Patents (Amendment) Bill, 2003: The inevitable regime change

This article had appeared in The Hindu Business Line on Friday, Apr 16, 2004.

The Patents (Amendment) Bill, introduced in the Rajya Sabha on December 22, 2003, shall have the prime objective of fully conforming the Patents Act, 1970 (Act) to the TRIPS obligations under the WTO. The Bill, seen as the final step in the transition period of 10 years granted to developing countries under Article 65 of the TRIP, brings forth the much anticipated regime change for the pharma industry. By January 1, 2005, product patents shall be awarded for food, medicine or drug substances in accordance with the TRIPS Agreement for 20 years.

THE Patents (Amendment) Bill, 2003 was introduced in the Rajya Sabha on December 22, 2003. The Bill, when it comes into force, shall have the prime objective of fully conforming the Patents Act, 1970 (Act) to the TRIPS (Trade-Related Intellectual Property System) obligations under the World Trade Organisation.

The Bill is seen as the final step in the transition period of 10 years granted to developing countries under Article 65 of the TRIPS; this period ends on December 31, 2004.

The Bill brings forth the much anticipated regime change for the pharmaceutical industry. By January 1, 2005, product patents shall be awarded for food, medicine or drug substances in accordance with the TRIPS Agreement for a period of 20 years. Earlier, the term of process patent for a drug or medicinal substance was five years from the date of sealing of the patent, or seven years from the date of the patent, whichever was shorter.

End of reverse engineering

As of now, Section 5 of the Act, offers only a process patent for food, medicine or drug substances. The Act had specifically excluded product patents for these substances. This concession gave the Indian pharmaceutical companies a right to manufacture drugs patented elsewhere by employing a non-infringing process. The phenomenal growth of the Indian pharmaceutical industry into a Rs 19,700-crore industry is directly linked to the patent concessions it enjoyed. The good days may be coming to an end. The Bill omits Section 5. Thus, Indian companies will no longer to allowed to manufacture patented drugs by reverse engineering.

Some believe that the Bill shall only have a minimal impact on the industry as less than 5 per cent of the drugs available in the Indian market are copies of patented products. Added to this, it is possible for Indian companies to export drugs to Less Developed Countries (LCDs), which shall come into this regime only by 2016.

The Bill introduces Section 92 A, which deals with compulsory licence for export of patented pharmaceutical products in certain exceptional circumstances. It is evident that this provision has been included to facilitate export of drugs to LCDs and elsewhere foreseeing situations such as the one faced by a drug company's HIV/AIDS drug in South Africa.

Unique provisions

As the patents law in India developed differently keeping in view the needs of the local consumers and producers, the Act in itself contained unique provisions not commonly found in the patent legislation of other countries.

One such provision is Section 3 of the Act which provides for the inventions that are not patentable. This Section enumerates 15 such non-patentable inventions which can be used as a ground in opposing a patent before its grant or in revocations proceedings after the grant. Another provision is Section 64 which gives 17 grounds on which a patent may be revoked after its grant. Interestingly, the Bill has not made any substantial change to the above two provisions.

EMRs to go

Understandably, the Bill omits Chapter IV A of the Act which deals with the transitions arrangement of granting Exclusive Marketing Rights (EMR) till the pending patent applications are processed.

The Bill provides for a transitional provision which states that every EMR shall continue to be effective with the same terms and conditions on which it was granted. Section 24 D of the Act provides that the government may, in public interest, sell or distribute the article for which EMR has been granted. The government may also, in public interest, direct that the article shall be sold at a regulated price. These two protections do not figure in the Bill.

The Bill retains the provision dealing with suits relating to infringement of EMRs now contained in Section 24E of Chapter IV A. As suits relating to infringement of EMRs would be treated as suits relating to infringement of patents under Chapter XVIII of the Act, the above grounds contained in Section 64 read with Section 3 could be raised as a counter-claim in a suit.

If the number of infringement suits filed in the recent past is any indication, it is very likely that the Indian courts shall witness a spate of patent related litigation post 2005.

The road ahead

Indian pharmaceutical companies have already devised innovative methods to meet the challenges of the new patent regime. They can continue to supply bulk drugs and active pharmaceutical ingredients (APIs) with the approval of the patent holder. The option of producing off-patent APIs is also open.

Another option would be to streamline the process of manufacture and to become the cheapest manufacturers of off-patent drugs. Given the distinction in reverse engineering that Indian companies have earned over the years, this prospect holds much promise.

The third option lies in licensing globally successful drugs in India. This shall, however, be subject to Chapter XVI of the Act which deals with Compulsory Licences and the desire of multinationals to team-up with Indian companies. Yet another option would be to position Indian companies as research and development centres for multinationals.