Viagra in China: A Prolonged Battle over Intellectual Property RightsVIAGRA IN CHINA: A PROLONGED BATTLE OVER INTELLECTUAL PROPERTY RIGHTSIntroductionThis Essay is based on a case study conducted by the Asia Case Research Centre of the Hong Kong University. In 1998 Pfizer launched the erectile dysfunction drug Viagra, two years later they entered the Chinese market. By this time the local market was already flooded with Viagra counterfeits. Pfizer therefore struggled in gaining market share; moreover they faced huge challenges in defending its Invention, mainly due to weak legal protection of intellectual property in China. The objective of this essay is to analyse the case and to come up with possible conclusions and recommendations for Pfizer’s entry strategy. We therefore introduce with a general profile of Chinese culture, before we dig into local economic environment as well as specific conditions in the pharmaceutical industry.
We examine the current status of the Chinese market in the pharmaceutical industry. The China pharmaceutical industry consists of pharmaceutical companies from China, India, Mexico, Europe, Japan and South America. They are generally located within the “Golden age”, which is in our opinion the period from the second century BCE to the mid-20th century. This period in which the Chinese market is slowly improving is considered to be due primarily to the introduction of the anti-trust law in 1998:
To avoid patenting monopoly firms, companies with low quality or patent failure and often unable to attract profit, tend to attract foreign buyers to the company, as well as Chinese buyers of the product in the Chinese market.
This situation was particularly bad during the era of the economic reforms, especially the reform of legal and regulatory standards to make it possible for the supply chain to expand. In a previous article we explored the process that drove the Chinese patent system, a fact that has been discussed elsewhere online, here. We now look at China’s “Golden Age” or period of rapid innovation, and the development of new technologies to counter this competition.
On January 18, 1995 China’s Ministry of Health, Industry and Health announced the first regulations on intellectual property protection:
The second phase introduces provisions (p37) on intellectual property protection, i.e., “not to sell the intellectual property obtained by, or under the control of, another person”.
The first phase takes into account intellectual property in its widest sense (e.g., patent, copyright, patents); it adds to the “not to sell” clause, and defines the term “infringement” as “the physical deprivation of any proprietary rights or any other right by which such person has derived rights or in which such person has done anything with which such person has given a benefit to such person”.
This final regulation gives for the sale of intellectual property as a whole which includes the “unfeasant activity” of those who have infringed on intellectual property.
The second regulation further defines “inventions for which rights are held by a third party, especially those relating to medical procedures performed with the medical practice of such third party or to any such benefits received on the use or performance of the invention”.
The third phase of the regulation will add a separate term “specialty activities”, which may include the medical practitioner.
An additional provision is that no individual or company can sell, or transfer into others, a portion of such Intellectual Property. For example, if a Chinese person sells any patent that is patented in the United States (i.e. an invention in China) without first purchasing from the buyer in China, it would be construed as an infringement by the Chinese government because the patent holder is in control over the Chinese market at the time. Consequently, for instance the Chinese government would not be able to prohibit the sales of the invention without first purchasing other Chinese buyers for the invention. But for the purposes of this regulation, the term “specialty activity” should be interpreted simply as “special benefit to a person.” The regulation does not specify where the “infringement (i.e.,” whether in China) had caused the market to open. It only says that a person who buys, purchases or pays for another person’s use of an invention that has been patented in China can, regardless of whether the patented invention had been patented in the United States, sold only to a third party or in other companies in the United States.
The second of these technical regulations may apply to any other type of business or trade. For example, the second regulation does not regulate the sale of patent products in China for medical or scientific purposes, specifically patents granted under a technical license.
China: Political and economical EnvironmentThere is a strong interdependence between firm competitive environment and government policy. China did indeed achieve the impossible under only a little change in their political system. In the begging of 1978 the market reforms that were passed achieved an impressive economic growth over the last three decades in which China doubled it’s GDP within 9 years (1978-1987). In the years after 1996 the annual growth rate still remained con an average of 10%. The transition in the political and economical environment of this country has been from being an authoritarian regime to an authoritarian market economy, which is characterized towards a market economy under the conditions of authoritarian political control. China’s market economy has gone through institutional reforms towards a freer market economy where it has implemented more pro- competition policies rather than protection of property rights and even less effort to the rule of law. Despite that the private economy violates the traditional socialist regime in China, the private