Israel Commissioner Vindicated by Supreme Court

appealMerck & Co. LTD is the exclusive licensee of IL 110956 for Ezetimibe owned by Schering Corporation. The patent protects the active agent Ezetimibe as found in the pharmaceutical Ezetrol, or Zetia, which reduces the amount of cholesterol in the human body. The original 20 month patent term lapsed on 13 September 2014. However, on 22 September 2005 the patentee received a patent term extension until 23 June 2017. Later however, in September 2014, following a submission by the Association of Industrialists in Israel, the Commissioner of Patents, Assa Kling, ruled that the patent term extension for IL 110956 for Ezetimibe be shortened until 22 January 2016 on the basis of the subsequently issued, shorter patent term extension of the corresponding US patent, and awarded costs of 40,000 Shekels from Merk to the Association of Industrialists.

constitutionalMerck, represented by Liad Whatstein, appealed the ruling, using arguments that failed to persuade the Commissioner, including that the law itself was unconstitutional since it destroyed property rights which were recognized in basic laws (section 8 of the Basic Law of Human Dignity and Freedom. 1980. Furthermore, the fact that the subsequent amendment to this section is not retroactive supports the allegation of lack of constitutionality.

In Appeal number 5407-11-14, the Jerusalem District Court upheld the constitutionality of the Law but recalculated the extension until October 2016 based on the duration of the corresponding German patent.  On 11 April 2014, a tribunal of Supreme Court Judges Danziger, Hendel and Shaham heard an Appeal by Merck on the constitution issue, and one by the Association of Industrialists in Israel wanting the shorter term calculated by the Commissioner to be restored. The Association of Industrialists in Israel were represented by Adv. Tal Band, and the Legal Counsel to the Govt. Ms Shimrit Golan joined the Appeal on behalf of the government.

On Appeal Judge Hendel of the Israel Supreme Court reviewed and justified the various amendments and ruled that shortening the period of a previously ruled Israel Patent Extension Order during the 20 year pendency of the original patent was constitutionally sound, as was doing it on the basis of a subsequently issued shorter protection period from a recognized country.  Judge Handel painstakingly but beautifully explained the background to the patent term extension legislation and why it was filling to link Israeli extension periods on those granted abroad. He jsutified the extension regime which is an exception to patent norms, and threw out Merck’s argument. The rigorous analysis was concluded by a section on comparative law where Judge Handel first related to Mishpat Ivri (Jewish Civil Law) and showed that there were echos of intellectual property rights in the Talmud, and that scholars of the 19th to 21st centuries related to patent law. He argued that the Jewish tradition recognises both quasi-property rights in inventions and creative activity but frowns upon tradesecrets, particularly with respect to pharmaceuticals, noting the case of Rabbi Yohanan a handsome scholar that lived in Zipporis in the Galilee who contracted scurvy, and then broke the trust of a roman matron that cured him, revealing the cure in his sermon, because of the public interest. The analysis of the Jewish sources was masterful. Then Judge Hendel briefly reviewed the US law and its developments, concluded that the US and Israel were both trying to create a fitting balance between the needs of the drug developers to benefit from a real period of protection after obtaining regulatory approval to enable them to sell their drugs at a premium and recoup their investment, and the needs of local generic drug companies to be able to compete with their foreign counterparts but them being able to conduct acts required to obtain regulatory approval during the extension period. Judge Handel noted that there was public interest in encouraging drug development by pharmaceutical companies who had to make enormous investments to bring new treatments to the market. However, there was also significant public interest in widespread and affordable drugs.

Merck’s appeal was rejected by Judge Handel and Judges Danziger and Shaham concurred without comment. Judge Handel noted that were Merck NOT to have appealed, the Appeal by the industrialists on the District Court’s actual calculation would not have been heard, so Merck’s second appeal actually resulted in a shorter patent term extension than they would have received otherwise.

I consider this ruling objectively important and very well written. Due to the significance of the issues raised, I have translated the entire ruling to make it available to non-Hebrew speakers, noting that computer translations were of little value. I have posted the full translation below the following page break as a public service. I have not used the term ‘ethical’ which Judge Handel used to refer to the drug developing countries, and occasionally have not translated idioms, or used an English language metaphor where it appears to be appropriate. The illustrations to the ruling are my contribution. I think they liven things up a bit. If you find them distracting, adjust your settings to view text only! Please note, translating this took a few days and I put billable work aside to the chagrin of various clients. I would appreciate that anyone using this translation has the decency to attribute and to link to this blog.

In the ruling, Judge Handel notes that the Israel Law, like that of otherglobal village jurisdictions, recognizes patents. Simply put, and maybe too simply put, a patent provides the patentee with ownership or something similar and creates a bundle of rights. There is nothing new here and Patent Law was first legislated hundreds of years ago. What is new is that with respect to patents, the world has become a global village. Granting a patent in one country will affect the registration in other jurisdictions and cancelling a patent in one jurisdictions may result in the patent being voided elsewhere. This is not merely economics, but is part of the substantial law of Patents.

patent extension

A further characteristic of Patent Law is that the monopoly rights that issue are not everlasting but is for a limited period. The period of protection in Israel, as per Section 52 of the Israel Patent Law 1967, is 20 years from filing (where the PCT filing date is the date for counting PCT national phase entries – MF).

This period is fixed, but there is an exception. Where a drug is involved, since, in addition to IP protection, the applicant must also obtain approval from the Ministry of Health prior to marketing. An exception to the 20 year rule enables patentees to benefit from an additional period of up to 5 years to ensure a minimum window of 14 years for product marketing. This procedure is known as an Extension Order. The details of extension orders stand at the junction between territorial rights and pendency periods and an extension in one country can affect the extension elsewhere. It is not for nothing that the Govt Legal Advisor requested to join the case and to express his opinion.

Previous Rulings and Parties’ Claims

Before the Supreme Court two Requests for Appeal were submitted against Appeal 5407-11-14 to the Jerusalem District Court of a Commissioner of Patents decision concerning Israel Patent No. 110956 from 18 September 2014. The first relates to the constitutional legality of shortening a Patent Extension once issued in light of fundamental property rights under Basic Law, and the second deals with how a patent extension term should be calculated in the specific set of circumstances. The Commissioner ruled that even after issuance, a patent extension could be shortened, and that the correct extension is the shortest period when considering the various issued patents that can be allowed upon for basing the extension. The District Court concurred that issued extensions could, in principle, be subsequently shortened, but made a different calculation, extending the duration of the patent for a longer period than that ruled by the Commissioner.

Both Requests for Further Appeal 8127/15 and 8263/15 (henceforth Merck) relate to theezetimibe rights under Israel Patent Number 110956 which is the basis of Eztrom, which reduces high cholesterol levels in the blood. Section 52 states that a patent is for 20 years from the filing date. Merck’s patent application was filed in 1994 and would, without extensions, have lapsed 20 years later on 13 September 2014. However, in 1998 the Law was amended (amendment 3) to allow for patent term extensions in certain circumstances. Merck took advantage of the amendment and requested a patent term extension which was granted in 2005. That extension was to have lasted until 23 June 2017. In 2006, after that extension issued,  the Law was amended again (amendment 7). The 7th amendment limited patent term extensions to the shortest extension given by any country from a specified list that had issued a patent term extension. See Sections 64(i) and 64(j) of the amended Law.

In 2013, the Patentee submitted Request to Appeal 8127/15 claiming that shortening the issued extension is unconstitutional, and the Association of Industrialists in Israel submitted Request to Appeal 8263/15 against the Jerusalem District Court’s calculation that exceeded that of the Commissioner’s, albeit being less than the original extension. The Commissioner’s ruling was based on the US patent extension that was until 22 January 2016, whereas the District Court ruled that the correct basis for the extension was the corresponding German patent extension that would have kept the patent in force until 17 October 2016.

MerckMerck alleged that the plain meaning of the Seventh amendment unconstitutional and argued that a constitutionally acceptable interpretation would by not to apply the amendment to extensions already issued thereby leaving the basis for extensions as patents that had previously issued. The Association of Industrialists in Israel rejected this creative interpretation and argued that the Court of Appeal’s ruling on this regard should be upheld, but nevertheless appealed Court of Appeal’s ruling to rely on the German patent as the basis for the patent term extension, and the argued the Commissioner’s ruling basing the amended extension on the US patent should be restored. The Association of Industrialists contended that the judge had not given sufficient weight to the language and intention of the Law and to other indications that all led to the conclusion that Extensions could be cut short in light of subsequently issued briefer Bolar country protection periods. Merck, on the other hand, claimed that if the extension could indeed be shortened, Judge Goldberger’s calculation was correct. The Legal Adviser to the Government joined the Appeal, invoking his privilege to do so under Section 1 of the Civil Procedures and supported the Association of Industrialists position that the Commissioner had correctly implemented the Law.

Ruling

The correct calculation of the Extension in light of the Law is first considered, and, on the basis of this, the constitutionality or otherwise should become clear.

ambuguityAlthough after subsequent amendments, the sections of the Law concerning Patent Term Extensions is less ambiguous, there are still issues requiring clarification and this is important for other patent term extension orders. Consequently, Judge Hendel saw fit to apply the Law to the specific case in a pedestrian manner to clarify ambiguities. That said, Judge Hendel takes notice of Merck’s claims that the exact set of circumstances is unlikely to repeat itself. Merck has stated that what happened in Israel could not have happened in Europe as the Law prevents it. However, the Judge notes that patent term extensions are dynamic animals and the Law keeps changing, both in Israel and abroad. Since the Law, as currently phrased (7th amendment) is in force in Israel the Appeal was granted. Furthermore, Merck has not fully explained the European situation and the Judge is not convinced that similar issues could not occur there. That as may be, in one form or another, the issues raised in this case may arise in other instances and so the Supreme Court has granted right of Appeal.

The Association of Industrialists position is based on how Section 64(i)should be understood. Section 64(i) states:

64I.—(a) An extension order shall be in effect, subject to the provisions of section 64J, for a period equal to the extension period that can be given for the patent that protects the material, the medical preparation that incorporates the material or the medical equipment claimed in the basic patent, in a Convention State that permits acts during the term of the patent for purposes of obtaining a license.

(b) If a license was applied for only in Israel, then the extension order shall be in effect for a term that is equal to the period from the day on which the application for a license was submitted and until the license was given; on condition that the application on the applicant’s behalf was submitted and handled in good faith and with appropriate despatch.

One can see that the general principle under the 7th amendment is that a Patent Term Extension in Israel should be that for a similar patent extension issued by one of a list of countries, that in 2006, under the 7th amendment, included 21 states including Japan, Luxembourg, Switzerland and Australia.

As of the 11th amendment in 2014, there are only six jurisdictions that can be considered when granting a patent term extension: the US, UK, Germany, Italy, Spain and France. The 11th  amendment further states that once a patent term is granted, the duration of the term should be the shortest period granted by the considered countries. This changes the rules from those under the 7th amendment which did not mention the shortest period. Furthermore, Section 64(j) gives three limitations to the mechanism for calculating the period:

  1. The extension cannot exceed five years
  2. The extension cannot be more than 14 years from first regulatory approval
  3. If the patent is voided or the extension is canceled in one of the six jurisdictions, the extension in Israel is automatically cancelled.

The present dispute addresses the issue of what happens if after a patent extension is granted in Israel, a shorter extension is granted in one of the US, UK, Germany, Italy, Spain or France? The Association of Industrialists considers that the Israel Patent should lapse with the patent extended for the shortest period applies in such cases. The Legal Counsel to the Government concurs. However Merck, represented by Liad Watstein disagrees on constitutional grounds.  judge Hendel gently points out that it will be noted that the Israel Patent Law has procedures for cancelling an issued patent and for shortening the duration of a patent term extension, if the protection should never have issued – see 64(l). Nevertheless, Merck challenges the shortening of the Patent Term Extension on constitutional grounds. Indeed, both parties interpret the Law and its purpose to their own ends.

The Association of Industrialists must concur that the Law does not explicitly allow subsequently granted shorter extensions abroad to shorten the duration of a Patent Term Extension in Israel. However, Merck is correct that they are not explicitly disallowed either. Both options are compatible with the wording of the Law and the parties have each brought evidence to support their interpretations.

Merck will argue that the Law refers to Israel Patent Office having to grant an extension equivalent to the ‘shortest extension given’, implying that only extensions that were given prior to the Israel Patent Office considering the case can be taken into account. However, the term given could be understood to include all extension once given, and the Israel Extension should, therefore, be adjusted in light of subsequent developments. The Law certainly does NOT state that an extension once given will stand which could be understood to mean that it is continuously open to reassessment.

Similarly, the Law 64(j)3 states that the patent extension in Israel will not last longer than the duration of one of the first extension to lapse, and Merck will argue that 64(i)1 could have chosen a similar terminology and their choice not to so, is significant. However, the Law may be interpreted to support the Dynamic interpretation offered by the Association of Industrialists in Israel.

ambiguity 2The District Court is, however, correct that the Law can be interpreted both ways. It is therefore necessary to consider its purpose. Interpretation of a Law in accordance with its intent is a multi-faceted exercise. The spotlight of the Law includes different wavelengths which together create the beam that shows the citizen the way of the Law. The rays are emitted from different sources, including the historical and analytical substantive background of the amendment, the objective purpose of the law and the subjective aspects – the purpose of the legislators that are apparent from the words of explanation in the |Law, in the proposed amendment, the debates that preceded the amendment and other relevant sources. See 9098/01 Guinness vs. the Ministry of Housing, pd. 59(4) 261 (2004). These sources together with the wording of the Law itself, should be considered when interpreting the Seventh amendment.

The District Court accepted Merck’s claim that shortening an extension, once given, provides uncertainly and leaves things open to the detriment of the company awarded the Patent Term Extension. However, I feel that in the present circumstances, this should not be the end of the discussion. The District Court is stressing certainty and fidelity, but I disagree with this being the over-riding consideration. As Barak discusses (Aharon Barak, Legal Interpretation – Interpreting Legislation, Volume 2, 583 (1993), this is but one ofinterpretationmany relevant factors to be considered where the wording of the Law is open to interpretation. It is unlikely that in this instance, finality was uppermost in the mind of the legislators. Section 64(j)3 seems to be stating that the Patent Term Extension should not last beyond the shortest term of protection granted by other recognized jurisdictions. This implies that the validity of the Extension in Israel is constantly adjustable in light of developments elsewhere. Indeed, Section 64(k) explicitly states that a request to shorten an extension may be submitted after the extension is granted, in other words, the case may be reconsidered. In the draft law proposal the words of explanation were as follows:

It is noted that one can request a patent term extension to be canceled or shortened even if the grounds for so doing arise after the extension was granted, for example where a patent or a patent term extension in a recognized country lapse prior to the end of the extension period.

This may be illustrated by example, but first one should note that the length of the Patent Term Extension granted and the period of the patent lapsing are separate issues. The legislator stressed this by noting that the period of extension abroad and that in Israel should be identical, for example three years, but may vary, for example, where the period of pendency is different due to the patent being submitted at different times in different jurisdictions.

The following example, explains this clearly:

Let us assume that theoretically a patent term extension of three years is granted for a patent in Israel that was due to lapse 20 years from filing, on 31 December 2017. The basis for the extension is a UK patent extension of three years. However, the UK patent is the priority application and would have lapsed on 31 December 2016 had no extension been granted. Section 64(j)3 results in the extension in Israel starting from December 2016 and not from December 2017, so the extension is only until 31 December 2018 (there appears to be a mistake in the ruling as written, but I think this is the intention – MF).  In other words, the legislators were willing to sacrifice certainty to the patentee (and others) due to the more important consideration of ensuring that the two patents lapse at the same time. Merck is trying to differentiate between this example in the words of explanation and the present case before the court. In the case before the courts, the Israel Patent will be the first to lapse and this is the reason that the Israel Extension was shortened. In response and as explained below, this is not a reasonable analysis. Anyway, the example is sufficient to show that certainty of duration was not the main consideration of the legislators. Unlike the District Court which did stress this purpose.”

The words of explanation of the draft 13th amendment from 2012 did state specifically that the amendment was intended to increase the certainty required by the drug companies. Legal certainty is not a concept that is strange to the Patent Law, but it does not stand alone. Alongside certainty, the words of explanation implore the Commissioner to take later developments into consideration and to reexamine the duration of the Patent Term Extension. The 11th amendment was after the 7th amendment and clarified various things but not the issue under dispute which were only addressed in the words of explanation but not in the amendment itself. Nevertheless, this is sufficient to show that certainty was not the prime consideration.

The Government Legal Counsel notes that patent law is characterized by a lack of certainty certaintyand finality when compared to other laws. For example, a patent, though granted can be challenged throughout its lifetime on grounds that it should not have issued. Merck’s claims that these relate to grounds that invalidate the patent that should have been considered prior to the patent issuing. They are correct that there are differences. However, what is clear is that there is no statute of limitations regarding patent life-expectancy and certainty is not a prime consideration when compared to the public interest. Judge Netanyahu related to this in Appeal 217/6 Mordechai Schechter vs. Avmatz LTD, p/d/ 44(2) 864 (1990):

All these express the policy of Patent Law, placing a stamp of temporariness on the patent and granting only provisional protection to the patentee, in the public interest, such that the validity of the patent or the ownership of the patentee are always open to challenge.

If the validity of a patent could not be challenged due to a statute of limitations, such that after a period, the patent rights would be absolute, would contravene the policy and spirit of the Patent Law… the unavoidable conclusion is that Patent Law does not have a statute of limitations and the validity of a patent is always open to challenge.

This understanding is also clear from the Committee of Constitution, Law and Justice (protocol 11 October 2005). For example, the Chairperson M. Eitan stated:

“the patent term extension that is granted is flexible…it I take the countries decided upon, the Commissioner takes the shortest. If subsequently another country grants a shorter period, the commissioner reduces. With this shortening procedure, only the listed countries are considered.”

The central consideration was NOT legal certainty but rather an attempt not to balancedisadvantage Israeli generics but to balance the interests of Israel as a drug developer with her status as a generic provider, and Israel’s status in the world drug markets. Notably, the representative of the Pharma lobbyists that represent drug developers in Israel stated that they prefer the maximum period that may be shortened in light of new information. Certainty did not concern the Pharma lobbyists which include Merck.

Merck alleges that the Law has an additional intention, to prevent the Patent Term Extension or patent lapsing in a foreign jurisdiction whilst the patent is still enforceable in Israel. This, they claim, is the reason for the legislators to cancel a Patent Term Extension when the market in one of the recognized jurisdictions has opened for competition and is the justification for ‘co-termination’. However, sometimes this is not a relevant consideration. In this instance, both with Merck’s calculation and with the calculation of the Association of Israel Industrialists, the Israel Patent is expected to lapse first, since the justification for the patent lapsing is not determined by Section 64(j)3 which relates to the patent lapsing in another jurisdiction, but with Section 64(i)1. According to Merck, only co-determination justifies a lack of certainty. This understanding is possible, but is lacking in several regards.

Firstly, in the explanations to the proposed seventh amendment of the Law, cited previously, the patent lapsing in one jurisdiction was given as “one example”. The term “one example”, indicates that there are other examples. Indeed, the additional example that sticks out from Sections 64(i) and 64(j), beyond that brought by the legislative body, is the case before us.

Secondly, even according to Merck, the legislators are justified to remove certainty in duration so that the Israel Patent lapses together with the patent lapsing elsewhere. Why aren’t other scenarios for removing certainty possible where considerations by the legislators justify it? There are no indications in the law or in the words of explanation to imply that certainty is the main consideration. It will be noted that the words of explanation of the later amendment states explicitly that ONE of the considerations is certainty but it concurrently determines that an issued extension order can be subsequently shortened in cases such as this, even where the patent lapsing is not concurrent.

Thirdly, Merck does not positively relate to any specific purpose attained by the claimed interpretation. What is the justification of the basic calculation? Why should extension orders granted abroad be considered when in any event the Israel Patent will be the first to lapse? Merck does not offer an explanation to this question which is central in resolving the present dispute.

competitionAs a side issue, we note that allowing competition in Israel when competition is allowed in recognized foreign jurisdictions (markets) is certainly a central consideration that concerned the legislators. Most of the discussions in the Committee for Constitution, Law and Justice were concerned with this aspect and discussed whether and in what circumstances it was reasonable for a patent extension to block Israeli generic companies from competing with foreign generics. Merck’s Statement of Case indicates that this subject also concerned international players which considered the Israeli solution legislated in the seventh amendment. However this consideration, however important it is, does not teach the opposite; that there was an intent to prevent competition occurring in Israel as the first market. It is perfectly conceivable that the patent extension will first lapse in Israel. Had the Knesset wanted the Israel patent to lapse concurrently with the first foreign patent extension to lapse, it could have stated this. It did not, but rather chose to adopt a more tortuous and complex arrangement. Under Israel Law, a patent term extension will lapse when the patent protection lapses in any of the recognized countries. The Knesset could have chosen a different arrangement had it wished to. In this instance, the US extension occurred after the Israel Patent extension was granted. Had the US extension issued earlier, Merck would not have had a basis for arguing against the Israel patent extension being determined by the extension in the US and the Israel patent lapsing before the patent in the US.

So what is the purpose behind Section 64(i)8 of the Law and how should it be interpreted? The purpose neither creates certainty nor results in the Israel patent necessarily co-terminating with the patent in a recognized foreign jurisdiction. To answer this question, it is useful to follow the various reincarnations of the arrangement, to consider the purpose of Patent Term Extensions and the ramifications of the Israel patent not lapsing despite having lapsed elsewhere.

key to the lawThe key to understanding the purpose of the Law is to appreciate the uniqueness of the calculation of the extension period. In general, patents provide 20 years of protection. Why should patents for pharmaceuticals be extended and then have their extensions shortened? Paragraph 1b of Chapter 4 of the Law is titled “Extending the Period of Protection”. One can see that Section 64a, which is the definition section, provides for two main channels. The first one is the medical route. It defines a medical formulation, a material – the active ingredient of a medical preparation, It defines marketing authorization as the authorization for marketing a pharmaceutical or a medical device, and so on. The second route is the global route. This section differentiates between different European states and other countries, and differentiates between Europe and the US as far as the registered patent used as the basis for which the extension is requested. What is so special about pharmaceutical patents that they warrant patent term extensions? The answer is that their marketing involves a third-party, the Health Ministry. In this field, an invention is not merely required to be novel, but there is an inherent need to evaluate the utility or damage that a pharmaceutical preparation may cause. Consequently, pharmaceuticals are regulated and have to be authorized as a precondition for marketing. The authorization takes time, and there is thus a delay between the date when a patent application is submitted and the date when the pharmaceutical covered by the application is available for use by the consumer. This delay does not occur, or is at least less significant in other fields. For this reason, patent term extensions were conceived.

madnessThe extension period is NOT intended to be determined randomly. There is an assumption that 20 years of patent protection incentivizes inventors. This is the underlying assumption of the Law. It follows that variations from this pendency are caused by this need to incentivize the inventors, or at least are significantly dependent on this. It is noted that each field is different and unique; applied physics is different from agriculture, and both are different from pharmaceuticals.  Incentives, market forces, global effects and other considerations are not necessarily similar. In the present day, the pharmaceutical issues are central to the economy.  Investments are enormous and the sums generated are gigantic. The public interest is financial, but not only so. The individual who is ill (G-d forbid) may rely on these drugs.  There is a link between this significant financial endeavor and the quality of the service to the public. The result of this is that the determining of an appropriate patent term extension requires navigating between lofty considerations and the legislator as a regulator has to supervise the state of affairs in Israel and the world, so that the period of pendency of a patent in Israel will conform to the period elsewhere, noting worldwide developments. Jumping the analysis we note that the purpose of the patent term extension is to compensate drug developers with an appropriate period of (productive) protection but not to over-compensate them. There is a consideration to standardize the protection provided by different countries and this consideration is more significant that the constancy provided by knowing in advance how long a drug is to be protected, although this also has a major part to play in the picture. Essentially, the very existence of patent term extensions opens the door to calculations that are not certain but are rather dynamic.

A general overview of the legislative developments

developmentsUp until the 3rd amendment of the Patent Law from 1998, no one other than the patentee could take steps to obtain regulatory approval for a patented product prior to the patent lapsing. The main field that this affected was for pharmaceuticals. In consequence of this, one could only start the process of obtaining regulatory approval for a drug based on a patent, which sometimes took years, after the patent had lapsed. See the definition of ‘exploitation of an invention’ in Section 1 of the Law prior to the third amendment. This state of affairs created a problem: the generic drug companies could only start working on obtaining regulatory approval for their cheaper versions of the drugs once the patent had lapsed, and there were long delays in obtaining regulatory approval. In parallel, in other jurisdictions competitors could start the approval process before the patent lapsed. This created a situation where the day after a drug patent lapsed, foreign generic companies could file for regulatory approval in Israel having already obtained it elsewhere, whilst local companies were only able to start the regulatory process; which was bad for the local market and for the export market. Consequently, it was decided in Amendment 3, to allow the patent to be utilized for the purpose of obtaining regulatory approval but not for marketing (or stockpiling) whilst the patent was still in force. See Section 3 and the current definition of exploitation of a patent; section 54a; Appeal 2826/04 Patent Office vs. Recordati Ireland LTD, p.d. 59(2), 87-88, 28 Oct 2004; Amir Friedman Patents, Law, Case law and Comparative law, pp 123-145, 688, 751-752 (2001).

This amendment addressed the problem of the generic drug manufacturers but creates a problem to the drug developers in that the effective protection that they attain is shortened. Prior to the third amendment, the drug developers received an effective patent term extension beyond the patent lapsing, due to the time required for generic manufacturers to obtain regulatory approval from the Ministry of Health. This period was not considered as something for nothing. The drug developers themselves had to obtain regulatory approval from the Ministry of Health before they could sell their product, so there was always a significant time-lapse from when patents were registered to when drugs were commercialized. After the amendment, the period for obtaining regulatory approval for generic players was significantly curtailed, whilst the drug developers still had long delays whilst obtaining regulatory approval. To restore the balance that existed prior to the third amendment and to prevent adversely affecting the drug developers, a patent term extension regime was initiated in Israel, similar to that in place around the world.

The possibility to act towards obtaining regulatory approval prior to a patent lapsing, together with the possibility of obtaining a patent term extension beyond the normal twenty years was intended to balance the needs of both the drug developing and the generic manufacturers. The drug developers received a patent term extension which was supposed to compensate them for ‘the lost years’, and the Israel generic industry was able to compete with foreign generic manufacturers and to supply generic equivalents as soon as the pharmaceutical went off patent – see Section 54a , 64a-64o of the Law, the proposal for the third amendment 1997, Friedman 135-136.

calculationThis is the background. From this the next stage follows the calculation of the patent term extension. If its purpose is to compensate the drug developers for lost time taken from them, this period is the basis for calculating the appropriate period for the extension, and the law follows this path. Section 64(i)(b|) relates to a state where the regulatory approval is only sought in Israel. In such cases the patent term extension is equal to the period lost whilst obtaining regulatory approval assuming that no delays were incurred. Section 64(i)(a), as then written, related to cases where the Applicant requested regulatory approval in other jurisdictions as well, and determined that the extension should be similar to that obtained elsewhere. The assumption is that the recognized jurisdictions, the extension is determined more or less on the basis of the delay from the patent issuing to the drug obtaining regulatory marketing approval. See for example the definition of the term “extension of the patent relied upon’ in Section 64a of the Law as currently worded. According to this Section, the foreign extension order to be used as the basis for a local patent extension in Israel has to be based on a patent term extension granted to compensate for regulatory approval delays in the US, or for the period that has lapsed from filing the patent application until obtaining regulatory approval in a recognized European country.

Now we reach the heart of the matter: the legislator has determined that the delay from filing the patent to obtaining regulatory approval, or the patent term extension granted in a recognized country for this purpose, is the appropriate compensation for the patentee. It Printwill be noted that in this regard there is a difference between the words of explanation of the two proposals that led to the third amendment –whose phrasing is identical to each other and similar to the phrasing of the amendment as legislated. The government proposed legislation explains that the compensation is for the ‘active protection’ lost by the patentee as a result of the amendment. The assumption is that the period of the patent term extension is longer than this period and this is a fitting compensation. Furthermore:

One cannot determine in advance how long the regulatory approval of a generic drug will take. One cannot foresee how long obtaining regulatory approval in Israel will take, however, it is certain that the approval for a generic formulation  will be faster than the original approval for the drug. This period will be known once a patentee files his request for a patent term extension. This extension will always give the patentee a longer period of protection than the de facto period ‘lost’ as a result of the amendment. (Govt. Proposed Amendment, Section 3).

Consequently, the intention of the patent term extension is to compensate the patentee for the de facto protection lost as a result of the amendment. The period of the extension is calculated on the basis of the time taken by the patentee to obtain regulatory approval in Israel or abroad, which is longer than the period lost. In contrast, the proposal by the Committee for Constitution, Law and Justice states that the period during which the drug was registered but prior to regulatory approval from the Ministry of Health, and so the period is equivalent to this (see proposal from Committee page 148). One way or the other, the main purpose that the legislator intended to achieve was to give fair compensation to the drug developer. Even in the current instance, Merck has not challenged the extension granted in the US. There is no claim that the extension damages their basic property rights, but merely that the extension issued after an extension was granted in Israel. One can, therefore, determine, for the purpose of the discussion, the following axiom, which is not attacked by either party: the extension of the protection period is based on that issued in a recognized patent (which is a calculation of the period that was required by the patentee to obtain regulatory approval). It is by nature, a fitting compensation for the patentee for the ‘lost’ period, whether due to the third amendment, or due to the need to obtain regulatory approval.

After the third amendment, the question of how to relate to a plurality of patent term extensions in a plurality of jurisdictions arose. This was addressed in the decision of the Deputy Commissioner concerning patent numbers IL 84601, Il 105364 and IL 79339 from 23 July 2003 which ruled that the patentee could choose which extension to rely upon [this decision by Acting Commissioner Israel Axelrod, in an ex partes ruling obtained by Reinhold Cohen was based on him concluding that the amendment was to favour the drug developer and to provide a meaningful extension, and resulted in him NOT becoming commissioner, but being sideways promoted to the Beer Sheva District Court, and also necessitated further amendments to the law – MF].  Following this ruling, the seventh amendment was legislated to specifically rule that the Commissioner should use the shortest extension issued. The explanation for the law does not provide an explanation for this arrangement but one can understand it in light of the purpose that the third amendment was to achieve, as explained in the proposal for that amendment, which explains that the purpose is to compensate the drug developers.  The Knesset could have adopted the then Deputy Commissioners reasoning or another arrangement, such as to link the Israel extension period to the first extension period granted. So why did the legislators chose to link the Israel extension to the shortest extension issued? The answer is that the extension is to provide fitting compensation to the drug developers as per Section 54(i)1. One can conclude that the legislators did not see a problem selecting the shortest period of protection. That as may be, this is the important fact – the legislators chose that the shortest period is the appropriate one for fulfilling the purpose of the extension.

The deliberations of the comittee that preceded the seventh amendment indicate similar things. The discussions mostly dealt with the co-termination and not with the case where the Israel patent lapses prior to the patent in other jurisdictions, but this was also addressed. The discussion started with a clarification of the background to the Law. The Chairperson, MK Eitan stated “I am interested that I will have an effective protection for an appropriate period to be able to utilize the patent.” In the continuation of the discussion, a representative of the Ministry of Justice claimed that to reach shorter periods, we based the extension on the periods issued abroad. Then the Chairperson clarified the situation: “nearly twenty years have passed and I request that the Commissioner grant me a further five years. He reviews what is happening in a range of countries and selects the country where the patent lapses soonest after the 20 years have passed” (Protocol page 7). This implies that the extension is to compensate the patentee, but the shortest period is adequate compensation. Obviously one should give the deliberations of the Committee due consideration.  They do not define the purpose of the Law but, together with the rest of the analysis can’t be considered as insignificant. Here we note that the purpose of compensating the patentee is secondary to the consideration for co-termination; this in light of the significance to the legislator that Israeli generic companies can compete with their foreign counterparts. However, this intent is not directly relevant to the question of interpretation before the court, regarding when a patent term extension lapses if anyway it first lapses in Israel.

intentAnother important aspect of interpretation of the Law in light of its intent, besides the language of the law, the various arrangements within the law itself, explanatory notes and comments made in the deliberations of the Knesset committees, is the objective purpose of the law. This perspective considers not only the competing interests of the drug development and generic companies, but also the public has a place in the story. The public aspect considers the tension inherent in the patent laws: the interest in free use of the invention to the advantage of all, and the desire to provide incentives for development and for invention through legal protection to prevent copying of the patent.

“The Conflicting considerations and interests that underlie the system of patent law are reflected beautifully in the world of drugs. On the one hand – Pharmaceutical companies invest a lot of money and human resources in the development of new drugs, and expect to be awarded proprietary protective rights in their inventions resulting from significant investment. Providing proprietary protection for inventions encourages the development of new drugs and the completion of development for existing drug. On the other hand -the interest of freedom of competition of the public and competitors encourages the generic companies to produce competing drugs at affordable costs, significantly lowering the price from the cost of drugs protected by patent. Promoting the interest of the generic companies in distributing competing drugs promotes not only the economic wellbeing of these companies, but also the interest of the consumer by markedly lowering the prices of drugs on the market “(LCA 6025/05 Merck & Co., Inc. v Teva pharmaceutical Industries Ltd, paragraph 21 (05/19/2011), Justice Procacia. Hereinafter: Merck).

public interestIt is doubtful whether the public interest in encouraging research and development will be damaged by the interpretation suggested by the Israel Manufacturers Association and the Attorney General. Assuming a sufficient incentive prior to Amendment 3 of the law, the legislature thought this incentive was not injured by revisions 3 and 7 because of the compensation granted to the patent owners. This applies even when relying on the shortest known extension period granted by a recognized country. The reality and industrial development since the amendment has not contradicted this hypothesis. On the other hand, if the patent owners are over-compensated beyond that necessary to incentivize drug development, such protection must come at the expense of the general public, since drug costs decrease significantly after markets are opened to competition. This shows that the public interest supports refraining from over compensating the drug development companies whilst maintaining the incentive to such companies as existed prior to the amendments to the Law.

And now to implement this on the present dispute. The question is whether the intentions described are better served by Merck’s interpretation which does not take into account periods of extension orders issued after the Israeli order, or are they better served by the interpretation of the Manufacturers Association and the Attorney General; that such extension orders should be considered? In my opinion, the latter is more fully compatible with the intentions. The legislators Legislative position is that the period of the extension orders given by any and all the recognized countries provide adequate compensation for the periods of time lost whilst seeking regulatory approval. If this is indeed so, the most appropriate period, in terms of the balance between all conflicting values and interests, is the shortest possible period awarded by any one of the recognized countries. It does not matter, in this respect, if the order preceded the order given to Israel or was granted afterwards. Deviation from the shortest period results in over-compensating the patentee, and damage to the generic companies and indirectly to providing the public medication requirements. It is true that possibility of changing the period granted creates uncertainty and may affect the ability of drug developers to rely on patents extension orders, but the legislature was right to pay this price as part of the overall balance conflicting interests, as discussed in the analysis above.

balancing actIt should be noted how fine the balancing act is between: encouraging research and development and dispersion of knowledge; the conflicting interests of drug development companies vs. generic companies; The Israeli market situation compared to the situation in the international market; The economic interests of the patent owner against the interest of public health. Note: sensitivity to the actions of other countries is not the result of a mutual respect regarding the internal decisions of this or that country, but rather the period set elsewhere inherently affects what happens here. We cannot ignore the economic reality, hence the significance of the shortest period as reflecting a suitable period to restrict competition.  It should be mentioned that the recognition of the rights of the inventor fits in with the interests of the individual who buy the drugs. The perception is that proper consideration of the inventor’s income will incentivize the market and expand the basket of medicines available for those who need them.

The conclusion is that the interpretation to be adopted is that when determining the validity of an extension, one has to additionally consider patent term extension orders given elsewhere after the extension order is granted in Israel. This is the correct interpretation of the law. However, it is now necessary to continue the analysis by clarifying whether its application to Merck violates their property rights in contravention of the basic Laws (and thus the amendment should be declared illegal). Furthermore, even if the injury to property rights is deemed acceptable, there remains a question of reliance on the legal situation – if there has been such reliance, and whether this has any significance. We now turn to these questions.

The Constitutionality of Shortening the Extension Order

A further question which is disputed by the parties is the constitutionality of the transitional provisions of Amendment 7, which determine, prima facie, that the calculation mechanism set out in this amendment will also apply retroactively to orders already granted a patent term extension. This issue is center stage to the Appeal no. 8263/15 filed by Merck. According to Merck, this is a violation of their constitutional property rights which cannot be justified.

We will begin by presenting the transitional provisions:

“The main statutory provisions, as worded in this Act … shall also apply to applications for an extension submitted prior to the commencement and extension orders issued before it comes into effect, so long as the basic patent in respect of which the extension was granted” (Article 22 (a) According to the explanatory Amendment 7).

Merck argues that the enactment is retrospective legislation (and thus inherently problematic –MF) since it applies to orders already issued and changes a legal status that could have been relied upon. The Manufacturers Association argue that the legislation is forwards acting, since the amendment does not affect assets that Merck had already accumulated, but only arguably adversely affects their future economic interests, as the order only enters effect twenty years basic protection period.

I admit that I do not believe that the classification of the legislation in one group or another is crucial to resolve this dispute. As well-known, there are actually four types of legislation:

  1. Retroactive
  2. Retrospective
  3. Active
  4. Prospective

(See Bagatz 6971/11 Eitanit Construction Products Ltd v State of Israel, paragraphs 38-37 (04/02/2013); 1613/91 Orit Arbib The State of Israel, PD R (2), 765, 784-778 (1992)).

drawersSometimes practical legal situations do not fit nicely into the categories. Not all laws fit nicely into the appropriate drawers. Even if I were required to address the issue presented, there is no need to conclude that the amendment is retrospective or retroactive. Since this is the case, Merck did not benefit from their allegation regarding the transitional provisions as I will clarify below.

By way of analogy, let us consider a person who was involved in a work accident on the first of January 2000. Under normal circumstances insurance claims would be subject to a statute of liberties after seven years. It was the law at the time that he no longer has a right to claim. Let us now suppose that in 2002, the legislature determines that work accident claim may be submitted up to ten years from the date of accident. A year later, the legislature reconsiders and decides that the limitation period should be eight years from the date of the accident but has provisions that any amendments should also apply to accidents that occurred in the past and which have already been awarded a right of action. When considering the lime line of the legislation, the injured party would have an eight year period for filing his injury case instead of a seven-year limitation period as established by the regular statute of limitations.

It seems that this example is similar to our case. Merck received a patent in 1994 that gave them rights for twenty years from the filing date. At that time there was no legal mechanism for granting extension orders, which was only enacted in 1998. An extension order was granted in 2005 and the provisions of the relevant passage subsequently shortened the extension order but preserved its existence. All this was done during the twenty years of patent protection. It is true that alongside granting the extension order, generic companies were allowed to start operations towards obtaining regulatory approval.  There is a wrinkle in that the original amendment apparently allowed drug developers to select the extension period they relied upon, including countries that provide maximum extension period, and this interpretation was rendered moot by subsequent legislation. Overall, Merck’s situation is apparently better, or at least not worse than it was at the time of submitting their patent application.

I don’t think that either of the two examples can be said to create a retroactive or retrospective injury. The injury can be considered as active because it applies to a presently existing right – the patent – and its affect is in the future. The scope of the law does not affect actions that are finished or exhausted rights. At most we can say that there are some retrospective features (see cf. paragraph 2 opinion of Judge A. Fogelman, the High Court 3734/11 of life Dodean v Israeli Knesset (15/08/2012) (hereinafter: Dodean)). However, it will be appreciated that active laws may damage property rights, and retroactive application of a law maybe legally acceptable (see and compare Bagatz 4562/92 Zandberg v IBA, PD v (2) 793, 819-817 (1996); the Supreme Court in 1149 / 95 Arco electrical Industries Ltd v Mayor of Rishon Le Zion, PD Ned (5), 547, 574 (2000)).  These show that the title of a law as being retrospective or active is not decisive, or even appropriate. The situation before us contains both backwards and forward-looking aspects. They are also intertwined. An order made in the past may have some future harming effect and the present debate should focus on this. The categorization of a law as retrospective, presently effective or futuristic are only of value to the extent that it assists in addressing the fundamental question which is whether the damage to the property rights is illegal (under basic laws). Therefore I will focus on substantive examination of the relevant elements for analyzing the issue, both forwards and backwards looking, and they will determine how the Constitutional law should be applied in this instance.

private propertyAccording to Merck’s understanding, and following the Recordati SpA case  (paragraph 22 of the judgment), a property right is created when an extension order is granted. Assuming this to be the case, they argue that shortening that right is a violation of property contrary to the Basic Law: Human Dignity and Liberty. On the other hand, counsel for the Attorney General and the Manufacturers’ Association understands the Recordati SpA as establishing that prior to the extension order issuing, no property right existed, but that does not mean that the right is created with the issuance of the extension order. They posit that the property right is created when the original patent duration period passes and the patented subject matter is protected by the extension. Up until this point, they say, there is no right that prevents the length of the extension order from being shortened.

property rightsOne must consider the basic question. Basic Law: Human Dignity and Liberty explicitly mentions the right to property. Its title and the wording of Section 3 of this law are the “Protection of property” and “Not harming a person’s property.” Section 8 states that “The rights under this Basic Law are inviolate, but …”.

The question of when a person has a property right, and where an economic interest has not solidified into such a right, it is a fair question (see for example CA 6821/93 United Mizrahi Bank Ltd v Migdal Cooperative Village, PD 49(4), 221, 331 -327 (1995) (hereinafter:  Bank Mizrachi); Joseph Edery “On Declarative and Constitutive Constitutional Law – the Status of Constitutional Property Rights Hierarchy of Human Rights” Mishpatim 28, 461, 529-519 (5757); Aharon Yoran “Scope of Constitutional Property Protection and Judicial Intervention in Economic Legislation” Mishpatim 28, 443, 450-447 (5757).

canadaIn the various countries, such as Canada, property rights are not rights that are protected under the constitution. This is due to internal consideration of constitutional politics (see David Johansen, Property Right and the Constitution, Library of Parliament (Canada), Law and Government Division, (October 1991)).  In any case, this is also partially due to the difficulty in defining what property is and to distinguish it from economic interests that are not protected constitutionally.  The fear is that the right of property may be interpreted too broadly, restricting or preventing the passage of various pieces of legislation having financial implications (see Joshua Wiseman “Constitutional Protection of Property” HaPrakpit 42, 258, 260-259 (5757)). The distinction between an economic interest and the right to property is a general issue which is relevant and is applied across all legal fields and tries to balance the interests and values of the party. This is the case with intellectual property in general and with Patent Law in particular

nailing downIn this case, I do not need to nail down the lid on the question of whether providing an extension order creates a property right when deciding the issue at hand. It has been held in the case-law that in principle a patent is a property type right (see for example Merck matter, paragraph 17; Bagatz 5379/00 Bristol-Myers Squibb Company v Minister of Health, PD 51 (4) 447 (2001)).  I am prepared to assume for the general benefit of Merck, that this is also the case for patent term extensions. The problem However, the present case does not deal with the question of abolition of the extension order. The question before us is different. It addresses the question of what happens if an extension order is shortened. This can be sharpened further: what happens if an extension order is shortened under the present circumstances, in which the patent was registered to Merck prior to the third amendment and prior to the existence of the extension order regime. Does a right of this nature create constitutional protection against changes in duration? This formulation of the question is what leads to the rejection of Merck’s position which claims its proprietary right has been unlawfully. I will clarify my view.

consitutional glassesShould all legislation having economic implications be viewed through constitutional glasses? This question is at the core of the debate surrounding the nature of the constitutional right to property. As far back as the Bank Mizrachi ruling, different views were expressed regarding the nature of the property right. In that instance, a legal provision which affected, in particular, the possibility to collect different types of debt was considered.

shamgar and barakThen President Shamgar ruled that obligatory rights should be considered as constitutionally recognized property rights (there, Page 328).  An apparently more expansive approach was expressed President Barak. According to Barak, “Property is any interest that has economic value.” However, whether any governmental action that affects an individual’s property’s values requires a constitutional review was left undecided. Furthermore, minor damages to property value would not be subject to judicial review on constitutional grounds (there, pages 432-431). From a different angle, Judge Zamir took a more cautious position, stating that it is not desirable to consider any change in a value of a property or of a person’s income as being an infringement of constitutional property rights. However, in that instance he was prepared to consider the legislation as damaging property rights, because he also considered that the case was subject to judicial review (pages 470-471). This type of resolution, which is actually refraining from resolution of the issue, recurred from time to time when economic legislation was subjected to judicial review. The most striking example was tax legislation, where the court chose to analyze the cases that come before it under the assumption that the legislation violates the right to property, without actually ruling on this question (see an example Re Dodean, verse 29 of the judgment of President M. Naor, and the review of case-law there).

drug costsWe can now state that even in this case there is no need to discuss at length the question of whether the transitional provisions of the Amendment 7 harm the property rights of Merck actually requires constitutional scrutiny. Even if that were the case, there is no real basis to conclude that the harm is unlawful. The case is not borderline in my opinion, and there is no justification for extending the limitation clause by analysis. This is primary legislation for a worthy cause: encouragement of one of the branches of industry and reducing the price of the drug to the entire public.

The lengthy analysis of Appeal 8127/15 above, leads to the conclusion that the proportionality requirement exists, even if understood narrowly.  The revised extension period that Merck was awarded is a fitting compromise that realizes the intention of the Extension. The complaint was not directed against the duration itself, but only against it being shortened. Therefore, under a broader examination, the financial situation of Merck was not damaged. What was damaged was the possibility that their position could have been even better. The legislature granted this possibility and then took it away, without doing damage when compared to the situation prior to the legislative creation of patent extensions. Furthermore, it was not claimed or proved that Merck in any way relied on the legal position prior to the seventh amendment of the Law. It will be recalled that when Merck registered its patent, there were no such thing as extension orders. This tilts the balance in favour of the legality of the balance reached by amendment 7. In any case, in this regard, both Merck’s substantive and procedural claims should be rejected. Finally, claims regarding defects in the legislative process leading up to amendment 7 are rejected.

mizrachiwith this, and beyond that required, it is worth addressing whether we are dealing with a right to property that requires a constitutional scrutiny. The most important question when it comes to legislation with financial implications is not whether there is damage to property, but whether there a constitutional violation of property rights. As mentioned above, the matter was discussed in Bank Mizrachi, where President Barack addressed the possibility of a violation of an individual’s property that would not require a constitutional review of the law, i.e. where the damage is minimal.

In Bagatz 2442/11 Attorney Haim Stanger v Speaker of the Knesset (12.1.2011) a further development of the constitutional review can be seen. One of the issues discussed in the decision is the constitutionality of a law which abolished the right to appeal to a second time regarding various cases that carried prison sentences, but establishes a possibility for doing so at the court’s discretion.

asher gronisPresident Gronis noted a “continually constitutional threshold”, which is a lower threshold from that which is considered a violation of these constitutional rights, and the “legal situation”.  As for me, I prefer to set the distinction as one between a constitutionally acceptable violation and a non-constitutional violation.  As noted by President Gronis, there are laws that are beyond the constitutional bar, that even if the amendment indeed harms the individual, it does not warrant constitutional review:

“There is no doubt that the amended law discussed in this petition has negative effects for suspects and defendants in relation to the legal situation prior to the amendment. However, the mere change for the worse does not necessarily lead to a conclusion that there is a violation of a constitutional right … we must constantly distinguish between the constitutional (inalienable?-MF) rights and the legal situation that preceded the amendment .. . the fact that the law was amended and reduced the legal options does not inherently require the conclusion that constitutional rights are damaged by the adoption of the amendment to the law “(paragraph 45).

It is certainly possible that with reference to the previous situation, a right given to a person is taken away from him, but with reference to basic rights there is no damage that warrants a constitutionality analysis. This is the case regarding arrests that deny freedom and is also the case regarding property rights.

In Bagatz 5998/12 Guy Ronen v Knesset (25/08/2013) a legal provision that changed the mechanism for calculating the pension benefits for some IDF pensioners. The petitioners argued that the new method of calculation would result in pensions being reduced to a lower amount than they would have received under the old calculation method. President Gronis more sharply reiterated his position:

“Amendment to the law after the enactment of the Basic Law must be examined in relation to the threshold constitutional considerations of the Basic Law, and not in relation to the legal situation that preceded the amendment of the law. Note well: cases prone to disruption of this type are cases where the law under constitutional examination changes the existing law or corrects an existing arrangement. It is clear that in a situation where a new law has passed that regulates an issue that previously was not regulated by legislation, there is no suspicion that the amendment will be examined in relation to previous legal situation “(verses 14 to members joined the ruling Justice Y. Danziger and judge T. Zilbertal).

The test is not whether property of the person (in the broadest sense of this term as per Mizrahi Bank) is damaged, but whether a constitutional boundary is crossed, and only then must violation be examined through constitutional glasses.

In the discussion concerning 8127/15 we saw that the calculation mechanism established in Amendment 7 of the Law does, itself, leads to appropriate results. Merck does not claim that the period of extension order granted in the United States is too short, but argues that the legal situation is different. But the above analysis shows that the situation that preceded the amendment 7 (a per Axelrod’s interpretation – MF) whereby the patentee could choose the country that granted the longest extension period as the reference, went too far in favour of the patentee. In other words, if the substantive provisions of the 7th amendment are constitutionally acceptable (which is not questioned), then the previous legal situation was also constitutionally acceptable. The changing legislation in light of developments remains such that no constitutional bar is crossed.

The end of the discussion will relate to the question of specific reliance by the patent owner, on the period of extension that the legislative amendment retroactively cancelled. The claim of reliance is a separate and independent injury claim to the constitutional property claim. It can be argued that were it proven that Merck specifically relied on the prior legal situation,  it is possible, and without a firm determination, this could give rise to a procedure under administrative law by which Merck might be entitled to some remedy in the form of compensation for damages rather than granting a patent extension (see and compare the matter Dodean, paragraphs 26-21; Daphne Barak-Erez, “The Reliance Defense in Administrative Law” Mishpatim 27, 17 (5756)).  However, Merck did not raise a specific and substantiated claim that they had indeed relied on the legislative situation prior to the amendment, and therefore the question remains theoretical. It should be noted that the legal counsel of the Attorney General argued that, given the nature of the extension orders and its subjection to changes in the wake of events occurring after issuance, one simply cannot rely on the extension period, at least before it enters operative effect with the expiration of the basic patent. This is a nice question but it can be left to a later date, as stated since in the present circumstances and in the current proceeding this was not claimed and no evidence of reliance on the legal situation was demonstrated.

enrichTo enrich the discussion, with reference to the substantive economic aspects, it would be correct to add a discussion that focuses on the nature of Merck’s rights. It should be noted however, that this decision does not depend on the various comments in the following paragraphs, however they seem to strengthen the result I have reached.

No one disputes the fact that Merck does not have property rights in the traditional sense. At most we can say that it has the right to intellectual property. This is the vantage point through which we must look at things. Intellectual property laws are different, for example, from real estate laws or tax laws. Unlike property rights in a physical object which prevent the object being taken from the owner by another person, or the tax laws that allow the tax authorities to take money from the citizens, the intellectual property rights are merely a ban that prevents others from doing something, even if such actions in no way restrict the patentee. The purpose of the intellectual property right is not to protect the welfare of the right holder or his property, but it enables the generation of higher profits in the future, if only to cover past investments. A sharp question therefore queries the basic justification for imposing restrictions on the general public, even if no actual harm to third parties or their property results from so doing.

legal systemsThere are differences in opinion in the various legal systems regarding the status of intellectual property law, including patent law. One approach seeks to base them on a natural right of the creator, who worked on his creation, to harvest the fruits of his labor. A different approach is focused on general policy considerations, especially the provision of incentives for the development of patents, the generation of creative works and the like, in order to create a higher quality and more efficient market. See, for example, Daphna Levinson Zamir “The Defense of ‘Fair Use’ in Copyright Law” Mishpatim 430, 431-430 (5746) and Wendy Gordon, On Owning Information: Intellectual Property and the Restitutionary Impulse, 78 Va. L. Rev. 149 (1992); Justin Hughes, The Philosophy of Intellectual Property, 77 Geo. LJ 287 (1988)).

In any case, intellectual property rights are special. A challenging question is whether the uniqueness is due to the relative newness which might change, or whether they are the result of other special reasons that will continue to be convincing with the test of time. Today, intellectual property rights mainly focus on the future loss of earnings, and do not protect against direct damage to existing property. Some believe that the interest of preventing loss of profits is less protected in terms of positive law, and even seek to justify this normatively (see Eyal Zamir “Loss Aversion and Taking the Offenders Profits Following the Adres Ruling”, the Shlomo Levin Book, 323, 372-368 (edited by Asher Gronis, Eliezer Rivlin and Michael Karayanni, 2013) (hereinafter: Zamir, Taking Offenders Profits)). There it is explained that the damage from land invasion or expropriation, or the confiscation of property through tax mechanisms are considered more seriously psychologically than the loss of profit such as would result from the removal of patent protection, thereby allowing competition and causing a decline in profits from the sale of a product. This phenomenon is known as Loss Aversion (See generally Zamir Eyal, Law, Psychology, and Morality: The Role of Loss Aversion (2015) (hereinafter: Zamir, Law, Psychology, and Morality)). As we find ourselves in the lost profits regime, the damage to potential earnings is a magnitude lower than the injury due to damage in the here and now. Intuitively, even without resorting to studies, the confiscation of an object by the Authority is seen as more offensive than the impossibility of obtaining such an object in the future. Interestingly, in this context, that Prof. Zamir wrote that the phenomenon of loss aversion may not necessarily reflect the objective value of the objects and rights. It is possible that were we all rational people, i.e. those beings that make transactions in the theoretical studies by some economists, there would not be a fundamental difference between actually damage and the loss of profits. However, since psychology is as it is, actually damages have a lot of weight and meaning (Zamir, Taking Offender’s Profits, pages 372-370; Zamir, Law, Psychology, and Morality, pp. 205-207).

core and peripheryAnother aspect of intellectual property is the distinction between the core and the periphery. We have mentioned the various approaches that justify the law’s protection of intellectual property rights. Without getting into the thick of things, it is clear that even those who hold by ‘natural rights’, a respectable place is given to policy considerations, and it is not clear that property rights take precedence over policy rights (see for example Merck 17-27; Daphna Levinson-Zamir “Economic Considerations in Protecting Inventions “, Mishpatim 19, 143 (1983); and compare Miguel Deutch, “Commercial Torts and Trade Secrets 699 (2002)). The question before us is whether a shortened period of protection of intellectual property rights is a violation of the right to property. In other words, the question does not relate to the existence of the right, but to the delineation of borders. The right exists, but it is not clear what is included in the first place, nor how to define its borders.

Take for example a petition to expand the basic patent protection from twenty years to twenty-two years, from the perspective of constitutional property rights infringement. It is clear that such a petition should be rejected. And what is the theoretical difference between this, and a petition for a shortened period of patent from twenty-two years to twenty years (assuming no particular reliance on the length of time)? The difficulty in formulating the exact boundary of the right is that intellectual property is an idea, not an object. Thus, the very definition of intellectual property rights is not sharp and accurate. Its borders are moveable by their nature, as opposed to objects whose physical reality accurately determines their size. This question may come up in various contexts where a simplified idea is considered. Take for instance the criminal law. Is a legislative amendment allowing the imposition of longer prison sentences on an offender something that requires constitutional scrutiny? What are the limits to the right of liberty? The precise limits are, or course, set by the legislature in accordance with policy considerations and are susceptible to change. This statement is particularly evident when it comes to patent laws, which are in the forefront of technology. This position requires them to respond quickly to developments and various events, and even more than other areas of intellectual property, such as the protection of trademarks or literary works. The dynamic environment of innovation, inventions and technological advances, particularly in a global world where cross-border competition in both physical and virtual, requires that the law also be dynamic.

static dynamicThis underpins the extension order arrangement. This is not a “rigid” arrangement which creates an irrevocable state of affairs, but rather a dynamic arrangement that is a priori susceptible to certain changes. The clearest example of this is Section 64 of the Patent Law which states that an extension could be subsequently canceled following the later granting of an extension in a recognized country. Indeed, the grounds for expiration in this section is that the patent has expired in another country, but ultimately, and through the prism of change, Mark already knew, when the order issued, that orders issued in other countries might shorten the period of the order given in Israel. This is an expansion of the possibility of shortening the protection period which was a possibility that already existed. No irrevocable right was ever granted, but only a right that depended on orders granted overseas. In this case, the transitional provisions Amendment 7 explicitly stated that the amendment would apply only to cases where the basic patent period had not yet ended. Cases where the patent protection was by virtue of a patent term would not be injured.

Comparative Law

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We will now refer to the Hebrew Civil Law (Mishpat Ivri) approach to patent law, and then specifically relate to pharmaceuticals. We will start by relating to the proprietary rights of the inventor. Caution regarding terminology is required here. Rabbi Yitzhak HaLevi Herzog (one of the first two chief rabbis of Israel, together with Rabbi Ben-Zion Meir Hai Uziel, died in 1959) stressed in his monumental book on Property in Mishpat Ivri, that because of the nature of Jewish law, from the written Torah, through the Oral Law, Mishnah and Talmud, to responsa that continue to be written in our day – the development of the law is based on concrete examples. It is hard to find a definition of property rights in the sources, and certainly this is the case regarding intellectual property rights.

220pxRabbi_Yitzhak_Halevi_Herzog1959Nevertheless, Rabbi Herzog stood firm that one could find the nucleus of thoughts in the sources, to guide the practical law:

“It should be made clear once more, that even the sources adduced above would furnish no firm legal ground for patent-right. They would merely supply the spirit and the trend which would have to be clothed with the body and substance of takkanoth, of legislative enactments… Had disputes about such matters been of relatively frequent occurrence, they would have found an echo in our juristic literature, and although, as already stated, there is no direct ruling or dictum in the Talmudim on patent right, there is in that ocean of Jewish law and lore enough of the basic moral idea and even of a legalistic nucleus to have supplied the authorities with material for dealing with the question from the halakhic standpoint. I have no doubt that under Jewish law had the question become actual, patent-rights would have been protected in some measure, at least by special enactments supported by certain Talmudic analogies” (Isaac Herzog, The Main Institutions of Jewish Law 1: The Law of Property 132 (1939)).

shimon shkopIndeed, our sages toiled and found rich and interesting precedents in the sources. Rabbi Shimon Shkop (Rosh Yeshiva of Grodno, lived in Europe and died in 1939), at the beginning of his commentary on Baba Kama (which relates to torts) discusses one of the primary types of damages referred to in the Talmud, i.e. the pit. The question he discusses is what is the legal justification for holding a person who digs a pit in the public domain responsible for damages suffered? It seems at first glance that the man did not hurt limb or property, because the hole is in the public domain?

Rabbi Shkop answers:

“And with the pit, the Torah holds him responsible for damages. And in the same way that digging a pit creates responsibility since he creates the obstacle and is considered its owner, similarly as far as human rights are concerned, both the Torah and the secular law recognize that  anyone who invents something new in the world has rights in it in the same way that someone who starts a fire or digs a pit is responsible for damages caused. Novella of Rabbi Shimon Shkop, Bava Kama 1.

See also Civil Appeal 7337/12 Amir Cohen vs. John Deere Water Ltd, paragraph 6 of my opinion from 12 March 2013.

This establishes the principle that someone who “invents a new thing in the world owns it” and establishes a connection between the inventor and his invention. Rabbi Shkop
further discusses this principle in another place, where he considers the possibility of acquiring ownership by thinking and innovation. See Novella of Rabbi Shkop, Gittin (Divorces) Chapter 4. See also Rafi Reches and Michael Vigoda “Protection of Copyright, Patents and Inventions in Mishpat Ivri, Ministry of Justice (2010)).

Rabbi Herzog believed that a hook for rights in new inventions, that is patents, may be found in the Babylonian Talmud and its commentaries.  One discussion relates tthe-two-anglers-claude-moneto one who wants to set his nets near to the site where a trap has been laid by another person. It was ruled that he must keep his nets away from the other. The fish trap should be kept a fish sprint away from the fish”. Meaning? Raba bar Rav Huna answered: “a horse’s stride” (Bava Batra 21b). The Talmudic commentators discussed the legal basis for preventing the competitor from spreading his nets near the first angler since the fish had not yet been caught by the first angler’s traps, and thus could not be considered his property. One explanation brought by a Tosafist, Rabbi Meir Ramerupt (Ashkenaz, 11th century):

“Says Rabbi Meir, father of Rabbeinu Tam, that we are discussing a dead fish, and fishermen use a dead fish as bait to attract live fish and the second fisherman is benefiting from the bait laid by the first fisherman which causes the other fish to gather round, and this is effectively that the second fisherman is robbing the first” (Kiddushin 59a).

According to Rabbi Meir, the fact that setting the original trap required thought and actions creates a property right in the expected results, despite the profit not yet existing and the fish not having yet entered his domain (there is a pun connecting reshut meaning domain or jurisdiction and reshet meaning net – MF).  According to Rabbi Herzog this source serves as an anchor for patent protection: “Here at last we have some approach to the idea of patent-protection” (page 131).

rabbi asher qweissThus  Rabbi Asher Weiss (in Hebrew, there is a better biography) (a Jerusalem based sage of our time) on the question of the halakhic status of an issued patent: “In my humble opinion it is a simple matter of logic that a person has monetary rights in his ideas and creations, and what he created is not less his than what he purchased. Just as the dates of a palm are the property of the owner of the palm, despite the owner not making a formal act of acquisition, similarly his ideas are his property and do not require an act of acquisition.

As a matter of law, Rabbi Weiss ruled that where there is an issued patent it is clear that it is forbidden by Torah Law for others to trespass.” (Rabbi Asher Weiss, Teaching methods 4, 100 (5766).

However, recognizing the proprietary or quasi-proprietary right that a person has in his inventions, we find echoes in Jewish law that this right is not unlimited, and that there be balanced against the public interest that knowledge should be available to all. The Mishnah in Yoma gives a list of all the artisans who refused to reveal the secret of their craft to others, while condemning this:

“…And these are condemned: the House of Germo that did not want to teach the secret for making Showbread; The House of Abtins, that did not want to teach the method of preparing ritual incense; Higras Ben Levy who knew part of the song and didn’t want to teach it; Ben Kamzar that did not want to teach the act of writing; … regarding these it is stated: “the name of the wicked shall rot “(Mishnah, Yoma 3, 11).

The Babylonian Talmud explains why the sages wanted the artisans to reveal their secret: “When the sages heard about something, they stated that: Everything God created, was created in His honor. As it is written: ‘All called my name and were my created in my honor” (Yoma 38a). This is a religious outlook that emphasizes the fact that the natural resources, material and physical are universal because they were created by God. It is not appropriate for them to be monopolized to a specific party. So this is taught with regard to natural resources, but even more so regarding resources that have the potential to cure. As discussed in the Babylonian Talmud, Tractate Avodah Zarah 28a:

Rabbi Yohanan had scurvy. He went to a Roman Matron for treatment, and she treated him on Thursday and Friday. He asked her about further treatment on the Shabbat, she replied that he didn’t need it as he was cured. He then asked what would happen if he did need treatment, and she asked him to promise to keep the secret. He swore in the name of the God of Israel to keep the secret and she told him.  The following day, in his sermon, he announced the cure! But didn’t he promise? He promised not to reveal to God, but to people, didn’t promise. But wasn’t this a desecration of god’s name? The public good was in the cure being disseminated.

We are dealing with Patent Law. Even under Israeli law, what characterizes patent law is that it relates to inventions that are “a process in any technological field, which is new and can be used in industrial and involve an inventive step” (Section 3). Jewish legal sources indicate that the justification for patent protection and recognition is the creative force. In this regard, it has been stated that just as man-made articles belong to the artisan, similarly conceptual inventions and their execution belong to the creator. In this approach, creativity, whether by hand or head produces a type “ownership” in relation to the invention and its fruit.

With reference to an example of the invention in the pharmaceutical field, Rabbi Herzog stressed that the Sages did not positively regard the desire of people to keep their inventions to themselves indefinitely. This is in recognition of the fact that we are dealing with inventions with the power to save lives (Ibid, Page 128). The tension in the above analysis, is expressed in the fact that the artisan has the right to receive money, but is not entitled to keep the secret of the patent itself, and certainly not forever. One can express this by stating that “patent rights do not override patients’ rights” (In a wider context, see the see the Nimukei Joseph on the Rosh – Yevamot 12a; Ritva on the Babylonian Talmud there, and the position of Rabbi Herzog , Ibid, page 129).

It is interesting to note that the cited rabbinic deciders, Rabbi Shkop, Rabbi Herzog and Rabbi Weiss – lived between the 19th century and the 21st century. Over this period, the patent field developed significantly. In this regard, it us worth noting the words of the expert on the historian of Jewish Law and its development, Professor Edward Fram: “like rabbis in all periods, … rabbis had to address the needs of the marketplace in order to keep the halakhah relevant and to maintain the integrity of Jewish life” (Edward Fram, Ideals Face Reality – Jewish Law and Life in Poland 162 (1997)).

Indeed, the economic question relates directly to the Jewish community in general, and Israel in particular. Integrity finds its place by the rabbis basing their conclusions on the principles of Jewish Law and on Talmudic sources. The theoretical base is not primarily economic, but is rather the recognition that a person can create, and the connection between the person and his creative output, whilst keeping in mind the needs of the community.  It seems that the religious basis is “and you should if you walk in His ways” (Deuteronomy 28: 9).  – just as He [God] creates, so you [man] creates. The justification for legal recognition (in inventions) is both moral and practical.

united states patent lawFrom the panoramic to the specific, with reference to US law with regard to the specific arrangement for Patent Extension Orders, the background for their growth and the way they are calculated. Also in the United States the basic rule is that patent protection is for twenty years from the date of application for registration (see 35 U.S.C. § 154 (a) (2)). However, an exception to this rule is provided in the form of the possibility of a “Patent Term Extension”, see The Drug Price Competition and Patent Term Restoration Act of 1984, Public Law 98-417, 98 Stat. 1585 (codified at 21 USC § 355 (b), (j), (l), 35 USC §§ 156, 271, 282). below: Hatch-Waxman Act).

The rationale behind this exception is similar to the move that led to the corresponding Israeli arrangement. The Hatch-Waxman Act was enacted against a double backdrop. On the one hand, the legislation deals with the problem that faced the generic industry. Like in Israel, in the United States the local industry also had difficult competing on the open market with imported generic drugs immediately after patent expiry since according to the court rulings of the time, it was not possible for the generic companies to perform the various regulatory actions required to obtain a FDA license for the product until the patent expired.

“The second distortion occurred at the other end of the patent term. In 1984, the Court of Appeals for the Federal Circuit decided that the manufacture, use, or sale of a patented invention during the term of the patent constituted an act of infringement… even if it was for the sole purpose of conducting tests and developing information necessary to apply for regulatory approval… Since that activity could not be commenced by those who planned to compete with the patentee until expiration of the entire patent term, the patentee’s de facto monopoly would continue for an often substantial period until regulatory approval was obtained” (Eli Lilly & Co. v. Medtronic Inc., 496 U.S. 661, 670 (1990)(Henceforth Eli Lilly)).

A solution to this problem is given in Section 35 U.S.C § 271(e)(1) of the Law which states:

“It shall not be an act of infringement to make, use… or sale… solely for uses reasonably related to the development and submission of information under a Federal law which regulates the manufacture, use, or sale of drugs or veterinary biological products”.

On the other hand, the arrangement of extension orders for patents as a condition for their marketing requires the patentee to carry out different licensing activities which takes a significant time (see 35 U.S.C § 156). Like Israel, the United States considered the two arrangements as being different sides of the same coin; on the one hand, the need to open up the market to competition on the date of expiry of the patent, and on the other side, to compensate the patentee for the period “lost”.  An example of the link between the two arrangements can be found in re Eli Lilly. In this case, which was heard by the Supreme Court, a question arose in connection with a particular medical device – whether it is protected by the Section that allows actions required for registration before the patent has expired? The Federal court replied that such actions were not allowed, but this ruling was overturned by the Supreme Court, based on a purposeful interpretation of the law. The decision was based on two facts. Firstly, the apparatus in question was required to pass various tests as a precondition for marketing. Second, in the field of medical devices, one can obtain patent term extensions. The court ruled that as a rule and because these arrangements are related, you cannot have one’s cake and eat it. If one is entitled to an extension, the competitors are able to work towards obtaining a license during the extension period, and vice versa due to the close relationship between the two arrangements:

“It seems most implausible to us that Congress, being demonstrably aware of the dual distorting effects of regulatory approval requirements in this entire area… – the disadvantage at the beginning of the term producing a more or less corresponding advantage at the end of the term – should choose to address both those distortions only for drug products; and for other products named in 201 should enact provisions which not only leave in place an anticompetitive restriction at the end of the monopoly term but simultaneously expand the monopoly term itself, thereby not only failing to eliminate but positively aggravating distortion of the 17-year patent protection. It would take strong evidence to persuade us that this is what Congress wrought, and there is no such evidence here” (Eli Lilly, p. 672).

As we can see, this is a single issue. The same difficulties are encountered in Israel and in the United States, as are the solutions, both for the drug developers and for the generic industry.

Finally we turn our gaze to the method of calculating the extension order in the United States. It will be recalled that in Israel there is a distinction between a situation in which Israel is the only jurisdiction where the patent is registered, and the situation in which registration occurs in a recognized country. In the first case, the order is the period that the licensing procedure took, from the day of application to the granting of the license. In the second case there is a linkage to the shortest extension order issued by any one of the recognized countries. In the United States the calculation mechanism is also based on the the licensing period, although in a more complex manner. It comprises both the “testing phase” and the “approval phase”. The testing phase is the period from the day on which approval was received to experiment on humans until the date of submission of an application for approval of the drug (New Drug Application). The approval phase commences at this point and continues until the final approval issues (see 35 U.S.C § 156). There are a number of scenarios and calculations, and for the purpose of this ruling there is no need to specify all of them. Suffice to say that the main rule there is to grant an extension order equivalent to half the period that regulatory approval takes. Like in Israel, there are different limitations to the length of this period, and in particular it may not be more than five years past the 20 year patent period and may not extend more than 14 years beyond the date of marketing approval.

This is the essential calculation principle as of now, without discussing the legislative changes that have occurred in the United States. It is now possible to understand, now, the above decision, that the legislature stated that linking the Israeli patent term to the American patent term extension order provides appropriate compensation to the patent holder. This is the situation regarding the specific case of Merck. This is what we mean by the global aspects of drug usage. Some countries enact laws on this issue with one eye turns inward, and a second eye looks at what is happening in other countries. This is a function of economic reality, striving to give appropriate consideration to all the factors involved in this area, including the individual (drug user).

SUMMARY

summaryThere are two Appeals. The first examines if, once granted, an extension may be shortened, or if this possibility is prohibited on constitutional grounds? The second appeal relates to the way the extensions are calculated. Judge Greenberger of the District Court rejected Merck’s submission that the patent extension, once issued could not be shortened on constitutional grounds. However, Judge Greenberger calculated the appropriate extension differently from the commissioner.

Probably if this was a single instance, there would not have been justification to grant permission for Appeal 8263/15, as one Appeal is enough. However, since 8127/15 was reconsidered, and the cases are related, Judge Handler advised his colleagues to reconsider both cases. He suggested that the right of appeal be granted for 8263/15 but that the Appeal then be rejected in its entirety. As to 8127/15 Judge Hendel ruled in favour of the Commissioner that the US patent is the one to be considered and so the patent has now lapsed. Merck was ordered to pay further 125,000 Shekels costs to the Association of Industrialists in Israel.

COMMENT

Judge Hendel seems to be stating that to interpret a Law, one has to objectively read what the Law states and what the legislators intended. Only then, one can argue that the Law is non-constitutional and should be voided. Merck (Whatstein)’s creative interpretation is unacceptable.

In this regard I agree with him. I think the commissioner correctly interpreted the Law and the Supreme Court was correct to overturn the modified extension. Merck were, perhaps correct to Appeal the original ruling, but it was a long shot. This second Appeal was doomed to failure and has resulted in the additional extension that the Judge granted being voided. This is what the Talmud calls “When greedily trying to grab everything one ends up with nothing” Rosh Hashana 4b, Yoma 80a.

      

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