Mexico Supreme Court opines on compensatory time and patent effective term

The author first commented on patent validity in the magazines El Foro and La Barra in an article titled “Dilación en el Otorgamiento de Patentes y su Regulación en el TLCAN” (“Delay in the Granting of Patents and the Regulation under the North American Free Trade Agreement”) in 2018.

The article reflected an initial point of view that, at the time, was an incomplete idea of the unfair system that had prevailed and still exists in Mexico on patent validity under the then Industrial Property Law (IPL) and the new Law on the Protection of Industrial Property (LPIP), which came into effect on 5 November 2020.

This idea, albeit with a more precise and developed approach, was taken up in a constitutional action the author filed, and later by the Second Chamber of Mexico’s Supreme Court. In light of those developments, this chapter presents part two of the author’s comments in this exciting area of law.

Resolving unconstitutionality

For many years, it was common practice to assume that a patent would be valid for 20 years from the filing date of the patent application, and some relevant Mexican statutes governing this area of law prescribe a 20-year term from the filing date.

No one seems to have ever questioned whether this rule was fair, or whether it was in line with the Constitution: it was generally accepted that since this was what the regulations said, there was no option but to unequivocally comply with the law.

Was it right to simply accept this rule as the norm? Arguably, not everything provided for by statute should be accepted without question: when a rule appears to conflict with common sense, an issue of unconstitutionality may be present.

In the past, it was common to find that the effective term of a patent would differ from one patent to another, depending on how long each examiner took to study the application; in other words, under the 20-year filing date rule, a patent could be granted at any time between two years to 17 or more years after filing, and there have been cases in which either the patentee would enjoy only a single year of protection or the patent would be invalid upon issue – a result that is totally preposterous, unfair and unconstitutional.

Contrary to what supporters of the system may claim, a pending patent application is not the same as a patent that has already been granted. For example, legally granted patents, not pending patent applications, are required to take legal action against infringers or to obtain the benefits from supplying pharmaceutical drugs to the government under no-bid contracts.

The Second Chamber of Mexico’s Supreme Court understood the issue and sought a legal solution based on a systematic interpretation of the law. It targeted the unconstitutionality of Article 23 of the IPL, finding a solution to the unfair but prevailing patent validity system thereunder and establishing a historical and transcendental principle.

In doing so, the Second Chamber substantially eliminated the possibility of extending the effective term of a patent and established a different theory with equally different consequences: the purpose of providing extra time to compensate for process delays (compensatory time) is not to extend the validity of the patent, but to give to the patentee a period of effective protection.

Article 126 LPIP

Article 126 of the LPIP introduced a supplementary certificate pursuant to the United States-Mexico-Canada Agreement (USMCA) that, under certain circumstances, allows for the provision of compensatory time to offset the excess time taken by the patent process when there are delays of more than five years between the filing date in Mexico and the granting of the patent, the patent date being the date on which the granting of the patent is communicated to the patentee. One day of compensatory time is provided for every two days of delay.

However, the following question arises: does ‘communicated’ refer to a notice that is attached to the patent certificate or a notice to pay the required fee to issue the certificate? The courts must clarify the answer to this question

Bayer

On 12 January 2000, Bayer Corporation (later Bayer Healthcare LLC) applied for the protection of an oncological substance invention under an international Patent Cooperation Treaty application, which was granted on 26 July 2006 (“ω-carboxyaryl substitutes diphenyl ureas as raf kinase inhibitors”).

The Mexican Institute of Industrial Property (IMPI) took six years and six months to grant the patent and eight months to notify the invention certificate under Patent No. 238942. In both Mexico and internationally, the average time to grant a patent is three years; however, in this case, IMPI took twice as long, which shortened the validity term of the patent by three years and six months.

Article 1709(12) of the North American Free Trade Agreement (NAFTA), to which Mexico was a party, recognised this type of delay and opened the possibility for the patentee to obtain compensatory time for delays in the process to grant the patent, therefore giving effective protection to the patentee.

When compared with the systems of its US and Canadian trading partners, the patent protection system in Mexico is unfavourable: the Mexican system is prone to legal uncertainty because the patentee cannot ascertain how long IMPI will take to grant the patent or whether the protection sought will be effective. This places Mexico at a disadvantage in patent rights when compared with those granted by its trading partners.

Article 126 of the LPIP regulates the issuance of supplementary certificates that are limited in scope and follow an unfair formula for compensation (one day of compensatory time for every two days of delay). The logic behind the formula is unclear, especially since it would seem to be more rational to offer one day of compensatory time for every day of delay. The lack of rationality means that it is difficult to see the rule as fair.

In the Bayer case, Bayer was entitled to three years and six months of additional exclusive exploitation of its patent. This entitlement is a benefit contemplated under NAFTA, which supersedes federal law (as provided by Article 1 of Mexico’s Constitution), including the IPL, and is a civil right that should be given the broadest interpretation for the benefit of private parties. The government improperly interpreted the rule to the detriment of the patentee and refused to grant compensatory time for the validity of the patent, without analysing the provisions of NAFTA or those that the IPL omitted.

Under NAFTA, member states must establish a protection period of at least 17 years from the granting of the patent or, alternatively, 20 years from the filing application date. Taking into consideration what the NAFTA parties intended when they negotiated and agreed on this wording, it can be concluded that their aim was to establish a protection period of not less than 17 years, given that the review and administrative process of an application will usually take three years. They also recognised that there may be situations in which the government requires more time to grant a patent. In those cases, the notion of compensatory time could be used to offset the excess time required for the patent to be granted.

It is unfair and unreasonable that some patentees are granted an exclusive right to exploit the patent for 17 years, whereas others are granted only 14 years or less, based only on administrative and red-type issues. The fact that patentees often make enormous investments and conduct expensive research for their inventions only exacerbates the unfairness of this treatment.

Given the above, in addition to the fact that the exclusive protection bestowed by a patent is a right recognised both under international treaties and by Article 28 of the Constitution, it follows that the ideal period of protection is 17 years, after subtracting the customary three-year processing time by the respective patent office.

Analysis of the Supreme Court’s opinion

On 14 October 2020, the Second Chamber of Mexico’s Supreme Court, in respect of the amparo action under Review No. 257/2020 and the draft opinion authored by Justice Yasmín Esquivel Mossa, adopted a systematic interpretation of Article 23 of the IPL and Article 1709(12) of NAFTA and reaffirmed that in all cases, the effective term of a patent may not be less than 17 years from the grant date of the patent. According to page 76 of the opinion:

We find that, regardless der the Administrative Rulings [issued by IMPI], and as mentioned above, the interpretation of Article 23 of the Industrial Property Law, read in conjunction with the applicable provisions of Article 1709(12) of the North American Free Trade Agreement, allows us to conclude that the effective term of patents cannot be less than either twenty years from the filing date or seventeen [years] if the granting date is considered; consequently, if it is proven that there was a delay in the administrative approval process, the protection period must be extended in order to offset such delay, thereby preserving the effective term of the patent which, we insist, cannot be less than seventeen years.

The Second Chamber of Mexico’s Supreme Court opted for a systematic interpretation (ie, for all patents, the effective term may not be less than 17 years from the grant date) of the legal provisions under review instead of either:

• directly holding that Article 23 of the IPL was unconstitutional, since there were no accurate parameters to determine what a uniform effective term for all patents should be; or
• potentially applying the notion of compensatory time contemplated by Article 1709(12) of NAFTA, as a result of the failure by the legislature to enact a statutory rule on a minimum term for the validity of all patents or a maximum term for a delay in the granting of a patent.

The Supreme Court’s systematic interpretation fails to resolve the unconstitutionality issue of Article 23 of the IPL as it does not establish either a maximum term for the delay in the granting of a patent or a compensatory mechanism for the time lost in the patent approval process. This situation restricts the actual effective term of a patent.

Furthermore, the maximum terms set by IMPI under its administrative rulings do not remedy the statutory oversight; on the contrary, they go beyond what the law allows. Article 126 of the LPIP, therefore, now provides that a supplementary certificate may be issued by IMPI, at the request of the patent holder, if the delay has exceeded five years and is both unreasonable and attributable to the government; however, it provides that only one day of compensatory time will be granted for every two days of delay.

On the other hand, the Supreme Court’s systematic interpretation resolves the legislative error of Article 23 of the IPL, as well as the historical problem of the patent system whereby the patentees could not ascertain the exact duration of their patent rights, leading to complete legal uncertainty. Unfortunately, this clarification could not have come soon enough for some patentees, some of whom may have missed out on two, three, four or more years of effective term for their patents.

The recent Supreme Court opinion is much more benign and favourable for patent holders than the provisions of the new LPIP. This is because it mandates a minimum effective term of 17 years from the grant date and not the use the formula providing for one day of compensatory time for every two days of delay from the filing of the patent application in Mexico.

Aftermath of Bayer

In the aftermath of the Bayer case, on 8 January 2021, the Second Chamber of the Supreme Court released an opinion (Digital Registration No. 2022603) in the Federal Judicial Weekly gazette (Book 82, Volume I, January 2021) with the following heading:

Patents. When Delays in the Approval Process Are Attributable to the Administrative Agency, the Effective Term of a Patent May Not Be Less than Seventeen Years from the Granting Date (Systematic Interpretation of Article 23 of the Now Repealed Industrial Property Law).

According to page 662 of the opinion, the Supreme Court appears to have recognised that there may be disparity in patent effective terms. Although it wrote that Article 23 of the IPL does not give rise to legal uncertainty, the truth is that should the government be responsible for any delay in the granting of a patent, the patent effective term may not be less than 17 years, according to Article 1709(12) of NAFTA.

The rationale for this opinion is that there are two systems – one of 20 years from the filing application date and the other of 17 years from the patent grant date – with the proviso that in the event of any administrative delays, patents must have a minimum effective term of 17 years from the grant date, not 20 years from the filing application date.

The above interpretation has a direct impact on patents that take more than three years to be granted. This opinion corrects the flawed patent system that, for many years, had prevailed in Mexico under Article 23 of the IPL and prior statutes and that, unfortunately, negatively impacted patentees who sought effective protection for their inventions but were completely unaware of the unfair shortening of the effective term of their patents as a result of unreasonable delays by the government. This had been overlooked both by patent holders and their IP advisers.

Comment

According to Ulpiano, justice is “the constant and perpetual will to render each his due”. The interpretation embraced by the Supreme Court fully upholds the desire to follow this principle of justice expressed by Ulpiano by providing to patentees the effective term to which they are entitled, without declaring that Article 23 of the IPL was unconstitutional.

The recent opinion of the Supreme Court is applicable only to patent applications filed before 1 July 2020 while NAFTA was in effect; however, any patent applications filed between 1 July 2020 and 4 November 2020, before the new LPIP came into effect, may be caught in an interpretation limbo. This is because, on the one hand, they are subject to the USMCA while, on the other hand, the former IPL continued in full force and effect, the latter constituting the legal grounds taken by the Supreme Court to issue its opinion. It will be interesting to see how federal courts will react when considering this issue of timing in a conflict of laws situation.

Finally, the principle of real and effective validity of the patents that emerge from the aforementioned criterion could transcend the regulatory procedures before the Federal Committee for Protection from Sanitary Risks, since they further limit the real and effective validity of patents; however, this topic deserves a special analysis, which will be rendered in a separate article.