Switzerland Update: Patent Risks of Pharmaceutical Contract Manufacturers (CMOs)

How do CMOs protect themselves from lawsuits?

Pharmaceutical contract manufacturers (“CMOs“[1]) have a duty to ensure that their activities do not infringe any patent rights of third parties. It is irrelevant whether they carry out their activities solely for their customers – typically marketing authorisation holders (“customer(s)“).

CMOs are therefore exposed to the risk of being sued for precautionary measures[2] by third parties who are the holders of patents that protect CMO’s activities. CMOs of generics and biosimilars are particularly – but not only – exposed.

The judgment S2022_003 of the Swiss Federal Patent Court of January 3, 2023 (Measures Procedure, “Judgment S2022_003“[3]) provides information for the first time on how CMOs can minimize this risk.

Contract production as an act relevant to patent law

In principle, the exclusivity effect of a patent covers any commercial use, in particular the manufacture, storage, offering, placing on the market, import, export and transit as well as possession for these purposes. In principle, this also includes activities of CMOs who manufacture intermediate products of a drug and/or the final product for their customers.
 

2nd exception: Acts required for the authorisation procedure

However, acts that are required for the authorisation of a medicinal product in Germany or in countries with comparable drug control[4] (“authorisation privilege“[5]) remain excluded from the patent effect.

In particular, all activities for the purposes of preclinical and clinical trials in order to obtain data for drug approval, the manufacture, import and submission of samples (containing a protected active ingredient) for the regulatory authority as well as the production of validation batches required for approval are exempt under the authorization privilege.

On the other hand, actions that are not necessary for marketing authorisation under pharmaceutical law are not exempt from the authorisation privilege; in particular, the production of a patent-protected product in stock with a view to placing it on the market after the expiry of the patent protection period (so-called stockpiling).

According to the case law of the Federal Patent Court[6], CMOs can also invoke the admission privilege for activities relevant to admission.
 

Patent Risk Exposure of CMOs

As the case constellation on which the S2022_003 judgment of the Swiss Federal Patent Court is based shows, it can be tactically interesting for a patent proprietor to sue the CMO (and not the customer) for precautionary injunctive relief. If successful, the patent proprietor can use this method to obtain a temporary ban on the CMO’s activities for the customer in question – and thus prevent or at least significantly delay the affected competing product at the development stage.

In particular, a patent proprietor can obtain a precautionary injunction against a CMO if it can credibly demonstrate that the CMO

has already carried out acts in the field of patent protection that are outside the authorisation privilege (risk of repetition) or

intends to carry out such actions (risk of first ascent). [7]

In the event of such a lawsuit, the CMO is forced to conduct the patent process, even though his interest is actually limited to merely providing development or production services for the client.
 

How can the CMO specifically protect himself from lawsuits?

In many cases, CMOs lack information on the IP situation and the activities they carry out for clients. Clarifying this IP situation themselves would require CMOs to have a freedom-to-operate (FTO) analysis) prepared for each customer order. [8]

However, as the Swiss Federal Patent Court clarified in its S2022_003 ruling, CMOs can waive an independent FTO analysis initiated by themselves if they take other precautions to exclude the risk of repetition and first inspection:

• Precautions to exclude the risk of repetition In order to exclude the risk
  of recurrence, the CMO must ensure that no activities outside the authorisation privilege take place until the IP situation has been clarified. Contractual arrangements with the customers appear to be suitable for this purpose.
  • clear demarcation between (i) activities for obtaining marketing authorisation under pharmaceutical law on the one hand and (ii) commercialisation of the contractual products on the other hand, and
  • Clarification that activities aimed at commercialization are only carried out after the customer has provided proof of freedom of exercise under patent law by means of an independent FTO analysis.

The CMO is required to ensure the implementation of these contractual regulations in the company in a documented manner, for example by instructing the responsible workforce that activities geared towards commercialization require the explicit approval of the management after the intellectual property rights situation has been clarified.

• Precautions to exclude the risk of first ascent In order to exclude the risk
  of first ascent, the CMO must ensure in a documented manner that activities outside the approval privilege are only carried out after the customer has carried out an independent FTO analysis confirming the freedom of exercise. [9]

• Finally, it is recommended that
  the CMO include a comprehensive indemnification clause in the contractual arrangements with the clients in the event that the CMO has to defend himself out of court or in court against patent infringement allegations by third parties.

[1] In this context, Contract Manufacturing Organizations (CMO), Contract Research Organizations (CRO) and Contract Development and Manufacturing Organizations (CDMO) are to be included.

[2] Of importance in the present case are precautionary measures aimed at prohibiting the CMO from developing and/or production activities for a client for the time being due to imminent patent infringement.

[3] The authors point out that they did S2022_003 participate in the proceedings as party representatives. The judgment S2022_003 is available at www.bundespatentgericht.ch.

[4] These currently include Australia, EU and EFTA countries, Great Britain, Japan, New Zealand, Singapore and the USA (Swissmedic, List of all countries with comparable drug controls, as of 28 February 2023, available at www.swissmedic.ch)).

[5] The authorisation privilege in Switzerland is inspired by the “Bolar” provision of the US Hatch-Waxman Act, but goes further in content by not being limited to activities for the introduction of generics or biosimilars. In principle, it includes all actions that are required by regulation in Switzerland or in countries with recognized comparable drug control in order to obtain drug approval.

[6] Judgment S2022_003, E. 24.

[7] Judgment S2022_003, E. 23.

[8] It should be noted that before the court, only an independent FTO analysis can avert a risk of repetition or first inspection. A merely internal (i.e. prepared by the customer or the CMO itself) FTO analysis is not suitable for this purpose (judgment S2022_003, p. 26).

[9] Judgment S2022_003, E. 25 and 26.

By Vischer, Switzerland, a Transatlantic Law International Affiliated Firm.

For further information or for any assistance please contact switzerland@transatlanticlaw.com

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