India is considered by many to be the world’s pharmacy because it is a leading supplier of affordable drugs and enjoys an important position in the global pharmaceuticals sector.

India’s pharmaceutical industry supplies:

  • more than 50% of the global demand for various vaccines;
  • 40% of the United States’ demand for generic drugs; and
  • 25% of all medicine in the United Kingdom.

India’s domestic pharmaceutical market turnover reached Rs1,290 billion ($18.12 billion) in 2018, growing 9.4% year on year. With a 75% market share in terms of revenue, generic drugs form the largest segment of the Indian pharmaceutical sector.

Indian drugs are exported to more than 200 countries, with the United States as the key market. The country’s pharmaceutical exports rose by 11% to $19.2 billion in 2018 to 2019, driven mainly by higher demand in North America and Europe. Pharma exports in 2017 to 2018 amounted to $17.3 billion, with North America constituting about 30%, followed by Africa (19%) and the European Union (16%). India supplies 20% of global generic medicines in terms of volume, making the country the largest provider of generic medicines globally. More than 55% of the country’s exports go to highly regulated markets.

Under the 2019-2020 budget, Rs626.59 billion ($8.96 billion) has been allocated to the health sector – the highest sum in the past two financial years – out of which, Rs19 billion ($270 million) has been set aside for research.

Spending on medicine in India is projected to grow between 9% and 12% over the next five years, with India anticipated to become one of the top 10 countries in terms of medicine spending.

India’s generic companies received 304 abbreviated new drug application approvals from the US Food and Drug Administration in 2017. India accounts for around 30% (by volume) and about 10% (value) in the $70 billion to $80 billion US generics market.

Patented drugs amount to 9% of market revenue, pointing to the critical need for further research and development in the country, as the medicines covered by patents balance the overall market scenario and ensure that the quality of public health is enhanced, not compromised.

Origins of the Bolar exception

The grant of a patent for an invention confers on the patentee or patent owner, where the subject matter of the patent is a product, the exclusive right to prevent third parties which do not have permission from the act of making, using, offering for sale, selling or importing that product in a given country for a 20-year term from the date of fling the patent application in that country. However, once the term expires, the protected invention falls into the public domain and can be used by any third party for commercial purposes without the consent of the patentee or patent owner. Pharmaceutical products cannot be manufactured and marketed without the prior authorisation of the competent regulatory authority. The time taken for the grant of such approval may vary from country to country. If a producer of a generic or similar version is bound to wait until the final day of the patent term covering a pharmaceutical product, the patentee of expired patents will continue to enjoy a de facto additional period of monopoly, as long as a generic version of the product obtains marketing permission from the regulatory authority. The interface between the regulations for manufacturing and marketing approval of medicines and patent law justifies the need for what has been termed the ‘Bolar exception’.

The Bolar exception derives its origin in the US Federal Circuit decision Roche Products Inc v Bolar Pharmaceutical Co Inc (733 F2d 858, (1984)). The Federal Circuit held that the experimental use exemption to patent infringement narrowly provided under US law did not allow for testing undertaken by Bolar Pharmaceutical to obtain marketing approval of a generic product.

To overturn the decision, the Bolar exception was introduced by the US Drug Price Competition and Patent Term Restoration Act 1984 (commonly known as the ‘Hatch-Waxman Act’), which intended to strike a balance between the innovator and generic pharmaceutical producers (35 USC § 271(e)(1)):

It shall not be an act of infringement to make, use, offer to sell, or sell within the United States or import into the United States a patented invention (other than a new animal drug or veterinary biological product (as those terms are used in the Federal Food, Drug, and Cosmetic Act and the Act of March 4, 1913) which is primarily manufactured using recombinant DNA, recombinant RNA, hybridoma technology, or other processes involving site specific genetic manipulation techniques) solely for uses reasonably related to the development and submission of information under a Federal law which regulates the manufacture, use, or sale of drugs or veterinary biological products.

Subsequently, many countries (including the United Kingdom, Germany, France, Ireland, Poland, Canada, China, Singapore and India) incorporated equivalent Bolar exception provisions in their IP laws.

In India, the equivalent Bolar exception provision was introduced in the Patents Act 1970 by way of an amendment (Act 38, 2002, which was subsequently amended by Act 15, 2005):

107A Certain acts not to be considered as infringement. For the purposes of this Act

(a) any act of making, constructing, [using, selling or importing] a patented invention solely for uses reasonably related to the development and submission of information required under any law for the time being in force, in India, or in a country other than India, that regulates the manufacture, construction, [use, sale or import] of any product;

(b)… shall not be considered as an infringement of patent rights.

After entering into force, the provision became a tool in the hands of generic drug manufacturers as a blanket defence in cases of patent infringement. The issues pertaining to interpretation of equivalent Bolar exception provisions (ie, Section 107A(a)) were heavily agitated in the landmark case Bayer Corporation v Union Of India before the Delhi High Court (see boxout).

The judgment, while giving a wide interpretation to the term ‘sale’ in Section 107A(a) of the Patents Act, thereby allowing third parties to export the article or invention for the purposes of development of information in compliance with the reasonable requirements of developing countries, solely for purposes of research or development, took cognisance of the fact that the export of patented inventions can be potentially troublesome to the patent owner. Unregulated export activity can result in the exploitation of the Bolar exemption beyond what can be considered reasonable related to obtaining approval under the laws of India or another country, and there is no iron-clad rule or bright line as to what acts are reasonably related to the use or sale of the product, with the object of using the developed information to satisfy the regulations.

Accordingly, the court laid down certain onerous pre-conditions for the third party in the event that it would take a defence under Section 107A(a). In other words, the issue as to whether the export of the patented product by a third party is legitimately related to the reasonable end use or purpose of research for submission of information is now a triable issue which must be settled or adjudicated by the courts on the basis of evidence led by the parties. The burden of proof is now on the defendant to establish its defence under Section 107A(a).

The judgment comes as a respite to innovation-based companies as the onerous pre-conditions and obligations placed on generic companies will deter them from exporting drugs covered by patents under the pretext of Section 107A(a) and curb the spill-over effect in the foreign market.

Bayer Corporation v Union Of India: Issues and observations by the court

What is the ambit of Section 107A(a) of the Patents Act?

The course of the experimental exception, both before and after the [Agreement on Trade-Related Aspects of Intellectual Property Rights] TRIPs has shown the adoption, generally of a broad approach, to permit use of all kinds. Broadly, the courts’ approach has been not to enjoin or prohibit purely experimental or scientific activity, as long as it does not have any primary commercial undertones.

What does the legislative history of Section 107A(a) conclude?

These stages in the amendment of the act and the introduction of India’s Bolar exemption demonstrate that Parliament took a careful and nuanced view of the matter; it also had the benefit of provisions enacted in other countries, including the US and Canadian law.

What is the correct interpretation of the term ‘sale’ appearing in Section 107A(a) and does it encompass the term ‘export’?

  • Given these circumstances, this court is of the opinion that ‘exports’ is used in different contexts in Sections 84, 90 and 92A. Section 84 is the provision which enables compulsory licensing of certain conditions. Section 84(7) spells out what are reasonable requirements of the public. These are deemed not to have been satisfied if under Section 84(7)(a)(iii), a market for the patented article manufactured in India is not being supplied or developed. Section 90(1)(vii) is in a sense, complementary to Section 84 and has to be read with it: it guides the controller to ensure inter alia that the licence granted under Section 84(7)(a)(c)(iii) is with the predominant purpose of supply to the Indian market and that the licensee may also export the patented product.
  • Section 92A is a species of compulsory licence. The principles in one sense are even an exception to it. The provision dealing with compulsory licensing [Section 84] is concerned only with the availability of patented market, of reasonable terms for users in India. Therefore, the question of reasonable requirements of other countries does not arise and yet the Parliament, in keeping with TRIPs, (cognisant of the broad classification of nations as developed, developing and least-developed countries), envisioned Section 92A which enables licensing for export of patented pharmaceutical products in exceptional circumstances, i.e. whether the country concerned has insufficient or no manufacturing capacity in the pharmaceutical sector. Really speaking, this provision, i.e. Section 92A constitutes an exception to the general rule that compulsory licensing is only resorted primarily and predominantly to cater to the needs of the domestic market of the host country with regard also being had to export potential from that country.
  • Having regard to all these factors, it cannot be held that the Parliament intended to per se exclude ‘exports’ from the sweep and width of the term ‘sale’ in Section 107A regard being had to the disparate and differing objectives of Sections 84, 90 and 92A all of which in some way or the other primarily deal with compulsory licensing and on the other hand, Section 107A is the only provision that allows an exception to be used – construction and sale of a patented article only for research purposes and subject to fulfillment of the conditions specified therein.

Does Section 107A(a) constitute an exception to Section 48 of the Patents Act?

  • This court notices that Section 107A is not made subject to the other provisions of the Act – on the other hand, Section 48, which talks of the rights of a patent holder is subject to other provisions of the act that includes Section 107A. Furthermore, Bayer’s argument that Section 107A constitutes an exception, cannot be accepted. It is an independent provision with a specific history behind it and was subject to intensive Parliamentary debate and scrutiny by a Joint Committee Report. Furthermore, it was enacted in response to the TRIPs enabling provision to the member countries to evolve national legislation facilitating research and progress in fields covered by the patents. The judgments cited, all generally and invariably contended by Bayer, deal with provisos embodied in the main provision that constituted exceptions to the general rule. However, in this case, the court is not called upon to interpret the proviso to Section 48; nor even an exception. Bayer’s argument that Section 107A has to be read as subordinate to the main provision of Section 48 has to, therefore, fail.
  • The court is of the opinion that there is no question of treating Section 107A(a) as an exception to Section 48. Its history of interpretation by TRIPs, the discussion in the Parliamentary Joint Committee Report, all clearly point to its being a special provision that deals with the rights of the patented invention for research purposes.

Can exports be excluded from the term ‘sale’ as the patent rights granted under Section 48 are territorial in nature?

  • This court is of the opinion that the interpretation canvassed by Bayer is strained and artificial. Once it is held that patented inventions can be sold for the purpose of carrying on research which fulfils the regulatory requirements of India, there cannot be any bar or an interpretation narrowing the scope of such sale. What is important is the purpose of the sale, i.e. objective of carrying on experiment, research and developing information (in the form of reports, outcomes, etc). If the purpose of the sale is to ultimately exploit the patented invention and either work upon it or ‘work around’ or work it through research so as to be prepared to apply for the patent for approval to market it once the patent tenure ends, there can be no impairment of the patentee’s rights. The natural consequence of that sale cannot be curtailed by a contrived interpretation to say that it is only information that can be sold or exported, not the patented invention. Likewise, the reference of another country i.e., the export for reasonably complying with the laws of another country in relation to the kind of research and experimentation needed is something that cannot be dictated by interpretation of Indian law alone. It is plausible – even reasonable – that many nations may require experimentation or research to be carried on in their soil nationally so as to be able to supervise the process and then oversee the outcome. It is, therefore, not possible to dictate the behaviour and legal requirements of other nations by confining the research exception within the territory of India.
  • National regimes might well insist that such research and experimentation in regard to those aspects be either entirely or at least in part be carried on in their territory. In this context, therefore, it is held that the expressions – making, constructing, using, selling or importing patented articles solely for uses reasonably related to development and submission of information required under any law for the time being in force… or in a country other than India that regulates the manufacturing, construction, use, sale or import of any product, consequently, has to be given a wide import. It is, therefore, open that the sale of the article or invention for the purpose of development of information in compliance with the reasonable requirements of developing countries, solely for purposes of research or development falls within Section 107A(a).
  • In the case of sale, construction or use of the patented article, either within India or outside the territory of India, the question of such injury cannot ordinarily arise if the object or purpose of that transaction is solely to experiment or research and develop information that is reasonably related to the requirements of the law (Indian or overseas). If one considers this aspect, it is clear that the fullest effect ought to be given to the research exception embodied in Section 107A(a).
  • The court is of the opinion that the broad nature of the provision – which enables development and research of the product and information related thereto, on fulfilling the regulatory or other legal requirements of India, and other countries – cannot be construed narrowly as to permit development and research of the product only in India, even though the backup research is conducted elsewhere.

What are the obligations and pre-conditions that the third party must fulfil if it is taking benefit of Section 107A(a)?

This court is of the opinion that the inquiry and adjudication in such cases would be in regard to the following:

(1) The patent granted;

(2) The nature of the product or elements sought to be exported;

(3) The details of the party or party importing the product;

(4) The quantity sought to be exported;

(5) Other particulars with respect to the end use of the product, to establish that it is solely for research and development of information to regulatory authorities in the other country;

(6) All particulars regarding the relevant regulations, covering the kind and scope of inquiry, including the quantities of the product (i.e., the patented product or compound, API or fine chemical needed). These details must be supplied by the exporter/seller of the product to the overseas buyer. In case the defendant is not the seller, it should disclose who had purchased the product in the relevant quantities, to facilitate its impleadment in the proceedings. In the event it cannot do so, the consequences of such result ought to be considered by the court;

(7) If the regulations are in the language of that country, an authentic English translation to facilitate a speedy resolution;

(8) Appropriate interim order, including undertaking by way of affidavit to compensate the plaintiff, in the event the suit were to be decreed and the extent of such monetary compensation. The affidavit should be of an authorised personnel, and kept alive during the pendency of litigation, duly authenticated by the board of director or other controlling body of the defendant – and whenever the company or entity undergoes amalgamation or transfer, suitable undertaking from the successor organisation;

(9) If necessary, verification through the Indian mission (and its trade division) abroad regarding the authentication of the third party and/ or its facilities abroad;

(10) If it is held by the court that the exporter is not involved in sale or export of any patented product, but a generic article, unprotected by patent law, when denying relief, suitable restitution relief should be awarded to the defendants in monetary terms, to preclude litigation that prevents trade or competition.

The above aspects are merely indicative of the matters that need examination, they are in no way exhaustive and the court may consider any other matter relevant to the subject.

Sanjay Kumar

Perfexio Legal

This article first appeared in World Trademark Review. For further information please visit https://www.worldtrademarkreview.com/corporate/subscribe