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.
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.