Some Patent Considerations When Entering into Relationships with Indian Businesses After Novartis AG v. Union of India

Co-Authored by Shreya Ley, Attorney and Owner of Lay Roots

You may have thought that this summer was all about capturing that certain bohemian-chic essence, but the true trendsetters are all talking about recent developments in Indian patent law. In April, the Indian Supreme Court ruled in Novartis AG v. Union of India & Others that Swiss pharmaceutical maker Novartis was not entitled to patent protections for their leukemia treatment drug Gleevec. The Indian Supreme Court’s rationale was heavily based on their efforts to stop pharmaceutical “evergreening” – a practice pharmaceutical companies use to extend the life of a patent by seeking patent protection of subsequent improvements to their drugs or alternative, novel uses for such drugs.

Novartis had been attempting to patent a new and improved version of Gleevec. It had been unable to patent the original version of the drug in India because India did not recognize or grant pharmaceutical patents prior to completing their implementation of their World Trade Organization obligations under the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) in 2005. Upon discovering an improved version of Gleevec, Novartis sought to gain patent protection in an effort to halt the rampant manufacturing of generic forms of the drug in India. However, the Indian Supreme Court found that Novartis had not created enough of an improvement in the new Gleevec to qualify the drug as a new invention. Since Novartis’ ruling, Indian courts have subsequently invalidated other similar patent applications as seen last Friday with the invalidation of the Glaxo Smith Kline’s cancer drug Tykerb.

The Novartis decision and other similar Indian court rulings that refused to grant patent protections to pharmaceutical improvements have become the major impetus for foreign businesses and governments to denounce the Indian patent system as being broken, unjust, or perhaps just biased against non-Indian inventors. Around the world, India’s stand against pharmaceutical evergreening has led such entities to decry the general state of innovation in India. Here in the U.S., the Pharmaceutical Research and Manufacturers of America commented that the Novartis ruling was a sign of India’s “deteriorating innovation environment” and the Office of the U.S. Trade Representative remarked that recent Indian patent developments have “raised serious questions about the innovation climate in India and risk hindering the country’s progress towards an innovation-focused economy.” Such rhetoric has inevitably led American and other non-Indian businesses to become weary of working with Indian resident companies and inventors, ”hear ye, hear ye, innovators around the world! Take heed of this warning tale!”

Well, “fear not!” Keep in mind that Novartis and the other related Indian court decisions only apply to pharmaceutical patents as such rulings have been based on a specific provision in the Indian Patent Act relating to incremental innovations in pharmaceuticals. So, given the limited applicability of Novartis and related cases, foreign businesses should simply forge ahead with their Indian business relationships, right?

Not quite so fast. Dealing with any foreign business, inventor, or entity comes with its own challenges and those looking to partner with Indian resident businesses should consider the following before getting too involved.

1.     Get a Comprehensive Agreement in Place Beforehand. Many partnering businesses have a difficult time putting a written agreement together prior to beginning their business relationship. THIS. IS. A. MISTAKE. Getting a clear agreement in place beforehand is important for foreign businesses and their Indian counterparts to prevent future misunderstandings that could potentially derail their objectives and result in substantial costs. Such an agreement should not only clearly outline the parties’ rights and obligations with respect to the Intellectual Property (IP) created in their relationship, it should additionally cover business aspects of the relationship. Although a large part of such relationships is based on the IP, the business side encompasses what happens once IP is created and it is equally important.

Specifically, agreements should address the following:

What is being protected? The agreement should clarify for foreign businesses and their Indian counterparts the types of IP their relationship needs to protect. This can be as simple as designating that both patentable and trade secret innovations will be protected and as complicated as describing protections for each and every potential innovation arising out of the relationship, whether a part of the parties’ original intentions or not. This designation process will not only help to define the scope of the parties’ project, it will also help ensure that the parties seek appropriate protections and enforcement measure for their IP. Completing this exercise is especially important in a cross-border context as the enforcement of IP rights abroad may be more difficult than simply making sure everyone is on the same page from the beginning. India in particular has been notorious for lacking the necessary infrastructure to enforce IP rights efficiently.

Who gets ownership? Establishing ownership of resulting IP from an Indian business relationship is important in an initial agreement because countries vary in the rights they give to owners and inventors. For example, Section 2(p) of the Indian Patent Act uses the term “patentee” for patent owners that is defined as “the person for the time being entered on the register as the grantee or proprietor of the patent.” In contrast, the U.S. does not officially use the term “patentee” and most American inventors would probably assume that patentee refers specifically to inventors. As illustrated above however, “patentee” in India is not necessarily limited to inventors. Therefore, making sure that all parties are clear on who will be named inventors and who will own resulting IP is essential to ensuring a good business relationship with an Indian resident business or inventor.

Who gets paid? This, inevitably, is a difficult topic to discuss, and it is inextricably tied to IP ownership rights. When there is no money coming in, everyone wants to split things down the middle. However, once there is money or it looks like there will be no money, businesses start to quibble. In order to avoid costly, drawn out battles that could prevent businesses from furthering an otherwise fruitful relationship, it is important to outline how all parties are to be compensated for their hard work, time and ingenuity once their relationship has taken off as well as when it has reached its conclusion.

Outlining business plans in writing through an agreement not only forces the parties to talk about their innovation strategy, marketing plans, and production plans; it also enables them to have a clearer direction for their relationship.  If anyone is worried that creating a detailed, written plan will inhibit their creativity, then remember that a good agreement should leave some room for flexibility. Allowing such flexibility can lead to great innovation and profitability. Ultimately, however, having a clear outline of where the parties’ want to go, how they want to get there, and what they need to get to that point (the “what” usually being the IP) can lead to a more profitable and innovative business relationship and can prevent costly future litigation.

2.     Be Conscious of Indian Patent Filing Requirements and Tolling Restrictions. Understanding Indian patent application filing requirements and the interplay between them and other foreign patent filing requirements is essential for businesses to ensure the broadest global patent protections for their resulting innovations. The most important thing for non-Indian businesses to realize is that Section 39 of the Indian Patent Act requires that patent applications for any invention created with the help of Indian residents must first be filed in India. Yes, before filing an international application under the Patent Cooperation Treaty, before filing a U.S. patent application with the United States Patent and Trademark Office (USPTO), and before filing a patent application anywhere else, foreign businesses working with Indian inventors must file a patent application with India’s patent office (The Controller General of Patents, Designs, and Trademarks (Controller)).

Does that sound unreasonable? Foreign businesses may be able to apply for special permission from the Controller to initially file abroad, but don’t bet on the Controller bending the rules.  If no special permission is given, a foreign business must wait for approximately six weeks after filing in India to file elsewhere.

So, if a foreign business has applied with the Controller and waited six weeks, they can now submit applications anywhere else…right?  Sure!  Just make sure not to dilly-dally because filing in India limits the amount of time a business has to file their patent application with the USPTO and other national patent offices. Knowing the timelines from start to finish of the Indian patent application system and how filing dates in India affect the requirements for filing applications in other countries can greatly impact business decisions.

Parting Thoughts. Go forth and innovate with Indian resident compatriots! The considerations above and recent Indian pharmaceutical patent decisions should not stop foreign businesses from doing so. Collaboration enables people to create great innovations, but every business relationship, whether down the hallway or across the world, has its own challenges and limitations. It’s good for businesses to be honest about those challenges and to create a plan for overcoming them before they run into them. These general suggestions don’t apply to everyone and it’s always wise to consult with qualified local counsel and persons who can advise on the particulars of a specific business. In the end, it will save businesses a lot of time, headaches, and money to simply invest in the relationship by setting it up correctly.

Also, no matter how overwhelming the planning process may seem, just remember, at least you’re not going up against Bollywood screenwriters who generously “borrow” from American film. In cases like those, it’s best to pop some popcorn, settle onto the couch, and enjoy the results – because the results ARE rather glorious, are they not?

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