Back in 2004, following corresponding legislation in the US (Hatch Waxman Act) Israel amended their Patent Law to Provide for patent term extensions with what is known as the third amendment the Israel Patent Law. This creates a regime wherein during the period of patent protection genetic players may develop synthesis routes and seek regulatory approval for genetic versions of patented drugs, and, to ensure at least 14 years of post regulatory approval sales under a monopolistic patent regime, the basic patent may be extended by up to 5 years.
The third amendment was ambiguous and in an ex-partes ruling affecting three patents in what is now known as the Novartis ruling, Acting Commissioner Israel Axelrod understood that the amendment was designed to give a real advantage to the drug development companies and they could choose the country to base their patent term extension on. This was not what the Knesset intended and the amendment was again amended in what is now the Seventh Amendment of the Israel Patent Law, to tidy up this and other ambiguities of the original amendment.
In 2006, under intense pressure from the US who put Israel on their special 301 Watch List of countries not properly protecting Intellectual Property, the State of Israel amended their Patent Law again.
The Seventh Amendment has retroactive effect. The Patent Term Extension laws have, meanwhile, been amended again (Eleventh amendment to the Law). However, this ruling relates to the 7th amendment.
The Original Ruling of the Commissioner of Patents
Since the 7th amendment provides a shorter period of protection and since it is retroactive, the Association of Israel Industrialists appealed the original patent term extension concerning Israel Patent Number 110956 for Ezetrol, a drug that is used to lower cholesterol levels in blood. In consequence, the Current Commissioner of Patents, Asa Kling, shortened the previously granted patent term extension for of 1014 days to 496 days.
Merck appealed the Commissioner’s decision to the District Court on constitutional and other grounds and argued that the seventh amendment should either be interpreted narrowly so that property rights already granted by law cannot be rescinded, or that the Seventh amendment should be struck as unconstitutional.
Ezetrol is a drug that is used to lower cholesterol levels in blood. Israel Patent Number 110956 to Merck Sharp & Dohme Corp. (formally called Schering Corporation) is exclusively licensed to Merck & Co. Inc., whose daughter company in Israel has the rights to distribute the drug in Israel.
The Commissioner of Patents first ruled that the basic patent which was due to expire on 13 September 2014 would be extended and would expire on 23 June 2017. However, this period of 1014 days was subsequently shortened to 496 days and the drug will therefore expire on 22 January 2016. See here.
The extension itself issued under the then version of the Law (third amendment) on 22 September 2005. The commissioner’s revised ruling was based on a submission of 7 January 2013 from the Association of Israel Industrialists requesting to shorten the extension period based on the seventh amendment of Section 64K from 2006.
64K states that the Commissioner may, on application by a person who is not the holder of the basic patent or of an exclusive license, cancel an extension order, if he concludes that there are grounds on which the grant of the extension order can be opposed; the Laws of prescription shall not apply to an application for cancellation under this section.
According to the Association of Israel Industrialists this shortening of the period of protection was legitimate since Section 22 of the amendment explicitly makes the amendment retroactively applicable.
Section 22(a) states that the instructions of the original Law, as phrased, will apply to extension requests and to extensions given before the amendment enters into effect, as long as the basic patent that was the basis of the patent term extension request is still in force. Section 22(b) notes that the above is true, however extension orders issued prior to the amendment would not lapse merely for failing to fulfill the requirements of Sections 5 or 6 of 64D of the main law, as detailed is Section 3 of this Law.
According to the Association of Israel Industrialists, since the basic patent had not lapsed when they petitioned the Commission on 7 January 2013, the Commissioner should apply the amended Law. The Commissioner accepted this argument and therefore shortened the patent term.
The patentee disagrees. They consider that since an extension was given on 22 September 2005, they had a property right for the extension period as ruled, and despite the seventh amendment, this right was inviolate for two reasons:
- Property is a basic constitutional right under the Basic Laws of 1980 and so it is appropriate to interpret new laws in a way that prevents retroactive cancellation of property. Applying the 7th Amendment retroactively would be unjust and would certainly destroy property, certainty, stability and fair expectations, where the patentee has relied in good faith on an extension that has already issued. Relying on the issued patent, Merck claims has resulted in their planning, development, pricing and marketing of the patent protected drug. Applying the transition rules in a way that provides retroactive protection should therefore only be allowed in other cases, where doing so does not adversely affect rights already granted.
- If the amendment cannot be interpreted in such a manner that it excludes retroactive application of the law to issued patents, then it should be cancelled as it is unreasonable and thus contrary to Section 8 of the Basic Law, Human Rights and Freedoms 1980, under which one does not abrogate property rights unless doing so is in accordance with the basic values of the State of Israel, has a correct purpose and is proportionate, or covered by a specific law. According to the patentee, there is no fitting purpose that would justify applying the Law retroactively, and such retroactive application is not proportionate.
The patentee further claimed that the the Seventh amendment to the Patent Law should be canceled due to inherent flaws in the legislative procedure. Specifically the patentee alleged that the Knesset members were presented with a false picture of what the current Law was and the effects of the amendment, such that the amendment was based on a flawed understanding. This allegation was thrown out, as it was not proved, and there is a working assumption that the Knesset committees are open to hear all views of relevant parties and thus there is a working assumption that final amendments are based on a proper intelligent understanding.
The patentee also claimed that under Section 17c(i) of the Knesset Law סעיף 17(ג1) לחוק הכנסת the Commissioner of Patents should have made the Knesset a party to the opposition proceedings. This claim was also thrown out based on the precedent 4550/13 Bahat vs. Ministry of Health.
During the original hearing regarding shortening the patent term, the patentee argued that since there were no special regulations for calculating patent term extensions, the Amendment should be thrown out as inapplicable. The Commissioner rejected this position claiming that the calculation does not require special regulations since the Law itself explains the method of calculation making regulations for this unnecessary and superfluous.
In addition, Merck argued that even if the Commissioner considers his hand tied and that he has to apply the seventh amendment retroactively as per Section 22, he still should not understand this to mean that the patent would lapse on 22 January 2016 instead of 23 June 2017. Merck requested application of Section 64(9)a of the Law that states that “a patent term extension will remain in force, as per 64(10) for a period equal to the shortest patent term extension granted by a country offering patent term extensions (excluding temporary extensions) from a known country” [Bolar Country – MF]. The shortest term was the 497 day extension granted by the USPTO and should be the maximum extension.However, this was granted only on 23 August 2006 and didn’t exist on 22 September 2005 when the patent term extension issued. Nevertheless, the patentee is entitled to 14 years post regulatory approval marketing under patent conditions from the earliest approval, which was Germany on 17 October 2016 and not 22 January 2016, so even if an extension to 23 June 2017 is no longer applicable, Merck was still entitled to a patent term extension until 17 October 2016.
All the above arguments were raised in the the original hearing regarding shortening the patent term before the Commissioner of Patents who threw them all out, ruling that the patent should lapse on 22 January 2016. Citing the patent term extension in IL 83148 to Roche (13 June 2007), The Commissioner considered that any interpretation of the transitional period to cases where the patentee’s rights were not damaged would empty the legislation of meaning. Furthermore, the Commissioner cited a Supreme Court precedent relating to retroactive taxation of the findings of oil exploration, that made it clear that retroactive legislation that canceled property rights though problematic, were, nevertheless possible.
As detailed in Calne , the Commissioner considered that the 7th Amendment was carefully crafted to strike a balance between the different interests and was in accordance with the limitations of the Basic Laws, and, citing 4550/13 Bahat vs. Ministry of Health stated that the Courts would only intervene in Knesset legislation in extreme cases, and not where the Knesset merely regulates the market and economy, and that the courts should act with restraint. Furthermore, the transitional legislation makes clear what the Knesset chose from the various available options.
The Commissioner considered that there was a lack of evidence supporting assertions of the patenteee that Knesset were unaware of the patentee’s interests when amending the Law. Furthermore, the protocols of the Knesset committee meetings from 11 October 2005, 7 November 2005 and 12 and 13 December 2005 indicate to the contrary.
Finally, arguments to use the German patent as the basis of the extension were rejected by the commissioner as this would imply applying the eleventh amendment before it was legislated.
In their Statement of Appeal, Merck reiterated their arguments as previously submitted to and rejected by the Commissioner.
Judge Greenberg considers that these arguments may be variously categorized as (i) interpretation of the Law, (ii) Constitutional arguments, and (iii) technical arguments.
The Association of Israel Industrialists requested that the Commissioner’s ruling be upheld, and accused Merck of submitting a creative interpretation that did not sit with the wording of the Law, and the retroactive nature of the Law clearly applied to both procedural and substantive issues. The Seventh amendment was not a new judicial regime but merely a clarification of the Knesset’s intent regarding the third amendment. Although the eleventh amendment was not retroactive, it is clear that the seventh amendment was.
As to basing the extension of the US, it was Merck who decided to use the US as the country of record, selecting this as per the third amendment as interpreted by Axelrod, and the Commissioner was right to consider the US extension only, and not to relate to the German case.
After considering the submissions of the parties, Judge Greenberg concluded that the Appeal should be partially accepted. As far as the patentee’s assertion that the transition clauses of Section 22 should only be applied procedurally but that the retroactive application of the Law damaged a granted property right and should not be applied, this was unacceptable. Laws are generally expected to apply henceforward. However, this generalization can be challenged when explaining the Law. In this instance, Section 22 does not allow a from now onwards explanation since it states explicitly that the guidelines of the main law, as legislated, shall apply to pending patent term extensions and to patent term extensions that have been issued as long as the the basic patent is still in effect.
Thus it is clear that the amendment to the Law may be applied retroactively to already issued extensions. The Amendment is clear and is not open to creative interpretation.
Furthermore, Section 22b states that new considerations for granting a patent term extension could not be applied retroactively. Thus it is clear that the legislators were aware of the difference between legitimate challenges to property rights and those that were illegitimate.
This raises the issue of the legislator’s intention in the amendment. The Association of Israel Industrialists argued that the purpose of the retroactive nature was to repair the damages from the third amendment to prevent the Commissioner’s interpretation in Novartis, which the legislators considered was contract to the intention of the Law, and resulted in the 7th amendment. The patentee disagrees and claims that the amendment had nothing to do with Novartis which was not appealed and the Association of Israel Industrialists never tool any steps to change this ruling. Rather, the Association of Israel Industrialists ran to the legislative to amend the Law, shifting the balance away from the drug developers and in favour of the generic companies it represents.
The Association of Israel Industrialists’s position in this regard is persuasive to the judge. The Appellant (patentee) has not given any alternative explanation for the retroactive effect of the amendment and so has to claim that the legislative committee was mislead. These claims of of flaws in the legislative process require some evidence which is not there. Rather, as the Association of Israel Industrialists has demonstrated, the Committee considered a wide range of perspectives from the relevant players and this leads to an assumption that the they did their job properly and the amendment is based on a full consideration of the conflicting concerns. Consequently, the Law is exceptional in that it consciously and intentionally retroactively changes the duration of patents from their duration prior to the rule without the Appellant being able to explain this. Alternatively, one can conclude that the amendment was designed to correct a lacuna in the original amendment and the Appellant is wrong to consider this separate and independent from the Novaris case.
Thus contrary to the Appellant’s reading, the Judge refers to the words of explanation for the amendment (Proposal 187 from 5 July 2005, page 1002 which states that “The proposed legislation is designed primarily to to clarify issues that were raised in applying the Law concerning patent term extensions and the conditions for applying for them, and for the way of calculating the extension and when it terminates”.
Thus it is clear that the Extension was designed to clarify the way extensions were calculated and not to create a new calculation that contradicted that of Section 3. The Section 7 amendment was did not relate to Novartis, it was only related to in the decision, only in the poorly worded Law itself, which led to the explanation given in the Novartis ruling.
Had the legislators had the skill to word the third amendment correctly to reflect their intention, as they did in the 7th amendment), the Novartis ruling would never have issued, and the law would have remained as it was.
This leads to two conclusions. Firstly, as far as explaining the Law is concerned, it is clear that the law should be interpreted such that the transition clauses are as stated and that the Legislators intended the calculation as stated in the 7th amendment, for previously extended cases as well because the purpose of the amendment was to correct them. Secondly, in the constitutional area, one can conclude that the amendment is in accordance with the limitations of Section 8 of the Basic Law Human Dignity and Freedom, since the retroactive application is proportional. This is also clear from the three tests that the courts use to review the proportionality of laws, and are appropriate in the case in question that relates to the transition period. See Supreme Court Appeal 1715/97 The Investment Agency of Israel vs. the Minister of Finance, P.d. 51 (4) 367 (1997), page 407.
The relevant law is Section 64(xi)a which states that the extension will remain in effect as per section 10(x) for at least the shortest of the extension periods given for the basic patent, apart from temporary rulings where necessary.
The judge noted that according to the commissioner and to the respondent, once it is clear that the extension given in the US is the shortest extension,despite it issuing a year after the patent term extension, it is, nevertheless, the shortest extension. Whilst this interpretation is in accordance with the terminology of the Law which specifies the shortest extension without relating to when it issues, this interpretation means that a later decision can shorten an extension that has already issued. Judge Ben-Zion Greenberger considered this interpretation untenable since it would make all patent terms unknown and would leave things open making it impossible for companies to plan.
Judge Greenberger also considers the extension granted in the US under the third amendment should not be applicable to the Seventh amendment in Israel since the proceeding is different, the rules for calculation are different. The Opposer of the extension does not need to search for the shortest period issued, as per the Commissioner’s ruling in the Novartis case.
On the basis of the above, the Commissioner’s reliance on the US patent to retroactively amend the Extension period was wrong since at the time of the application, it did not exist. Once the US extension is not considered, then there is consensus that the next shortest period was that issued in Germany. Judge Greenberger therefore restored the extension period to 17 October 2016 and ruled 25000 Shekels costs to the patentee.
Appeal against Commissioner of Patents Decision Concerning the Patent Term Extension for IL 110956 for Ezetrol, 10 November 2015.
Although retroactive legislation is problematic and uncommon. It does happen. The change in the Patent Law to allow internet publication of the journal is an example of retroactive legislation.
Interestingly, the Talmud recognizes this legal creation as הפקר בית דין הפקר, that a court can cancel property rights. It may be used to retroactively annul a wedding by making retroactively removing the ring given by the groom to the bride from the groom’s property.
The patentee’s argument is based on the assumption that a patent is a property right and that patent term extensions are therefore somehow inviolate. I disagree. I think that patents are, by their nature, intrinsically uncertain. They can be voided due to prior art at any time after they issue. When patent term extensions came into effect, they were applied to pending patents and to issued patents that were already in force. They granted an additional period of protection to companies that had priced their drugs without knowing that this would happen. Patent term extensions are already exceptions. It was clear to all parties that the Law was flexible and depended on the international agreements. Patent term extensions are thus exceptions to a rule that tries to find a fair balance between competing rights. Since the amendment was supposed to ensure that Israel manufacturers were not disadvantaged when compared to their foreign counterparts, the amendment was knowingly and willingly legislated so as not to disadvantage Israel manufacturers. There is nothing final about patent term extensions.
Achieving a partial success and using the German patent instead of the US one as the basis for the patent term extension was an achievement. Nevertheless, we suspect that this ruling will be appealed to the Supreme Court.