INDO-BRAZIL DISPUTE WITH THE EUROPEAN UNION

SAGACIOUS GENERICS UPSTAKES

THE UNDISPUTED PATENT REGIME

Patent protection is designed to stimulate innovation by guaranteeing the inventor a limited period of monopoly in exchange for publicly disclosing how to produce or work the invention.

The scope of the monopoly only extends to the countries in which a patent has been granted. A “global” patent as we all know does not exist. Potential patent owners must therefore determine where to invest in a patent; a choice dictated by both economics and whether patent rights can be obtained and effectively enforced.

In the countries where the patent has not been granted or has expired, generics manufacturers may legitimately take up the slack by manufacturing the drug and supplying it domestically and to other countries where a patent is not registered.

PRO-PHARMA ARGUMENTS

Multinational pharmaceutical companies (collectively “Pharma”) argue that a robust IP enforcement strategy is essential to protect their investment in research and the extraordinary costs and time to take a drug to market.

They might ask why it is that generics companies are able to steal the fruits of their labour and sell them on cut-price and, in some cases, sub-standard pharmaceuticals.

It is further be argued by Pharma companies that the practice exposes patients to potentially harmful counterfeit pharmaceuticals, and that cut-price generics deprive Pharma of revenue to develop new and improved medicines to treat future generations.

PRO-GENERIC ARGUMENTS

Generics manufacturers play an important role in providing competition in the global pharmaceutical economy and seizures constitute anti-competitive practice on the part of “Big Pharmas”, solely designed to sustain the market status quo and deny opportunities to companies from growing economies.

Such practices are also argued to be to the detriment of millions of people in developing countries by denying them access to affordable medicines.

The recurrence of seizures by EU members has shaken the confidence level of Indian drug exporters, who feel that the seizure was taking the scope of IP laws in Europe too far.

The overwhelming reality is that millions of people in developing countries lack access to even the most basic medicines and this is a situation that should not be overlooked by the more fortunate in developed countries.

ETYMON OF DISPUTE

In January 2008, a generic version of Cozaar (an antihypertensive drug) en route from India to Brazil was seized under EU customs regulations while in transit in the Netherlands.

The seizure, carried out at the behest of the patent owners Merck and DuPont, has reignited the debate over the extent of intellectual property (IP) rights and the availability of patented medicines to developing countries.

The international interest (and in some quarters, outrage) in this case highlights the deeper rifts in respective attitudes towards IP between the so-called developed and developing countries.

CONTD

Dutch port of Rotterdam is a major transit hub as well as key point for Europe of exit and entry.

The patent was absent in Brazil or India and the Dutch officials suspended the “consignment” of the patented drug on Dutch soil, as it deemed to be infringing the Dutch patent.

The Dutch Authorities released the shipment after delaying it for 36 days, where-after the shipment was flown back to India by the generics producer (in this case Dr Reddy’s Laboratories).

The drugs - enough to treat 300,000 people for one month - had been exported by India's Dr Reddys Laboratories, which flew back to India after customs released them.

CONTD

On 11th May 2010, after one year of unsuccessful negotiations, India filed a complaint at the WTO against EU and Dutch.

Brazil subsequently filed its own request for consultation against the EU before the Dispute Settlement Body of the WTO.

India and Brazil jointly held two rounds of consultations with the EU on 7-8 July 2010 and 13-14 September 2010 in Geneva. During these consultations, EU acknowledged that some provisions of the EC Regulation 1383 were misinterpreted by the customs authorities while detaining the Indian generic drugs. EU showed willingness to resolve this dispute without resorting to the WTO dispute panel.

Due to failure of talks between the EU and India/Brazil to reach a settlement, the WTO arrived at a diplomatic solution, without conclusively deciding on the extent of protection afforded by IP laws to goods in transit.

A final settlement was reached in July 2011.

EC LAW UNDERLYING THE CONTROVERSY

The EC Regulation No 1383/2003 sets out rules for "customs actions against goods suspected of infringing intellectual property rights and the measures to be taken against goods found to have infringed such rights", including goods in transit through the territory of the European Union, and provides, among other actions, for the seizure of goods.

Dutch customs seized 19 consignments of drugs in 2008 and 2009, 16 of which were exported from India, which included drugs for treatments of blood pressure, cardiological conditions, HIV AIDS, schizophrenia and dementia.

French and German Custom Authorities also seized drugs consignment relying on the aforesaid regulation.

DOHA DECLARATION

Adopted during the WTO Ministerial Conference in Qatar in November 2001, the Doha Declaration addressed the impact international IP was having on the public health of Members.

It is beyond doubt that the Doha Declaration would provide context to the dispute, in so far as parties to the dispute are members to the treaty.

In the relevant part, the Doha Declaration states that the TRIPS agreement ‘can and should be interpreted and implemented in a manner supportive of the WTO members’ right to protect public health and … to promote access to medicines for all’.

The confiscation is, therefore, contrary to the letter and spirit of the Doha Declaration on TRIPS and Public Health, for which the Dutch were a major developed country proponent.

ARTICLE 51 OF TRIPS

Article 51 of TRIPS on border measures require that certain suspension procedures be made available with respect to counterfeit trademarked and copyright pirated goods. These provisions permit, but do not require, that suspension procedures regarding other infringements of intellectual property rights be made available. The latter ‘permissive’ rule preceded the Doha TRIPS and Public Health Declaration. That document is an interpretative agreement with respect to trade in pharmaceuticals that should preclude application of the permissive rule in cases such as the Dutch seizure.

EC REGULATION – A DISCONCERT

The EU is strategically exporting Regulation 1383/2003 to its developing country trading partners through the negotiation of FTAs, the ACTA and other instrumental agreements, which increases the likelihood of such detentions and seizures by other countries in future.

Such detentions can undermine the ability of members to address public health needs by means of cross-licensing agreements to assist countries with insufficient or no manufacturing capacity to import medicines from other members, as permitted by Para 6 of the Doha Declaration on TRIPS and public health.

SIGNIFICANT STATEMENT OF EFPIA

The European Federation of Pharmaceutical Industries and Associations (EFPIA) prioritizes public health and trade in generic pharmaceuticals over IPR. On the present dispute, it said that:“It is neither the policy nor practice of our members to encourage Member States to use the powers of detention available to them to prevent the flow of legitimate generic products from manufacturer to customer outside the EU. This applies even where goods transit through EU countries where intellectual property legislation could be applied …

CONTD

Where the product is not counterfeit and it is ascertained that no intellectual property rights apply at either country of origin or destination, the customs authorities should allow the product to be released, irrespective of the intellectual property status of the product in the EU. While it would be possible for a panel or the Appellate Body to resolve the Article 41 claim by interpreting and attempting to balance the ‘legitimate’ interests in trade in pharmaceuticals against the legitimate interests of IPRs holders, it is more likely that determination of this claim would be dependent upon the findings in the other substantive claims, most notably Articles 51 and 52.”

EU’S ARGUMENT - DISCRIMINATORY

A recent decision by the European Court of Justice has clarified that in most circumstances, detentions of transiting pharmaceuticals from one EU member state to another state will violate the EU Law.

Thus, clearly a breach of the MFN Clause. In Montex v Diesel [SpA57 (C-281/05)], it was

held that there was no infringement of IPRs by virtue of goods merely passing through a member state if the goods are not in free circulation in the EU.

CONTD.

In Nokia Corporation v Her Majesty’s Commissioners of Revenue & Customs (HMRC), the UK Court dismissed application for judicial review of HMRC’s refusal to detain a consignment of 400 counterfeit Nokia phones and accessories through the UK on their way from Hong Kong to Colombia.

The Court held that because the goods were in transit and there was no risk that the goods would be released into the market in the UK or within EU, there was no trademark infringement in the EU. Thus, the goods could not deemed to be counterfeit within the meaning of Regulation 1383/2003 and therefore could not be seized.

CONTD

The NOKIA dispute was then clubbed with a similar seizure case of Philips v. Lucheng Meijing Ind. Co. and was adjudicated by the ECJ.

The ECJ issued its decision on December 2, 2011, that in normal circumstances, EU IPRs do not apply to goods in transit. In this regard, the Court ruled that the domestic authorities of Member States cannot apply a ‘legal production fiction’ to goods in transit.

ECJ ruled that goods in Customs suspensive procedures, including warehousing and external transit, that are suspected of violating trademark, copyright and design rights under the EU Member State Law could not even be temporarily detained in the absence of evidence that the goods had been sold, offered for sale or advertised in the EU or that there were other indications that operators are about to direct the goods towards European Union consumers or were otherwise disguising their commercial intentions.

EFFECT OF THE ECJ DECISION

While it can be stated that ECJ has limited the use of EU IPRs in the case of transiting goods, it has not entirely prohibited their relevance or use.

It is unquestionable that the trade in generic pharmaceuticals is legitimate trade. Therefore, it would be implausible to assert that legitimate trade in a particular good must circumvent the EU in order to avoid WTO consistent detention/seizure for infringement of EU IPRs.

Furthermore, public health has attained prime importance at the WTO and a decision allowing detention of in transit generic pharmaceuticals would seem to undercut the intention and spirit of the Doha Declaration & implementation.

RECENT DEVELOPMENTS IN THE MATTER

On 28th July 2011, the Ministry of Commerce and Industry of India entered into an “Understanding” in principle with the EU, pursuant to which the EU will no longer intercept in-transit generic medicines unless there is adequate evidence to satisfy custom authorities that there is a substantial likelihood of diversion of such medicines to the EU market.

In addition, EU agreed to India’s request for adoption of guidelines which would confirm the principles agreed to in the Understanding with a view to give greater and immediate legal certainty for producers and traders.

EU also agreed to reflect the principles contained in the Understanding in its proposal for a new Regulation to replace Regulation 1383/2003. In return the EU sought an assurance that India would refrain from further steps in the ongoing dispute. However, India retains the option to revive the dispute if the EU does not abide by the core principles agreed to in the Understanding.

EU’S PROPOSED REGULATION

Covers a wider range of IPRs than existing EU regulation 1383.

Continues to authorize application of the law of the transit country and the use of production fiction, thereby permitting seizure of generic drugs in transit even if it is lawfully produced in the country of manufacture and destined for legal use in the country of import.

Provides for criteria of “substantial likelihood of diversion onto the EU market”, but does not provide any parameters for determining the same. Nevertheless, mere suspicion of diversion should not be sufficient.

Allows 3 working days to the declarant/right-holder to express its views, after the suspension is communicated.

No recourse provided for temporary detentions/seizures.

CONCLUSION : SUGGESTION

Production fiction deployed by EU is defective. Public health enshrined in Doha Declaration and in

other binding human rights instruments should be adhered to.

European Parliament should reject the Proposed Border Regulation in its current form.

The product pipeline should flow from knowledge-based economies and return on investment are an essential part of that pipeline. The solution lies in government, Pharma and NGO backed initiatives and partnerships.

Multi-tier pricing by BIG PHARMAs for different economic zones and also use of the development funds to subsidize cost of medicines in third world and developing countries.

THANK YOU!

For further information, please feel free to write on:trademark@unitedipr.comGaurav Gogia (Associate)

M/s United Overseas Trade Mark CompanyM/s United Overseas Patent Firm