(a) Procedural grounds

- The Panel's terms of reference did not cover the United States' Article 63 claim. According to Article 7.1 of the DSU, the mandate of the Panel was to examine the matter referred to the DSB in the document in which the United States had requested the establishment of a panel in accordance with Article 6 of the DSU, i.e. document WT/DS50/4. Neither that request nor, earlier, the United States' request for consultations had raised the issue of transparency or compliance with Article 63 of the TRIPS Agreement. In these requests, the United States had summarized the issues as follows: "The legal regime in India currently does not make patent protection available for inventions as specified in Article 27 of the TRIPS Agreement or provide systems that conform to obligations of the TRIPS Agreement regarding the acceptance of applications and the grant of exclusive marketing rights. As a result, India's legal regime appears to be inconsistent with the obligations of the TRIPS Agreement, including but not necessarily limited to Articles 27, 65 and 70".

- According to Article 6.2 of the DSU, the request for the establishment of a panel must meet two central requirements: it must "identify the specific measures at issue" and "provide a brief summary of the legal basis of the complaint sufficient to present the problem clearly". The United States' request did not identify lack of transparency as a specific measure at issue. The vague reference to "obligations of the TRIPS Agreement, including but not necessarily limited to" is not sufficient to present the problem clearly. The recent WTO Panel on European Communities - Regime for the Importation, Sale and Distribution of Bananas ²¹ had concluded in a comparable situation that "reference to a WTO Agreement without mentioning any provisions or to unidentified 'other' provisions are too vague to meet the standards of Article 6.2 of the DSU".

- Under the unusual and unfortunate circumstances of this case - where India had indicated publicly and during consultations that it had no mailbox system in place and refused to answer United States' questions regarding whether such a system existed - it would be appropriate for the Panel to provide the United States with an opportunity to identify specific legal claims regarding transparency during the first substantive meeting. The only reason that Article 63 had not been explicitly referenced previously was that India had maintained for two years that it had no mailbox system in place and first claimed that it had a mailbox system in place in its first written submission to the Panel.

- The basis for the ruling of the Bananas Panel was that panel procedures should not operate so as to permit surprise and prejudice of a party's interests. That concept was applicable here, where the interests of the United States would be unfairly disadvantaged if the Panel did not consider, in the alternative, its Article 63 claim.

- It was incorrect that India had only informed the United States of the mailbox system currently in place in India in its first written submission to the Panel. The United States had been informed about the means of filing in India during the consultations held on 27 July 1996 with the United States and the European Communities. The internal written record of the Indian Government on the consultations held between India and the United States and the European Communities on 27 July 1996 in Geneva indicated that the representative of India had given the following information:

The Indian record of the consultations further indicated that the United States had responded to this information as follows:

If the United States had been of the view that the means of filing in question should have been published in accordance with Article 63 of the TRIPS Agreement, notwithstanding the fact that the Patents Act of 1970 had been published, it could therefore easily have identified this issue in the request for the establishment of a panel.

- Under the DSU, the complainant could not expand the scope of its factual and legal claims after having made its first submission. It was a well-established practice that the first written submission of the complainant incorporated all its legal claims and all the requests for findings and recommendations it wished to submit to the Panel. This practice was reflected in paragraphs 5 and 7 of the standard Working Procedures in Appendix 3 to the DSU which stated that "At the first meeting with the parties, the Panel shall ask the party which has brought the complaint to present its case" and that "Formal rebuttals shall be made at a second substantive meeting of the Panel". It followed from these procedures that the written submissions for the first meeting must constitute the full presentation of the case by the complainant. An indirect reflection of this principle was Article 10.3 of the DSU which stated that "third parties shall receive the submissions of the parties to the dispute to the first meeting of the Panel". This provision had obviously been drafted on the assumption that the first submission informed the third parties fully of the complainant's case. However, not only third parties’ rights would be curtailed if complainants could introduce new claims and requests after the first submission, but also the rights of the respondent. This had been recognized in the recent report of the Panel on European Communities - Regime for the Importation, Sale and Distribution of Bananas, which had ruled that:

"For the purposes of determining whether a Complainant in this matter has made a claim, we have examined its first written submission, as we consider that document determines the claims made by a complaining party. To allow the assertion of additional claims after that point would be unfair to the respondent..... In our view, the failure to make a claim in the first submission cannot be remedied by later submissions....." (emphasis added by India) ²⁴

- The United States had no information as to what might be in an Indian staffer's notes from the consultations held with India, but could state, as it had throughout this proceeding, that until India's first written submission to the Panel, the Indian Government had never stated that it had established a valid mailbox system. Had the Indian Government made this assertion earlier, the United States would necessarily have included a reference to Article 63 of the TRIPS Agreement in its panel request. In light of this surprise, equity demanded that the Panel be able to take up the transparency issue, in the alternative.

- India had been given three opportunities to respond to the United States' alternative transparency claim under TRIPS Article 63 ²⁵, and its last written submission on this issue had been submitted seven weeks after the first substantive meeting of the Panel with the parties. India had therefore had a reasonable opportunity to respond to this issue. Furthermore, India could not claim prejudice to third parties as a basis for refusing a claim under Article 63. Article 10.3 of the DSU stated that "[t]hird parties shall receive the submissions of the parties to the dispute to the first meeting of the Panel". The rules of the DSU provided for third parties no more than the opportunity to present views to a panel. Dispute settlement was conducted first and foremost for the benefit of the parties to the dispute, not for the benefit of third parties or possible third parties.

(b) Substantive grounds

- Article 63 applied to developing countries only as of 1 January 2000. According to Article 65.2 of the TRIPS Agreement, developing countries were entitled to delay up to 1 January 2000 the date of application of the TRIPS Agreement except for its Articles 3, 4 and 5. Consequently, the provisions of Article 63 established obligations applicable to India only as of 1 January 2000. It was true that the minutes of meetings of the Council for TRIPS made reference to a "Working Hypothesis" according to which national laws and regulations would be notified as of the time that the corresponding substantive obligation applied ²⁶, but this "Working Hypothesis" did not reflect a common understanding among Members on their obligations under the TRIPS Agreement. It had been elaborated because the differences of interpretation among Members on the scope of the transparency obligations during the transitional period could not be overcome. At the meeting of the Council for TRIPS of 21 September 1995, the Chairman had noted the existence of the "Working Hypothesis" but then correctly had stated that the "basic differences of interpretation had remained" ²⁷. An informal arrangement of this type did not establish obligations binding under international law and could therefore not modify rights or obligations under a WTO agreement. The legal situation under Article 63 had not been changed as a result of the elaboration of the "Working Hypothesis".

- As regards paragraph 1 of Article 63, which was the only paragraph the United States had referred to at the first substantive meeting of the Panel with the parties while not having specified any paragraph in its written submission, India took the view that the law on which India had based its means of filing had been published. This means of filing had been established on the basis of the Patents Act 1970 which, like all other acts of Parliament, had been published in the Gazette of India. According to Article 63.1, only "laws and regulations, and final judicial decisions and administrative rulings of general application" had to be published. The decision of India to continue to receive applications for pharmaceutical and agricultural chemical product patents under the Patents Act was an administrative measure of a kind that did not need to be published under Article 63.1. Under that provision, only the law on which this measure was based was subject to the publication requirement.

- It was not correct that Article 63 applied to developing countries only as of 1 January 2000. The Council for TRIPS had decided on 21 November 1995 that "[a]s of the time that a Member is obliged to start applying a provision of the TRIPS Agreement, the corresponding laws and regulations shall be notified without delay (normally within 30 days, except where otherwise provided in the TRIPS Council)" ²⁸. The TRIPS Council had also decided that amendments to laws and regulations shall be notified within 30 days where no translation is required. ²⁹ India had participated in these decisions and had not objected to them. In fact, India had already notified the Patents (Amendment) Ordinance 1994 on 6 March 1995 well before this clarifying decision had been issued by the TRIPS Council. India was well aware of the obligation to notify any amendments to its laws or regulations regarding Article 70.8 in accordance with this decision, but had failed to do so. India's claim that it did not have to do so because its mailbox system had been created through administrative guidance was of no merit, because administrative guidance could not be used to overcome the express provisions in the Patents Act 1970 requiring the rejection of mailbox-type applications.

Article 70.9

The terms of the TRIPS Agreement

- According to Article 70.9, exclusive marketing rights must be granted by India to a pharmaceutical or agricultural chemical product for which a patent application had been made only after the product met the following conditions:

(emphases above by India)

- The last step in the procedures prior to eligibility - marketing approval in the Member not according patentability - was a step controlled by the Member that must subsequently grant exclusive marketing rights or patentability. It was consequently not an abstract category of products that was eligible for exclusive marketing rights under Article 70.9; the individual products that were eligible would be known before the duty to accord exclusive marketing rights arose. Article 70.9 was a transitional provision the application of which was triggered by specified future events. ³¹

- The United States had not presented evidence showing that all the above-mentioned events had occurred with respect to a particular pharmaceutical or agricultural chemical product. The principal products covered by Article 70 were drugs and medicines. It took considerable time to obtain a patent for such products and then to obtain the marketing approval first in the country of origin and then in the country in which exclusive marketing rights were sought under Article 70.9. So far, no request for exclusive marketing rights had been received by the Government of India. There was, therefore, no question of India having denied exclusive marketing rights to any product entitled to such rights under Article 70.9 of the TRIPS Agreement.

- According to the text of Article 70.9, an exclusive marketing right must be granted for a pharmaceutical or agricultural chemical product only "until a product patent is granted or rejected in that Member". The terms of Article 70.9 thus explicitly accorded developing country Members the right to choose between the grant of patentability and the grant of exclusive marketing rights with respect to each pharmaceutical or agricultural chemical product for which a patent application had been made. It would be logically inconsistent with this right to opt out of the obligation to grant exclusive marketing rights if Article 70.9 were interpreted to oblige Members to provide in their legislation for the general availability of exclusive marketing rights as from 1 January 1995.

Context

- The obligation under Article 70.9 needed to be distinguished from those under other provisions of the TRIPS Agreement. The TRIPS Agreement made a clear distinction between obligations to change the domestic law governing intellectual property rights and obligations to take, or refrain from taking, specific measures in relation to intellectual property rights. For instance, according to Article 27 of the TRIPS Agreement "patents shall be available for any invention". The obligation created by this provision was thus not merely to take a specific measure but to change the law to make future measures possible. The same applied to Article 42 of the TRIPS Agreement, according to which "Members shall make available to right holders civil judicial procedures concerning the enforcement of any intellectual property right covered by this Agreement". Articles 27 and 42 of the TRIPS Agreement thus set out requirements to change the domestic law to create legal opportunities for inventors and right holders. These provisions were violated when the Member failed to adjust its law to create those opportunities and complaints could therefore be brought before the opportunity had actually been denied to a particular inventor or right holder. Most of the basic provisions of the TRIPS Agreement were of this nature, such as Articles 26.1, 28.1, 32, 36, 39.2 and 41.1. Articles 45, 46, 47, 48, 50, 53 and 56 stated that the competent authorities "shall have the authority" to perform certain acts. In the case of all these provisions, the drafters thus chose terms that made it explicit that the domestic law of Members must give certain persons and authorities defined rights. If the drafters had meant to do so in the case of exclusive marketing rights, they would therefore have chosen terms such as "the competent authorities shall have the authority to grant exclusive marketing rights" or "exclusive marketing rights shall be available". Instead, they had chosen terms clearly indicating that particular products shall be granted such rights after they met certain conditions. Article 70.9 of the TRIPS Agreement, therefore, did not fall into this category of norms. (emphases above by India)

Object and purpose

- Article 70.9 formed part of the transitional arrangements for developing countries and its object and purpose could therefore only be ascertained in the light of these arrangements. ³² According to Article 70.9, an exclusive marketing right had to be granted only for a maximum period of five years. This five-year period corresponded to the five-year period by which developing country Members might, according to Article 65.4, delay the application of the provisions on product patents in areas of technology not protectable on 1 January 1996, i.e. the period between 1 January 2000 and 1 January 2005. The purpose of Article 70.9 was thus to give inventors of pharmaceutical and agricultural chemical products the economic privilege of an exclusive marketing right for the five-year period preceding 1 January 2005 if their products were denied patentability even beyond the normal five-year transitional period for developing countries. It would be completely contrary to this purpose to interpret Article 70.9 as giving rise to obligations before 1 January 2000. That Article 70.9 essentially related to events that the drafters expected to take place during the period covered by Article 65.4 became obvious when one analysed the practical operation of Article 70.9. In order to be eligible for the grant of an exclusive marketing right, a United States' inventor must have filed a patent application in the United States after 1 January 1995 and have been granted the patent in the United States and marketing approval in both the United States and in India. Common sense and practical experience indicated that all these steps took a long time and normally the products in question would not get on the market in a developing country before the expiry of the ten-year transitional period. The provision had been made for the grant of exclusive marketing rights of up to five years only to tide over the gap between the obtaining of marketing approval and the grant of patent protection for the product in question in a developing country benefiting from the ten-year transitional period, so that inventions that met the criteria for patentability on or after the date of entry into force of the Agreement would become eligible for protection in such countries by the time that protection became of commercial significance, either by the grant of a patent after the expiration of the ten-year period or by an exclusive marketing right for products getting marketing approval before that time. Commentators had confirmed these practical implications. ³³

- That the object and purpose of Article 70.9 were not to oblige developing countries to make exclusive marketing rights available immediately upon the entry into force of the WTO Agreement but to tide over the gap between marketing approval and patentability during the five years preceding the end of the ten-year transitional period could also be deduced from commercial realities. In general, it simply made no commercial sense to obtain an exclusive marketing right for a five-year period unless that period was immediately followed by the grant of the exclusive rights to be conferred on patent owners under Article 28 of the TRIPS Agreement. If the inventor of a pharmaceutical product obtained an exclusive marketing right in 1997 and made his product known and widely used in India, his competitors could enter the market in the year 2002 and free-ride on the inventor’s marketing efforts for three years. Only in the year 2005 could the inventor again enjoy the exclusive rights of a patent owner. Thus, even if an inventor had succeeded in obtaining a patent in the United States and marketing approval in the United States and India within a period of less than five years, he would nevertheless in most situations have a commercial interest to request exclusive marketing rights only in the year 2000 so as to ensure a seamless transition from exclusive marketing rights to the exclusive rights of a patent owner. The economic purposes of Article 70.9 would thus not be furthered if it were interpreted to give rise to obligations before 1 January 2000.

- Article 70.9 obliged a Member to grant exclusive marketing rights for a particular product only "until a product patent is granted or rejected in that Member". Under Article 70.9 developing countries were thus explicitly given the right to choose between the grant of exclusive marketing rights and the grant of patentability. The economic impact of the grant of an exclusive marketing right was very similar to that of the grant of the exclusive rights to be conferred under Article 28 on the owners of patents. Moreover, exclusive marketing rights must be granted even for those products for which a patent could be rejected consistently with the TRIPS Agreement. The function of Article 70.9 was thus not only to create rights for holders of patents in other Members but also to give developing country Members an incentive to opt for patentability. Under the United States’ interpretation the provision could not fulfil this function.

- According to the United States’ interpretation of Article 70.9, developing countries would be obliged to take a decision on the patentability of pharmaceutical and agricultural chemical products immediately while being able to postpone that decision with respect to all other products until 1 January 2000. This interpretation therefore frustrated the basic purpose of the transitional regime established by Articles 65 and 70, which was to give developing countries the right to postpone sensitive decisions beyond the date of entry into force of the WTO Agreement. In fact, this interpretation would turn Article 70 on its head because it would oblige developing countries to decide on the patentability of pharmaceutical and agricultural chemical products before having to implement the TRIPS Agreement with respect to other products (emphasis by India).

- Examination of the 14 notifications submitted to the TRIPS Council under Article 63.2 of the TRIPS Agreement showed that not one of these notifications provided that exclusive marketing rights were made available as from 1995 in the domestic law.

- As was the case with Article 70.8, India had made it clear that modifications to its intellectual property system were necessary to implement the requirements of Article 70.9 ³⁵. While India was correct in its claim that Members were free to determine the manner in which they implemented their obligations, Members were not free to determine whether their obligations must be implemented at all. India had repeatedly made clear that, unless its laws and regulations were modified, it would not have implemented its obligations under Article 70.9. Having made this matter clear, it was unable to assert now that, because it had discretion as to the manner in which it fulfilled its Article 70.9 obligations, it could decide to do nothing.

- Regarding India's claim that it was in compliance with its obligations under Article 70.9 because no person had been denied exclusive marketing rights in India and that this was a matter for future implementation, the United States said that right holders had not been denied exclusive marketing rights because they had not sought such rights and they had not sought such rights because there were no such rights under Indian law or regulations to seek. Right holders would not even know to whom they should apply, let alone the procedures and costs involved or, since India had also failed to establish a mailbox application system, who would be eligible to request such protection had a system been in place. Even now, nearly two and a half years after the TRIPS Agreement had come into force, India had not stated where applications could be filed, what procedures would be followed, what authority would be responsible for reviewing applications, and the way in which rights would be enforced. In the absence of relevant information, it was impossible for a national of a WTO Member to request such protection, even if it were available.

- Even though the level of actual damages suffered by United States' interests was irrelevant, since the United States had made a prima facie showing that India had failed to implement its obligations under Article 70.9 and it was, consequently, unnecessary for the United States to identify particular companies that would be eligible for exclusive marketing rights, the United States understood from its private sector that, had a mailbox system been in place since 1 January 1995, and had exclusive marketing rights been provided in accordance with Article 70.9, some companies would have begun seeking exclusive marketing rights under Indian law. Their ability to do so was dependent on the Indian health authorities processing their applications, but they had met all the requirements for such protection other than those dependent on the actions of the Indian health authorities. Evidence of this could be found in the letter to Ambassador Barshefsky from Dr. Harvey E. Bale, Jr. ³⁶

- The obligation in Article 70.9 to establish a system for the grant of exclusive marketing rights was not distinguishable from any other obligation in the TRIPS Agreement and did require changes in India's laws. Article 70.9, like Article 27, required the grant of certain rights upon the fulfilment of specified conditions. In the case of Article 27, a patent must be granted if an application was filed that was drawn to an invention that met the criteria of novelty, non-obviousness and industrial application. In the case of Article 70.9, exclusive marketing rights must be granted if a mailbox application was filed that met the criteria set out in Article 70.9. Both provisions demanded the establishment of a system for the grant of the specified rights.

- As with the obligation to establish a fully functional mailbox system under Article 70.8, the obligations in Article 70.9 established expectations on the part of WTO Members and potential applicants that exclusive marketing rights would be available. As long as India did not have in place a system for the grant of those rights, potential applicants would not be able to request the grant of such rights, let alone make informed business decisions with the understanding that such rights might be requested and granted. The expectations created by the inclusion of Article 70.9 in the TRIPS Agreement would be frustrated until India had established a clear and stable system for the grant of such rights. The Superfund case was thus relevant to this matter because it clarified that Members were obligated "to protect expectations" of other Members as to the "competitive relationship" between their respective products. Moreover, in applying the principle behind the Superfund decision to the present case, there was no need to wait for a violation to take place or speculate on whether it would take place, since the present case concerned a failure to take an affirmative action to implement a specific obligation in a WTO agreement.

- The grant of an additional five years in Article 65.4 to implement the provisions on product patent protection in Article 27 of the TRIPS Agreement had been balanced against the inclusion of obligations to establish fully functional mailbox and exclusive marketing rights systems in Articles 70.8 and 70.9. India could not now be permitted to pocket the benefit of an additional five years of transition and not implement the corresponding obligation. The Appellate Body recently had made this clear in the Wool Shirts case, in which India had argued that under the Agreement on Textiles and Clothing (ATC) the burden of proof should be shifted to the importing country taking temporary safeguard action. In rejecting the Indian argument, the Appellate Body had clarified that the ATC was a transitional arrangement containing "carefully negotiated language..... which reflects an equally carefully drawn balance of rights and obligations of Members.....". ³⁷ This characterization was equally applicable to the balance between the transitional rules in Article 65.4 of the TRIPS Agreement and the obligations established in Article 70.8 and 70.9 of the TRIPS Agreement. As the Appellate Body succinctly had stated in the Wool Shirts report "[t]hat balance must be respected". ³⁸ The quid pro quo for taking advantage of the transitional period was the grant of exclusive marketing rights. Far from turning Article 70.9 on its head, this represented the core balance in this area of the Agreement. If India did not want to grant patents, then it must grant exclusive marketing rights; conversely, if it did not want to grant exclusive marketing rights, then it must grant patents.

- There was nothing in the Agreement indicating that the obligation to provide exclusive marketing rights arose only after 2000. When the drafters of the Agreement intended a transitional period to apply to a particular obligation, they had specifically included the transition in the Agreement. There was no such transition with respect to the obligations in Article 70.9. On the contrary, Article 70.9 specifically stated that the obligation to provide exclusive marketing rights applied "notwithstanding the provisions of Part VI" of the TRIPS Agreement, which established the transitional periods. As a result, just as with Article 70.8, the obligations of Article 70.9 must be fulfilled as of the date of entry into force of the WTO Agreement.

- India had provided no support for its argument that the obligation to comply with Article 70.9 had not yet arisen. None of the commentators India had quoted had stated that it was impossible for a pharmaceutical or agricultural chemical product to fulfil all the criteria for the grant of exclusive marketing rights. They all left open the possibility that those criteria might be fulfilled long before the end of the transitional period and none of them suggested that the obligation to implement Article 70.9 did not arise on 1 January 1995. Moreover, as Dr. Bale's letter ³⁹ showed, there was at least one company that was seeking exclusive marketing rights in India in respect of two pharmaceutical products.