India: Construing Section 107 (A) Of The Patents Act

India is home to generic pharmaceutical companies. These companies manufacture a generic drug, which is basically a pharmaceutical drug that contains the same active ingredients as a drug that was originally protected by chemical patents.  Generic Companies wait for expiry of a patented drug to put their foot in the market to provide the drug at affordable price to the public. The Indian legislature has provided the benefit of experimenting the patented drug prior to expiry of the patent term for regulatory approval, so that the drug is available to the market immediately after the said patent expires. The said action also ensures that the monopoly of the patentee is not further extended beyond the patent term. The subject article deciphers Section 107 (A), famously called as Bolar Exemption, the pivot of dispute between innovator companies and generics.

Rights of Patentees

The Patentee has the exclusive rights to stop others from making, using, selling, and distributing the patented invention.  These rights are also termed as negative rights, which are vested in the Patentee under Section 48 of the Patents Act. Therefore, the Patentee can bring in the infringement suits against anyone exploiting his exclusive rights without his consent. However, every action of using the patented invention cannot be considered as infringement. The said exemptions have been laid down under Section 47 and Section 107 of the Patents Act. Further, Section 107 (A) discloses that certain acts do not fall under the ambit of infringement. Section 107(A), particularly, recites:

"Certain acts not to be considered as infringement. -For the purposes of this Act, -

In light of the above, it should be noted that any act including making, constructing, selling, or importing any patented invention only for submitting information/data under the Drug Regulatory Authority of India or under regulatory authority of any country should not be construed as the infringement. Therefore, it is submitted that the innovator company cannot bring in infringement suit against the generic pharmaceutical company merely because they used the patented invention of the innovator company to submit data or any information to the Government regulatory body.

Though Section 107 (A) specifies only the acts that are not considered to be infringement but does not specify the details of the acts and thus, is open ended. For example, there is ambiguity on the quantity of product produced, used, or exported that cannot be considered as infringement. Therefore, the coverage of the terms mentioned under Section 107 (A) is open to various interpretations, and thus, there is a thin line on where the misuse begins.  This article attempts to throw some light on these grey areas of Section 107A based on the precedents.

Construing the term "export" under Section 107 (A)

The landmark judgement of the Delhi high Court in Bayer Corporation vs Union of India & Ors on 22 April, 2019, deciphered the scope of Section 107 (A) (a) of the Indian Patents Act.

FACTS OF THE CASE: Bayer had filed two appeals against the decision of the single judge with respect to the writ petition filed against Natco and Alembic Pharmaceuticals Ltd for obtaining injunction against them from exporting Bayer's patented drug Sorafenib and Rivaroxaban respectively.  

The first compulsory license was granted to Natco for the drug Sorafenib tosylate covered by Bayer's Patent within India. Bayer filed a writ petition before the Delhi High Court when Natco manufactured and exported the patented drug and sought issuance of direction to the customs to prevent Natco from exporting. While export of 15 gms of the drug was agreed upon by Bayer with the intervention of the Court, the legal battle commenced when Natco sought permission to export 1 kg drug to Chinese company.

Further, Alembic exported around 90kg of Rivoroxaban worth Rs. 3 crore, mentioning export is for clinical purpose. 

The division bench of the Delhi High Court passed a single order on the interpretation of Section 107(A) in both the identical cases, which is as follows:

Territorial scope under Section 107(A)

The Court in detail analyzed the territorial scope of Section 107(A) in the backdrop of the contentions raised by Bayer focusing on the territorial nature of rights disclosed in Section 84 and Section 48 of the Patents Act.

The Court invalidated Bayer's contention that the word "selling" in Section 107(A) does not include "exports" The Court opined that the scope of sale cannot be narrowed down to sale in India and also rejected Bayer's contention that it "is only information" that can be exported and not the patented invention under Section 107(A) (a).

The Court held that the selling of patented invention for obtaining regulatory approval for a foreign country would entail transfer of patented product from India to that country. The Court took note that certain countries require the product to be tested in the country itself for the purpose of regulatory approval.

1.1 Compulsory licensing and Section 107A

Bayer asserted that the term "export" was not explicitly disclosed in Section 107(A).  It cited that the usage of the terms "sale" and "import" under Section 107 (A) and the explicit usage of the term "export" in other Sections of the Patent Act such as Section 84 and Section 92 (A), implies that the Indian Patent Law cautiously excluded the term "export" within the meaning of Section 107(A). Further, Bayer contended that the inclusion of term "importing" under Section 107(A), itself intended the availability of the drug within India.

Natco argued that Section 107(A) should not be juxtaposed with other Sections of the Patent Act. The term "other country" in Section 107(A) would be meaningless if export is not construed as a part of the term "sell." Natco further argued that the very purpose of Section 84 is different from Section 107(A) stating that while the former is for marketing of patented product for commercial purpose, the latter is concerned with submission of data in the development of the patented drug to regulatory authority for market approval.

The Delhi High Court upheld Natco's arguments that the term "exports" is used in different contexts in Sections 84, 90 and 92(A). Section 84 is the provision which enables compulsory licensing of certain conditions, with Section 90 and Section 92(A) to be read along with Section 84. The Court clarified that Section 84 should not interrupt in exercising a non-patentee's rights under Section 107(A) as the "purpose of sale" in the aforementioned section is different from that of Section 84. The Court held that the only prerequisite for sale under Section 107(A) is that it should be reasonably related to submission of information under the law (in this context the Chinese law)

1.2 Section 48 and Section 107(A)

The Court negated Bayer's contention that the single judge erred in the judgement that Section 107 (A) is independent right and not subservient to Section 48.

Bayer contended that while Section 48 defines infringement by disclosing exclusive rights to the patentee, Section 107 (A) discloses set of circumstances in which the acts mentioned in Section 48 do not constitute an infringement. Further, Bayer put forth that the placement of Section 107(A) in the statute under "Suits concerning infringement" just after "Section 107- Defenses," itself substantiates the intention of legislature was to envision Section 107 as a defense to infringement and hence, Section 107 is a proviso or exception to Section 48 and not an independent right in itself.

Further, Bayer contented that meaning of the term "selling" in Section 48 and meaning in Section 107(A) cannot be different and since the said section is an exception of Section 48, the said interpretation is inappropriate.

Alembic urged that the threshold of proving infringement is establishing that use is commercial. Further, barring of export in Australia and USA under Section 107 (A) (a) is not justified as the said bar was not indicated in the said section. Therefore, it is noted that the legislature was not to prevent the export of the patented invention.

The Court held that Bayer's contention that the term "selling" in Section 48 and Section 107(A) is territorial in nature, since Section 107(A) is subservient to Section 48, is flawed. The Court agreed with Natco's argument that Section 107(A) read with Section 48 does not prohibit export as long as it satisfies conditions of Section 107(A). Further, it also agreed with Natco's submission that certain countries do not entertain data generated in foreign country unless the experiment is conducted within the country.

Therefore, the Court clarified that that Section 107(A) 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 107(A).

2. Quantity of export

The Court invalidated Bayer's contention that exports of over 9 kg of the patented drug by Alembic was not for purpose under Section 107(A) and that the single judge failed to consider the quantity of drug exported and that actually required by the foreign regulatory regimen to which the information was submitted under Section 107(A).

The Delhi High Court backed up Natco and Alembic's submission in line with the DSP findings on the Canada dispute that Section 107(A) do not disclose any specific amount as long as it caters to the very purpose of Section 107(A) i.e. for the development and submission of information required under any law.

The Court held that neither the quantity used nor the place of research and development or information is imperative for rejection of non-patentee's right under Section 107(A). It is the "end use" and "purpose" which is decisive of whether export of any quantity falls under Section 107(A) i.e., the purpose should not be for commercial use.

Further, the Court annulled Bayer's claim that the burden of proof lies on the non-patentee to demonstrate that the export was for the purpose under Section 107(A), as the non-patentee has privy to all the details relevant to proving the applicability of Section 107(A) of the Act such as manner of export, quantities, identity of the importing party etc. The Court held that if Bayer can make a case of export being effected for purposes other than that permitted under Section 107(A), appropriate procedures shall be taken. 

3. Figuring out the expression- "reasonably related" 

The Court in Bayer's case addressed the notion of the term "reasonably related" under Section 107(A) (a) The Court opined that there is no ironclad rule as to what acts amount to be reasonably related to the use or sale of the patented product, with the purpose of developing data for regulatory approval. 

The Court in Bayer's case postulated the following factors to be taken into consideration in such cases: 

Post Bayer ruling with regard to Section 107(A) of the Patents Act

The Delhi High Court's decision in Bayer's case (supra) lead the way for further court rulings on whether the export amounts to patent encroachment in the backdrop of Section 107(A) (a).

The Delhi High Court in H Lundbeck A/S & Anr vs Hetero Drug Ltd. & Anr in 2020, passed an order equating "export" to "use" under Section 107(A).   In this case, the defendants imported the patented drug to India and further exported it to other countries, citing the export being for research and development and they are not using the drug in India.

The Court held that export of patented product to another country, amounts to use within India as per Section 107(A). The court also reversed the onus of proof on the defendants to demonstrate that such export was for the purpose of research and development. However, the Court did not provide a clear interpretation, unlike the Bayer's case, as to meaning of "export" i.e. why "export amounted to use of drug within India."

The Delhi High Court in Merck Sharp and Dohme Corp. & Anr. vs Sms Pharmaceuticals Limited on 20 July, 2021, relied on Bayer's judgement that the volume, sale, construction etc. of the patented invention and the quantum is inconclusive in the issue . The case revolved around the export of Merck's patented molecule by SMS, citing research purpose.

Merck based its argument on the fact that SMS is exporting huge quantities around 800 kgs of drug and is unbelievable that such export is for R&D purpose. Merck contended that once the drug is exported, it is impossible to verify whether the end use of the drug is for R & D or commercial purpose. The Court ruled that without producing any proof of commercial exploitation by Merck, the Court cannot deny the benefit of Section 107(A) to SMS. The Court instructed SMS to file an affidavit with the quantity of drug and also an undertaking that the molecule is exported solely for the purpose of R & D. The Court, interestingly, instructed filing of such undertaking by the foreign importer as well.

Conclusion

Section 107(A) provides a wider umbrella of protection to the non-patentee. The Courts decision confirms that "end use" and the "purpose" are the key factors in assessing a case under Section 107(A). However, what has to be noted from Bayer's case as well as the subsequent Merck case is that while the Court in Bayer held that quantity of export is trivial as long as the purpose of Section 107 (A) is served, on the other hand, the Court notes in the five-pointer postulate that the quantity of the drug exported has to be taken into consideration to establish that export is solely for research and development of information to regulatory authorities in the other country. Therefore, the clarity on the details of the acts that amounts to infringement is much welcomed in future judgements.

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.