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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


7.49 In regard to the times specified for performing a statutory duty, while we accept that they may be only directory and not mandatory in nature, we are not persuaded that such discretion would go beyond what is necessary for administrative purposes and extend to actions that, on the face of it, would defeat a basic feature of a statute, namely, in this case, the non-patentability of inventions of pharmaceutical and agricultural chemical products (Section 5). The directory nature of a time-bound provision does not necessarily provide a legal basis for positive actions not stipulated in a statute.119 With regard to the principle of interpretation in accordance with international obligations, we note that India makes it clear that this would only be possible where legislation is capable of more than one meaning and one of those meanings is consonant with the treaty obligation in question. This does not appear to be the case in this instance; the terms of Sections 12(1), 12(2) and 15(2) of the Patents Act do not appear to be capable of more than one meaning. We also note in this connection that according to India international treaty obligations are not self-executing in India's domestic legal order.120 For the reasons indicated above we are not persuaded, notwithstanding the new arguments advanced by India, that the administrative instructions at issue for giving effect to the obligations of Article 70.8(a) of the TRIPS Agreement are not in conflict with provisions of the Patents Act.

7.50 Given this, we are also not persuaded that Article 73 of the Indian Constitution provides a sound legal basis for these administrative instructions. We note that India's argument that Article 73 of the Constitution can provide a sound legal basis is predicated on the "statutory silence" of the Patents Act in specifying the timing of referrals of applications for examination.121 However, for the reasons outlined in paragraphs 7.44, 7.45, 7.48 and 7.49 above, we cannot see how the Act can be construed as silent on this point. We also note that, according to a well-established principle of Indian administrative law, administrative instructions "cannot be issued on any matter which is the subject of legislation" and that, while the necessary administrative information can be issued "wherever there is no statutory provision or where there are gaps in any enactment", "the only rider on the authority to issue such administrative instructions is that there should be no statutory provision either expressly or by necessary implication to the contrary".122 Since the Patents Act does contain statutory provisions regarding the examination and rejection of patent applications for pharmaceutical and agricultural chemical products, we fail to see how Article 73 of the Constitution could provide a legal basis for the administrative instructions at issue in the present case.123

7.51 We further note that these arguments submitted by India to us reach a conclusion which is different from that reached by patent experts when they recommended the amendment of the Patents Act in late 1994, a course of action then attempted by India.124

7.52 The possibility of a challenge was another issue noted in dispute WT/DS50. The Panel report in that case points out that even if Patent Office officials do not examine and reject mailbox applications, a competitor might seek a judicial order to force them to do so in order to obtain rejection of a patent claim; if the competitor successfully establishes the illegality of the separate storage and non-examination of mailbox applications before a court, the filing of those applications could be rendered meaningless.125 The Appellate Body reached the same conclusion: "[W]e are not persuaded that India's 'administrative instructions' would survive a legal challenge under the Patents Act."126

7.53 India now argues that an Indian court will never examine a request by a competitor to force the Controller to refer a mailbox application to an examiner for examination because basic principles of standing and ripeness dictate the rejection of challenges to contingent, future rights such as are represented by mailbox applications.

7.54 We are not persuaded by this argument. India's argument is based on the assumption that a competitor can never demonstrate actual damage caused by the existence of a mailbox application prior to the grant of an exclusive marketing right or a patent. This would appear to assume that investment decisions of a competitor in the production of the product in question cannot be influenced by the prospect of the product being protected by an exclusive marketing right or a patent in the future. In any event, once an exclusive marketing right is granted to a mailbox applicant, the competitor might be able to demonstrate actual damage, which constitutes proper cause of action.127 Moreover, as the EC points out, a dispute over a relevant filing date could arise even during the transition period in the context of a court procedure regarding the granting of an exclusive marketing right under Article 70.9 of the TRIPS Agreement.128 We note the point made by India that, to date, neither the system established by the administrative instructions nor any individual mailbox application has been challenged before a court, but do not consider that this is decisive in establishing whether they are challengeable. As pointed out in paragraph 7.67 and following below, since it is impossible to indicate the exact time on which a product may meet the terms of Article 70.9, WTO Members concerned are required to reckon with the possibility that this moment may arise at any time subsequent to the date of entry into force of the WTO Agreement. By the same token, the possibility of a dispute over a relevant filing date in the context of a court procedure regarding the grant of an exclusive marketing right must also be reckoned with at any point in time after 1 January 1995.

7.55 Finally, we take note of India's arguments concerning what it views as contradictory rulings by the Appellate Body in respect of its examination of the findings of the Panel in dispute WT/DS50 in respect of Article 70.8(a), and, in particular, those relating to interpretation of municipal law, reasonable doubt and burden of proof. In our view, it is not for us to review questions regarding how the Appellate Body arrived at its conclusions nor do we consider it necessary in the light of the foregoing. The ultimate conclusion of the Appellate Body in the previous case was quite clear: "[W]e are not persuaded that India's 'administrative instructions' provide a sound legal basis to preserve novelty of inventions and priority of applications as of the relevant filing and priority dates . [W]e agree with the Panel's conclusion that India's 'administrative instructions' for receiving mailbox applications are inconsistent with Article 70.8(a) of the TRIPS Agreement."129

7.56 It is also recalled that the administrative instructions relied upon by India in the present case are unwritten and unpublished.130 Moreover, as noted in the previous case, the mere existence of a possibility for making mailbox applications is hardly sufficient as the legal basis, even if we take into account the fact that economic operators in this area are usually well informed about systems for the protection of their rights.131 This holds true even if some mailbox applications have been received by the Patent Office and stored for future action. While Article 70.8 does not explicitly provide for a publication obligation, doubts have to remain as to whether an unwritten and unpublished system for permitting the filing of applications by nationals of other WTO Members could be construed as a 'means' which adequately responds to the requirements of Article 70.8.

7.57 India claims that the public was informed through unstarred question No. 2601 at Lok Sabha (attached to this report as Annex 2). However, the Indian government's answer to this question in Parliament only indicates that the Patent Offices had received a certain number of mailbox applications and that they would be taken up for examination after 1 January 2005. There is no mention of administrative instructions. Nor is there any explanation regarding how the novelty and priority are going to be preserved. This answer alone hardly provides a sound legal basis for the purposes of Article 70.8(a).

7.58 We note the point made by India that the present system ensures the retention of the necessary facts to determine novelty and priority for the purposes of decisions on the future grant of patent rights pursuant to Article 70.8(b) and (c). Even if we were persuaded that this was the case despite the unpublished nature of the system, we do not believe that this would alter our concerns regarding the soundness of the legal basis for the system under the law as it presently stands.

Conclusion

7.59 For the reasons outlined above, we do not consider that India has successfully rebutted the prima facie case of violation of Article 70.8(a) that has been established by the EC in the present case. In conclusion, we find that India has failed to take the action necessary to implement its obligations under subparagraph (a) of Article 70.8.

E. Article 70.9 Of The Trips Agreement

Introduction

7.60 We now turn to our examination of the EC's claim regarding exclusive marketing rights under Article 70.9 of the TRIPS Agreement. Article 70.9 reads as follows:

"Where a product is the subject of a patent application in a Member in accordance with paragraph 8(a), exclusive marketing rights shall be granted, notwithstanding the provisions of Part VI, for a period of five years after obtaining marketing approval in that Member or until a product patent is granted or rejected in that Member, whichever period is shorter, provided that, subsequent to the entry into force of the WTO Agreement, a patent application has been filed and a patent granted for that product in another Member and marketing approval obtained in such other Member."

It is not contested that currently there is neither legislation nor administrative practice in place in India regarding the grant of exclusive marketing rights on those products that satisfy the conditions of Article 70.9. The situation has remained unchanged since the adoption of the Panel and Appellate Body reports in dispute WT/DS50. India also admits that legislation is needed to effect a system of granting exclusive marketing rights. As noted above, the Patents (Amendment) Ordinance 1994 had provisions to establish such a system as of 1 January 1995, but the system lapsed with the expiry of the Ordinance.

7.61 The EC claims that the obligation to establish an exclusive marketing rights system arose on 1 January 1995 and that, since India has failed to provide for an exclusive marketing rights system in its legislation, it is currently not in compliance with Article 70.9. India claims that, since there has not been any request for the grant of exclusive marketing rights in India so far, India has not failed to implement its obligations under Article 70.9 and that India is not obligated to make exclusive marketing rights generally available before all the events specified in Article 70.9 have occurred. Thus, the central question before us is that of timing: as of when should there be a mechanism ready for the grant of exclusive marketing rights?

7.62 We note that, in dispute WT/DS50, both the Panel and the Appellate Body found that India has an obligation to implement the provisions of Article 70.9 effective as from the date of the entry into force of the WTO Agreement, that is, 1 January 1995. Thus, the Appellate Body held that "we agree with the Panel that India should have had a mechanism in place to provide for the grant of exclusive marketing rights effective as from the date of entry into force of the WTO Agreement, and, therefore, we agree with the Panel that India is in violation of Article 70.9 of the TRIPS Agreement".

7.63 We further note that, regarding Article 70.9, India has not brought forward any new factual information. It criticizes the Panel and the Appellate Body reports, pointing out certain perceived logical inconsistencies.

Textual Analysis

7.64 Following the rules under Article 31 of the Vienna Convention, the starting point of our analysis on the question of timing should be the wording of Article 70.9. We note that, as is also the case with Article 70.8, Article 70.9 uses the term "notwithstanding the provisions of Part VI". The ordinary meaning of this term clearly indicates that Members to which this provision applies cannot avail themselves of the transitional arrangements under Part VI, including Article 65. Thus, the effective date of this provision must be the date of entry into force of the WTO Agreement, which means that a Member which is subject to the provisions of Article 70.9 must be ready to grant exclusive marketing rights at any point in time subsequent to 1 January 1995.

7.65 India essentially repeats its arguments in the previous case that the obligations under Article 70.9 should be distinguished from those under other provisions of the TRIPS Agreement because it uses the term "exclusive marketing rights shall be granted ...". According to India, there is a material difference between this expression and such other expressions as "patents shall be available ..." in Article 27.132 We disagree. The Panel report in dispute WT/DS50 points out that the term "right" connotes an entitlement to which a person has a just claim and that, as such, it implies general, non-discretionary availability in the case of those eligible to exercise it. It was held that an exclusive marketing right could not be "granted" in a specific case unless it was "available" in the first place.133 The Panel's view was upheld by the Appellate Body, and we do not see any reason to adopt a different position in the present case. In this connection, we would also note that India considers that exclusive marketing rights are to be granted in response to requests from those who are eligible. In our view, a request-based system of rights cannot operate effectively unless there is a mechanism in place that establishes general availability and enables such requests to be made.

Contextual Analysis

7.66 India argues that the Panel in dispute WT/DS50 did not examine the context of Article 70.9 fully. To support its argument, India cites provisions of Articles 42 to 48 of the TRIPS Agreement, for instance, where the judicial authorities of Members "shall have authority" to order certain actions and contrasts this wording with that of Article 70.9, which provides that marketing rights "shall be granted" when certain conditions are met. We do not share India's view that it can be deduced from the use of these words in those Articles that a system of general availability is not called for under Article 70.9. To infer this, one would have to hold that the omission of the words "shall have the authority" in Articles 42-48 (so that a court was required to act in a certain way when prescribed conditions were met, rather than merely having the authority to do so) would mean that a Member would not be expected to give its judicial authorities in advance the authority to act in this way, for example to award an injunction, but could legislate to this effect when a specific occasion arose. Such an inference would obviously be absurd. Rather the function of the words "shall have the authority" is to address the issue of judicial discretion, not that of general availability.

Object and Purpose

7.67 Based on textual and contextual analysis, the Panel report in dispute WT/DS50 reaches the conclusion that under Article 70.9 there must be a mechanism ready for the grant of exclusive marketing rights at any time subsequent to the date of entry into force of the WTO Agreement. This conclusion was affirmed by the Appellate Body.

7.68 India suggests that this result ignores the fact that in reality it will take many years before anyone will be in a position to apply for the grant of exclusive marketing rights under Article 70.9. Under Article 70.9, exclusive marketing rights must be granted by India after a product meets the following conditions:

(a) a mailbox application has been filed in India in respect of a pharmaceutical or agricultural chemical product;

(b) a patent application has been filed in respect of that product in another WTO Member after 1 January 1995;

(c) the other Member has granted the patent;

(d) the other Member has approved the marketing of the product; and

(e) India has approved the marketing of the product.

As pointed out in the previous case, what really matters is when it would be possible for one product to meet the terms of Article 70.9. While one could generally argue that these events take some time to materialize, one can never indicate exactly how long they will take. Indeed, according to the EC, there is at least one pharmaceutical company based in the EC that has applied for marketing approval in India for a product regarding which a mailbox application has been filed.134

7.69 We also note that steps (a), (b), (c) and (d) in the previous paragraph are events that are beyond the control of the authorities in India. In other words, they do not provide any definite basis for the postponement of the obligations under Article 70.9. Step (e) is under the control of the Indian authorities. However, if marketing approvals are denied purely for the purpose of delaying the grant of exclusive marketing rights, it would give rise to questions regarding good faith application of the TRIPS Agreement.135

7.70 Moreover, the range of products affected, i.e. pharmaceuticals and agricultural chemicals, is large and differing marketing approval regimes will apply according to the products in question. For these reasons, we are not convinced that India can establish any specific date later than 1 January 1995 as the date by which it should have in place the legal means necessary to give effect to the exclusive marketing rights provisions of Article 70.9.

7.71 India argues that this interpretation entails the absurd consequence that the transitional arrangements would allow developing countries to postpone legislative changes in all fields of technology except in the most sensitive ones, i.e. pharmaceutical and agricultural chemical products. India's view is that such a consequence cannot be justified in view of the object and purpose of the transitional arrangements in the TRIPS Agreement. In this regard, we recall that we have analysed the object and purpose of the transitional arrangements regarding pharmaceutical and agricultural chemical products in paragraphs 7.38 and 7.39 above. Article 70.9 is, as was the case with Article 70.8(a), a special obligation imposed on those Members benefitting from the transitional arrangements. We note further that India did in fact implement this special obligation through legislative action, when it promulgated in December 1994 the Patents (Amendment) Ordinance, setting out details for the grant of exclusive marketing rights.

7.72 The observation above can be confirmed by the drafting history of the TRIPS Agreement. Exclusive marketing rights were a quid pro quo for the delay of the availability of product patents for pharmaceutical and agricultural chemical products until 1 January 2005, based on a careful balancing of obligations between interested parties during the Uruguay Round negotiations. We therefore disagree with India that the object and purpose of Article 70.9 would not support the conclusion reached above.

7.73 Finally, we take note of India's arguments concerning what it views as contradictory rulings by the Appellate Body in respect of its examination of the Panel's findings in the previous case in respect of Article 70.9, in particular regarding the concept of legitimate expectations. As indicated in paragraph 7.55 above, it is not, in our view, for us to review questions regarding how the Appellate Body reached its conclusions, nor do we consider it necessary in the light of the foregoing. Rather, we confine ourselves to noting that the Appellate Body did not question the legal reasoning and findings of the Panel in the previous case in regard to Article 70.9 and came to a clear conclusion: " we agree with the Panel that India should have had a mechanism in place to provide for the grant of exclusive marketing rights effective as from the date of entry into force of the WTO Agreement, and, therefore, we agree with the Panel that India is in violation of Article 70.9 of the TRIPS Agreement".

Conclusion

7.74 In conclusion, we find that India has failed to implement its obligations under Article 70.9 to establish a system for the grant of exclusive marketing rights to be available at any time after entry into force of the WTO Agreement.

F. Nullification Or Impairment

7.75 Pursuant to Article 3.8 of the DSU, the findings in sections D and E above also constitute a case of prima facie nullification or impairment of benefits accruing to the EC under the TRIPS Agreement, which India has not rebutted.

VIII. Concluding Remarks

8.1 Since the matter has been addressed by India in its arguments and caused some confusion in the previous case, we would like to underline that the Panel's findings do not in any way foreshorten the transition period of until, at the latest, 1 January 2005 that India has for meeting its obligations under Articles 65.4 and 70.8(b) and (c). Rather the Panel's findings only relate to the legal basis required to give effect to the provisions of Article 70.8(a) and 70.9, which concern action to be taken during the transition period. As mentioned earlier, to come to any other conclusion would upset the delicate balance found in the Uruguay Round negotiations between these two sets of provisions.

IX. Conclusions

9.1 On the basis of the findings set out above, the Panel concludes that India has not complied with its obligations under Article 70.8(a) because it has failed to establish a sound legal basis for adequately preserving novelty and priority in respect of applications for product patents in respect of pharmaceutical and agricultural chemical inventions during the transitional period to which it is entitled under Article 65 of the TRIPS Agreement; and that India has not complied with its obligations under Article 70.9 of the TRIPS Agreement because it has failed to establish a system for the grant of exclusive marketing rights.

9.2 The Panel recommends that the Dispute Settlement Body request India to bring its transitional regime for patent protection of pharmaceutical and agricultural chemical products into conformity with its obligations under the TRIPS Agreement.

Continuation: Annex 1


119 Black's Law Dictionary (Sixth Edition) defines a directory provision as "[a] provision in a statute, rule of procedure, or the like, which is a mere direction or instruction of no obligatory force, and involving no invalidating consequence for its disregard, as opposed to an imperative or mandatory provision, which must be followed". It further states: "The general rule is that the prescriptions of a statute relating to the performance of a public duty are so far directory that, though neglect of them may be punishable, yet it does not affect the validity of acts done under them, as in the case of a statute requiring an officer to prepare and deliver a document to another officer on or before a certain day". Even if Section 12(1) of the Patents Act can be regarded as a directory provision, it does not follow that the Controller's positive actions are necessarily legal. 

120 See paragraph 2.1 above. 

121 See paragraph 4.16 above. 

122 See paragraphs 2.1 and 4.17, footnote 58 above. 

123 Moreover, if there were deemed to be such a gap, the Patents Act provides the means to fill it through its Section 159. Yet, as noted by the Appellate Body, India did not avail itself of this provision (see paragraph 7.45 above). 

124 See the text of paragraph 2.3 above. 

125 Document WT/DS50/R, paragraph 7.37 

126 Document WT/DS50/AB/R, paragraph 70 

127 See footnote 59 above. 

128 See paragraph 4.19 above. 

129 Document WT/DS50/AB/R, paragraphs 70 and 71 

130 It should be noted that we are not discussing the issue as part of India's transparency obligations under Article 63 of the TRIPS Agreement, which is outside the terms of reference of this Panel. 

131 Document WT/DS50/R, paragraph 7.42

132 See paragraph 4.22 above. 

133 See footnote 112 to document WT/DS50/R.

134 See paragraph 4.25 above and Annex 4 of this report. 

135 Article 26 of the Vienna Convention states: "Every treaty in force is binding upon the parties to it and must be performed by them in good faith".