A Changing Regime - India´s Tryst with January 1, 2005

The patent regime in India is due for a seismic change on January 1, 2005. When India became a member of WTO and a signatory to TRIPS with effect from January 1, 1995 it was given five years as a developing country, to change its laws to comply with TRIPS. This period was later extended by five years and now comes to end on January 1, 2005.

TRIPS inter alia, required grant of process as well as product patent in all fields of technology, for a period of twenty years from the date of filing of the application. The (Indian) Patent Act, 1970 did not permit product patent for food, medicine/drugs and substances produced by chemical processes. For these, only a process patent was granted, for a period of seven years while for the rest, the term of the patent was fourteen years.

In line with TRIPS requirements, the first amendment to the Patent Act in March 1999 put in place a mailbox system, to receive applications for grant of product patent for food, medicines/drugs and chemicals, to be examined after December 31, 2004. Provisions were also made to grant Exclusive Marketing Right¹ ('EMR') in these areas to applicants to tide over the transition period. The Patent Act was again amended in May 2003, to increase the term of patents to twenty years but one of the most crucial changes - product patent in all fields of technology, still remained unaddressed.

Last year, the Department of Industrial Policy and Promotion drafted the Patent (Amendment) Bill, 2003 which was put on hold due to the parliamentary elections in May, this year.

The Bill inter alia provided for the following:

1. Introduction of product patent in all fields of technology as per article 27² of the TRIPS agreement;

2. Deletion of the provisions relating to EMRs and introduction of a transitional provision for safeguarding EMRs already granted³;

3. Introduction of a provision for enabling grant of compulsory license for export of medicines to countries which have insufficient or no manufacturing capacity to meet emergent public health situations⁴;

4. Amendment and strengthening of the provisions relating to national security;

5. Amendment of the provision relating to opposition procedures.

After certain modifications by the new Government, the Bill was referred to a Group of Ministers⁵ to study the implications of its more controversial provisions. The Indian pharma industry has made a strong representation to the GoM to change the following provisions of the Patent Act / Bill:

1. Amendment of section 3 of the Patent Act which deals with inventions not patentable - to exclude from patentibility new forms of previously patented compounds so that marginal changes or improvements which merely promote evergreening of patents are not allowed. The Bill does qualify the words 'new use' in section 3(d) of the Act⁶ with "mere new use". The GoM is reportedly not in favour of allowing the generics to be sold in the market once the product patent is granted. The domestic companies manufacturing the generic versions of drugs for which product patent applications are pending in the mailbox, have offered to pay a royalty of 25% of their profits to the applicants, once the patent is granted, to be allowed to continue selling their products;

2. Change in clause 23 of the Bill, which seeks to replace the existing pre-grant opposition system with a post-grant system. Section 25 of the Patent Act gives an interested party five months (four months + one month extension) from the date of advertisement of the acceptance of the complete specification, to initiate opposition proceedings. The Bill provides for grant of patent to all applications, which are found acceptable by the Examiners. The patent can be challenged within one year of the grant on the same grounds, which are available under the existing Act. While this may speed up the process, clear the backlog and put an end to use of opposition procedure as a delaying tactics, the pharma industry has urged the Government to retain the pre grant system to ensure that fraudulent, unlawful and frivolous patents are not granted, even by mistake. There are indications that the GoM is considering retaining the pre grant opposition system and further, to make it mandatory for the Controller of Patents to give a speaking order while disposing off a pre-grant representation.

3. The Bill introduces a new section in the Act - section 92A which provides for grant of compulsory license to manufacture and export patented pharmaceutical product to a country which has insufficient or no manufacturing capacity in respect of that particular product, if the applicant has obtained a compulsory license in that country. The proposed amendment gives the Controller of Patents, the power to grant compulsory license on such terms and conditions, as he deems fit. The efficacy of this system is doubtful as the conditions for importation of the patented product to a country which has acute need of it and the terms on which the product can be exported by the country which manufactures it, are quite complex and difficult to fulfil⁷. Besides, there is a likelihood of patent protection not being available if the pharmaceutical product is exported to a least developed country⁸.

4. The Government has retained discretion to grant compulsory license⁹ dealt with in Chapter XVI of the Patent Act. This is considered by the MNCs to be considerably beyond what is permitted under TRIPS while the generic drug industry feels that too many concessions have already been made. Despite the heated debate, the foreign pharmaceutical companies have little cause for concern. There are a number of imported drugs in the market without generic equivalents for which compulsory licenses have not been granted.

5. Data exclusivity¹⁰ has not been addressed in the Bill. The Government has taken the stance that there is no obligation under TRIPS to include provisions for data protection since Article 39.3 of the TRIPS¹¹ only requires protection of test data against unfair commercial use. However a 14-member inter-ministerial committee has been set up to study the existing legal framework including the Drugs and Cosmetic Act, 1940 to provide for data protection and is expected to present its report soon.

Other salient features of the Bill are:

1. Permitting patenting of embedded software and software combined with hardware although software by itself remains unpatentable. This has been welcomed by the Indian software industry, which is planning a foray in the embedded software and mobile computing market.

2. Mandatory disclosure of origin of materials likes plants, animals, and microorganisms for patenting of inventions, which use such material or associated knowledge¹². Absence of such disclosure has been made a ground for rejection, opposition and revocation of the patent / application¹³.

The GoM is expected to finalize its report by the end of this month. The Bill will then be tabled before the Parliament when it meets for its winter session in December.

3. The Indian Pharma Industry

The Indian pharmaceutical industry¹⁴ is presently undergoing a paradigm shift. Where previously the focus was reverse engineering and generics, the industry must now concentrate on development of new chemical entities, which means a huge investment in R & D, both in terms of time and money. The industry experts have also identified certain other areas for development like herbal drugs, contract research and clinical research. With a rich bio diversity that includes 45,000 species of plants, out of which 20,000 plants have proven medicinal value, India has a good chance of capturing a portion of the $ 65 billion global herbal industry.

Some of the Indian companies are already exploring new markets:

• France has emerged as one of the most attractive countries for acquisition of companies. Earlier this year, Ranbaxy one of the foremost Indian companies, acquired RPG (Aventis) SA, France. Zydus Cadila already has a French subsidiary Zydus France SA, which is launching 43 generics in the French market this year and will launch 45 more by 2006. Other Indian companies like Wockhardt, Unichem and Sun Pharma are in talks for acquisition / alliance with several French companies.

• Most Indian companies have a presence in US. Zydus Cadila has recently set up its second company in USA - Zydus Pharmaceuticals USA Inc. In 2002, it had set up Zydus Healthcare LLC, which sells Active Pharmaceutical Ingredients (API). Wockhardt Ltd. has also recently set up its subsidiary in US- Wockhardt USA Inc for sales and marketing. The generic market in US is likely to see some action as more than 500 drug patents are expiring in the next two years. Several Indian companies are taking advantage of this opportunity by filing or planning to file Abbreviated New Drug Applications.

• Dr. Reddy's the biggest Indian company in terms of R & D investment has a presence in 50 countries including Russia, CIS Countries, Latin America, Africa and China.

• Ranbaxy has recently launched its first branded prescription tablet - Visclair in UK.

• Recently, Mumbai based Gelnmark Pharmaceuticals entered into a USD 190 million deal with New York based Forest Labs Inc. for development of a drug molecule identified by Glenmark researchers for treating breathing disorders. Earlier this year, Glenmark's wholly owned subsidiary in USA entered into a license agreement with KV Pharmaceutical Company for marketing of eight generic products in USA.

Once the product patent regime is in place, several multinational pharmaceuticals are also expected to enter the Indian market including US based Ivax Corporation, Merck & Co, Israel based Taro Pharmaceuticals. Those already in India are planning expansions:

• Germany's Hexal AG has a liaison office in India and is building a formulation plant in Bangalore from where products will be exported to Hexal's subsidiaries all over the world;

• Bayer A.G. has identified India as its global outsourcing hub for basic as well as specialty chemicals. It is also looking for Indian partners to develop joint research and explore other initiatives.

• Pfizer has doubled its R & D expenditure in India;

• Roche, Aventis and Chiron have decided to make India their regional hub for active pharmaceutical ingredients and supplies of drugs apart from outsourcing clinical research;

• Novartis, Astra Zeneca, Eli Lily and GlaxoSmithKline have also decided to make India their regional hub for clinical research.

• Merck & Co is planning to set up its Indian subsidiary by early 2005. Initially products will be imported from its parent company but it is expected that the company may later outsource the manufacturing services to India.

Almost 15% of the medicines marketed in India, which represent approximately USD 650 million, will come within the ambit of the product patent regime. The prices of the drugs are likely to soar and a sharp increase in patent litigation is expected but with new opportunities knocking at the door, the Indian drug industry continues to be optimistic.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.