Parallel import policy raises new possibilities

By Abhai Pandey,Lex Orbis IP Practice

The pharmaceutical sector dominating the current Indian patent scenario raises several issues to dwell upon. Our previous contribution focusing on the concept of differential pricing, vis-à-vis pharma giant Merck’s anti-diabetes drug Januvia, examined the rationale behind, and the consequent effect of adopting such a practice.

Abhai Pandey, Lawyer, Lex Orbis
Abhai Pandey
Lex Orbis

While patent laws aim at exploiting research and development, alongside attaining commercial success, the extent of leverage granted by law may prove key in determining how “big pharma” balances the act of safeguarding their patents while exploiting potential markets. The concept of “parallel imports” as elucidated in the Patents (Amendment) Act, 2005, is here under the critical eye.

Monopoly rights that a patent confers, allow the patentee to exploit the product to the fullest.

This includes aspects of sale, pricing, assignment and commercial exploitation. While commercial viability and success involve the complexities of policy-defining and transaction analysis, differential pricing is an increasingly adopted strategy.

However, in jurisdictions where the law enables parallel imports, the impact of indulging in differential licensing falls under the spotlight.

Patent flexibility

The prevailing Patents Act, 1970, propagates the interest of a patent holder section 48. The provision accords a patentee the exclusive right to prevent third parties, who do not have the patentee’s consent, from making, using, offering for sale, selling or importing patented products in India.

However, another section, 107A affords flexibilities in the law with two exceptions, including the Bolar-type exception under clause (a) and parallel imports as under clause (b).

Undoubtedly, until the patentee is in possession of the patented products, the exclusive rights to these commodities remain vested in him.

Once placed and commercially exploited in the market, these exclusive rights cease to exist in the patentee, and the buyer is free to use and exploit the purchase in whatever manner he may wish. In other words, the patentee’s rights, as far as the exclusive right to prevent further movement is concerned, are confined to his being the first owner of the product, but under no circumstances does he vest the right of the patent to the purchaser.

Parallel importing

The concept of parallel imports facilitates a genuinely owned product to be placed into circulation in one market, and then be imported into another.
The Patents (Amendment) Act, 2005, widens the ambit of the earlier provision of the statute. While the old provision was restrictive in nature, the amended provision allows a person who is authorized under the law to sell or distribute the product.

In effect re-sellers such as wholesalers, pharmacies and retailers (duly authorized entities under law) are now free to deal with the patented products.

The earlier law demanded an authorization from the patentee himself, while the present enactment engulfs legal recognition as the standard to identify parallel importers.

Further it may be clarified that the use of the term “patented product” as a product is restricted to patents held in India only, and not one protected outside India. This is an obvious fall-out of the fact that the Indian law on infringement does not prevail in foreign jurisdictions.

In this view, the impact of the amendment seems to place a greater sanction to practise parallel import.

Since “parallel importers” are now free from the clutches of authorization by the patentee, does the aspect of “differential pricing” trickle down to the lowest level of the marketing hierarchy?

While the National Pharmaceutical Pricing Authority (NPPA), is responsible for pricing and regulating bulk drugs in India, an influx of parallel imports might demand that a regulatory policy be adopted by such regulatory groups to normalize the impact that the practice might have on their respective pricing policies.

Smart strategies

With competition, clashes and contests ongoing between multinational corporations, it is but natural that the battle to win over each other’s market-share will become fiercer.

In this regard, corporations may definitely consider reworking their strategies and lines of attack on various markets around the world, to enable optimum commercial gain while tugging close to the legal regimen, facilitating a win-win situation for many.

In a country like India, where the parallel import policy seems more liberal and accommodative towards product vendors, the cue that multinationals will take from the law is worth watching out for.

Abhai Pandey is a lawyer with LEX ORBIS IP Practice, a law firm specializing in intellectual property issues.

709/710 Tolstoy House
15-17 Tolstoy Marg
New Delhi – 110 001
Mumbai | Bengaluru
Contact details
Tel: +91 11 2371 6565
Fax: +91 11 2371 6556