Exclusive Marketing Rights — A monopoly without a right?

This article was published in The Hindu Business Line on Saturday, Mar 20, 2004.

THE grant of Exclusive Marketing Right (EMR) to Novartis ("Exclusive Marketing Rights — Novartis gets stay against 6 firms", Business Line, January 24) and the delay in granting EMR to Eli Lilly ("Eli Lilly's ED drug likely to face clone's onslaught", Business Line, February 15, 2004) have raised several controversial issues.

For Novartis, the grant means that it can exclusively sell or distribute its patented anti-cancer drug Glivec containing the active ingredient Imatinib mesylate, which is the subject matter of EMR. This move has affected six Indian pharmaceutical companies which have been manufacturing Imatinib mesylate at one-tenth its price, under different trade names. For Eli Lilly, the delay would result in the loss of profits over its patented drug, Cialis.

The impact of WTO

The Dunkel Draft — the predecessor to the Trade Related Intellectual Property Rights (TRIPS) Agreement — proposed that all countries that did not offer product patents for pharmaceutical and agricultural chemical products as on January 1, 1995 have to provide a means for accepting applications for such inventions (called the `mailbox'), apply applicable priority rights and provide exclusive marketing rights (EMRs) for such products.

The developing countries had a choice between EMR and product patents and many opted for the latter. As one of the chief opponents of TRIPS, India opted for the interim arrangements of `mailbox' and EMR.

Under Article 65.4 of the TRIPS, developing countries that did not have product patents were to get 10 years to comply with patent provisions in the pharmaceutical and agricultural chemical sectors. But in view of Articles 70.8 and 70.9, these countries did not get even one day's transition, as they had to accept product patent applications through the `mailbox' and EMR.

The concept of EMR has its origin in a US legislation — the Hatch-Waxman Act, 1984, which granted a five-year market exclusivity period for an innovative drug. This provision was meant to protect drugs that either enjoyed no patent protection or had less than five years of protection left at the time of approval.

Not surprisingly, the issue of EMR was brought up by the US before the panel of the WTO's Dispute Settlement Body. The issue in United States vs. India (1997) was whether the Indian Patents Act, 1970 (Act) had established a mechanism that adequately preserved novelty and priority with respect to patent applications covering pharmaceutical and agricultural chemical inventions, given that under the Act substances classified as "food, medicine or drug" were entitled to process patent and not product patent protection.

The WTO panel concluded that India did not comply with its obligations under Article 70.8(a) of the TRIPS Agreement and violated its obligation to provide EMR during the transitional period under Article 70.9. The WTO Appellate Body upheld the panel's conclusions.

Consequently, the Act was amended in 1999 granting product patents for pharmaceuticals from January 1, 2005. As a prelude to full implementation in 2005, the Act provided that applicants may immediately receive EMR, a patent-like right governed by conventional patent doctrines.

EMRs: Legal implications

EMRs were introduced as an effective way to stall imitation of patented products by the local industry. It is only a privilege granted in anticipation of a patent right. EMRs offer rights similar to that of patents.

The right to make or use an invention may not be commercially viable without the right to sell or distribute the product. EMRs are even stronger than patents as the right of a national patent office to grant or reject the right is severely circumscribed.

Chapter IV-A of the Act lays down certain preconditions that have to be met before EMRs are granted. Before a claim is made, an application for the same invention should have been filed in a WTO member-country on or after January 1, 1995.

The patent grant and approval to sell and distribute the invention should have been granted in that country on or after the date of making a claim in India. Moreover, the approval to sell or distribute the invention should have been granted by the authority specified in this behalf.

If these conditions are satisfied, the EMR shall be granted from the date of approval till a period of five years or till the date of grant of patent or the date of rejection of application for the grant of patents, whichever is earlier. The grant of EMR would mean that the patent-like protection would be extended to the product even before the patent application is processed.

Disastrous consequences

This interim arrangement can have disastrous consequences. In the event of the patent application failing to materialise in the form of a grant, it would mean that the EMR holder, in most cases pharma MNCs, , obtain a monopoly in selling and distributing products during the period of grant of EMR.

More sinisterly, it could mean exclusive exploitation of new markets without the backing of a right to do so. It is submitted that the Government should demand some security against such exploitation before granting EMR.

The grant of EMR results in a right stronger than that of a patent grant. Compared to a patent, the procedure involved in getting an EMR is much easier and without any provision for opposition of such a grant. India's belief that EMR obligation is weaker than that of product patents is misplaced. As the procedure for granting EMR does not have any review mechanism to check abuse, it can, in effect, offer a monopoly more rigid than that of patents.