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TRIPS Agreement and Amendment of Patents Act in India

This article examines whether the amendment to the Indian Patents Act, 1970 has taken advantage of the provisions available under the TRIPS agreement, and look at the exemption, exception and compulsory licensing provisions in pharmaceuticals

Sudip Chaudhuri

EPW Special Article, August 10, 2002

Under the World Trade Organisation’s (WTO’s) Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), member countries which did not provide product patent protection, when the TRIPS agreement came into force (on January 1, 1995), are required to grant such protection within 10 years, i e, by January 1, 2005. Pending the introduction of such a product patent system, WTO members are also required to start the system of receiving applications for product patents and granting exclusive marketing rights.

India’s Patents Act, 1970 exempted ‘food or medicine or drug’ from product patenting (Section 5). To comply with the TRIPS requirements, the Patents Act, 1970 was amended by the Patents (Amendment) Act, 1999 to introduce the system of Exclusive Marketing Rights (EMR). Under this amendment, it is now possible to make an application for a product patent in pharmaceuticals, though the application will not be processed for the grant of a patent until the end of 2004. But EMR can be obtained for that application if a patent has been granted in some other WTO member country and the application has not been rejected in India as not being an invention. Another bill (The Patents (Second Amendment) Bill, 1999) was introduced in the parliament in December 1999 to bring about other changes in the patent regime in line with the TRIPS agreement. The bill was referred to a joint parliamentary committee, which examined the provisions and submitted a revised bill in December 2001 [Joint Committee 2001]. This bill with a few changes has been approved by the parliament in May 2002. The amended act will come into force after receiving the president’s assent and after it is notified as the new act. The EMR system has not yet been abolished. A Third Amendment will be necessary by end of 2004 to replace the EMR system and introduce product patents in pharmaceuticals.

It is widely believed that product patents tend to result in the creation of monopolies and hence to high prices. Some provisions of the TRIPS agreement can be used to mitigate some of these adverse effects. Within the scope of the TRIPS agreement, basically three things can be done to ensure competition and competitive prices:

(1) Provide exemptions from grant of patents in certain cases; (2) Provide exceptions to product patent rights in certain cases; and (3) Provide compulsory licences to non-patentees to produce and sell the product.

It is well known that developing countries were put under political and economic pressure to force them to accept terms, which went against their interests [Abbott 2001]. It is important for the developing countries to try to amend the negative features. We will not be concerned here with these more fundamental issues. The limited objective of this paper is to examine whether the amended act has taken advantage of the provisions, which are currently available. In Section I, we will discuss the salient features of the amendments to the Patents Act, 1970. Thereafter we will critically evaluate these features in the context of the TRIPS agreement. In Section II, we will deal with the ‘exemption’ and the ‘exception’ provisions. In Section III, we will examine the compulsory licensing provisions. The focus will be on pharmaceuticals

I
The Amended Patents Act

Some of the salient features of the amendments are as follows:

Patent rights and terms of patents: Under section 48 of the amended act, the patent owners will have the exclusive right to prevent others who do not have their consent, not only from making, using or selling the invented product or process in India, but also importing from other countries. Under the original 1970 Act, importing was not mentioned as an exclusive right. This is however subject to the provision in Section 107A(b), inserted in the amended act, which permits parallel imports. Under this section, “importation of patented products by any person from a person who is duly authorised by the patentee to sell or distribute the product”, will not be considered to an infringement of the patent right. Thus if a patented product is offered for sale in another country at a lower price by the patent holder or with the patent holder’s consent, the patent holder here cannot legally stop its imports by others.

The term of the patent granted will be 20 years from the date of filing of the application for the patent (Section 53(1)). Under the 1970 act, the term for pharmaceuticals, was five years from the date of sealing or seven years from the date of the patent, whichever is shorter. (For other products the term was 14 years).

Inventions not patentable: In line with Article 27 (2 and 3) of the TRIPS agreement, the following have been excluded from patentability inventions: (i) harmful for environment, human, animal or plant life etc; (ii) diagnostic, therapeutic and surgical methods for the treatment of humans or humans and animals and (iii) plants and animals other than microorganisms but including “seeds, varieties and species and essentially biological processes for production or propagation of plants and animals”. One type of invention which has not been specifically mentioned in the TRIPS agreement, but which has been excluded in the amended act is the country’s traditional knowledge (Section 3(p)). In fact grant of patent can be opposed on the ground that the invention relates to “knowledge, oral or otherwise, available within any local or indigenous community in India or elsewhere” (Section 25(1)(k)). Special provisions for use by government: The central government or anyone authorised by it may use (i e, “make, use, exercise or vend”) an invention or acquire an invention for the purpose of the central government, state governments or a government undertaking on payment of adequate remuneration or compensation (Sections 99 to 103). Except in circumstances of national emergencies, extreme urgency or public non-commercial use, the government will have to inform the patentee about such use. Any dispute relating to the use of the patent or that relating to the terms of such use or compensation payable for acquisition will be referred to the high court. Under the act of 1970, the right to use included ‘the right to sell the goods’. In the amended act, the right of the government is restricted to the “right to sell, on non-commercial basis”. Under Section 64(4) of the 1970 act, which has not been deleted in the amended act, on the petition of the central government, the high court can revoke the patent if the patentee has “without reasonable cause failed to comply with the request of the central government” to use the patent.

In this context, a reference may also be made to the very important provision under section 66 of the 1970 act, which has been retained. Under section 66, “Where the central government is of the opinion that a patent or the mode in which it is exercised is mischievous to the state or generally prejudicial to the public, it may after giving the patentee an opportunity to be heard, make a declaration to that effect in the official Gazette and thereupon the patent shall de deemed to be revoked”.

Regulatory exception: A new section (107A) has been added to incorporate the ‘Bolar’ provision, as it is known in the US where it was first introduced in 1984 [Correa 2000]. Use of a patent “related to the development and submission of information” for the purpose of getting regulatory approval before the expiry of the patent will not be considered as an infringement of patent rights. This will enable generic producers to market their products as soon as the patent expires. Section 47 of the Patents Act, 1970, which has not been deleted, provides other exceptions. The patented product/process may be made or used by any person for the “purpose merely of experiment or research including the imparting of instructions to pupils”. Any patented product may be imported, made by or used by or on behalf of the government for ‘its own use’. The government can also import patented medicines for distribution in dispensaries and hospitals providing public service.

Reversal of burden of proof: A new section (104A) has been added in the act relating to the burden of proof in the cases of infringement suits. In line with Article 34 of the TRIPS agreement, the burden of proof will be on the alleged infringer.

Compulsory licensing: An application for a compulsory licence (CL) can be made under two sets of circumstances: Under section 84, three years after the sealing of the patent and under section 92, anytime after the sealing of the patent with respect to a patent notified by the central government as eligible for a CL. We first discuss the general provisions for a CL application under section 84 and then the special provisions under section 92. The amended act has elaborate provisions on CL in chapter XVI (sections 82 to 94). It provides details of:

– General principles applicable to working of patented inventions;
– grounds for grant of CL;
– matters to be taken into account by the controller of patents while considering applications for CL;
– the procedure for dealing with CL applications;
– general purposes for granting CL; and
– terms and conditions of CL.

The ‘general principles’ sound very impressive. In fact these are more elaborate than those in the act of 1970. The general principles note that patents are granted to encourage inventions and to make the benefit of patented invention available at “reasonably affordable prices to the public”, to secure that these are worked in India, and not to enable patentees to enjoy monopoly by importing. That the patent right is not abused by the patentee and the patentee does not “resort to practices which unreasonably restrain trade or adversely affect the international transfer of technology” (Section 83). The entire Article 7 of TRIPS agreement on Objectives and the entire Article 8 on Principles are listed here. Para 4 of the Doha Declaration relating to the right of the governments to take measures to protect public health, is also incorporated here. The amended act also specifies the ‘general purposes’ to be followed while granting CL, for example that “the patented inventions are worked on a commercial scale in the territory of India without undue delay and to the fullest extent that is reasonably practicable” (Section 89).

An application for a CL can be made under section 84 on the following grounds: that the “reasonable requirements of the public” have not been satisfied, or that the product is not available at a ‘reasonably affordable price’, or that the patented invention is “not worked in the territory of India”. If a CL is granted, then the central government or any one else after two years of the date of granting of the CL, may apply for revocation of the patent on similar grounds (Section 85(1)). Application for revocation shall ordinarily be decided within one year of its being presented to the controller of patents. Section 84(7) provides a list of circumstances when “reasonable requirements of the public” will be considered to have not been satisfied, for example, when demand for the patented article has not been met to an adequate extent or on reasonable terms, a market for export of the patented article manufactured in India is not being supplied or developed, the patented invention is not being worked in India “on a commercial scale to an adequate extent or is not being so worked to the fullest extent that is reasonably practicable”, the working of the patented invention in India on a commercial scale is being prevented or hindered by importation from abroad by the patentee.

While processing the application, the controller will consider not only the ability and the capacity of the applicant or the nature of invention, or the time which has elapsed and the measures which the patentee has taken. The controller will also consider whether the applicant has made any efforts to get the licence from the patentee on reasonable terms and whether such efforts have not been successful “within a reasonable period as the controller may deem fit”. As under section 87, when the controller is satisfied that the application for the grant of a CL or the revocation of the patent after the grant of CL has a prima facie merit, the applicant will have to serve copies of the application to the patentee and to advertise the application in the official gazette. The patentee or any other person may oppose the grant of the CL within the period specified by the controller, who can also extend the time. Thereafter the controller will decide on the case after hearing both sides. Any decision by the controller to grant a patent can be contested. Under section 117A, an appeal can be made to the Appellate Board. The applicant will be able to use the CL only if and after the Appellate Board turns down such appeals.

So far as the terms and conditions for the grant of CL are concerned, the amended act mentions, for example that the CL will be for the “predominant purpose of supplying in Indian market” and will be for the “balance term of the patent unless a shorter term is consistent with public interest”. Unless specifically directed by the central government in public interest and authorised by the controller, the licencee cannot import the patented product. The amended act does not specify any upper limit for the royalty rate payable by the licencee to the patentee. The rate will have to be ‘reasonable’ taking into account such factors as the nature of the invention and the expenditure incurred to make the invention. A CL granted can be terminated “if and when the circumstance that gave rise to the grant thereof no longer exist and such circumstances are unlikely to recur”.

Compulsory licensing under Section 92: Any time after the sealing of the patent, an application for a CL can also be made under section 92 for a patent notified by the central government in the official gazette. Such a notification can be made when the central government is satisfied that in circumstances of national emergency, extreme urgency, or public non-commercial use, it is necessary to grant a CL for such a patent. The procedure mentioned above for the grant of CL will have to be followed for these applications too, except that the applicant will not be required to first approach the patentee and try to get a voluntary licence. The procedure, however, may not be followed if the emergency, or extreme urgency or public non-commercial use is due to public health crises including those relating to AIDS, tuberculosis, malaria, etc. But any decision by the controller here too can be challenged and referred to the Appellate Board. This special provision for exempting the usual procedure in public health crises was not there in the bill recommended by the Joint Committee (2001). It was incorporated in the amendments in the last minute. As we will see below this is a potentially very important provision.

II
Exemptions and Exceptions

Exemptions: Under Article 27(1) of the TRIPS agreement, patents will have to be provided for inventions, which are “new, involve an inventive step and are capable of industrial application”. The agreement however does not define these terms. This provides some flexibility. A developing country like India can interpret these terms so as to restrict the number of patents [Correa 2000; Abbott 2001]. There is an enormous difference between the new drugs (‘new chemical entities’) that are developed globally each year and the number of drug patents awarded. The gap is explained by new dosage forms, formulation, combinations of existing molecules, etc. As the WHO (2001) has warned, if the patentability standards are too broad, i e, if ‘new’, ‘inventive’ are defined to include all the new forms of the same molecule, then effectively the patent life can be extended beyond the 20-year TRIPS minimum. WHO has advised governments to exercise discretion in this regard. Chapter II (sections 3 to 5) of the Patents Act, 1970 deals with ‘inventions not patentable’. As we have mentioned above, India will have to carry out a Third Amendment by end-2004, to replace the EMR system by a product patent system. While doing so, the law can provide the qualification that product patents will be granted only for new drugs which represent significant therapeutic advances. Patents may not be granted for lower level innovations, such as new methods of dosage delivery or new combinations of existing therapeutic compounds [Keayla 2001; Abbott 2001]. One of the arguments in favour of product patents in pharmaceuticals is that the development of new drugs is a costly business and hence there must be enough financial incentive to continue to do so. But it is well known that many of the new drugs are unnecessary combinations of existing drugs or simple modifications of existing drugs, which represent practically no therapeutic advance [Correa 2001]. There is no reason why the developing countries should subsidise such wasteful expenditure.

Exceptions: An unfortunate part of the TRIPS agreement is that the spirit of Articles 7 (on objectives) and 8 (on principles) is not adequately reflected in the wording of the operative sections of the agreement [Keayla 2001]. Article 28 specifies that patent owners will have exclusive rights to prevent others from “making, using, offering for sale, selling or importing” the patented product. There is no corresponding section on the obligations of the patentees, though Article 7 speaks of balancing the rights and obligations. Article 8, speaks about protection of public health. But ‘public health’ is not mentioned anywhere else in the agreement even once. Article 30 permits member countries to “provide limited exceptions to the exclusive rights conferred by a patent” subject to the conditions that it does not “unreasonably conflict with a normal exploitation of the patent and do not unreasonably prejudice the legitimate interests of the patent owner, taking account of the legitimate interests of third parties”. But the TRIPS agreement does not contain any other explanation about the terms, ‘limited exceptions’, ‘unreasonably conflict’, ‘legitimate interests’.

The fact that the obligations of the patentees as mentioned in Article 7 or the exceptions to the rights of patentees as mentioned in Article 30 have not been elaborated, does not mean that these are unimportant. In fact nothing prevents a national law from elaborating on these obligations and exceptions. The fact that some provisions of TRIPS agreement are ambiguous, does not mean that developing countries will have to interpret it in terms favourable to patentees from the developed countries. While amending the national law to make it TRIPS consistent, as para 4 of the Doha Declaration has affirmed, “the Agreement can and should be interpreted and implemented in a manner supportive of WTO Members’ right to protect public health and, in particular, to promote access to medicines for all”. The declaration that “the TRIPS agreement does not and should not prevent members from taking measures to protect public health” should be interpreted to mean that exceptions under Article 30 can be used for public health reasons.

While carrying out the Second Amendment in 2002, India could have been taken the following steps. India still has the chance of doing so during the proposed Third Amendment.

Elaboration of the obligations of patentees: Abuse of intellectual property rights should be recognised as a ground for revoking the patent. If as Article 61 of TRIPS agreement has provided, criminal procedures and penalties can be applied in cases of infringement of intellectual property rights, there is no reason why an abuse should not be penalised. For examining whether the rights have been abused, a proper procedure may be prescribed. This threat itself may prompt the patentees to be careful in their pricing strategies even when they are the sole producers.
Elaboration of rights of non-patentees: Exceptions to exclusive rights of patentees possible under Article 30 have been used in the Amended Act (Section 107A) in the context of the ‘Bolar’ provision. Again as we have mentioned above, Section 47 of the Patent Act permits the use of the patented product “for the purpose merely of experiment or research including the imparting of instructions to pupils”. These are important provisions. To avoid any ambiguity, it should be clearly understood that the non-patentees can experiment with the patented product and develop their own processes of manufacturing. However they cannot use such processes for commercial purposes unless they are authorised to do so. As the Doha Declaration has affirmed, “the TRIPS Agreement shall be read in the light of the object and purpose of the Agreement as expressed, in particular, in its objectives and principles”. Such possibilities of experimentation will help realise the objectives mentioned in Article 7, viz, promotion of technological innovation and transfer and dissemination of technology. This is also important for maintaining and developing efficient alternatives to protect public health and to prevent patentees from abusing patent rights (Article 8 on Principles). R and D is a continuous process. If the indigenous sector is asked once in a while to develop a process, it is possible that they may not be able to do so. The opportunity of using the patented product for R and D purposes, will enable the indigenous firms to be ready with efficient processes and use these whenever they are permitted to do so.

As we will discuss in the next section, a country like India, which has the manufacturing capacity, can use the provisions of compulsory licensing to produce patented drugs. But the majority of poor countries cannot use such licences because they lack the capacity to manufacture. The Trade Ministers at Doha has recognised this critical problem and has instructed the Council for TRIPS to find an expeditious solution to this problem (Para 6 of the Doha Declaration). Some developing countries and NGOs such as MSF, CPT, HAI and Oxfam have argued that a simple solution to the problem is to interpret Article 30 exceptions to allow countries to export generic drugs to countries which cannot produce these themselves [Mayne and Bailey 2002]. The WTO panel in the Canada – Generics dispute case has interpreted the Article 30 exceptions in very narrow terms. Abbott (2002) has argued that even within the parameters of the narrow interpretation of the panel, there is room for an Article 30 exception for making and exporting to the least developed countries.

While amending the patents act, India could have interpreted Article 30 to permit such exports. This would have helped not only the importing countries but also India. This would have provided a larger space of operations to the generic producers for efficient production. It appears that the government did not want to take any risk. Narrow interpretations of the TRIPS agreement favouring the interests of patentees from developed countries and the threat of retaliation have often made the governments of developing countries insecure and have prevented them from interpreting the TRIPS agreement in terms favourable to their national interests [Abbott 2001]. But under the WTO rules, unilateral trade sanctions cannot be imposed based on alleged failures to comply with the TRIPS agreement. WTO provides for a dispute settlement process. India has the freedom to interpret TRIPS and amend her patent law accordingly. She is required to change specific provisions only when the decision by a dispute settlement panel goes against her and she loses the appeal in the Appellate Board [WHO 2001]. Thanks to the public campaign launched by NGOs such as MSF, CPT, Oxfam and the dropping of complaints by pharmaceutical companies and the US government in South Africa and Brazil respectively, the environment right now is much more congenial to a flexible interpretation of the TRIPS agreement. The question of affordability and accessibility of medicines is now more widely acknowledged than ever before. It will be unfortunate if the government cows down to actual or perceived threat and does not do all that can be done under the TRIPS agreement to protect public health.

III
Compulsory Licensing in TRIPS Agreement and Amended Act

As we have mentioned in Section I, the central government has wide ranging powers in the amended act, to use, acquire or even revoke a patent. For non-commercial purposes, the government can authorise anyone to produce a patented product, for example medicines for distribution in government hospitals. (Of course, it is a different matter to what extent the government will be able to or will actually use these powers, which are not to the liking of the large pharmaceutical companies holding the patents). But to produce a patented product for commercial purposes, non-patentees will require either a voluntary licence from the patentee or a compulsory licence from official authorities.

Article 31 of the TRIPS agreement dealing with CL, does not place any restriction on the grounds under which a CL can be given. In case there were any doubt, the Doha Declaration has made it clear that “Each member has the right to grant compulsory licence and the freedom to determine the grounds upon which such licences are granted”. The problem is that certain conditions listed in the article will have to be satisfied. These include: (i) that authorisation of such use will have to be considered on its individual merits; (ii) that before permitting such use (except in such cases as situations of national emergencies, extreme urgency, public non-commercial use), the proposed user will have to make efforts over a reasonable period of time to get a voluntary licence on reasonable commercial terms; (iii) that the legal validity of the CL decision and the remuneration will be subject to judicial or other independent review; and (iv) the CL can be terminated if and when the circumstances which led to it cease to exist and are unlikely to recur. However as several commentators including, Watal (2001) and Love (2001), have argued, the grounds and the procedure can be so specified as to make these conditions less onerous than what these appear to be. For example, the ground can be as it is in China, that any qualified entity who fails to get a licence from the patentee on reasonable terms and within a reasonable period of time can apply for and be granted a CL. Guidelines can be issued for ‘reasonable terms’. The maximum time period can also be stipulated. In this case, the procedure can be very simple. If the qualified entity does not get a voluntary licence within that time and on these terms, it can be given a CL. To find this out would be the consideration of ‘individual merit’. If this is the way the wording of the ground for CL is done, then so long as the patentee does not give a voluntary licence on reasonable terms, the non-patentee will continue to enjoy the CL. And if the patentee does give a voluntary licence on reasonable terms then obviously the need for giving a CL will not arise. Of course the patentee can ask for a review of the CL decision. The TRIPS agreement allows the review to be non-judicial. This can be a simple administrative process.

General provisions: We first examine the general provisions for CL application under section 84 and then the special provisions under section 92. The Patents Act, 1970 had a clear strategy – to eliminate the monopoly of the transnational corporations (TNCs) and remove the bottlenecks in the previous regime which prevented the indigenous firms from producing patented drugs. And it was done through a very simple process of abolishing product patents in drugs. The act of 1970 also had provisions for CL for pharmaceutical processes. In fact under section 87 of the 1970 act, any process patent related to pharmaceuticals were to be endorsed with the words ‘Licences of right’ within three years of the sealing of the patent. In such cases, anyone could ask for a licence from the patent owner to use the patented process on mutually agreed terms. But a CL was redundant in the previous regime. Being free to produce the patented drugs, the indigenous firms could develop their own processes and they indeed did so. But in the product patent regime being introduced in India, the indigenous firms will not be able to produce a patented drug even if they develop the processes of manufacturing, unless they get a CL. Hence it is of fundamental importance to have a simple and easy to administer and implement CL system. The TRIPS agreement does not prohibit this. But this has not been done. The special CL provisions for pharmaceuticals in the 1970 act was abolished. For other products, the 1970 act had an elaborate and cumbersome provisions for the grant of CL, which was not effective [Bagchi et al 1984]. The amended act has basically adopted the same structure for pharmaceuticals too. This procedure will have to be followed for all patents except those notified by the government under section 92 for tackling public health crises.

The basic problem with the amended act is that it lacks any positive strategy. It appears that no attempt have been made to take advantage of the flexibilities which the TRIPS agreement provides. The entire amendment has been carried out very mechanically. It starts with the relevant text of the Patents act, 1970 and then makes some changes to make it TRIPS compliant. This has been done by deleting some clauses of the 1970 act and lifting some clauses from the TRIPS agreement and inserting these in the amended act. In the process many negative aspects, which could have been tackled without violating the TRIPS agreement, have remained in the amended act.

As Article 1 of the TRIPS agreement has made it clear, member countries are “not obliged to implement in their laws more extensive protection than is required by this Agreement ...”. But the government has preferred to adopt a stricter CL regime than what is required under the TRIPS agreement. As we have mentioned above, the amended act has elaborate provisions on CL and the text is impressive. But what matters most in actual practice are the grounds for the grant of CL and the procedure. The wording of the grounds for granting CL in section 84 is not amenable to easy interpretation and is not operationally useful and the procedure specified is cumbrous. The procedure is open-ended without any time limit imposed at any stage. The copy of the CL application will have to be advertised in the official gazette, though this is not required under the TRIPS agreement. The patentee or any other person may oppose the application and will have to be given adequate time for doing so. The controller will decide only after giving both the parties an opportunity to be heard. A CL granted by the controller can be opposed. Such appeals will be considered by an Appellate Board before a CL is ultimately permitted. Whether a patent is worked in India or not, can perhaps be objectively assessed. But the grounds of “reasonable requirements of the public” or “reasonably affordable price” can easily be challenged by the patentees. Then arguments and counter-arguments will follow. After all these are heard by the controller and then by the Appellate Board, in case of an appeal, it may be years before a CL is granted, if at all. The entire process is excessively legalistic and provides the patentees the opportunity to manipulate by litigation. The huge expenses involved in fighting the large pharmaceutical companies holding the patents may dissuade the non-patentees from applying for licences in the first place. These are not mere theoretical possibilities. This is precisely what happened in India under the Patent and Designs Act of 1911, which was in force till the Patents Act, 1970 replaced it [Chaudhuri 1984]. It may not be irrelevant here to refer to the experience under the Act of 1911.

The Act of 1911, which recognised product patents, also had elaborate provisions for CL as in the amended act. The act of 1911 provided for the grant of CL in the case of misuse or abuse of patent rights. The Patents Enquiry Committee (1950) found that the foreign patentees did misuse or abuse their rights, for example by importing the patented product rather than manufacturing it here, fixing the prices at high levels, not allowing others to manufacture the product even when it was not engaged in manufacturing. But, as the Committee observed, the provisions regarding CL were “wholly inadequate to prevent misuse or abuse of patent rights, particularly by foreigners” (p 172). The Panel on Fine Chemicals, Drugs and Pharmaceuticals (1947), appointed by the government also reported earlier that not a single CL could be obtained because of the wording of the relevant provisions (p 15). The provisions regarding CL (Sections 22 and 23) were amended in 1950, following the recommendations made by the Patents Enquiry Committee in its interim report submitted in 1949. In 1952, an entirely new section (23CC) dealing specifically with drugs (and food, insecticide, germicide, fungicide, surgical or curative device) was added. But the procedure specified in section 23D of the 1911 act was cumbrous. In fact it is this same procedure which the 1970 act and the amended act have inherited. Hence the experience under the Act of 1911 would be a rough guide to what is expected to happen in future in India unless some corrective actions are taken.

Taking advantage of the cumbrous procedure, the foreign patentees could continue to effectively prevent or delay the use of CL. Let us give some examples: A government research institute (Haffkine Institute) applied for a compulsory licence. In response to the notice served on the patentee, the firm suggested that they were willing to give the licence voluntarily on the basis of royalties to be fixed through negotiations. They demanded an absurdly high rate of 25 per cent. As in the amended act, there was no limit on the time that can be taken. It took more than four years to reduce it to 10 per cent, which was however still higher than the limit of 5 per cent stipulated by the Reserve Bank of India at that time. By that time, the institute decided to abandon the project [Joint Committee on the Patents Bill, 1967:452]. An indigenous firm (Neo-Pharma Industries) sought a licence from Parke Davis to manufacture a drug. But whereas the subsidiary company in India pointed out that the matter was beyond its jurisdiction, the parent company in the US insisted that the indigenous firm should first discuss the matter with the local subsidiary. It took more than two years to decide as to who would negotiate. At last when the negotiations started with the parent company, they did not formally refuse to grant the licence but simply sat over the proposal. Finally when a compulsory licence was sought and granted, Parke Davis went to the court and obtained a stay order [Joint Committee on the Patents Bill, 1965:493]. The hazards of obtaining a CL which include legal battles, perhaps explain why so few applications for CL have been made under section 23 CC. Till 1972, i e, when the 1970 Act came into force, only five applications were made for CL. It was granted in only two cases and refused in one case. The applications were ultimately withdrawn in the remaining two cases [Chaudhuri 1984].

One change introduced in the amended act is that the appeals will be referred to an Appellate Board rather than to high courts as was done under the Acts of 1970 and 1911. The Appellate Board to be known as the Intellectual Property Appellate Board, will be the same as that established under section 83 of the Trade Marks Act, 1999. But the structure is basically judicial. The board will operate through benches with at least one judicial member. Any proceeding before the board will be considered to be a judicial proceeding and in discharging its functions such as examination of witnesses, receiving evidence, the Appellate Board will have the same powers as enjoyed by a civil court.

It is possible that compared to high courts, the specialised Appellate Board may take less me in the disposal of appeals. But considering the procedure prescribed, it is doubtful to what extent it will be able to take quick decisions. As we have mentioned above, India had the option to adopt a simple administrative process. But that has not been done.

Not only is the process of granting CL in the amended act lengthy. It is besieged with uncertainty. As we have mentioned above, the TRIPS condition regarding termination of CL could have been tackled by suitably framing the ground for CL. But this has not been done. With no certainty about whether they will get a CL, and if so for how long, it is likely that the indigenous firms may be hesitant to undertake investments to generate efficient processes.

Special provisions: The amended act contains the provision that for a patent notified by the central government as necessary for tackling public health crises, the controller may grant a licence without following the cumbrous procedure mentioned above. This is a positive provision. But the benefit of this provision will very much depend on how this is implemented. The ‘Rules’ for administering the amended act should be so framed that it is possible to use these provisions without any hassle. We have suggested below some simple administrative steps.

What can still be done: If CL is to be used to stimulate competition and check prices, then we require efficient non-patentees who can put to the market products at reasonable prices. In the South Africa AIDS case, the question of CL acquired importance because there were efficient non-patentees such as Cipla and Ranbaxy in India. The space which the Patents Act, 1970 provided to them, was one of the important factors behind the success of these indigenous firms. Before the introduction of the Patents Act, 1970 in 1972, the TNCs dominated the industry in India. They legally prevented indigenous firms from producing patented drugs even when the processes were developed independently. The Act of 1970 by de-recognising product patents in pharmaceuticals and thereby eliminating the monopoly status of the TNCs, provided the indigenous firms the opportunity to realise their potential and in the process further enhance their capabilities. The technical skills developed indigenously were used to generate processes for manufacturing the latest drugs. With expansion, first in the domestic market and then in the international markets, many of these indigenous firms transformed into dynamic and efficient entities [Chaudhuri 2002a]. If the introduction of product patents in India results in a drastic reduction in the space of operations of these firms, then they are likely to lose their dynamism. If once in a while they get a licence, it is likely that they will not be able to develop efficient processes and produce at reasonable prices. If their prospects are bleak then they may be tempted to go for collaboration with the TNCs rather than competing against them. Such a trend has already started. To make effective use of CL, it is important to have independent and efficient non-patentees with adequate space of operations. And to do so in a product patent regime, it is important to ensure that CL is granted not once in a while but on a regular basis. The TRIPS agreement does not prohibit this and hence there is no reason why for preventing monopolies this should not be attempted.

There is enough justification to carry out further amendments to simplify the general provisions of CL in the act to enlarge its use. As we have mentioned above, it is possible to frame the grounds for CL in such a way that licences can be granted without delay within a specified time. Consideration of the appeals also can be made simpler and faster by constructing suitable grounds and formulating proper guidelines. The judicial review can be replaced by a simple administrative review to make it a less time consuming affair.

In the more immediate context, the effectiveness of CL can also be improved by framing proper rules. The rules for administering the amended act have not yet been issued. While framing these rules, some of the administrative steps that can be taken are as follows [Chaudhuri 2002b]:
– Rather than adopting a case by case approach, the central government may notify the list of medicines eligible for CL in public health crises. The list should be prepared in consultation with health experts and may be revised from time to time. Any relevant new drug should be added to the list. Both Para 5(c) of the Doha Declaration and section 92 (3) of the amended act have only given examples of public health crises, for example AIDS, tuberculosis, malaria. Public health crises should be interpreted in broad terms. The list may be prepared bearing in mind the specific situation in the country, such as the disease pattern, the need for drugs and the present availability. It is well known that majority of the Indian people living in rural areas and in urban slums have no or little access to modern drugs. Medicines necessary to take care of the health needs of these people should be included in the list.

– The inclusion of any drug in the list cannot be a ground for opposition and appeal. There is nothing in the TRIPS agreement or the amended act to suggest that it should be so. If a CL is granted for any of these drug, the in other words,
– As, for example in Japan and Germany, guidelines may be issued for the royalty to be paid to the patent holders in case of CL.
– For any drug in the public health list, the controller may immediately after receiving an application, grant the CL, fixing a royalty rate using the royalty guidelines. Any opposition or appeal against the grant of a CL in this case can only relate to the royalty rate fixed. (As we have argued above, the patentees should not have the right to object to the inclusion of any drug in the list.) The opposition to the rate fixed should not hold up the use of CL. While this is being adjudicated, the non-patentee could begin to use the patent on the basis of an undertaking that the royalty rate finally decided will be paid in full. The case by case consideration of the royalty rates payable and the opportunity to oppose and appeal against the royalty rate fixed will satisfy the Article 31 clauses (a), (i) and (j) relating to consideration of individual merits and review of the CL decision.
– For other drugs too, a simple time bound procedure may be formulated for considering and deciding on CL applications. The maximum time permissible at each stage may be specified. The royalty guidelines may be used to reduce uncertainty and speed up decisions.

IV
Recapitulation and Conclusion

While amending the Patents Act, 1970, India has not taken full advantage of the flexibilities, which the TRIPS agreement provide. While deciding on the inventions eligible for patents, the terms ‘new’, ‘inventive’ could have been defined to exclude lower level innovations such as new dosage forms or new formulations from the grant of patents. This would have restricted the number of patents. Article 30 of the agreement provides for limited exceptions to patent rights. This could have been used to permit non-patentees in India to produce and export patented medicines to least developed countries, which cannot produce these themselves. This would have been beneficial to both India and these countries. But the most glaring failure relates to compulsory licensing. In a product patent regime, a proper compulsory licensing system is of fundamental importance to ensure competition and competitive prices. But the wording of the general grounds for compulsory licences is not amenable to easy interpretation and is not operationally useful. The procedure is cumbrous and time consuming. The process is much more legalistic than what the TRIPS agreement requires. It provides opportunities to the powerful patentees to manipulate the process by litigation to prevent others from getting such licences. If the bias in the Patents Act, 1970, which did not grant product patents in pharmaceuticals, was in favour of the non-patentees, the bias in the amended act is clearly in favour of the patentees. The aim appears to have been to be fair to the patentees and not to deprive them of the exclusive patent rights except under very special cases. The objective of the amendments was to comply with the TRIPS agreement. But India has provided a more extensive protection to patentees than what is required by the agreement.

[An earlier version of this paper (completed in mid-June 2002), was presented at a conference on ‘Medical Patents: Global Ethical and Economic Perspectives for Developing Countries’, organised by the North-South Priority Research Area of the University of Copenhagen at Copenhagen, May 6, 2002. It was also used for a presentation at the National Consultation Meeting on Rational Drug Use and Policy, organised by the Voluntary Health Association of India at New Delhi, May 27-28, 2002. The author benefited immensely from discussions with B K Keayla, Jayashree Watal and James Love and comments from Carlos Correa, Jorge Katz, Frederick Abbott and Amiya K Bagchi. Help received from and discussions with I A Alva, G Wakankar and Amitava Guha, and financial assistance from the Indian Institute of Management Calcutta are also gratefully acknowledged. The author can be contacted at sudip@iimcal.ac.in.]

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