Patent

Section 107A(b) of the Patents Act: Does it Really Endorse International Exhaustion?


In quite a few posts in the past, we have argued and counter-argued over and over again on the interpretation of Section 107A(b) of the Indian Patents Act, 1970. For those who wish to understand the issues, please refer to this interesting article by Mr.Basheer and Mrinalini Kochupillai, which features some of the points raised on the blog earlier.  
For the last 2 days (actually nights) now, I have been reading and re-reading Section 107A(b) to see if there’s a way it can be saved without the need for an amendment. This post is the consequence of these attempts. Let’s first take a look at the provision:
Section 107A: Certain acts not to be considered as 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.
(It’s surprising that infringement starts with an “i” sound, but is preceded by the article “a”)
In my comments to earlier posts by Mr.Basheer, I had taken the stance that the current version of Section 107A(b) is the product of a clarificatory amendment to ensure that international exhaustion remains the law in India.
I had also argued that (1) since “patented product” is defined as a product protected by a patent, and (2) patent is defined as a patent granted for any invention under the Indian Act, it would take some serious definitional departure to interpret it to mean a product patented in an exporting country as well as in India. After all, despite the presence of “unless the context requires” in the preamble to Section 2, there is a limit to which the definition (explicitly given in the Act) can be read down.
In hindsight, I realized that all these stances resulted from my preoccupation with “importation”, when in fact the subsequent part of the provision aids our comprehension better. So for a change, I decided to interpret the provision backwards.  
The concluding portion of sub-clause (b) refers to “duly authorized under the law to produce and sell or distribute the product.” Interpreting it backwards, the provision refers to the act of a third party wherein the party either (1) produces and sells or (2) distributes the patented product.

This is where it becomes crucial to understand where these acts are envisaged to be committed by the third party. Is the party “duly authorized under the law” to produce and sell or distribute the product in India or outside India?
Due authorization under the law” has to be given its due when understanding the import of the provision. “Due authorization” does not refer to application of the principle of international exhaustion, because the provision does not say “permitted by law”. 
On the contrary, “duly authorized” refers to a specific authorization issued for a specific purpose by an “authority under the law” (The term “authorised” has earlier been interpreted in the context of Section 100 of the Patents Act in the Garware Wall Ropes case). This means the reference is to a specific statute, it could be the Indian Patents Act, or any other Indian legislation in force.


This due authorization under the law is for the purposes of production and sale or distribution in India, and not for authorizing an export from a foreign country or an import into India. Further, Indian law cannot authorize production and sale or distribution outside India, it can only authorize these acts within India. Similarly, foreign law cannot authorize production and sale or distribution in India, it can speak only of acts within its territory.

If so, what this means is one may import the patented product, from a person who is duly authorized under the Indian law to produce and sell or distribute the product in India.

Let me explain it with a hypothetical as follows:
1. X has a patent on A in India
2. Notwithstanding X’s patent on A, Y has been duly authorized under an Indian legislation to produce and sell/distribute the patented product A in India (This could happen even under the Patents Act, if Y is granted a  compulsory license on X’s patent on A under Section 84 in India.)
3. Y also has a manufacturing base in Bangladesh, which manufactures A (the product is patented only in India) in Bangladesh
4. Z may import the patented product A from Y from Bangladesh into India, and such importation would not be deemed as infringing X’s patent on A.
Simply put, since Y is a person/entity who has due authorization under Indian law to produce and sell/distribute the product in India, importation into India of the patented product (product protected by an Indian patent only) from Y by any person Z in India does not constitute infringement of the Indian patent.

This interpretation is consistent with the phraseology of the provision, the definition provided for “patented product” in the Act, the context of use in Section 107A(b) and the purpose of amendment of the provision itself (Notes on Clauses).
The sum-total of the provision is that an act i.e. importation of the product patented in India, which would have otherwise constituted infringement of the patentee’s rights under Section 48, is deemed to be non-infringing because acts, such as production and sale/distribution of the patented product in India, have received due authorization under Indian law.

Stated otherwise, since the person who has been duly authorized by Indian law to produce and sell, or distribute in India could alternately choose to import and distribute the patented product In India, importation into India of the patented product from such person by any other person too is treated as an exception to infringement. Therefore, this is a deeming provision which provides for a limited window only if there is due authorization under any Indian legislation for production and sale, or distribution in India.

Broadly, this has significant implications for Indian patent jurisprudence; if this interpretation is accepted, there is no question of international exhaustion. In effect, it would mean that Indian law does not recognize international exhaustion, or atleast that Section 107A(b) does not deal with international exhaustion. 


Does this necessarily translate to recognition of only national exhaustion by the Act? If so, which provision should one refer to understand this issue? Also, wouldn’t national exhaustion be consistent with and conducive to differentiated global pricing strategies of right holders?


I intend to keep this post short because I would like to support this argument with authorities under other Indian legislations for the use of the phrase “duly authorized under the law”. So far I have hit paydirt, if our readers do find literature on this aspect of the debate, I humbly request them to kindly share the same with us on the blog.
I look forward to comments from our erudite readers. 

17 comments.

  1. AvatarAnonymous

    “(It’s surprising that infringement starts with an “i” sound, but is preceded by the article “a”)” It’s surprising because it’s wrong. It is always “an infringement” of rights.

    Reply
  2. AvatarAnonymous

    Excellent Analysis Sai! I had a hunch “duly authorized” had to be given more importance than has been. But i have a question, what if “duly authorized under the law” turns out to be res integra because the phrase is considered self-explanatory? I mean if there aren’t any cases interpreting the phrase, would the argument still be tenable?

    Regards,
    Lavanya.

    Reply
  3. AvatarSneha

    Sai… if I understand you correctly… what you are saying is that the interpretation of 107A(b) is that – a party is allowed to import goods which are patented in India ONLY from that person Y who has been duly authorised under the Indian law to produce and sell/distribute in India AND who also has a manufacturing unit outside India…

    So according to your interpretation, a party’s right to import patented goods is restricted to importing them from only those entities who have BOTH (a) authorisation under Indian law to produce and sell / distribute in India AND (b) manufacturing unit abroad?

    Have I understood you correctly?

    Reply
  4. AvatarJ.Sai Deepak

    @Anon 11.A.M:
    I too meant that it’s wrong and I was wondering if that’s a mistake peculiar to my bare act or if it has been drafted that way.

    @Lavanya:
    Thanks for the comment. If “duly authorized under the law” is res integra and self-explanatory, would it not end up supporting the interpretation I intend to explore? And I don’t think it affects the tenability of the argument. If the word “due” and its adverb form “duly” have always been given a specific meaning in law (“due process”), I would assume that there is no reason to make an exception under the Patents Act. So is the case with “authorized” and “under the law”. A few readers and well-wishers have volunteered to look for cases on “duly authorized under the law”, I’ll wait for them to come back with some support material before forming a final opinion.

    Sai.

    Reply
  5. AvatarJ.Sai Deepak

    Sneha,
    Yep, that is the gist of the post. But that said, I really cannot say that the hypothetical I have referred to is the only possible situation envisaged under the Act. If there are such other situations which do not militate against the logic which I put forth, I am sure they too fall within the limited window provided for in the section. If at all there are such other situations, I would love to know what they could be.

    Bests,
    Sai.

    Reply
  6. AvatarJ.Sai Deepak

    Hi Varun,
    I assume and I am pretty sure you have a lot more to contribute by way of comments and I don’t want to interrupt your flow of logic, so please continue. It certainly adds to the quality of the discussion. I can certainly wait for a day or two for you to finish. Once you are done, I will share my thoughts and try to contribute my mite to an insightful discussion.

    Best Regards,
    Sai.

    Reply
  7. AvatarAshwani

    Excellent Sai.
    Just to add for a bit more clarification on the issue – in the case illustrated by Sai in his post, Z may purchase A from Y in Bangladesh and can import it in India without any further authorization from Y, as Y has exhausted its rights by selling the goods once, even though in Bangladesh. Thats one of the common situation and I think everyone agree on this point.

    Lets move to a slightly more complicated and uncommon situation. Suppose Y has patent for product A in India and P has a patent for the same product A in Bangladesh (Yes, it is theoretically possible in light of the fact that for the purposes of patents in India, if an application is filed in some other country prior to the priority of Indian application but which has not been published as of the date of filing of the application in India, the earlier application is not construed as a prior art for the Indian application. In such scenario, if both the applications encompass the same/similar invention, they may simultaneously be prosecuted and patents can be granted to two different entities for the same product in two different countries viz. patent for product A granted to Y in India and to P in Bangladesh). In such situation, if Z purchases A from P (person duly authorized under the law in Bangladesh, but not in India to manufacture/sell/import etc. the product A), Z will not be able to import the product A in India without prior permission/ authorization of Y. So the phrase ‘person duly authorized under the law’ refers to the law of country to which the product is being imported and not the law of country where it is manufactured or sold or from where it is exported.

    @ Varun
    In that case I differ with your answers to Q no. 9 and 10, where you have mentioned that “authorization from the patentee to sell or distribute the product (obviously) in the country from where the product is likely to be imported”.

    I think its the authorization from the patentee in the country in which the product is being imported. ‘Duly authorized under the law’ – means the law of importing country viz. India here.

    Any comments are welcome.

    Reply
  8. AvatarJ.Sai Deepak

    Dear Ashwani,
    Thanks for the comment. Although I agree with certain points you have raised, I am not sure if the hypotheticals you cite can be accomodated under Section 107A(b). But these hypotheticals actually raise some nuanced points, which gives me more fodder for the next post to clarify the true “import” and purport of Section 107A(b). I will revert with a detailed post on the same at the earliest. Thanks again.

    Best Regards,
    Sai.

    Reply
  9. AvatarRockon

    Excellent Analysis Sai! I had a hunch “duly authorized” had to be given more importance than has been. But i have a question, what if “duly authorized under the law” turns out to be res integra because the phrase is considered self-explanatory? I mean if there aren’t any cases interpreting the phrase, would the argument still be tenable?

    Reply
  10. AvatarAnita K

    Here the word ‘duly authorized under the law’ means and includes wholesalers, retailers and pharmacies that are licensed by the government (of exporting country) and authorized under the law to sell and distribute the drug products. Importer here is an intermediary such as a trader/importer.

    Reply
  11. AvatarAnonymous

    Excellent Analysis Sai!! i was wondering weather the hypothetical given by ashwani would be covered under the s.107A?? because cant it be said that the person authorised by the patentee?? For example X is the patent holder for A in India and Y is the exclusive liecensee of A given by X for Bangladesh…Can Z in India import A from Bangladesh and escape patent infringement??

    Reply

Leave a Reply

Your email address will not be published.