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World Trade Organization

WT/DS79/R


24 August 1998
(98-3091)
Original: English

India - Patent Protection for Pharmaceutical and Agricultural Chemical Products

Complaint by the European Communities and their member States

Report of the Panel


The report of the Panel on India – Patent Protection for Pharmaceutical and Agricultural Chemical Products is being circulated to all Members, pursuant to the DSU. The report is being circulated as an unrestricted document from 24 August 1998 pursuant to the Procedures for the Circulation and Derestriction of WTO Documents (WT/L/160/Rev.1). Members are reminded that in accordance with the DSU only parties to the dispute may appeal a panel report, an appeal shall be limited to issues of law covered in the panel report and legal interpretations developed by the panel, and that there shall be no ex parte communications with the panel or Appellate Body concerning matters under consideration by the panel or Appellate Body.

Note by the Secretariat: This Panel Report shall be adopted by the Dispute Settlement Body (DSB) within 60 days after the date of its circulation unless a party to the dispute decides to appeal or the DSB decides by consensus not to adopt the report. If the Panel Report is appealed to the Appellate Body, it shall not be considered for adoption by the DSB until after the completion of the appeal. Information on the current status of the Panel Report is available from the WTO Secretariat.


Table of Contents

I. Introduction

II. Factual Aspects

Indian legal system and practice
The Patents (Amendment) Ordinance 1994 and the Patents (Amendment) Bill 1995
Article 70.8 of the TRIPS Agreement
Article 70.9 of the TRIPS Agreement

III. Findings and Recommendations Requested by the Parties

IV. Arguments of the Parties

Articles 9.1 and 10.4 of the DSU
Article 70.8(a) of the TRIPS Agreement
Article 70.9 of the TRIPS Agreement

V. Arguments Presented by Third Party: United States

VI. Interim Review

A. Articles 9.1 and 10.4 of the DSU
B. Article 70.8(a) and 70.9 of the TRIPS Agreement
C. Article 70.8(a) of the TRIPS Agreement

VII. Findings

A. Claims of the Parties


Introduction
Claims of the Complainant
Claims of the Respondant

B. Procedural Issues
Introduction
Article 9 of the DSU
Article 10 of the DSU
Conclusion

C. The Extent of the Binding Nature of Precedents
D. Article 70.8(a) of the TRIPS Agreement
Introduction
Nature of the Obligations
Mechanism for Implementing the Obligations
Conclusion

E. Article 70.9 of the TRIPS Agreement
Introduction
Textual Analysis
Contextual Analysis
Object and Purpose
Conclusion

F. Nullification or Impairment

VIII. Concluding Remarks

IX. Conclusions

Annex 1 - Request for the Establishment of a Panel by the European Communities (WT/DS79/2)

Annex 2 - Lok Sabha, Unstarred Question No. 2601 and Answer by the Minister of Industry

Annex 3 - India, The Patents Act, 1970, No. 39 of 1970, Sections 2(1)(j), 2(1)(l), 5-12 and 15

Annex 4 - Fax, dated 28 April 1998, from Dr. Alan Hesketh, Manager, Global Intellectual Property, Glaxo Wellcome


I. Introduction

1.1 On 28 April 1997, the European Communities and their member States requested India to hold consultations pursuant to Article 4 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU) and Article 64 of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) regarding the absence in India of either patent protection for pharmaceutical and agricultural chemical products or formal systems that permit the filing of patent applications for pharmaceutical and agricultural chemical products and that provide for the grant of exclusive marketing rights for such products (WT/DS79/1). No mutually satisfactory solution was reached in these consultations, held on 14 May 1997. The European Communities and their member States requested the Dispute Settlement Body (DSB), in a communication dated 9 September 1997, to establish a panel to examine the matter (WT/DS79/2).1 At its meeting of 16 October 1997, the DSB agreed to establish a panel with standard terms of reference in accordance with Article 6 of the DSU. The United States reserved third party rights.

1.2 In document WT/DS79/3 of 27 November 1997, the DSB was informed of the terms of reference and the composition of the Panel. Due to the absence of agreement between the parties to the dispute on the composition of the Panel, the composition of the Panel was determined by the Director-General pursuant to Article 8.7 of the DSU. Informing the parties to the dispute that he had determined the composition of the Panel pursuant to Article 10.4 of the DSU, taking into account the fact that the European Communities and their member States had been a third party to the panel proceeding on "India - Patent Protection for Pharmaceutical and Agricultural Chemical Products" (WT/DS50 - complaint by the United States) and the measures at issue in the present dispute had already been the subject of the earlier proceeding, the Director-General appointed the same Panel members as in the earlier dispute (with the exception of the chairman of the original panel who was no longer available).

Terms of reference

"To examine, in the light of the relevant provisions of the covered agreements cited by the European Communities and their member States in document WT/DS79/2, the matter referred to the DSB by the European Communities and their member States in that document and to make such findings as will assist the DSB in making the recommendations or in giving the rulings provided for in those agreements."

Composition

Chairman: Mr. Stuart Harbinson
Panelists: Mr. Douglas Chester
Mr. Yanyong Phuangrach

1.3 The Panel heard the parties to the dispute on 24 March and 29 April 1998. The interim report was issued to the parties on 19 June 1998. Only India requested the Panel to review parts of the interim report; no request was received to hold an additional meeting.

II. Factual Aspects

Indian legal system and practice

2.1 The following summarizes the key points of the information provided to the Panel on the general principles in Indian law governing the impact of treaty obligations on domestic law and the power of the executive to implement such obligations:

  • Obligations arising under international agreements or treaties are not, by their own force, binding in Indian domestic law. Appropriate legislative or executive action has to be taken for bringing them into force. Although not self-executing under Indian law, implementation of a treaty does not require fresh legislative or executive action if existing administrative regulations or statutory or constitutional provisions permit the implementation of the treaty in question. The Indian courts may construe, in this context, statutory or constitutional provisions that pre-exist a treaty obligation in order to render them consistent with such a treaty obligation.
  • The Directive Principles of State Policy as enshrined in Article 51 of the Indian Constitution enjoin upon the State to endeavour, inter alia, to foster respect for international law and treaty obligations in the dealings of organized people with one another. It is a fundamental principle of statutory interpretation in Indian domestic law that, wherever possible, a statutory provision must be interpreted consistently with India's international obligations, whether under customary international law or an international treaty or convention. If the terms of the legislation are not clear and are reasonably capable of more than one meaning, the treaty itself becomes relevant, for there is a prima facie presumption that Parliament does not intend to act in breach of international law, including therein a specific treaty obligation; and if one of the meanings which can reasonably be ascribed to the legislation is consonant with the treaty obligations and another or others are not, the meaning which is consonant is to be preferred.
  • A treaty may be implemented by the exercise of executive power. However, where implementation of a treaty requires legislation, the legislative power belongs, under Article 253 of the Indian Constitution, exclusively to Parliament. Where the Constitution does not require action to be taken only by legislation or there is no existing law to fetter the executive power of the Union (or a State, as the case may be), the Government would not only be free to take such action by an executive order or to lay down a policy for the making of such executive orders, but also to change such orders or the policy itself, as often as the Government so requires. The executive power of the Government of India to enter into, and implement, treaties is derived from the legislative power of the Union of India incorporated in Articles 246 and 253 read with Entry 14 of List I of the Seventh Schedule of the Indian Constitution. The Government also has executive power over "patents, inventions and designs", which fall under Entry 49 of List I.
  • Article 123, clause 1 of the Indian Constitution enables the President to legislate when Parliament (either House or both Houses) is not in session and the President "is satisfied that circumstances exist which render it necessary for him to take immediate action".
  • Article 73 of the Indian Constitution confers upon the Government of India executive power over all subjects in which Parliament has legislative competence. Article 73(1) reads as follows:

"Extent of executive power of the Union. (1) Subject to the provisions of this Constitution, the executive power of the Union shall extend

(a) to the matters with respect to which Parliament has power to make laws; and

(b) to the exercise of such rights, authority and jurisdiction as are exercisable by the Government of India by virtue of any treaty or agreement:

Provided that the executive power referred to in sub-clause (a) shall not, save as expressly provided in this Constitution or in any law made by Parliament, extend in any State to matters with respect to which the Legislature of the State has also power to make laws."

The executive powers of the Union and State Governments are co-extensive with their respective legislative powers (Articles 73 and 162 of the Indian Constitution). The executive power of the Government extends to matters with regard to which Parliament can make laws. The executive power of the Centre extends also to the exercise of such rights, authority and jurisdiction as are exercisable by the Government of India by virtue of a treaty or agreement (Article 73(1)(b) of the Indian Constitution). If the statutory provisions are silent on a point, the executive can fill up the gaps or supplement the rules or implement the policy by issuing administrative instructions not inconsistent with the rules already framed.

  • Under Article 226 of the Indian Constitution, the High Court2 has the power of "judicial legislative and administrative action", which includes the power to review administrative regulations or instructions on the ground that they violate statutory provisions. In exercising this authority, the main principles guiding the High Court are:

- According to a well-established principle of Indian administrative law, administrative instructions cannot be issued on any matter which is the subject of legislation. Wherever there is no statutory provision or where there are gaps in any enactment, the same can be provided or bridged by issue of necessary administrative instructions. The only rider on the authority to issue such administrative instructions is that there should be no statutory provision either expressly or by necessary implications to the contrary.

- Administrative acts done in the purported exercise of a statutory power can be invalidated by the Court, if constitutional limits or statutory powers have been transgressed. However, where an administrative act is done, not in the purported exercise of a statutory power, but in the exercise of the executive power of a State, the doctrine of ultra vires is inapplicable to it, and courts have no supervision and control over such instructions, though they may be binding on the subordinate officials departmentally.

- Judicial review in respect of administrative acts not done in the purported exercise of a statutory power, but in the exercise of the executive power, is directed towards its manner and mode, and not the administrative decision taken on merits. The standard for this review is whether the exercise of the discretionary power has been "unfair", "arbitrary" or "malafide".

- Neither will the Supreme Court or High Courts interfere or adjudicate upon government policy matters, unless fundamental principles of law have been violated.

The Patents (Amendment) Ordinance 1994 and the Patents (Amendment) Bill 1995

2.2 On 31 December 1994, the President of India promulgated the Patents (Amendment) Ordinance, 1994, to amend the Patents Act of 1970 to provide a means in the Act for the filing and handling of patent applications for pharmaceutical or agricultural chemical products (as required by subparagraph (a) of Article 70.8 of the TRIPS Agreement) and for the grant of exclusive marketing rights with respect to the products that are the subject of such patent applications (as required by Article 70.9 of the Agreement).3 This Ordinance was issued in exercise of the powers conferred upon the President by clause (1) of Article 123 of the Indian Constitution. The Ordinance became effective on 1 January 1995 and lapsed on 26 March 1995, since legislation of this kind ceases to apply at the expiration of six weeks from the re-assembly of Parliament. During this period, 125 applications had been received and filed.

2.3 At the time of the promulgation of the Patents (Amendment) Ordinance 1994, a Press Note was issued providing an explanation of its background and purposes. According to paragraph 4 of this Press Note, the Indian Government had set up an Expert Group which had been entrusted with the task of suggesting specific amendments necessary in Indian laws to comply with India's obligations under the provisions of Article 70.8 and 70.9 of the TRIPS Agreement and also to safeguard India's interests in this regard; this Expert Group had recommended a set of measures on which decisions had been taken by the Government. The Ordinance was also notified by India to the Council for TRIPS under Article 63.2 of the TRIPS Agreement (which notification had been distributed as document IP/N/1/IND/1).

2.4 A Patents (Amendment) Bill 1995, which was intended to give permanent legislative effect to the provisions of the Ordinance, was introduced in the Lok Sabha (Lower House) of the Indian Parliament in March 1995. This Bill was passed by the Lok Sabha and was then introduced in the Rajya Sabha (Upper House). In the Rajya Sabha, the Bill was referred to a Select Committee of the House for examination and report. The Select Committee started its work but could not present its report before the dissolution of the Lok Sabha on 10 May 1996. The Patents (Amendment) Bill 1995 lapsed with the dissolution of the 10th Lok Sabha on that date.

Article 70.8 of the TRIPS Agreement

2.5 At the time that the period of validity of the Ordinance expired, the Patents (Amendment) Bill 1995 was still being debated. India informed the Panel that, in the light of this situation, the Indian executive authorities decided, in April 1995, following interdepartmental consultations, to instruct the patent offices in India to continue, after the lapse of the Ordinance, to receive patent applications for pharmaceutical and agricultural chemical products under the existing provisions of the Patents Act of 1970 and to store them separately for processing as and when the change in the Indian patent law to make such subject-matter patentable would take effect. While India informed the Panel of the provisions under which such applications were being received and stored under the Patents Act of 1970, no record of this decision or of any administrative guidelines issued to or within the patent offices of India to this effect was made available to the Panel.

2.6 No public notice was given at that time of this administrative decision and no notification concerning it was made to the Council for TRIPS. However, on 2 August 1996, the Indian Minister of Industry responded to a question asked by a member of the Lok Sabha concerning whether applications for product patents in the pharmaceutical, food and agricultural chemical areas had been received in anticipation of changes in the Indian Patents Act of 1970 in accordance with the requirements of the World Trade Organization; the Minister responded by stating that the patent offices had received 893 patent applications in the field of drug or medicine from Indian as well as foreign companies/institutions up to 15 July 1996 and that applications for patents would be taken up for examination after 1 January 2005 as per the WTO Agreement.4

2.7 Under Indian patent law, patent applications for pharmaceutical or agricultural chemical products made by any person entitled to apply under Section 6 of the Patents Act of 1970 are subject to the same fee as any other patent application being received and allotted a filing date and advertised, on a weekly basis, in the Gazette of India with serial number, filing date, name of applicant and title of invention. Under the administrative arrangements of the Indian patent offices pursuant to the decision taken in April 1995, such applications5 are, however, unlike other patent applications, being allotted a special identification number internally, stored separately and not referred by the Controller to an examiner as specified in Section 12 of the Act. The notification in the Gazette does not distinguish between applications that are the subject of these administrative arrangements and other patent applications.

2.8 The legal authority for these administrative arrangements that has been cited by India is Article 73(1)(a) of the Indian Constitution in conjunction with the Indian Patents Act of 1970.

2.9 For the purposes of the case in hand, the main aspects of the provisions of the Patents Act of 1970 which are of relevance to the case in hand are as follows6:

  • Chapter III (Sections 6 through 11) deals with applications for patents. These provisions do not require that applications for patents must be limited to patentable subject-matter. In respect of the subject-matter of the claims, they only require that such applications should be for inventions.
  • Inventions are defined in Section 2(1)(j) as, inter alia, any new and useful substance produced by manufacture, including any new and useful improvement of such a substance.
  • Section 5 makes it clear that inventions claiming substances intended for use, or capable of being used, as a food, medicine or drug or relating to substances prepared or produced by chemical processes are not in themselves patentable, but methods or processes for their manufacture are. Under Section 2(1)(l)(iv) the term "medicine or drug" includes insecticides, germicides, fungicides, weedicides and all other substances intended to be used for the protection or preservation of plants.
  • Chapter IV of the Patents Act concerns the examination of applications. Section 12 requires that, when the complete specification has been filed7 in respect of an application for a patent, the application shall be referred by the Controller General of Patents, Designs and Trademarks to an examiner. The examiner shall ordinarily report to the Controller within a period of 18 months on, inter alia, whether the application and the specification are in accordance with the requirements of the Act and whether there is any lawful ground for objecting to the grant of the patent under the Act.
  • Paragraph 2 of Section 15 states that, if it appears to the Controller that the invention claimed in the specification is not patentable under the Act, he shall refuse the application.

2.10 India informed the Panel that, between 1 January 1995 and 31 January 1998, a total of 2,212 patent applications for pharmaceutical and agricultural chemical products had been received and published in the Gazette of India. None of these applications, nor the mechanism for receiving and storing them, has been the subject of a legal challenge in court as to their validity under Indian law. About one half of these applications had been made by EC companies.8

Article 70.9 of the TRIPS Agreement

2.11 The Indian executive authorities do not have the legal powers under present Indian law to accord exclusive marketing rights in accordance with the provisions of Article 70.9. No request for the grant of exclusive marketing rights has so far been submitted to the Indian authorities.

Continuation: Findings and Recommendations Requested by the Parties


1 See Annex 1 to this report.

2 The High Court is the highest court in each State and is the intermediate appellate court in India's unified system of courts.

3 The Patents (Amendment) Ordinance 1994 stipulated, in essence, that applications claiming patent protection for pharmaceutical and agricultural chemical product inventions could be made, although such inventions were not patentable, and that their handling would be postponed until 1 January 2005 or until an application for the grant of an exclusive marketing right for the product in question was made, if such would occur earlier; the Ordinance also laid down the procedures for applications for the grant of exclusive marketing rights, the scope of these rights and their enforcement.

4 The full text of the question and answer is reflected in Annex 2 of this report.

5 Applications which contain both product and process claims in respect of inventions in the pharmaceutical or agricultural chemical area are subject to the same administrative arrangements as applications with only product claims.

6 The full text of the provisions of the Patents Act of relevance to the case in hand can be found at Annex 3 of this report.

7 Pursuant to Section 9, the complete specification must normally be filed within 12 months of the date of the filing of the application, which can be extended to 15 months, failing which the application is deemed abandoned.

8 India informed the Panel that, between 1 January 1995 and 31 January 1998, of these 2,212 applications, 55 were received in the month of January 1998. By 31 January 1998, EC companies had submitted 1,056 of these applications, of which 32 in the month of January 1998.