Delhi High Court Ruling Clarifies Requirements for Export Under India’s Bolar Exemption

“This judgment furthers India’s stance in prioritizing public health over private patent rights.” 2002, India’s Patent Act 1970 [“the Act”] was amended to include Section 107A. This provision says that any act of making, using, selling or importing a patented invention solely for uses reasonably related to the development and submission of information required under any law in India, or in a country other than India, shall not be considered as infringement of patent rights.

This provision also outlines India’s Bolar exemption. As per the “Bolar doctrine,” which arose out of the U.S. case of Roche Products v. Bolar Pharmaceuticals (1984), it is permissible for third parties to carry out research and development on patented products (especially drugs) for the purposes of submitting information as required by regulatory authorities. The purpose of this provision is to ensure that third parties can conduct research and development and obtain prior regulatory approvals, enabling them to launch the patented products on the market as soon as the patent term expires. This ensures that patent holders do not get a de facto monopoly on their inventions after expiration of their patent term. Further, it ensures that the public has access to cheaper generic versions of the drugs immediately after expiration of the patent term.

In India, the scope of this provision has been controversial for some time now, leading to a slew of litigation between major international pharmaceutical companies and Indian generic manufacturers claiming the Bolar exemption.

In the recent combined decision in the matters of Bayer Corporation v. Union of India & Ors. LPA No. 359/2017 and Bayer Intellectual Property GMBH & Anr. v. Alembic Pharmaceuticals Ltd. RFA(OS)(COMM) 6/2017 (March 22, 2019), the Division Bench of the Delhi High Court laid these controversies to rest by deciding the question of whether export is permissible under this provision.

Lower Court Decisions

The judgment ruled on appeal of the two underlying decisions in Bayer Corporation v.. Union of India & Ors. WP(C) No. 1971/2014 and Bayer Intellectual Property GMBH & Anr. v. Alembic Pharmaceuticals Ltd. CS(OS)(COMM) 1592/ 2016. Both of these decisions pertained to the interpretation of Section 107A. In the former, Bayer filed a suit seeking an injunction against Natco Pharma (Natco), an Indian generics manufacturer, from making, importing or selling its patented drug Sorafenib. While the suit was pending, Natco also obtained a compulsory license for manufacturing and selling the drug in India. Further, Natco applied for permission to export 1kg of active pharmaceutical ingredient (API) to China to conduct clinical studies for regulatory purposes. Bayer opposed this, arguing that the export, being a commercial transaction, would be contrary to Section 107A. In the latter case, Bayer filed a suit to enjoin Alembic from selling and exporting the drug Rivaroxaban in India as well as the European Union and United States. Alembic claimed that the exports were covered by Section 107A, while Bayer argued that Alembic exported at least 90 kg of Rivaroxiban worth 3 crore rupees (about USD 432K) and that such  quantity was not covered by the Bolar exemption. In this case, the judge rejected Bayer’s arguments and found that the quantity exported was just enough for 1,000-2,000 tablets and therefore could not be deemed a commercial activity. The judgment also held that the intention of the legislature in interpreting Section 107A did not exclude sale outside India. The only requirement was that the sale must be reasonably related to the submission of information under the law (in the country of export).

Bayer’s Arguments

Bayer contended that Section 107A is an exception to the rights of a patentee and is a defense in a suit of infringement. Accordingly, it must be interpreted narrowly and cannot be said to constitute an independent “right”. It further argued that in enacting the provision, the legislature intended to ensure the availability of drugs in India after expiration of the patent term, and not abroad. It argued that the expression “export”  was specifically mentioned in various other provisions of the Act, but no such mention is made in Section 107A, which implies that the legislature did not intend to include export in this section. Specifically, the word “import” was added in the 2005 amendment, which further implied that the legislature intended to leave out “export” from the ambit of the provision. Further, Bayer argued that the word “selling” did not include “export” as the Act was territorial in nature and applicable only to India. It argued that the phrase “in a country other than India” referred to the submission of information in countries other than India, such that the data generated in India may be submitted around the world.

Additionally, Bayer argued that allowing export under Section 107A would be in violation of Article 30, TRIPS, which allows only for limited exceptions to patent rights. Further, it would disregard Article 31(f) of TRIPS, which states that any use by a non-patentee should be predominantly for supply in the domestic market of the said country. Additionally, countries which do permit export provide for it explicitly under statute, such as Australia. German and Polish courts have recognized the blatant prejudice allowing exports would cause to the rights of the patentee.

Pertinently, Bayer argued that allowing exports will prejudice the interests of the patentee as it may not have a patent in the country of export, leaving it remedy-less, and that it would have to undertake global surveillance to track the products exported and scrutinize their purpose of use, giving defendants a free reign to export patented products. Further, it argued that the judge did not consider the quantities that are required by the regulatory regime for which information is to be submitted, and that no defendant can be permitted to export large quantities of patented product under this exemption.

The Delhi High Court Rules

The Court did not agree with Bayer’s arguments and held that exports were exempted under the provision. The Court was of the opinion that a plain reading of the word “sale” did not exclude “export” from its ambit, and that neither was this the intention of the legislature.

The Court also held that Section 107A, not being subject to any other provision of the Act, is not a mere exception, but an independent provision with its own legislative history, and therefore was not subservient to any other provision of the Act.

The Court held that Bayer’s contentions with respect to territoriality of the decision were artificial. It held that neither the quantity used nor the place of research and development, whether in India or abroad, alone were of primary importance in applying this exemption. What was important was the conduct of the individual or entity making, using or selling the patented product, which must be non-commercial and for regulatory purposes.

Pertinently, the Court also relied extensively on the 2000 World Trade Organization (WTO) Panel ruling in Canada-Patent Protection of Pharmaceutical Products, which upheld Canada’s Bolar exemption provision, and held that it was a clear authority holding that quantity alone cannot be conclusive.

The judgment also discussed Article 7, TRIPS and the need to balance IP rights on one end and humanitarian and development goals on the other. It observed that TRIPS recognized the need for research exemptions, and the narrow interpretation is therefore uncalled for.

Nevertheless, the Court, cognizant of the fact that the export of a patented invention can be troublesome for the patentee, observed that the question of what was “reasonably related” to satisfy compliance with regulatory processes in or outside India would have to be answered on a case by case basis. The courts will have to conduct an inquiry to determine if the provision is applicable by examining various factors including:

  1. The nature of the product sought to be exported.
  2. Details of the foreign party importing the product.
  3. The quantity sought to be exported.
  4. Particulars of the end use of the product.
  5. Particulars of the relevant regulations in the country of import (including quantity required by the regulatory authorities).
  6. Undertakings from the defendants.
  7. If necessary, verification through the Indian mission abroad regarding authenticity of the importer and its facilities abroad.

The court clarified that these aspects are merely indicative and not exhaustive. Accordingly, the matter of Bayer Intellectual Property GMBH & Anr. v. Alembic Pharmaceuticals Ltd. was also remanded to the lower court to hold an inquiry into whether export of 1,000-2,000 tablets constituted reasonable use.

Analyzing the Pros and Cons

This judgment certainly provides clarity on what was previously a highly contentious issue under Indian patent law. India has often been called the “pharmacy of the developing world” due to the contributions of the Indian generic industry in providing access to medicines in other underdeveloped nations. This judgment furthers India’s stance in prioritizing public health over private patent rights. In fact, this judgment goes even further by prioritizing public health in other countries rather than just in India. The decision means that India’s Bolar exemption is now one of the most liberal among the leading jurisdictions.

However, there is one major gap in the Court’s reasoning. It justified its decision by referring to provisions of the Indian Constitution and precedents guaranteeing the right to health of the Indian people, although the applicability of Section 107A within India was not even a point of controversy in this matter—it pertained only to exports. Nevertheless, the Court appears to have extended these rights globally without suitable justification.

Further, there are some aspects of the decision that are ambiguous. The decision first states that intent, not quantity is what is relevant. However, it then goes on to list quantity as a factor to be considered by the court in its inquiry of the applicability of the provision. Also, the civil suit of Bayer v. Alembic was likewise remanded to the lower court to review the quantity sought to be exported. Therefore, the judgment remains vague on the relevance of quantity in determining the applicability of the exemption. Nevertheless, it appears that as long as the exporter can justify the quantity sought to be exported on the basis of regulatory compliances of the country of import, they will be able to claim this exemption.

Additionally, the decision also provides for verification of foreign third parties and their facilities through Indian missions abroad. This means that in case the court is not satisfied with the explanations of the defendant, it may direct the Indian Mission in the relevant country to verify, either physically or otherwise, the authenticity and premises of the foreign party and review their activities. However, it is a well-established principle of international law that the diplomatic missions of foreign countries have no jurisdiction in the receiving country, including in matters of trade and commerce. In light of this, the Court’s holding in this regard appears arbitrary, and it does not appropriately define the contours of the activities that the Indian mission can legally undertake for the investigation of the credentials or facilities of the foreign party.

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