FML Article

INDIAN PHARMACEUTICAL INDUSTRY AND INTELLECTUAL PROPERTY LAWS: AN ATTEMPT TO

STRIKE A BALANCE
FOXMANDAL
LITTLE February 2010

INDIAN PHARMACEUTICAL INDUSTRY AND INTELLECTUAL PROPERTY

LAWS: AN ATTEMPT TO STRIKE A BALANCE
Overview

AN one
The year 2009 witnessed ATTEMPT TOeconomic
of the worst STRIKEsludge
A BALANCE
of this century. The impact
of the global economic slump was so huge that it overturned many healthy businesses
and affected many ofAN its ATTEMPT
operations. TO
Presently,
STRIKEwhen the economic slowdown is
A BALANCE
receding, the business units which were affected yet survived the impact are trying to
INTELLECTUAL PROPERTY

consolidate their business which they lost during this bad phase. However, notably
there are few industrial sectors which, if not prospered, were barely affected and
utilized this phase to consolidate their businesses and have now emerged stronger.
Indian Pharmaceutical Industry was one such industries which was least affected and
has shown good resilience during slowdown phase both in the domestic and export
markets which is indeed a sign of bright future for Pharmaceutical Industry.

Indian Pharmaceutical Industry has emerged as the world‟s fourth largest producers in
terms of volume, accounting for around 8% of global production and in terms of value,
it accounts for around 1.5% of the world‟s total production. The moot factor for the
strong emergence of the Indian pharmaceutical industry within a span of a decade is
largely due to its evolving Intellectual Property (IP) laws. Similarly, Indian generic
pharmaceutical industry has been growing strong with the increasing demand for
cheaper drugs globally.

One of the prime factors that led to the growth of the generic pharmaceutical industry
in India was due to the vision of the framers of the Indian Patents Act, 1970. The
product patent regime in India is relatively germane as the same was introduced very
recently. This article attempts to analyze the impact on the Indian Pharmaceutical
Industry, both on producers of innovative drugs and generic drugs due to the
amendment in the Indian Patents Act in 2005.

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 INDIAN PHARMACEUTICAL INDUSTRY AND INTELLECTUAL PROPERTY LAWS: AN ATTEMPT TO
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Leap towards product patent- Evolution of Indian Patent Law

Indian patent law history dates nearly 150 years back. The Act VI of 1856 on Protection of Inventions (which was based on the
British Patent Law of 1852) was the first ever patent statute of India. The post independent India passed the present Patents
Act, 1970 which came into force on 20 April, 1972. However, the Act underwent series of three of amendments much due to the
mandate of TRIPS compliance. The latest in the series, the Patents (Amendment) Act of 2005 which came into effect on 1
January 2005, introduced the product patent regime in India.

The generic pharmaceutical industry in India, utilized the freedom from product patent to its optimum during the pre- product
patent regime. Many generic companies implemented effectively the concept of reverse-engineering of product patents, which
enabled the generic drug manufacturers to copy western developed drug by coming up with a new manufacturing process. This
has been the practice of “The Generic Industry” till 31st December 2004. India witnessed significant rise in innovator products in
the post- product patent regime.

Impact of TRIPS on Innovators and Generics

The Patents (Amendment) Act of 2005 was an attempt to bring Indian Patent Laws in compliance with the standards of the WTO
and ratifying TRIPS introduced the product patent regime. However, by becoming TRIPS compliant and allowing product
patents, many feared the ramifications towards the industry will be significant. There were several questions like how would the
new patent regime provide an impetus for innovation in the pharmaceutical industry, would India restrict the export of generic
drugs to developing countries, or would there be an increase in India‟s innovative capabilities? The country is still trying to seek
an insight if it has completely become compliant with WTO/TRIPS or in compliance with public health.

During the transition phase of 1995 to 2005, India adopted system of “Mail Box” for pharmaceutical products before it provided
protection for product patent regime for pharmaceutical sector under Section 5(2) of the Patent (Amended) Act, 1999. India
received about 6,616 such applications between 1995 and 2003, and about 764 applications in 2004, so total of about 7,380
applications. Applicants who had made an application under mailbox system could apply for an exclusive license (via EMR) to
market the product in India for five years. Fourteen applications requesting the grant of EMR were filed between 1995 and 2005
of which license were granted only to Novartis, Eli Lilly & Company, Wockhardt and United Phosphorus.

Even when the provisions were made to accord protection to pharmaceutical product patent after 1995, the
Applicants/Patentees of innovator drug were deprived off various rights and the generic drug manufacturer were let to continue
with manufacturing of generic drugs. Generally a patentee gets right to sue the infringers from the date of publication of the
Patent even though the case could be filed only after the grant of patent, however in case of innovator product the patentee gets

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right to sue an infringer only from the date of grant of patent. Section 11 A (7) further grants amnesty to generic drug
manufacture wherein if they have been manufacturing such patented drug before 1st January 2005 and continue to do so, their
lies no infringement action against such generic drug manufacturer, however he has to pay a reasonable royalty to the patent
holder. As the Act does not explicitly define “reasonable royalty” it depends on the parties to settle on the reasonable rate. There
has been no case reported on this issue so far.

Section 3 of the Act was amended which deals with inventions not patentable, particularly significant amendment of Section 3
(d) brought in a lot of controversial debate of this provision. As per Section 3(d) of the Act, no patent will be granted to new
chemical entities (NCE) or new medical entities (NME) involving one or more inventive steps, which does not result in the
enhancement of the known efficacy. A classic example of such instance was addressed in the case of Novartis AG v Union of
India (MIPR2009 (2)345). The Intellectual Property Appellate Board (IPAB) stated that, “while the drug had novelty as well as
inventiveness, it failed to demonstrate “significantly enhanced efficacy” in comparison to its already known free base” hence the
drug cannot be patented citing its non-compatibility with the country‟s patent law and unaffordable pricing. In yet another recent
case between Roche v Cipla, the Court directed Roche not to pursue the patent violation case against Cipla for its anti-infection
drug Valcept (Valganciclovir) as Roche was charged of pricing its drug exorbitantly high and making it unaffordable for most
Indian patients while Cipla‟s generic drug is priced much lower compared to that offered by Roche. With view of such practical
scenarios, the lack of clarity in the Section 3(d) by not defining “enhanced efficacy” in the Act, enforcement of the product
patents is a hurdle.

Also, the 2003 amendment of the Patents Act, 1970, provided a provision referred to as the “Bolar” provision under Section 107
A (a) that permits any drug manufacturer to experiment with any patented drug with a view to generate data that could then be
submitted to a drug control authority. The aim of this provision is to ensure that the generic drugs are introduced into the market
as soon as the patent expires or is invalidated, so that consumers may benefit from this early entry of affordably priced drugs.
The Court in the case of Bayer v the Union of India (UOI) and Cipla (MANU/DE/1756/2009) dismissed Bayer‟s petition stating that
Bayer‟s claim to restrain from grant of drug license to Cipla to manufacture, sell and distribute its drug "Soranib" as an imitation
or substitute to Bayer‟s drug was an attempt to “tweak” public policies through the Court. Currently, a generic company may
apply for marketing approval of a generic drug even before the expiry of the patent claiming the drug, from the Drug Controller
General of India (DCGI) under the Bolar provisions in the Act. Also, the scope of enforcement of DCGI provisions is limited only
to ensure that the drugs are safe, with prescribed quality and are available in adequate quantity for the public however, the
patent linkage scheme is not allowed in India.

Further, the amendment of Section 84 and introduction of 92(A) into the Act provided a mechanism by which compulsory license
can be granted to any interested person after expiry of three years from the date of grant of patent, after an application is made
to the Controller, for grant of compulsory license on grounds specified in the Act. Compulsory License seeks to effectively

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protect „public interest‟ from possible abuse of monopoly, thereby ensuring a level playing ground between the IP holder and
their competitors. Though legal interpretations of terms under the Act may vary depending on the facts and circumstances of the
case, there have been instances wherein definitions or the purpose of a definition, or expressions, or objects have been varied,
or left ambiguous. Natco Pharmaceuticals had filed a request for compulsory license before the Controller of Patent to export
Roche‟s Erlotinib (Tarceva) to Nepal and also to export of Pfizer‟s Sunitnib (Sutent) for a reasonable royalty of about 5 percent
but later withdrew its request. As per the annual report of the Patent Office, three applications for compulsory license were filed
in the year 2007-2008 but not even a single License has been granted in the history of Indian Patent System.

Drug Patent Policy- Outlook

Drug pricing and data exclusivity / data protection are two issues that the Indian Government is always questioned on. Data
exclusivity refers to additional market protection, a form of guarantee afforded to the makers of original drugs in the
pharmaceutical industry, thereby preventing health authorities from accepting applications for generic drugs during such period
of exclusivity. Data exclusivity further prevents regulatory authorities from assessing the efficacy of the generic drug during
such period of exclusivity while data protection is protection of innovators‟ drug, which the generic companies cannot have
access too. In the Satwant Reddy Committee report, it was suggested that India may have to consider giving five year data
exclusivity and several safeguarding measures to be compliant with the WTO norms. However, India would take its time to
implement such a provision in its IPR laws. India has also maintained that the TRIPS agreement did not refer to any period for
data protection, or data exclusivity. In Syngenta India Ltd v Union of India (W.P.(C) 8123/2008), the Swiss MNC Syngenta,
argued before the Delhi High Court that Article 39.3 of TRIPS mandates data exclusivity. The Court clarified that Article 39.3
merely cautioned nation states to protect “undisclosed information and data” against "unfair commercial use" and "disclosure".
However, India‟s stand is that Article 39.3 of TRIPS did not oblige member states to introduce data exclusivity legislation in the
country.

Innovator companies may have to bring to the notice of the Indian Government that they have not been able to make reasonable
profit due to the absence of data exclusivity which indirectly allows early presence of generic drugs in the market. Also, if India
considers bringing this provision into its system, the generic drugs will be delayed by five years enabling the innovator company
to manufacturer and market the drug for an additional time in an exclusive manner and generate more profits. As India is a
developing country, this provision may derail the introduction of early cheap generic drugs to the public.

National Pharmaceutical Pricing Authority (NPPA), a part of the Ministry of Chemicals and Fertilizers under the Drug Price
Control Order (DPCO) regularly monitors pricing of drugs. For India‟s domestic consumers, medicines patented pre-1995 would
continue to be available at the same prices while prices of patented medicines would be higher post-1995 as per NPAA.
Innovator companies receive their profits until the expiry of patent while generics enter the market after expiry of patent. The

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innovator company may choose either to export their patented drugs to India, thereby replacing domestic production, or they
may chose to produce in India through a subsidiary or under license to Indian firms. Basic fact about India is that 60 percent of
Indian population is below poverty line that has no access to medicines nor is affected by the change in patent regime.

Trends in Growth of Pharmaceutical Sector

According to a report by the German Chemicals Association in 2005, India's top 10 pharmaceutical companies were Ranbaxy,
Cipla, Dr. Reddy's Laboratories, Lupin, Nicolas Piramal, Aurobindo Pharma, Cadila Pharmaceuticals, Sun Pharma, Wockhardt
Ltd. and Aventis Pharma (Verband der Chemischen Industrie e.V. Country Report: Information on National Economies,
Chemical Markets and Foreign Trade, June 2005). Currently, Indian owned firms account for 70 percent of the domestic market,
up from less than 20 percent in 1970. Export has been the growth driver for this industry in the recent years with more than 50%
of the revenues coming from overseas markets, particularly the U.S. and Europe. According to Pharmaceutical Export Council of
India, despite the global recession India‟s drug exports was affected only marginally, which is estimated to reach at $8.25 billion
in the financial year 2008-09 against the earlier estimate of $8.97 billion. The domestic market of Indian pharmaceutical
industry has been registering 12%-13% growth in 2009 which is marginally lower than the earlier projections of 15%.

As per the ORS IMS rankings in October 2009, Cipla was at the top position with market share of 5.38%, followed by Ranbaxy
at 4.84% amongst the top 20 companies. There has been a rapid increase in number of patent applications filed and number of
patents granted in the area of chemicals and drugs, as listed below. This significant rise in the number of applications for patent
filed and the patents granted in the sector after the amendment in the Patents Act in 2005 corresponded well to the booming
pharmaceutical industry.

Year 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08

Number of Applications Filed 1742 5477 6232 8021 9593 10642
Number of Applications Granted 711 1028 765 1597 2787 5540

Growth of Indian pharma exporters is expected to grow many folds in year to come as many blockbuster drugs are going off-
patent. It is estimated that over the next five years, the global pharmaceutical companies are set to lose about $100 billion in
sales due to blockbuster drugs going off-patent. Indian generic drug manufacturers are well poised to take advantage of this
situation. Another major advantage what Indian companies have is the production cost of drugs which is about 50% lower
compared to the established markets such as the U.S.

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INDIAN PHARMACEUTICALConclusion
INDUSTRY AND INTELLECTUAL PROPERTY LAWS: AN ATTEMPT TO
FML India introducedSTRIKE A BALANCE
the substantive patent law in compliance with the TRIPS. In this regard,
FOXMANDAL the Indian innovator companies are focusing more on capacity building in research and
LITTLE development of its products and are fomenting growth in this area. The generic companies
are gaining maximum profits in this hibernation period before it is forced to comply with the
provisions of IP laws. Further, incorporation of data exclusivity, data protection, and
protection for derivatives or use of already known substances into the Indian IP laws would
significantly impact the pharmaceutical industry. India would have to amend its laws in the
near future while keeping in mind to take appropriate measures to safeguard its domestic
interest while fulfilling its international obligations.
INTELLECTUAL PROPERTY

For further information on this topic please contact Ms. Veena Shivanna at FoxMandal Little by telephone
(+91 80 25595911) or by fax (+9180 2559584) or by email veena.shivanna@foxmandallittle.com
This publication by FoxMandal Little is to keep our clients and friends informed of new and important
legal issues. It is intended to be informational only and does not constitute legal advice. Specialist
advice should be sought regarding specific circumstance.

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