United States: India´s New Patent Regime And Its Impact On The Global Pharmaceutical Industry

In early 2005 the Indian Parliament passed the latest amendments to the India Patents Act 1970. It was the third amendment to the Patents Act aimed at conforming India's patent laws to the requirements set forth by the World Trade Organisation's (WTO) Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). TRIPS sets down minimum standards for many forms of intellectual property protection that its member countries must provide. Notably the new amendments allow for product patent protection for pharmaceuticals.

It will take years to truly evaluate the full impact of India's new patent regime on the pharmaceutical industry. It is clear that it will change, and has already changed, the businesses of the indigenous generic pharmaceutical industry. With regards to foreign investment in pharmaceutical research and development, however, it is less clear whether the recent growth can be primarily attributed to the new patent regime, or whether it is more the result of lndia's low-cost, highly skilled scientific human resources. Indeed, many multinational pharmaceutical companies (MNCs) have not been entirely satisfied with some of the new laws and feel that several of the provisions still require further development. The new patent incentives in India are likely to be at least a significant factor in spurring foreign investment. If India did not respect pharmaceutical product patents at all, and if they were not even attempting to protect IP, it would be much less likely that MNCs would be investing in India to the degree they have been.

This article analyses specific provisions of India's new patent laws, potential ambiguities, their continuing development, and their current and potential impact on the global pharmaceutical industry.

Key Amendments To Indian Patent Laws


Pharmaceutical Substances Now Patentable


Under the former Patent Act, patents were not available for pharmaceutical products. Only processes to create these substances were protected, and even then for a limited period of time relative to other inventions. In accordance with its TRIPS obligations, one of the most important changes India had to make to its patent laws was making patents available for pharmaceutical products.1 During the 10-year transition period provided by the WTO for India to become TRIPS-compliant (1995 to 1 January 2005), India provided for so-called 'mailbox applications', which provided a way for patent applicants to file their applications immediately and receive a filing date.2 Such applications would be examined once the 10-year transition period expired or whenever the Patent Office could get to them in due course.3

Patentees, however, are prohibited from filing infringement suits on the patents that issue from these types of applications against those who had made 'significant investment and were producing and marketing the concerned product prior to the 1st day of January 2005'.4 The new law provides that in such a situation, the patentee is entitled to only a reasonable royalty.5 However, no specific interpretive guidance has been provided on determining what constitutes either a 'significant investment' or a reasonable royalty, and there is no clarifying precedent yet from India's High Court.6

Obviousness-Plus Standard


The exact language outlining 'inventive step' in the Indian patent law amendments reads as follows: '[A] feature of an invention that involves technical advance as compared to the existing knowledge or having economic significance or both and that makes the invention not obvious to a person skilled in art'.7

Although Indian courts had previously decided that inventive step in India was synonymous with non-obviousness, the new amendment to India's patent law seems to employ a 'nonobviousness-plus' standard requiring not only non-obviousness, but also 'technical advance as compared to the existing knowledge', or 'economic significance' or both.8

Limitations To Patentable Subject Matter; Section 3(d); Derivatives And New Uses Of Known Substances


India's new Patents Act prohibits patents on derivatives of known substances, unless such derivatives display significantly enhanced efficacy. Section 3(d) of the new Patents Act provides:

'The mere discovery of new form of a known substance which does not result in the enhancement of the known efficacy of that substance or the mere discover of any new property or new use for a known substance or the mere use of a known process, machine or apparatus unless such known process results in a new product or employs at least one new reactant.'

An explanation to the section elaborates that salts, esters, ethers, polymorphs, metabolites, pure form, particle size, isomers, mixtures of isomers, complexes, combinations and other derivatives of known substance shall be considered as the same substance unless 'they differ significantly in properties with regard to efficacy'.9

Thus, it seems that unless some increased level of effectiveness can be proven, a standard which is not yet entirely clear, only new chemical entities (NCEs) can be patented under this section. This type of provision finds no parallel in any other patent legislation in the world.10

The provision was intended as a legislative response to concerns of what has been termed 'ever-greening' of pharmaceutical patents.11 This refers to attempts by owners of pharmaceutical patents to prolong the effective life of a patent by obtaining related patents on different formulations, new uses of the drug, delivery systems, and the like.12 However, many pharmaceutical companies that invest in research, including Indian companies like Ranbaxy have argued that this provision will mostly harm Indian companies, because Indian companies are more likely to create so-called 'incremental' innovations, rather than NCEs, due to the high cost of developing NCEs.13

This provision has been controversial to say the least and litigation has already ensued over this provision.14

Limitations To Product Patent Protection


Opposition Proceedings

India's new patent regime provides for both post- and pre-grant opposition procedures. Pre-grant opposition may be based on virtually all patentability criteria that can be challenged, including the lack of novelty, inventive step, utility, non-eligible subject matter, the failure to disclose the source of biological material used for the invention, and inventions which are considered traditional knowledge.15 Many MNCs, however, feel that this procedure unduly lengthens the patent prosecution process and makes the outcome more unpredictable. On the other hand, Indian generic pharmaceutical manufacturers favoured retention of pre-grant opposition in the new Patents Act to prevent 'ever-greening' and unnecessary litigation, and thus far generics have strategically used the procedure frequently.16

Post-grant opposition is new to the Indian patent laws.17 The process of post-grant opposition begins with the filing of a notice of opposition within one year of the patent grant.18 The grounds for post-grant opposition are identical to those for pre-grant opposition, and allow another pre-litigation mechanism for patent invalidation.19

Compulsory Licences

India's provisions for the compulsory licensing of drugs have been considered relatively broad when compared to most of the world's patent systems.20 Mechanisms to apply for the grant of a compulsory licence include:

  • that the reasonable requirements of the public have not been satisfied;
  • that the invention is not available to the public at a reasonably affordable price;
  • that the invention is not worked in India;
  • when the Indian Government perceives a national health emergency at any time during the life of the patent for which the Indian public does not have adequate access; or
  • cases where a dominant patent blocks the use of an improvement patent, the owner of the improvement patent may apply for a compulsory licence.21
Viability Of The Amendments And Developments


Mashelkar Report

During the March 2005 debates of the 2005 Patent Amendments in the Indian Parliament, the issues regarding patentability of micro-organisms and the definition of 'pharmaceutical substance' were raised.22 The Commerce and Industry Minister referred these issues to a technical expert group (TEG) for detailed examination.23

The TEG issued its report in December 2006 and concluded that: (1) it would not be TRIPS-compliant to limit granting of patents for pharmaceutical substances to new chemical entities (NCEs) only; and (2) excluding micro-organisms per se from patent protection would be in violation of the TRIPS Agreement.24 With regards to NCEs, the report stressed that every effort must be made to provide drugs at affordable prices to the people of India and to prevent the grant of frivolous patents and 'ever-greening'.25 The TEG defined 'ever-greening' as 'an extension of a patent monopoly, achieved by executing trivial and insignificant changes to an already existing patented product'.26 'Ever-greening' was to be distinguished from 'incremental innovation', which was 'encouraged by the Indian patent regime', and defined as 'sequential developments that build on the original patented product'.27

In response to the report, public health groups voiced unease that the recommendations would encourage frivolous patents and threaten access to medicines.28 On the other hand, many of the MNCs found that the report vindicated many of their concerns. However, the report was later withdrawn amid accusations that it had been plagiarised.29 Another report is forthcoming.

Novartis's Challenge To Section 3(d)


Swiss pharmaceutical company Novartis AG filed a petition in the Madras High Court in August 2006, seeking a stay of the Patent Office's rejection under s3(d) of its patent application for its Glivec drug.30 Novartis also asked the Court to declare s3(d) unconstitutional and in breach of India's TRIPS obligations.31

The issues in this case were divided in two in April. 2007.32 The underlying question of the patentability of Glivec was referred to the Intellectual Property Appellate Board (IPAB), a specialised tribunal set up to hear appeals from decisions of the patent controller. The constitutionality and TRIPS issues remained with the Madras High Court.33 The Madras High Court ruled against Novartis holding that: (1) s3(d) is not unconstitutional; and (2) it did not have jurisdiction over the TRIPS issue, and the WTO would have to decide whether s3(d) is TRIPS-compliant.34 Novartis said that it did not agree with the ruling, but would be unlikely to appeal to the Supreme Court.35

It is still difficult to predict what the ruling's long-term effects will be. Novartis said in a statement that the case would 'have long-term negative consequences for research and development into better medicines'.36 On the other hand, the decision has precipitated a favourable reaction from India's generic pharmaceutical manufacturers and the world's public health community who feel that if the judgment had gone the other way, there would have been a dearth of affordable drugs in other nations.37 At the time of writing, however, the patentability and TRIPS-compliancy issues remain unresolved; thus, the case is far from over.

Impact On Pharmaceutical Research And Development In India

MNCs Outsourcing Pharmaceutical Research And Collaborating With Indian Pharmas And Contract Research Organisations

As the cost of drug research and development escalates, MNCs are looking to external alliances as a means for increasing the productivity of their R&D by reducing the actual cost of research, compressing the period of drug discovery and development, and pursuing more research options. Many of these MNCs are collaborating with Indian companies which offer a cost-effective drug discovery and development solution. In 2005 contract research in India was valued at $US100-120m and growing at a rate of 20-25% each year, according to a report by the Chemical Pharmaceutical Generic Association.38 An MNC outsourcing its R&D to India could save as much as 30-50% in total.39 Thus, it is no surprise that in a recent survey of 179 global pharmaceutical executives, 38% of the executives felt that doing business in India is extremely important to their overall business, and 62% expect India to be an integral part of their business five years from now.40

More than simple outsourcing arrangemnents, MNCs are increasingly involving Indian companies in drug development and the right to share in the profits. For example, contract research lab Advinus Therapeutics has partnered with Merck in a drug discovery and development collaboration to jointly develop drugs for metabolic disorders.41 If a drug is commercialised, Advinus could get as much as US$150m in milestone payments as well as royalties under the agreement.42

In January Nicholas Piramal entered into a new deal with Eli Lilly to develop and commercialise some of Lilly's pre-clinical drug candidates.43 Piramal will be responsible for the design and execution of the global clinical development programme, including investigational new drug application-enabling non-clinical studies and human clinical trials up until phase III, at which point Lilly will take the reins.44 In return, Piramal is set to receive payments and royalties on sales upon the successful launch of the first compound.45 In September 2006 Lilly also entered into an agreement to develop new drugs for central nervous system disorders with another Indian company, Suven Life Sciences.46

The collaborative climate in India appears to be so appealing that MNCs are forging drug development partnerships with Indian generic pharmaceutical companies. For example, earlier this year, GlaxoSmithKline (GSK) expanded a four-year-old partnership to develop new drugs with Ranbaxy.47 Interestingly, at the time of the agreement, the same two companies were locked in a legal dispute over GSK's anti-herpes drug Valtrex.48

Indian Pharma Investing In R&D


The landscape of much of India's generic pharmaceutical industry has changed in recent years in anticipation, and now implementation, of the 2005 Patent Amendments and the additional pharmaceutical patent protection they provide. In response, many of the Indian companies are bolstering their IP legal departments, and boosting research and development efforts. Investment by Indian pharmaceutical companies in innovation, although still below that of the larger MNCs, has been steadily increasing. While 10 years ago Indian companies invested only about 1% of their revenue on research and development, many of those companies are now contributing much more capital to this goal, typically spending 6-8% of their turnover on R&D.49

MNCs Investing Is R&D Facilities In India


MNCs had traditionally been hesitant to set up shop in India because of, among other things, the lack of patent protection.50 The strengthened patent protection now available under the new laws may be at least one factor in reversing the prior reticence.51 Indeed, the number of MNCs that have a research presence in India is growing. Within the last year, German pharmaceutical firm Altana and US biotechnology giant Amgen have set up research centres in India.52 Additionally, Pfizer, Novartis, GSK and AstraZeneca have all announced investments to ramp up activities for drug discovery and clinical research at their existing Indian centres.53

Conclusion

The landscape of India's pharmaceutical industry has changed, and will continue to change, due at least in part to the new patent law amendments. Of course, the effectiveness of these new laws will depend to a large degree on the interpretation of them and how efficiently they are applied by the Patent Office and enforced by the courts. Although the amendments have impacted the industry, and both Indian companies and the multinational corporations, it will be years before the full effects are realised.

Footnotes

1. India became a member of the WTO on 1 Jan 95; only pharma products invented after this date are patentable.

2. India Patents Act 1970 (1999) ss2-3.

3. http://law.bepress.com/pitt/wps/papers/art43

4. India Patents Act 1970 (2005) s11A.

5. Ibid.

6. Telephone interview with Manoj Pillal, partner, LexOrbis IP Prattice, New Delhi, India, 14 Mar 07.

7. India Patents Act 1970 (2005) s2(1).

8. Mueller, supra note 4, at 87.

9. India Patents Act 1970 (2005) s3(d).

10. Shamnad Basheer, India's Tryst with TRIPS: The Patent (Amendment) Act 2005, 1 Indian J L & Tech 15, 24 (2005).

11. Mueller, supra note 4, at 72.

12. Ibid.

13. www.iplaw360.com/Members/ViewArticlePortion.aspx?id=16793&ReturnUrl=%2fsecure%2fViewArticle.aspx%3fld%3d16793

14. See discussion infra at section ll.B.

15. India Patents Act 1970 (2005) ss25(1)(a-k).

16. For example, Torrent Pharma, Ranbaxy, Ajanta, Cipla, Hetero have all filed pre-grant oppositions against patent applications on brand name drugs.

17. See India Patents Act 1970 (2002) s25.

18. India Patents Act 1970 (2005) s25(2).

19. Ibid at ss25(2)(a-k).

20. Mueller, supra note 4, at 107.

21. Mueller, supra note 4, at 107-138.

22. RA Mashelkar, Report of the Technical Expert Group on Patent Law Issues, s1.1, Dec 06.

23. Ibid.

24. Ibid at ss5.16; 5.28 (emphasis in original).

25. Ibid at s5.16.

26. Ibid at s5.10.

27. Ibid.

28. www.hindu.com/2007/02/22/stories/2007022206751200.htm

29. http://timesofindia.indiatimes.com/NEWS/India/Mashelkar_takes_back_report_after_plagiarism_row/articleshow/1653926.cms

30. Novartis Moves Madras High Court on Gilvec Patent, The Financial Express, 17 Aug 06.

31. Ibid.

32. www.ip-watch.org/weblog/index.php?p=712&res=8008&print=0

33. Ibid.

34. www.ip-watch.org/weblog/index.php?p=582&res=1280&print=0

35. Ibid.

36. www.nytimes.com/2007/08/07/business/worldbusiness/07drug.html?ex=1187064000&en=3ecaa558b34ed0fa&ei=5123&partner=BREITBART

37. Ibid.

38. www.ibef.org/industry/pharmaceuticals.aspx

39. Ibid.

40. www.bain.com/bainweb/publications/in_the_news_detail.asp?id=24912&menu_url=for_the_media.asp

41. Businessworld Online, 8 Jan 07.

42. Ibid.

43. Lilly Signs India's Piramal, Red Herring, 12 Jan 07.

44. Ibid.

45. Ibid.

46. Ibid.

47. Wall St J, 21 Feb 07 at BSB.

48. www.forbes.com/feeds/ap/2007/07/26/ap3956733.html

49. Mueller, supra note 4,at 7 nn 11-12.

50. Ibid at 49.

51. Ibid at 50.

52. Indian Pharma Enters the Global Arena, Cell 128, 9 Mar 07, at 811.

53. Ibid.

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