The Evolution of the Indian Patent Regime and its Effect on Indian Pharma Sector

Jay Parikh
Partner, Verus Advocates
This article gives an overview of the Indian patent regime’s evolution, analyses recent legal developments in the pharma sector and sets out the effects that these have had on both Indian generic players and multi-national corporations (MNCs).

Indian patent regime and the pharma industry Patents confer on the inventor (the patentee) the right to prevent others from using their invention. However, such exclusive rights cannot ever be unbridled and some qualifications are necessary to check the scope and operation of such rights. It is this inherent paradox that has been at the centre of recent debates around the development of the Indian patent regime, especially those governing pharmaceutical sector.

Brief History
In India, the concept of patent protection, which originated in 1856, finds its eventual place in the Indian Patent Act, 1970 (Act). Up until 2005, the Act only provided process patents for certain sectors such as food, pharmaceuticals and chemicals; and abolished product patents in these fields entirely. However, in 2005, India amended the Act to (re)introduce the product patent regime so as to meet its obligations under the Agreement for Trade Related Aspects of Intellectual Property Rights (TRIPS). India, along with many of the developing countries, attempted to incorporate TRIPS flexibilities in their domestic law.

Pre-TRIPS and Post-TRIPS: Over the years, the public health spend in India has fallen short of expectations and consequently access to affordable healthcare has only remained a dream for millions of low income Indians. In addition, the country’s healthcare landscape has also been characterised by the co-existence of communicable diseases in addition to the emerging epidemic of non-communicable diseases. These factors have only fuelled the growing need for affordable medicines.

As a result, there was a dire need for India to develop an effective domestic pharma industry that could deliver cost-effective solutions. This was made possible thanks to the absence of product patents, which enabled domestic companies to easily develop generic drugs that were far cheaper than the expensive alternatives marketed by the pharma MNCs in India.

In the ten years it took between the signing of the TRIPS and the introduction of product patents in India, the generic drug players in India had already built themselves a reputation for being global leaders in manufacturing affordable medicines. Moreover, the regulatory environment enhanced competition amongst the generic producers as no single company enjoyed a monopolistic right over a pharma product.

However, progress was set to be interrupted with the introduction of the new patent regime to comply with India’s obligations as a signatory to the TRIPS. Indian companies were legally prevented from introducing generic versions of the patented medicines. These medicines could now only be accessed through a compulsory licence or a government use authorisation. This led to a situation wherein generic companies could only produce off-patented medicines, thereby resulting in the denial of new medicines that were earlier available at affordable prices. In the meantime, pharma MNCs have aggressively marketed newly patented and expensive drugs whilst expanding their presence considerably in the generics segment through M&As and strategic alliances with domestic players.

Recent Developments
The seemingly good run that the pharma MNCs were having, or at least were expecting to have, has recently been marred by two landmark judicial pronouncements outlined below.

The Natco v. Bayer case - Compulsory licensing: The Act provides for an option of compulsory licensing and governmental use, which essentially implies that any interested person may make an application for compulsory licensing on the grounds that the reasonable requirements of the public have not been satisfied, that the patented article is not available at an affordable price to the public or that the patented invention is not worked in the territory of India.

Bayer (the patentee) owned patent no.215758 over a compound ‘sorafenib tosylate’, which it marketed under the brand name ‘NEXAVAR’ and used for the treatment of advanced stages of kidney and liver cancers. Natco Pharma (the applicant) had developed the process for manufacturing the drug and filed the instant application for compulsory license.

The Controller of Patents held that all three grounds available for an application for compulsory licence under S.84(1) of the Act, as above, had been satisfied given that (a) the drug was not easily available and was in fact under-supplied, (b) the price of the drug at ` 280,428 pm did not satisfy affordability parameters, and (c) the patentee did not ‘work’ the product ie, either manufactured on its own or through a third-party, in India. Consequently, the Controller of Patents granted a compulsory license to Natco for manufacturing and selling the said drug for the remaining term of the patent at royalty of 6 per cent of net sales to be paid to the patentee.

This decision is the first instance of grant of a compulsory license under the Act. It is significant in more ways than one and particularly stands out because of a marked socio-political approach adopted by the regulator to suit India’s healthcare needs as a developing country, protect the domestic generic drugs industry and its position as the pre-eminent exporter of affordable medicines in the global pharma market.

The Novartis case - Patentability criteria: The Act has sought to put restrictions on the grant of product patents by limiting the scope of patentability. This has been done by firstly providing a patentability criterion and secondly by excluding certain kinds of products as inventions.

However, the Supreme Court interpreted the 2002 amendments to S.3(d) of the Act as setting up “a second-tier of qualifying standards for chemical substances, pharmaceutical products in order to leave the door open for true and genuine inventions but, at the same time, to check any attempt at repetitive patenting or extension of the patent term on spurious grounds” to reject the patent application of Novartis and hold that the beta crystalline form of Imatinib Mesylate does not qualify the test of S.3(d) of the Act.

Implications on the Industry
The above-mentioned developments could have the following short to mid-term implications on the pharma sector as a whole:
  1. Increase in efficiencies: A natural result of the Natco decision is that more compulsory license applications will be made. This will prompt pharma companies to voluntarily grant licenses which will, in turn, increase efficiencies and decrease the gestation period in discovery of essential but affordable drugs. As a fall-out of the Novartis case, the industry may see a reduction in overlapping patent applications, which are filed in order to pre-empt patent infringements and to make a strong entry-barrier.
  2. Lowering of drug prices: A direct result of the Natco decision will be the voluntary decrease in prices of patented drugs in order to avoid applications for compulsory license and increase price-competitiveness of products.
  3. Decrease in Foreign Direct Investment (FDI) and investments in new drug R&D: As a result of the abovementioned recent developments, it will not be surprising to witness a decline in FDI in the pharma sector directly impacting in flow of capital into new drug R&D.
On one hand, the socio-political objectives of the Indian government in protecting domestic generic players and providing affordable drugs to India’s poor proved to be a thorn in the side of pharma MNCs. They have cited the high R&D costs incurred when developing new drugs, but on the other hand pharma MNCs have been accused of maximising profits by not lowering drug prices and failing to invest in R&D in India or transferring technology.

Managing these conflicting interests in an increasingly globalised environment is proving to be a challenge for the Indian government. However, recent developments do point towards a protectionist trend that may not be conducive to India’s ever-increasing need for foreign capital and technology in the pharma sector.