Mexico’s Supreme Court Rules on Patent Compensatory Time Due to Administrative Delays and Holds That the Effective Term of a Patent May Not Be Less than 17 Years – Part II

In 2018, the introductory comments on the topic at hand were published for the first time in the El Foro (full version) and La Barra (short version) magazines under the heading 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.”). Our 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 the validity of patents under the then Industrial Property Law (IPL) and the new Federal Law for the Protection of Industrial Property (FLPIP), in effect as of November 5, 2020. Such an academic idea, but with a more precise and evolving approach, was taken up in a constitutional action we filed and later on by the Second Chamber of Mexico’s Supreme Court and is the reason for the second part of my comments on this exciting area of the law.

For a long time, it was a common practice to assume that a patent would be valid for 20 years from the filing date of the patent application. Analysing the different Mexican statutes that have governed this issue, we find that some included a 20-year term from the filing date rule. However, no one seems to have ever questioned whether this rule was fair or in line with the federal Constitution; it was generally accepted that since this was what the regulations said, the law had to be unequivocally complied with. Was it right to just accept this unfair rule as normal? Could it be legally challenged?  Nevertheless, we hold that not everything a statute provides is constitutional. When a rule appears to conflict with common sense, there might be an unconstitutionality issue to contend with.

In the past, it was commonplace 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 to seventeen or more years after filing; in fact, there were cases where either the patentee would enjoy only a single year of protection or the patent would be born dead, a result absolutely preposterous, unfair, uncertain, discriminatory, and unpredictable, and thus unconstitutional. Contrary to what the supporters of such a system may claim, a pending patent application is not the same as a patent already granted. Either a legal action against an infringer or the benefits arising from the supply of pharmaceutical drugs to the government under no-bid contracts will necessarily require a patent legally granted and not only a pending patent application.

The Second Chamber of Mexico’s Supreme Court understood the problem and sought a legal solution based on a systematic interpretation of the law, moving away from the unconstitutionality issue of Article 23 of IPL, finding a way out from the unfair but prevailing patent validity system thereunder, and establishing a historical and transcendental principle, thereby substantially doing away with the possibility of extending the effective term of a patent, and setting a different theory with equally different consequences. Thus, compensatory time is not to extend the patent’s validity but rather to give the patentee a period of effective protection.

Furthermore, Article 126 of FLPIP introduced a so-called “supplementary certificate” (“certificado complementario”), pursuant to the November 30, 2018, United States, Mexico and Canada Agreement (USMCA), which - under certain circumstances - allows for compensatory time to offset the excessive time taken by the patent process, when resulting in 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. However, the following question arises: does the communication imply either a notice attaching the patent certificate or a notice to pay the required fee for the issuance of the certificate? In addition, this new statute contains an unfair formula of one-day compensatory time for every two days of delay.

The Bayer case

On January 12, 2000, Bayer Corporation (later Bayer Healthcare LLC) applied for the protection of an oncological substance invention under an international Patent Cooperation Treaty application (“PCT application”), namely “Ω-Carboxyaryl Substitutes Diphenyl Ureas as Raf Kinase Inhibitors,” (granted on July 26, 2006).

The Mexican Institute of Industrial Property (IMPI for its Spanish acronym) took six years and six months to grant the patent and eight months to notify the invention certificate under patent number 238942. It should be noted that in Mexico and internationally, the average time to grant a patent is three years; however, in this case, IMPI took twice as long; thus, the patent’s validity was cut short to three years and six months. Hence, 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 the time taken in granting the patent, thus giving effective protection to the patentee. Notably, both our trading partners - the United States and Canada - have a much more suitable patent protection system than Mexico. In Canada, the protection is for 17 years from the granting of the patent (thus providing legal certainty to patent holders) - and in the United States, it is 20 years from the filing of the patent application (like the Mexican system); adding compensatory time for the time taken by red tape delays, thereby covering the time lost in the administrative process. Unfortunately, in Mexico, we are faced with a very unfavourable scenario and a system prone to legal uncertainty because the patentee has no idea how long it will take for the patent to be granted by IMPI and the time the protection sought will be effective. This situation places Mexico at a disadvantage in patent rights compared to those granted by its trading partners.

As mentioned above, Article 126 of FLPIP now regulates the issuance of a limited and unfair supplementary certificate, arbitrarily providing compensatory time to offset the time lost in the patent process by allowing one day of compensation for every two days of delay. We wonder what the logic behind the rule of one day of compensatory time for every two days of delay is. Is allowing one day of compensatory time for a one-day delay not a better formula? In other words, if a statutory rule does not have a rational logic, such a rule is likely considered unfair.

In the Bayer case and starting from the Roman concept of justice expressed by Ulpiano: Iustitia est constants et perpetua voluntas ius suum cuique tribuendi (Justice is the constant and perpetual will to give each person their due), Bayer was entitled to three years and six months of additional exclusive exploitation of its patent, taking into account that this is a benefit contemplated under NAFTA - an international treaty to which Mexico was a party and above federal laws (as provided by Article 1 of Mexico’s federal Constitution), including IPL. Therefore, a civil right should be given the broadest interpretation for the benefit of private parties. Then, 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 benefits that NAFTA provided and that IPL omitted.

Under NAFTA, member countries are required to establish a protection period of at least seventeen years from granting the patent or, alternatively, twenty years from the filing application date. We should consider what the NAFTA parties intended when they negotiated and agreed on this wording. Seemingly, their aim was to establish a protection period of not less than seventeen years, considering that an application’s study and the administrative process will normally take three years before the patent is finally granted. Furthermore, they recognised that there might be situations that force the government to spend more time when granting a patent, and, 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 seventeen years, whereas others are only protected for fourteen years or less based on administrative and red-type issues. Such dissimilar treatment emphasises that the effective term of a patent is paramount to the patentee due to the enormous investment and outrageously expensive research behind every invention. In addition, the exclusive protection bestowed by a patent is a right recognised both under international treaties and by Article 28 of the federal Constitution. The ideal protection should be seventeen years after subtracting the customary three-year processing time by the respective Patent Office.

Analysis of the opinion

On October 14, 2020, the Second Chamber of Mexico’s Supreme Court (on the amparo action under review 257/2020 and based on the draft opinion authored by Justice Yasmín Esquivel-Mossa) adopted (in what is relevant to our topic) a systematic interpretation of Article 23 of IPL and Article 1709 (12) of NAFTA. It reaffirmed that in all cases, the effective term of a patent may not be less than seventeen years from the granting date of the patent. On page 76 of the opinion, the following wording appears:

“We find that, regardless of the [maximum] terms set under 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 (emphasis added); 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.[…]”

As already pointed out, the Second Chamber of Mexico’s Supreme Court opted for a systematic interpretation of the legal provisions under review instead of: (i) either directly holding that  Article 23 of IPL was unconstitutional (since there were no accurate parameters to determine what should be a uniform effective term for all patents); or (ii) 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 - a situation that has now been corrected by the systematic interpretation held by the Supreme Court of seventeen years from the granting date for all patents.

Notwithstanding the above, in my opinion, such systematic interpretation fails to cure the unconstitutionality issue of Article 23 of IPL as it does not establish either a maximum term for the delay in granting 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, and furthermore, the maximum terms set by IMPI under its Administrative Rulings do not remedy the statutory oversight - on the contrary, it goes beyond what the law allows. Thus, Article 126 of FLPIP 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 two days of delay.

Despite the above, the systematic interpretation of the Supreme Court cures the legislative error of Article 23 of IPL and solves the historical problem of the patent system where the patentees had no idea of the exact duration of their patent rights, leading to complete legal uncertainty. How many patents could have benefited from the interpretative rule of the Supreme Court by offsetting the time lost in the process? They must have missed two, three, four or more years of the patent’s effective term. It is a fact that patentees in Mexico have lived through very unfortunate times without the benefit of a proper interpretation.

The recent Supreme Court opinion is much more benign and favourable for patent holders than the provisions of the new FLPIP since it mandates a minimum effective term of seventeen years from the granting date and not the preposterous rule of one day of compensatory time for every two days of delay from the filing of the patent application in Mexico, which again involves a serious unconstitutionality issue. What is the legal and common-sense justification for limiting compensatory time to one day for every two days of delay? Why not provide one day of compensatory time for one day of delay?

Supreme Court opinion

As an aftermath of Bayer case already mentioned, on January 8, 2021, the Supreme Court published the following summary:

• Digital registration: 2022603.
• Court: Second Chamber.
• Tenth period.
• Subject(s): Administrative.
• Precedent: 2nd. LV/2020 (10a.).
• Source: Federal Weekly Judicial Gazette. Book 82, January 2021, Volume I, page 662.
• Type: Single opinion.

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).

Facts: A legal entity challenged the refusal by the Mexican Institute of Industrial Property (IMPI) to offset, for purposes of determining the effective term of a patent, any delays in the granting process, alleging that Article 23 of the Industrial Property Law (now repealed), cited by said agency as grounds for the refusal, gives rise to a legal uncertainty because the effective term of a patent that would have been in effect for twenty years, was shortened due to delays in the approval process.

Held: The Second Chamber of the Supreme Court determined that a systematic interpretation must be given to Article 23 of the Industrial Property Law (now repealed) and held that any delays attributable to the administrative agency in the approval process must be taken into consideration, as the effective term of a patent may not be less than seventeen years from the granting date.

Grounds: From the systematic interpretation of Article 23 of the Industrial Property Law, read in conjunction with other provisions of the same statute, and with Article 1709 (12) of the North American Free Trade Agreement (NAFTA), we find that notwithstanding that Article 23 fails to set terms within which a patent application should be examined to decide whether the formal and substantive legal requirements are complied with, this does not create any legal uncertainty. This is so because, given the peculiarities and degrees of complexity involved in the administrative examination process of each patent application, it would not have been possible for Congress to specify different terms for different types of patents (taking into account that the time required for an in-depth examination of the substantive requirements may vary). As such, Congress opted for generic terms under rulings that should set maximum terms for IMPI to notify the findings from the examination of applications, hence providing legal certainty to the applicants. Subsequently, we concluded that although a patent will be valid for twenty non-renewable years counted from the filing application date,  the application must still be subject to a formal examination process, and since delays involved in the administrative approval process may occur, such delays could have a negative impact on the effective term of the patent; however, if there is a delay, the effective term of a patent should not be less than seventeen years from the granting date, since based on the provisions of NAFTA a patent protection period of a patent should be either at least twenty years counted from the filing application date or seventeen years from the granting date of the patent; this in no way would imply an extension of the effective patent term.

Amparo under review 257/2020. Bayer Healthcare, LLC. October 14, 2020. Five affirmative votes from Justices Alberto Pérez-Dayán, Luis María Aguilar-Morales, José Fernando Franco-González-Salas, Yasmín Esquivel-Mossa and Javier Laynez- Potisek, this latter disclosed that he would submit a concurring opinion; the majority of three affirmative votes on the principle contained in this opinion. Dissidents: Justices Luis María Aguilar-Morales and José Fernando Franco-González-Salas, who proposed to dismiss the action regarding Article 23 of the Industrial Property Law. Justice authoring the proposed opinion of the Court: Yasmín Esquivel-Mossa. Secretary: Claudia Mendoza-Polanco.

This opinion was published on Friday, January 08, 2021 at 10:09 a.m. on the Federal Weekly Judicial Gazette.

Conclusion and recent developments

In the foregoing opinion, the Supreme Court appears to have recognised that there may be a disparity in effective patent terms - although Article 23 of IPL does not give rise to legal uncertainty, the truth is that should there be any delay in the granting of a patent attributable to the government, its effective term may not be less than seventeen years in accordance with Article 1709 (12) of NAFTA. The ratio decidendi of this court opinion is that there are two systems: (i) one of twenty years from the filing application date and (ii) the other of seventeen years from the patent granting date (with the proviso that in the event of any administrative delays, patents must have a minimum effective term of seventeen years from the granting date, and not twenty years from the filing patent application date).

The above interpretation directly impacts those patents that took more than three years to be granted. This Supreme Court’s opinion corrects the flawed patent system that for many years had prevailed in Mexico under Article 23 of IPL and prior statutes and that, unfortunately, has caused severe damage to those who sought effective protection for their inventions but were completely unaware of the unfair shortening of the effective term of patents due to unreasonable delays by the government. Patent holders and intellectual property advisors have overlooked this. In our opinion, the interpretation embraced by the Supreme Court fully upholds the constant and perpetual desire to put into practice the principle of justice by providing to every person what rightfully belongs to them and without declaring that Article 23 of IPL was unconstitutional.

It should be emphasised that the recent opinion of the Supreme Court applies only to patent applications filed prior to July 1, 2020, while NAFTA was in effect. However, any patent applications filed between July 1 and November 4, 2020, before the new FLPIP came into effect, may fall into an interpretation limbo since, on the one hand, they are subject to UMSCA, while on the other, the former IPL continued in full force and effect, which was the legal grounds taken by the Supreme Court to issue its opinion. It would be interesting to see how federal courts would react when deciding this time factor in a conflict of laws situation.

Recently, in a new case concerning compensation/adjustment for the validity of a patent (active pharmaceutical ingredient) litigated by the authors’ firm, a Federal Court for Administrative Matters of the First Circuit confirmed the resolution of a Federal District Court, indicating that it is feasible to compensate the time lost in the processing of a patent, despite the fact that it has expired, as long as it is within seventeen years from the granting of the patent, and it has been processed in accordance with the previous Industrial Property Law and the NAFTA.

This new relevant case opens the possibility of requesting compensation for expired patents before IMPI within the range of seventeen years established by the criteria of the Supreme Court of Justice in the Bayer Healthcare LLC. case issued on 14 October 2020 in Amparo Revisión No 257/2020, which was also handled by the authors’ firm.