Kerala's IP Policy: A Way out of the Constitutional Conundrum

In our last post on this issue, we examined the various constitutional hurdles to Kerala's proposed IP policy. In short, Kerala may not have "constitutional competence" to enact this legislation, owing to it being a subject matter under the exclusive domain of the Parliament/Central Government. I've now reviewed the various lists (Union, State and Concurrent) again and throw up a couple of thoughts on how Kerala may wriggle out of this conundrum.

Firstly, the State list (List 2) speaks about "trade and commerce" (Entry Number 26). In other words, the various states in India have exclusive jurisdiction to legislate on matters relating to trade and commerce within the state (however, in so far as inter state trade is concerned, the Centre has exclusive domain). Kerala could argue that its regulation of traditional knowledge falls within the broad ambit of "trade and commerce".

The nexus between "trade" and IP was established years back with that much bandied about international instrument that goes by the name of TRIPS. Moreover, the Indian ministry in charge of IP calls itself the Ministry of Trade and Commerce.

Secondly, list 3 (Concurrent list--over which both the Center and State can legislate) contains an entry (Number 42) that states: "acquisition and requisitioning of property". Given that the Constitution of India includes intangibles such as shares within the definition of property, it is easy to qualify any form of "intellectual property" as "property" within the meaning of the Constitution. Particularly, since Justice Sinha has already held so (that "copyrights" are "property" under Art 300A of the Constitution) in a recent music- copyright judgment that we blogged about here.

Kerala could therefore argue that by creating specific property interests/rights in traditional knowledge (in itself and in various families/communities), it is in effect legislating in relation to the "acquisition" of property.

Both these are not sure shot arguments--but well worth a try. In any case, as we advised in the last post, the State of Kerala should immediately begin consulting with constitutional law experts to find a way out. From the present language, it is clear that the policy, as currently drafted, has had minimal input from lawyers (some may of course see that as a "positive"). One hopes that when this is to take final shape as a "bill" to be cleared by the state legislature, all these rough edges are ironed out.

Any of our readers have any advice for the State of Kerala in this regard?

ps: My heartfelt thanks to Swathi Sukumar, Senior Associate, Anand and Anand for pointing me to some of the above arguments.

'Onida' - A Brother's Envy Owner's Pride

The ET in an extremely detailed news item reports that the ‘Onida’ trademark may soon be the subject of an interesting legal battle between the Mirchandani brothers – Sonu Mirchandani & Gulu Mirchandani. Gulu had recently bought out Sonu’s holding in their company – Mirc Electronics – however Sonu is planning to launch a range of electronic products under the ‘Onida’ brand and through a company – Onida International in which Sonu has an 80% stake. Usually such buyouts involve the complete ownership of all IP associated with the company. This case however stands out for its facts.

The ET traces the origin of the ‘Onida’ trademark to Monica Electronics, a company which was incorporated in 1975 and which was owned by the Mirchandani family and which was acquired in 1998 by Mirc Electronics (also owned by the Mirchandanis) . In the 1990s Monica Electronics had allowed Onida International (through a letter) to use the ‘Onida’ trademark since the company was set up by the Mirchandanis themselves to export ‘Onida’ electronic products to the Middle East. As already mentioned above Sonu still owns 80% of the stake in Onida International while a minority stake is held by his brother. Sonu for his part has clearly stated that this initial letter is a valid license to use the ‘Onida’ trademark even in 2008. Also significant is ET’s observation that Sonu does not intend to manufacture the electronic products himself instead he is entering into a joint venture with a Japanese company to market their products under the ‘Onida’ trademarks.

As most of our readers must remember ‘Onida’ is one of the most popular Indian-grown brands not least because of its catchy advertisements featuring a devil incarnate (as a bald man with two horns and a tail) not to forget the catch-line – Neighbours Envy Owners Pride.

Clearly the ‘Onida’ trademark has turned out to be A Brother’s Envy Owner’s Pride. Given the popularity of the brand it is but obvious that the ‘Onida’ trademark and the goodwill associated with it is an extremely valuable asset to Mirc Electronics and it is unlikely that Gulu Mirchandani is going to sit by and let his brother exploit the trademark especially after paying him handsomely for his stake in Mirc Electronics. A license of course can be revoked at any time. The only caveat being that Mirc will have to pay damages as stipulated in the damages clause of the license. It is however unlikely that the initial license will even be held valid because this license seems to be contingent on Onida International exporting Monica Electronic’s products. I doubt whether the license would have been drafted so as to allow Onida International to use the trademark in conjunction with the products of any other company. However at this stage it is useless to speculate without an actual look at the initial license itself.

SpicyIP Tidbit: The Ranbaxy-Daiichi deal - An 'Ardhanarishwar' business model?

Over the last couple of weeks we’ve blogged about the Ranbaxy-Daiichi deal a couple of times. Here’s another news item by Jyothi Datta. Of particular interest to us was the concluding section of the report where she very rightly point outs that the Ranbaxy-Daiichi deal represents a new hybrid model in the pharmaceutical industry where innovator companies such as Novartis are diversifying into generic drug market through subsidiaries companies such as Sanofis. In this respect she quotes Shamnad who ever so eloquently describes this new duality of interest as an ‘Ardhanarishwar’ sort of duality. (Ardhanarishwar is the Hindu God Shiva’s form where he is half-man, half woman!)

This duality of interest can be traced to several factors: 1.) Huge opportunities running into billions of dollars in the generic drug market – a market which innovator companies can ignore only at their own peril. 2.) The absolutely inefficient business model being followed by big pharma as of now i.e. for all the money that is pouring into the pharma industry there have been very few breakthrough innovator drugs entering the market in the last decades 3.) As a direct result of point no:2 investor confidence in the pharmaceutical industry has plummeted over the last few years with several pharma stocks taking a beating over the last couple of years.

All these above factors point to the need of pharmaceutical companies to remodel themselves to stay afloat and what better way to do this than to acquire companies like Ranbaxy which have a strong base in the generic industry, a promising R&D set-up & a robust marketing network over several countries around the world.

In this regards it is apt to refer to the Economist which in an article titled ‘The Next Big Thing’, dated Jun 16^th 2005 had this to say about the Indian drug industry:

Emerging firms in countries like India and China are more of an opportunity than a threat for established drugmakers. “The most efficient way of making a computer is in cross-border transactions, making the design in one place, the chip in another, the keyboard somewhere else and then assembling the whole thing. The same will happen in drugs as well,” says Swati Piramal, of Nicholas Piramal. With the right support from western industry, that could be good for drugmakers—and their customers—everywhere.

Hopefully these predictions will bear out and the will have newer, cheaper drugs in the not so distant future.

KERALA'S IP POLICY: CONSTITUTIONAL INFIRMITY?

Pursuant to our last post on Kerala's daring and innovative traditional knowledge policy, we now examine the constitutional implications of such a policy. Mrinalini had rightly highlighted this concern during her last post on this theme.

Some of the press notes suggest that Kerala is attempting to get over the constitutional hurdle by insisting that this is more of a "traditional knowledge" (TK) policy--and less of an "IP policy". If that is indeed the case, SpicyIP cannot fathom as to why the state government repeatedly refers to this as an "intellectual property policy", when they know that this is likely to ruffle the feathers of the Centre. Particularly given the fact that the Centre's "Left" coalition partner is giving it sleepless nights over the nuclear deal.

Secondly, even assuming this is a "traditional knowledge" policy/law, that still does not mean that the Kerala state government is free to legislate on this theme. We explain below:

The Constitution of India envisages 3 lists, as below:

i) The Union list containing subject matter that only the Center (Parliament) can legislate on (contains about 99 items include defence, foreign affairs, taxes etc);

ii) The State list, which only the State can legislate upon (containing 69 items including agriculture, forest, fisheries, public health etc);

iii) The Concurrent list, which both the Center and the State can legislate upon (containing about 52 items including criminal law, marriage, education etc).

Intellectual Property is specifically listed in the "Union List" as Entry 49. However, it is limited to: "Patents, inventions and designs; copyright; trade-marks and merchandise marks".

Can the Kerala government therefore argue that since "traditional knowledge" is not specifically included in entry 49 in the Union list, it is free to legislate on this theme? Particularly since it also doesn't find mention in the other 2 lists (State list and Concurrent list).

Not so, suggests Article 248 of the Constitution, which deals with "Residuary powers of legislation" i.e. when the subject matter under consideration does not find mention in any of the 3 lists mentioned above. This article states that the Centre (Parliament) has the "exclusive power to make any law with respect to any matter not enumerated in the Concurrent List or State List."

Further, a close reading of the policy shows that it implicates the Patents Act (amended upto 2005) and the Biodiversity Act, 2002 , both of which are subject matters on which the Center has legislated. Given that the Center has exclusive competence in the area of patents (part of the Union List) and biodiversity (appears to fall within the residual powers under Article 248), it is clear that the State cannot even legislate on these themes, much less argue that its proposed provisions do not in any way conflict with the Central legislations.

These are my preliminary view on the subject and I am happy to be corrected by Constitutional law experts--do we have any on this list? Having said this, it is indeed surprising that the government of Kerala does not seem to have addressed this issue in any concrete way in its policy. I'm also not sure as to who their "legal advisors" are. It's rather striking that the country's top IP academic, Dr NS Gopalakrishnan does not appear to have been consulted on this--a real shame, as he hails from this very state and teaches in a leading law school located in this State!

I hope to speak with Praveen Raj and the others involved with this policy to get a clearer idea on why they thought they could proceed with legislating in this area, when they appear to lack the constitutional competence to do so. No matter how innovative and useful the Kerala policy might be, it will come to naught if it is susceptible to being struck down on grounds of constitutional infirmity.

On a related topic, one of the key members of a recently appointed commission to examine Centre-State Relations is a keralite, Dr Madhav Menon (he is also former director of the Natinal law school, my alma mater). I can hazard a guess that given the political impliations of the matter and he will look closely at this issue. And might come up with creative answers to this rather knotty issue.

Interestingly, the only other time that I've seen a State attempt to legislate in a techno-legal area was Chandrababu Naidu's AP (Andhra Pradesh) government trying to bring about a "data protection" legislation in the year 2003. Apparently, Naidu (known then as the CEO of AP) was keen on drafting this legislation on "data protection" (of the "privacy variety and not the pharma regulatory data kind) to induce more foreign companies to outsource "data" for processing to India. Like the government of Kerala, he was attempting to fill a gap where the Center was refusing to act. Although lack of "data privacy" legislation was cited as the strongest deterrent to outsourcing by many foreign companies, the Centre just didn't budge. However, unlike the Kerala policy which is premised on this huge distrust of MNC's and corporates, Naidu's policy was meant to seduce them into doing business with India.

One of the reasons that Naidu did not push this through could have stemmed from legal advice that the State of AP had no constitutional competence to legislate on an area which fell within Art 248 residual powers i.e. exclusive domain of the Centre.

Conclusion

Scanning through the State list, I found that "public health" was one of the items listed. In other words, States have the exclusive competence to legislate in this area. Given the status of Kerala as a progressive state, perhaps it ought to be legislating on this theme, to ensure that pharma patents do not impede "access". Or perhaps it might argue that since its "traditional knowledge" policy relates primarily to Ayurveda, it is, in effect, legislating on "public health". Bottom line: it has to consult with some top notch creative constitutional lawyers to find a way, if it really wishes to push its daring policy through. Would be great from our readers who may have come up with creative "inventing around" techniques that the State of Kerala can deploy to get around this constitutional law bottleck.

"TRADITIONAL KNOWLEDGE" IN KERALA : GOD'S OWN "OPEN SOURCE" POLICY?

Pursuant to our earlier posts on this issue, SpicyIP has been in touch with Praveen Raj, one of the architects of a recently unveiled IP policy drafted by the State of Kerala. Praveen was kind enough to send us a copy of this policy, as also a short overview that he had prepared. The full policy can now be found here on the Kerala government website. As for Praveen's overview, we've posted it at the end of this post.

Kerala

But first, a few words about Kerala: a state commonly reputed for its heady mix of communism, high literacy [a typical tea stall owner can chat you up on the latest happenings in the White House] and the highest per capita consumption of alcohol. All of these factors mix together to give us one cocktail of a state that reputedly has the highest suicide rate in the country. Oh--and lest I forget: with pristine beaches, luscious forests and some of the most delectable seafood, it is a paradise for tourists too. Sadly however, humility is not a virtue in this land which calls itself "gods own country". And in case you're wondering as to where this impressive body of knowledge about a tiny state came from, I happen to hail from here.


The Policy: Key Highlights

In essence, the controversial Kerala policy seeks to regulate "traditional knowledge" within the State of Kerala--by interalia providing for some form of "property rights" over this body of knowledge. Since such knowledge is by definition"old", it does not fit well within the traditional IP categories such as patents, copyrights etc, warranting the adoption of a new legal/policy instrument to protect it.

The policy begins by expressing its utter disgust at the rampant exploitation of traditional knowledge by MNC's/corporates, without any benefits to the communities that own it. A sentiment shared by the Union of India, that has spent millions of rupees in the past invalidating patents based on such knowledge (recall the Neem and Turmeric controversies). More recently, the Centre has been engaged with creating a traditional knowledge digital library (TKDL), a database that will serve as "prior art" against any move to register patents based on such knowledge . To the best of my knowledge, the government is yet to open this database up to any of the patent offices worldwide. I wonder what the bottleneck might be? Anyway, the above strategies pursued by the Central government are what are commonly labeled as "defensive" approaches to traditional knowledge.

The Kerala government however goes one step further and "offensively" attempts to create property interests around this knowledge, as would enable an active leveraging and use of this knowledge by communities within Kerala. In essence, such an approach aims to engage proactively with TK owners/users in order to facilitate use of such knowledge and bring in more rewards for the communities that nourish it.

The policy draws a distinction between "family owned" or community owned traditions (that more or less constitute "trade secrets", such as the Kottakal Arya Vaidya Sala "massages") and other kinds of traditional knowledge that are not specific to any community, but used within the length and breadth of Kerala. We discuss these in turn.

Family Owned Traditions

In the case of community/family owned traditions, the families/communities have to make out a case for the entry of such rights into a register, administed by a body specifically created for this purpose called the KTKA (Kerala Traditional Knowledge Authority). The said claim would be registered, only after it is thrown open to the public for opposition etc. This scheme works pretty much like our GI (Geographical Indications) Register. Except that, in the case of GI, one need not worry about the "trading" or other misuse of GI rights, as only those from within that community/geographical area are permitted to use the indication in question.

In the case of "family" or "community" owned TK, the family or community that is on the register own the rights to such TK and are free to deal with them as they please. Except that there is a complete "bar" against patenting any "improvement" or other advancement of such knowledge by either the community or any of their licensees. Rather, in a scheme reminiscent of the open source licensing movement (and to some extent, even the creative commons license movement), the policy stipulates that any improvements made using that knowledge has to be ploughed back to the " knowledge commons", a much bandied about term. Readers may recollect the usage of terms such as "commons" in Garett Hardin's property classic "Tragedy of the Commons" and in Rebecca Eisenberg's intellectual property classic "Tradgedy of the Anti-commons".

The implications of subjecting this newly created property to the "knowledge commons" is that it can be freely used (under a "commons license") for non commercial purposes by any non corporate entity. However, as noted earlier, it cannot be patented by anyone, notwithstanding any significant improvements to the knowledge in question.

"State Wide" TK

As regards other forms of TK, over which no paticular community can stake claims, the State of Kerala becomes the defacto owner and regulator. Here again, all users within Kerala (barring corporates) have a license to use it for non commercial purposes.

Fear of MNCs

When reading the policy, one cannot help but notice a deep seated distrust of "corporate"/MNC's. The policy therefore takes the easy way out: in most cases, corporates (medium and large enterprises) are barred from using the knowledge!

State Bayh Dole?

Secondly, the policy also regulates state funded inventions--in a manner similar to the proposed Bayh Dole Bill that the Central government is sneakily attempting to introduce --a bill that we have been extensively blogging about. Unfortunately, as it stands now, the Kerala policy only covers inventions that come out State labs/institutes and not private institutes/facilities that might use state funding to arrive at the said inventions. The policy establishes a body called the Supervisory Council on Intellectual Property (SCIP) to oversee all such inventions and their patenting and subsequent licensing/remuneration to scientists that were involved in the "inventing" process.


History of Kerala's IP Policy

I believe the chief architect of this policy is Prof Prabhat Patnaik, a reputed economist from JNU (Jawaharlal Nehru University) with Marxist leanings. He also happens to be the vice-chair of the Kerala State Planning Board. The other brain behind this policy is Praveen Raj, a scientist and an ex-patent examiner, who offered most of the legal inputs. Apparently, the idea for such a policy came out of the earlier government in Kerala (specifically from former Law Minister, KM Mani), but was effectively concretised by the present government, with the help of Prof Patnaik and Praveen. The main supporters of this policy in the present government are the current Chief Minister, Mr VS Achutanandan and the current law minister, Mr M Vijaykumar.

Like most other new policies, this comes with its pluses and minuses. Before we outrightly reject the policy as too fanciful, we ought to appreciate that the intent behind this policy is a laudable one. This might just be a case of the Kerala state government giving up on the Centre--which has been sitting on this issue for too long now and has been "barking" more than "biting". To this extent, the move by the Kerala state government is a rather bold and dare I say "non traditional" one. As Praveen tells me: none of the critiques appreciates that this is "out of the box" thinking. But only time will tell whether this thinking will be seen as a "wise" move or as embodying the old aphorism that "fools rushed in where the angels feared to tread".

The challenge will be in the fleshing out of this policy--the devil truly will be in the details. It is only a "policy" now--and it is expected that the government would legislate on this in the coming months. We will deliberate on the various pros and cons of this policy soon. For the moment, we leave you in the able hands of Praveen Raj, who's drafted the overview below:

IPR POLICY OF KERALA – AN OVERVIEW

The major issue being addressed by the Kerala IPR Policy 2008 is with regard to protection of traditional knowledge and biodiversity associated with such knowledge, which demands attention for the following reasons.

a) Traditional Knowledge is not sufficiently codified;
b) There is no formal mode of transmission of TK; and
c) TK is not coming in the ambit of any legally defined Intellectual Property Rights.
d) It is an advantageous factor that it largely remains outside the domain of capitalists

The main concern of the Government is that unlike other knowledge categories which are mostly deciphered in books or embedded in the biological system, this kind of knowledge attributes to and forms the basis of livelihoods of many TK practitioners, and hence the absence of any legal property rights on such knowledge may render an opportunity for the private appropriation of the Traditional Knowledge by multi national corporate entities with minor modifications thereon and thus making it eligible for patenting in their name. This will in turn adversely affect the interests of many who practices Traditional Knowledge for their bread and butter.

Traditional Knowledge Commons

The IPR Policy of the State proposes to commit all traditional knowledge, including traditional medicines, the practice of which sustains livelihoods of many, to the realm of “Knowledge Commons” and not to the “Public Domain”. “Knowledge Commons” refer to the knowledge, which is the collectively produced sphere of ideas and which is left unencumbered for the greater benefit of all. In the legal arrangement proposed by the Policy, Traditional Knowledge is categorised into two. In the first category, Traditional Knowledge refers to such knowledge preserved and passed from one generation to the next generation, in a variety of traditional ways, by particular communities (especially tribal communities), particular institutions or families regionally located. The second category pertains to the Traditional Knowledge that sustains the daily practice of Ayurvedic medicine by numerous practitioners scattered across Kerala

Concept of Commons Licence for Traditional Knowledge

While the Policy envisages creating property rights on traditional knowledge, all the right holders will be deemed to be holding their rights under a “Commons License”, wherein the right holders shall permit others the use of the knowledge in their possession for non-commercial purposes. It is further stipulated that any development made using this knowledge licensed under the above obligation should be put back to the realm of “Knowledge Commons”, say “Traditional Knowledge Commons”, and hence denying the scope of patenting thereof.

Creation of Rights on Traditional Knowledge

In respect of the first category of TK, where it is the preserve of a particular community, particular institution or family, such community or custodian will be deemed as the right-holder(s) of TK. These right holders will have two kinds of rights

a) Right for a “brand name” or a name associated with the unique practice of such community, family or institution, say “Kottakkal Massage” for Example.

b) Right to use the Knowledge for Commercial as well as Non-commercial purposes.

Any one other than the right-holder to the traditional knowledge, who wishes to use this knowledge, may do so under a “Common License”. If any commercial use of the traditional knowledge is to be made by any entity other than the right holder, the terms and conditions for such license will have to be negotiated between the right-holder and the said potential user. Any use of traditional knowledge or practice in violation of the “commons license” within or outside the state of Kerala will be considered a violation of the rights.

No entity that is registered as a medium or large enterprise would ever be acknowledged as a right holder.

In respect of the second category of TK, where it is the livelihood of numerous practitioners strewn across Kerala, State will be deemed to have rights over such Traditional Knowledge. Even though State holds the ownership on such TK, all the actual practitioners of this Traditional Knowledge will have an autonomous license for right of commercial use from the State, provided that such practitioners are not classifiable as medium or large enterprises. But these Licensees are not empowered to sub-license this right of commercial use to anybody else, and right for transferring licenses will solely be enjoyed by the State, i.e. the right holder.

Governing Mechanism – Kerala Traditional Knowledge Authority (KTKA)

Creation of rights and obligations necessitates a Governing Mechanism for acknowledging the right holders, enforcing the rights and recommending legal action against the violators of the rights and “Common License”. Therefore the Policy advises to constitute a body called Kerala Traditional Knowledge Authority (KTKA), with which all practitioners of traditional knowledge of the first category will have to be registered. Such practitioners will have to specify what is unique about their actual traditional-knowledge-practice, the details of the nature of their practice, and the details of the nature of the community/group/individual that constitutes the custodian of this practice. KTKA will give general notice to the public, regarding all applications being made to it by practitioners. This is to invite public for bringing to the attention of KTKA, any disputations of applicant’s claims or challenges to claims of uniqueness, prevalence of similar practice in more than one location or community etc. After scrutinizing all such cases of disputes and after resolving the issue of ownership, KTKA would finally register a community/group/individual as knowledge practitioner of such unique set of TK practices.

The Board shall consist of a Chairman and four members, of whom at least one each must be from the TK community and the scientific community. The activities of KTKA shall be financed from a fund created by the Government of Kerala. KTKA shall maintain a register of all such TK practitioners of the first category, who have registered with this Authority. KTKA also shall have the obligation to help right holders viz. the State and the Private Communities to negotiate terms with the other possible commercial users of traditional knowledge, and undertaking promotional activities like forming ‘Traditional Knowledge Users’ Co-operatives”, in order to enable such users to access larger markets for their practices and products.

TK associated with use of Biological resources

The Policy further keys out that in the case traditional knowledge associated with the use of biological resources, an additional safeguard can be introduced by using the provisions of Biological Diversity Act, 2002. By employing Section 3 of the Biological Diversity Act, which stipulates that all foreigners must get previous approval of the National Biodiversity Authority (NBA) to obtain any biological resource occurring in India or knowledge associated thereto, for research or for commercial utilization or for bio-survey or bio-utilization”, the State may ask the National Biodiversity Authority (NBA) to refer all such applications by foreigners seeking biological resource from Kerala to obtain the additional approval of the State Biodiversity Board (SBB) to ensure that any innovation based on traditional knowledge associated with the biological resources of the state is put into the realm of “Knowledge Commons”. State may enact legislation for effecting the above if it is not practicable to get the arrangement done through NBA.

A Similar mechanism would need to be put in place against misappropriation of TK associated with the use of Biological resources by Indian Corporates. Section 7 of the Bio-diversity Act 2002 provides that “No citizen of India or a body corporate, association or organization, which is registered in India, shall obtain any biological resources for commercial utilization, or bio-survey and bio-utilization for commercial purposes, except after giving prior intimation to the State Biodiversity Board concerned”. However this provision does not apply to the local people and communities of the area, including growers and cultivators of biodiversity and the practitioners of indigenous medicine. But there is a drawback that this section does not cover obtaining knowledge associated to the biological resource. Therefore it requires that the Section 7 be extended, through appropriate legislation if necessary, to make it obligatory for the applicant (all Indian citizens other than the local users) to obtain prior approval of the State Biodiversity Board for the use of knowledge associated with biological resources also. This can help to ensure that the traditional knowledge remains within the realm of “Knowledge Commons”.

As regards to the commercial use of the biological resources of the State, wherein the permission of SBB is mandatory according to the Biodiversity Act, the SBB shall give its permission only after consultations with the KTKA.

Another point that requires attention is that the foreigners are kept outside the purview of Section 7 of Biological Diversity Act when it comes to commercial utilization of biological resources and they are required to obtain permission only of the NBA and not of the SBB. Therefore State shall make it obligatory (through appropriate legislation if needed) for the foreigners to obtain permission from SBB for the commercial use of biological resources of the State. SBB shall refer it to KTKA as in the case of commercial use by Indian Citizens.

In all such cases referred to KTKA by SBB, it shall go into the question of possible damage to traditional knowledge-users and require possible compensation for such damage. Either through outright proscription of commercial use of biological resources by outsiders, or through arranging equitable benefit-sharing with the traditional users, which would compensate them for any losses they may suffer as a result of such use, the interests of the community of traditional users will be protected.

The Co-operation of NBA is very much necessary for the above arrangements and the entire policy needs close synergy between the SBB and NBA. Indeed any breach by Indian or foreign corporate of the SBB stipulation that developments based on traditional knowledge must be put in “Knowledge Commons” can be caught only when they apply for patents through the NBA. Similarly if some traditional users seek to take out patents either of existing knowledge or of any development based upon it, it can be prevented only when the patent permission is sought from NBA.

Supervisory Council on Intellectual Property (SCIP)

The Policy proposes to set up a specialized governmental body called the Supervisory Council on Intellectual Property (SCIP) to oversee the activities of the KTKA and SBB with regard to the protection of traditional knowledge, to provide overall supervision in matters relating to intellectual property rights, and to follow up the recommendations of the KTKA with regard to prosecutions for violation of knowledge-users’ rights.

The following are the constitutional details of SCIP.

• Chief Minister will be its Chairman and Law Minister will be the Vice-Chairman
• The Chairpersons of the SBB and of the KTKA will be ex officio members.
• Its Members shall include a few ministers, Scientists and other experts from various fields
• The Council will have appropriate technical staff
• The Council will operate through a number of sub-committees and specialized groups, which will meet frequently and deal with specific issues.


The following are its major functions

• It will pursue all cases of breach of agreement on knowledge-user’s right.
• It will be the conduit through which all the patent applications from state government-funded or state government-aided research institutions will pass.
• It will help any potential patent applicant who asks for its assistance to prepare proper patent applications.
• It will assist all those who are on the verge of patentable inventions but are held up in their research work and cannot complete it for some reasons (including financial constraints).
• It will encourage in various ways patentable research in the state.
• It will disseminate knowledge in the state about intellectual property rights.
• It will in general uphold and promote the interest of the state and its people in whatever way it deems fit in the new International IPR Regime.

Ownership of IPR in research Projects hosted by State-funded institutions

Another major issue being addressed by the Policy is with regard to the ownership of Intellectual property rights over the outcome of research in state government-funded and state government-aided institutions, especially given the current trend of outsourcing from the west. While such outsourcing, giving rise to collaborative research can be academically productive for the states’ research institutions, it is important to ensure that our public research institutions do not simply become providers of cheap labour to multinational corporations.

In respect of the projects funded by private sources or by foreign official sources, the Policy stipulates that the knowledge generated in such research shall be put in to the domain of “commons”, so that any one can use these for whatever purpose, and all useful modifications derived from or based on these will be put back in to “commons” available for anyone to use.

In the case of Projects funded by State Government or from the general research funds of the institution itself, the research outputs must clearly be the property of the state government, but a suitable system, of rewards will be introduced, by the Supervisory Council on Intellectual Property (SCIP), for the research scientists upon whose work the output is based. The State Government may decide to put the research output in many cases in the domain of “commons” but that will be its own decision, to dispose of its “intellectual property” in any manner as it deems fit.

In the case of Projects funded by the Central Government or by other official agencies of the country, the intellectual property rights over the outcome of research should be left open and decided on a “case by case” basis, since the research partners in these cases may well have their own rules regarding the intellectual property status of outcomes of joint research.

While these would be the general rules, there may be specific cases where exceptions may become necessary. All exceptional cases in the first two sets of projects and all cases belonging to the third set where the intellectual property status is decided on a case-by-case basis, should be submitted for approval to the Supervisory Council on Intellectual Property (SCIP) before the start of the project, provided that the project estimate exceeds a certain minimum size. Since the patent applications on all such projects will have to go through the SCIP, it will at that stage decide whether a patent sought in the case of a project on the second category, i.e. on a state government funded project, should be put into “knowledge commons”. This decision however has to be taken in consultation with the research institution concerned and by the full meeting of the SCIP.

The SCIP will be concerned only with the intellectual property rights issue in all the above cases, and will give its opinion within a short time so as not to hold up the research project unduly.

SpicyIP Tidbit: World Health Statistics 2008

The World Health Organization has recently released the ‘World Health Statistics 2008’. To quote from the introduction of the Report

World Health Statistics 2008 presents the most recent available health statistics for WHO’s 193 Member States. This fourth edition includes 10 highlights of health statistics as well as data on an expanded set of over 70 key health indicators. The indicators were selected on the basis of their relevance to global health monitoring and considerations of data availability, accuracy and comparability among Member States.

World Health Statistics 2008 has been collated from publications and databases produced by WHO’s technical programmes and regional offices, as well as from publicly accessible databases.

The reason we’re blogging about this report is because this report can be expected to be an important tool in the compulsory licensing debate especially for Section 92A licenses, which are compulsory licenses for export. Coming for the WHO the report should be considered to be credible. Readers may also remember that Justice Ravinder Bhat in the Tarceva matter had lamented on the lack of adequate data in regards the number of people suffering from lung cancer in the country – data which may alter the outcome of the case. Hopefully sustained efforts such as this one by WHO will help bridge the information deficit in this crucial field.

Gauri Kamath on Drug "Differential Pricing" in India

Gauri Kamath of Business World has an excellent review of the latest "differential pricing" efforts of MNC's in India. Readers may know that SpicyIP is an ardent advocate of "differential pricing" strategies.

See here for one of our posts which reviews Merck's scheme relating to the anti-diabetic, Januvia. In fact, Gauri has referred to our SpicyIP post in her article as well.

She ends by noting that "If Merck is able to win over doctors, regulators and public opinion, in addition to making money, more may follow... For diabetics, this is sweet news indeed." I'm reproducing her article below:

PHARMACEUTICALS Game Changer
Merck’s low-priced diabetes drug might change a few rules

GAURI KAMATH
13 June 2008

India’s pharmaceutical multinationals have watched Naveen Rao flag off his company’s newest offering with interest. Rao, managing director of Gurgaon-based MSD Pharmaceuticals, the Indian subsidiary of the US’s fifth-largest drug maker Merck, is talking price.

Local MNC arms seldom discuss pricing. Until India began awarding drug patents in 2005, cut-price generics were freely available. MNC originals, priced at a premium to recover research costs, looked embarassingly expensive in contrast. More recently, their drugs are being imported; Indian arms have little say in pricing.

Rao is promising to change all that. In April, he launched Januvia, a diabetes drug, on the plank of ‘differential pricing’ — charging different prices to different customers, or countries in this case, for the same product depending on their ability to pay. Januvia retails in India at Rs 43 a pill, roughly a fifth of its price in the US.

It has got everyone’s attention. “This is probably the first case of differential pricing implemented by Big Pharma (top western drug makers) in India,” says Utkarsh Palnitkar, national sector leader for health sciences at Ernst & Young, in Hyderabad. Though no MNC manager would come on record, a senior manager at the Gurgaon-based subsidiary of a US drug maker says, “This is not what MNCs usually do.”

The move is part corporate social responsibility, and part hard-nosed economics. “Merck’s tagline is ‘Patients Come First’,” says Rao, 54, who spent 12 years with Merck in the US before heading home in 2005. “I didn’t want it to seem as though we put rich patients first.” Equally, he says, this is about business strategy. Merck aims to be among the top five drug companies in India by 2015; it is currently ranked 120. “We have to be India-friendly,” he says. But, will it work?

Sweet Spot

Januvia is the first in a new class of drugs called DPP4 inhibitors. Unlike older diabetes drugs, it causes neither weight gain nor a potentially fatal drop in blood sugar levels. It also helps postpone the use of insulin in patients. “It is a breakthrough class of drugs,” says Anoop Misra, head of the department of diabetes at New Delhi’s Fortis Hospitals, but cautiously. Januvia is a new drug and has mild side effects — sore throat, diarrhoea and upper respiratory tract infections. Serious side effects, if any, could come to light once it is used extensively, he says.

But for now, Januvia is in a sweet spot. “It is almost as effective or better than existing drugs,” says Subhash Wangnoo, senior endocrinologist at Delhi’s Indraprastha Apollo Hospital, who conducted the drug’s trials in India. “And there is more patient compliance.” Januvia is tipped to be a blockbuster barely 15 months after it was launched in the US. But it could fail in India — the diabetes capital of the world with 43 million diabetics — if the pricing isn’t right.

The Difference

Merck’s drug is not the cheapest. Older diabetes drugs retail for less — some as low as a few paise per dose, under government control. Also, many MNC drugs are priced lower than in their home markets. So why is Januvia any different?

MNCs mostly decide on a flat percentage off the home market price, or a floor price below which they will not go. But Merck took another approach, and spoke to 350 Indian doctors and patients to decide on an India-specific price. Doctors voted for under Rs 50 a day, but diabetics, hit by the side-effects of older drugs, were willing to pay twice as much, says Rao. Ultimately, Januvia’s tag was lower than both.

Palnitkar says the pricing suggests that Merck means business. “Their strategy is the acknowledgement of a large volume of prospective business.” Industry estimates peg the oral diabetes drugs market in India at $300 million and its growth at 20 per cent-plus, annually. The Indian pharma market is poised to become the 10th-largest by 2015, according to US consultancy McKinsey. India now awards drug patents, a key reason behind Merck’s return to the country two decades after quitting.

Januvia is Merck’s first patent-protected drug in India and its first drug to be marketed to primary care physicians in the country’s chronic care segment. The other drugs from Merck’s stable (apart from an adult vaccine) are used for life-threatening infections, where prices are high and volumes far more limited. But as Rao says, “Diabetes is mainstream.” So, managing costs is a big issue for doctors and patients.

Take, for instance, Byetta, another diabetes drug launched in India by Merck’s US rival Eli Lilly. At Rs 7,600 a month, Byetta has 2,000 patients, and is seeing 10-15 new patients every day. Devashish Ohri, senior vice-president for marketing at Lilly’s Gurgaon office, says that Byetta, which has to be injected twice a day, is meant for those who are overweight and unable to control sugar on multiple oral diabetes drugs. And that the number of new patients on Byetta could double as it pushes the drug to more doctors. “We have just scratched the surface.”

For Januvia, with price on its side and its once-daily tablet form, prospects may be brighter. One caveat, though. The two drugs act completely differently. Byetta’s unique selling proposition is that it helps patients actually lose weight; Januvia’s plank is “no weight gain”. Says Apollo’s Wangnoo, “There is a role for both.”

Yet, Lilly’s optimism illustrates the market potential. As for doctors like Misra, Januvia is still expensive, to be prescribed when other oral drugs fail. “I would not prescribe it as the first line of treatment.” He would also judge its efficacy depending on how his patients respond.

The Halo Effect

There is relationship-building at work here as well. Merck is trying to cut through the tide of criticism sweeping over MNCs for pricing drugs out of the reach of millions. And further soften Indian regulators who are demanding a role in the pricing of patented drugs. “I could have charged whatever I wanted,” says Rao. “But I behaved responsibly.” Merck is awaiting approval to market Gardasil, a vaccine against a form of cervical cancer that kills thousands of Indian women every year. Rao hints at a ‘public-private’ partnership model for it, but offers no details citing its pending approval.

Shamnad Basheer, a New Delhi-based patent expert, believes that Merck’s shift in its pricing policy has to be viewed in the context of a recent patent-infringement battle involving a cancer drug being fought in an Indian court between generic company Cipla and patent-owning Swiss drug maker F Hoffmann-La Roche. An initial judgement has gone in favour of Cipla’s cut-price generic. On his blog, Basheer asks, “Will Roche learn from Merck’s wisdom?”

Great Expectations

Indeed, Merck is being seen as a trendsetter of sorts. “It is to be hoped that other MNCs follow suit when new drugs are introduced in India,” says V. Mohan, chief diabetologist at Dr Mohan’s Diabetes Specialities Centre in Chennai. Will they? GSK, for one, has already begun by practising differential pricing for its vaccines business, and may do so for drugs, too. If Merck is able to win over doctors, regulators and public opinion, in addition to making money, more may follow.

For now, Januvia could shake up the market for new diabetes drugs such as Byetta and Galvus (to be launched soon by Swiss MNC Novartis). A Novartis spokesperson would only say that Galvus would be priced competitively. For diabetics, this is sweet news indeed."

AIDS Patent Rejection: Differential Patentability Standard for Essential Drugs?

In our last post on HIV patent cases in India, we promised to bring you a more comprehensive analysis of the Nevirapine patent rejection. So here it is:

The patent application by BI claimed the ARV (anti retroviral), Nevirapine, as a “hemi-hydrate solution”. More specifically, the patent claimed a composition containing an aqueous solution of nevirapine hemihydrate of particle size between 1-150 micron.

The key advantage claimed by BI related to the particle size which made it more stable and enabled longer storage. The particle size was advantageous to maintain stability of the solution. And the solution was useful for kids who normally find it difficult to take other dosage forms of Nevirapine.

Pursuant to a pre grant opposition filed by AIDS patients groups, the Assistant Controller, NR Meena rejected the patent on grounds of lack of inventive step, lack of “efficacy” under section 3(d) and lack of “synergy” under section 3(e).

It is interesting to note that counsel for the opposition (Anand Grover of Lawyers Collective) stressed the fact that the since the invention related to an "essential" medicine, a patent issued would have a debilitating impact on “access”. Therefore it was imperative that the patent office subject such patent applications to a "strict" patentability standard/threshold.

To buttress his point, he cited the Madras High Court decision in the Novartis case, TRIPS and the Doha Declaration, all of which made clear that countries had flexibilities in devising patent regimes that adequately catered to “public health” concerns. He also referred extensively to Carol Correa's "Guidelines for the Examination of Pharmaceutical Patents: A Public Health Perspective".

The Asst Controller attempts to dispose of these “policy” style arguments quickly by noting that TRIPS and other arguments relating to “public health” are not specific “specific grounds” that one can cite in an opposition. Interestingly however, he goes on to qualify all the above submissions by Grover as “matters of law”. In other words, he appears to have accepted the proposition that the patents covering essential medicines ought to be construed “strictly” as a matter of law.

His proposition paves the way for differential “patentability” standards at the patent office in respect of "essential" medicines. This is over and above the differential standards built in by Parliament into statute such as section 3.d (which applies mainly to pharma and agro chemical inventions).

However, it bears noting that this standard is likely to be applicable only to "essential" medicines and not all pharma patents. Therefore, a patent application relating to a new variant of the Viagra drug is not likely to attract the same kind of sympathy by the Indian patent office (in fact, the patent office may deploy a liberal standard of patentability to intentionally keep prices high!).

Here are some quick points that I prepared that may qualify as a “summary” of the decision:

On Novelty (and "Mosaicing")

The opposition cited a number of prior art documents which they alleged “anticipated” BI’s patent application. The patent office however disagreed, stating that no single document, by itself, contained all the prior art necessary to anticipate. In pertinent part, the office held that for the purpose of “anticipation” one cannot “mosaic” different documents and claim that they anticipate the patent.

On "Inventive Step" (Non Obviousness)

Although the patent office ruled against the opposition on the "novelty" issue, they held in their favour in so far as "inventive step" was concerned. The Asst Controller appears to suggest that one may “mosaic” different prior art for the purpose of establishing lack of inventive step. And based on all the prior art cited, the patent office held that a skilled person could have put them together to arrive at the claimed “invention” (a composition containing an “aqueous suspension of nevirapine hemihydrate”). The patent office also hinted that the reduction in particle size could be achieved by milling or other conventional methods. And that there was nothing novel or inventive about the method here.

Section 3(d): No Comparative Data

As mentioned earlier, the key advantage claimed by BI was in terms of the particle size which made it more stable and enabled longer storage (i.e. particle size was advantageous to maintain stability of the solution. And the solution was very useful for kids who normally find it difficult to take other dosage forms of Nevirapine). However, the patent office still ruled against BI on section 3(d).

The key reason underlying the patent office rejection on this count was because no evidence had been submitted that would have enabled the patent office to compare the efficacy of the claimed invention against an earlier known substance. In other words, one has to necessarily show “comparative advantage” and explicitly compare the invention against an earlier known substance. This point by the patent office demonstrates the importance of submitting some data (whether clinical trial, in vitro, scientific publications etc) that would help establish that the "efficacy" of the claimed invention was superior to an already known substance/composition. It is not enough to merely allege such increase in efficacy or hope that the patent office will so intuit from the other evidence/submissions.

Section 3(d): Therapeutic Efficacy

More importantly, the patent office held that the only advantage cited was that a reduction in particle size permitted longer storage. According to them, this did not constitute an increase in “therapeutic” efficacy. In pertinent part, they stated that: “Improved particle size stability means that someone who is able to make aqueous solution of Nevirapine Hemihydrate can store it for longer in the shelf. However the “therapeutic” effect of Nevirapine, whether in hemihydrate or anhydrous form or whether administered in aqueous, tablet, parenteral or any other dosage form would remain the same”.

From the above, it can be seen that the patent office is likely to insist upon “therapeutic efficacy” in future cases. And not just any kind of advantage claimed for the drug sought to be patented, such as an increase in heat stability, manufacturing efficiencies etc.

Needless to say, in construing efficacy to mean "therapeutic efficacy", the Indian patent office was merely following the Madras High Court decision in this regard. And as per our constitutional structure, it is bound to follow the rulings of the High Courts. I have elaborated on this aspect in a recent article and I extract the relevant portion below:

“First, it is important to appreciate that while certain acts of the patent office qualify as “purely administrative,” others could be said to be of a “quasi judicial” nature. Whilst determining whether an application meets the criteria of patentability, the patent office could be said to be performing a quasi-judicial role.

Since the patent controller is a “tribunal” (at least when deciding on whether or not something is patentable), it will be bound by the supervisory jurisdiction of the High Court under Article 227. And in much the same way as the IPAB, it is bound by decisions of the High Court.”

The article then goes on to question the assumption that the term "efficacy" in section 3(d) necessarily means "therapeutic efficacy". Not least because the section applies to agro-chemicals as well—and it seems downright stupid to ask if a variant of an existing pesticide demonstrates greater therapeutic efficacy than its known predecessor! We had also blogged on this aspect here.

The article notes:

"While some of the suggestions in this paper are immediately implementable, other issues will necessarily involve a more detailed empirical/policy investigation. One such issue is the definition of efficacy: ought “efficacy” to be restricted to only therapeutic efficacy, or should it be widely defined to encompass non therapeutic advantages as well, such as heat stability, manufacturing efficiencies etc? This issue will, in many ways, determine the scope of protection of incremental pharmaceutical inventions in India. Illustratively, if efficacy is restricted to only “therapeutic” efficacy, new drug delivery mechanisms, a category of inventions in which Indian companies are particularly proficient, will fall out of the scope of protection."

Notwithstanding any of the above, unless the ruling of the Mad HC is challenged, it is here to stay. And future patent office decisions will continue to insist upon "therapeutic" efficacy. Interestingly, a recent update of the patent office manual quotes the Madras High Court definition of “efficacy,” as well. I will comment more elaborately on the patent office manual and its implications for the Novartis case in a later post.

Section 3(e): No Synergy

The patent office also held against BI on section 3(e), which prohibits patents to any "substance obtained by a mere admixture resulting only in the aggregation of the properties of the components thereof". In other words, unless a combination of individual elements produces some "synergy", the said combination is not patentable. The patent office rules that the claimed composition by BI did not demonstrate additional synergy, when combined. However, the reasoning was not very detailed in this regard.

Patent Eligbility vs Patentability

I had mentioned in the earlier post that of all the commentaries pertaining to this case, I would recommend the post by IMAK, where Tahir succinctly explains the decision. In particular, Tahir takes issue with the patent office reasoning, whereby patentability criteria such as "novelty and "inventive step" are looked at first, prior to assessing the section 3(d) issue. He notes that:

"If any criticism can be levelled at the decision, it is from a practice point of view. As with the Novartis/Gleevec decision, the patent offices seem intent to go through the novelty, inventive step tests first before considering what are not inventions under the Patents Act i.e s3(d) and s3(e). Logically, and as evidenced in case law from other jurisdictions, the patent office should deal whether a patent application even meets the threshold of an invention, as set out in s3 of the Indian Patents Act, before moving on. Therefore, s3d should be applied first."

Although I see some merit in Tahir’s point, I wonder whether what he suggests is pragmatic. Would it be possible for the patent office to completely rule on section 3.d, without looking into issues of "novelty" and "non obviousness" at all? In a recent article, already referred to earlier, we’ve recommended as below:

“Section 3(d) may be construed as a refinement of patentability criteria to cater for “ever-greening” – a specific problem inherent in pharmaceutical innovations. More specifically, the “enhanced efficacy” criterion can be seen as refinement of “non- obviousness” principles, i.e. most forms of existing pharmaceutical substances are deemed obvious, unless they demonstrate increased “efficacy.” At some level, section 3(d) could also be said to embody a utility test, i.e. unless the new form has significantly enhanced utility over and above what existed before in the art, it is not patentable.

Under the present scheme of the Indian Patents Act, section 3(d) is part of a section that begins with the phrase “the following are not inventions within the meaning of this Act…” In other words, any pharmaceutical invention that does not comply with section 3(d) represents excluded patentable subject matter, i.e. section 3(d) is structured as a patent eligibility test and not as a patentability test. At a conceptual level and drawing from the patenting practices of most member states, one can draw a distinction between “patent eligibility” and “patentability.”

“Patent eligibility” broadly refers to the requirement that a subject matter for which a patent is sought be inherently suitable for patent protection, in the sense of falling within the scope of subject matter that patent law prima facie exists to protect. In most jurisdictions, patent eligibility manifests itself in the term “invention,” i.e. a poem, though new, non-obvious and useful is still not patentable, as it is not an “invention.” The term “patentability,” on the other hand, refers to those set of principles that inform the requirements that must be satisfied for a patent eligible subject matter (i.e. an invention) to be granted a valid patent. Principally they are the requirements of novelty, inventive step (non-obviousness), utility (industrial applicability) and sufficient description.

By mandating that a new form without increased efficacy would not amount to an “invention,” section 3(d), in effect, constitutes a patent eligibility standard. Although this is more a matter of form than substance and is not likely to make an impact on the outcome of the case, it will influence the stage at which the examination is conducted. Being a patent eligibility standard, an examination is conducted right at the start. Compare this with a non-obviousness or inventive step examination, which is done at a later stage. Since an examination under section 3(d) is likely to call into question some of the very same issues used in a non-obviousness determination, it may help to explicitly state section 3(d) as a “patentability” criterion rather than a patent eligibility criterion.”

Apart from a non-obvious determination referred to above, section 3(d) calls into question issues of “novelty”. The section states in pertinent part that only those "new forms" that demonstrate significantly enhanced efficacy over and above a "known substance" will be patentable. This issue comes up quite starkly in the Novartis case, with the question being: What is the "known" substance against which the Novarits beta crystalline application has to be compared for assessing efficacy?

As noted in a previous post, the various steps involved in the allegedly inventive process are:

) Synthesizing imatinib as its free base, a compound that was patented in the US, EU and several other countries. However, this could not be patented in India, owing to the fact that in 1993, India did not provide product patents for pharmaceutical substances.

ii) Converting the free base to a particular salt form, imatinib mesylate, by adding methanesulfonic acid.

iii) Crystallising the imatinib mesylate to obtain the beta crystalline form, which is allegedly the most stable polymorphic form of the salt. A patent application was filed for this and it is this application that is the subject matter of dispute.

iv) Formulating the beta crystalline form of imatinib mesylate into a pharmaceutically useful drug, Glivec.

While rejecting the patent application on grounds of section 3(d), the patent office does not make clear as to what the "known" substance in this case is. Would the “known” substance be the imatinib free base (in relation to which it is far easier to show increased efficacy) or the later salt, imatinib mesylate? Or the alpha crystalline form of imatinib mesylate?

Notwithstanding this defect, is is important to appreciate that for the purpose of section 3(d), one has to necessarily make a determination of what amounts to a "known" substance: a determination that will inevitably call into question issues of "novelty".

Conclusion

As mentioned in the last post, the most significant portion of the patent office decision appears to be the implicit finding that when an application claims an "essential medicine", patentability criteria have to be interpreted "strictly". Perhaps this could mean that if the meaning of the term "efficacy" is uncertain, the patent office would give it a stricter/narrower construction, limiting it to "therapeutic" efficacy, rather than opening it up to a more liberal interpretation. In short, this decision paves the way for patent offices to treat “essential medicine” cases differently.

Secondly, the patent office is likely to continue with construing efficacy as "therapeutic efficacy". Unless such a construction is challenged in court. Lastly, the Nevirapine decision teaches us that unless data is submitted to compare an earlier known substance against the claimed form, an applicant is likely to fail the section 3(d) test.

Would love to hear from our readers on what they think might be the implications of this decision for future pharma cases. Also, if I have missed out on or overlooked some aspect of this decision that you think deserves mention, please do let me know.

SpicyIP:Trademark through the Taxmans Lens

IP acquisitions are becoming commonplace where companies are going a shopping for IP assets ;assets that could add synergy and diversity to existing product lines. Recent M&A forays by companies such as Biocon and Suven were largely driven by the IP acquisition rationale.

Heightened awareness that IP can constitute a discrete asset class capable of creating value and opportunities for arbitrage is fast gaining ground.IP value and IP related cross border transactions has seen a dramatic recognition in recent years.

WIth a surge in cross border transactions of intangibles, valuation and tax considerations of IP continue to be vexatious issues. The tax man is scrutinizing these deals with fine tooth comb( is he bored with celebrity tax bust ups??!!??) , perhaps also an attempt to establish judicial precedents in areas of IP tax law that hold much grey(read that as the provisions in 'The Income Tax Act'pertaining to IP)

Determination of 'situs' of such intangibles continues to be a tricky issue,the key determinant in deciding the jurisdiction for tax purposes.Transfer Pricing concerns follow.

'The Income-tax Act, 1961, contains a deeming provision whereby certain income streams arising to non-residents (including foreign companies), directly or indirectly from a business connection, from any property in India, or transfer of a capital asset situated in India, would be subject to tax in India.
The Act does not explain the circumstances under which capital assets such as trademarks, brands, etc., can be said to be situated in India. Hence, in what circumstances a property or an asset could be considered to be situated in India remained a vexed issue, especially in the case of trademarks and the like.'

The recent ruling by the AAR(Authority for Advance Rulings) on the SAB Miller case throws light in this direction and lays down some guiding principles that could help resolve this issue.SAB Miller is part of the Australian based brew biggie Fosters.

Interestingly,the AAR is a quasi judicial body that pronounces rulings only when parties initiate the process.

The decision of AAR to conclude the trademarks were situated in India was also, inter alia, aided by the fact that (a) the business of Foster’s India was being carried on in conjunction with Foster’s Australia and, since 1997, the said intellectual property was being put to use in India; (b) the Foster’s logo, etc., was registered in India in 1993 and, as such, were being used by Foster’s India by virtue of the exclusive licence agreements; and (c) Foster’s Australia retained its proprietary rights in the goodwill associated with the assets and simultaneously ensured that the assets acquired value in the form of reputation and goodwill (by sale of beer under the brand names).

AAR concluded that the capital assets in terms of the trademarks and the brand transferred by and through the S&P agreement were situated in India. Accordingly, the consideration received for the same was subject to tax in India.

Live mint as always carried an incisive analysis on this ruling.

HIV Patents in India: Will it Rain "Rejections"?

On the issue of HIV patents and oppositions at the Indian patent office, it's literally "raining" news. So far, we have 3 significant developments in the last 2 weeks or so, and I've tried to summarise them below:

1. Pre Grant Oppostion to Gilead's AIDS Drug, "Viread"

Bhuma Srivastava of the Mint reports that:

"Signalling mounting global resistance to patenting of drugs in India, a Brazilian public health group has filed an opposition in India against US drug maker Gilead Sciences Inc.’s patent filing for their anti-AIDS drug, Viread. This is the first pre-grant opposition filed by an overseas body against a patent grant in India and reflects a growing concern about ensuring that the supply of cheaper, non-patented drugs from India is not blocked."

Interestingly, Gilead has a number of voluntary licensing arrangements with Indian generic manufacturers in relation to this very same drug. However, these licenses have been attacked by civil society activists as causing significant price hikes in jurisdictions where there are no patents, and causing artificial decrease in supplies of API's, thereby increasing their costs. KEI sent a letter to the FTC in early 2007 asking them to investigate potential antitrust implications of these licenses. Kruttika will blog in detail on this soon.

Bhuma Srivastava mentions these licensing arrangements and the concerns they spur in her report:

"In 2006, Gilead had signed a spate of voluntary licensing agreements with 11 Indian non-patented, or generic drug makers, allowing them to make copies of the anti-HIV drug and selling it in 95 low-income countries including India, in a bid to take the sting out of the patent oppositions.

The public health activists refuse to believe such licence—called “patent settlements and not pure licensing agreements” by one of them— would solve the problem.

“The voluntary licences come with several restrictions on geographies, exports and back-end supplies for the generic companies. There is a lack of transparency on these deals,” said Menghaney, adding that all voluntary licensing agreements should be put out in the public domain and scrutinized for anti-competitive clauses.

The statement explains that the deals forged with Indian companies “are restrictive and do not permit export of the drug or raw material (active pharmaceutical ingredient) to certain middle-income countries, including Brazil”, allowing the innovator Gilead to charge exorbitantly for the drug."

2. Post Grant Opposition to Roche's Valcyte

The Economic Times reports that:

"Delhi Network of Positive People (DNP+)—has filed a post-grant opposition against Swiss major Roche’s patent for its HIV drug Valganciclovir at the Chennai Patent office.

The Chennai patent office granted the patent to Roche last year without hearing the arguments of the two NGOs which had filed pre-grant opposition against the drug, a DNP+ release said.

The NGO has opposed the patent on the grounds that Valganciclovir is a known compound, and at most, a ‘new form’ of an already known substance with no improvement in efficacy. DNP+ has also alleged that many patents granted by the Chennai patent office were rejected in the US, which is considered to be far more liberal than Indian patent laws. "

We had blogged on certain "non transparent" aspects of the patent office's dealing with this case during the pre-grant stage here.

3. Indian Patent Office Rejects BI Patent over Nevirapine

By far, the most interesting and widely reported news was the rejection of the patent office of a patent application by Boehringer Ingelheim (BI) covering the anti retroviral (ARV), Nevirapine. This was in response to a pre grant opposition filed by AIDS patients groups in India. The main grounds of rejection were lack of inventive step, section 3(d) and section 3(e).

Reports on this decision can be found at here and here.

The decision itself can be found at the website of Lawyer's Collective here. As for commentaries on this judgment, I would recommend Tahir's post here.

The interesting part about this decision is that the patent office appears to suggest that in the context of life saving drugs (HIV and anti cancer), they will insist on a very "strict" patentability standard. I will carry a detailed blog post on this decision soon.

Concluding Thoughts

Almost all patents covering critical ARV (anti retroviral) and anti cancer drugs are being challenged now in India. Not just by generic manufacturers, but also by patient groups and civil society activists. And lately, even by NGO's from abroad. From the Nevirapine patent rejection, it appears that the patent office will demand a fairly high threshold for patentability in future life saving drug cases. My own guess is that a number of these patents will be follow on inventions based on pre '95 basic molecules and may therefore fail the strict patentability threshold.

On a related note, if this strict/conservative approach to patentability in BI's case involving Nevirapine is followed in other cases as well, perhaps our fears of an access crunch in relation to life saving drugs may be slightly exaggerated? In an article published in the Intellectual Property Quarterly (IPQ) in 2005, I had noted:

"Although the (2005) Act makes wide ranging changes to India’s patent regime, the most controversial provision is the one introducing product patents in the area of pharmaceuticals. Quite naturally, it is feared that this would spur a steep rise in drug prices and an adverse impact on ‘‘access’’ to important drugs. Civil society proponents argue that the TRIPS flexibilities available were not exploited appropriately and that adequate safeguards were not built in to ensure an affordable supply of medicines.

While this concern by civil society has some merit, what it misses is the flexibility that already inheres in the Patent Office to tailor patent protection to suit policy needs. The Indian Patent Office has had an interesting history of taking itself to be a policy guardian of sorts and demonstrating a rather conservative approach to the issue of patentability. Indeed this trend was discernible as late as 2001, when the Office refused an application by Dimminaco AG (a Swiss biotechnology company), claiming a method of producing a live vaccine, on the ground that the term ‘‘manufacture’’ did not include a process that had as its end product a ‘‘living substance’’.

This policy-style reasoning can be traced back to the Ayyangar Committee report, a document that formed the very basis for the current Indian patent regime. Underlying this report was the clear message that fewer patents resulted in a stronger indigenous industry, particularly in the area of pharmaceuticals and chemicals. It will be the endeavour of this article to demonstrate the influence of this policy document on the decisions of the Patent Office even today. Consequently, this article will posit that rooted in a system that stressed the virtues of a weak patent system, it is likely that the Patent Office would continue with a conservative approach to the issue of patentability, even with regard to pharmaceutical inventions (that are patentable under the 2005 Act).

Needless to say, such interpretation would assuage some of the concerns of civil society, in terms of curbing the scope of pharmaceutical patent monopolies and consequently improving access to medicines."

What do our readers think? In particular, have you seen any critical ARV or anti cancer patents that you think are definitely "meritorious" and are likely to make it past the patentability threshold in India? (of course, ignore the ones that have already been in the news, such as Tarceva etc, which though granted, could not be enforced)

Kerala's IPR Policy

Readers will recall Aysha's earlier post on this issue here. Spicy IP would like to thank Dr. Gopakumar G. Nair for passing on the following information to us.

The lush green State of Kerala plans to officially released its IPR Policy in the presence of the Minister for law & Parliamentary Affairs, Shri. M. Vijayakumar, Chief Minister Shri. V.S. Achuthanandan and other distinguished guests tomorrow. For those of you interested, the function will be held at the Mascot Hotel, Thiruvananthapuram, starting 2:30pm.

We reproduce here the official text of the IPR Policy Objectives for the benefit of our readers:

IPR POLICY – OBJECTIVES


1) To Institute a Legal arrangement for the protection of traditional knowledge and biodiversity associated with such knowledge, given the fact that traditional knowledge forms the basis of livelihoods of many TK practitioners and the absence of any legal property rights on such knowledge may render an opportunity for the private appropriation of the Traditional Knowledge by multi national corporates.

State proposes to commit all traditional knowledge, including traditional medicines, the practice of which sustains livelihoods of many, to the realm of “Knowledge Commons” and not to the “Public Domain”. While the Policy envisages creating property rights on traditional knowledge, all the right holders will be deemed to be holding their rights under an obligation that they shall permit others the use of the knowledge in their possession for non-commercial purposes.


2) Setting up of a Supervisory Council on Intellectual Property (SCIP) to provide overall supervision in matters relating to intellectual property rights with Chief Minister as its Chairman and Law Minister as its Vice-Chairman.

SCIP will help any potential patent applicant who asks for its assistance to prepare proper patent applications. It will disseminate knowledge in the state about intellectual property rights.


3) To declare the stand of the Government with regard to the ownership of Intellectual property rights over the outcome of research in state government-funded and state government-aided institutions, especially given the current trend of outsourcing from the west.

While such outsourcing, giving rise to collaborative research can be academically productive for the states’ research institutions, it is important to ensure that our public research institutions do not simply become providers of cheap labour to multinational corporations."


SPICY IP supports all government endeavors to protect traditional knowledge and also congratulates the Government of Kerala on its apparent interest in collaborative research with academia (is it just me or does it really sound like a State Bayh-Dole?). However, I am personally a little confused about dedication of all TK to what has been termed as "the realm of 'Knowledge Commons.'" Does this mean a compulsory "open source" type policy? If yes, and if patents are granted in relation to TK (the possibility of which doesn't seem to be closed under the policy), will these be subject to an automatic compulsory license? Most importantly, given that intellectual property law including patents, copyrights etc. fall within the Union List, (See Union List, "49. Patents, inventions and designs; copyright; trade-marks and merchandise marks. )"only the central government has the right to legislate on these issues. Doesn't this mean that the Kerala government policy will be subject to the Indian Patents Act? Doesn't this mean that the policy statement notwithstanding, the Kerala government may not be able to implement the "compulsory license/Open Source" type policy envisaged for "property rights" related to TK... I would be grateful if anyone out there could tell me what I'm missing here!