CREASING OUT THE ‘INEFFICACY’ UNDER THE INDIA PATENT

REGIME: AN INTERPRETATIONAL STUDY OF SECTION 3(d) IN

NOVARTIS AG v. UNION OF INDIA

(Submission of Project in furtherance of Project Submission in the subject of Interpretation of

Statutes)

NATIONAL LAW UNIVERSITY, JODHPUR

SUBMITTED BY: SUBMITTED TO:

ARPIT SAINI (1498) Ms KRITIKA SINGH

HARSH DHIRAJ SINGH (1503) (FACULTY OF LAW)

B.B.A. LL.B (Hons.)

SUMMER SEMESTER

(JULY-NOVEMBER 2019)
 I. INTRODUCTION

The Supreme Court of India delivered a landmark judgment on 1 April 2013 with the case of
Novartis AG v Union of India in an appeal brought by Novartis, a Swiss-based pharmaceutical
giant, against rejection by the Indian Patent Office of a product patent application. Novartis lost
the case because Court ruled that the compound failed the tests of invention and patentability. 1
The judgment went on to be rather controversial with respect to constitutionality of section 3(d)
and was challenged in the light of TRIPS compatibility.

II. PROCEDURAL HISTORY

Under the World Trade Organisation's (WTO's) Agreement on Trade-Related Aspects of

Intellectual Property Rights (TRIPS), member countries which did not provide product patent
protection, when the TRIPS agreement came into force on January 1, 1995, are required to grant
such protection within 10 years, i.e., by January 1, 2005. Pending the introduction of such a
product patent system, WTO members were also required to start the system of receiving
applications for product patents and granting exclusive marketing rights. India's Patents Act,
1970 exempted 'food or medicine or drug' from product patenting under Section 5. To comply
with the TRIPS requirements, the Patents Act, 1970 was amended by the Patents (Amendment)
Act, 1999 to introduce the system of Exclusive Marketing Rights (EMR). Under this amendment,
it was now possible to make an application for a product patent in pharmaceuticals, though the
application will not be processed for the grant of a patent until the end of 2004. But EMR could
be obtained for that application if a patent has been granted in some other WTO member country
and the application has not been rejected in India as not being an invention.2

III. FACTS

1
L Ndlovu, “Lessons for the SADC from the Indian case of Novartis AG v Union of India” PELJ (2015).
2
Chaudhuri, Sudip, “TRIPS Agreement and Amendment of Patents Act in India” 37 EPW 3354, 3354–3360 (2012).

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Novartis International AG filed an application before the Chennai patent office in 1998. The
application was made as per the TRIPS agreement for the grant of a patent for an anti-cancer
drug 'Glivec' used to treat Chronic Myeloid Leukemia (CML) and Gastrointestinal Stromal
Tumours (GIST). This drug was invented from Beta crystalline form of "Imatinib mesylate"
which is patented in more than 35 countries. Owing to the unavailability of patents to
pharmaceutical and agrochemical products in India until 2005, Novartis claimed the invention in
a “mailbox” application where all applications claiming pharmaceutical inventions were to be
accepted and put away in a mailbox and examined in 2005. Novartis also applied for an
exclusive marketing right (hereinafter EMR) pending grant of a product patent which was given
in November 2003.3

The patent application of Novartis was rejected in 2005 by Madras Patent Office. The grounds
were that the drug failed to satisfy the requirement of novelty and non-obviousness. It was
further stated that the alleged invention was un-patentable under the provision of Section 3(d) of
Patent Act, 1970 since the drug did not exhibit any major changes in therapeutic efficacy over its
pre-existing form. Two writ petitions were filed against this by Novartis in Madras High Court in
2006. The case was transferred to IPAB (Intellectual Property Appellant Tribunal) in 2007.
IPAB heard and dismissed the appeal stating that the invention satisfied the tests of novelty and
non-obviousness but the patentability of the product was hit by Section 3(d) of the Patent Act,
1970. A Special Leave Petition was then filed by Novartis in 2009 before the Supreme Court.4

IV. ARGUMENT BY NOVARTIS

Section 3(d) of Patent Act, 1970 is unconstitutional as it does not comply with TRIPS agreement
and violates the fundamental right to equality as enshrined in Article 14 of the Constitution of
India. The usage of terms such as “enhancement of known efficacy” and “differ significantly in
properties with regard to efficacy” without accompanying guidelines which elucidates their scope

3
Noemie Bisserbe, “Novartis takes on patent law in Glivec case”, Economic Times (Jan 30, 2007),
https://economictimes.indiatimes.com/industry/healthcare/biotech/pharmaceuticals/novartis-takes-on-patent-law-in-
glivec-case/articleshow/1525328.cms.
4
Mohammad Suleman Palwala, “A Study On: Novartis AG v. Union of India”, Khurana & Khurana Advocates and
IP Attorneys (17 July, 2019),
http://www.mondaq.com/india/x/826478/Patent/A+Study+On+Novartis+AG+v+Union+Of+India.

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 renders Section 3(d) vague and arbitrary. Such arbitrariness facilitated by unchecked powers of
the statutory authority hits at the root of equality enshrined in Article 14.
Section 3(d) also vests the patent office with unfettered discretion to devise its own policy and
determine what constitutes a significant enhancement of efficacy. This violates the Constitution,
as it amounts to delegation of an essential legislative function.5

V. COURT’S REASONING

The apex court of India was very particular when it came to the analysis of Section 3(d) of the
Indian Patents Act, 1970. The Court unequivocally rejected the application of Novartis for
granting protection to their beta crystalline form of imatinib mesylate. The holding of the court
was preceded by the reasoning that the imatinib mesylate in beta crystalline form does not possess
any therapeutical efficacy on the users of the drug. The court further added another limb to its
reasoning by stating that the term ‘enhancement of known efficacy’ found in Section 3(d) is not
vague in nature. The court strengthened its stand by deriving definition of ‘efficacy’ from
Dorland’s Medical Dictionary, which defined it as “the ability of a drug to produce the desired
therapeutic effect”.
This reasoning emphasized that for a discovery of a new form of a known substance to be treated
as an invention, it has to be necessarily shown that the new form has better therapeutic effect. In
light of this, the court further analyzed the dictionary meaning of ‘efficacy’, which came out to be
as “healing of a disease or having a good effect on the body”. Premising its reasoning on this, the
court added another layer for a new form of ‘a known substance’ to surpass, in order to classify it
as an ‘invention’. In abstract, the court construed the term ‘efficacy’ in a manner which limited its
contours to ‘therapeutic’ efficacy, and rejected the concept of ‘enhanced potency’ of the drug as a
factor leading to ‘invention’.

VI. RESEARCH QUESTIONS

 Does the term “efficacy” connote only “therapeutic efficacy”?

 What is the scope of ‘Evergreening’ under Section 3(d) of the Patents Act, 1970?

5
Shamnad Basheer & T. Prashant Reddy, “The “Efficacy” of Indian Patent Law: Ironing out the Creases in Section
3(d)” 5 Scripted (2014).

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 Does the interpretation of ‘efficacy’ by the court stands in concurrence with the legislative intent
behind the Indian Patent Act?

VII. ANALYSIS

The Wrong Turn

The judgment received severe criticism from the US Chamber of Commerce and a number of
originator pharmaceutical companies. It is seen as a harsh blow to the future of innovation,
particularly in India.6
The Supreme Court of India restricted the meaning of “enhancement of known efficacy” in
Section 3(d) to therapeutic efficacy of the drug. Section 3(d) was introduced as a yardstick to
distinguish real innovation from trivial tweaks and the campaign against the incremental
innovations is largely motivated by the concern of “evergreening” of pharmaceutical products.
The premise is that the older form is used to extend the effective term of patent protection for a
drug beyond that provided by an initial patent. A pharmaceutical company engages in
“evergreening” if it seeks to extend the life of its original patent by obtaining a consequent patent
which covers a different aspect of the same drug. However, the Court in the case has
misunderstood the concept and has perhaps exaggerated its scope. The court’s narrow
interpretation of efficacy deprives producers of the right of acquiring patents on a vast majority
of highly useful incremental pharmaceutical innovations such as increased bioavailability, longer
shelf-life, and reduction of microbial growth on the sole ground that they don’t result in an
enhanced healing effect on the body. The literal definition of Section 3(d) of the Act discourages
the drug manufacturers from innovation in scientific research, new technology and industrial
progress by rewarding the innovation. The interpretation has been at odds with the views and
practices of innovative pharmaceutical companies such as Ranbaxy and Organization of
Pharmaceutical Producers of India (“OPPI”) who have publicly stated that incremental
innovations like increasing the efficiency of drugs, lengthening the maximal potency and
enabling patients to take smaller doses should be granted patent protection if they are new,

6
Frederick M. Abbott, “The Judgment In Novartis v. India: What The Supreme Court Of India Said”, Intellectual
Property Watch (April 04, 2013), https://www.ip-watch.org/2013/04/04/the-judgment-in-novartis-v-india-what-the-
supreme-court-of-india-said/.

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involve an inventive step and have commercial utility. Excluding incremental pharmaceutical
innovations from patent protection will have considerable negative consequences for the
discovery and developments on a known form of drug for future treatment for all disease areas
and also will be a concern to the investors with the precedent it sets for the treatment of patents
in India.

The Defining Error: Therapeutic Efficacy

The implication is alarming because the court’s application of Section 3(d) bars the grant of
patent to a pharmaceutical drug that the Indian Parliament likely had no intention to excluding
while targeting evergreening.
The Court also left open the appropriate definition of enhanced therapeutic efficacy to be
interpreted in each case. The patent applicant is needed to demonstrate that there is a resulting
enhancement in efficacy. The court’s refusal to identify what constitutes sufficient enhanced
efficacy leads to great uncertainty for pharmaceutical companies who seek to obtain secondary
patents in India in the future. Requiring the manufacturers to prove enhanced efficacy of the drug
so early in the development process is impractical since the companies generally seek patents
several years before they sell a drug in the market. A patent provides the incentive for
manufacturers to perform clinical trials for obtaining efficacy data since it guarantees that the
data cannot be exploited by other parties.7
Although, the Indian Parliament follows the policy that Indian consumers should pay for only
those patented products which represent a genuine advance over older versions, it is important to
note that enhanced efficacy’s narrow reference to curative effect will exclude other innovations
of improved safety profile and reduced toxicity. The patent regime intends to promote innovation
and simultaneously ensure that the fruits of the innovation are accessible to society. The need is
to find an optimal balance between the needs of the general public and the rights of patent
owners. Supreme Court’s decision constitutes that the standard of pharmaceutical patenting in
the patent regime of India has become overly protective of public health at the expense of
important drug developments which eventually are the origin for these technological innovations
to improve health conditions.
7
William J. Bennett, “Indian Pharmaceutical Patent Law and the Effects of Novartis Ag v. Union of India, 13 Wash.
U. Global Stud. L. Rev. 535 (2014).

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Such a narrow patent regime goes against the objective of TRIPS agreement which seeks to
establish minimum standards in the field of intellectual property. Additionally, the Indian
pharmaceutical companies lack the capability to deal with the increased competition which
follows this narrow approach. The major benefit of the approach will accrue to the multinational
corporations (MNCs) since the Indian companies have fewer resources and benefit from early
commercialization of incremental innovations. Further, restricting patentability to completely
new chemical entities appears to be an attractive short-term solution but hinders the functioning
of huge number of scientists working in R&D Centers who have started with the difficult task of
new drug discovery research. The strength of Indian scientists has always been innovations that
improve existing products. 8

VIII. CONCLUSION AND SUGGESTIONS

The Indian Patent regime has seen a shift in terms of interpretation, especially in the post 2005
amendment judgments. The shift has more or less created a self-devised mechanism to limit
‘patentability’ under the Act. The idea of granting patent has gradually shifted from its erstwhile
criterion which were largely based upon the basic premise of ‘non-obviousness’. A joint reading
of Section 2(1) (j) & 2(1) (l) with Section 3 is currently determining the ambit of patentability in
India, and to a considerable extent shifting from the purpose of the Act and the TRIPS
Agreement.
Contrary to the concepts of ‘non-obviousness’, Section 2(1) (ja) has given a new import to the
meaning of an ‘Inventive Step’. The intent now seems to be to make the threshold of
patentability higher than the existing standard. The additional requirements have now
circumscribed themselves around technical advances or economic significance or both.
‘Inventive step’ was originally defined in the Patents Act to mean a feature that makes the
invention not obvious to a person skilled in the art. The explanatory note to Article 27(1) of the
TRIPS Agreement, to which the India is a party, also states that ‘inventive step’ is synonymous
with ‘non-obviousness’. The new definition has certainly raised the standards of the inventions to
fall under Section 3(d), given the restrictive application of its explanatory clause. However, it has

8
The US-India Business Council “The Value Of Incremental Pharmaceutical Innovation: Benefits For Indian
Patients and Indian Business” White & Case LLP and DUA Consulting (June 2009),
http://www.indiaenvironmentportal.org.in/files/USIBCIncrementalInnovationReportFinal.pdf.

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also limited the scope of inventions and innovations which were primarily based upon the ‘non-
obviousness’ criteria. In simpler terms, it is basically stifling innovation.
The interpretation of section 3(d) by the patent office, IPAB, and Indian courts has primarily
focused on direct evidence for the enhancement of known efficacy of the drugs—indirect
evidence in terms of improved bioavailability has not been taken into consideration. These patent
applications did not have direct evidence in support of enhanced known efficacy, and therefore,
the patent offices and courts have not ventured to examine the other terms of section 3(d).
The scheme of this paper calls for an understanding the purposive rule of interpretation. The
purposive approach is an approach under which courts interpret an enactment in light of the
purpose for which it was enacted. It is popularly known as the ‘Heydon’s Rule’. Laying down
the intention of the legislature, it becomes prominent to highlight that the new definition is
nothing but an impediment to that intention. The purpose of Section 3(d) was to avoid
‘evergreening’ of products, which was being fulfilled by the criterions of ‘non-obviousness’. The
current standards have done nothing but limited the scope of the Patent in the hands of few
manufacturers, thereby defeating the very idea of avoiding ‘evergreening’.
In a nutshell, the decision of the Apex Court has misinterpreted the definitions of ‘efficacy’ and
‘enhancement of known efficacy’, which has had a deeming effect upon this piece of legislation.