Delhi High Court affirms that “export” is covered under Section 107A of Patents Act

By  Vindhya S. Mani.
 
A Division Bench of the Delhi High Court in its recent order[See Endnote 1] dated April 22, 2019 affirmed the decision of the Single Judge of the same court interpreting Section 107A of the Patents Act, 1970 (Act).

The Division Bench held that the said exemption permits exports from India of 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 any foreign jurisdiction. The Division Bench however differed with the Single Judge’s ruling on the aspect of permitting the export of 1000 or 2000 tablets as reasonable use without holding any inquiry. The Division Bench accordingly proposed an indicative list of tests or considerations that would govern the inquiry and adjudication on the applicability of Section 107A of the Act.

Brief facts:

The instant case on the interpretation of Section 107A(a) of the Act was passed by the Division Bench through a common order in the cases of Bayer Corporation v. Union of India (WP(C) 1971 of 2014) and Bayer Intellectual Property GMBH & Anr. v. Alembic Pharmaceuticals Ltd. (CS(Comm)1592 of 2016).

The former case is a writ petition filed by Bayer seeking a mandamus to the Customs Authorities to seize the consignments for export containing products covered by its patent no. 215758 directed to the anti-cancer drug Sorafenib tosylate (Bayer’s Trade name-Nexavar), manufactured by Natco by virtue of the compulsory license to said patent issued by the Controller General of Patents in 2012. Natco in said writ petition asserted that its exports of the active pharmaceutical ingredient (API) of Nexavar to China falls within the scope of Section 107A of the Act as its exports are for conducting development/clinical studies and trials. 

The latter case is a commercial suit instituted by Bayer seeking a permanent injunction against Alembic from infringing its patent no. 211300 directed to the blood thinning drug Rivaroxaban. Alembic in said suit asserted that it had not commercially launched the drug Rivaroxaban and had only exported the drug for the purposes covered under Section 107A of the Act. Alembic also undertook that it will provide Bayer a months’ notice before commercially launching the drug to enable Bayer to avail of its legal remedies.

Accordingly, the common question of law before the Single Judge of the Delhi High Court adjudicating both matters was whether Section 107A(a) of the Act includes the act of “export” of the patented invention, strictly for the purposes mentioned therein. The Single Judge held that the word “selling” under Section 107A of the Act includes within its ambit the meaning of the term “export” and thus held that the absence of the word “export” under Section 107A of the Act does not lead to any inference that said provision does not include “export” within its scope.
 
The Single Judge disposed of the instant writ petition and commercial suit by directing that Natco and Alembic are entitled to export the patented invention for the purposes of Section 107A of the Act subject to both Natco and Alembic filing an affidavit by way of undertaking of their respective Directors duly supported by the Resolution of the respective Board of Directors, with advance copy to the counsels for Bayer, to the effect that they, during the term of the respective patents, will not export the respective patented invention for purposes other than those specified in Section 107A of the Act. The Single Judge also directed that Bayer has the liberty to take appropriate proceedings if it makes out a case that the exports effected or to be effected by Natco and/or Alembic were or are for purposes other than those specified in Section 107A of the Act.

Aggrieved by the order of the Single Judge, Bayer approached the Division Bench in appeal both in the writ petition and the commercial suit.
 
Decision of the Single Judge

The Single Judge in his order[See endnote 2] dated March 08, 2017 held that the word “selling” under Section 107A of the Act includes within its ambit the meaning of the term “export” and thus held that the absence of the word “export” under Section 107A of the Act does not lead to any inference that said provision does not include “export” within its scope.
 
In arriving at the instant ruling that “export” of the patented invention is included within the scope of Section 107A of the Act, the Single Judge after an extensive analysis of the definitions of the terms “selling”, “sale” and “export”; held that the words ‘sale’/ ‘selling’ as per their literal meaning are without any geographical limitations and therefore held that the word “selling” under Section 107A of the Act would also include the transfer of the patented invention to a country other than India, despite the fact that said transfer would also qualify as exporting. The Single Judge further held that the above interpretation of Section 107A of the Act is not in conflict with Article 31(f) of TRIPS as Section 107A of the Act is not an exception to the right conferred under Section 48 of the Act but only permits sale of the patented product during the term of the patent to obtain regulatory approvals in order to manufacture and market the products after the expiry of the patent term.

The Single Judge also observed that even if Article 31(f) of TRIPS allows for the Bolar exemption to be applicable only in the domestic context, the Indian legislature was well within the ambit of Article 31(f) of TRIPS to enact a law that permits export under the Bolar exemption keeping in mind the nature and importance of its generic industry.
 
Contentions of the parties before the Division Bench:

Before the Division Bench, Bayer contended that the Single Judge’s finding that Section 107A of the Act is not an exception to the rights conferred under Section 48 of the Act is erroneous. It was argued that since Section 48 of the Act refers to sale in India only, Section 107A of the Act cannot be interpreted to enlarge the scope of Section 48 of the Act such as to grant an additional right. It was also asserted that since Section 84 and 92A of the Act expressly use the term ‘export’, the absence of the same under Section 107A is a clear intent to exclude ‘export’ from the scope of the exemption. 

Bayer also argued that the interpretation of Section 107A of the Act to include export would be in violation of Article 31(f) of the TRIPS which provides that any use of a non-patentee should be predominantly for the supply of the domestic market of the country authorizing such use. Bayer also argued that arguendo if Section 107A of the Act permits export, the burden of proof must fall on the non-patentee to justify that the export is for the purposes under Section 107A of the Act. Bayer strongly asserted that the Single Judge incorrectly held that the burden of proof is on the patentee to show that the non-patentee’s acts are not covered under Section 107A of the Act and that such a reversal of burden completely prejudices the interests of the patentee. Bayer also contended that the Single Judge failed to consider the quantities sought to be exported and whether the said quantities are in fact required by the regulatory regime to which information is to be submitted.

Natco and Alembic on the other hand argued that the rights under Section 48 of the Act are subject to the acts exempted under Section 107A of the Act and the latter includes export within its scope. Natco by relying upon the Canadian equivalent of Section 107A of the Act, i.e. Section 55.2(1) of its Patent Act and the related WTO ruling in the Canada – Patent Protection of Pharmaceutical Products DS-114 (Canada Disputes case), argued that under the said ruling it was clarified that use or export of the patented product by a non-patentee solely for regulatory purposes would not constitute infringement irrespective of the amount the patented product so used or exported.

Natco and Alembic also asserted that Section 107A of the Act does not impose any restriction on the quantity of the patented product to be used or exported if the quantity is utilized for the purpose mentioned under Section 107A of the Act. It was also contended that every country has a different regulatory regime and the requirements for submission of date for regulatory approvals also vary and thus it will be onerous to place a restriction on the quantity of patented product to be used or exported under Section 107A of the Act.
 
Decision of the Division Bench:

The Division Bench upheld the Single Judge’s interpretation of Section 107A of the Act to include ‘export’ and reasoned that Section 107A is not made subject to other provisions of the Act and thus cannot be treated as an exception to Section 48 of the Act.  The Division Bench noted that the term ‘export’ is used in different contexts in  Sections 84, 90 and 92A of the Act. Thus, it cannot be stated that the Parliament intended to per se exclude ‘export’ from the scope of the term ‘sale’ under Section 107A of the Act given the disparate and differing objectives of Section 84, 90 and 92A which deal with compulsory licensing whereas Section 107A of the Act deals with an exemption for research purpose.

The Division Bench referred to the Canadian provision and the WTO ruling in the Canada Disputes case and noted therefrom that the quantity of the patented product used or the place of research and development or information submission cannot by itself be the basis for non-applicability of the exemption under Section 107A of the Act. The Division Bench held that it is the conduct or action of the individual or entity using the patented product and the purpose for which it is sought to be used that is important and decisive whether the exporting or purchasing entity intends to use the patented product for commercial purposes.

The Division Bench also considered that export of the patented product can be potentially troublesome to the patent owner in cases where the export is used for purposes beyond those provided under Section 107A of the Act. In this regard, the Division Bench did not concur with the approach of the Single Judge in permitting export of 1000 to 2000 tablets as reasonable use, without holding any inquiry. The Division Bench reasoned that in such cases while it is open for the patent owner to institute legal proceedings to injunct the alleged exported or seller, it is also equally open to the exporter or seller to seek a declaration or appropriate relief that its sales are for purposes covered under Section 107A of the Act. In this regard the Division Bench provided an indicative list of factors that should be considered in the inquiry and adjudication of such cases.

The said list includes, the scope of the patent, the nature of the product or element sought to be exported, the details of the party importing the product, the quantity sought to be exported, particulars with respect to the end use of the product to establish the purpose behind export, verification through the Indian mission and its trade division abroad regarding the authentication of the third party and/or its facilities abroad, all particulars regarding the relevant regulations and requirements for seeking the necessary approval under the said regulations and authentic English translations of the same, if required and issuance of appropriate interim orders including undertaking by way of duly authenticated affidavit to compensate the plaintiff in the  event the suit were to be decreed and the extent of monetary compensation.
 
The Division Bench also referred to the TRIPS Agreement and the Doha Declaration and noted that it is necessary for courts to be aware and cognizant of the obligations under these conventions while adjudicating patent infringement claims and should not confine themselves to adjudicating such matters as assertion and negation of private rights.

The Division Bench also held that the instant dispute is not ordinarily the subject of public law proceedings as they involve investigation into facts and result in reliefs to private parties for enforcement of private property entitlements. Thus, it was held that such disputes should not be the subject matter of writ proceedings and that parties should be relegated to civil remedies.  Accordingly, the Division Bench dismissed the appeal filed by Bayer in the writ petition and directed that suits filed by Bayer against Natco and Alembic may be tried by the Single Judge in accordance with law and the observations and ruling of the instant judgment.       
 
Analysis

The instant decision of the Division Bench of the Delhi High Court apart from re-emphasizing the interpretation of Section 107A of the Act also provides the much-needed balancing act between the rights and interests of patent owners and non-patentees by listing out the factors that ought to be considered in cases involving the applicability of Section 107A of the Act.
 
[The author is a Principal Associate, IPR practice in Lakshmikumaran & Sridharan, Delhi]