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PATENT EXHAUSTION DOCTRINE FOR PHARMACEUTICALS IN INDIA UNDER TRIPS

Subject: International Law Submitted to: Prof. S. Sachidanadam Professors of Law Submitted by: Jasween Singh Gujral 2008-27 3rd year, 6th semester

National Law University, Delhi

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TABLE OF CONTENTS
TABLE OF CONTENTS................................................................................................................ii Cases iii Statutes and Agreements...............................................................................................................iii List of Abbreviations.....................................................................................................................iv CHATPER I.....................................................................................................................................1 INTRODUCTION...........................................................................................................................1 Research Methodology...................................................................................................................2 Research Plan.................................................................................................................................2 CHATPER II....................................................................................................................................4 TRIPs REGIME: STANDARDIZATION OF PRODUCT PATENT PROTECTION...................4 Main Features of TRIPs Agreement...............................................................................................7 Effect of TRIPs Agreement on Indian Patent Law........................................................................9 CHATPER III................................................................................................................................11 EXHAUSTION OF PATENT RIGHTS........................................................................................11 CHATPER IV................................................................................................................................15 PATENT EXHAUSTION DOCTRINE IN INDIA.......................................................................15 Indian Legal Position...................................................................................................................15 TRIPs Compatibility....................................................................................................................18 CHATPER V.................................................................................................................................20

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CONCLUSION..............................................................................................................................20 REFERENCES...............................................................................................................................iv Books Referred:............................................................................................................................iv Articles and Reports Referred:......................................................................................................iv Websites Referred:........................................................................................................................vi TABLE OF AUTHORITIES Cases Anton/Bauer, Inc. v. PAG Ltd........................................................................................................11 BBS Kraftfahrzeugtechnik AG v. Rashimekkusu Japan Co. Ltd. and JAP Auto Prods Co. Ltd....12 Glass Equipment Development Inc. v. Besten Inc.........................................................................11 Jazz Photo Corp. v. International Trade Commission..................................................................12 Quanta Computer, Inc. v. LG Electronics Inc................................................................11 Strix v. Maharaja...........................................................................................................................18 UMG Recordings v. Troy Augusto.............................................................................................2, 11

Statutes and Agreements Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPs), 1994. Doha Ministerial Conference on TRIPS Agreement and Public Health, 2001 [the Doha Declaration] Indian Patents Act, 1970 Indian Patents (Amendment) Act, 1999

iv

Indian Patents (Amendment) Act, 2002 Indian Patents (Amendment) Act, 2005 International Convention on Economic, Social and Cultural Rights (ICESCR), 1966. Vienna Convention on the Law of Treaties, 1969.

List of Abbreviations Arts........Articles Dist. ...District ed. ................editor Id.....ibidem IJIPL.....Indian Journal of Intellectual Property Law n. .........note p. ........page pp. ........pages rep...... reprint rev.......revised Sec. ....section TRIPsTrade Related Aspects of Intellectual Property Rights v. .....versus WTOWorld Trade Organization

CHATPER I INTRODUCTION
Making the world flat,1 globalization has brought significant changes in every aspect of human life, and the most sensitively affected are the developing countries. Accordingly, having a standardizing effect on intellectual property rights in all the member nations of the World Trade Organization (WTO) was the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPs). One of the major path-breaking changes brought about by the TRIPs Agreement which is due to affect the developing and least developed countries (LDCs) the most is the compulsory adoption of a product patent regime for pharmaceuticals and agro chemicals. Hence, TRIPs enforces a minimum standard of patent protection even on pharmaceutical innovations which otherwise had only the protection of a process patent. A patent is a bundle of rights granted to an innovator which confers on him exclusive rights to make, use, offer for sale, sell, or import the product over which he holds a patent. It is therefore, a virtual monopoly granted by the government over a particular product.2 Pharmaceuticals are distinguishable from other products in terms of the social responsibility attached to them as a sizable proportion of pharmaceutical market comprises life saving drugs.3 Especially in developed countries, where access to medicines is already a hurdle in public health, grant of a product patent establishing a statutory monopoly will have undesired consequences on a vital sector such as health sector because pharmaceutical industry rely heavily on patents to market their product using the monopoly rights granted by the patents. However, this statutory monopoly is not absolute or permanent. It is subject to the exhaustion doctrine according to which, all exclusive rights granted by the patent (patent rights) exhaust on the first sale of the patent product. It is based on the logic that the incentives to innovation and recoupment of research and development costs ensured by the patent rights should not continue after the patentee has had one opportunity to exploit them. The first sale is defined as the initial
1 2

THOMAS FRIEDMAN, THE WORLD IS FLAT (2005).

Rajnish Kumar Rai, Does India need to harmonize the Law of Patent Exhaustion and Parallel Imports?, 19(2) INFORMATION AND COMMUNICATIONS TECHNOLOGY LAW 115 (2010).
3

Bryan Christopher Mercurio, TRIPs, Patents and Access to Life-Saving Drugs in the Developing World, 8 MARQUETTE INTELLECTUAL PROPERTY LAW REVIEW (2004), http://ssrn.com/abstract=589064 (last visited 28-02-11).

2 authorized transfer of title by the patent holder.4 The relief from the monopolistic effects of patent rights by the exhaustion doctrine depends on the type of exhaustion doctrine that is followed. India being a developing country needs certain drugs at cheaper prices and hence, requires a mechanism to bypass the effects of product patent regime in the form of parallel imports which are allowed in law only when international exhaustion of patent rights is followed. Hence, the rest of this paper is divided in four broad parts first is the appreciation of the problem under consideration; second is the understanding of the principle of patent exhaustion regime, its different types and the different effects; third is the case for Indias patent exhaustion regime in a policy as well as legal perspective and last is the conclusion based on balance of rights. Research Methodology The researcher has adopted the doctrinal form of research in making this project. Primary as well as secondary sources of information have been used from the NALSAR Law Library. The above category of material includes a number of books and commentaries related to international trade law and intellectual property law and several periodicals and journals. Moreover the source of the internet has also been widely and extensively utilized including online databases like Manupatra and Westlaw. No part of this project is plagiarized and it is the original work of the researcher Research Plan Aims and Objectives The aim of this paper has been to enquire into the Indian Patent Exhaustion Regime for Pharmaceuticals under TRIPs. The relevant concepts of law and their evolution have also been dealt with in an organized manner and the researcher aims at providing an insightful study of the same through scholarly works and interpretation of relevant laws and cases.

Scope and Limitations

UMG Recordings v. Troy Augusto, Judgment of the U.S. 9th Circuit Court, delivered on 4th January 2011.

3 Within the scope of this project the researcher will discuss the subject broadly, the terms involved and the stand-point of law on the same. An understanding of the TRIPs Obligations and the social conditions attached to pharmaceuticals in India would serve as the groundwork to examine the practical patent exhaustion regime for pharmaceuticals based on policy considerations and its justification based on legal considerations.

CHATPER II TRIPs REGIME: STANDARDIZATION OF PRODUCT PATENT PROTECTION

In recent years, the patentability of health-related innovations has become under debate worldwide. Billions of dollars are invested each year in pharmaceutical research, but the percentage of people who can afford potentially life-saving drugs remains minuscule. The consensus amongst the World Trade Organization (WTO) is that public health precedes intellectual property rights during national emergencies. However, the problem is not as simple as a mere question of morality.5 The development of drugs is costly for pharmaceutical companies, and without intellectual property law protection, the formula for the drugs can be easily duplicated and the drugs can be synthesized at a cheaper cost.6 Thus, intellectual properties laws often allow companies to monopolize the synthesis and sales of drugs. Unfortunately, this exclusive right to manufacture and sell drugs provides the necessary monetary incentive for drug discovery. In 2001, this problem of intellectual property right of technologies that affect public health was addressed by the WTO in the Doha Declaration on the TRIPs Agreement and Public Health. In the declaration, compulsory licensing of technology of intellectual property that is critical to the health of the public is granted in a time of national emergency. However, what constitutes an emergency rests in the hand of individual government.7 The TRIPS agreement, although hints at the problem of manufacturing the necessary drugs under compulsory licensing in developing countries that lack the sufficient resources, fails to consummate a proper solution. Many developing countries that lack the resources to synthesize drugs at a cheaper cost must depend on the original manufacturers who hold the patents. The TRIPs agreement further prevents developing countries from helping one another. Under it, a country has the right to copy these drugs, but does not have the right to export them. Developed countries that have the resources to

Xiaolu Wei, Drugs and Intellectual Property Rights, available at http://web.mit.edu/lawclub/www/Drugs%20and %20Intellectual%20Property%20Right1.pdf (last visited 28-02-11).
6

Harvey E. Bale Jr, The conflict between parallel trade and product access and innovation: the case of pharmaceuticals, 1 JOURNAL OF INTERNATIONAL ECONOMIC LAW, 637 (1998).
7

Xiaolu Wei, supra note 5.

5 synthesize these often have laws that allow the drugs to be patented and are thus the ones who hold the patents for these drugs. The access to health-related technology especially in developing countries is a serious concern. In Africa, the AIDS epidemic is causing alarm world-wide. However, it is reported that only less that 0.1 percent of the people with HIV/AIDS have access to anti-viral drugs.8 Many developing countries have taken measures that put human rights over intellectual property rights. There are generally two ways in dealing with this issue. One of which is to completely eliminate patents on drugs. In India, one of the largest producers of pharmaceuticals in the world, the problem becomes increasingly complex in recent years. Until December 2005, India only allowed patents on methods to produce drugs, but not on the actual chemical composition of the drugs themselves. However after 2005, India changed its policy to allow drug patents in order to comply with TRIPs Agreement and encourage more foreign companies to enter India and synthesize their drugs cheaper.9 The rationale for the new measure is to enable foreign companies to take advantage of the cheaper production cost in order to lower the prices of drugs for the rest of the world. Although America has the technology, U.S. corporations are reluctant to market in developing countries where often their products are in high demand due to their lack of intellectual property protection and widely practiced patent infringement, especially in countries where drug patents are not recognized. The focus of the intellectual property regime that India had adopted before it took commitments under the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) had remained on the ability of the country to provide mechanisms which can ensure that the country is able to provide access to medicines to its citizens at affordable prices. India has had a unique position among the countries in the developing world for it has a strong generic pharmaceutical industry, which has been able to provide medicines at prices that were among the lowest in the world. Much of the credit for this development goes to the Patents Act that India enacted in
8

Phillip Cullet, Patents and Medicines: the Relationship between TRIPS and the Human Right to Health, 79(I) INTERNATIONAL AFFAIRS 139 (2003), http://www.ielrc.org/content/a0301.pdf (last visited 28-02-11).
9

John S. James, India Changes Patent Law to Meet WTO Treaty, Making New Medicines Less Available to Most Citizens, Other Countries, available at http://www.aidsnews.org/2004/12/india-patent.html (last visited 28-02-11).

6 1970. Two key provisions facilitated this process. The first was introduction of a process patent regime for chemicals and the second, shortening of the life of patents granted for pharmaceuticals.10 However, the obligations to implement the Agreement on TRIPS changed the conditions that had seen the Indian pharmaceutical industry take roots. The critical issue was the reintroduction of the product patent regime11 and the limitations that this change has imposed on its ability to produce technologies through reverse engineering. It was widely held that the future prospects of the industry hinged critically on the ability of the policy makers to exploit the flexibilities that existed in the framework provided by the Agreement on TRIPS. Indias commitment to fully implement the Agreement on TRIPS required three sets of amendments to the countrys Patents Act. While developing countries, in general, were allowed to make their patent laws TRIPS compliant through an amendment that was to be introduced by January 1, 2000, countries like India which had process patent regime covering pharmaceuticals and agricultural chemicals, would enjoy a longer transition period before they were required to introduce product patents from January 1, 2005. Although it is commonly held that the immediate impact of Indias commitments under the TRIPS Agreement on access to medicines would be felt through the amendment of the Patents Act, 1970, a more recent development has changed this perception somewhat. The requirement under Article 39.3 of the TRIPS Agreement to introduce protection to test and other data submitted by pharmaceutical firms to the regulators for obtaining marketing approval for pharmaceuticals and agro-chemicals has brought yet another dimension of uncertainty for the generic industry. This has arisen as the US and EU have demanded that when firm seeks marketing approval for a product that uses new chemical entity, the data submitted by pioneer firm must be granted fixed period protection during which the generic producers should not be granted marketing approval for the same or a similar product. In other words, fixed period market exclusivity for the pioneer firm has been demanded by the US and the EU.

10

Biswajit Dhar & KM Gopakumar, Effect of Product Patents on the Indian Pharmaceutical Industry, available at http://wtocentre.iift.ac.in/Papers/3.pdf (last visited 28-02-11).
11

The 1970 Patents Act had amended the Patents and Designs Act of 1911, which provided a product patent regime.

7 Hence, the study on standardization of patent laws and its impact in India would be better organized by looking into the main features of the TRIPs Agreement [A.] and its effect on Indian Patent law [B]. Main Features of TRIPs Agreement It is often argued that Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPs) is one of the most controversial agreements administered under the World Trade Organizations (WTO) framework. It took away the freedom of member countries to determine the level of intellectual property protection. It prescribes a universal minimum standard of protection to all types of intellectual properties irrespective of member countries developmental needs. This prescription of universal minimum standard put an end to hitherto freedom of determining the level of intellectual property protection in member countries. In other words, every member country is to offer a minimum level of all types of intellectual property. Thus, the minimum standard norms legitimize the inequalities in the creation of knowledge in the international community. This inequality in the knowledge creation resulted in the denial of access to medicine to the people in developing and least developed countries.12 The Agreement on TRIPS includes seven sets of provisions13 that the WTO Members must adhere to while adopting domestic laws that are in conformity with the provisions of the Agreement. A set of eight substantive Articles of the Agreement on TRIPS, in addition to the preamble, underline the basic principles of the new intellectual property regime. While the preamble provides the broad set of intents, the major elements are covered by the substantive articles. The second set of provisions relates to each of the specific forms of intellectual property rights that are included in the Agreement. 14 The norms and standards of protection that are to be
12

K.M. Gopakumar & Rajesh Ganu, Bitter Pills: Implementation of TRIPs Regime and Public Health Concerns in Indian Patent Law, in WORLD TRADE ORGANIZATION & INDIA A CRITICAL STUDY OF ITS FIRST DECADE 117 (J.K. Mittal & K.D. Raju, eds., 2005).
13

These are: (i) General Provisions and Basic Principles; (ii) Standards Concerning the Availability, Scope

and use of Intellectual Property Rights; (iii) Enforcement of Intellectual Property Rights; (iv) Acquisition and Maintenance of Intellectual Property Rights and Related Inter Partes Procedures; (v) Dispute Prevention and Settlement; (vi) Transitional Arrangements; (vii) Institutional Arrangements.
14

The following forms of intellectual property rights are covered by the Agreement on TRIPS: (i) Copyright

and Related Rights; (ii) Trademarks; (iii) Geographical Indications; (iv) Industrial Designs; (v) Patents (also included plant varieties protection); (vi) Layout-Designs (Topographies) of Integrated Circuits; and

8 followed in respect of each form of intellectual property rights are spelt out in varied degrees of detail.15 Article 1 of the Agreement on TRIPS provides the nature and scope of obligations that the WTO member countries are expected to meet towards protecting the rights of the owners of the forms of intellectual property that the Agreement recognizes. This Article is significant for it is only here that the Agreement on TRIPS alludes to "obligations" in explicit terms. Thus, while the Member States have been subjected a set of obligations that they must fulfill while granting rights to the owners of intellectual property, the latter would not have to meet any reciprocal obligations in return for the rights that they would enjoy. The absence of any obligations on the right holders has particular significance for the developing countries in the area of patents. Developing countries, who own few patentable technologies, have historically seen foreign patentees take an overwhelmingly large number of patents. This implies that in case of the most important form of intellectual property, owners of technology would be able to exercise their dominance arising out of this imbalance that the TRIPS Agreement has introduced.16 Two sets of obligations have been introduced in Article 1. The first pertains to the standards of protection, wherein it is provided that the Agreement on TRIPS provides only the minimum standards of protection. In other words, WTO Members can adopt higher standards of protection if they deem fit. The second set of obligations stipulates that the Members are "free to determine the "appropriate method" for implementing the Agreement within 'their own legal system and practice'. India, as a member of WTO has an obligation under TRIPs to comply with its patent provisions. TRIPs provides three time frames for developing countries like India for its absolute compliance, with the patent regime in particular. The first deadline was 1995 to introduce mailbox protection and exclusive marketing rights (EMR). The second was 2000 to comply with TRIPs provisions on duration of patent protection, compulsory licence, extension of patent protection to microorganism, etc. India amended its Patents Act in 1999 and 2002 to comply with these obligations.

(vii) Protection of Undisclosed Information (includes trade secrets).


15

In case of patents, the TRIPS Agreement provides a detailed structure of the law that the WTO Members must implement. However, in all other forms of intellectual property rights covered by the Agreement, the main elements of the law that WTO Members need to put in place are provided.
16

Biswajit Dhar & KM Gopakumar, supra note 10, at 3.

9 The third deadline was to introduce product patent protection for pharmaceuticals and agrochemicals by 1 January, 2005 Effect of TRIPs Agreement on Indian Patent Law Indias commitment to fully implement the Agreement on TRIPS required three sets of amendments to the countrys Patents Act. While developing countries, in general, were allowed to make their patent laws TRIPS compliant through an amendment that was to be introduced by January 1, 2000, countries like India which had process patent regime covering pharmaceuticals and agricultural chemicals, would enjoy a longer transition period before they were required to introduce product patents from January 1, 2005.17 The longer transition period, however, came with a set of conditions elaborated in Articles 70.8 and 70.9 of the TRIPS Agreement. The above-mentioned Articles are included in the Transitional Arrangements, which required India to introduce two provisions in its Patents Act. Article 70.8 of the TRIPS Agreement required India to provide a means by which product patent applications can be filed from January 1, 1995. If the products figuring in these applications were granted a patent in any of the WTO member countries and the products had obtained marketing approval in any of the WTO Member countries, then, according to Article 70.9, five years exclusive marketing rights (EMRs) had to be granted by India before the patent on the product was either granted or rejected in India. The first amendment of the Patents Act, 1970 introduced the requirements under the transitional arrangements through Section 5(2), which allowed product patent applications to be filed, while Chapter IVA provided for the grant of EMRs.18 On January 1, 2000, a Second Amendment had to be introduced for bringing the Patents Act in conformity with all the substantive provisions the TRIPS Agreement, barring those related to the introduction of product patents. The key issues included in the Second Amendment were, redefining patentable subject matter, extension of the term of patent protection to 20 years and amending the compulsory licensing system.19

17

Agreement on Trade Related Aspects of Intellectual Property Rights [hereinafter TRIPs], Arts. 65.2 and 65.4, Apr. 14, 1994, 33 ILM 1125.
18
19

This amendment was notified in the Gazette of India on 26 March 1999 as the Patents (Amendment) Act, 1999. This amendment was notified in the Gazette of India on 25 June 2002 as the Patents (Amendment) Act, 2002.

10 A third amendment had to be introduced by January 1, 2005 to introduce product patent regime in areas, including pharmaceuticals that were hitherto covered by process patents. Although the Third Amendment had a narrow remit, the Government used the opportunity to undertake yet another review of the Patents Act. Among the major issues included in the Third Amendment were provisions relating to opposition to the grant of patents and improvement of the legal provision enabling parallel imports.20

20

The third amendment was notified in the Gazette of India on 5 April 2005 as the Patents (Amendment) Act, 2005.

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CHATPER III EXHAUSTION OF PATENT RIGHTS


A patent is a bundle of exclusive rights granted to an inventor whose invention satisfies certain pre-requisites such as novelty, non-obviousness and utility.21 Such exclusive rights include the right to make, use, sell and import the patented goods into such country as provided in Article 28.1 of TRIPs.22 The doctrine of exhaustion imposes certain limits on the patentees exclusive rights. According to this doctrine, a patented items initial authorized sale terminates all patent rights to that item.23 In other words, the patentee cannot control the resale or re-distribution of
the particular item that has already been sold once.24 In a very recent judgment of the

9th circuit US Court, delivered on 4th January 2011 in the case of UMG Recordings v. Troy Augusto, certain music CDs were given for promotional distribution and the Court considered it as first sale capable of exhausting the copyright over them. Hence, even a sale in the conventional sense is not necessary and even a mere transfer of title authorized by the patent holder which puts the patented product in the commercial chain also has the effect of exhaustion of intellectual property rights. Were it not for such exhaustion of rights, a purchaser of a patented article might be prevented from selling the said item or even using it, since such sale or use implicates the exclusive rights of the patentee.25 Thus, exhaustion of patent rights is possible only on first sale. However, the converse is not true. A mere first sale may or may necessarily not lead to exhaustion of patent rights. Besides first sale, the other factor that requires consideration to determine exhaustion of patent rights is the
21 22

TRIPs Agreement, supra note 17, Arts. 27.1, 65 and 70.9.

A patent owner shall have the exclusive right to prevent third parties not having the owners consent from the acts of: making, using, offering for sale, selling, or importing for these purposes that product.
23
24

Quanta Computer, Inc. v. LG Electronics Inc., (No. 06-937) 453 F. 3d 1364.

This principle is also commonly referred as the first sale doctrine, a doctrine which stands for the proposition that, absent unusual circumstances, courts infer that a patent owner has given up the right to exclude concerning a patented article that the owner sells. See Glass Equipment Development Inc. v. Besten Inc., 174 F.3d 1337 as quoted in 17 WORDS AND PHRASES (Permanent Edition), First Sale.
25

The use of a patented product that had been legitimately purchased from a patentee or her authorized representative may be exempt from patent infringement under an implied licence theory. See Anton/Bauer, Inc. v. PAG Ltd., No. 3:01 CV 577 (CFD), 2002 U.S. Dist. LEXIS 11583, (D. Conn. June 12, 2002).

12 exhaustion regime followed by different countries, which basically makes exhaustion on first sale dependant on the place of first sale. Depending on the territory in question, exhaustion can be either national (confined to a single state) or international (across the globe).26 National Exhaustion or Domestic Exhaustion of patent rights implies that exhaustion of patent rights occurs only when first sale is done within the territory of patent.27 USA observes domestic exhaustion of patent rights.28 Therefore, if a pharmaceutical manufacturer, say Roche, holds a product patent over a particular drug in USA, then first sale of that drug anywhere outside of USA, say China for instance, will not exhaust the US patent over that particular drug held by Roche. Such exhaustion is possible only when the first sale of the particular patented drug happens within USA. Therefore, since, exclusive right to importation of a patented product is granted to the patentee under the TRIPs Agreement,29 a person who is not a patent holder over a particular drug, cannot import the drug into the USA even after validly attaining it through the first sale in China. To the contrary, International Exhaustion of patent rights implies that exhaustion of patent rights occurs when the first sale is done anywhere in the world. Japan follows international exhaustion of patent rights.30 Therefore, if in a similar example where Roche holds a patent over a particular drug in Japan, and first sale of the concerned drug anywhere outside Japan, say China, will have the effect of exhausting all rights accruing out of the Japanese patent over that drug. Therefore, a person may, after first sale of the drugs in China, validly import them in Japan. This phenomenon is called parallel imports. Legitimate parallel imports are but a natural corollary of the doctrine of international exhaustion.31

26

Shamnad Basheer & Mrinalini Kochupillai, TRIPs, Patents and Parallel Imports in India: A Proposal for Amendment, 2 IJIPL 63 (2009).
27 28 29 30

Id; Jazz Photo Corp. v. International Trade Commission, 264 F 3d 1094 (Fed Cir 2001). TRIPs Agreement, supra note 17, Article 28.

BBS Kraftfahrzeugtechnik AG v. Rashimekkusu Japan Co. Ltd. and JAP Auto Prods Co. Ltd., Case No. H6-(Ne)-3272 (Supreme Court of Japan 1997), translated in 29 INTERNATIONAL REVIEW OF INDUSTRIAL PROPERTY & COPYRIGHT 331 (1998).
31

Shamnad Basheer & Mrinalini Kochupillai, supra note 26.

13 A third possibility is regional exhaustion, under which rights end upon original sale within a group of countries, thereby allowing parallel trade among them, but are not ended by first sale outside the region. Parallel Imports: Parallel imports, also called gray-market imports, are goods produced genuinely under protection of a trademark, patent, or copyright, placed into circulation in one market, and then imported into a second market without the authorization of the local owner of the intellectual property right. 32 Goods so imported are not per se illegal, rather, they are legal as long as parallel importation is allowed.33 The ability of a right-holder to exclude parallel importation legally from a particular market depends on the importing nations treatment of exhaustion of intellectual property rights.34 As discussed above, a regime of national exhaustion awards the right to prevent parallel imports, while one of international exhaustion makes such imports legal. It has been commonly observed that parallel imports benefit consumer interest. Therefore, though diluting the monopolistic effects of a product patent, it provides alternative supply channels and subjects the patentee to competition despite holding a product patent.35 Hence, it provides consumers with the benefits of competition such as price reduction, additional benefits, etc. Moreover, with developing countries and LDCs, pharmaceutical companies tend to follow a multiple-pricing regime in accordance with special and differential treatment which is embodied in the WTO Agreements36 or in order to penetrate markets with lower affordability at higher

32

Keith E. Maskus, Parallel Imports in Pharmaceuticals: Implications for Competition and Prices in Developing Countries, Final Report to World Intellectual Property Organization, available at http://www.wipo.int/aboutip/en/studies/pdf/ssa_maskus_pi.pdf (last visited 28-02-11).
33

Shamnad Basheer, Legality of Grey Market Goods in India, available http://spicyipindia.blogspot.com/2009/11/legality-of-grey-market-goods-in-india.html (last visited 28-02-11).
34 35

at

Maskus, supra note 32.

Avinash B Amarnath, A Study of Parallel Trade through the lens of Competition Law Lessons for India, Research Paper for the Competition Commission of India, available at http://www.cci.gov.in/images/media/ResearchReports/AvinashBAmarnath.pdf (last visited 28-02-11).
36

World Trade Organisation, Implementation of Special and Differential Treatment Provisions in WTO Agreements and Decisions, Committee on Trade and Development, WT/COMTD/W/77, 25 October 2000, pp 3-4. See, Richard L Bernal, Special and Differential Treatment for Small Developing Economies, in WTO AT THE MARGINS SMALL STATES AND THE MULTILATERAL TRADING SYSTEM 309 (Roman Grynberg ed., Cambridge University Press 2006).

14 prices or based on different costs of production in different territories.37 In such multiple-pricing regimes, drugs are available in LDCs at low prices and in developing and developed countries in higher prices.38 For instance, a drug patented in India may be priced by the patentee at Rs.300 per unit but at Rs.100 per unit in Bangladesh. If parallel imports are considered valid in India, such drugs from Bangladesh can be imported and made available in Indian markets at a lower price. In light these explanations; this paper in the next chapter examines the policy perspective of exhaustion regime that India should follow, the legal perspective justifying it and its compliance with TRIPs and other international legal obligations.

37

Mrinalini Kochupillai, CIPLA, LDCs and Parallel Importation: Interesting Times Ahead?, available at http://spicyipindia.blogspot.com/2008/04/cipla-ldcs-and-parallel-importation.html (last visited 28-02-11).
38

Maskus, supra note 32, p.22.

15

CHATPER IV PATENT EXHAUSTION DOCTRINE IN INDIA


Indian Legal Position Under Article 28 of TRIPs Agreement, the patent owner has the exclusive right to prevent others not only from making, using or selling the invented product or process in the country, but also importing from other countries. This is however subject to Article 6 on exhaustion. An important dimension of the new regime relating to the exhaustion of rights of the rights holder has been provided in Article 6 which provides that the WTO Dispute Settlement Mechanism will not entertain disputes regarding particular exhaustion doctrines followed by nations. It has been interpreted that this Article does not prohibit international exhaustion of rights and, therefore allows parallel imports to take place.39 What it basically means is that the patent holder in a country cannot legally stop imports of patented products offered for sale in another country. Such imports of patented products without the consent of the patent holder in the importing country are known as parallel imports. This is very important in the pharmaceutical industry because as has been discussed in the previous chapter, the same patented medicine is often sold at different prices in different countries and hence parallel imports permit a country to shop around for the lowest price. The underlying justification of allowing parallel imports is that since the innovator has been rewarded through the first sale of the product, its patent rights have been exhausted and hence it should have no say over the subsequent re-sale. Under Article 6 of TRIPS as clarified by the Doha Declaration,40 each country is free to establish its own regime for such exhaustion without challenge.Therefore, there is no international obligation to follow any particular exhaustion regime and the choice of patent exhaustion doctrine vests totally on the Indian policymakers. Hence, factors indicating the choice of Indian policymakers will follow in the rest of this chapter. Under the original Patents Act of 1970, importing was not mentioned as an exclusive right. This has been introduced by amendment of Section 48 to conform to TRIPs obligations. Although the terms parallel imports and exhaustion have not been expressly used in the Patents Act, these
39 40

Biswajit Dhar & KM Gopakumar, supra note 10. 5(d), Doha Ministerial Conference on TRIPS Agreement and Public Health, 2001 [the Doha Declaration].

16 terms find mention in the Statement of Objects and Reasons appended to the Patents (Second Amendment) Bill, 1999, which became the Patents (Amendment) Act, 2002.41 Moreover, Shri Jairam Ramesh, the Minister of State for Commerce and Industry, in the Debates in Rajya Sabha over the 2005 Amendment Bill of the Patents Act had stated that42 The short point that I want to make is that, on the issue of prices, on the issue of availability of patented medicine, on the issue of the ability of the Government to retain the right of ensuring that the patent is translated into a product, there are enough safeguards in the existing legislation both in the 1970 legislation, but more importantly in the revised Patents Act of 1970 reflecting the new provisions for compulsory licensing, reflecting the new provisions for parallel import particularly; and also reflecting the new provisions for enabling the Government to import; and use and distribute for its own use either through itself or through the third party. A press release from the Press Information Bureau43 which has been published in the official website of the Ministry for Commerce and Industry44 states in connection to Section 107A(b) of the Patents Act (as amended in 2005) that this has been amended to say that the foreign exporter need only be duly authorised under the law, thus making parallel imports easier. A parallel import is a mechanism that helps in price control. Moreover, the Notes on Clauses appended to the Bill provided in relevant part, Clause 51.- This clause seeks to insert a new section 107A in the Act, relating to certain acts which are not to be considered infringements. It is also proposed that the importation of patented products from the person who is duly authorized by the patent holder shall not constitute an infringement. This provision is proposed to ensure availability of the
41

The Patents (Second Amendment) Bill, 1999 (which eventually became the Patents (Amendment) Act, 2002) was introduced in the Parliament on 20th December, 1999. See http://rajyasabha.nic.in/journals/188/20121999.htm. Thereafter, a motion was passed and adopted by the Rajya Sabha on 21 December 1999 and by the Lok Sabha on 22 December, 1999 to refer the Bill to a Joint Committee of both Houses of Parliament. See http://www.parliamentofindia.nic.in/ls/bulletin2/01/D151101.htm. The Bill was placed before the Rajya Sabha for consideration on 9 May, 2002.
42

See debates in the Rajya Sabha, available at http://rajyasabha.nic.in/rsdebate/deb_ndx/204/23032005/3to4.htm (last visited 28-02-11).
43

Press Information Bureau is the nodal agency of the Government of India tasked with disseminating information on government policies, programme initiatives and achievements. See http://pib.nic.in/release/release.asp? relid=8096 (last visited 28-02-11).
44

The official website of the Ministry for Commerce http://commerce.nic.in/pressrelease/pressrelease_detail.asp?id=1633 (last visited 28-02-11).

and

Industry,

17 patented product in the Indian market at minimum international market price. Thus, it is clear that the legislative intent behind introducing and amending Section 107A(b) of the Indian Patents Act, 1970 is to allow for parallel imports and hence follow international exhaustion of patent rights. Section 107A(b) as introduced in the Patents Act as amended in 2002, read as This section provided that the .importation of patented products by any person from a person who is duly authorized by the patentee to sell or distribute the product, shall not be considered as an infringement of patent rights. This provision, however, was restrictive in scope, as parallel imports would be allowed according to this provision only on the choice of the patentee, which then makes parallel imports almost impossible. For instance, consider that the pharmaceutical manufacturer Roche having a patent over a particular drug in India. Roche also follows a multiple pricing regime wherein, the drug is available in Bangladesh at Rs.100/unit whereas in India it costs Rs.300/unit. According to this provision, for parallel imports, i.e. for importation of the drug from Bangladesh into India, the person should be authorized by Roche. Considering the business interests, it is highly unlikely for Roche to authorize such imports. Moreover, when the right to import lies exclusively with Roche, even without the presence of this provision, an authorization by Roche would be in the form of a licence which would allow for such parallel imports based on the patentees consent. Further, under Section 68 of the Patents Act, every licence needs to be in writing. Therefore, if a person purchases the drug in Bangladesh, despite the first sale, there wont be any authorization from the patentee and hence, importation into India from such a person will not be permissible,45 hence, defeating the very purpose of the amendment to bring about international exhaustion. This prompted the Indian Parliament to effectuate an amendment via the Patents (Amendment) Act, 200546 and provide that there would be no infringement if there has been an
45

Sonia Baldia, Exhaustion and Parallel Imports in India, in PARALLEL IMPORTS ed., Kluwer Law International 2004).
46

IN

ASIA 164-165 (Christopher Heath

This amendment was first introduced under the Patents (Amendment) Ordinance, 2004 promulgated by the President in order to meet the deadline of January 1, 2005 required by the TRIPS Agreement to introduce product patents. Section 107A(b) of the Ordinance provided that there would be no infringement if there has been an importation of patented products by any person from a person who is duly authorized under the law to produce and sell or distribute the product. This language was retained in the Patents (Amendment) Bill, 2005, which

18 importation of patented products by any person from a person who is duly authorized under the law to produce and sell or distribute the product. Hence, under the new provision, a person only needs to be authorized under the law to produce and sell or distribute the product to be a valid exporter for parallel imports. Thus, in the above example, once first sale happens in Bangladesh, an importation made by any person from a person who has the drug post first sale (and is hence, authorized under the law of the exporting country to produce and sell or distribute the product) will not amount to patent infringement. On the interpretation of the law under which authorization is required, it was observed in a Delhi High Court judgment in Strix v. Maharaja,47 that the term authorized under the law means authorized under the law of the exporting country. Hence, India follows international exhaustion of patent rights which is important in public interest with regard to pharmaceuticals. TRIPs Compatibility It may be noted that two of the three amendments of its Patents Act that India had undertaken were adopted in the backdrop of significant global developments. Growing concerns in developing countries regarding access to medicines at prices that their citizens could afford led to considerable confabulations amongst the WTO members. The outcome of this process was the Ministerial Declaration adopted at the conclusion of the Doha Ministerial Conference held in 2001 on TRIPS Agreement and Public Health [the Doha Declaration]. The Doha Declaration unequivocally stated at the outset that TRIPs Agreement does not and should not prevent Members from taking measures to protect public health. The Ministers further stated that 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. It was emphasized that the WTO Members have the right to use, to the full, the provisions in the TRIPS Agreement, which provide flexibility for this purpose. Two critical issues were particularly emphasized in the Doha Declaration. The first was that the provisions of the TRIPS Agreement should be read in the light of the object and purpose of the Agreement as expressed, in particular, in its objectives and principles.48
eventually became the Patents (Amendment) Act, 2005.
47 48

I.A. No.7441 of 2008 in C.S. (OS) No.1206 of 2008. Biswajit Dhar & KM Gopakumar, supra note 10, at 7.

19 The objectives of the Agreement on TRIPS provided in Article 7 states that the protection and enforcement of intellectual property rights should among other things be conducive to social and economic welfare, and to a balance of rights and obligations. Furthermore, Article 8 of the Agreement directs WTO Members to adopt measures necessary to protect public health and nutrition while formulating or amending their laws and regulations relating to intellectual property. Thus, Articles 7 and 8 of the TRIPS Agreement require that WTO Members must ensure that the laws relating to all forms of intellectual property rights covered by the Agreement give due consideration to issues like protection of public health and nutrition and do not merely serve the interests of the owners of intellectual property. Moreover, according to Articles 31 and 39 of the Vienna Convention on Law of Treaties, 1969, in interpretation of Treaties, preamble, objectives, preparatory materials, etc. need to be given due consideration and weight. Therefore, Articles 7 and 8 of TRIPs clearly indicate that the position in India with regard to exhaustion of patent rights and parallel imports are in compliance with the TRIPs obligations. Furthermore, TRIPs Agreement does not have an overriding effect on any other international legal obligations.49 India is a party to the International Covenant on Economic Social and Cultural Rights (ICESCR). Right to health and right to benefit of scientific progress and its application are bestowed upon citizens under Articles 12 and 15 of ICESCR, respectively. Hence, the Indian legal position as far as it enhances access to medicine, is in total compliance with International Law.

49

K.M. Gopakumar & Rajesh Ganu, supra note 12.

20

CHATPER V CONCLUSION
The paper observed the sea change brought about in the recognition and protection intellectual property on a global level by standardizing the minimum level of protection globally through TRIPs Agreement. While, the private rights of innovators have been given due recognition by imposing a compulsory product patent regime on pharmaceuticals and agro chemicals, the distinction between free trade and fair trade needs to be maintained and hence, access to medicines, especially life-saving drugs needs to be ensured by giving proper interpretation of the existing framework.50 A balance needs to be struck between consumer welfare laws and patent laws.51 Although patents protect the rights of the inventors and encourage innovation, there are certain ideas that should not be patented. Potentially life-saving technologies should be separated from other types of innovations, and money-making should not be the only incentive for drug discovery. For many countries, medical technologies are already under the category of unpatentable innovations.52 The rights of human beings to life-saving products, for instance, should come before property rights. On an international level, the WTOs TRIPs agreement marks the first step taken by the world community to accentuate as well as to solve the issue of intellectual property and human right to health care in developing countries. The incentive for the development of such technology should be measured by lives-saved instead of the money made. With the Medical Innovation Prize Fund,53 U.S. has invented one way to separate saving lives from commerce. Within the U.S, the new legislation will allow those who could not previously afford them to use them. This will hopefully lead to more legislation that will eventually become an international law that prevents monopoly on drug manufacturing and retail.
50

Inauguration Speech at the 2nd NLU Anti-Trust Moot Court Competition 2011 at National Law University, Jodhpur, delivered by I.P. Massey on 17-02-11 (on file with the author).
51

Eashan Ghosh, Competition Law and Intellectual Property Rights with Special Reference to the TRIPS Agreement, Research Paper for the Competition Commission of India, available at http://cci.gov.in/images/media/ResearchReports/EshanGhosh.pdf (last visited 28-02-11).
52 53

Xiaolu Wei, supra note 5. See http://www.cptech.org/ip/health/prizefund (last visited 28-02-11).

21 The number of people world-wide who have access to medicine is staggeringly low, and allowing patents on drugs, although increases the number of scientific advancements in lifesaving technologies, will decrease the number of people who have access to them. International efforts should focus on allocating monetary motivation to provide people to access drugs.

iv

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