New Chapter in Bayer-Natco Saga: Delhi High Court Rules on India’s ‘Bolar Exemption’

The Bayer v. Natco dispute created jurisprudence for being India’s first post-TRIPS grant of a Compulsory License. Last month, it has done so again by prompting the Delhi High Court to affirmatively decide the scope of India’s ‘Bolar Exemption’.

S.107A of the Indian Patent Act, known as India’s Bolar Exemption, is a defense for patent infringement, when the invention is used or sold by a third party for purposes related to research and development.  The provision is extremely important for generic drug manufacturers who want to enter into the market immediately upon the expiry of innovator companies’ patents, as it allows them to conduct research on the product while the patent is still valid. On 5^th November, 2014, the Delhi High Court widely interpreted S.107A holding that the defense is valid even when the patented product is exported outside the country by a third party.  This is the first decision to definitively interpret this section since it was introduced in 2002. Read the decision here.

Some History

The ‘Bolar Exemption’ has its roots in the 1984 New York District Court case Roche Products v. Bolar Pharmaceuticals. Bolar Pharmaceuticals sought to perform research to meet the requirements of the US drug regulatory authority for producing generic versions of Active Pharmaceutical Ingredient (API) Flurazepam, for which Roche held the patent. When Roche sued for infringement, the US District Court rejected the allegation because the API was not being used for commercial purposes. This was subsequently overturned by the appellate court. However, the US Legislature introduced this position of law via a statute. Since then, such an exception for infringement has been called the Bolar Exemption.

Art.30 of the TRIPS allows exceptions to rights granted to IP holders provided that they do not unreasonably conflict with the normal exploitation or prejudice the legitimate interests of the patent holder. Following India’s accession to the TRIPS, the Indian Patent Act, 1970, was amended to include S.107A. Following an amendment in 2002 which widened the original provision, it now reads as follows:

S.107A-“For the purposes of this Act,—

(a) any act of making, constructing, using, selling or importing a patented invention solely for uses reasonably related to the development and submission of information required under any law for the time being in force, in India, or in a country other than India, that regulates the manufacture, construction, use, sale or import of any product;

(b) importation of patented products by any person from a person who is duly authorised under the law to produce and sell or distribute the product, shall not be considered as a infringement of patent rights.”

The Present Case

The present case has to do with the terms of the Compulsory License granted by the Court to Natco for the compound Sorafenib tosylate. One of the conditions was that Natco use the licensed product “solely for the purpose of making, using, offering for sale and selling the drug covered by the patent for the purpose of treating HCC and RCC in humans within the territory of India”. However, Bayer found that Natco was exporting the product outside India. In March this year, an interim order was passed by the Delhi High Court preventing Natco from such export.

The present application was filed by Natco to seek permission from the Court to export 1 kilogram of Sorafenib to a Chinese Pharmaceutical Company for preparation of a trial batch of the generic drug in China. Natco filed an affidavit stating that following this, they will be required to export 3 more samples from consecutive batches, each of 1-2 KG in volume for the Chinese company to conduct its R&D efforts to establish “bio-availability, bio-equivalence and stability”.

Bayer contended that S.107A of the Act is not attracted in this case, as Natco is not the party conducting the R&D efforts. Therefore, the sale of the compound is essentially a commercial enterprise.  Further, while S.107A mentions the word “sale”and even “import”, it has left out the word “export”. Bayer also relied on a Polish decision Polpharma as well as the American history of the Bolar Exemption (which allows sale only within the United States) to argue that S.107A must be read restrictively.

The Court found that firstly, the quantity sought to be exported by Natco was just enough for 1000-2000 tablets, and therefore cannot be termed a commercial activity. The Court then said that the intention of the legislature in interpreting S.107 must be gathered from the plain meaning, which clearly does not exclude sale outside India. Further, there is nothing in S.107A that implies that only the manufacturers themselves can avail of the exemption and cannot sell it to a third party. The only requirement is that the sale must be “reasonably related to” the submission of information under the law (in this case, Chinese law). The Court also pointed that the WTO Panel had expressly upheld such a wide interpretation of the similarly-worded Canadian Bolar Exemption to be TRIPs compliant and therefore not unfairly prejudicial to the patent holder. The panel decision can be accessed here.

Conclusion

The Delhi High Court has therefore interpreted S.107A expansively to conclude that S.107A is applicable when a party exports a patented product to a third party outside India as long as the purpose of export is the facilitation of research.  Although China is not exactly a “third world country”, this decision emphasizes India’s position as the ‘Pharmacy of the third world’. It allows other countries to benefit from India’s liberal position.

For further reading on the Bolar Exemption, you can access Shamnad and Prashant Reddy’s paper titled ‘The ‘Experimental Use’ Exception through a Developmental Lens’, published in IDEA,  here.