CIPLA, LDCs and Parallel Importation: Interesting Times Ahead?

Mr. KS Jayaraman, Nature Correspondent, recently brought some interesting information to my attention: CIPLA has set up a manufacturing unit in Uganda and plans to set up another one in Morocco soon. While I haven’t found a news item corresponding to CIPLA’s plans for Morocco so far, I did find a news item from October last year, where the BBC reported that “Ugandan drugs importer Quality Chemicals will produce the medicines locally with Indian pharmaceutical company Cipla, one of the world’s largest producers of generic drugs. It hopes to sell them in Uganda and other African countries.” Readers would probably know that Uganda is one of the countries classified as a Least Developed Country (LDC) and therefore has time until 2016 to implement the obligations under the TRIPs Agreement. (For a list of LDC’s, see here). Reading this report, the first question that came into my mind was: Will Cipla now use the exemptions under the newly amended section 107A(b) of the Indian Patents Act to import the drugs it produces in Uganda, into India? If it does, India may well see itself dragged before the WTO Dispute Settlement body once again!

Section 107A(b) of India’s Patents Act (as amended by the Patents Amendment Act 2005) reads as follows:

107A Certain Acts not to be considered an infringement. – For the purposes of this Act, –

(b) importation of patented products by any person from a person who is duly authorized under the law to produce and sell or distribute the product

shall not be considered as a infringement of patent rights.

Before the 2005 Amendments, this sub-section read as follows:

(b) importation of patented products by any person from a person who is duly authorized by the patentee to sell or distribute the product.

As it stood earlier, the section was legalizing parallel importation under the principle of international exhaustion of patent rights. Replacing the words “by the patentee”, with the words “under the law” clearly broadens the scope of the section considerably (and that might actually be an understatement!). Under the amended section, products legally sold by any person in any country (with or without the consent or knowledge of the person holding a patent in India) may be imported into India, and such importation will not be considered an infringement of the exclusive rights conferred on the patentee under section 48 of the Patents Act. This may be problematic (from a TRIPs compliance perspective) for a number of reasons:

The TRIPs agreement neither prescribes nor proscribes the adoption by member states of the principle of domestic or international exhaustion. Article 6 states:

For the purposes of dispute settlement under this Agreement, subject to the provisions of Articles 3 [National treatment] and 4 [Most Favored Nation Treatment] nothing in this Agreement shall be used to address the issue of the exhaustion of intellectual property rights.

Further, Article 28 provides that:

1. A patent shall confer on its owner the following exclusive rights:

(a) where the subject matter of a patent is a product, to prevent third parties not having the owner’s consent from the acts of: making, using, offering for sale, selling, or importing (6) for these purposes that product;

Footnote (6) to Article 28, clarifies that “This right [i.e. the right of importation], like all other rights conferred under this Agreement in respect of the use, sale, importation or other distribution of goods, is subject to the provisions of Article 6.”

It is necessary to note here that while TRIPs does not define the term exhaustion, the relevant literature (atleast in the literature that I have come across so for) states that for “exhaustion” to kick in, the patentee must authorize the first sale. The only choice given to member states in relation to exhaustion of patent rights is the choice of permitting or not permitting parallel importation (in other words, recognizing either the principle of domestic exhaustion or international exhaustion or neither).

For those of our readers who are new to this topic, here’s a brief explanation of the concepts: If a country follows the principle of domestic exhaustion, in order for a person other than the patentee to legitimately make a 2nd sale of a patented item, the first sale must have taken place within the geographical limits of the same country where the 2nd sale is being considered. There is therefore no possibility of “parallel importation” in a country that limits the operation of the principle of exhaustion to domestic exhaustion. (For example, the US does not permit parallel importation other than in very limited circumstances.)

On the other hand, under the principle of international exhaustion, if a patentee sells or authorizes the sale of patented products in Country A, any person is permitted to buy the patented goods from Country A and re-sell these in country B, whether or not the patentee has a patent in Country B. This is called parallel importation and it clearly and legitimately eats into the exclusive right of a patent holder to use, sell or import etc. the patented goods. The rationale for the principle of exhaustion is that with the first sale, the patentee has received his reward and he should not be allowed to profit twice by re-selling the same product. However, whether it be the principle of domestic or international exhaustion, the first sale must be authorized by the patentee.

In the light of this discussion, let us come back to S 107A(b): Under section 107A(b) drugs legally sold by a person X in any of the following countries may be legitimately imported into India by any person who buys these drugs from X in these countries:

(1) Countries that are not required to recognize product patents until 2016 (See Article 65, 66 of the TRIPs agreement here with ¶ 7 of the Doha Declaration here)
(2) Countries that do not recognize/grant product patents (for example because they are not members of the WTO)
(3) Countries where a patentee has not applied for or acquired patent rights.
(4) Countries where a compulsory license has been granted for sale of patented drugs.

Can we argue that the rights of the patentee are “exhausted” in any of the above set of countries/situations? For example, in (3) above, can one argue that by not seeking a patent in a particular country, the patentee is impliedly “authorizing” the sale of the drug in that country? Maybe… But can we also argue that the patentee’s rights have been “exhausted” in this country? Hmmm!

What about the sale of patented drugs in countries (1) and (2) above (eg in LDCs like Uganda or in non-member states?) Can these be considered “sales authorized by the patentee?” This would be a more difficult argument to make.

The most interesting arguments would probably be in relation to sales of patented drugs in countries where the sale is “legal” as a result of the grant of a compulsory licenses (Country set (4) above). On the one hand, Article 31 (f) of the TRIPs agreement requires that “any such use [without authorization of the patentee] shall be authorized predominantly for the supply of the domestic market of the Member authorizing such use,” meaning that the compulsory license must be granted to meet the local demand and not for export outside the country granting compulsory license. On the other hand, strictly speaking, since the patentee does get a reasonable royalty on sales resulting from the grant of a compulsory license, the rights of the patentee are indeed “exhausted” and parallel importation ought, arguably, to be permitted.

As of now, I think the above questions/issues are moot. How long they will remain moot, is yet to be seen 😉 If any of our readers have information about CIPLA’s plans in other LDCs, or any parallel importation plans, we would love to know about it.


  1. AvatarAnonymous

    Dear Mrinalini,

    Amongst the most interesting posts on this blog [esp. since I look at this issues].

    I am not sure as to the term ‘duly authorized under the law to produce and sell or distribute the product’ would help people like Cipla.

    Coming from the patent angle, I am not sure that 107{b} will help.
    Look, we need to also look at infringement of a granted patent in India [S. 48 (a)] which clearly stops importation of a product by any one other than patentee/ licensee person to import the product.

    Remember, drugs for India need to be registered with DCGI. So, authorisation would [or should] only come from DCGI. So, the Patentee/ Innovator can try and file for injunction against DCGI should it go ahead and proceed with drug approval.
    That was the DCGI angle.

    On a side note, even Sun pharma has gone ahead and launched manufacturing in Bangladesh [another LDC].

    A guess!

  2. AvatarMidhun

    The post says: “Uganda is one of the countries classified as a Lease Developing Country. Yes, it is an LDC but Least Developed Country.

  3. AvatarMrinalini Kochupillai

    Thanks Midhun for pointing out the error – indeed it is a Least (not Lease :D)Developed Country under the list.

    Also thanks to Anonymous (I think I can make a good guess but wont mention it here :D) for the comments and information.

    I am not certain I understand the Section 48 point you make. Yes, Section 48 gives certain exclusive rights to the patentee as does Article 28 of TRIPs. But Section 107A draws exceptions – it states that these acts would not be considered as infringments of the exclusive rights granted under the Act. (Much as footnote 6 of Article 28 of TRIPs is subject to Article 6). Therefore, not withstanding the exclusive rights of patentees within India, parallel importation (or the super expanded parallel importation provision under Section 107A(b)) would override the exclusive right to import.

    As for the authorization from the DCGI, certainly,authorization is required for import/sale of any drug. But is the DGCI’s approval based on whether or not the drug has been patented? If yes, I would love to know the specific provisions of law and would also wonder why Section 107A(b)’s provisions have not been taken into account. Would love to have more of your insights into the procedure from you.

  4. AvatarAnonymous

    Very interesting post. According to a recent news report Bangladesh has brought in changes in its patent law in an attempt to become a manufacturing centre of generic versions of patented drugs. Bangladesh is a LDC and is permitted under WTO to allow such drugs to be manufactured till 2016. I think there is much the same situation as Uganda. I want to read further on the interplay between this exception under Indian Patent Law and the International exhaustion of rights. Can you guide?

  5. AvatarAnonymous

    Dear Mrinalini,

    a) It was me [not Midhun] who commented on the s. 48 issue.
    b) As for DCGI procedure, the form to be submitted for approval to sell/ manufacture drugs in India does specifically have a patent column. But till date most companies do not fill in this column. Even I am not sure as to how would an applicant in India know which patent has been granted on the product.
    Moreover, there is not clarity on whether process patents should be submitted by the generic applicant or not!

    [Not Midhun]

  6. AvatarMrinalini Kochupillai

    Dear Anonymous

    Thanks once again for the comment. Sorry for responding to yours and Midhun’s comments together.

    Regulatory approval is not dependant on grant or denial of a patent. Even if, as you say, the form for drug approval asks whether the drug is patented, from your response and from what I know, I doubt whether the patent related information (or failure to provide patent related infomation) affects the drug approval process. Often, or as far as I know, patents are granted before a regulatory approval is sought. Further, a regulator can grant approval for sale even if the drug is patented by someone other than the person seeking regulatory approval to sell the drug. In fact Section 107A(a) allows patented inventions to be made, constructd, sold, used or imported “for uses reasonably related to the development and submission of information required under any law for the time being in force in India… that regulates the manufactue, construction, use, sale or import of any product.” In other words, a non-patentee may seek regulatory approval for sale of drugs that may be patented by someone else (say ‘Z’) in India and this would not constitute patent infringement. (This is known as the Indian Bolar exemption, named after a famous US case) However, if, after the approval, this drug is actually used or sold etc. in India without the patentee’s (i.e. Z’s) approal, it would violate the Z’s excusive rights under Section 48. At this point however, Section 107A(b) kicks in if the non-patentee (Lets call her ‘A’) (who has got regulatory appoval in India) has acquired the patented drugs from a person “duly authorised by law” (‘B’ – B need not be Z) to sell the drug. Since the section does not specify a country, so long as B is authorised by law to sell the drug in a country (say Ugana), A can buy the drus from B in Uganda and import the drugs into India and sell them in India. In doing so, A would not be infringing Z’s excusive rights in India because of the wording of Section 107A(b).

    Thank you for your interest in this topic. We’ll continue to blog on this issue and let you know about other resources for further research.

  7. AvatarAnonymous

    Dear Mrinalini,

    Just when we were speaking of DCGI not putting too much importance to the patent section on application for manufacture/ import/ sale of drugs in India, here comes this news report:

    Important statement from the article:
    “Drug Controller to check patents before giving approvals

    Protecting innovations through strong intellectual rights regime

    “We are putting a system in place in which the patent holders can
    inform us of the patented drugs so that DCGI can take cognisance of
    such patents while giving drug approvals.”

  8. AvatarMrinalini Kochupillai

    Dear Anonymous

    Thank you for the news link – this is very interesting. What we’ll have to wait and see is what the DCGI will do with the system. “Taking cognizance of a patent” may have no practical effect in terms of either expediting the approval process (and I strongly feel that drug approval should not be based on presence or absence of patents because there may be many cases where even patented drugs have major short/long term negative effects on health) or in terms of preventing a generic company from seeking a subsequent approval for a generic version of the same drug. As we were discussing earlier, Section 107A(a) of the patents act permits non-patentees to seek regulatory approval for drugs that may have been patented by someone else. Non-patentees cannot however sell the approved generic version of the patented drug unless (i) they are protected by Section 107A(b) or (ii) they have been granted a license (compulsory or voluntary) or (iii)the patent has expired.

  9. AvatarShamnad Basheer

    Dear Varun,

    I don’t think you’ve read the posts on this blog and the 35 odd comments carefully. Rather, you fall into the same trap of rushing to conclusions–something that you accuse Mint of.

    Contrary to your assumptions, the section does not use terms such as “international exhaustion”. Read the section again: it says “duly authorised by law”. It is not the same as international exhaustion..

    Once again, while critiques of newspaper reports are always welcome (since we are all attempting to help them get their facts right), castigating them for shoddy work when all they have done is to highlight a loophole in the law does nothing more than reflect shoddiness on your part.

  10. AvatarMrinalini Kochupillai

    Dear Varun

    Thank you for your detailed analysis. However, I think I’ll have to disagree with your analysis. You say in your post “This practice of parallel importation is legal if the country from which patented products is imported agree to international exhaustion.” It is the country that is importing (and not the country from which the product is imported) that needs to determine whether it wants to recognize the principle of national or international exhaustion. Therefore, in my post, where I say “On the other hand, under the principle of international exhaustion, if a patentee sells or authorizes the sale of patented products in Country A, any person is permitted to buy the patented goods from Country A and re-sell these in country B, whether or not the patentee has a patent in Country B;” it is Country B (the country into which the goods are imported) that must recognize the principle of international exhaustion. Now, what I’m saying in the post (and what Shamnad has also said) is that Section 107A(b) not only recognizes the principle of international exhaustion, but goes way beyond it – this is because by using the language “authorized under law,” the section does not require the patentee’s rights to get “exhausted” at all. It doesn’t matter who sells in country A (patentee or non patentee), once legally sold in country A, anyone can resell in country B.


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