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CTA allows inspection of Smart’s documents over tax deficiencies

THE Court of Tax Appeals (CTA) upheld the decision of a Makati City regional trial court (RTC) allowing the Makati City government to inspect Smart Communication, Inc.’s documents over its alleged P3.25 billion tax deficiencies from 2012 to 2015.

In a 13-page decision on Feb. 5, the court’s second division denied for lack of merit the petition of Smart, affirming the June 28, 2019 decision and August 7, 2019 resolution of Judge Augusto Jose Y. Arreza of Makati City RTC Branch 133.

The court said Makati Treasurer’s Office or the Makati RTC Branch did not commit grave abuse of discretion when it issued its rulings assailed by Smart.

The CTA said the petition filed by the corporation is a “disguised objection to the admissibility of the subject documents.”

“Obviously, as the documents have yet to be actually offered in court, this Court finds that it would be too early and premature to disallow their production in court,” it said.

Smart Communications is assessed for deficiency franchise tax and fees for 2012 to 2015. It filed a petition in July 2018 to the RTC seeking to nullify the local government’s notice of assessment.

In the June 2019 decision, the RTC granted Makati City’s motion for production or inspection of documents. Smart filed a motion for reconsideration but was denied in August 2019 resolution.

The court also said that the lower court ordered the production of the documents “only for the purposes of discovery,” adding that it is impossible for these courts to determine the materiality of documents before their production.

“Furthermore, the grant of the motion for production of documents will not expose petitioner to a re-auditing (by respondent Makati City). In no perceivable way can an interpretation of such sort be drawn from the lower court’s assailed resolutions,” the court said.

“As stated, the Court finds no grave abuse on the part of the public respondent in the application of the foregoing principles to justify the production of subject documents more so, that one of the issues presented by petitioner before the RTC for its determination is the correctness of respondent Makati City’s assessment of petitioner. It is for this same reason that the Court cannot find merit either in petitioner’s other contentions,” it added.

Smart argued that the assailed resolutions of the lower court allow Makati City to “take inconsistent stances” as it already upheld the correctness of its notice of assessment.

The corporation also challenges “relevancy” of producing documents particularly the nationwide revenues and from other localities, saying the information contained is those outside the city’s jurisdiction.

Makati City, on the other hand, claimed it finds no fault in the court’s action and the documents sought are not confidential in nature.

Smart also asked for a temporary restraining order and/or writ of preliminary injunction in its petition to the CTA but was denied for lack of merit.

The decision was penned by Associate Justice Jean Marie A. Bacorro-Villena and Associate Justices Juanito C. Castañeda, Jr. and Cielito N. Mindaro-Grulla. — Vann Marlo M. Villegas

How PSEi member stocks performed — February 11, 2020

Here’s a quick glance at how PSEi stocks fared on Tuesday, February 11, 2020.

 

LRT-2 extension 77% complete

THE Department of Transportation (DoTr) said the East Extension of the Light Rail Transit Line 2 (LRT-2) is nearly 77% complete, with two new stations being built in Marikina and Antipolo expected to be finished by the end of the year.

The East Extension Project was “76.9% complete” as of January, Transportation Undersecretary for Railways Timothy John R. Batan told BusinessWorld in a recent interview.

The East Extension Project intends to add four kilometers to the 13.8-kilometer LRT-2 train line, connecting it to Antipolo City.

The two new stations are Emerald in Marikina City and Masinag at the Masinag Junction in Antipolo City.

“The East Extension will be operational by December of this year. It’s almost done. We are just installing the electro-mechanical systems,” Mr. Batan added.

The department is also preparing to buy 14 more train sets for the expanded LRT-2 line.

“We are buying 14 (train sets). Delivery will start from 2022 onwards,” he said.

“Separate procurement siya, ongoing pa. Wala pang selection. (The new trains are going through a separate procurement exercise, which is ongoing, with no selection made) It’s going to be funded out of the LRTA’s (Light Rail Transit Authority) budget. We are buying new trains because we need additional trains for the LRT-2,” he said.

Mr. Batan added four train sets from the current LRT-2 operation are being rehabilitated for immediate use by 2021.

“LRT-2 has 18 train sets. Out of the 18 train sets, eight are currently not operational; they are down. Four train sets are being rehabilitated. The four train sets will be our immediately available train sets by 2021,” he said.

The East Extension is expected to add 80,000 passengers to the current 240,000 daily ridership of the LRT-2, which currently connects Recto Avenue in Manila to Santolan station in Marikina. When complete, travel time from Recto to Masinag is expected to drop significantly, from the normal three hours by bus or jeepney, to about 40 minutes, the Transportation department said.

The consortium of Japan’s Marubeni Corp. and engineering and construction firm D.M. Consunji, Inc. are in charge of the $62-million (about P3.24-billion) East Extension Project.

D.M. Consunji is in charge of the trackwork procurement and construction, as well as the installation of electrical and mechanical systems.

Marubeni is responsible for the overall administration and procurement of railway systems as the consortium leader.

Marubeni also constructed the original LRT-2 line between 2000 and 2004.

The Japanese firm’s other projects in the country include the improvement and modernization of the Commuter Line South Project, and the LRT-1 capacity expansion project’s first and second phases. — Arjay L. Balinbin

nCov expected to dent consumption in 2020

A PROLONGED novel coronavirus (nCoV) outbreak will hurt public consumption but a rebound in capital formation is expected to drive growth this year, an ING Bank economist said.

During the ING Bank’s Annual Research Roadshow forum on Tuesday, Nicholas Antonio T. Mapa, senior economist at ING Bank Philippines, said the economy could see a rebound in capital formation or investment this year on the back of monetary easing and the timely passage of 2020 budget.

Public consumption, which is equivalent to 70% of gross domestic product, is expected to take the biggest hit from the nCoV outbreak.

The Monetary Board cut benchmark interest rates by 25 bps during its first rate-setting meeting of the year last week while Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno signaled that another rate cut is possible by midyear.

According to Mr. Mapa, the outbreak could shave 0.2 percentage points off 2020 gross domestic product (GDP) growth, taking his projections down to 6.4% from 6.6% previously, which is already below the 6.5-7.5% growth target range set by the government’s economic managers.

“I think consumption will be the biggest hit; I think the growth will come from capital formation. Last year it was a drag actually, but this year, if it comes back and will be great, BSP possibly cutting another 25 (basis points) in May or June, this should help revitalize your capital formation,” he told reporters.

According to the Philippine Statistics Authority, capital formation rose 0.4% in the fourth quarter of 2019 to P749.05 billion, little changed from P746.21 billion a year earlier. Investment in construction grew 11.8% year-on-year while investment in durable equipment continued to decline, falling 5.9% during the period.

Mr. Mapa said despite the budget being passed more promptly this year, imports of raw materials for infrastructure projects could face delays if the outbreak continues to disrupt supply chains over the longer term since China is a major source of raw materials.

“Maybe some delay, so you might have to pare that down a bit but as of now I don’t really see that being a big problem so far but eventually, if it drags out then maybe that chokes off our source of raw material imports,” he said when asked about risks to the infrastructure supply chain.

However, he said the country could source its needed raw materials from other countries, and “If the government gets their infrastructure program going well, capital formation will hold despite nCoV.

Meanwhile, ING Bank Chief Economist and Head of Research in Asia-Pacific Rob Carnell stressed the importance of infrastructure development as it attracts investment while raising productivity.

“It really is a tremendously productive thing to spend money on these days, if government is worried about GDP growth and employment not being good enough and they’ve got money to spend, then this is what delivers you your rate of return, this is what gives you your social return and your actual economic return on that investment because it pays off. In this case, the infrastructure will deliver, you build it and they will come and it will help,” Mr. Carnell told reporters.

The current administration is currently taking on its massive infrastructure development program, known as “Build, Build, Build” to close the Philippines’ infrastructure backlog.

Mr. Mapa said compared to its regional peers, the Philippines continues to lag in terms of quality infrastructure and is still catching up.

According to preliminary estimates by the National Economic and Development Authority, a prolonged nCoV outbreak will largely hurt the tourism sector and might dent the economy by around 0.3 percentage points if the virus lingers until June. The drag on GDP is expected to rise to 0.7 percentage points if the threat remains elevated until December.

“Both fiscal and monetary policy, they will be providing quite a lot of stimulus, so it should cushion (the impact of the virus outbreak,” Mr. Mapa said. — Beatrice M. Laforga

LNG scarcity scenario viewed as far-fetched, First Gen says

THERE is a low probability of liquified natural gas (LNG) supplies running low because of multiple potential sources worldwide, First Gen Corp. Vice-President Jerome H. Cainglet said.

“With respect to the supply (of liquified natural gas) potentially becoming scarce or potentially running out, because we can get it all over the world, the risk is low,” he said at a hearing of the House committee on energy on Tuesday, adding that at least 100 years worth of gas supply is currently available.

Mr. Cainglet also assured the panel that it will honor the current pricing agreements with the government, “whatever happens.”

“If the provisions says we submit this bid, and whatever happens, under the same terms, mawalan ka ng existing supply mo (if your source runs out), you get it from others, you get paid under the existing terms,” Mr. Cainglet said.

Meanwhile, Rep. Sergio C. Dagooc of the Association of the Philippine Electric Cooperatives (APEC) Party List said that the panel should be careful in drafting House Bill (HB) 3031, the proposed Downstream Natural Gas Industry Development Act.

“We must be very careful in drafting this bill (to ensure that the) objective is realistic, attainable, hindi ’yung imagination lang ng kung sino-sino (not according to anyone’s imagined outcomes),” he said.

Pampanga Rep. Juan Miguel M. Arroyo, who is also the Senior Vice Chairman of the House Committee on Energy, said that “safety nets for the people must be specified” in the bill.

HB 3031 provides a “comprehensive and integrated legislative framework that would serve as a pillar towards achieving the rapid development of the country’s natural gas sector.”

The measure specifies the role of the Department of Energy (DoE), the Energy Regulatory Commission (ERC), operators, and other stakeholders in the development of the natural gas industry.

The bill has been pending with the House Committee on Energy since Aug. 5, 2019. A similar bill was filed in the Senate by then-Senator Francis G. Escudero in the 17th Congress but failed to be enacted. — Genshen L. Espedido

Gov’t agencies’ 2019 fund utilization unchanged at 97% despite budget delay

THE FUND utilization rate posted by government agencies remained at 97% in 2019, despite the delayed budget passage last year, according to the Department of Budget and Management (DBM).

The indicator, as measured by usage of a DBM fund-release mechanism known as the Notice of Cash Allocation (NCA), was 97% during the last two quarters of the year, down from the 99% and 98% performance during the first and second quarters, respectively.

DBM Undersecretary Laura B. Pascua said the high levels of fund utilization were “proof of (the) catching up program, despite the late enactment of the budget.”

Agencies used P3.234 trillion out of the P3.338 trillion worth of NCAs released last year, leaving a balance of P103.651 billion.

Government departments used P2.425 trillion worth of NCAs out of the P2.522 trillion released, translating to a 96% in utilization rate while NCAs released for other purposes such as the national government’s budgetary support for state-owned agencies and the allocations for local government units posted a 99% utilization rate, after using P808.811 billion worth of NCAs out of the P815.15 billion total releases.

Four agencies that posted 100% utilization rates last year were the Civil Service Commission, Commission on Audit, Commission on Elections and the Office of the Ombudsman.

The lowest utilization rates were posted by the Department of Foreign Affairs at 68% (P13.09 billion out of P19.148 billion allocated), DBM at 71% (P4.615 billion out of P6.524 billion) and the National Economic and Development Authority at 71% (P6.469 billion out of the allocated P9.163 billion).

Other offices that recorded low utilization rates were the Department of Information and Communication Technology (73%), Department of Energy (76%) and Department of Tourism (77%).

A Notice of Cash Allocation refers to a cash authority issued by the DBM to central, regional and provincial offices and operating units through the authorized government servicing banks to cover the cash needed by the agencies. — Beatrice M. Laforga

Government take since Mile Long takeover at nearly P205 million

THE government generated a net P205.76 million from rents and parking fees from the Mile Long property in Makati, more than two years after it was vacated by the former leaseholders.

Citing a report from the Privatization Management Office (PMO), the Department of Finance (DoF) said collections totaled P262.68 million between August 2017 and January 2020. Receivables from the 2.2-hectare property total P2.56 million, which would bring the total to P265.25 million.

Expenses for managing the property over 28 months amounted to P59.48 million, Chief Privatization Officer Gerard L. Chan said, leaving the government with P205.76 million.

This was equivalent to a P7 million monthly take for the government, which Mr. Chan said compared with the 14-year period prior to PMO’s takeover during which the government collected nothing.

The property, currently being administered by the PMO, is nearly 73% occupied as of last month, with 131 establishments occupying 227 rental units out of the 312 available.

Of the 85 units left up for rent, Mr. Chan said 22 are reserved for the Supreme Court, which plans to locate some of its offices in the Sunvar Plaza portion of the Mile Long lot.

President Rodrigo R. Duterte ordered the Bases Conversion and Development Authority (BCDA) to re-develop the property, income from which will go to the retirement funds of the Armed Forces of the Philippines and Philippine National Police.

Finance Secretary Carlos G. Dominguez III has said a technical working group is ready to implement the redevelopment plan and that a meeting will be convened this week “to finalize the plans and timetable” of the project.

The group will be made up of representatives from BCDA, PMO, DoF, Department of Budget and Management, and the Bureau of the Treasury.

Earlier Mr. Chan said the plan calls for the redevelopment in four phases via a public-private partnership, allowing the government to generate recurring income during the development period.

The initial proposal is for a mixed-used residential and commercial development including offices and a transportation hub.

The 2.2-hectare property was previously occupied by Sunvar Realty Development Corp. A legal dispute with the Rufino-Prieto family-owned real estate firm was finally decided by a Makati court in favor of the government in August 2017. — Beatrice M. Laforga

China firms cut staff on virus outbreak as Xi vows no large-scale layoffs

SHANGHAI — A Chinese media company said it will lay off 500 employees due to the coronavirus outbreak, the latest among a string of firms to do so in the past two weeks as the epidemic takes a toll on small-to-medium sized businesses.

Xinchao Media, which places advertisements in elevators, will cut 10% of its workforce to “ensure survival,” the company said in a post on its official WeChat account on Monday, which carried the transcript of an internal speech by CEO Zhang Jixue.

“To overcome the epidemic, you have to step on the brakes, jam the cash flow, reduce costs,” Zhang said, as he noted the company’s cash reserve of 1 billion yuan ($143 million) would likely be enough for only 6-7 months in the absence of income.

The job cuts come even as President Xi Jinping said the government would prevent large-scale layoffs caused by the virus outbreak — which has killed more than a 1,000 people in mainland China and infected over 40,000.

Authorities said on Tuesday they will roll out measures to stabilize jobs.

But many companies are hurting from disruptions felt since late-January after local governments extended Lunar New Year holidays and urged people to stay home.

“It is possible that the coronavirus could result in two to three million lost jobs in the first quarter,” said Nie Wen, an analyst from financial firm Hwabao Trust.

While the job losses are likely to be temporary, authorities need to step up support to small firms as many of them are highly indebted and have cashflow issues and “may not make it through,” he added.

DISRUPTIONS
Chinese restaurant chain Xibei, which has over 360 outlets, has said it is worried about wages for its roughly 20,000 workers given how the epidemic had impacted its income.

“We need 156 million yuan a month to pay our workers, and if the epidemic continues, and cash flow continues to be inadequate, we will not be able to hold up for much longer,” it said on its official Weibo account.

In Beijing, only 11,500 restaurants were operational mid last week, or 13% of the total, the Beijing Municipal Market Supervision Bureau said.

Beijing’s “Karaoke King” has said it wants to terminate contracts with all its 200 employees as it shut its outlets due to the outbreak, local media reports said. The karaoke chain did not immediately return calls made by Reuters on Tuesday.

And at least one company has said it will cease operations due to cash flow issues caused by the coronavirus.

Band of Brothers, a 13-year-old IT education chain, said on Weibo last week that it would stop enrolling students at its Beijing campus and disperse its employees, after the government ordered schools to delay reopenings. — Reuters

Landfill limitations seen as cue for WTE

WASTE LEVELS are estimated at nearly 22 million tons next year, growing 4% from current levels, making waste-to-energy facilities a “compelling” option, an environment official said.

The facilities need to come onstream with sanitary landfills unable to handle waste, Jesus Enrico Moses B. Salazar, assistant secretary at the Department of Environment and Natural Resources (DENR), told reporters after a Senate hearing on Tuesday.

“What we are saying is, we will be needing landfills in the next few years only because the landfills that are now being used will decline later,” he said.

Waste in the Philippines is expected to amount to 21,844,080 tons by 2021, up 3.9% from the current 21,016,523 tons, he said during the hearing. Metro Manila will generate about 3,527,484 tons, up 3.5%.

“It was projected based on population growth,” said Mr. Salazar, who is DENR assistant secretary for LGU concerns.

Sanitary landfills total 186, serving around 407 local government units (LGUs). The number translates to about 25% coverage of all LGUs, forcing the others to use unregulated dump sites, which is against the law.

Despite the DENR’s efforts to close the dump sites, about 331 remain, taking in the waste generated by LGUs that cannot afford the fee charged by landfill operators, Mr. Salazar said.

“That is a compelling reason for us to consider waste-to-energy (WTE) as one of the alternative modes of disposal at the same time generating energy from waste,” he said.

During the hearing, Senator Sherwin T. Gatchalian asked Mr. Salazar to submit the DENR’s estimate of how much landfill space is needed based on projections for waste generation.

“This is in consideration that we have landfills, but we all know marami pa ring dump site (there are still many dump sites),” said Mr. Gatchalian, who chairs the Senate energy committee.

Mr. Salazar said the DENR will still seek to implement Republic Act No. 9003 or the Ecological Solid Waste Management Act of 2000, which recommends reduction, reuse and recycling of waste, with only the residuals being fed into the waste-to-energy facility or placed in the landfill.

“It is very difficult to enforce the law. It is also very difficult for LGUs to comply with the requirements, but we have seen this happen in other areas in the Philippines,” he said.

“WTE is only one alternative, an option. It should not be the option. There are several things that we can still do,” he added.

DENR is the implementing agency of a study conducted by the National Economic and Development Authority to identify sites that are “highly economically viable” for waste-to-energy facilities, Mr. Salazar said.

The identified sites are: Hermosa, Bataan; Victoria, Tarlac; San Fernando, Pampanga; Meycauayan, Bulacan; Rodriguez, Rizal; Cabuyao, Laguna; Trece Martires, Cavite; Vitas transfer station in Metro Manila; and Cabanatuan, Nueva Ecija.

In terms of project cost, the largest would be the one in Vitas and Rodriguez at a budget of P11-12 billion. Four are considered medium-scale projects requiring an investment of P3.6 billion: Meycauayan, Cabuyao, Trece Martires, and San Fernando.

The rest are small-scale WTE facilities requiring a budget of P1.2 billion each.

Mr. Gatchalian, who said in a previous hearing that Senate Bill No. 363 was “complicated” to tackle because of related financial and environmental issues, has also raised during the hearing the monitoring and regulation of WTE facilities.

His proposed legislation seeks to establish a national energy policy and framework for facilities using waste-to-energy technologies. — Victor V. Saulon

Right-of-way still a bottleneck despite new law, think tank says

RIGHT-OF-WAY acquisition remains the bottleneck in implementing government infrastructure projects, the Congressional Policy and Budget Research Department (CPBRD) said.

“Despite the passage of the Right-of-Way (RoW) Law or Republic Act (RA) No. 10752 in 2016, issues surrounding the government’s RoW acquisition activities continue to hamper the timely implementation of the government’s infrastructure projects,” CPBRD said in a report.

RA 10752 facilitates the acquisition of RoW from landowners for national government infrastructure projects.

The CPBRD said that one of the main issues in RoW acquisition concerns property valuation.

“By offering the current market value (CMV), instead of the zonal value, during the negotiation stage, RA No. 10752 was expected to facilitate faster RoW acquisition and consequently accelerate the implementation of infrastructure projects. However, several negotiations failed due to valuation problems leading to the more complex and lengthy expropriation proceedings in the courts,” the CPBRD said.

To address this, the CPBRD recommended creating a “Valuation Board” which will set and decide on the “suitable compensation of properties to be acquired for RoW.”

The CPBRD also recommended a clarification of the prescribed procurement process for independent property appraisers to be accredited by the Bangko Sentral ng Pilipinas (BSP) and the terms of the just compensation for informal settlers.

“It is also unclear why RA No.10752 requires the procurement of independent appraisers accredited by the Bangko Sentral ng Pilipinas (BSP) when it is not within the functions of the BSP to accredit independent property appraisers. RA No. 10752 is also unclear on the just compensation of the informal settlers — Are they entitled to the relocation cost only or the replacement cost only, or both?” it said.

The Congressional think tank also sought clarification on the treatment of facilities of public and private utility providers in the event that the government intends to use these properties.

The CPBRD also sought to address the lack of disclosure regarding information critical to RoW acquisition.

“In other jurisdictions, lack of transparency creates uncertainties for IAs and property owners alike, which can delay the entire RoW acquisition process. Meanwhile, information-sharing helped develop trust between the IAs and property owners, and reduced the number of expropriation cases,” it said.

The CPBRD also recommended the creation of a “special court” for RoW cases and a centralized RoW unit for the national government.

The think tank said that a special court that is specifically dedicated for RoW cases will result in “faster handling and resolution of RoW expropriation cases.”

“RA No. 10752 provides that courts shall issue the Writ of Possession at most seven days after the IA has initiated the expropriation proceedings and after the payment of 100% zonal value of the property so that project implementation could begin. However, this is not strictly followed as most of the courts in the country are clogged with cases beyond their capacity to handle,” it said.

A centralized RoW acquisition unit will “give (full) attention to and work on all RoW acquisition efforts of the government.”

“This unit shall be mandated to accelerate the government’s RoW acquisition activities so that project construction could proceed on schedule and at a lower cost,” it said.

According to the CPBRD, the low disbursement rates of the RoW funds of the Department of Public Works and Highways (DPWH) at 5.7% in 2017 and 0.07% in 2018 are “particularly worrisome” because they are “indicative not only of the extent of unpaid RoW cases… but also on the overall delay in government’s RoW acquisition, and consequently infrastructure development.”

“Amid the administration’s “Build, Build, Build” (BBB) Program, it is important to address key issues on RoW acquisition to fast track the implementation and completion of vital infrastructure projects, minimize the wastage of government resources, and increase the economy’s productive capacity and overall competitiveness,” the CPBRD said. — Genshen L. Espedido

European Union to invest in ASEAN green-infrastructure fund

THE European Union (EU) is planning to invest in a program to develop green infrastructure in the Association of Southeast Asian Nations (ASEAN), known as the ASEAN Catalytic Green Finance Facility (ACGF), committing 50 million euros, the Asian Development Bank (ADB) said.

The ADB said in a statement that the EU will make the investment from its Asia Investment Facility while first ACGF-backed project will likely be approved later this year.

ACGF is part of the ASEAN Infrastructure Fund and is owned by ASEAN’s 10 member states and the ADB.

The Manila-based multilateral lender said Southeast Asia continues to face a funding gap of over $100 billion annually to meet their infrastructure needs.

“Our joint support through the ASEAN Catalytic Green Finance Facility will help ASEAN member states fight climate change; improve air, soil, and water quality; and improve environmental protection,” Anouj Mehta, ACGF Unit Head at ADB’s Southeast Asia Regional Department, was quoted as saying.

“This commitment reflects the European Union and ADB’s deepening collaboration to help Southeast Asian countries achieve the United Nations’ Sustainable Development Goals,” ADB’s Representative to Europe Robert Schoellhammer said.

The facility, launched in April, provides technical assistance and easier access to sovereign loans for ASEAN governments to fund their green infrastructure projects, especially those dealing with renewable energy and energy efficiency, sustainable urban transport, water supply and sanitation and climate-resilient agriculture. — Beatrice M. Laforga

‘Owning’ the Cure: Patent rights in the midst of an outbreak

As early as Dec. 31, 2019, the World Health Organization (WHO) was informed of the steadily increasing number of cases of pneumonia of unknown etiology detected in Wuhan City, Hubei Province of China. Over the next three weeks, researchers connected the spread of the outbreak to a market in Wuhan City and identified the cause of the contagious and potentially fatal respiratory disease to be a new type of coronavirus, which is now infamously known as the Novel Corona Virus (2019-nCoV).

As of Feb. 9, the WHO has reported over 812 deaths associated with 2019-nCoV, and 37,558 confirmed cases of 2019-nCoV worldwide with 37,251 confirmed cases in China alone. The first death reported outside of China was in the Philippines, a few days after the Philippine government confirmed the first case of 2019-nCoV in the country.

In a Feb. 4 statement, the Wuhan Institute of Virology confirmed that on Jan. 21 it applied for a patent in China for the use of Remdesivir, an experimental antiviral drug originally intended to treat the Ebola virus and developed by Gilead Sciences, Inc., an American pharmaceutical company.* The Chinese organization, in its statement, further claims that the patent application was filed out of national interest, and that it will not exercise its patent rights if “relevant foreign companies intend to contribute to China’s epidemic prevention and control.” Gilead Sciences, through its Chief Medical Officer Dr. Merdad Parsey, in its Jan. 31 Company Statement, stated that, although Remdesivir is not yet licensed or approved anywhere in the world and has not been demonstrated to be safe or effective for any use, Gilead Sciences is working closely with health authorities in China in conducting trials to test the efficacy of the drug in treating 2019-nCoV, especially considering that available data demonstrates that Remdesivir has shown activity against viral pathogens MERS and SARS, coronaviruses structurally similar to 2019-nCoV, in animal models.**

The legal requirements of patentability may vary in different jurisdictions but novelty, inventive step, and industrial applicability are basic conditions for an invention to be patentable. An invention, or in this case, particularly a drug or component thereof, may generally be considered novel if it is “not known to a body of existing knowledge in its technical field.” An invention must also be capable of industrial application or be useful “beyond mere theoretical phenomena.” The invention must also involve an inventive step or “that it could not be obviously deduced by a person having ordinary skill in the relevant technical field.”*** Thus, in order to be patentable, the patent application over the use of Remdesivir must satisfy the foregoing conditions and ultimately prove that use of the drug on the 2019-nCoV, which has shown activity against other coronaviruses, can be considered a new patentable use.

Although intellectual property rights like patent rights are territorial, patent registrations abroad can affect claims of novelty in other regions thus the local patent registration of the drug in China may affect pending and future patent applications involving the same drug in other jurisdictions. Moreover, the Wuhan Institute has clearly shown its intention to own the patent over the drug in other jurisdictions when it also stated that it will file patent applications for the use of Remdesivir under the Patent Cooperation Treaty (PCT) in other countries.

In the Philippine context, it is worth noting that regardless if a patent over any effective treatment of 2019-nCoV is obtained by any local or foreign entity, the Cheaper Medicines Act, amending the provision of Compulsory Licenses in the Intellectual Property Code, provides that the Director General of the Intellectual Property Office may grant a license to exploit a patented invention, even without the agreement or permission of the patent owner in favor of any person who has shown his capability to exploit the invention, under circumstances such as national emergency or other circumstances of extreme urgency, public interest, in particular, national security, nutrition, health or the development of other vital sectors of the national economy as determined by the appropriate agency of the Government, among others. The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement) as well as the Doha Declaration on TRIPS and Public Health also affirms the right of States in prioritizing access to essential medicines over patent rights.

Indeed, in the battle against a devastating viral disease, time is of the essence. It may be a while before we know whether or not the patent application will be granted and, if so granted, the full extent of the effects of the grant of such patent as to the free use of the drug in other jurisdictions, and even in the future entry of business from foreign pharmaceutical companies in China. In the meantime, at the very least, it seems that all parties are focused on finding a cure and in saving as many lives as possible.

 

* China Wants to Patent Gilead’s Experimental Coronavirus Drug (Feb. 5, 2020), Bloomberg News. Retrieved from https://www.bloomberg.com/news/articles/2020-02-05/china-is-trying-to-patent-gilead-s-experimental-coronavirus-drug

** Gilead Sciences Statement on the Company’s Ongoing Response to the 2019 Novel Coronavirus (2019-nCoV) (Jan. 31, 2020) Gilead Sciences Company Statements Retrieved from https://www.gilead.com/news-and-press/company-statements/gilead-sciences-statement-on-the-company-ongoing-response-to-the-2019-new-coronavirus

*** World Intellectual Property Organization, Frequently Asked Questions: Patents, Retrieved from https://www.wipo.int/patents/en/faq_patents.html#accordion__collapse__04

 

This article is for general informational and educational purposes only and is not offered and does not constitute legal advice or legal opinion.

 

Mary Erica D. Manuel is an Associate of the Intellectual Property Department of the Angara Abello Concepcion Regala & Cruz Law Offices (ACCRALAW).

8830-8000

mdmanuel@accralaw.com.

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