EROSION OF EXCLUSIVE MARKETING RIGHTS- BOON FOR THE PHARMACEUTICAL SECTOR

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1 IPR & TECHNOLOGY BULLETIN EROSION OF EXCLUSIVE MARKETING RIGHTS- BOON FOR THE PHARMACEUTICAL SECTOR Contents Introduction What is EMR? Provisions of TRIPS TRIPS and India s compliance Consequences Eradication of EMRs and introduction of product patents Disadvantages of product patent Opposition against compulsory licensing New era for the pharmaceutical companies...6 Conclusion...6 PSA Legal Counsellors E-601, Gauri Sadan 5, Hailey Road New Delhi India Tel: Fax:

2 INTRODUCTION A patent is a limited monopoly given to individuals and corporations for a limited number of years for technological inventions by preventing others from using the patented technology. Broadly patents can be classified into process and product patents. A process patent means that the monopoly is in the process of manufacturing the product and not on the product per se. On the other hand, the product patent gives a monopoly on the product itself that prevents others to manufacture, sell, distribute and import the patented product without the authorization of the patent holder. Monopoly generally results in high price and puts the patented product out of reach of majority of people. Therefore, the earlier Patents Act, 1970 did not contain provisions of product patent. Investments to sustain Research and Development ( R&D ) for the production of new drugs are exorbitant. As a result considering the increasing rate of piracy, the Trade Related aspects of Intellectual Property Rights ( TRIPS ) thought appropriate to include the concept of Exclusive Marketing Rights ( EMR ). TRIPS stipulated a period of ten years to all countries which did not have product patent in their patent law to incorporate the concept. Within this time the member countries are under an obligation to accept applications for product patents for certain products and grant EMR valid for a period of 5 years or till the time the patent is granted or rejected, whichever is earlier. The present bulletin provides an insight into the concept of EMR in India, the objective and consequences behind its introduction, its eventual deletion and impact on the pharmaceutical companies. 1. What is EMR? EMRs were introduced as an effective way to stall imitation of patented products by the local industry. It is a privilege granted in anticipation of a patent right. EMRs offer rights similar to that of patents. Chapter IV-A of the 1999 Patents Act of India laid down certain preconditions for the grant of EMRs. On satisfaction of these conditions EMR was granted for a period of five years or till the grant or rejection of patent, whichever is earlier. The grant of EMR means that the patent-like protection would be extended to the product even before the patent application is processed. However, before a claim is made, an application for the same invention should have been filed in a member country on or after January 1, The patent grant and approval to sell and distribute the invention should be granted in that country on or after the date of making a claim in India. Moreover, the approval to sell or distribute the invention should be granted by the authority specified in this behalf. 1 The inclusion of only process patent in our patent law essentially meant that an Indian pharmaceutical company could find an innovative way to make an existing drug through the process of reverse engineering. To curb this and to comply with the TRIPS provisions, the Patents Act, 2005 ( Act ) 1 In India, the Drugs Controller General of India is the specified authority. 2

3 was enacted to formalize product patents in pharmaceutical and agricultural inventions. This led to the erosion of EMR. 2. Provisions of TRIPS The TRIPS agreement allows any developing country member to delay the application of provisions concerning patents for products, if the subject matter of invention falls in an area of technology not patentable in that member country when TRIPS came into effect. Pharmaceuticals fall under such areas. Such delay may be five years 2 added to the four years 3 general delay granted to developing countries and the one year delay granted to all members, for a total of ten years. A Least Developed Country ( LDC ) 4 is entitled to a general transitional period of 11 years. The TRIPS council shall, upon requests by an LDC member, allow extension of this period. Member countries which do not grant product patent for the inventions relating to pharmaceuticals and agro-chemicals are required to provide EMR if the following conditions are fulfilled: (a) (b) (c) (d) An application for the grant of patent has been filed Marketing approval has been obtained A patent has been granted for that product in another country and Marketing approval has been obtained in such other country. Such EMRs will be granted for a period of five years after obtaining marketing approval or until a product patent is granted or rejected. 2.1 TRIPS and India s compliance The earlier Patents Act of I970 was amended by the Patents (Amendment) Act, 1999 to include the provisions of EMR. Accordingly, certain conditions 5 were listed as preconditions to be met by the inventor to get an EMR. The first company to get an EMR in India was Novartis for its Glivec 6. Wockhardt s topical antibacterial drug nadifloxacin or Nadoxin, United Phosphorus (an Indian company) for fungicide saaf and Eli Lilly for erectile dysfunction medicine, Cialis (Tadalafil) were also granted EMR. The grant of these EMRs left many pharmaceutical companies aggrieved. Novartis initiated efforts to enforce its EMR against the generic companies which manufactured drugs with the composition including glivec (as only process patent and not product patent was included in the patent law at that time) and sold them at considerably low prices. With the rising efforts of Novartis, the local pharma companies faced a lot of restrictions with 2 Article 65.4 of TRIPS. 3 Article 65.2 of TRIPS. 4 A list of LDCs is determined by the General Assembly of the United Nations Organization once every three years based on certain criteria like income measured by GDP per capita, human resources, and level of economic diversification. 5 Chapter IVA of the 1999 Act. 6 Blood cancer drug. 3

4 respect to its products and they started exploring various legal options, either in an individual capacity or as part of an association resulting in the erosion of EMR. 3. Consequences The consequences of such interim EMRs proved to be disastrous. They lacked a review mechanism and it was difficult to check abuse resulting from monopoly. If the patent application failed to materialize as a grant, it would mean that the EMR holder obtains a monopoly in selling and distributing products during the period of grant of EMR and exclusive exploitation of new markets without the backing of a right to do so. The pharmaceutical companies had to undergo a tedious process when they entered India as it takes years for a new drug to be granted registration by drug authorities of any country after which marketing permission is given. The foreign pharmaceutical companies were hesitant to enter the Indian market because during the time when EMR was effective, many drugs invented in other countries were widely reproduced in India in the absence of product patent protection. Though process patents were protected the patent term was very short ranging from 5-14 years. Thus, in spite of stiff opposition from various sectors, the Indian government enacted the Patents Act, 2005 and eradicated the concept of EMR. 4. Eradication of EMRs and introduction of product patents In compliance with TRIPS, the Patents Act, 2005 introduced the concept of product patent and thereby nullified EMR. With this eradication, it has become easier for companies to apply directly for the patent and market the product. Post-eradication the authorities took away the EMR granted to various companies mentioned earlier and a vast pubic debate, discussed briefly, followed on its flaws. 4.1 Disadvantages of product patent The glaring disadvantage is the increase in prices of drugs, including life-saving ones, which were earlier available at affordable prices. Additionally, the introduction of product patent posed a barrier to a large number of generic drug manufacturers to produce and export low cost drugs. A closer reading of the new Act reveals that it goes far beyond the required mandate under the TRIPS. The scope of patentability has been extended beyond the TRIPS requirements by amending Section 3 (d) to allow patent protection for the new use of known drugs. Thus, for instance if a drug X is used currently for asthma, and at a later stage it is found that it can also be used for fighting cancer, then a patent can be granted for its new use. This will enable pharmaceutical companies to extend the monopoly over the drug even after the expiry of the original patent. There is no obligation under TRIPS to provide patent protection to new use of known drugs. 4

5 Also, pre-grant opposition is eliminated. Currently, there are a bundle of applications pending in the mailbox 7, which were filed after In the absence of pre-grant opposition, these applications will escape much needed public scrutiny crucial to ensure that patents are not granted to drugs that do not qualify for the eligibility of patentability. The inclusion of only process patents in the earlier Act made it clear that in the pharma sector too, only process patent protection will be provided. As a result, more than one person was allowed to make the same drug provided they use different process to make their version of the product (if the process is protected by patent). Further, till 2002 the term of patents for pharmal inventions was only seven years. These two factors enabled competition in the market by permitting more than one producer to produce the same drug. This resulted in the phenomenal growth of Indian pharma industry and increased availability and accessibility of drugs. This is no longer true with the introduction of product patent. The only justification that came from a large number of pharma companies was that the grant of patent monopolies will match up to the large investments required to sustain research for the production of new drugs. 4.2 Opposition against compulsory licensing Even the savings provisions such as compulsory licensing 8 (which allows the over riding of patents in public interest) are rendered cumbersome. The Indian pharma companies rely a lot on export of generic drugs to countries without a manufacturing capacity. This is directly linked to the ability to grant a compulsory license after which manufacturing can take place. The US industry has been opposed to the idea of compulsory licenses for countries like India and Brazil which have the manufacturing capacity to meet the demands at a low cost though they declared compulsory licenses for national emergencies such as the Anthrax scare after 9/11. And, the new Act permits compulsory licensing for export purpose only if there is a compulsory license in the importing country having no or insufficient manufacturing capacity in the pharmaceutical sector. The fact that the LDCs need not provide product patent till 2016 (as per TRIPS) is overlooked here. In the absence of patent protection, issuance of compulsory license is impossible. In that event, the Indian drug companies would not be able to export to LDCs. 9 Even though the chapter on compulsory licenses in the Patents Act, 1970 stated the need for protecting the public interest, the same spirit is not reflected in the substantial provisions in the new Act. Cumbersome procedures without any time line for the final disposal of application makes the compulsory license mechanism an impractical option to curb abuse of patent monopoly. 7 India has established a mailbox system through administrative instructions as per recommendations of TRIPS regarding EMR. More than 2200 applications have been filed in this mailbox. About 600 of these applications have been filed by US companies. 8 Compulsory License is granted by the Controller of Patent Office on an application made by any interested person on the grounds that reasonable requirements of the public with respect to the patented invention have not been satisfied or the patented invention is not available to the public at affordable prices. 9 Lawrence Liang Researcher, Alternative Law Forum, Patents at the cost of patients, retrieved on December 20,

6 5. New era for the pharmaceutical companies Introduction of product patents for drugs and chemicals with a patent term of 20 years in 2005 has proved to be a boon for the pharma companies in India with the restriction on the generic manufacturers of drugs to reproduce the patent holder s drugs. Export of pharmaceutical products from India has been rising day by day. After the introduction of product patent protection only the patent holder or any authorized person through license can produce the patented drug during the lifetime of the patent. As a result, only one manufacturer produces and distributes the patented product. Introduction of product patents means that drug companies which came out with generic versions of expensive medicines at low costs will not be able to do so until the expiry of 20 years of patented life. To adapt to this new patent regime, the industry is exploring business models, different from the existing traditional ones like: Contract research (drug discovery and clinical trials): Limited patent rights may be available to the researchers based on the contract between the researcher and the manufacturer. Contract manufacturing: Patent can be claimed by anybody who is associated with contract manufacturing. Co-marketing alliances: Limited patent rights may be granted to anybody engaged in the marketing of the patented pharmaceutical products under such an arrangement based on the contract. The focus of the Indian pharma companies is, thereby, shifting from process improvisation to drug discovery and R&D. CONCLUSION Though the Patents Act, 2005 that eradicated the concept of EMR to provide for product patent was met with opposition, it has proved to be a useful step for the Indian economy. Most of the patents relating to pharmaceutical products are owned by other countries. Therefore, earlier, India was at a disadvantageous position when it came to global competition in the field. But now, with the introduction of products patent, India is expected to fare well and emerge as a competent participant in the global pharmaceutical market. Contact Priti Suri Mondakini Mahanta Tel: Tel:

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