The intellectual property system is based on the utilitarian principle that it promotes the progress of science and useful arts.1 Patent is the strongest right in the intellectual property system as it gives an exclusive right to make, sell or use the subject matter of the Patent through its term of protection. Patent means open and is derived from the term "Letters Patent"2, which simply means open letters. These were the official documents which granted certain privileges, rights, ranks or titles to the holder of the document.3 Patents were originally granted to promote transfer of technology, especially the domestic application of foreign technologies and dissemination of new technologies in the country granting patent. Local Working requirement and Compulsory licenses enable the Countries granting patent to force foreign patentees to transfer technology in these countries.
The actual growth of science and technology in a country depends upon the working of the patents rather than on the number of patents granted in such a country. This article deals with the issue of whether the importation of patented product would satisfy the local working requirement, especially in light of TRIPS, Paris Convention and (Indian) Patent Act, 1970. This article also seeks to highlight features of India's legal requirements with regard to the local working of patents, particularly in the context of notification dated December 24, 2009, issued by the Controller General of Patents, Designs and Trademarks of India wherein it is mandatory for all the Patentees or licensees of a granted Patent to submit the information (as required under Form 27), regarding local working of the patent in India.4
Definition of Local Requirement
"Local working" is also known as commercial working of patent in a country. It refers to the condition imposed on patentees or licensees that the patented product or process must be used or produced in the patent granting country. This condition has the effect of forcing foreign patentees to situate production facilities within the patent granting country.
Trade-Related Aspects of Intellectual Property Rights
Article 27 (1) of the TRIPS states that the patents shall be available and patent rights enjoyable without any discrimination as to the place of invention, the field of technology and whether products are imported or locally produced.5 It is argued that Article 27 (1) of the TRIPS precludes the member countries from making any laws mandating the local working of the patents. However, I am of the opinion that the Article 27 (1) cannot be interpreted to mean that working requirements can be fully satisfied by importation alone.
It is important to read Article 27 (1) of the TRIPS with Articles 2, 7, 8 and 30 of the TRIPS to understand the full purport of the TRIPS agreement. Article 7 of the TRIPS sets out the objectives of the TRIPS agreement, stating that the protection and enforcement of intellectual property rights should result in the promotion of technological innovation and technology transfer.6 It further states that such technology transfer and dissemination should be for the mutual advantage of producers and users in a manner beneficial to their social and economic welfare, and should create a balance of rights and obligations. It is clear that Article 7 recognises both the private interest of the Patent holder and public interest in transfer or dissemination of technology and creation of balance of rights and obligations.
Article 8 (1) of the TRIPS allow member countries to adopt measures necessary to promote the public interest in sectors of vital importance to their socio-economic and technological development. Similarly, Article 8 (2) of the TRIPS provides member countries to adopt measures that prevent the abuse of intellectual property rights by right holders or the resort to practices which unreasonably restrain trade or adversely affect the international transfer of technology.7 TRIPS also provides for exceptions to exclusive rights under Article 30 of the TRIPS Agreement, that allows member states to provide limited exceptions to exclusive rights conferred by patents.8 However, such exceptions should not unreasonably conflict with a normal exploitation of the patent and should not unreasonably prejudice the legitimate interests of the patent owner, taking account of the legitimate interests of third parties.
From the above, it is clear that Article 7, 8 and 30 of the TRIPS restrict the operation of Article 27 (1) of the TRIPS. However, in order to clear any ambiguity towards the interpretation of Article 27 (1) of the TRIPS, Article 2 of the TRIPS becomes imperative as it makes Paris convention as part of TRIPS9 and provides for compliance of Paris Convention with respect to all member states. It is important that interpretations of articles in the Paris Convention should be used to clarify any ambiguities that exist in TRIPS articles regarding similar subject matter.
Paris Convention for the Protection of Industrial Property, 1883
The Paris Convention, signed in Paris, France, on March 20, 1883, was one of the first intellectual property treaties.10 Article 5(A) of the Paris Convention deals with the working of patent and grant of compulsory licenses. It provides that importation of the patented articles should not result in forfeiture of the patent. This provision is similar to Article 27 (1) of the TRIPS agreement providing for import of patented products.
Article 5(A) (2) provides that each country of the Union shall have the right to take legislative measures providing for the grant of compulsory licenses to prevent the abuses which might result from the exercise of the exclusive rights conferred by the patent, for example, failure to work. Article 8 of the TRIPS also talks about the abuse of intellectual property rights by right holders or the resort to practices which unreasonably restrain trade or adversely affect the international transfer of technology.
However, Article 5(A) further provides that the Convention Countries have the right to make laws providing for the grant of compulsory licenses in case of non-working of a patent. It is important to note that the Paris Convention clearly stipulates that a patent cannot be revoked unless the grant of compulsory licenses was not sufficient to work the patent, whereby making the grant of compulsory license as a precondition to the revocation of patent on grounds of non-working. Article 5(A) (3) of the Paris Convention also states that no proceedings for the forfeiture or revocation of a patent may be instituted before the expiration of two years from the grant of the first compulsory license.
Article 5(A) (4) of the Paris Convention states that a compulsory license may not be applied for on the ground of failure to work or insufficient working before the expiration of a period of 4 years from the date of filing of the patent application or 3 years from the date of the grant of the patent, whichever period expires last. It further provides that such an application shall be refused if the patentee justifies his inaction by legitimate reasons.
It is fair to conclude that the legislation requiring local working of patents would not be in contravention of TRIPS in light of articles 7, 8 and 30 and explicit reference of Paris Convention under Article 2 of TRIPS. However, this should not mean that working requirement can only be satisfied by local production only; the importing of the patented subject matter would have to be allowed.
Local working of patents under the Patent Act, 1970
Indian Patent Act, 1970 is TRIPS complaint and has used the flexibilities under the TRIPS agreement with respect to provisions relating to local working requirement of the Patent. The Act imposes an obligation on the patentee and patent licensees to disclose information relating to the working of their patents in India.
The Controller General of Patents has by notification dated December 24, 2009, made it mandatory for all the Patentees or Patent licensees to submit the information regarding commercial working of the patent in India. It is pertinent to note that this requirement of submission of information about commercial working of patent under Section 146 is not new, but is only insisted now by the Controller General of patents. This information was sought by the Controller General under Section 146 of Indian Patents Act. The information was to be submitted in the Indian Patent Office by 31st of March 2010. The Controller General of Patents has also warned that any failure to comply with the order will attract punishment.
Section 146(1) of Indian Patents Act provides that the Controller has the power to call for information or periodical statement as to the extent to which the patented invention has been commercially worked in India from a patentee or patent licensees. The patentee or the patent licensees is required to furnish such information to the Controller within two months from the date of such notice or such further period as the Controller may allow.
Further, Section 146(2) of the Act and Rule 131(2) of The Patent Rules 2003 provide that every patentee and patent licensee should furnish the details of working of the patented invention in Form 27 in respect of every calendar year within three months of the end of each year. A patentee or patent licensee can file such information for a given calendar year latest by 31 March of the following year. The following information is required to be submitted under Form-27:
- whether the invention has been worked;
- if not worked, the reasons for not working the invention, and the steps being taken to work the invention;
- if worked, quantum and value (in rupees) of the patented product:
- manufactured in India,
- imported from other countries, giving details of the countries concerned;
- licenses and sub-licenses granted during the year;
- Whether the public requirement has been met, at a reasonable price either partly, adequately or to the fullest extent.
It is interesting to note that even if the patent is commercially not worked in India, the patentee or patent licensee needs to explain the reasons for not working and steps being taken for working of the invention. Similarly, in case of importation of patented products, the country wise details should be given from where it is being imported.
The Patent Act has also provided for punitive actions for non compliance like not filling the form-27 or providing false information. Section 122 (1) of Indian Patents Act provides a fine of rupees ten lakh (Rupees one million), if any person refuses or fails to furnish the information under Form-27. Further, Section 122(2) has stricter provisions for false information. Section 122(2) provides that if any person furnishes information or statement which is false, and which he either knows or has reason to believe to be false or does not believe to be true, he shall be punishable with imprisonment which may extend to six months, or with fine, or with both.
The information sought under Section 146 is to keep the Controller General updated about the commercial status of a patent. Non-working of a patent is one of the core grounds for seeking the grant of a compulsory license under India's patent law. The availability of such data could potentially open up opportunities for interested parties that may seek the grant of compulsory licenses on account of non-working of patents, especially in sensitive areas like public health or national emergency. It also brings transparency in the working of patents in India.
Confidentiality of the information supplied to the patent office
Section 146(3) read with Rule 131(3) provide that the Controller may publish the information received by him under Form-27. This assumes significance as the information submitted is of the sensitive nature like the quantum and value of the patented product, country of import, number of licensees, etc. and it has been argued that such information should remain confidential. However, the Act does not provide the extent to which such information may be published.
Compulsory license and Revocation:
Compulsory licensing allows a government to license to a company, government agency or other party, the right to use a patent without the titleholder's consent. A competent authority must grant the license to a designated person or company who is expected to compensate the titleholder by paying a determined remuneration. Different countries have adopted different standards from the grant of compulsory licenses. However, one of the most important uses of compulsory licenses is as a remedy for patent-holder abuses such as "non-working," or "artificially created high prices" or "exclusive grant back".
Section 84 (1) of the Patent Act, 1970 allows any interested person after expiry of 3 years from grant of patent, even though if he is a license under the patent, to make an application to the Controller for grant of compulsory license on patent on grounds, including "that the patented invention is not worked in the territory of India". If the requirements specified under Section 84(1) were not fulfilled, the Controller may grant a compulsory license to any interested person for non-working of patent in India.
However, Section 84 (6) provides that the Controller shall take into account several factors like the nature of the invention, time elapsed, the measures taken by the patentee or patent licensee to use the invention, the ability and capacity of the applicant to work the invention to the public advantage, and the efforts made by the applicant in obtaining a voluntary license on reasonable terms from the patentee, while deciding such an application for compulsory license. While granting a compulsory license reasonable royalty is also paid to the patentee having regard to nature of Invention, its utility, expenses incurred in maintaining patent grant in India and other factors. However, in cases of national emergency, extreme urgency, public non-commercial use or anti-competitive practices, these should not be applicable.
Section 84 (1) of the Patent Act, 1970 enlists the various circumstances, which constitute "failure to meet the reasonable requirements'', of public in respect of a patent:
- Failure to grant license or licenses on reasonable terms
- Prejudice to an existing trade or industry or its development, or to establishment of any new trade or industry in India, or to the trade or industry of any person or class of persons trading or manufacturing in India, or
- Demand for the patented article not being met adequately or reasonably, or
- Failure to supply to or develop an export market for the patented articles made in India, or
- Prejudice to the establishment or development of commercial
activities in India;
- Prejudice to the establishment or development of trade or industry in India due to restrictive conditions imposed by the patentee in articles not protected by the patent;
- Restrictive covenants like 'exclusive grant back', 'prevention to challenges of validity' or 'coercive package licensing' in a license for patented invention;
- Non-working of the patent in India on a commercial scale;
- Commercial working of the patented invention in India is hindered or prevented by import of the patented articles by patentee or patent licensee or any other person with patentee's consent.
The grant of Compulsory license is generally for the remaining term of patent unless a shorter period looks reasonable to the Controller.
Revocation of Patent
The Controller can make an order to revoke a patent for non-working or if the reasonable requirements of the public are not still met after the grant of compulsory license. According to section 85 of the Patents Act where, in respect of a patent, a compulsory license has been granted, the Central Government or any person interested may, after the expiration of two years from the date of the order granting the first compulsory license, apply to the Controller for an order revoking the patent on the ground that the patented invention has not been worked in the territory of India or that reasonable requirements of the public with respect to the patented invention has not been satisfied or that the patented invention is not available to the public at a reasonably affordable price. It is important to note that such an application for revocation of patent should be decided by the Controller within one year.
The term "Working" or "Local working" has not been defined under the Act. However, Section 83 (a), 83 (b) and Section 85 (7) (e) refer to working of patent in India, and help in the interpretation of the term "working" in India.
Section 83 provides the general principles which are applicable to the working of patented inventions in India. This provision is akin to Article 7 and 8 of the TRIPS agreement. Section 83 (a) states that the patents are granted to encourage inventions and to secure that the inventions are worked in India on a commercial scale and to the fullest extent that is reasonably practicable without undue delay. Further, Section 83 (b) clearly states that the patents are not granted merely to enable the patentees or patent licensees to enjoy the monopoly for importation of the patented article. Section 83 (c) and Section 83 (f) also talk about promotion of technology innovation, technology transfer and prevention of abuse of patent rights to unreasonably restrain international transfer of technology. It is interesting to note that Section 83 of the Act is merely a guiding principle and is not binding. However, this provision helps in interpretation of local working requirement under the Indian Patent Act.
On the other hand, Section 85 (7) (d) states that reasonable requirement of the public are deemed to have not been met when the patented invention is not worked in the territory of India on a commercial scale to an adequate extent to as is reasonably practicable. Further, Section 85 (7) (e) states that the reasonable requirement of the public are deemed to have not been met when the working of the patented invention in the territory of India on a commercial scale is being prevented or hindered by the importation from abroad of the patented article by the patentee or patent licensees. It is important to note that this provision does not bar importation of patented article as to constitute the working of patent in India. However, when such importation results in preventing or hindering the working of the product within India, it would be deemed that reasonable requirement of public is not met, which is a separate ground for grant of compulsory license.
It is interesting to note that the as per Para 18.2.6 (4) of Draft Manual of Patent Practice and Procedure, which is scheduled to be brought into force by the Indian Patent Office, an application for grant of compulsory license on ground of non-working will be assessed by reference to the facility available in India for working of such invention. It further states that the importing of patented invention is allowed. However, mere importation without exploring the possibility of manufacturing in India will be a factor in assessing such an application for grant of compulsory license.
In light of above discussion and Para 18.2.6 (4) of Draft Manual of Patent Practice and Procedure, it is safe to conclude that the importation of patented product would satisfy the local working requirement both under the TRIPS and (Indian) Patent Act, 1970. However, the patentee or patent licensee should first ensure that if such patented invention can be manufactured in India. It is only in exceptional cases, that the working is allowed through import and it is an exception and not a rule.
1. E. Hettinger (1989) "Justifying Intellectual Property", Philosophy and Public affairs, 18 (1) 31-52
2. From Latin words "Litterae patentes"
3. P. David (1993) "Intellectual Property Institutions and the Panda's Thumb: Patents, Copyright and Trade Secrets in Economic Theory and History", M.B. Wallerstein, Global Dimensions of IPRs in Science and Technology, Washington DC; National Academy Press
9. Article 2 (1): In respect of Parts II, III and IV of this Agreement, Members shall comply with Articles 1 through 12, and Article 19, of the Paris Convention (1967).
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