The local working of patents is an important requirement in patent regimes all over the world – including India – as well as being a major source of contention. Section 83 of the Patents Act 1970 establishes the general principles regarding the working of patented inventions in India. Section 83 states that the grant of patents is not solely intended to enable patentees to enjoy a monopoly on the import of patented articles. The goal of granting a monopoly to patentees is to encourage invention and ensure that patented inventions are worked in India on a commercial scale and to the fullest extent reasonably practical without undue delay. In return for a 20-year monopoly over the patented invention for the rights holder, the patent rights should serve to promote technological innovation and enable the dissemination of technology to the advantage of producers and consumers, in a manner that is conducive to their social and economic welfare. Section 83 also requires that granted patents not impede the protection of public health and nutrition, but rather act as an instrument to promote the public interest; hence, patented inventions must be available to the public at reasonably affordable prices.

Patentees are thus obliged to work their patented inventions in India for social and economic welfare in return for their 20-year monopolies.

TRIPs versus working requirements in India

As a member of the World Trade Organisation (WTO) and a signatory to the General Agreement on Tariff and Trade, India has committed to comply with the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs). TRIPs is the most important multilateral agreement on IP rights.

The ‘working’ requirement of a patented invention has been a bone of contention among WTO member states for some time. The dispute has arisen mostly because ‘failure to work’ a patented invention in the territory of the issuing country is a ground for compulsory licensing. In view of this issue, it is important to understand the WTO provisions on local working of patents and how the Indian patent working requirement complies with TRIPs.

TRIPs provides no specific obligations regarding the working of patents. However, Articles 27 to 31 can be interpreted in terms of local working of patents. Article 27(1) establishes the legal framework for patentability, providing that patents must be available for all types of invention – whether products or processes – in all fields of technology, provided that they:

  • are new;
  • involve an inventive step; and
  • are capable of industrial application.

Article 27(1) further provides that patents must be available – and patent rights enjoyable – without discrimination regarding:

  • the place of invention or field of technology; or
  • whether products are imported or locally produced.

However, this provision is silent regarding the working of patents. Developed countries have argued in various WTO disputes that the local patent working requirement contravenes Article 27 of TRIPs. However, developing countries have argued that Article 27 should be read in the context of Articles 30 and 31, which provide an exception to it.

Developing nations also derive support from Article 5A of the Paris Convention for the Protection of Industrial Property, according to which each member state may take legislative measures providing for the grant of compulsory licences to prevent the abuses which might result from the exclusive rights conferred by the patent, such as failure to work. Developing nations argue that since Article 5A of the Paris Convention is incorporated into Article 2.1 of TRIPs, WTO member states must comply with its requirements. Indeed, Article 2.2 of TRIPs provides that member states should not derogate from their obligations under:

  • the Paris Convention;
  • the Berne Convention for the Protection of Literary and Artistic Works;
  • the Rome Convention for the Protection of Performers, Producers of Phonograms and Broadcasting Organisations; and
  • the Treaty on Intellectual Property in Respect of Integrated Circuits.

Section 146 of the Patents Act, which requires the working of patents, has existed since the act’s promulgation in 1970, before India signed TRIPs. The Patents Act has since been occasionally amended in order to bring it into line with TRIPs.

Therefore, in view of Article 5A of the Paris Convention and Articles 2.1, 2.2, 27, 30 and 31 of TRIPs, it can be interpreted that the local working of patents is well within the scope of TRIPs. However, there has been no clarification in this regard from the WTO.

Working statement: statutory provisions

Section 146 of the Patents Act empowers the controller general of patents, designs and trademarks to call for information from a patentee or licensee. Accordingly, at any point during the life of the patent, the controller general may – by way of notice or in writing – require a patentee or licensee, exclusive or otherwise, to furnish information or periodical statements regarding the extent to which the patented invention has been commercially worked in India. This must be provided within two months of the date of notification or within the time allowed by the controller general. Section 146(2), read with Rule 131, requires every patentee and licensee to submit to the controller general an annual statement of commercial working of the invention within three months of the end of each calendar year (ie, by March 31).

The working statement is made in a fixed form, Form 27, and must include the following information:

  • whether the patented invention has been worked, and:
    • if not, the reasons why not and the steps being taken to work the invention; or
    • if so, the quantum and value (in rupees) of the patented product manufactured in India and imported from other countries, along with the details of each country;
  • details of all licences and sub-licences granted during the year; and
  • whether the requirement to promote the public interest has been met partially, adequately or to the fullest extent possible at a reasonable price.

Section 83 of the Patents Act aims to ensure the local working of patents and avoid the misuse of patent rights by the mere import of patented products. However, Form 27 requires the quantum and value of a patented product imported from other countries and their details to be specified. If the import of a patented product is considered sufficient to meet the working requirement, this interpretation seems to contradict the general principles laid down under Section 83.

In Bayer Corporation v Union of India the Bombay High Court held that the manufacture of a product in India is not a necessary precondition for the patent to be worked in India. However, the patent holder must establish why it is impossible to manufacture the patented product in India – particularly if it has manufacturing facilities in the country.

Consequences of non-compliance

Section 122 of the Patents Act establishes the penalties for non-compliance with Section 146 and Rule 131. Failure to submit a Form-27 working statement is punishable by a fine of up to Rs1 million (approximately $15,000). Further, the submission of false information regarding the working of an invention is punishable by imprisonment for up to six months or a fine, or both.

Role of working statement in compulsory licensing and patent revocation

The Indian Patent Office (IPO) takes the requirements of Section 83 of the Patents Act seriously. Form 27 working statements play a major role, since non-working of a patented invention is a ground for issuance of compulsory licences and revocation of patents. Therefore, the requirement to file Form 27 working statements requires diligent compliance.

The role of working statements in India can be demonstrated by considering two groundbreaking compulsory licensing cases: Bayer Corporation v Union of India and AstraZeneca v Lee Pharma.

Bayer Corporation

India’s first compulsory licence was issued by the IPO for Bayer’s patented anti-cancer drug Nexavar (sorafenib tosylate) (IN 215758) on the grounds that Nexavar was unreasonably highly priced at Rs280,000 for a month’s supply of 120 tablets (approximately $4,200) and available to only 2% of the population. The compulsory licence was granted to Natco Pharma Ltd, a generic Indian company which sold the generic version of Nexavar at the much lower price of Rs8,800 (approximately $132).

In its application for a compulsory licence, Natco relied on the working statement filed by Bayer after grant of its patent in 2008. Natco demonstrated to the controller general that:

  • the working statements submitted by Bayer for 2008 to 2011 were incomplete and had many discrepancies; and
  • Bayer filed no Form 27 working statement in 2008, despite the patent having been granted that year.

The controller general held that:

  • the 2009 Form 27 provided no logical information regarding sales of Nexavar in India; and
  • the 2009 and 2010 Form 27s together revealed that Bayer had made an insignificant quantum of the drug available to the public in two years.

The controller general also noted that Bayer’s figure for cancer patients’ annual requirement of the drug (27,000 boxes per year) varied significantly from that submitted by Natco (70,000 boxes per year). The controller noted that in 2008 Bayer did not import the drug at all, while in 2009 and 2010 it imported the drug only in small quantities. These quantities appeared prima facie to be grossly inadequate. Therefore, the controller general held that Bayer had not satisfied the reasonable requirements with respect to a patented invention under Section 84(1) – an important prerequisite for the grant of a compulsory licence.

This case serves as a cautionary lesson for applicants seeking patents in India, demonstrating that it is advisable to take the Indian patent working requirement seriously.

AstraZeneca

The IPO granted Bristol Myers Squibb (BMS) a patent (IN206543) for the compound Saxagliptin on April 30 2007. Saxagliptin is a drug prescribed for the treatment of Type 2 diabetes mellitus (DM). BMS transferred its rights in the patent to AstraZeneca AB. Lee Pharma applied for a compulsory licence under Section 84(1) of the Patents Act on June 29 2015. The controller general rejected Lee Pharma’s compulsory licence application for Saxagliptin on the ground that Lee Pharma failed to make a prima facie case.

Lee Pharma had submitted that nearly 60.1 million people in India suffer from Type 2 DM and if only 1 million of them were prescribed Saxagliptin, the total number of tablets required would be 365 million tablets per year. Lee Pharma relied on the annual working statement submitted by AstraZeneca to prove that AstraZeneca had failed to work its invention. As per the annual working statement submitted by AstraZeneca, the total number of tablets imported to India in 2013 was 823,855, which was about 0.23% of the total number of tablets allegedly required. Hence, Lee Pharma contended that the reasonable requirements with respect to patented inventions under Section 84(1) had not been satisfied by AstraZeneca.

Lee Pharma also used the working statement provided by AstraZeneca to prove that the working of Saxagliptin in India was hindered by that fact that AstraZeneca imported the drug. Based on AstraZeneca’s working statement, Lee Pharma submitted that, even eight years after the date of grant, AstraZeneca had not taken adequate steps to manufacture Saxagliptin in India (and thus make full use of the invention in India to an adequate extent, as reasonably practical).

However, the controller general rejected Lee Pharma’s arguments and emphasised the precedent set by the Bombay High Court in Bayer Corporation regarding manufacture in India. Hence, the controller general held that no case had been made in terms of the third requirement for a compulsory licence under Section 84(1)(c).

Although Lee Pharma’s argument lacked merit and was rejected by the controller general, this case shows how opponents can use patentees’ working statements as a tool against them in seeking a compulsory licence.

Conclusion

In view of the groundbreaking IPO decisions in Bayer Corporation and AstraZeneca, it is important that patentees consistently furnish all information required regarding the working of a patented invention, as mandated by Section 146 of the Patents Act. Form 27 disclosures should be taken seriously by patentees that wish to avoid the consequences of failure to work a patented invention in India.

Rahul Chaudhry

This article first appeared in IAM. For further information please visit www.iam-media.com.