The Delhi High Court passed an order last month in the matter of H Lundbeck A/S v. Hetro Drugs Ltd., whereby it ruled that “export of the products from India would amount to use of the product in India” under Section 107 of the Patents Act. While according this meaning to the term ‘export’, the court however, did not elucidate on the reasoning for its interpretation. The present post will discuss why the present ruling is inconsistent with the nature of the Act and the ramifications of such interpretations.
Background
The subject matter in this case was an antidepressant with patent titled “Pharmaceutical Composition Comprising Phenyl Piperazine Derivatives as Serotonin Reuptake Inhibitors” (IN 227963) and was granted protection on 27/01/2009. The drug’s international nonproprietary name (INN) is Vortioxetine. The Petitioner (H Lundbeck A/S) alleged that the Respondent (Hetero Drugs Ltd.) imported the API Vortioxetine thrice in 2016 and subsequently exported substantial quantities of Vortioxetine Hydrobromide to other countries (notably Canada and a few other Latin American countries). It further alleged that Defendant no. 2 (presumably a local contracted manufacturer? Strangely nowhere in the order is the identity of this party revealed!) sought environmental clearance to expand the Respondents’ manufacturing capacity of Vortioxetine Hydrobromide. The Respondents refuted the allegations and claimed that they aren’t using the product in India, rather are exporting it for the purposes of research and development.
The court rejected the defense of the Respondents, holding that the Respondents did not provide any evidence to prove that the substantial portion of the Respondents’ export was utilised in research and development. (Side note: The trend of courts not substantiating on how plaintiffs have fulfilled the three-factor test required for an interim injunction continues in this case). Now, moving on to the questions around ‘export’.
Precedents on Interpretations
The court in the present case did not clarify the rationale behind establishing why export of a good shall be considered as “usage in India”. In common parlance, the term ‘export’ is associated with selling, or transporting for the purposes of selling, of a product from one country to another country. Therefore to regard it as a “use” of the product within the selling country stands in contradiction with the “extraterritorial” nature of the word itself. Let’s look at what precedents have said on how to interpret words used commonly through the legislation: The Delhi High Court in Bayer v. Union of India decision, relied on Polestar Electronic (Pvt.) Ltd. v Additional Commissioner, Sales Tax and Anr., Central Bank of India v State of Kerala and Ors. and Central Bank of India v Ravindra & Ors. to reflect the “two clear strands of reasoning … while interpreting the meaning and purport of general words. One, that plain and natural meaning should be preferred ordinarily, and two, that the context and purpose of the provision should always be kept in mind.” Though, the court in this case held export to mean “selling”, it justified its stance after comparing the use and intended meaning accorded to the common term “export” under different provisions of the Act. In the present case, no such explanation was given by the court for ruling that “export” shall fall within the meaning of “use in India”, which is in contradiction of the general understanding of the word “export” in the first place.
Extermination of ‘No Extraterritorial Application’ of Patentee’s Rights?
Further problems accrue if one is to read ‘use’ into ‘export’ under 107 of the Act, since this would also increase the ambit of rights accorded to a patentee under Section 48 of the Act, multifariously. By using such an interpretation, a patentee can later claim it has a right to prohibit another party’s export (now aka ‘use in India’) of the allegedly infringing goods.
In a situation where a party is exporting products after manufacturing them in India, and the patentee wants a remedy for an infringement within the territory of India, their case will depend on whether Ss 107 and 107A of the Act apply or not. In case the respondent fails to establish the application of the above provisions, then in such a situation the patentee can claim infringement of its rights on the basis of the manufacture of the infringing goods.
The Delhi High Court in Merck Sharp & Dohme Corp v. Sanjeev Gupta faced the similar situation, wherein the respondent was manufacturing the goods in India and then subsequently exporting the entire quantity. The Respondent argued that giving rights against export of the good would amount to extraterritorial application of the Patents Act. The court rejected this reasoning and focused on “the place of manufacturing” instead. The court held that “the manufacture of the product has, admittedly, occurred within the territory of India, and the question of extraterritorial application does not arise in this case.”
Similarly, there was no reason for the court in the present case to interpret ‘export’ as ‘use in India’, when a straightforward reading of the law, as well as judicial precedent, shows that the right being infringed is the right accorded against the manufacturing of the infringing goods within the territory of India.
Therefore, the court in the present case could have avoided getting into the murky situation of interpreting “export” as something which it shouldn’t be and risking extraterritorial application of the patentee’s rights in the longer run. A simple reading of Section 48 (conferring rights on the patentee) and Sections 47 and 107 (defences against the above rights) supports the reasoning in the Sanjeev Gupta case.
Hypothetical Ramification no. 1: Complications During Transit and Subsequent Seizures ?
It is pertinent to note that an unclear stance on the term “export from India” can have far more ramifications too. For instance, without a clear explanation of what “export from India” could mean, one may interpret it to include transit of goods from Country X, through India to Country Y. This may inadvertently grant patentees the right to sue over goods in transit through India as well. Such an interpretation is also not far fetched as the Customs Act and the Foreign Trade (Development and Regulation) Act both provide for a simplistic definition of the term “export” i.e. taking goods out of India. However, such an interpretation, among other things, would hamper India’s international stance taken up in the EU-Certain generic medicines in transit case. In this case goods from India which were destined to other countries were seized by the customs authorities of the Netherlands. The Dutch authorities alleged that since goods were in transit within the EU territory, the authorities have power to seize them if they are violative of the EU’s patent laws. India vehemently opposed this stance and maintained that “the mere fact that medicines are in transit through EU territory, and that there is a patent title applicable to such medicines in the EU territory, does not in itself constitute enough grounds for customs authorities in any Member State to suspect that the medicines at stake infringe patent rights.” (see here for a detailed summary of the understanding agreed between India and EU, and here for our coverage about the intransit seizures, on the blog.)
Hypothetical Ramification no. 2: Potential for Denigrating the Working Requirements
Another question which may arise out of interpreting export within “used in India ”, is its potential ramification on the already diluted working requirement of the patent, in the Act . As a quick recap, Section 83 (especially clause (a) and (g)) of the Act along with Form 27 form the “working norm” of patents in India. However, the local working requirement of a patent has been trimmed down substantially by the recent amendment of the Form 27 (covered here by Adarsh and by Pankhuri here). Subsequent to these amendments, the patentee is required to “inform the value accrued to it in India” but doesn’t need to disclose the per-unit price of the invention. Furthermore, the patentee is no longer required to prove whether a public requirement has been met at a reasonable price, or not. In light of the above, the present interpretation of export as “used in India” runs at a risk of diluting this requirement even further. If export of a particular product is read as “used in India” then, the value accrued by exporting the goods can be (perhaps mischievously) interpreted to show the value accruing in India.
Therefore, such an interpretation may enable the manufacturer to claim that it is fulfilling the working requirement without actually making it available for the public in India! To understand how dangerous the implications can be, let’s consider a hypothetical situation a vaccine for COVID-19 – assuming no other vaccines were being made available in India – i.e., the situation just a month ago. Applying the above argument, the patentee can still “fulfill” the working requirement under the Indian patent law, just by exporting the vaccines abroad (either after manufacturing it in India or possibly and completely illogically, even in transit via India, as argued above) and subsequently showing the value accrued to it. Furthermore, consequent to the said amendment, the patentee can avoid fulfillment of public requirement essentially meaning it can export the entire quantity abroad effectively, so long as it can show that value has been accrued to it by such export. While the above scenario is highly unlikely owing to the media attention and the gravity of the situation, the same cannot be said for other drugs manufactured in India.
Incidentally – in July 2020, in Bayer v. Titan Industries, too, the court rejected the Respondent’s plea regarding application of the research exemption under Section 107A and held use by Respondent by exporting a product from India, to mean “use in India ”. I haven’t examined that case in detail – however – prima facie it seems that the above case too suffers from the same issue as discussed above.
Regardless, for the reasons stated above, this interpretation by the court may inadvertently end up disrupting the fine balance between exclusive rights and public interest which the patent law seeks to achieve. Such an interpretation accords more rights to a patentee, gives sufficient leeway to avoid necessary obligations as discussed and stands against the need of interpreting words closely to their ordinary meaning, as suggested by judicial precedents.
P.S : I would like to thank Swaraj for his comments on the post.
“whereby it ruled that “export of the products from India would amount to use of the product in India” under Section 107 of the Act” – this seems not to be correct. There is no such ruling by the Court. Can you please recheck….
Hey Vishal,
Thank you for your comment.
I would like to point out that in para 8 of the order the court expressly held “ Further, under Section 107 of the Patents Act, export of the products from India would amount to use of the product in India.” And after reading the preceding portion of the para, I think the court expressly stated this to negate the defendant’s claim that export will not amount to use in India.
In case you interpret it to mean anything otherwise, I would love to have your thought on it. Thanks!
Thank you Praharsh. You are right, I overlooked that this was Court’s statement as para started with averments made by Defendant. It would have been more interesting if Court had given reasoning of its interpretation.
Anyways nice blog summary! Keep it up.
Defence under Section 107 of the Patent Act has to be read in context of right provided to Defendant under Section 47 of the Patent Act. Section 47 of Patent Act grants specific privilege to Goverment in certain situation. Similarly it also protects right of a party in case use is for research purpose only. If we read Section 107 read with Section. 47 of Patent Act, it provides no distinction for import or export purpose. Focus is only on use for research purpose. In the given case , defendant was raising a defence that the same was exporting the subject matter drug for export purpose. The Hon’ble Court was right in restraining the Defendant as the defendant was unable to prove that the same was exporting for research purpose only. In my understanding there is no any fault in the Judgment. The same is in accordance with spirit of combined reading of Section 107 read with Section 47 of the Patent Act.
Hi Ajay,
Thank you for your comment!
If we look at the verbatim of para 8 of the order, wherein the court said ” at the moment, there is no material to come to this conclusion that this substantial amount of exports is only for research and development purposes” the court made it clear that in the present case the defendant’s activities do not merit protection under Section 107 r/w Section 47, since the requisites to take benefits of the above provisions werent fulfilled by the defendant in this case. However, by adding the extra statement “Further, under Section 107 of the Patents Act, export of the products from India would amount to use of the product in India.” the court charted into unnecessary waters. Not only this statement in the order was needless to negate the defendant’s claim but it also gave an impression of “extraterritorial” application of the Act, which it doesnt have. The issue which I have raised in my post is not whether the court was right in restraining the defendant but rather is a question on the methodology adopted by the court in doing so.
Note 1: Am intrigued by the reference to Section 107. Should it not have been Section 107A, particularly if we are to talk of “R&D”?
Note 2: It is regrettable – the unfortunate trend of reading in a limitation of “R&D” into 107A – where the plain language of the section itself does not include any such limitation??
Note 3: A look at the legislative history of Section 107A would be instructive. Is it not settled law that Courts cannot import intentions into a provision where the legislature itself has made its’ intention clear.
Note 4: The Order in question raises in its turn, several questions as to whether the directions/guidance of the Supreme Court in decisions such as Ram Rameshwari Devi, Maria Margarida, Dorabji, or indeed of the DB itself as recently as July 2019 in Natco v. BMS and Natco v. Bayer are mere statements of purpose with no binding effect
GN
Hi GN,
Thank you for your comments.
I agree with your first point. Given that in a case of similar nature (which i have highlighted in the post) the court gave similar ruling, without explanations, but with regard to Section 107A! I wish the decision could have elaborated the reasons for making this interpretation. Also, thank you for pointing those cases in your fourth point.
Dear Praharsh, thanks for appreciating my answer. However I still believe that Hon’ble High Court of Delhi did no wrong in observing that “export of a good shall be considered as “usage in India”. The term Use , has not been defined in Patent Act. Even in the General Clauses Act , term use has not been defined. Hence there no any embargo on the court to extend the term “use” to incorporate the term Export also. More over , even as per this article in “Merck Sharp & Dohme Corp v. Sanjeev Gupta” Judgement , the Hon’ble Court focused on the place of manufacture. There was no any finding in Merck Sharp Judgment that term use of product, does not incorporate the term export from India. In the instant case it was defendant, who was taking the defence that the defendant was exporting the subject matter product for research purpose only. The only difference is that in the instant case, defendant appears not be manufacturing the product , but instead was exporting it to different country from India after importing it. The Patent Act has been enacted to minimize the infringement activity. In the given case, if the court would allow the defendant to export the infringing product from India, then whole purpose of enactment is going to be defeated. The Hon’ble Court did right in observing that export from India also amount to be use. Similar provisions are also there in Section 56 of Trade Marks Act 1999 and various courts , while dealing with similar situation, time and again reiterated that export from India , does amount to be use in India.
Hi Ajay,
Thank you for your engaging comment. I have a few points which I would like you to consider:-
1) As I have pointed out, courts are of the view that the word is to be seen closely to its ordinary meaning. Export ordinarily means sale or transport of the product abroad. And in this case the court interpreted it to mean “use in INDIA”. Similarly use in India should ordinarily mean actual use of the goods within territory of the country.
2) I would like to bring your attention to para 7 of the order, wherein the Plaintiff alleged that the Respondents were “manufacturing” and exporting the alleged product. Furthermore, no where in the order has it been said or even averred by the Plaintiff that the Respondents were importing the goods to further export it abroad. Even assuming for the sake of argument that the Respondent was indeed importing goods, the same is actionable under Section 48, whereby the patentee has right against import of infringing goods.
3) Also, in the Sanjeev Gupta case too, the court ruled that the issue of extraterritoriality will not arise since the court looked at the whole issue from the perspective of the goods being manufactured in India (something which I also pushed for in my piece above) The advantages of focusing on place of manufacture of the goods instead of focusing on export is that Section 48 clearly provides rights to the patentee against “manufacture” of the infringing goods. In the Sanjeev Gupta case, i agree that the court did not say that use does not incorporate the term export from India, however, it did not prescribed for it either.
4) I understand that Section 56 of the Trademarks Act may prescribe what you are suggesting in the comment, however, as pointed out by GN in his comment, the legislative intent is to be considered prior to importing intentions in the provisions. Here comparing similar provisions in different laws would be like comparing oranges to apples. The Patent Act is silent on the patentee’s rights against “export” of the goods however, the same must not be seen as a blow to patentee’s rights since it expressly provides that the patentee will have a right against “manufacture”, “sale” and “import” of the infringing goods.
5) I do agree that rights of the patentees shall be protected and the Patent Act has provisions to ensure the same, however, the same must not be read to mean something which is against the nature of the Act. In my post I have highlighted that the cause of action cannot be “export” of the goods but rather should be “manufacture” of it in India. Hope it helps!
Thanks Praharsh for Sharing on view. The article is based mostly on “Merck Sharp & Dohme Corp v. Sanjeev Gupta” Judgement. But even that Judgment, the Hon’ble High Court of Delhi clearly declined to accept the argument advanced by the Defendant that protection granted under Section 48 of the Patent Act is limited for import purpose only. Just see How Hon’ble Court the argument of the Defendant. The relevant Para are reproduced here in below:
“13. Mr. Selvin Raja’s argument that manufacture for the purposes of export is not covered by this provision is contrary to a plain textual reading of the provision. On a reasonable reading, “making”, “using”, “offering for sale”, and “selling” of the patented product in India are each covered by Section 48(a) of the Act. The phrase “importing for those purposes” refers to import of the patented product for the enumerated purposes, e.g. using, offering for sale, or selling in India.
The construction advanced by Mr. Selvin Raja requires the words “for those purposes” to qualify the words “making”, “using”, “offering for sale”, “selling”, or “importing”. I am prima facie of the view that this construction is untenable. In the written submissions, Mr. Selvin Raja has also submitted that the enumerated activities must all occur within the territory of India to attract Section 48(a). This is ex facie contrary to the use of the disjunctive “or” in the provision. I am therefore prima facie of the view that the protection enjoyed as a result of grant of a patent cannot be reduced to cover only domestic manufacture and sale.”
It is apparent that the Hon’ble High Court of Delhi refused to accept the argument of defendant to limit the right of Plaintiff for domestic purpose only.
The Defendant therein further based their argument that since the word export” or “for the purposes of export” in Section 48(a) of the Act was not used , hence these words should not be read into the statute. This argument was also rejected by the Hon’ble High Court of Delhi by observing as under:
“In my view, the argument is wholly misconceived, as the alleged infringement in this case is based upon the “manufacture” of the product in India and “making” is expressly protected by Section 48(a). The judgments cited by Mr.Selvin Raja on the impermissibility of adding words in a statute are, therefore, inapplicable to this case. Similar is the fate of the submission that the application of Section 48(a) to manufacture for exports would render the statute extraterritorial in application. The manufacture of the product has, admittedly, occurred within the territory of India, and the question of extraterritorial application does not arise in this case.”
While answering the afore mentioned issue, the Hon’ble High Court of Delhi also dealt with the issue of territoriality , as sought to be relied upon in the article. For ready reference link of said Judgment is as under:
http://164.100.69.66/jsearch/