Hitotsubashi University
Institute of Innovation Research

Global spread of pharmaceutical patent protections:micro evidence from the international equivalents ofthe drug patents in Japan

Yoshimi Okada
Sadao Nagaoka
IIR Working Paper WP#16-07

Ｊｕｌ. 2016

Institute of Innovation Research
Hitotsubashi University
Tokyo, Japan
http://www.iir.hit-u.ac.jp

Global spread of pharmaceutical patent protections: micro evidence
from the international equivalents of the drug patents in Japan

Yoshimi Okada
Institute of Innovation Research, Hitotsubashi University
Sadao Nagaoka
Department of Economics, Tokyo Keizai University

July 2016

Abstract
We investigate the global spread of pharmaceutical patent protections as acquired byfirms, based on a novel global patent database for all significant medical drugs
introduced in Japan. It gives us the propensity of filing and grant rate for each country
for the granted patents in Japan. Major findings are the following. Both the filingpropensity to and the grant rate of major Asian countries approached those of the OECDeconomies by the early 2000s for chemical substance inventions. However, there still
exists substantial heterogeneity with respect to the other drug inventions: crystal, use,
formulation or combination, suggesting a significant future room for international
harmonization of patent granting standard. We found clear evidence for policy impact
on the spread of protections for the two largest non-OECD economies. The Patent Law
reform in China in 1993 had an immediate and significant impact on patent filingpropensity to China ( 25 percentage points increase) well before it becoming a WTO
member in late 2001. Furthermore, the mailbox application system in India had asubstantial effect: the filing propensity reached 80 percent of the number ofcorresponding EP patent applications around year 2000, well before the year of TRIPS
implementation for drug patents.
JEL classifications: O34, O38, K29
Keywords: pharmaceutical patent, chemical substance patent; TRIPS Agreement; India,
China, propensity of patent filing, grant rate1

1. Introduction
Patent system plays a major role in pharmaceutical innovations. Appropriability thatpatents confer to its owner differs significantly among technologies and medical drug is
known as the field where the highest appropriability is conferred by patents (Cohen et al.
(2000); Mansfield (1986)). It is well known that value of patent is highly skewed
following a log normal distribution (Scherer and Harhoff (2000)) and a large majority of
most valuable patens come from chemical substance patens that protect medical drug
products. Medical drug and chemistry is one of the few areas where patent systems
effectively work as a property system and gives net incentives to the innovators andinnovators seek global patent protection, according to Bessen and Meurer (2008).
Furthermore, patent protection also plays a significant role in diffusing the newly
developed drugs globally, as the resent study by Cockburn et.al. (2016) convincingly
suggests.
Not only because the economic value of medical drug patents is very large, butalso because the medical drugs directly affect the welfare of public at large, theprotection of drugs by patent system is also of highly political concern. In thenegotiation of TRIPS Agreement, one of the most confrontational matters between
developed countries and developing countries was the protection of pharmaceuticalpatents (Cockburn et al. (2016) Kyle and McGahan (2012)).
In the late 1970s, the Government of the United States initiated trade policy torecover the US industrial competitiveness by strengthening intellectual property rights
such as patents, which is well known in Japan as ‘Pro-patent policy’. One of the main
strategy is to realize the strong protection of intellectual property rights in foreigncountries through bilateral negotiations with foreign countries and multilateral trade2

negotiations such as the GATT Uruguay Round. Partly pushed by such pressure,countries such as China, South Korea, Taiwan and Indonesia revised or enacted theirpatent law in order to strengthen patent protection. The GATT Uruguay Round reachedthe Agreements on Trade-Related Aspects of Intellectual Property Rights (TRIPS
Agreement) that is a part of a single undertaking of the WTO agreements and enteredinto force as of January 1, 1995. TRIPS Agreement, among others, obliged a signatory
to protect substance patent which is a corner stone in drug patent protection. As a result,worldwide protection of intellectual property has been significantly and substantiallyreinforced, as far as the patent law provisions are concerned. At the same time, however,given that the effectiveness of patent protection heavily depends on the details of
institutional setting of each country such as the patent examination and the court system,
it is quite another matter whether they actually affect the R&D and innovations.
This paper investigates this issue by examining how pharmaceutical firms
actually began to choose applying patents globally and actually acquired them, based ona novel global patent database for those patents that protect or once protected the
medical drugs introduced to the Japanese market. Our main focus is to understand how
extensively the patent protection in major Asian countries have converged to those ofMajor OECD economies in terms of filing propensity and grant rates by types of patentssuch as chemical substance patent, medical use patents and manufacturing process
patents as well as to assess the impact of policy reforms, focusing on China and India:
the domestic patent reform in China in 1993 and the introduction of mail box system inIndia, in response to the TRIPS Agreement.
The rest of this paper is organized as follows: the next section presents a short
description of institutional background and prior literature; section 3 describes the data
construction and the composition of our sample patents; section 4 discusses global
3

patent filing and their grant rates of drug inventions launched in Japan and section 5
discusses the impact of policy reforms and changes, focusing the effect of policy reformin China and the effect of mailbox system in India; and section 6 concludes the study.

2. Background of this study and prior literature
2.1. TRIPS Agreement
The TRIPS Agreement stipulates the minimum standard of the protection of Intellectual
Property Rights. As to the scope and term of patents, TRIPS Agreement stipulates thefollowing contents(see Article 27): i) patents shall be available for any inventions,
whether products or processes, in all fields of technology, provided that they are new,involve an inventive step and are capable of industrial application. Nevertheless, themember states may also exclude from patentability the diagnostic, therapeutic andsurgical methods for the treatment of humans or animals; ii)patents shall be available
and patent rights enjoyable without discrimination as to the place of invention, the fieldof technology and whether products are imported or locally produced. iii) The term ofprotection available shall not end before the expiration of a period of twenty years
counted from the filing date. It also stipulates the clauses concerning the enforcement ofpatent right in order to ensure that the enforcement procedures are available so as topermit an effective action against infringement of intellectual property rights, including
expeditious remedies to prevent infringements and remedies which constitute a
deterrent to further infringements.
The TRIPS Agreement entered into force in January 1, 1995. The deadline that amember country has to apply the provisions of TRIPS Agreement differs by the4categories of member country, such as developed country, developing country and leastdeveloped country: a developed country, by January 1, 1996; a developing country
member, by January 1, 2000; least-developed country Members, January 1, 2006i.
However, there is transition provisions as to the protection of pharmaceutical chemical
product patents. Application of the pharmaceutical chemical substance patent provisions
to developing countries can be deferred to January 1, 2005ii.
Together with the exception of the deadline of the introduction of chemical
substance patents, the TRIPS Agreement introduced a special patent application system,
so-called ‘mailbox application system,’ which is stipulated in the Article 70(8): “A
member country has to provide a means by which applications for patents forpharmaceutical chemical products can be filed as from January 1, 1995,the date of theentry into force of the WTO Agreement, if the member apply for the transition
provision as to the protection of pharmaceutical chemical product patents. This study
investigate the impact of this provision in India as a part of the assessment of the policy
impact (section 5).

2.2. Introduction of chemical substance patent and TRIPS Agreement
One of the biggest confrontation points between the north and south in the
TRIPS Agreement negotiations was the introduction of chemical substance patent
systemiii. The United States put pressures on strategically important countries such as
China, South Korea, Taiwan, and Indonesia through bilateral negotiations for theprotection of chemical substance patent system. In light of the protection of chemical
substance patent and TRIPS Agreement, the Asian countries are divided into four
categories: i) countries that introduced chemical substance patent system before the5TRIPS Agreement; ii) those where the protection of chemical substance wassubstantially obtained through registering exclusive rights based on the United
Kingdom patents although three is no chemical substance patent system in their own
patent law; iii) those that adopted chemical substance patent system in order toimplement TRIPS obligation; iv) those that adopted chemical substance patent systemand entered WTO. Table 1 shows the WTO membership date in calendar year andmonth, the deadline of pharmaceutical chemical patent, the date of introduction ofchemical substance patent for 11 Asian countries with Japan, Europe (the members of
the European Patent) and United States as references.
(Table 1 around here.)
2.3. Prior literature
Cockburn et.al. (2016) empirically investigated how quickly new medical drugs
with an active ingredient become commercially available in a country by being
protected by patents. Analysis is made for the timing of the launches of 642 newingredient drugs in 76 countries during 1983-2002. In order to measure the effect ofprotection by patents, they made the database of drug patents which identifies thepresence of chemical substance patent, the presence of manufacturing process patentand their terms of protections by each active ingredient and country. They also collected
data of price regulation regime and the strength of patent protection in general for eachcountry. Their econometric analysis shows that longer and more extensive patent rights
for chemical substance significantly shortened the period of time to the market for a
new drug. They also showed that estimated effects were generally robust to controlling
for the endogeneity of policy regimes with country fixed effects and to the estimations
by instrumental variables. This study clearly showed that medical drugs are required to6pass clinical tests of each country for marketing in the country and a patent protection isimportant for a pharmaceutical company to have a good prospect of recovering heavy
investments necessary to implement such clinical tests. If the patent is critical todevelop as well as to diffuse medical drugs to developing countries, patent protection isbeneficial for both developing and developed countries.
Kyle and McGahan (2012) investigated on what disease area pharmaceuticalcompanies increased their R&D activities after the TRIPS Agreement. They captured
their R&D activities by the number of phase I clinical trials, the first stage of humanclinical testing, that are implemented globally. As is expected, their study shows that
there is a complementarity between the introduction of patent protection and the income
level as to their effect on the activation of research and development activities. Patent
protection in wealthy countries is associated with increases in R&D effort. However,
the introduction of patents in developing countries has not been followed by greater
R&D investment in the diseases that are most prevalent there.
Duggan et.al. (2016) analysed the India’s implementation of a patent reform forpharmaceuticals in 2005 that was intended to comply with the TRIPS Agreement.
Because price sharply plummets down after the entrance of generic companies into themarket, there were significant fears across a variety of constituencies that this new
system would cause dramatic prices increases by several times and further limit accessto pharmaceuticals in India. However, the fact is that price increase is relatively small,just 3–6 percent. This might have been caused by the competition with the existing
drugs without patents, pricing to the market practice as well as by the threat of pricecontrols by government.
Branstetter et.al. (2006) examined the activities of U.S.-based multinational
7

enterprises and royalty payment to parent companies in 16 countries that strengthened
their intellectual property right systems in the 1980s and 1990s, including Japan and
Korea and obtained positive effects although this study is not dedicated to thepharmaceutical industry.
Aoki and Saiki (2005) investigated effect of the material product patents
introduced to Japan in 1976. They examined data prior to 1976 and years immediately
following to determine the law’s effect on domestic pharmaceutical market, innovationby pharmaceutical firms, and relationship of the Japanese market to the rest of the world.
There is evidence that the domestic market became more concentrated and quality ofpharmaceutical innovation changed after the introduction. This is because introductionof product patents is different from simple strengthening of existing technology
protection such as increasing breadth.
Although these existing studies are highly relevant to the analysis of the role ofpatent protection for pharmaceutical innovations, they did not give us a direct
assessment of the global spread of pharmaceutical patent protections as acquired bypharmaceutical companies, in response to the policy or institutional change.

3. Data
3.1. Data construction
Since the value of patens is highly skewed, if we investigate the average propensity toobtaining pharmaceutical patents as a whole in a foreign country, it will provide ahighly inaccurate picture (a downward biased picture) on the patent protection in suchcountry. In order to address this problem, we focus on the patents that are useful for
protecting the drugs actually commercialized. The novel database we constructed8

consists of all patents that protect or once protected all significant medical drug
products that were actually introduced to the Japanese market. It also contains patentfamily information: the publication numbers assigned by foreign patent office for thecorresponding patents of patent applications, which enables us to investigate thepropensity for filing to each foreign county and grant rate of the country, all relative tothe granted Japanese drug patents. There are three steps for preparing this novel
database.
First, we list up all patents that appear in ‘San-ei Report (2015 October edition),’which lists up all the major medical drug products that were introduced to the Japanesemarket with the information of patents that protect or once protected it. It also gives theinformation of the category of claims of patents that effectively protect or once
protected the medical drug product. The category symbols and the categories are as
follows: Symbol ‘S,’ chemical substance (including biologics) ; symbol ‘s’, crystal;
symbol ‘U,’ medical use, symbol ‘P,’ pharmaceutical formulation; symbol ‘C,’
combination of drugs; symbol ‘M,’ manufacturing process. A patent may contain morethan two claims that protect the drug product and in this case more than one category
symbols are assigned to one patent. We list up all the patents that appear in the ‘San-ei
Report’ with claim category symbols
Second, we connected with above prepared data with patent database of ‘Pat-R’
database which is provided by Artificial Life Laboratory, Inc. This database arecomposed of bibliographic and examination process data that were originally provided
by the Japan Patent Office (JPO). Utilizing the ‘Pat-R’ database, we gathered suchcorresponding number for each patens as application number, 18 month pre-grant
publication number (Kokai-Koho), examined publication number which were published9

under the old version of the Patent Law (Kokoku-koho), PCT national publication
number that were made for Patent Cooperation Treaty (PCT) route applications entering
Japanese national phase (Kohyo-koho and Saikohyo-tokkyo), international application
number and publication number for PCT route applications. Because some data are
missing in the ‘Pat-R’ database because of truncations, we supplemented thecorresponding data by utilizing J-PlatPat (Japan Platform for Patent Information) that is
an internet patent information service provided by the National Center for Industrial
Property Information and Training, which is an affiliated organization of the JPO.
Finally we obtained patent family publication list, i.e. the list of publications thatwere made by foreign governments for corresponding foreign patents or patentapplications by retrieving corresponding patent families in the ‘Derwent World Patents
Index’ (DWPI) database of ‘Thomson Innovation’ patent retrieval system provided byThomson Reuters, using all the corresponding numbers such as application number,publication numbers and patent number.

3.2. Composition of the drug patents in Japan
According to the information of the category of patent claim of ‘San-ei Report’ that
substantially protect the drug product, we introduced the following dummy variables:
S_dummy: set to one if the patent includes chemical substance claim that protect
the medical drug product and set to zero otherwise.
s_dummy: set to one if the patent includes crystal claim that protect the medical
drug product and set to zero otherwise.
U_dummy: set to one if the patent includes medical use claim that protect the
medical drug product and set to zero otherwise.
PC_dummy: set to one if the patent includes pharmaceutical formulation claim
or combination of drugs claim that protect the medical drug product and set tozero otherwise.
10M_dummy: set to one if the patent includes manufacturing process claim that
protect the medical drug product and set to zero otherwise.

A patent may contain more than two claims that protect the medical drug
products and in this case more than one categories are assigned to one patent. If thepatent contains not only the chemical substance claim, but also crystal claim andmanufacturing process claim, the effect of crystal claim and manufacturing process
claim is substantially negligible because the medical drug product is protected bychemical substance claim and the existence of crystal claim and manufacturing process
claim does not matter in most settings. In Japan the invention of medical use ofchemical product is protected as a product claim, which is believed to be relatively
important than manufacturing process claim or even than pharmaceutical formulation
claim or combination of the drugs claim, considering the possibility of circumventing
the patents. Based on the hierarchy of ‘S,’ ‘s,’ ‘U,’ ‘PC,’ ‘M’ (more left sided, thestronger), we introduce the first set of categories of patents that one patent belong to
only one category (we refer as ‘first mutually exclusive category.’:
essentially_s_dummy: set to 1 if s_dummy = 1 & S_dummy = 0, and set to zerootherwise.
essentially_U_dummy1: set to 1 if U_dummy = 1 & S_dummy = s_dummy =0,
and set to zero otherwise.
essentially_PC_dummy1: set to 1 if PC_dummy = 1 & S_dummy = s_dummy =U_dummy = 0, and set to zero otherwise.
essentially_M_dummy1: set to one if M_dummy = 1 & S_dummy = s_dummy =U_dummy = PC_dummy = 0, and set to zero otherwise.
In counties such as Chinaiv, Indiav and the old European Patent system,
inventions of the new medical use of known product is not protected as product claims
but for what is called ‘Swiss-type claims,’vi which is in the form of ‘Use of a substanceor composition X for the manufacture of a medicament for therapeutic application Z.’
Swiss type claim can be said a kind of claim directed to the combination of
manufacturing process and medical use and it can be placed the last level of thehierarchy. Based on the second hierarchy of ‘S,’ ‘s,’ ‘PC,’ ‘M,’ ‘U’ (more left sided, the11stronger), we introduced the second set of the categories of patents that one patentbelong to only one category (we refer as ‘second mutually exclusive category.’):essentially_PC_dummy2: set to 1 if PC_dummy = 1 & S_dummy = s_dummy =0, and set to zero otherwise.
essentially_M_dummy2: set to one if M_dummy = 1 & S_dummy = s_dummy =PC_dummy = 0, and set to zero otherwise.
essentially_U_dummy2: set to 1 if U_dummy = 1 & S_dummy = s_dummy =M_dummy = 0, and set to zero otherwise.

Table 2. shows the composition of the drug patents in Japan by all firms
including non-Japanese firms, of which the priority year is in or after 1976 when therevised Japanese Patent Law became effective and chemical substance inventions andpharmaceutical product inventions became patentablevii. The share of chemical
substance patents, that is, category ‘S’ is 34 percent and that of broadly-definedchemical substance patents, that is, category ‘S’ or ‘s’ is 40 percent. Pharmaceuticalproduct patent, which is category ‘S’, ‘s,’ ‘U,’ ‘P’, or ‘C’ is 83 percent. The impact of
introducing product patents is quite large, because manufacturing process inventions
accounts for only a minor part of the pharmaceutical inventions.
(Table 2 around here.)

4. Global patent filing and their grant rates of drug inventions launched inJapan
4.1 Patent filing propensity to major Asia countries and to the US and Europe
Fig. 1. shows the recent propensity for filing patents to major Asia countries and to the
US and Europe by the type of a patent based on the first mutually exclusive category,
which is given by the number of pre-grant publications divided by the number of thebase drug patents in Japan by Japanese and non-Japanese firms. We wanted to collectinformation of all major Asian countries as indicated in Table 1, including Indonesia,
Thailand, Vietnam, Hong Kong, Malaysia, and Singapore. Unfortunately, DWPI database lacks data for these countries.viii The data for Fig. 1 is limited to patent publications
12

of which priority year is between 2002 and 2006 to avoid truncations that come fromthe restriction of DWPI database or the institutional restriction such as lacking 18month publication systemix.
The figure shows that more than 80 percent of the most important recent
inventions of chemical substance is globally filed to economically large countries,
including India, Brazil, Mexico. Inventions for crystal are also widely filed to thesecountries. It is also noted that the inventions of manufacturing process also have highlevel of propensity for global filing. Propensity for global filing is relatively small in theinventions of medical use or the inventions of pharmaceutical formulation or the
combination of drugs, but it is notable that the propensity of these inventions for filing
United Sates and European Patent is high( more than 80 percent).
(Fig. 1 around here.)

4.2 Patenting rates & Grant rates
Fig. 2 shows the grant rate by country by category of inventions for 5 major Asian
countries, together with those for the US and EP. The grant rate is calculated by the
number of examined patent publications divided by the number of patent filings ofwhich priority year is between 2001 and 2004 to avoid truncations caused by the delayof examination as well as limitations of the coverage of our database. The value for
Taiwan is calculated for patent application of which filing year is between 2002 and2004. The number of samples for calculating grant rate is shown in Table 3 for Fig 2.
The figure shows the grant rate for chemical substance is quite high: 90 percent or more
for all countries in this figure. However, grant rate for inventions of crystal inventions
and medical use in India is low, 50 percent in both, compared to those of other nations
which is more than 90 percent and more than 70 percent respectively. On the other hand,13the grant rates for inventions of medical use and pharmaceutical formulation andcombination of drugs differ among countries. These facts mean the standard for
granting patens still significantly differ among countries for these types of drug
inventions. The system for globally filing patent has been established as an outcome of
TRIPS Agreement, however, there seems to be much future room for international
harmonization or convergence of patent granting standard for these inventions.
(Fig. 2 and Table 3 around here.)
The Fig. 3 shows patenting rate in each country, that is given by the number
granted patents in each country divided by those in Japan. This ratio can be interpreted
as the product of filing propensity to the country and the grant rate of the country. We
have two figures for two groups: i) the patents with priority between 1995 and 1999;
and ii) the patents with priority between 2000 and 2004. Patenting rates in China forchemical substance inventions and the crystal inventions in both periods are lower thanbut close to those of United States and European Patent. Therefore the propensity andthe grant rate in China already became close to those in United States and Europe after
the legal change in China in 1993. A significantly lower but similar pattern is observedin Taiwan. As to the India, the patenting rate for chemical substance inventions between
2000 and 2004 doubled compared to those between 1995 and 1999.
(Fig. 3 around here.)A significant amount of patent data that covers both before and after thesignificant legal change is available only in China in the DWPI patent database. We
therefore investigate the impact of legal change in China using our novel patent
database in the next section. In addition, we investigate how the filing propensity has
evolved in India, as a consequence of pharmaceutical firms utilizing the ‘mailbox filingsystem’.

14

5. Impacts of policy reform
5.1 Domestic reform in 1993 and the patent propensity to China
Fig. 4 shows the ratio of the number of Chinese patent families against those ofcorresponding European Patent families of the drug patents in Japan, which means thepropensity for filing to China normalized by propensity for filing European Patent
during the period from 1985 to 2004. In China, chemical substance, including drug
inventions, became patentable if the filing date is on and after January 1, 1993. The
figure clearly show that the propensity to filing to China drastically rose right after the
Patent Law change. China became a WTO member on December 11, 2001. It seems
there is no significant change after the entrance of WTO membership. We implement
regression analysis in order to investigate the effect of these events on the propensity forpatent filing to Chinax. The explained variable is a dummy variable ‘CN_fam_dummy,’
which is set to one if the patent has a Chinese corresponding patent application, and set
to zero if it has no Chinese corresponding application. In order to control for trend or
the influence of macro-economic factors extensively, we introduce quasi fiscal_year
dummies, which begins July and ends June in the next year, of which the base period is
between July 1992 and June 1993. In order to identify the policy impact, we introduce adummy variable ‘CN_reform9301_6m,’ which is set to one if the filing date is between
January 1993 and June 1993 and set to zero otherwise, and dummy variable‘CN_TRIPS0201_6m,’ which is set to one if the filing date is between January 2000 andJune 2000 and set to zero otherwise. Thus, we essentially assess the policy impact
within the 6 months period immediately following the policy changes. The estimation
period is between July 1984 and June 2006. The lower limit is set because of the15

availability of database. Upper period is set to avoid the truncation. In order toaccommodate three types of categorizing inventions, we implement 3 regressions: thefirst one uses category dummies; the second one uses the first mutually exclusive
category dummies; and the last one uses second mutually exclusive category dummies.
Namely, the estimation models are defined by the following formula:model 1____

9301_6____0201_6_

1_model 2____9301_6_0201_6

_ _
_ _
_

1

_

_

1

2

_

model 3____9301_6_0201_6

_ _
_ _

2

_

_

2

16

_

_

(3)

The summary results of regression analysis are shown in Table 4. As to thecoefficients for fiscal_year_dummies, only those for 1991 fiscal year and 1993 fiscal
year are shown. In all estimations, the values of the coefficients for CN_reform9301_6m
are quite large, similar and positive value around 0.25 to 0.26, which are statisticallysignificant at least 5 percent level in two tailed test across estimations, while the valuesof the coefficients for CN_TRIPS0201_6m are small around -0.5 and statisticallyinsignificant. Thus, the Patent Law revision in 1993 had a significantly positive impact
on patent filing propensity to China and brought an immediate increase amounting to 25
percentage points, while the effect of becoming a WTO member in late 2001 is not
associated with a further increase. This estimate of the effect of the domestic reform isconservative, given the very short period used for assessing the impact. In fact, thevalues for dummy variable 1993.CN_F_year are around 0.39 in all estimations (1992
fiscal year is the base year). It is highly probable that a large source of this value comessignificantly from the Patent Law change and not from other factors like economic
growth.
As to the effect of category of inventions, the fixed effects of chemical
substance inventions or crystal inventions are positive around 0.2 and highly
statistically significant 1 percent level, while for those of medical use invention,
pharmaceutical formulation and combination of drugs are statistically insignificant,where the base is manufacturing process invention. The inventions of chemical
substance inventions or crystal inventions are important for the applicants and theirpropensity for filing patents to China for these inventions are 20 percent points larger,
relative to the manufacturing process inventions, while the propensity of patent filingfor inventions of medical use invention, pharmaceutical formulation and combination of17

drugs are at the same level as the manufacturing process inventions. These estimation
results are consistent with what we observed in Fig. 1.
(Fig. 4 and Table 4 around here.)

5.2 Mailbox application system in India
Fig. 5 shows the ratio of the number of Indian patent families against those ofcorresponding European Patent families of the drug patents in Japan, which means thepropensity for filing to India normalized by propensity for filing European Patent during
the period from 1994 to 2005. Since the adoption of pharmaceutical product patent
system in India took place only in 2005, the most inventions of chemical substance,
crystals, pharmaceutical formulation and combination of drugs are considered to havebeen filed by what is called ‘Mailbox application system.’ The ratios are almost
monotonically increasing from 1994 to 2005 which is the deadline of complying with
the TRIPS Agreement for India. The number for chemical substance patent reachedalmost 80 percent around 2000. This means that, due to the use of the mailbox
application system, the filing propensity reached 80 percent around year 2000 that iswell before the year of TRIPS implementation for drug patents. Therefore the mailbox
application system, which is a product of a compromise in the tough negotiation
between India and United States, has a substantial effect on accelerating the
introduction of drug protections in India.
(Fig. 5 around here.)18

6. Conclusion
We investigated the global spread of pharmaceutical patent protections as acquired bypharmaceutical companies, based on our newly developed patent database that
constitutes the patents that protect or once protected all significant drugs that wereactually introduced to the Japanese market. This database gives us the information ofpropensity for filing to and grant rate of each country with respect to the granted drug
patents in Japan by Japanese as well as by non-Japanese firms.
We found that the global spread was indeed very significant. Both the filingpropensity to and the grant rate of major Asian countries approached those of the OECDeconomies by the early 2000s for chemical substance inventions, although those forinventions of medical use or inventions of pharmaceutical formulation or combinationof drugs are smaller compared to those for United States and Europe. As to the grantrate, the grant rate for chemical substance is quite high around 90 percent or more for all
major Asian countries (China, Taiwan, South Korea, Philippine, and India). However,
the grant rate for the inventions of crystal inventions and medical use in India is low, 50
percent in both, compared to those of the other nations which is more than 90 percent
and more than 70 percent respectively. The grant rates for the inventions of medical use
and pharmaceutical formulation and the combination of drugs differ among countries.
Thus, our second finding is that there still exists substantial heterogeneity in patent
grant standard with respect to such drug patents as crystal, medical use, pharmaceuticalformulation or combination of drugs, suggesting a significant future room forinternational harmonization or convergence of patent granting standard.
We also found clear evidence for the causal connections between the policychange and the spread of protections for two largest non-OECD economies: China andIndia. The Patent Law revision in China in 1993 had an immediate and significant

19positive impact on patent filing propensity to China (brought 25 percentage points
increase) well before it becoming a WTO member in late 2001. The mailbox application
system, which is the product of compromise in the tough negotiation between India andUnited States, had a substantial effect for accelerating the introduction of drug
protection in India: the filing propensity reached 80 percent of the number ofcorresponding EP patent applications around year 2000, well before the year of TRIPS
implementation for drug patents.

20

Acknowledgements
This work is partly based on our work for the research project at Institute of Intellectual
Property on the “Impact of IPR policy change on the firms in life science area” supported by theJapan Patent Office. We would like to also thank for the Japan Science and Technology
Agency(JST) its funding of the RISTEX research Project on ‘Research on Scientific Sources ofInnovations and Economic Impacts of Science’, in which a part of the database used in thisresearch was constructed. We would like to thank research assistant Junko Morikawa for her
help in preparing our novel database.

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Duggan, M., Garthwaite, C., & Goyal, A. (2016) The market impacts of pharmaceuticalproduct patents in developing countries: Evidence from India. The American
Economic Review, 106(1), 99-135.

22

Table 1. Summary table of event dates for major Asian countries

WTO member

Developed Country

Countries that introduced chemical
substance patent system (CSPS)
before TRIPS Agreement

JP

US

EP

KR

TW

1995
Jan

1995 1995
Jan
Jan

1995
Jan

2002 2001 1995 1995
Jan Dec
Jan
Jan

CN

ID

PH

Countries where
chemical substance wasprotected based on UK
patent
HK
MY
SG
1995
Jan

1995
Jan

1995
Jan

Countries that
introduced CSPS tocomply TRIPS
Agreement
TH
IN
1995
Jan

1995
Jan

Deadline of
Pharmaceutical
1996
1996 1996
1996
2002 2001 2000 2000
2000
2000
2000
2000
2005
Chemical
Jan
Jan
Jan
Jan
Jan Dec
Jan
Jan
Jan
Jan
Jan
Jan
Jan
Product patent
Introduction of1986
chemical
1976
1977
1987
1993 1991 1947
1978
1978
1978
1992
2005
1790
retrosubstance
Jan
Oct
Jul
Jan Aug
Jun
Jun
Jun
Jun
Sep
Jan
activepatent
JP: Japan, US: United States of America, EP: European Patent, KR: Korea, TW: Taiwan, CN: China, ID: Indonesia, HK: Hong Kong,
MY: Malaysia, SG: Singapore, TH: Thailand, PH: Philippine, IN: India, VN: Vietnam* One can substantially use PCT route via UK patents.

Later
WTO
member
VN
2007
Jan
2007
Jan

2006
Jul

23

Table 2. Composition of drug patents in Japan
Table 2A. Compositions of category symbol in ‘San-ei Report’
count
share
Category symbolS
520
34.4 percents99
6.5 percent
U
524
34.6 percent
P or C583
38.5 percent
M
584
38.6 percent
Total
1513
100.0 percent
Note: More than two category symbols may be assigned to one patent.

Patents are restricted for those of which priority year is in or after 1976.

Table 2B. Compositions by the first mutually exclusive category
Category of patentSessentially_s
essentially_U1
essentially_PC1
essentially_M1
Total

count

share
520
90
213
440
250
1513

34.4 percent
5.9 percent
14.1 percent
29.1 percent
16.5 percent
100.0 percent

Table 2B. Compositions by the second mutually exclusive category
Category of patentSessentially_s
essentially_PC2
essentially_M2
essentially_U2

Total

count

share
520
90
521
253
129
1513

34.4 percent
5.9 percent
34.4 percent
16.7 percent
8.5 percent
100.0 percent

24

Table 3. The number of samples for calculating grant rate in Fig. 2.

chemical
substance

US
EP
CN
KR
IN
PH
TW

37
38
29
32
31
14
15

essentiallycrystal

15
14
16
16
14
7
7

essentially
medical
use
30
30
21
20
14
9
7

essentiallyessentiallyformulation
manufacturing
orprocesscombination
63
64
56
54
34
18
23

18
18
13
12
13
7
10

25

Table 4. Summary results of regressions of propensity of patent filing to China
Explained variable: CN_fam_dummy
(1)
(2)
(3)
Explanatory variables
CN_reform9301_6m
CN_TRIPS0201_6m
S_dummys_dummy.252**(.126)-.0502(.126).209***(.0335).163***(.0503)essentially_s_dummy
U_dummy.260**(.126)-.0511(.126).228***(.0405).257**(.126)-.0497(.126).223***(.0403).195***(.0589).191***(.0588).00290(.0293)essentially_U_dummy1.0372(.0464)essentially_U_dummy2
PC_dummy.0177(.0547).0364(.0301)essentially_PC_dummy1.0426(.0399)essentially_PC_dummy2
1991.CN_F_year
1993.CN_F_year

Observations
R-squared
adjusted R-Squared
Log Likelihood
Standard errors in parentheses*** p<0.01, ** p<0.05, * p<0.10.0714(.0971).385***(.0967).0748(.0971).386***(.0967).0385(.0387).0738(.0971).386***(.0967)

1,149
.254
0.237
-661.6

1,149
.255
0.237
-661.3

1,149
.255
0.237
-661.426

Fig. 1. Propensity to filing patents to foreign countries

100%
80%
60%
40%
20%
0%
US
S (N=43)

EPCN

e_s (N=17)KRTW

e_U1 (N=35)

IN

PH

AU

e_PC1 (N=81)

CA

BR

MX

e_M1 (N=24)

Note: Data is limited to patent publications of which priority year is between 2002 and2006.US: United States; EP: European Patent; CN: China; KR: Korea; TW: Taiwan; IN:
India; PH: Philippines; AU: Australia; CA: Canada; BR: Brazil, MX: Mexico. The
indicators of invention kind is based on first mutually exclusive category. Symbols andtheir meanings are as follows: ‘S,’ chemical substance; ‘e_s,’ essentially crystal; ‘e_U1,’
essentially medical use; ‘e_ PC1,” “essentially formulation or combination”; and‘e_M1,’ essentially manufacturing process.

27

Fig. 2. Grant rate in each country by category of patents

100%
80%
60%
40%
20%
0%

US

EP
S

CN
e_s

KR
e_U1

e_PC1

IN

PH

TW

e_M1

Note: The grant rate is calculated by the number of examined patent publication divided
by number of unexamined patent publication of which priority year is between 2001 and2004 to avoid truncations and restrictions caused by institution and database. The value
for Taiwan is calculated for patent application of which filing year is between 2002 and2004. Symbols and their meanings are as follows: ‘S,’ chemical substance; ‘e_s,’
essentially crystal; ‘e_U1,’ essentially medical use; ‘e_ PC1,” “essentially formulationor combination”; and ‘e_M1,’ essentially manufacturing process.

28

Fig. 3. Patenting rate for each country

100%

80%

60%

40%

20%

0%
US
EP
CN
S 1995‐1999 (N=71)
e_s 1995‐1999 (N=23)
e_U1 1995‐1999 (N=30)
e_PC1 1995‐1999 (N=96)
e_M1 1995‐1999 (N=48)

KR

IN
PH
TW
S 2000‐2004 (N=59)e_s 2000‐2004 (N=23)
e_U1 2000‐2004 (N=40)
e_PC1 2000‐2004 (N=95)
e_M1 2000‐2004 (N=24)

Note: Patenting rate for each country is calculated by the number of granted patents ineach country divided by those in Japan. Symbols and their meanings are as follows: ‘S,’
chemical substance; ‘e_s,’ essentially crystal; ‘e_U1,’ essentially medical use; ‘e_ PC1,”“essentially formulation or combination”; and ‘e_M1,’ essentially manufacturing
process.

29

Fig. 4. Propensity for filing to China normalized by propensity for filing to EP

120%

100%

80%

60%

40%

20%

0%

S

e_U1

e_PC1

e_M1

Note: Symbols and their meanings are as follows: ‘S,’ chemical substance; ‘e_U1,’
essentially medical use; ‘e_ PC1,” “essentially formulation or combination”; and‘e_M1,’ essentially manufacturing process.

30

Fig. 5 Propensity for filing to India normalized by propensity for filing to EP
140%
120%
100%
80%
60%
40%
20%
0%
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
S

e_U1

e_PC1

e_M1

Note: Symbols and their meanings are as follows: ‘S,’ chemical substance; ‘e_U1,’
essentially medical use; ‘e_ PC1,” “essentially formulation or combination”; and‘e_M1,’ essentially manufacturing process.

i

In the TRIPS Council of November 29, 2005, it was resolved to extend the implementation
date of the agreement of the least developed countries until July 1, 2013.

ii

In the TRIPS Council informal meeting of July 2002, it was resolved to extend the exemptionof pharmaceutical patents introduction of the least developed countries until January 1, 2016.

iii

We use the term chemical substance patent to cover not only the invention on a new chemical
drug but also an invention on the new biological drug such as anti-body drug.

iv

See Shiwen and Lihua (2014) for the patentability of Swiss-type claims in China.

v

See Mirandah (2005) for the patentability of Swiss-type claims in India.

31

vi

See EPO Guidelines for Examination, Part G - Patentability, Chapter VI - Novelty, 7.
Examination of novelty, 7.1 Second or further medical use of known pharmaceuticalproducts. Contrastingly, in the United States, inventions of the new medical use of known
product is protected as process claims of therapy or treatment and not protected by productclaims or Swiss-type claims.

vii

Share of the country of the first applicant’s residence is as follows: Japan, 44.6 percent;
Europe, 29.9 percent; United States, 24.0 percent; and Others, 1.5 percent.

viii

According to a manual of the DWPI database, the first publication date of both pre-grant 18month patent application publications and patent publications included in the DWPI databasefor such countries as Indonesia, Thailand and Vietnam is January, 2010. As to Hong Kong,
the DWPI includes granted patent and application published as of January 2011 and nonPCT route application published as of August 1995. As to Malaysia, the DWPI includes only
granted patent published as of January 2006. As to Singapore, the DWPI includes granted
patent and PCT route application published as of January 2006 and non-PCT route
application published as of August 1995.

ix

Taiwan introduced pre-grant 18-month publication on and after October 26, 2002. Most
applications claiming priority year of 2002 is filed to Taiwan in 2003. United States
introduced pre-grant 18-month publication on and after November, 29, 2000.

x

We have got essentially the same results for the patent rates, given that grant rates are high forthese drug patents in China.

32