actual patent infringement—can deter these companies from seeking marketing authorisation. This creates a chilling effect, discouraging generics from entering the market as early as possible, not due to legal merit, but to avoid the risk and cost of frivolous lawsuits.

The British Generic Manufacturers Association (BGMA) presenting evidence to the Parliament in the United Kingdom on the potential impact of mandatorily notifying the originator, when the generic companies launch as risk highlights that: “[l]egal proceedings may be triggered by prior notification and commonly delay generics getting to the market by several years. This pushes some generic launches past the originator loss of exclusivity date. Moreover, some generic companies may be reluctant to file an MA [marketing approval] in the patent term fearing the front-loaded cost of legal action”.

The BGMA further adds that “If multiple generics are likely to come to the market at the same time, the first to decide to enter the market does so for everyone, necessarily incurring the time, expense and litigation risk of the legal proceedings. The share of the generic market for that product ultimately available to the generic litigant may be less valuable than the cost of litigation” adding as well that “reluctance to be first to file MA applications would significantly delay generic market entry for some patent protected medicines. Moreover, it would make it riskier and more expensive for a generic competitor to consider launching where a weak patent exists, thus deterring some from developing a product to bring to market at all.”

The link between patent linkage mechanisms and increase of patent litigation is undeniable. Studies in both the United States and Korea have shown that more patents have been filed after the coming into force of patent linkage provisions with a surge in patent litigation. The increase in patent litigation is detrimental to access to affordable medicine. The increase in litigation costs is a heavy burden especially for SMEs, impacting their ability to bring generics into the market.

In the US, the Federal Trade Commission (FTC) also found that, in 73% of the cases in which a decision was reached on the merits, the generic company was successful in invalidating the patent, clear evidence that most of the legal proceedings initiated by the patent holder were frivolous, mainly aimed at delaying generic competition. As highlighted above, even if the patents are weak/invalid, Malaysian generic companies, which are mostly SMEs will be deterred by the costs of litigation.

Interestingly in the US, the FTC also found that in several cases, the issue of patent validity was never determined as the patent holder and the generic company concluded settlements that delayed generic market entry. “Pay-to-delay” patent settlements, a by-product of the linkage system are now the subject of further FTC scrutiny as they keep more affordable generic versions off the US market, costing consumers and taxpayers US$3.5 billion in higher drug costs every year.

In Canada, linkage has also created a significant backlog in the Canadian Federal Court system. In 2008, there was a team of approximately 30 Federal Court judges devoting some or all of their time to about 350 separate drug patent cases and “The Supreme Court of Canada has, on multiple occasions, held that the automatic stay issued to patentees under the NOC Regulations is an 'extraordinary' remedy, not available to patentees in any industry outside of the pharmaceutical industry.”