Patent

Dr Reddys and the "Losartan" Controversy: Forced to Cave In?


It appears that given the paucity of time to obtain legal advice and the threat of their consignment being destroyed, Dr Reddy’s Labs (DRL) thought the most prudent option would be to cave in and ask that the goods be returned to India.

But first, for those not familiar with this dispute yet, a bit of background:

“On 15 January, Mint had reported that a DRL shipment of the generic version of losartan was seized in transit in the Netherlands. This shipment, on its way to Brazil, was held by the customs authority at Rotterdam, which said it infringed the patent of the original drug—Cozaar. Losartan is not patented in India or Brazil. The patent for Cozaar in the Netherlands is held by DuPont, while US-based pharma multinational Merck and Co. holds the marketing rights.”

For those interested, listed below are the consignments of Indian companies that were seized on grounds of patent infringement by the Dutch customs authorities and the respective dates of seizure.

1. 15.10.08: Ind-Swift Laboratories Ltd (Clopidogrel Bilsulphate- API): Destined for Columbia

2. 27.11.08: Cipla Ltd, through Uni World Pharma Ltd, Dubai (Olanzapine 10 mg Tabs): Destined for Peru

3. 27.11.08: Cipla Ltd, through Uni World Pharma Ltd, Dubai (Rivastigmine 3 mg Tabs): Peru

4. 24.12.08: Dr Reddy’s Laboratories Ltd (Losartan – API): Destined for Brazil

Subsequent to these seizures which prompted India and Brazil to issue very strong statements against this action, DRL opted to back down and have its consignment returned to India. For the TRIPS implications of such seizures, see our previous post.

A recent statement by the EU labelled this seizure as a “temporary detention” and went on to express surprise at DRL’s decision to return the seized consignment to India. It notes:

“In the present case, it appears that, following a request by a company which has patent rights over the medicine in question in the Netherlands, the Dutch authorities temporarily detained (which does not mean seize, confiscate or destroy) a small shipment of drugs worth 55.000 euros in a Dutch airport, in order to control it. This action is allowed by TRIPS and is based on provisions in EU customs law that allow customs to temporarily detain any goods if they suspect that these goods infringe an intellectual property right.

The goods were not intended for the EC market and the medicines were finally released by the authorities, leaving their (Indian) owner the right to do with these goods as he pleases. There was certainly no legal obligation to send these goods back to their country of origin (i.e. India). We are still not clear as to why the company decided to proceed that way, but this is in any event beyond our authority once the goods were safely returned to their owner. We have no indication that there is a systemic problem in this respect.”

In reply, DRL takes strong issue with the EU characterisation of the action as a “temporary detention”, as opposed to a “seizure”. Here is what a letter from DRL states:

“To the best of our information and belief, the submission of the EU that the Dutch authorities had “temporarily detained” and not seized the consignment is misleading. Lovells, the attorneys of EI DuPont Nemours & Co and Merck & Co. have stated in their communication of 24 December 2008 to us that “The release of the above mentioned product (Losartan) was suspended on the basis of Council Regulation (EC no. 1383/2003 (OJ EC L 196, 2003) dated 22 July 2003.” This communication further demanded that we sign an attached “Declaration of Waiver of Rights” which stated, amongst other things, that “The infringing losartan potassium originated from India and was seized by Dutch Customs at Schipol during a transit shipment to Brazil.”

Art 16 of the above Council Regulation provides that if the goods are found to infringe an intellectual property right at the end of the prescribed procedure, such goods shall not be allowed to exported, reexported, placed under a suspensive procedure or placed in a free zone or warehouse. Admittedly, the goods in transit would infringe EU Patent EP 643704 and the corresponding SPC if it were meant to be sold in the EU, though we believed that in the present case as there would have been no infringement as the goods were consigned to Brazil. The inevitable result of an infringement of the EU patent would be the prohibition of release of goods or placement under a suspensive procedure, which in effect is nothing but a seizure.

Under the circumstances, we do not see any material difference between the “temporary detention” alleged by the EU authorities and “seizure” and this appears to be the understanding of Lovells, the attorneys of the patent holder as they have used the word “suspended” and “seized” interchangeably.”

DRL then goes on to explain as to why they opted to cave in and take the goods back to India:

“The EU claims that Dr Reddy’s was under no legal compulsion to take back the goods to India and that they are unclear about why Dr Reddy’s decided to proceed that way. The reason is that Dr Reddy’s had very little time to respond to the communication from Lovells dated 24 December 2008 and as explained in the reply to Lovells, it was impossible for Dr Reddy’s to obtain legal advice in that period, considering it was during the Christmas vacation. Further, we were mindful of the power under Art 17 for the authorities to destroy goods found to infringe intellectual property rights or otherwise dispose of them to effectively deprive any economic gains to the owner of such goods. We therefore thought that it would be more persuasive to seek return of the goods rather than release for despatch to the customer in Brazil.”

While “technically” the EU is correct that DRL need not have opted for take the goods back to India, the hard reality is that in the light of pressure from originator companies and their lawyers and the relative lack of expertise with EU regulations (EU border control in its present form has been around since 2003, but has begun to be enforced strictly only now), Indian and other developing country companies may find it easier to simply withdraw from protracted and complex legal battles.

In fact, this point may be more than borne out by the fact that Cipla, a spunky generic manufacturer that is on the constant look out for opportunities to take on big pharma decided to simply cave in and abandon its “seized” consignment in the EU. A report by Jyothi Datta of the Hindu Business Line notes:

“It is not just drug makers Ind-Swift and Dr Reddy’s Laboratories’ export consignments that were confiscated by Customs authorities in Amsterdam in the last three-odd months on the grounds of patent infringement…

Details on the size of Cipla’s consignment and the type of medicines being exported were not available, but the company official indicated that Cipla has abandoned the consignment as the cost of litigation was disproportionate to the value of the consignment.”

Recent news reports suggest that this issue may be resolved diplomatically. The Hindu stated that “the Netherlands on Tuesday assured New Delhi that it will sort out the issue of frequent seizure of generic drugs produced in India by European countries on the pretext of patent protection.

….Dutch Foreign Trade Minister Frank Heemskerk’s, who is on a week-long visit to India, said patent protection should not be used as an excuse for hampering the distribution of generic drugs among the poor people across the globe.”

Other papers including the Economic Times and the Mint also reported on the above assurances by the Dutch minister. Given these media statements, one hopes that this issue would be resolved, without a TRIPS challenge. However, diplomatic statements notwithstanding, the threat of future seizures is still present. The present wording of the EC regulation (Council
Regulation (EC) No. 1383/2003 of 22 July 2003), under which such seizures were made, leaves much to be desired and offers some scope for patent owners to insist on such seizures.

Therefore, along with exploring a TRIPS challenge, Indian companies must also ready themselves to challenge such actions under the EC regulation itself. Particularly since case law from the ECJ (European Court of Justice) suggests that the European courts may not be too sympathetic to seizures of in transit/transhipment consignments that were never meant for the EU markets and that are unlikely to impact the commercial interests of IP owners in the EU. However, most such decisions were in relation to trademarks and under an earlier regulation (European Council Regulation Number 3295/94 of December 22, 1994), that preceded the current 2003 EU regulation. If time permits, we hope to explore EU case law in this regard in a future post.

It is interesting to note that the Netherlands has sought more “clarity” on this issue from the European Commission. An ET report notes in this regard that:

“Visiting Dutch minister of foreign trade Frank Heemskerk has said his country wanted to “avoid” such incidents in future and had written to the European Commission seeking clarity on how the EU Customs regulations could be brought in sync with the international Trips regulations which gave concessions to poor countries on the ground of public health. “My country is very much in favour of providing generic medicines, especially to the very poor,” Mr Heemskerk said in an interview to ET.

As to whether the EC will end up limiting the scope of its 2003 Council Regulation in the light of the above controversy and its implications for the spirit of free trade and public health as enshrined in TRIPS, remains to be seen.

Shamnad Basheer

Shamnad Basheer

Prof (Dr) Shamnad Basheer founded SpicyIP in 2005. He is currently the Honorary Research Chair of IP Law at Nirma University and a visiting professor of law at the National Law School (NLS), Bangalore. He is also the Founder of IDIA, a project to train underprivileged students for admissions to the leading law schools. He served for two years as an expert on the IP global advisory council (GAC) of the World Economic Forum (WEF). In 2015, he received the Infosys Prize in Humanities in 2015 for his work on legal education and on democratising the discourse around intellectual property law and policy. The jury was headed by Nobel laureate, Prof Amartya Sen. Professional History: After graduating from the NLS, Bangalore Professor Basheer joinedAnand and Anand, one of India’s leading IP firms. He went on to head their telecommunication and technology practice and was rated by the IFLR as a leading technology lawyer. He left for the University of Oxford to pursue post-graduate studies, completing the BCL, MPhil and DPhil as a Wellcome Trust scholar. His first academic appointment was at the George Washington University Law School, where he served as the Frank H Marks Visiting Associate Professor of IP Law. He then relocated to India in 2008 to take up the MHRD Chaired Professorship in IP Law at WB NUJS, a leading Indian law school. Prof Basheer has published widely and his articles have won awards, including those instituted by ATRIP and the Stanford Technology Law Review. He is consulted widely by the government, industry, international organisations and civil society on a variety of IP issues. He also serves on several government committees.

11 comments.

  1. AvatarSudhir Kumar

    Dear Shamnad,

    Thanks for your elaborate update on the matter. Unless the goods are actually meant for Europe how could authorties there assume the goods to be meant for import in Europe. Technically as goods were not meant for import to any european country they could not sieze the goods and “temporary detention” appears to more appropriate. I beleive that DRL, Indian and Brazilian Govt. should not let go this issue and should infact should take immediate steps in this regard otherwise this would become a precdent and in future more countries would be doing same to Indian Pharma Companies. It amounts to exercise of rights beyong what a Patent actually grants.

    Reply
  2. Avatarv

    Hey Shamnad, I’m not sure this is just a result of lack of legal advice. Lack of common sense maybe? To me, it seems daft to rely on the notice sent by the complainant’s / patent owners’ legal counsel. Obviously they will overstate the matter.

    Also, the consignment could have been returned to India only if released, conversely, if there was a possibility of infringement then the consignment would not have been released. So if the consignment was released why not just ship to Brazil as originally planned? What was the compulsion to have it returned to India?

    Mountain of a mole hill perhaps?

    Reply
  3. AvatarShamnad Basheer

    Dear Sudhir,

    Thanks very much for your comment. You’re absolutely right–these kind of actions really go beyond what one might expect to be the proper scope of IP enforcement. Particularly since they dont really impact the markets of IP owners in any way.

    Reply
  4. AvatarYogi

    Very informative post Shamnad!
    Just some loud thoughts from where we left our email conversation on this issue. As you have rightly suggested, using diplomatic channels may not supplant the need for a permanent solution. It would only be helpful if the Netherlands is able to convince the EC to amend its Directive. This seems an impossibility for now. Again, exploring the local challenge route makes sense- not a permanent solution though. But I am on a broader question. May sound a little academic. Considering that footnote 13 of A.51 makes specific mention of “goods in transit”, although allowing for full freedom in its application, I wonder how this footnote could even make provision for the same. This is somewhat different from a TRIPS plus situation where the TRIPS agreement neither prescribes nor condemns any higher standard. There the violation is probably clear. But this seems to me a different case. How could the TRIPS Agreement not condemn the practice of allowing seizure of goods in transit, when it specifically goes against A. 51, and A.41.1, including the preamble of the Agreement? To the contrary, it allows such a practice. Fn 13 to some extent legitimizes the member countries’ laws for seizure of goods in transit. Can the goods in transit provision be used without hampering legitimate trade?
    As I see it, there exists no such possibility. Do let me know.
    Consequently, can a provision/footnote under TRIPS be challenged for being inconsistent with the rest of the agreement?
    Would want to hear more from you…
    Best,
    Yogesh

    Reply
  5. AvatarShamnad Basheer

    Dear V,

    Very interesting question you raise there and I’m not entirely sure of the answer. I’m guessing that this dispute also involved a great deal of bargaining/settlement talks between DRL and the patentee. And the patentee’s counsels might have driven down this bargain and as the best way out for DRL. If they insisted on fighting this case and sending the consignment to Brazil, it might have involved huge expenditure and a protracted legal battle.

    Reply
  6. AvatarShamnad Basheer

    Dear Yogi,

    You’re absolutely right. A short term diplomatic solution wouldn’t work. But if the EU courts read down the regulation or there is some mechanism for the EU to issue an official clarification on the scope of the EC regulation (2003), that might be a good way forward. I don’t necessarily think that one must take this to the WTO DSB.

    As for your second query, its a very interesting one. Footnote 13 of Article 51, would to me, on a charitable reading, mean that members could do this (i.e prohibit transit stuff as well). In other words, although there is no obligation, they could do so. If this was prohibited outright (since it would always conflict with Art 41.1), then it wouldnt have been worded in this way. Transit seizures would have been prohibited outright. Therefore, unless the said seizure violates other provisions such as Art 41.1, I think it would be perfeclty TRIPS compatible. The question then is: what kind of seizures would be compatible with Art 41.1? I think in a case involving straightforward counterfeiting/piracy (eg, counterfeit medicines), a trans-shipment might be seized without running the risk of violating Art 41.1.

    Reply
  7. AvatarYogi

    Yep, that’s how I see it now. Only a restricted interpretation of Fn 13 can save it from being incompatible with A.51 and other provisions. But even by seizing counterfeit/pirated goods in transit, is the EC regulation (or any of its kind) not intervening in border measures to be taken by other member countries? I look it more from an affected member country view. Who is the affected party here? Of course, the argument can be that trade in counterfeit and pirated goods may not amount to “legitimate trade” at all. Hence all member countries are affected. This is where A.41.1 and Fn 13 of A. 51 can be read harmoniously. Thanks again for the post and insightful comments.

    Reply
  8. Avatarkrishna

    Dear Shamnad,

    First of all let me intoduce you meslef. I am a Patent Consultant with Siemens.

    I have read all your post. The question what appears in my mind is what is the remedy available to DRL.

    A detention which is not legal casues losses to to the exporter and further destroys the brand image to a certain extent.

    I am well versed with TRIP, however, I am not able to understand how come the detention is allowed by TRIPS.

    Regards,

    Krishna Singhania

    Reply
  9. AvatarShamnad Basheer

    Dear Krishna,

    In most such cases, normally the IP owner is called upon to post a bond to cover the losses to entity whose goods are seized, if it turns out that seizure was wrongful. but this still may not compensate them appropriately, as you rightly allude to.

    Reply
  10. AvatarShamnad Basheer

    Dear Yogi,

    one more important aspect: Article 52 speaks about country of importation. Therefore, even if 51 permits one to crack down on transit goods, 52 must still be complied with. So in our example, 52 is not complied with since Brazilian law permits the imports. Of course, this line of argument is premised on the assumption that “importation” and “transit” are distinct terms and that “importation” does not include “transit” goods.

    Reply
  11. AvatarManish Garg

    Dear Shamnad,

    It is surprising to note that DRL and other companies chose to back up rather taking steps regarding temporary suspension of goods that were in transit to some other countries than Europe. Since the goods are in transit and not being sold in Europe, why should authorities seize such goods, which in any case happened in the month of december 2008 wherein eveyone are on leave and matter could hardly be settled? This probably the authorities have taken advantage of this situation and seized the consignment destined to some other country. What the term “importation” really means is that the goods are intended to be imported for use in the country. Hence “transit” goods does not fall in that category.

    Reply

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