A judgment in the matter of Manufacturers Association of Israel versus Merck & Co., Inc. presented views of the Israeli Supreme Court on the protection of intellectual property rights and interest-balancing statutory interpretation. Specifically the judgment dealt with arrangements for granting patent term extension orders in the specialized field of pharmaceutical drugs and medical devices ("extension orders") under the Patents Law, 5727-1967 and its amendments ("the Law"). In its ruling the Court upheld a decision of the Registrar of Patents to shorten an extension order for a patent in Israel according to a subsequent order given with respect to a concurrent patent in another country.
The ordinary term of a patent under the Law is 20 years from the date of filing of a patent application. During such term the owner of the patent receives a legal monopoly over the exploitation of the invention, and, when the patent lapses, the exclusive right of the patent owner expires and the invention passes into the public domain. Changes in legislation starting with Amendment No. 3 of the Law in 1998 have provided that in the case of patents for innovative pharmaceutical drugs, an extension order may be granted for an additional term of patent protection of up to five years.
Patent term extension under the conditions set forth in the Law was enacted to compensate the pharmaceutical company that invests in the development and marketing of the innovative drug for two things: First, for the delays it incurs at the expense of the actual exercise of the patent rights owing to the requirement to obtain a marketing license from the health authorities through testing and approval proceedings that take years to conclude and consume quite substantial resources; Second, for the accelerated opening of the market to competition in consequence of Amendment No. 3 of the Law which carved out, for the first time, an exclusion from the definition of patent infringement with respect to experimental acts on an innovative drug that are part of an effort to obtain a license to market the product  after the patent has lapsed.
In the case that is considered in the judgment, a patent was granted for the active pharmaceutical ingredient in Ezetrol, a drug for treatment of cholesterol, on a patent application that was filed in 1994, so that the patent term of 20 years would have expired in 2014. In 2003, Merck – as the registered exclusive licensee for the patent – acted under Amendment No. 3 by filing an application to the Registrar of Patents to grant an extension order. The order was granted in 2005, providing for an extended term of the patent until June, 2017. In accordance with the version of the Law that was then in force, the "extra time" pursuant to the extension order was calculated according to the period of an extension order given to the reference patent (a concurrent patent for the same drug) issued in Australia, which Merck was able to choose from out of a list of "recognized states" that was incorporated in the Law for this purpose.
In 2006, Amendment No. 7 to the Law was passed. This amendment changed the manner of calculating the term of an extension order in cases where marketing approval is sought for a drug in a number of countries, making the length of the extension term subject to the shortest extension term that was set for a reference patent in any one of the recognized states. Based on Amendment No. 7, in 2013 the Manufacturers Association of Israel submitted a petition to the Registrar of Patents to shorten the extension order given to Merck. This was in accordance with a shorter term that had been determined in the meantime for a reference patent in the United States, so that the extension term would end in January, 2016. The Registrar of Patents allowed the petition, over the objections that were made by Merck, among others, on the ground of retroactive violation of its property rights.
The Supreme Court supported the result. On the question of principle as to whether it was possible to shorten the term of the extension order according to an order that was subsequently given in a different state, the Court held that the language of the Law did not provide an express answer. However, the Court gave a clearly positive answer to the question upon examination of the legislative bills, their explanatory notes and the rest of the legislative background in order to ascertain the purpose of the Law. From that it inferred that the Law was made to bring about the simultaneous expiration of the patent in Israel and other countries as part of the opening of the market to competition, with the proprietors of the rights in the patent having had sufficient opportunity to derive profit from the exclusive exploitation of the invention during the patent term and the term of the extension order. The Court considered that to be supported by "thoughtful and considerate legislative policy" in relation to innovative and generic companies alike.
It is apparent from the judgment that in disputes over interpretation of rights, permits and the like, the Court will not hesitate to give effect to the relevant legislative purpose, even if the result might appear to be a retroactive alteration of the scope of rights that are vested by the laws of the State, such as the Patents Law.
Reference: CLA 8127/15, 8263/15 Manufacturers Association of Israel v. 1. Merck Sharp & Dohne f/k/a 2. Merck & Co. Inc.(2016), published in Nevo.