Are Generic Companies Liable for Originator’s Losses Attributable to Pricing Reductions on Generic’s Launch in Korea?
Keum Nang Park, Lee & Ko (Korea)
Company A, a global pharmaceutical company, was the owner of a patent covering an original drug product, and Company B was Company A’s Korean subsidiary and non-exclusive licensee engaging in the importation and sale of the original drug. After the Patent Court held the patent invalid, generic companies, C and D, launched their generic versions of the original drug at risk (i.e., before the expiration of the patent-at-issue), and the original drug price was immediately reduced as a result.
The Supreme Court thereafter reversed the Patent Court’s decision and held the patent valid. Company A (patentee) and Company B (non-exclusive licensee) proceeded to file lawsuits seeking damage compensation against the generic companies, C and D, respectively.
While the patentee’s claims for damages were granted in both cases, the non-exclusive licensee’s claim was denied in one case by the Seoul High Court and granted in the other by the Patent Court.
The decisions by the Seoul High Court and the Patent Court may be summarized as follows:
The Supreme Court reviewed both cases and issued a decision on November 26, 2020, upholding Seoul High Court’s decision, which denied generic companies’ liability for damage compensation.
Supreme Court’s Reasoning
- It is difficult to say that an express or implied exclusive license agreement existed between A (patentee) and B (Korean subsidiary), so B cannot be regarded as an exclusive licensee.
- The applications for generic price listing by the generic companies, C and D, were in compliance with the relevant regulations and thus cannot be deemed unlawful.
- The original drug price reduction was implemented in accordance with the public notification by the Ministry of Health and Welfare, which is a discretionary administrative disposition, and no causal relationship is found to the generic drug manufacturing and sales activities by C and D.
With this Supreme Court decision, generic companies will likely determine that the risks associated with the potential liability for payment of damages due to original drug price reduction have been removed. As a result, it is expected that generic companies will start challenging original drug companies’ patents even more aggressively and launching more generic products at risk. Original drug companies will have to more thoroughly prepare themselves against risks associated with the original drug price reduction scheme, as well as patent challenges.