The IPO’s draft guidelines for biotechnology patents – A cause for worry?

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Close on the heels of finalizing the guidelines for examination of patent applications related to traditional knowledge (TK) and biological materials, the Controller General of Patents has recently published guidelines for the examination of ‘biotechnology patents’. The guidelines can be accessed over here and the public notice can be accessed over here. 

Comments on the same are due by the 11^th of January, 2013. I invite our readers to send in guest posts on the issue, to be published on Spicy IP.

Before discussing the new guidelines, I must voice my concern with the manner in which the guidelines for TK have been finalized. Why has the Controller General not published any of the responses received by the Patent Office? The DIPP always publishes all of the responses it receives to its discussion papers. Why pay only lip service to the process of public consultation? We deserve to be informed on how the guidelines have been received by the patent community.

With regard to the draft guidelines for biotech patents, it appears that the patent office has spent quite some time in preparing these guidelines. Although the guidelines fail to expressly state so, it should be remembered that, like the Patent Office Manual, these guidelines, do not have the force of law. They have not been prescribed under any provision of the Patents Act, 1970 and as such should not have any binding effect on the Controllers & Examiners involved in the examination process.

What I find particularly disturbing is the numerous examples and the definitive language used in the guidelines. This is not in keeping with the conventional practice of using manuals and guidelines to only collate judicial interpretation of patent law, in order to update the examiners and controllers on the latest judicial precedents along with patent office practices in past cases. Manuals and guidelines cannot be used to prejudge cases. 

   

The draft guidelines for biotech patents: The general theme of the current guidelines is aimed at increasing the standards of patentability for biotech patents and if implemented, I can only assume that these guidelines will make it very, very difficult to secure biotech patents in India.

I’ve discussed a few of the problematic issues with these guidelines below:

(a) The morality patents: On page 11, the guidelines deal with the impact of Section 3(b), which prohibits the patenting of inventions contrary to morality. The guidelines interpret this provisions to prohibit the following inventions: “A few non limiting examples may further clarify the issues: (a) a process for cloning human beings or animals; (b) a process for modifying the germ line of human beings; (c) a process for modifying the genetic identity of animals which are likely to cause them suffering without any substantial medical benefit to man or animal, and also animals resulting from such process; (d) a process for preparing seeds or other genetic materials comprising elements which might cause adverse environmental impact, like terminator gene technology; (e) uses of human embryos for commercial exploitation.”

Two issues arise with the above conclusions:

(1) Since when has the patent office started bothering itself with ‘terminator genes’ and how do ‘terminator genes’ offend anybody’s morality, especially when the Ministry of Agriculture seems to be encouraging Monsanto’s use of such genes? Is the Patent Office trying to call the Agriculture Minister Mr. Sharad Pawar an immoral man? The insertion of that phrase in the guidelines gives rise to the suspicion that these guidelines have been drafted by certain interest groups who are using the Controller General’s office to push forward their agenda;

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(2) Since when did India have a ‘moral issue’ with using human embryos for commercial exploitation? Although the guidelines do not state so, I am assuming that the prohibition is targeted primarily against harvesting stem cells from human embryos. This issue generated considerable heat in Christian countries where abortion is either prohibited or frowned upon. The situation is drastically different in India where there has been no debate on abortions and if I am not mistaken government hospitals themselves carry out abortions.  

Both of the above examples raise issues of how and why the Patent Office is seeking to define the standards of morality for the future of science. Such decisions are best taken by our elected representative and not bureaucrats. The guidelines on Section 3(b) should therefore be deleted without any mercy for its contents.      

(b) The bar against the patenting of micro-organisms: The guidelines deal with the patenting of micro-organisms under Section 3(c) and Section 3(j) of the Patent Act. Section 3(c) is a standard provision of patent law around the world and prohibits the patenting of scientific principles and discovery of any living or non-living substance occurring in nature. Section 3(j) prohibits the patenting of plants and animals other than micro-organisms.

The guidelines, on page 12, prohibit the patenting of micro-organisms which are directly isolated from nature, while on page 16 it states that a co-joined reading of Section 3(c) and Section 3(j) implies that only genetically modified micro-organisms are patentable subject matter.

Why is there is a need to read this provision along with Section 3(c) when Section 3(j) is so clear on the patenting of micro-organisms?

(c) ‘Therapeutic Efficacy’ in Section 3(d): At a time when the issue of interpretation of Section 3(d) is sub judice before the Supreme Court, one would have expected the Patent Office to have inserted a caveat in the guidelines, holding off on the interpretation of Section 3(d) until the interpretation of ‘efficacy’ is settled by the SC. Instead the guidelines declare that only ‘therapeutic efficacy’ of the inventions will be considered.

Should Section 3(d), which was drafted with the intent of checking ever-greening in the pharmaceutical industry, also be applied to the biotechnology industry? Was that the legislative intent?

(d) Method of treatments patents: Section 3(i) prohibits the patenting of “any process for the medicinal, surgical, curative, prophylactic diagnostic, therapeutic or other treatment of human beings or any process for a similar treatment of animals to render them free of disease or to increase their economic value or that of their products.”

This provision does prohibit certain methods of diagnosis, surgery and cure but the provision has always been interpreted by the patent office to permit the patenting of inventions such as diagnostic kits.

The examples provided by the guidelines, hints at a complete bar on the patenting of any gene-based diagnostics. This issue of gene based diagnostics is complicated. The U.S. Supreme Court has recently agreed to hear an appeal in the Myriad patent case. Given the complexity of the issue, why is the patent office jumping to conclusions, especially when its Manual has always been silent on the issue? It should cross the bridge when it comes to it.  

Conclusion: It will be interesting to see how the biotech industry responds to these guidelines. I can only imagine that their lawyers furiously typing away at their keyboards in preparing a response to these guidelines.  

Off-topic: Lowering the Bar at the Delhi High Court

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Usually, I try to keep away ‘off-topic’ issues on the blog but some of the recent events at the Delhi High Court, involving the boycott of Justice Valmiki Mehta are simply too shocking to ignore and I felt compelled to discuss the issue on the blog.

Apparently, upset with the way in which Justice Valmiki Mehta was running his court room, the Delhi High Court Bar Association (DHCBA) resolved through its executive committee that “members of the Bar shall boycott the Court” for one day. According to unconfirmed reports, it appears that the boycott was enforced by physically barricading the doors to Justice Mehta’s courtroom, therefore preventing lawyers from entering the courtroom. The notice of the DHCBA and a news report on the same can be accessed over here on Legally India.  

According to the ‘Notice’ published by the DHCBA, calling for the one-day boycott, the DHCBA was upset with the fact that Justice Mehta was “excessively harsh in imposing costs on an unprecedented scale” and that his “lordship’s demeanour on the Bench has been wanting of this august office”. Without giving any specifics of the cases where costs were imposed, the notice which was written in terribly poor taste and calculated to intimidate, if not humiliate the judge, laments how “Conspicuously it looks like that the Bar as a whole can be subjected to the caprices of an ‘knight errand’ despite the fact that it always conducts its business as prudent officers of the Court”.

As if such denigrating language was not enough, the notice also states that its repeated complaints to successive Chief Justices have not resulted in any ‘carminative effects’. I had to look up the meaning of the word in the dictionary, it means and I quote “expelling gas from the stomach or intestines so as to relieve flatulence or abdominal pain or distension”. (Merriam-Webster Dictionary)

Is this the language that the lawyers of the Delhi High Court have been reduced to, especially when they are the ones complaining of ‘brusque remarks’ from the judges of the Delhi High Courts? Is this the language that we expect to hear from ‘prudent officers of the court’?

One would expect a notice of this kind to actually educate its readers on the nature of the complaint instead of indulging in rhetoric, hyperbole and name-calling. Clearly, that is expecting too much because the notice gives absolutely no specifics of Justice Mehta’s conduct. Which case, how much costs, what were the circumstances involved? How can you condemn any man, more so a judge, without even explaining the specifics of his alleged crime?

The greater crime however is the ‘resolution’ that follows from the 2 paragraph charge-sheet: the first being the boycott and the second being the brazen demand that Justice Mehta, who currently is an additional judge, not be recommended “for a further extension of his tenure or for confirmation”.

Before being elevated to the Bench in April, 2009, Justice Mehta was a Senior Advocate, of considerable repute and who had a booming private practice before the Delhi High Court. Like most of his brethren, he could have presumably continued to mint money at the Bar. Yet, he opted for public service, a difficult choice for any successful lawyer. That Justice Mehta is hard-working is beyond doubt and that is evidenced by the fact that since he was elevated to the bench, in 2009, he has delivered, according to the website of the Delhi HC, a total of 1,203 judgements, which is more than double  the average of the Delhi High Court. Since lawyers in India today are the biggest and most inefficient cogs in the judicial machine, with their constant requests for unwarranted adjournments, it can only be assumed that Justice Mehta achieved this prodigious feat of delivering 1203 judgements, by running a strict courtroom with few adjournments and heavy costs on errant lawyers. Costs imposed by a single judge, can always be appealed and in a fit case, set aside.        

Given his stellar record on the bench and the ever-present option to appeal his erroneous orders, one would have expected the DHCBA to make out a case, which goes beyond name-calling and flatulent pejoratives. 

Instead such intimidation only serves to reduce the morale of judiciary and coerce judges to be lenient towards the coterie of lawyers who are powerful within bar associations. It is quite obvious that the notice seeks to make an example of Justice Mehta and send out a signal to the remaining judges in the High Court. 

As for the reports of lawyers physically barricading his courtroom, if true, this is a clear cut case of contempt of court since it results in interfering with the administration of justice, more so than the alleged misreporting by the media of Supreme Court proceedings. Unfortunately, contempt proceedings almost never work when it comes to bar associations or lawyers and the DHCBA is going to get away scot-free with its conduct.

SpicyIP Events: The First NLS-TIOL Taxation Law Conference

The Moot Court Society of National Law School of India University, Bangalore, in association with Tax India Online, is organising the 1^st NLS-TIOL Taxation Law Conference on 6^th January, 2013 along with the NLS TIOL Moot Court Competition. The Conference seeks to trace out the developments since the proposed introduction of General Anti-Avoidance Rule in the Finance Act, 2012. While the Shome Committee has made certain recommendations that provide clarity with respect to the application of GAAR, some recommendations are a cause for concern. Further, the manner in which the GAAR  is to be applied in India, under the Income Tax Act and under the proposed Direct Taxes Code remain controversial and must be debated. The entire concept note can be accessed over here.

The Conference will witness a congregation of persons of eminence from the Legal and Accounting fields – Mr. Mohan Parasaran, Additional Solicitor General, India, Mr. Nishith Desai, Founder, Nishith Desai & Associates, Mr. Nageswar Rao, Partner, PDS Legal, Mr. Parmanand Kincha, Partner, M/s H C Khincha & Co, Bangalore, Mr. Rupesh Jain, Partner, Vaish Associates, Mr. P.K. Prasad, Director of Income Tax, Bangalore. The session will be moderated by Mr. Mihir Naniwadekar, Advocate, Bombay High Court.

The Conference will be organised on Sunday, 6^th January, 2013 at Vivanta by Taj, Bangalore. Registration Fee for the Conference is Rs. 1500 for Professionals and Rs. 200 for Students. Details will be put up on www.nls.ac.in  and http://www.taxindiaonline.com/RC2/adpage/NLS_TIOL_MOOT.htm shortly. For any queries, kindly mail nlstaxmoot@gmail.com or contact the following for details:

Mr. Dheer Bhatnagar:      +91 9986538654

Ms. Jahnavi Sindhu:        +91 9538960420

Ms. Deekshitha Ganesan:  +91 8050055308

Spicy IP Weekly Review: December Weeks 2 and 3

For the readers of Spicy IP, we bring yet another sum-up of IP news and events in the past few days to mark the festive season.

It started with Rajiv coming up with the list of the 102 decisions that the Controller’s Office has come up with in November, 2012.

 

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This was followed by a guest post from Snigdha Roy, a 3rd Year student from GNLU, as the first installment in the Spicy IP Fellowship post-series. She discussed some of the problems that modern copyright law has presented to the print disabled and commented upon the mixed success of efforts with the new copyright amendments on the one hand and the failure of the International Treaty of the Blind to make any headway on the other. Swaraj followed this up with a subsequent look into the various reports and opinions about the treaty.

Rajiv then came up with a penetrating analysis of an IPAB decision (Bayer v. UOI), wherein the practice of filing multiple applications for the same invention and calling them as divisional applications was formally put to an end. 

 

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This was followed by Prashant reporting an US move of appointing Justice Sri Krishna, a retired judge of the Indian Supreme Court, as a neutral witness in the Cadila Healthcare Ltd. Case to render an opinion on the position of ‘in-house’ counsel in the Indian legal system and whether the communications involving such a counsel were confidential under Indian law.

Prashant then came up a brief examination of the validity of the claim by Big Pharma companies that they are targeting only the prosperous middle class which can afford their drugs and not the poor of the country, to whom they supply their drugs free under their patient assistance programs.

A post was then put up extending the eligibility of the Spicy IP Fellowship Program to all interested persons and not only students and recent graduates.

A guest post by Amshula Prakash, a 4th Year student from NLSIU, analyzing certain aspects of the Apple-Samsung tussle, was the next in line, as a part of the Fellowship post-series.

Another guest post in the Fellowship series followed forth, this time by Madhulika Vishwanathan, an experienced patent agent, critiquing the Guidelines for Processing of Patent Applications relating to Traditional Knowledge and Biological Material.

A post of mine was to follow this, on a recent market analysis by Business Standard on the adverse repercussions of the Indian government’s decision to waive the requirement of payment of such royalty by Indian companies to multinational corporations to be subjected to prior government approval (by the Project Approval Board in the Department of Industrial Policy and Promotion), instead allowing such payments up to any amount by the automatic route, with an intention to promote modern technology transfer to India.

Shan then came up with a brief bird’s eye view of the salient features of the National Pharmaceuticals Pricing Policy, 2012 that is due to replace the Drug Policy of 1994 and the industrial reactions to the same.

Finally, Mathews put up an insightful post stating how Section 27 of Geographical Indications of Goods (Registration and Protection) Act, 1999 allows filing of rectification application on a ground of public interest as per the Supreme Court judgment in Hardie Trading Ltd. and Anr. v. Addisons Paint and Chemicals Ltd. and the IPAB order in the Payyannur Ring matter.

International Developments

In true Christmas spirit, Mark Cuban, the owner of the Dallas Mavericks National Basketball Association team and Swedish game developer Markus “Notche” Persson have donated $500,000 to a digital rights advocacy group Electronic Frontier Foundation to “fix” what Cuban says is a broken patent system.

Disney won the contest of its trademark rights over the Winnie the Pooh characters against Stephen Slesinger Inc. before the US Appeals Court.

National Football Scouting Inc., the scouting arm of the National Football League lost a copyright case in the US District Court of Tacoma against a Washington State resident, who wrote about its annual scouting reports for a sports-oriented website.

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Microsoft has won a U.K. ruling invalidating Motorola Mobility Holdings Inc.’s patent protection for technology synchronizing message statuses across multiple devices on ground of obviousness. On another turn of events, Microsoft has been revealed to own a peculiar patent that lets one hug someone over the internet using a robotic pillow!

A group including giants like Apple, Google, Facebook and Amazon has agreed to buy patents from bankrupt Eastman Kodak Co. for about $525 million, gaining the right to use the digital technology to capture and share photos.

In the Samsung-Apple saga, the EU is probing whether Samsung violated agreements to license key patents to other mobile-phone manufacturers on fair, reasonable and non-discriminatory terms, known as FRAND.

The US attaché stationed in Geneva has recently submitted a report accusing local NGOs operating at the WTO and UN agencies of efforts to undermine IP.

On a welcome turn of events, China has announced a legislative amendment being under way to crack down on "malicious" trademark registrations, which have allowed local companies to misuse well-known names and brands.

Finally, at the close of the 28th session of the Standing Committee on the Law of Trademarks, Industrial Designs and Geographical Indications meeting under the WIPO aegis, dedicated to the future treaty on industrial design law and practice, delegates have agreed to continue working on the draft, as well as pay heed to the divergent views on how to integrate technical assistance and capacity building into the treaty.

 

That's all for now, readers. We'll get back to you once again with the review before the new year begins. Till then, happy reading!

Filing rectification application under the GI Act, 1999

[*Long Post]
 
As you are aware of, rectification application can be filed under Section 27 of Geographical Indications of Goods (Registration and Protection) Act, 1999 (“GI Act”). I intend to examine whether the aforesaid provision allows filing of rectification application on the ground of public interest. I shall argue in affirmative relying on the Supreme Court judgment in Hardie Trading Ltd. and Anr. v. Addisons Paint and Chemicals Ltd. (“Hardie Trading Ltd”) and IPAB order in Payyannur ring [covered here]. Prashant had earlier inter alia covered this issue here.

Section 27 of the GI Act empowers the Registrar to cancel or vary any registration and thereby rectify the register. The provision gets triggered when an “aggrieved person” applies to the Appellate Board or to the Registrar. Does “aggrieved person” include person acting on public interest? Or does it mean that an applicant is required to adduce evidence to the effect that he is directly harmed by the registration? 

I.                   Hardie Trading Limited

The Supreme Court, in the instant case, examined “person aggrieved” in Sections 46 and 56 of Trade and Merchandise Marks Act, 1958 (“TM Act, 1958”). While Section 46 dealt with the removal of a registered trademark from the register on the ground of non-use, Section 56 dealt with situations where the initial registration should not have been or was incorrectly made.

The Court held that the phrase "person aggrieved" for the purposes of removal on the ground of non-use under Section 46 had a different connotation vis-a-vis the phrase used in Section 56 for cancelling or expunging or varying an entry wrongly made or remaining in the Register. In the latter case, the locus standi would be ascertained liberally, since it would not only be against the interest of other persons carrying on the same trade but also in the interest of the public to have such wrongful entry removed. The Court relied on judgment delivered by House of Lords in the matter of Powell's Trade Mark 1894 (11) RFC 4: "... although they were no doubt inserted to prevent officious interference by those who had no interest at all in the Register being correct , and to exclude a mere common informer, it is undoubtedly of public interest that they should not be unduly limited, inasmuch as it is a public mischief that there should remain upon the Register a mark which ought not to be there, and by which many persons may be affected, who, nevertheless, would not be willing to enter upon the risk and expense of litigation.

Wherever it can be shown, as here, that the Applicant is in the same trade as the person who has registered the trade mark, and wherever the trade mark, if remaining on the Register, would, or might, limit the legal rights of the Applicant, so that by reason of the existence of the entry on the Register he could not lawfully do that which, but for the existence of the mark upon the Register, he could lawfully do, it appears to me he has a locus standi to be heard as a person aggrieved."

On the other hand, if the ground for rectification is merely based on non-use, it does not amount to public mischief by way of an incorrect entry. The non-user does not by itself render the entry incorrect. It gives an affected interested person the right to apply for its removal. An applicant must therefore show that "in some possible way he may be damaged or injured if the trade mark is allowed to stand; and by "possible" I mean possible in a practical sense, and not merely in a fantastic view. .... All cases of this kind, where the original registration is not illegal or improper, ought to be considered as questions of common sense, to a certain extent, at any rate; and I think the Applicants ought to show something approaching a sufficient or proper reason for applying to have the trade mark expunged. It certainly is not sufficient reason that they are at loggerheads with the Respondents or desire in someway to injure them."

It is, thus, evident that the Court drew a clear distinction between Section 46 & 56 of Act. I understand that one may, relying on a part of the observation (which is highlighted), argue that the “person aggrieved” has to be in a similar trade.  I do not agree with the aforesaid interpretation as the observation (which is highlighted) reflected the fact situation presented before House of Lords. Further, it was not an absolute observation as the earlier paragraph (which emphasized on the correctness of register) qualified the following paragraph.
 

As stated by House of Lords, “it is undoubtedly of public interest that they should not be unduly limited, inasmuch as it is a public mischief that there should remain upon the Register a Mark which ought not to be there, and by which many persons may be affected, who, nevertheless, would not be willing to enter upon the risk and expense of litigation.” If the objective is to preclude public mischief and maintain the correctness of register, the ambit of “person aggrieved” cannot be limited to those who are in the same trade.

Section 56 of TM Act, 1958 and Section 27 of GI Act

As evident from the following table, Section 56 of TM Act, 1958 and Section 27 of GI Act are almost identical provisions. The judgment in Hardie Trading, therefore, acquires significance vis-à-vis GI Act.

Section 56 of TM Act, 1958 - Power to cancel or vary registration and to rectify the register	Section 27 of GI Act – Power to cancel or vary registration and to rectify the register
On application made in the prescribed manner to a High Court or to the Registrar by any person aggrieved, the tribunal may make such order as it may think fit for cancelling or varying the registration of a trade mark on the ground of any contravention, or failure to observe a condition entered on the register in relation thereto.	On application made in the prescribed manner to the Appellate Board or to the Registrar by any person aggrieved, the tribunal may make such order as it may think fit for cancelling or varying the registration of a geographical indication or authorised user on the ground of any contravention, or failure to observe the condition entered on the register in relation thereto.
Any person aggrieved by the absence or omission from the register of any entry, or by any entry made in the register without sufficient cause, or by any entry wrongly remaining on the register, or by any error or defect in any entry in the register, may apply in the prescribed manner to a High Court or to the Registrar, and the tribunal may make such order for making, expunging or varying the entry as it may think fit.	Any person aggrieved by the absence or omission from the register of any entry, or by any entry made in the register without sufficient cause, or by any entry wrongly remaining on the register, or by any error or defect in any entry in the register, may apply in the prescribed manner to the Appellate Board or to the Registrar, and the tribunal may make such order for making, expunging or varying the entry as it may think fit.
The tribunal may in any proceeding under this section decide any question that may be necessary or expedient to decide in connection with the rectification of the register.	The tribunal may in any proceeding under this section decide any question that may be necessary or expedient to decide in connection with the rectification of the register.
The tribunal, of its own motion, may, after giving notice in the prescribed manner to the parties concerned and after giving them an opportunity of being heard, make any order referred to in sub- section (1) or sub- section (2).	The tribunal, of its own motion , may , after giving notice in the prescribed manner to the parties concerned and after giving them an opportunity of being heard, make any order referred to in sub-section (1) or sub-section (2)
Any order of the High Court rectifying the register shall direct that notice of the rectification shall be served upon the Registrar in the prescribed manner who shall upon receipt of such notice rectify the register accordingly.	Any order of the Appellate Board rectifying the register shall direct that notice of the rectification shall be served upon the Registrar in the prescribed manner who shall upon receipt of such notice rectify the register accordingly.
The power to rectify the register conferred by this section shall include the power to remove a trade mark registered in Part A of the register to Part B of the register.

II.                IPAB Order on Payyanur Ring

IPAB was quite unequivocal in SubhashJewellery v. Payyannur Pavithra Ring Artisans when it held that “in Intellectual Property Right related matters be it G.I., Patents or Trademarks the dispute is really not inter-partes alone, there is always the issue of public interest. The Geographical Indication Registrar and this Board must protect this public interest.” (paragraph 32)

GI Registrar’s Order on Tirupati Laddu [Sai Vinod had earlier blogged on the GI Registrar’s Order here.]

Mr. Praveen Raj filed the rectification application as a person who represented public interest. The Assistant Registrar, vide his Order, rejected Mr. Praveen Raj’s petititon inter alia on the ground of absence of locus standi. According to the Order, “the rectification applicant never elucidates how he was wounded by the registration of the product. On the other hand, it is the duty of the rectification applicant to set out fully the nature of the applicant’s interest in the registered product. The rectification applicant was unsuccessful to satisfy this Tribunal on this issue of his interest towards the registered GI.” Further, it was held that the applicant was not involved in similar trade or manufacturing a similar GI product and therefore, had no locus standi.

In the light of Supreme Court judgment in Hardie Trading Ltd and IPAB order on Payyannur ring, the Order is dubious vis-à-vis its merits on the issue of locus standi. If an intellectual property right dispute engrains the issue of public interest (as held by IPAB in its Order on Payyannur Ring), why cannot a “person aggrieved” be a public spirited citizen? If the Registrar and the Board are expected to protect public interest (as held by IPAB in its Order on Payyannur Ring), how can they reject an application filed on the ground of public interest?

National Pharmaceutical Policy 2012

In an earlier post (here) we had blogged about the National Pharmaceutical Policy 2011 and its essential features.  The last post left off at AIDAN’s (All India Drug Action Network) PIL (Public Interest Litigation) and the Supreme Court’s (SC) observations that the government should ensure that the prices of essential drugs reduce rather than escalate.  During the hearing of this PIL the SC recently directed the Government to expedite the notification of the policy. It was notified on 7 December 2012. The full policy can be found here.

The National Pharmaceuticals Pricing Policy, 2012 will replace the Drug Policy of 1994 and is intended to be a continuation of the 1994 Policy.

Key points in the policy are:

• The ceiling price of drugs will be fixed by adopting simple average price of all brands having a market share more than or equal to 1% of the total market turnover of that medicine. The ceiling price would be fixed on the basis of dosage per tablet, capsule standard injection volume. This approach is different from the weighted average price of top brands which was a severely criticised feature of the earlier policy. Experts believed that the weighted average calculation method would have driven up prices of essential drugs rather than reduced them.
• Imported drugs have been brought within the purview of the policy for the first time.
• Drugs patented under the Indian Patents Act, 1970 and which have been made as a result of indigenous products or process have been exempted from price control for a period of five years. Further, a formulation involving a new delivery system developed through indigenous R&D would be eligible for exemption from price control for a period of 5 years from the date of its market approval in India.  This could mean that some essential medicines will be kept outside the ambit of price control. However on the face of it, it seems to have been brought in to incentivise investment by pharma companies.
• One of the fears was that since the new policy introduces price controls at the formulation stage manufactures could easily bypass price control by combining the essential drug with another drug or a non-essential drug however the policy addresses this problem by stating that in such cases manufacturers shall be required to seek price approval from the Government before launching the new drug.
• Prices of non price control drugs will also be regulated to a certain extent, the policy states that the Government will ensure that their prices are not raised by more than 10% in a year.
• There is still no final decision of the status of patented drugs. Their prices will be decided by a separate committee.

Reaction from the Industry

The policy seems to have been received with mixed feelings. Neither the industry not the activists seem completely happy with it. 

• Most feel that the recent changes to the calculation of prices will definitely bring down prices of drugs but will severely hit the larger players (who may have to take a hit of about 15%-20% in revenues) in the market which could in turn effect investment in the sector. (However in this article available on Pharmabiz here, P.A.Francis argues why he thinks this is an industry friendly policy after all).
• One view from the industry seems quite favourable to the policy, Shakti Chakraborthy, the President of Lupin Ltd Group while commenting on the policy stated, “It is a good thing that the government has chosen to adopt a market-based mechanism as against a cost-based mechanism, thus protecting industry interest to a large extent as also ensuring that drugs reach patients in a cost-effective manner."
• The main bone of contention for the activists seems to be the government’s decision to opt for market based pricing rather than cost based pricing. They feel that this method will almost certainly lead to an overall rise in prices.

The SC is expected to examine the policy and hear further contentions based on AIDAN’s PIL in the second week of January. This seems to be a policy whose full effects will probably be clear only once it is implemented.

Royalty Payment by Subsidiaries: Bane of Minority Investors?

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Payment of royalty has been one of the time-honoured ways of incentivizing knowledge and technology transfer and usage of brand name or trademark for business affairs. Few years back in 2009, the Indian government had waived the requirement of payment of such royalty by Indian companies to multinational corporations to be subjected to prior government approval (by the Project Approval Board in the Department of Industrial Policy and Promotion). Instead, such payments up to any amount had been allowed by the automatic route, with an intention to promote modern technology transfer to India.

A recent market analysis by Business Standard has revealed that such relaxation of norms is being used by the multinational corporations to squeeze out a huge chunk of the profit made by their Indian arms in the form of royalty payments and technology transfer fees. This is in turn depriving the minority investors in those Indian concerns of their rightful dividend.

The analysis, involving a survey of 75 BSE 500 companies, has identified a trebling of royalty payments and technology transfer fees paid by these companies over the last four years, whereas the sales growth and cumulative net profit growth are chalked at 79.6% and 31.2 % respectively. As a result, the profit margin of these companies has dwindled perceptively. Instead of distributing the profit earned in the form of dividend so as to benefit all the shareholders, the companies are leaning more and more towards satisfying the controlling shareholders, viz. the foreign corporations to whom the royalty and transfer fees are going, at the expense of others. The smaller the company, the steeper seems the rise in royalty payment during this period.

The government probably never intended such an outcome when it had relaxed the royalty payment norms 4 years ago, but it may have to come to terms with the fact that it is from that move only that this scenario has resulted, a conclusion that has received support from experts like the proxy advisory firm Institutional Investors Advisory Services. IIAS has carried out its own study and opined that the foreign sponsors do not seem concerned about the impact royalty payments have on the bottom line of Indian subsidiaries and the personnel who are negotiating the quantum of royalty on behalf of the subsidiaries are often employed by the parent foreign bodies, which of course does not augur well for driving a competitive bargain.

The questions that are increasingly worrying the minority investors include the difficulties involved in quantifying the value of technical knowhow being transferred, whether the usage of foreign brand names and trademark actually has any positive bearing on sales and profit margins and whether the use of the latest technology has actually lowered manufacturing costs etc. The disproportionate increases in royalty payment and profit seem to indicate that the worst fear of these investors is not entirely ill-founded. There have even been instances where companies have not announced any dividend at all during this period, but have been steadily paying out royalties!

Nor is this phenomenon confined to any specific industry, with companies having as diverse business interests as Maruti Suzuki, ABB and Nestle India having the top 3 slots for royalty payments. Given the usual strict stance of Indian corporate regulators like SEBI towards safeguarding the interest of minority shareholders, it is a wonder why it took such a long time for this phenomenon to be discovered. While payment of royalty and technology transfer fees is of course an integral part of attracting and incentivizing the latest technology, yet such encouragement is only desirable as long as it plays a significant role in enhancing the business efficiency and profit margins insofar as corporate bodies are concerned.

Guest Post: Traditional knowledge patent applications: Need for deliberation

We are happy to bring you yet another guest post in our SpicyIP Fellowship applicant series. Madhulika Vishwanathan brings our attention to the Dec 18th announcement of the final version of the Guidelines for Processing of Patent Applications relating to Traditional Knowledge and Biological material. Prashant had earlier commented on the draft guidelines here. 

Madhulika is a qualified Indian patent agent, with a Masters in Pharmacology from UDCT, Mumbai. She formerly worked in the patent cell of a biotech company in Mumbai. She provides a brief critique on these new guidelines which advocate enhanced standards of patentability. She writes, "It is unclear as to why these separate guidelines have been issued, when traditional knowledge protection has been adequately afforded by Section 3(p) and existing standards of novelty and obviousness. In the absence of a patent conducive environment, inventions are not commercialized, no sharing of economic benefits occurs, and the consumer and holder of the resource gain nothing." 

Traditional knowledge patent applications: Need for deliberation

The Indian patent office recently released guidelines for processing of patent applications relating to traditional knowledge which are essentially similar to the draft guidelines issued a month back. The guidelines begin by detailing various provisions of the patent act associated with traditional knowledge. It goes on to emphasize the importance of seeking approval from the national biodiversity authority before making any patent  application and also disclosing the source and geographical origin of biological material used. The guidelines also mandate a declaration on Form-1 that the necessary permission from the competent authority should be submitted before patent grant. Furthermore, the guidelines also specify that traditional knowledge related applications should be appropriately screened by examiner in accordance with International patent classification. The guidelines also enumerate several guiding principles for examination of traditional knowledge applications which redefine standards of substantive patent laws.

Guiding principle 1 heightens the threshold for novelty and implies that if a plant is known in the prior art for treatment of disorder X then the claims related to purified extracts, isolated actives of the plant are already anticipated. The rest of the guiding principles redefine the standards for obviousness/inventive step. Accordingly combinations of plants which are each individually known to provide the same therapeutic effect do not meet this enhanced threshold for obviousness. The guiding principles do not take into account an unexpected synergistic effect wherein the combination may produce an effect far greater than the sum of their individual effects. 

Similarly, a combination of ingredients for treatment of a disease is presumed to be obvious if even one of the ingredients is known to be effective in treating the disease. Furthermore arriving at optimal workable ranges of traditionally known ingredients is not considered inventive. Finally generic disclosures of multiple ingredients known to have the same therapeutic effect can impugn the inventiveness of a specific disclosure.

The worlds of traditional knowledge and patents have been considered to be mutually exclusive since traditional knowledge denotes community interests and patent rights denote personal monopoly. Traditional knowledge refers to a long standing practice within communities. Traditional knowledge evolved over a period of time may be interspersed with knowledge gaps. Innovations which bridge these knowledge gaps add substantial value and transform it into meaningful applications. Natural products play a dominant role in the discovery of leads for the development of drugs for the treatment of human disease. A large majority of allopathic drugs (artemisin, vincristine) are derived from or modeled after natural product leads. 

Such enhanced threshold for novelty and obviousness will impede patenting of quality inventions resulting from existing traditional knowledge base (with appropriate permission from competent authorities and material transfer agreements). Moreover most of the research in Central government laboratories and other academic institutions revolve around ethnomedicine. These substantive patent guidelines for traditional knowledge might serve as a disincentive for research in these areas. Benefit sharing methodologies along with material transfer agreements will protect the rights of owners of traditional knowledge and also contribute to meaningful research.

Development of Jeevani is a good example of equitable benefit sharing between resource holders. As noted in the WIPO report, "in South India the medicinal knowledge of the Kani tribes led to the development of a sports drug named Jeevani, an anti-stress and anti-fatigue agent, based on the herbal medicinal plant arogyapaacha. Indian scientists at the Tropical Botanic Garden and Research Institute (TBGRI) used the tribal know-how to develop the drug. The knowledge was divulged by three tribal members, while the customary rights to the practice and transfer of certain traditional medicinal knowledge within the Kani tribes are held by tribal healers, known as Plathis. The scientists isolated 12 active compounds from arogyapaacha, developed the drug Jeevani, and filed two patent applications on the drug. The technology was then licensed to the Arya Vaidya Pharmacy, Ltd., an Indian pharmaceutical manufacturer pursuing the commercialization of Ayurvedic herbal formulations. A trust fund was established to share the benefits arising from the commercialization of the TK-based drug. 

By hindering the grant of patents, traditional knowledge is not harnessed adequately and this neither benefits the owner of the traditional resource nor the end user. Section 3(p) of Indian patent act along with existing standards of novelty and obviousness are adequate to prevent expropriation of traditional knowledge. Separate guidelines for evaluating traditional knowledge related patent applications are thus redundant and only add to the ambiguity.