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The USIBC Report on Incremental Innovation: An Analysis


Section 3(d) of the Patents Act, 1970 is a unique provision in the Act which seeks to prevent ever greening of patents by preventing the patenting of new forms of known substances which do not have enhanced efficacy. The provision was intensely debated upon and discussed in the context of the 2007 decision of the Madras High Court in the case of Novartis AG v. Union of India, (2007) 4 MLJ 1153. Novartis alleged that the use of expressions like “enhancement of known efficacy” and “differ significantly in properties with regard to efficacy” without being defined rendered the section ambiguous as it vests unfettered discretion with a Statutory Authority. This was also alleged as delegation of an essential legislative function. The Court however considered the fact that the decision could be appealed and that the definition had to be determined on a case to case basis. The Court also said that there are in-built materials in the Section and the explanation itself, which would control/guide the discretion to be exercised by the Statutory Authority. The Madras High Court pointed out that Section 3(d) is an instance of delegation of a non-essential legislative function which is Constitutional. The Court relying on medical dictionaries ruled that the term “efficacy” means therapeutic efficacy. It was held that the patent applicant is expected to show how effective the new discovery made would be in healing a disease/having a good effect on the body. The Court thus upheld the Constitutionality of the Section and ruled that did not have the jurisdiction to rule on its compatibility with TRIPS. The High Court also transferred the petition in seeking reversal of the order of the Assistant Controller to the Intellectual Property Appellate Board (IPAB). The IPAB has ruled that Glivec is not patentable as it constituted non-patentable subject matter under Section 3(d). For an overview of the decision of the Appellate Board one can refer to a previous post on the same.

A report titled “The Value of Incremental Pharmaceutical Innovation: Benefits for Indian Patients and Indian Businesses” was prepared for the US-India Business Council by White and Case LLP and Dua Consulting and presented at the meet of the Council in June 2009. (Refer to previous post titled USIBC and Section 3(d): Incremental Intelligence?). Introduction to the Report credits the increased research capabilities of Indian pharmaceutical companies to the amended Patents Act, which allowed product patents in the pharmaceutical area and identifies Section 3(d) which prevents patenting of incremental pharmaceutical innovations as a major bottleneck for the further growth of Indian pharmaceutical companies and foreign direct investment in the Sector. It attacks the rationale behind the Section by pointing out that evergreening can be tackled better by the rigorous application of existing patentability requirements under Indian law rather than a blanket exclusion on all incremental pharmaceutical innovations. On the contrary the report asserts that allowing patents on incremental innovations can lead to decreases in costs and increased access to medicines.

The report goes on to point out with the aid of a study carried out by the National Knowledge Commission (which determined that while 37.3% of Indian companies introduced breakthrough innovations in recent years, no fewer than 76.4% introduced incremental innovations) that incremental innovations have been an important source of India’s recent economic growth and the success of Indian pharmaceutical companies. The report extensively lists numerous incremental innovations and their importance with respect to increased effectiveness, extended usefulness and greater selectivity and longer lasting action highlighting their clinical benefits. It points out that this leads to social and economic benefits including increased resources for new drug discovery, reduced healthcare and other social costs, and increased drug price competition. The report points out that repealing of Section 3(d) will greatly benefit the domestic pharmaceutical industry and also increase access to drugs owing to; improved quality of drugs with emphasis on the Indian climate and diseases specific to India, development of R&D capacity of Indian pharmaceutical companies, reduction of healthcare costs and increased access to medicines as a result of price competition.

This is followed by the examination of the wording of the Section 3(d) and its legislative history. Section 3 of the Act enumerates the categories of non-patentable subject matter. Section provides that

“the mere discovery of a new form of a known substance which does not
result in the enhancement of the known efficacy of that substance or the
mere discovery of any new property or new use for a known substance or
of the mere use of a known process, machine or apparatus unless such known
process results in a new product or employs at least one new reactant.”

The Explanation to the Section provides that

For the purposes of this clause, salts, esters, ethers,
polymorphs, metabolites, pure form, particle size, isomers, mixtures of
isomers, complexes, combinations and other derivatives of known
substance shall be considered to be the same substance, unless they differ
significantly in properties with regard to efficacy;

The report points out that the statute fails to define the terms “significantly” and “efficacy”. The decision of the Madras High Court in the Novartis case has however laid down clearly that efficacy in Section 3(d) means therapeutic efficacy. It is noted that Section 3(d) was based on a provision of the European Union Directive relating to regulatory drug approval of drug products for human use, further supporting the view that “efficacy” means therapeutic efficacy. The report highlights the unreasonableness of the burden placed on the applicant who has to produce data demonstrating the therapeutic efficacy of the new form or use. The data can be produced only after conducting clinical investigations which are normally conducted much later in the drug development process. By referring to the difficulty faced especially by Indian pharmaceutical companies the report concludes that Section 3(d) leads to decreased likelihood that Indian companies will develop products to meet the needs of the domestic market. This conclusion by the Report is based on the assumption that Indian pharmaceutical companies greatly rely on the domestic market to incentivise their Research and Development.

The report then looks at Section 3(d) in an international context and begins by pointing out that India is the only country to categorically exclude all new uses and forms of known pharmaceutical substances from patentable subject matter. It is illustrated with the help of the experiences of China, Italy and Japan that intellectual property harmonisation can contribute significantly to economic growth. The report also goes to the extent of alleging that the Act’s exclusion of incremental innovation from patentable subject matter appears prima facie to be in conflict with the international consensus reflected in the TRIPS Agreement that all innovations, regardless of field of technology, should be accorded equal protection and encouragement under national patent laws.

The report makes its case for the reforming of the Patents Act to realise the benefits of incremental innovation by noting that the Organisation of Pharmaceutical Producers of India stated to the Mashelkar Committee that excluding incremental pharmaceutical innovations from patent protection would have significant negative consequences for both domestic and foreign investors. The suggestions for reform are justified by pointing out that; incremental innovations involve considerable innovation and inventive effort, non-obviousness is a criterion of patentability and not eligibility and in US to prove prima facie obviousness based on structural similarity between two chemical compounds it is necessary to show some motivation that would have led one of ordinary skill in the art to select and then to modify the original known compound to achieve the claimed compound (no such showing is required under Indian law). The report alleges that Section 3(d) bars inventions that may otherwise meet the requirements of patentability and thus are really inventive. As a middle ground the report suggests the inclusion of persons having backgrounds in pharmacology in the examination process to aid in better examination of increased efficacy. It however concludes by pointing out that to reap the complete benefits of pharmaceutical innovations, Section 3(d) needs to be removed from the Act altogether. The report strongly advocates the perspective of pharmaceutical companies which is to repeal Section 3(d).

One must also note the other perspective as pointed out in the article titled The “Efficacy” of Indian Patent Law: Ironing out the Creases in Section 3(d). In light of the poorly equipped and understaffed patent office of India it is important to have a provision like 3(d) aimed at filtering out certain inventions in the initial stages. However the poorly drafted Section 3(d) has given rise to undesirable uncertainties. The article thus proposes a legislative amendment to Section 3(d) as follows:

3. What are not inventions: The following are not inventions
within the meaning of this Act….
d) a new form of a known substance, unless it differs significantly in
properties with regard to efficacy, when compared with the known
substance, or the mere discovery of any new property or new use for a
known substance or of the mere use of a known process, machine or
apparatus unless such process results in a new product or employs at
least one new reactant.
Explanation: For the purposes of this clause, salts, esters, ethers,
polymorphs, metabolites, pure form, particle size, isomers, mixtures of
isomers, complexes, combinations and other structurally similar forms
of a known substance shall be deemed to constitute “new forms of a
known substance.”

For the purposes of this clause, a “known substance,” against which
the efficacy of a “new form” ought to be compared, shall be taken to
be a substance which is not “new,” in that it does not satisfy the
“novelty” criterion for patentability. For the purposes of establishing
that a “new form” differs significantly in properties with regard
to efficacy, an applicant must provide data comparing the efficacy
of the new form with that of a “known” substance. Such data
need not prove this “difference” in property as a matter of statistical
certainty, nor does the applicant have to provide actual evidence of
trials in humans. Instead, the applicant has to demonstrate a
reasonable correlation between the efficacy claimed and the data
provided in support of this. Such reasonable evidence of the
correlation can be established by relying on, inter alia,
statistically relevant data documenting the activity of the new
form and/or known substance, documentary evidence (e.g.
articles in scientific journals), data generated using in vitro assays, or
from testing in an animal model, other preclinical test data or any
combination thereof.

For the purposes of this clause, a determination as to whether a
difference in property with regard to “efficacy” is “significant,” shall
be assessed with reference to the views of a person skilled in the
relevant art.”

The article concludes by pointing out that ironing out the creases in Section 3(d) will lend more certainty to the law and aid in its efficacious functioning. The urgency for this is emphasized by pointing out that there are several cases in the patent office that hinge on Section 3(d) and that there are several countries seeking to enact a similar provision.

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