Blowing Hot and Cold: DHC’s Observations on Commercialisation when Raising the Section 107A Exemption

[A big thanks to Swaraj and Praharsh for their inputs]

On February 4, 2024, the Delhi High Court, in Incyte Holdings Corporation & Ors. v. Granules India Limited  (pdf), recorded a settlement in a patent dispute concerning Ruxolitinob, a drug used to manage myelofibrosis, a rare bone marrow disorder. The settlement was reached after Granules’ assurance that its activities were not for commercial use of the drugs and were covered under the Bolar type research exemption under Section 107A (for a more detailed discussion, refer to our previous coverage on the Bolar exception here). 

Incyte, in the suit, had alleged that Granules had infringed its patent on the drug and cited Granules’ drug listing on Pharmacompass (a global database to access information on pharma products) to argue its intent to commercially launch the same. On the allegation that Granules’ drugs were listed on the Pharmacompass, the defendant clarified that the reference on the database was for getting regulatory approvals which are permitted under the scope of Section 107A. It also asserted that it has obtained necessary licenses and undertaken activities, including manufacturing, solely to secure regulatory approvals in India and other jurisdictions. However, it did acknowledge that it inadvertently listed Ruxolitinib Phosphate in its High Potent Products (HPPs) Catalog (a classification for drugs effective at lower dosages than standard active pharmaceutical ingredients (APIs)) but confirmed that the listing had since been removed. 

The above seems to have suffice as the parties have now settled the dispute and we couldn’t see any court action on the scope of Section 107A. This makes one wonder if the situation would have been different had the parties resorted to pre-institution mediation. Wouldn’t the dispute be resolved earlier had the parties discussed these facts before filing the plaint? Regardless, the case serves as a reminder to take a look at this exception and understand some of the issues with the scope of this provision. 

What is Section 107A?

Section 107A provides for certain acts not to be considered as patent infringement under the following conditions:

Section 107A(a) concerns the manufacturing, using, or selling of a patented invention solely for regulatory approvals. Section 107A(b) concerns parallel import i.e. importing a patented product legally obtained from an authorized seller in another country.

Coming specifically to Section 107A(a) of the Act, it incorporates a Bolar-like provision (stemming from the American Court’s holding in Roche Products, Inc. vs. Bolar Pharmaceutical Co., Inc.), permitting generic manufacturers to undertake research and experimentation on a patented drug. This ensures that upon patent expiry, generic alternatives can be introduced into the market without delay, effectively confining the patentee’s exclusivity to the 20-year term. The interpretation of this provision has been shaped significantly by key rulings, particularly Bayer Corporation v. Union of India & Ors. and Bayer Intellectual Property GmbH & Anr v. Alembic Pharmaceuticals Ltd. In a consolidated judgment dated March 8, 2017, the Delhi High Court addressed the critical issue of whether Alembic’s export of Bayer’s Rivaroxaban for non-commercial purposes fell within the scope of Section 107A. The Court clarified that what really matters under Section 107A is ‘why’ the export is happening, not the quantity, where it was developed, or where the info came from. It also shut down Bayer’s argument that the patentee shouldn’t have to prove a violation. Instead, the non-patentee has to show they’re following the rules. That said, if Bayer can prove the export was for a commercial purpose, legal action can follow. This case is a reminder that restriction of the scope of this exception, so as to exclude commercialization, is also necessary.

Section 107A: Too Broad? 

Section 107A is often criticized (see here) for its broad scope, with its precise limits remaining uncertain, making its applicability heavily dependent on the specific facts of each case. The Section’s clarification on its scope remains rather rudimentary.  For example, the Confederation of Indian Industry (CII), in its report on “IPR Issues in the Pharmaceutical Sector,” (pdf), points out that while Section 107A(a) grants a significant right, it does not address some rather important aspects such as:

1. The timing of a patented invention’s use (so as to know how long this exception on the behest of R&D can allow the invention’s usage),
2. The liability of third-party API suppliers to generic manufacturers (since a third-party API supplier providing an API to a generic manufacturer seeking regulatory approval could be held liable for patent infringement if they fail to demonstrate that the API was intended exclusively for R&D purposes and not for commercial production. To avoid liability, they must establish that their actions were solely aimed at facilitating the generic manufacturer’s legitimate regulatory activities. However, Indian law remains largely silent on this issue), and
3. The issue of drug stockpiling (a generic drug manufacturer may produce significant quantities of a patented drug before the patent expires, intending to launch it immediately after patent expiry. This practice is generally not covered under the Bolar exemption and may constitute patent infringement. Most jurisdictions restrict the Bolar exemption to activities strictly necessary for securing regulatory approval and do not permit large-scale production or stockpiling in anticipation of patent expiration. This aspect has not been definitively addressed in Indian courts.)

Interestingly, the WTO panel in ‘Canada — Patent Protection for Pharmaceutical Products’ (pdf) ruled on the Canadian Bolar provision. This case, which sought to permit drug stockpiling for six months before a patent’s expiration, did not recognize stockpiling as a legitimate practice. However, India simply lacks any jurisprudence on it yet. 

As reaffirmed in the Bayer rulings and further emphasized by the court in Merck Sharp and Dohme Corp. & Anr v. SMS Pharmaceuticals Ltd. (covered here), the Section 107A exception is mainly intended to serve as a safeguard against an overly expansive reading of patent rights that can hinder progress in innovation and scientific research. However, Section 107A is a double-edged sword. While it aims to foster innovation by allowing the use of patented inventions for research and regulatory purposes, its broad language can be problematic. Terms like “reasonably related” are open to interpretation (like it was interpreted to include “exports” by the DHC in Bayer Corp. v Union of India (covered here)), potentially leading to misuse and undermining patent holders’ rights. This ambiguity could discourage original innovation, as inventors may feel their creations aren’t adequately protected. While well-intentioned, Section 107A’s lack of precision could inadvertently stifle the very innovation it seeks to promote. 

H/t to an anonymous reader for sharing this development with us.