I OVERVIEW

The market size of Korea's pharmaceutical industry accounts for 1.8 per cent of the global pharmaceutical market and is growing every year. While Korean pharmaceutical companies have mostly been generic companies, the number of companies focusing on R&D is also increasing. In this regard, the government has used subsidies, tax breaks, reimbursement policies and intellectual property (IP) laws to promote R&D investment in Korea by both domestic and multinational firms.

Also, the Korean Patent Act provides exclusive patent right to originators and the Pharmaceutical Affairs Act (PAA) protects data through a re-examination (post-marketing surveillance (PMS)) system to promote R&D investment in Korea.

In addition, the Korea–United States Free Trade Agreement (KORUS FTA), entered into force on 15 March 2012, and contains provisions on facilitating high-quality healthcare, and improving access to safe and effective innovative and generic pharmaceutical products. KORUS FTA requires the United States and Korea to ensure fair, reasonable and non-discriminatory treatment and to provide predictability and transparency in the pricing and reimbursement process for pharmaceutical products. Importantly, it also strengthens patent protections by introducing the patent approval linkage system. The PAA provides more detailed provisions of the patent approval linkage system such as generic notice or generic stay.

While IP essentially aims to be pro-competitive as it ensures the protection of R&D results, it can be anticompetitive if IP is unduly protected so as to grant exclusivity over non-differentiating features. In the pharmaceutical industry, 'pay-for-delay' patent settlement is a representative example where IP rights can be abused. In pay-for-delay arrangements, generic manufacturers agree to delay the launch of new products into a market in return for some form of payment by pharmaceutical patent holders. As such, in pay-for-delay cases, patent rights are abused because patents holders enjoy exclusivity regardless of the expiration or invalidation of their patent rights, and thereby depriving the market of fair competition among products. The Korean Fair Trade Commission (KFTC) as well as Korean courts regulate these abusive activities and other unfair activities such as undue solicitation and unfair collusion between originators and generic companies.

II LEGISLATIVE AND REGULATORY FRAMEWORK

The PAA and its attendant regulations govern authorisation of pharmaceuticals. The National Health Insurance Act and its attendant regulations provide regulations on drug pricing. According to the Patent Act, patent duration is 20 years from patent application date (the term of the patent begins on the patent registration date and lasts up to 20 years from the filing date, Article 88(1) of the Patent Act). Because a drug patent application must be filed before marketing approval is obtained for the drug, the period in which the drug product can be sold under its exclusive patent rights is shorter than the patent term granted by law. To resolve this gap, the law allows up to a five-year extension of the patent term with regard to the period during which the patent could not be exercised due to the clinical trial period and regulatory approval process.

In addition to patent protection, data exclusivity is also protected for innovative drugs during the period for PMS. PMS periods vary depending on the type of the medicinal product as follows:

  1. six years for a new drug, a new combination drug and a drug having a different route of administration;
  2. four years for a drug having a new indication; and
  3. 10 years for orphan drugs (11 years for children's orphan drugs).

Once the PMS period expires, however, a third party can apply for generic authorisation referring to safety and efficacy data submitted by the applicant of the referenced drug.

Korea does not have a system of public purchasing of drugs by the government or public medical institutions. The National Health Insurance System, however, has a drug price reimbursement system, and the National Health Insurance Service negotiates drug prices with pharmaceutical companies to ensure that the drugs are supplied at an appropriate price. Also, the National Health Insurance Act provides a system in which incentives are given or drug price adjustments are made to preserve the cost of drugs needed to treat patients, which pharmaceutical companies tend to avoid producing or importing because of its economic inefficiency. If the supply of certain drugs, including orphan drugs and essential drugs designated by the World Health Organization, is suspended, the reason for the suspension is required to be reported to the Ministry of Food and Drug Safety (MFDS) at least 60 days before the date of suspension pursuant to the PAA and its attendant regulations. Aside from this, the Korea Orphan & Essential Drug Center, which was established according to the PAA, carries out the task of building a stable supply of orphan drugs and national essential drugs.

Under the Fostering and Support of Pharmaceutical Industry Special Act, the Ministry of Health and Welfare (MOHW) certifies the following companies as innovative pharmaceutical companies: a pharmaceutical company that invests a certain amount or more in the research and development of new drugs (e.g., for pharmaceutical companies with a revenue of 100 billion won or more in annual drug sales, an investment of 5 per cent or more of its annual sales; in the case of pharmaceutical companies whose drug manufacturing and quality control standards have been determined to be suitable by the government or public institutions of the United States or the EU, an investment of 3 per cent or more of its annual sales); and a foreign pharmaceutical company that is conducting new drug R&D or has invested a certain amount into new drug R&D investment in Korea.

The above-mentioned innovative pharmaceutical companies have priority in participating in national R&D projects, benefit from a certain amount of tax deduction and can receive preferential treatment in its drug price.

The PAA contains provisions governing anticompetitive activity and unfair solicitation of customers, while the Monopoly Regulation and Fair Trade Act (MRFTA) is the general competition law. Both laws are applicable with respect to pharmaceutical issues, as are their sub-regulations and the guidelines issued by the KFTC.

III NEW DRUGS AND BIOLOGICS – APPROVAL, INCENTIVES AND RIGHTS

i Drugs

To obtain a marketing approval for pharmaceuticals, the applicant must submit to MFDS, among other things:

  1. documents or data showing the quality, safety and efficacy of the product;
  2. a good manufacturing practice certificate; and
  3. a leaflet that includes information for patients.

It generally takes 25 to 120 business days to obtain marketing authorisation of pharmaceuticals depending on factors such as whether review of safety and efficacy data is necessary. The MFDS's review may take longer if the MFDS finds it necessary to review additional materials and orders the applicant to supplement.

The fee for obtaining a marketing authorisation for pharmaceuticals is between 2,218,650 won and 6,828,150 won, depending on whether the drug is a new drug, an orphan drug or any other type of drug, or other factors such as whether review of safety and efficacy data is necessary. This fee is discounted by 10 per cent for electronic filings.

Marketing authorisation for pharmaceuticals is valid for five years. The marketing authorisation holder must file a renewal application with the MFDS six months before expiration. Registration of medicinal substance and export authorisation for pharmaceuticals does not require renewal. A renewal application must include information on safety and quality control and sales during the authorisation period.

As explained above, in Korea, data exclusivity is protected during the period for PMS. Once the PMS period expires, however, a third party can apply for generic authorisation referring to safety and efficacy data submitted by the applicant of the referenced drug.

An applicant for new drug application (NDA) can request for expedited review of its NDA if the drug was designated as an orphan drug and is expected to have therapeutic effects on life-threatening or incurable diseases. If the expedited review is granted, the NDA applicant may be allowed to delay submission of certain parts of the required materials for authorisation until sometime after launching. Also, the extent and amount of safety or efficacy data, or both, can be reduced. The MFDS may also prioritise the NDA for an orphan drug. But, in practice, expedited review does not significantly shorten the review time compared with standard review.

ii Generic and follow-on pharmaceuticals

After both the patent period and the PMS period (data exclusivity period) expire, generic companies may apply for authorisation of generic drugs. Generic companies can receive authorisation after submitting bioequivalence test data that compares the generic drug to the original drug. Here, the bioequivalence test data refers to the results of a test performed to prove that two drugs containing the same active ingredient and using the same administration method are statistically equivalent in bioavailability.

Generic exclusivity may be recognised for the first generic drug to successfully challenge the patent rights of an original drug. A detailed explanation will be provided in Section IV.

Recently, the MFDS announced its plan to introduce a bundled approval system for generic drugs to increase the quality of generic drugs and the efficiency of the drug review process. The bundled approval system is a system in which speedy approval can be made if generic products from multiple companies are being manufactured in a single manufacturing site, by uniformly applying an established approval, management criteria, such as consistent data requirements. This system is based on the reasoning that although the product names are different, the manufacturing site, raw materials, manufacturing method, bio data and quality of the products are the same. At present, no related laws have been enacted yet.

iii Biologics and biosimilars

In Korea, the approval system for biologics is no different from the approval system for new drugs in general. However, the MFDS does not think it is appropriate to apply the established evaluation method for generic chemical drugs when reviewing biosimilars, and sees a need for demonstrating the equivalence of quality, safety, and effectiveness. This means that the review should be based on scientific evaluation, just like for other biologics, using data with regard to quality and data from non-clinical and clinical trials, and additional bioequivalent data compared with reference biologics.

The same system applies to both biologics and general drug products with regard to the patent linkage approval system.

IV PATENT LINKAGE

Pursuant to the KORUS FTA, which was first signed 30 June, 2007, and entered into force on 15 March, 2012, Korea has introduced a drug approval-patent linkage system, which is the Korean version of the United States Hatch–Waxman system.

Under this system, originators shall list their patents covering a drug on the patent list called the Korean Green List, and the latecomer pharmaceutical companies that are applying for marketing their generic products must provide notification to the respective party that registered the patent information on the Korean Green List and the patent owner. Meanwhile, the Korean Green List covers not only traditional pharmaceutical products but also biological products.

For the above notification, the following items must be included:

  1. market authorisation application date;
  2. market authorisation application details; and
  3. justification for patent invalidity or non-infringement of the registered patent.

This notification must be provided within 20 days of the date of the application for market authorisation. However, if the patent term has expired or an applicant wishes to sell its drugs after the patent expiration date, notification of its market authorisation application is not required.

The patent owner of the registered drugs may file a patent lawsuit against the applicant within 45 days of the date of receiving notification and apply for sales stay against the concerned generic drug to the MFDS.

Under the patent linkage approval system, there are two possible outcomes: a stay of the generic sales or generic exclusivity to the first generic that meets certain criteria.

The patent owner of the registered patents may apply for a sales stay by submitting a statement that describes that: the patent has been registered lawfully; a litigation to seek injunction for, or prevention of infringement, or a petition trial to confirm the scope of patent rights has been filed in good faith; a prospect of winning the case exists; and the case shall not be delayed unreasonably. When the application of sales stay is approved, the period of sales stay is nine months of the date of receiving the notification. However, if the court determines that the registered patent is invalid or the generic drug does not infringe the patent, sales of the generic will not be stayed.

Generic exclusivity can be granted to the first applicant to file a petition for trial to challenge the relevant patent together with any multiple generic applicants that are deemed to share the status of this first applicant. In the case of the first applicant, generic exclusivity will be granted if the applicant has received a trial ruling or ruling that the registered patent is invalid, the registration for extension of the registered patent is invalid, or the relevant drug does not fall in the scope of the registered patent, before nine months have passed from the date of receipt of notice. And, in the case of the other applicants, generic exclusivity will be granted if the applicant has filed the above petition for trial within 14 days of the filing date of the first trial, or received the trial ruling or ruling, before any other applicant (including the first applicant). When generic exclusivity is granted, sales of other generic drugs may be stayed for nine months of the date when the sale of drugs with generic exclusivity is first possible.

V COMPETITION ENFORCERS

The KFTC is the authority that enforces competition laws and consumer laws of Korea. The KFTC is a ministerial-level central administrative organisation under the authority of the Prime Minister and also functions as a quasi-judiciary body.

The KFTC is divided into the Commission and the Secretariat. The Commission is in charge of making KFTC decisions, while in the Secretariat, each division of bureaus under the Secretary General investigates a case and submits its examination reports to the Commission. The Commission comprises nine commissioners, including the chair and the vice-chair. Among them, four commissioners are non-standing members of the KFTC.

The main legislation governing competition laws in Korea is the MRFTA. The MRFTA regulates anticompetitive agreements, abuse of dominance, M&As that substantially lessen competition in Korea and concentration of economic power. In addition to major antitrust prohibitions, the MRFTA regulates unfair trade practices including 'unjustly refusing to deal or treating a trading party in a discriminatory manner', 'unjustly excluding competitors', and 'unjustly inducing or coercing customers of a competitor to deal with oneself'.

While the KFTC has not specifically set priorities on any issues in the pharmaceutical field, in the meantime, pay-for-delay settlements have been sanctioned as unfair trade practice, and rebates provided by pharmaceutical companies have also been sanctioned as unfair solicitation customers. The KFTC undertakes market studies to reform existing anticompetitive regulations. In 2007, the KFTC conducted a market study on pharmaceutical companies and consulted with the MOHW to improve the PMS system, real transaction price reimbursement system, and establish disposal procedures for prescription drugs.

In addition, the KFTC has recently taken an interest in unfair trade issues between pharmaceutical companies and distributors, and in this regard, created a standard agency agreement for the pharmaceutical industry in December 2019. There is no requirement to use the standard agency agreement and using a different type of agreement would not automatically violate the Fair Trade Act. The KFTC merely recommends using this form of agreement.

An appeal filed against a sanction imposed by the KFTC will be heard by a court. An administrative suit with respect to the measures issued by the KFTC will be heard at the Seoul High Court, as the court of first instance, and the final appeal is heard by the Supreme Court. Also, it has been held by case precedents and legal doctrine that a private person cannot file a request for injunction against an act that violates the Fair Trade Act. The court determines fair trade issues when they are brought up in civil suits or patent infringement suits between pharmaceutical companies.

VI MERGER CONTROL

Up to now, there have not been many merger cases in the pharmaceutical field in which the KFTC has issued a corrective order. In 2016, in a case where Boehringer Ingelheim acquired the animal medicine division from Sanofi, the KFTC used the marketing approval certificate issued by the Animal and Plant Quarantine Agency, which disclosed the animal species, administration method, efficacy and effect, as well as the classification system of the European Animal Health Study Centre, which codifies animal medicine according to therapeutic use, animal species, indications, etc., to establish the relevant product market. Because the local market is affected by different administrative procedures and approval conditions and different distribution systems, the KFTC limited the relevant market to that of Korea. Based on this, the KFTC recognised competition concerns in only two markets in Korea, and imposed an order to sell related assets. Also, when Bayer Korea acquired the OTC drug business division of MSD Korea in 2015, the domestic market was selected as the relevant market considering that it was necessary to obtain marketing approval from the MFDS to sell domestically. Based on this, the KFTC recognised competition restriction in the domestic market for non-prescription oral contraceptive drugs and issued an order to sell related assets.

With regard to pipeline products, there have been no cases in which the KFTC issued a corrective order for recognising competition restriction. In the case of Takeda's acquisition of Shire's shares in 2018, there was future potential overlap in the area of inflammatory bowel diseases between Takeda's marketed product Entyvio (vedolizumab) and Shire's pipeline compound SHP647. However, the KFTC did not issue any corrective order after taking into account the following: that it would take many years for SHP647 to be launched in Korea; there are many competitive drugs other than SHP647 that are currently undergoing research and development; and the exclusive rights on biological therapy for inflammatory bowel diseases in Korea has already lapsed or will soon lapse resulting in the eventual commercialisation of various biosimilar treatment methods in Korea.

VII ANTICOMPETITIVE BEHAVIOUR

The MRFTA, in principle, does not apply competition laws to the legitimate exercise of exclusive intellectual property rights while enforcing applicable competition laws on the unfair exercise of intellectual property rights, and thereby balancing out the application of intellectual property laws and competition laws. The KFTC sets out standards for fair business in its Review Guidelines on Undue Exercise of Intellectual Property Rights. Unfair exercise of intellectual property rights is handled by the Korean courts and the KFTC according to these laws and guidelines.

The following are notable cases relating to the unfair exercise of intellectual property rights in the pharmaceutical field.

i Cases related to pay-for-delay settlements

The plaintiff GSK acquired a patent on the manufacturing method of 'ondansetron', an antiemetic drug, based on which it marketed the drug 'Zofran'. Dong-A Pharmaceutical independently developed ondansetron and launched its antiemetic drug, 'Ondaron', containing the same active ingredient as Zofran. GSK then filed a patent infringement suit against Dong-A Pharmaceutical, and the two companies terminated the suit in 2000 by signing a drug licensing agreement that included a pay-for-delay settlement. The KFTC determined that the collusion between the two pharmaceutical companies would exclude the cheaper generic drug (Ondaron) from the antiemetic drug market and prevent competing drugs from entering into the market. As a result, the KFTC issued a corrective order and imposed a 5.173 billion won penalty to GSK. The Supreme Court also recognise the KFTC's judgment with regard to the pay-for-delay settlement between GSK and Dong-A Pharmaceutical. The Supreme Court judged that GSK's action to prevent the launch of a competing product by providing Dong-A Pharmaceutical with economic benefits that was greater than the litigation costs during the patent litigation proceedings was 'an act not considered to be a legitimate exercise of patent rights' and therefore was subject to the Fair Trade Act. Here, 'an act not considered to be a legitimate exercise of patent rights' means an act that may appear to be exercising a patent right, but the substance of which is, in fact, contrary to the fundamental purpose of the patent system. The Supreme Court held that this can be determined by considering various factors, such as the purpose and intent of the Patent Act, the content of the patent right at issue, and the impact the subject activity has on fair and free competition. Afterwards, Article 69-3 of the PAA was newly established on 13 March 2015, which expressly requires that if there is a settlement between a patent holder and generic applicant with regard to a patent dispute of a drug, the settlement details must be reported to the MFDS and the KFTC.

ii Sham patent litigation

In a pharmaceutical IP litigation, a sham litigation generally means a litigation based on an invalid patent. Korea has a dual structure system in which patent infringement suits and patent invalidation suits are carried out separately. However, a Korean court has held that a court that hears a patent infringement case may determine whether there are clearly grounds for patent invalidation even before a patent invalidity decision is confirmed, and that if it is clear that there are grounds for the patent at issue to be invalidated as a result of hearing the case, or if it is clear that the patent is certain to be invalidated, any request for injunctive relief or claim for damages with regard to that patent right is, in principle, considered an abuse of power and therefore, not allowed. Further, the Review Guidelines on Undue Exercise of Intellectual Property Rights, which contain the established rules by the KFTC, states that the following acts are highly likely to be considered an abuse of patent infringement action:

  1. filing a patent infringement suit based on a patent that had knowingly been acquired fraudulently;
  2. filing a patent infringement suit despite knowing that patent infringement cannot be established (e.g., knowing that the patent at issue is invalid); and
  3. filing a patent infringement suit despite the fact that it is objectively obvious under socially accepted notions that patent infringement cannot be established.
    iii Product switching and hopping (evergreening)

There are many cases in which the court ruled in favour of domestic generic companies for reason that the patent at issue were found invalid in cases where a patent infringement action was filed by a multinational pharmaceutical company, using the 'evergreening' strategy, which attempts to extend the patent term of the original patent by partially changing the chemical structure of the original drug or by broadening the scope of the patent. Although there are no case precedents where KFTC has sanctioned such activities, it is possible that product switching and hopping could fall under abuse of market dominance or unfair trade practice under the current Fair Trade Act, and thus a close watch on the developments in this area is necessary.

iv Authorised generics

In 2006, Daewoong Pharmaceutical's patent for the raw material of the original drug for treatment of dementia (Gliatilin), which Daewoong had exclusively produced and sold, expired. When eight competitors tried to enter the market, Daewoong Pharmaceutical entered into a consignment agreement with another pharmaceutical company for the manufacturing of a generic drug and had the consignee company be the first to have its generic drug listed to dominate the market. In addition, in return for the condition that Daewoong would compensate for any losses, Daewoong had the consignee pharmaceutical company apply for a lower insurance drug price than what it could actually receive to interfere with the business activities of the other eight companies. As a result, the KFTC found that Daewoong Pharmaceutical's actions was tortious interference of business activities (Fair Trade Act, Article 23(1)(5)) that delayed and obstructed the market entry of the eight competitor companies. For these reasons, in addition to certain other unfair trade issues, the KFTC issued a corrective order and imposed a fine on Daewoong Pharmaceutical.

VIII OUTLOOK AND CONCLUSIONS

While the KFTC has historically more focused on unfair solicitation practices by pharmaceutical companies such as illegal kickback practices, we are seeing in an increasing attention on patent abuses and unfair arrangements between pharmaceutical companies and distributors. We expect to see more aggressive enforcement by the KFTC in the area of unfair interference of business management of distributors, abuse of dominance issues and unfair practices relating to the transfer of patented technology improvements.


Footnotes

1 Eileen Jaiyoung Shin, Suruyn Kim and Ji Hyun Yu are partners at Lee & Ko.