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LATEST NEWS UPDATES | The Larger Implications of the Novartis Glivec Judgment-Sudip Chaudhuri

The Larger Implications of the Novartis Glivec Judgment-Sudip Chaudhuri

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published Published on Apr 27, 2013   modified Modified on Apr 27, 2013
-Economic and Political Weekly


The Supreme Court judgment on the Novartis-Glivec case is remarkable because it has gone beyond the specific technical and legal issues surrounding patents and has put the matter in a much larger political and economic perspective. The deeper implication of the judgment is that it is not only justified to deny patents when incremental innovation is trivial as in the Glivec case. The judgment has linked the entire question of patenting with net benefits to society and has highlighted the relevance of specific conditions of a country for deciding the appropriate patent regime. What the judgment says and what it implies has tremendous significance for the patent regimes in developing countries beyond the secondary patenting issues.

Sudip Chaudhuri (sudip@iimcal.ac.in) teaches Economics at the Indian Institute of Management Calcutta.

The Supreme Court of India has recently rejected the plea of Novartis for patent protection for its anti-cancer drug sold in the name of Glivec or Gleevec. The judgment has evoked extreme reactions. While some have greeted it as a landmark judgment which will make medicines more affordable, others have condemned it as harmful for innovation and foreign investment. We will analyse here some of the implications of the judgment.

Patent laws are national laws. With no restrictions before the introduction of the Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement of the General Agreement on Tariffs and Trade/World Trade Organisation in 1995, India abolished product patent protection in drugs (and food) in 1972. Even under TRIPS, though product patents are mandatory, countries have some flexibilities to frame their own patent laws to suit their national interests. Thus legally and legitimately, what is patentable in India may not be so in other countries as we will see below.

Why the Patent Was Rejected

Novartis applied for a patent for imatinib (and other derivatives of a compound) in the United States (US) in April 1994, abandoning an earlier application made a year earlier. (The judgment refers to this as the Zimmermann patent after the name of the inventor.) After getting marketing approval, what the company started selling as the drug for treating chronic myeloid leukaemia was not imatinib but a derivative of it viz, imatinib mesylate. It did not apply for a separate patent for imatinib mesylate in the US because as the judgment shows the Zimmermann patent covered not only imatinib but also imatinib mesylate.

Novartis could not at that time apply for a patent for imatinib/mesylate in India because the country was not required to provide protection for a patent applied or granted elsewhere before TRIPS came into being, i e, before 1 January 1995. What it did in India after 1995 (in July 1998) was to apply for a patent for the beta crystalline form of imatinib mesylate. But what India did in 2005 when she reintroduced product patent protection was to insert a condition in Section 3(d) that "the mere discovery of a new form of a known substance which does not result in the enhancement of the known efficacy of that substance" is not patentable.

Under the transitional arrangements used by India as permitted by TRIPS, the Novartis beta crystalline patent application was processed for grant of patent only after 2004. The patent was rejected initially by the patent office in January 2006 and then by the Intellectual Property Appellate Board (IPAB) in June 2009. The Supreme Court judgment is basically related to the appeal of Novartis against this rejection of the patent by the IPAB.

Novartis argued before the Supreme Court that starting from the Zimmermann patent, beta crystalline form for which the patent was applied in India was developed through two inventions - from imatinib to imatinib mesylate and then from the latter to the beta crystalline form. The Supreme Court however ruled that imatinib mesylate was a known substance directly following from the Zimmermann patent and hence does not qualify as an "invention" in terms of clauses (j) and (ja) of Section 2(1). It also ruled that the beta crystalline form does not satisfy the Section 3(d) criterion. The Supreme Court interpreted the word "efficacy" to mean therapeutic efficacy. The Supreme Court held that "therapeutic efficacy of a medicine must be judged strictly and narrowly" (p 91). Improved therapeutic efficacy must be claimed and established. Supreme Court rejected the appeal and hence denied the patent to Novartis because Novartis could not demonstrate that the new form (beta crystalline) of the known substance (imatinib mesylate) enhanced the therapeutic efficacy of the drug. The court rejected Novartis' claims of better bioavailability and better physical characteristics such as better storability of the compound saying that these do not necessarily improve the therapeutic effect.

When Novartis applied for a patent for the beta crystalline form in India in 1998, it did not claim any therapeutic benefit. It was not required to do so at that stage because the Section 3(d) efficacy criterion was introduced much later. After the patent was taken up for examination after 2004 and after the grant of the patent was opposed (India's legislation provides for pre-grant opposition), Novartis filed affidavits to satisfy the requirement of Section 3(d). But it was admitted that no study had been done earlier since nowhere in the world had such conditions been imposed. Acknow-ledging the spirit of the law, Novartis had the honourable option to withdraw the patent application. Rather what it did was to wage a seven-year-long legal battle opposing not only the rulings of the patent office and the appellate board but filing writ petitions for declaring Section 3(d) as unconstitutional! (The latter was dismissed by the Madras High Court in 2007.)

Noting that what Novartis was selling in the US and in India was imatinib mesylate and not the beta crystalline form, the court remarked that the case of Novartis "appears in rather poor light and the claim for patent for beta crystalline form of imatinib mesylate would only appear as an attempt to obtain patent for imatinib mesylate, which would otherwise not be permissible in this country" (p 96).

The Implications

The judgment will have a positive impact on affordability and accessibility of medicines. Generic companies sell the anti-cancer drug at a fraction of more than the Rs 1 lakh charged by Novartis for a dose of the product. Patent is given for a limited time period, currently for 20 years under TRIPS. Thus after the expiry of the patent, other firms can and do enter the market and that results in a fall in the prices and hence of profits of the patent holder. The multinational corporations (MNCs) holding the patents often try to block or delay this competition by getting secondary patents on minor changes to the product, a practice which has come to be known as evergreening. But the objective of the patent system is not to encourage or permit patenting of new forms of old drugs to basically extend the patent term. Thus what, basically, the Supreme Court in interpreting Section 3(d) is saying is that consumers should not be forced to pay higher prices just because it is chemically a new drug unless there is a therapeutic benefit involved. It is not saying that a new form cannot be patented. All that it is saying is that under the current law it cannot be patented unless it is therapeutically more effective.

It will be more difficult to indulge in evergreening in India. Considering the strict criterion of efficacy, new forms of non-patented drugs or patent-expired drugs will not be easy. The patent office in India is unlikely to grant such patents unless therapeutic efficacy is demonstrated. And demonstrating that new forms are therapeutically more effective may not be that easy as the Novartis case suggests. Thus some medicines which otherwise would have been patented with high monopoly prices will not be patentable and hence will be more affordable. It must be added however here that the Supreme Court did not define the scope of therapeutic efficacy - it was not necessary in the Novartis case since Novartis could not demonstrate any improvement whatsoever. But Section 3(d) provides the explanation that salts, esters and other derivatives of known substances will be considered to be the same substance, "unless they differ significantly in properties with regard to efficacy". Supposing in future
a new form shows some increase in efficacy. How does one interpret the word "significantly" in this case? These questions are still open.

In the name of innovation, mindless patenting goes on in countries such as the US - a model which many developing countries willingly or not so willingly follow - much against the interests of the consumers. Linking patenting to therapeutic benefit is a simple but powerful idea. The Supreme Court decision is consistent with TRIPS and has been arrived at not arbitrarily but by following transparent and internationally accepted legal processes. Thus other countries which have stricter patent regimes might be induced to introduce similar provisions in their patent laws to make drugs more affordable. Thus the judgment has significant international implications as well.

Compulsory Licensing

But new drugs which are currently under patents or those will be patented in future will continue to be under monopoly till the patents expire. It is important to note that if rather than in April 1994, Novartis had filed the patent in the US a few months later after 1 January 1995 when TRIPS came into effect, the anti-cancer drug would have been eligible for a patent in India as a new substance and Section 3(d) would not have been applicable (till that patent expired). Thus Section 3(d) deals with only a part of the problem. Another important flexibility which TRIPS permit under certain conditions is compulsory licensing. A beginning has been made with the grant of a compulsory licence to Natco, an Indian generic company for another anti-cancer drug, sorafenib tosylate (sold as Nexavar by the patentee, Bayer). Affordability of patented medicines will depend to a large extent on how the compulsory licensing system evolves in India.

India suffers from the twin problems of high prices of patented medicines and low access to generics, i e, non-patented medicines. Due to a variety of factors including poor public health facilities and inadequate insurance facilities drug access is very low in India. Indian generic companies, especially the larger ones, are increasingly selling in the foreign markets particularly the more lucrative western markets rather than in the domestic market. Price control of medicines is a major issue in India. Thus to ensure proper healthcare much more needs to be done in India. But to say that non-patent factors are also important does not mean that patent factors are not important. It is undeniable that the Indian generic industry has made patented drugs more affordable both in India and abroad.

The Larger Significance

What is remarkable about the judgment is that it has gone beyond the specific technical and legal issues surrounding the patent dispute and has put the matter in a much larger political and economic perspective. What the judgment says and what it implies has tremendous significance for the patent regimes in developing countries beyond the secondary patenting issues relating to Section 3(d). "In order to understand what the law really is, it is essential to know the "why" and "how" of the law. Why the law is what it is and how it came to its present form?" (p 16). After Independence, India continued with the product patent system. Why did she abolish product patents in pharmaceuticals in 1972? Why did she reintroduce it in 1995? What was the impact of the different patent regimes? It went into the history of the patent law of the country and the experience under different patent regimes. Based primarily on the Bakshi Tek Chand Committee Report (1950), the Ayyangar Committee Report (1959) and Chaudhuri (2005) (the text of the judgment can be accessed from http://judis.nic.in/supremecourt/imgs1.aspx? filename=40212), the judgment noted that before 1972 the country did not benefit - product patents did not promote innovation and industrial activity but the people had to pay high monopoly prices. But after 1972 when product patents were abolished, not only did the industry develop but prices also became more affordable. In the light of such a positive past experience, the judgment also highlighted the concerns expressed about the negative impact of reintroduction of product patents in line with TRIPS.

Thus the judges felt that the old debate about the role of product patents is still relevant. The principal economic rationale for granting patents is that it will stimulate investment for research for innovation. This is the positive effect. But, patent rights which exclude others from producing and marketing the product, lead to inhibition of competition and hence high prices and hence less access. This is the negative effect. As the judgment specifically mentions it is important to balance these diverse effects. Where innovation is absent or trivial or limited, a country is justified in denying a patent because the negative effect is stronger than the positive effect. In earlier stages of development when countries are net users, not net developers of R&D intensive products, they lose by granting product patents. Thus, most developed countries including Switzerland (where Novartis is located) adopted pharmaceutical product patenting only after they reached a higher degree of economic development with innovative capabilities.

Novartis says that the Supreme Court decision will destroy the incentive to do R&D and to invest in the country. It also says that it will be cautious before introducing new drugs in the country. If Novartis does not introduce new drugs in the country that would be a good ground for issuing a compulsory licence. The denial of the Glivec patent will, of course, have an adverse impact on their profits. But India accounts for a very small part of their global market and profits. Hence any such fall from their operations in India is unlikely to have any significant impact on the funds for R&D and hence the incentive to do new drug R&D. (Incidentally the same is true for some Indian companies such as Dr Reddy's and Glenmark which have started new drug R&D - their main target is the large and lucrative patent-protected western markets.) As far as Novartis is concerned, what needs to be considered in India is what they have done in India. It is here that the historical perspective provided by the judgment becomes so relevant. Ciba-Geigy and Sandoz (the companies which later merged to form Novartis) and other MNCs enjoyed full product patent protection in India before 1972 but were not involved in innovative activities. They were also not even keen to undertake investments for manufacturing from basic stages so as to develop the industry in the country. Now that product patents have been introduced in India, what are the MNCs doing? As I have discussed in a paper published in this journal (in 2012), they are again more keen on importing patented products and selling at high prices rather than innovating or manufacturing in the country.

The deeper implication of the judgment is that it is not only justified to deny patents when incremental innovation is trivial as in the case of beta crystalline patent application. The judgment has linked the entire question of patenting with net benefits to society and has highlighted the relevance of specific conditions of a country for deciding the appropriate patent regime. If as the judgment notes, the experience in the 1950s and 1960s justified a change in the patent regime in the 1970s, then should not a similar experience after 2005 lead to another change? Of course in the 1970s India had the freedom. Now countries are bound by TRIPS. But TRIPS is not a permanent agreement. It provides for review. The Supreme Court did not comment on the fairness or otherwise of TRIPS. But what it says and implies do provide a justification for a review of TRIPS.

References

Chaudhuri, Sudip (2005): The WTO and India's Pharmaceutical Industry (New Delhi: Oxford).

- (2012): "Multinationals and Monopolies", Economic & Political Weekly, 24 March.

Economic and Political Weekly, Vol-XLVIII, No. 17, April 27, 2013, http://www.epw.in/commentary/larger-implications-novartis-glivec-judgment.html


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