- Divya Khanwani
The Indian intellectual property regime sheltered the domestic pharmaceutical industry from global competition for almost two decades. However, in 1995, the patent law was amended to make it compatible with the Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement. This was a promising measure to enhance the level of research and development prevailing in the pharmaceutical sector. However, the downside of stronger patent rights is the possibility of formation of patent thickets. This fear emanates from the prevalence of such thickets in other jurisdictions,including Japan,which recently shifted from process to product patents.
In light of the above, I aspire to alleviate the apprehensions by attempting to answer the question of whether patent thickets will arise in India. Before outlining the structure, a caveat regarding the scope of paper is necessary. The research in this paper is limited to TRIPs induced behavioral changes in the pharmaceutical giants and the Indian Patent Office (“IPO”). It is not a general analysis related to patents and pharmaceuticals.
Having said that, the paper is divided into three sections. The first part briefly expounds upon the fundamental concepts to provide a background for the upcoming analysis. The second section dwells upon the question. It places reliance on two indicators to conclude that the post-TRIPs regime has created a conducive environment for the growth of patent thickets. The third section provides recommendations to avert the impending doom.
Exploring the Fundamentals
The question of ‘will the recent amendments to the Patent Act, 1970 (“the Act”) result in origination of patent thickets in the pharmaceutical sector’ presupposes the knowledge of two concepts- first, what are patent thickets, second, what is the post-TRIPs patent regime in India. There exists comprehensive literature on these questions and therefore, I will only briefly discuss them in this paper.
Shapiro defines patent thickets as “a dense web of overlapping intellectual property rights that a company must hack its way through in order to actually commercialize new technology”.
The core patents can be further classified as primary and secondary patents. The former protects the active ingredients, which form the basis of the new drug. In later phases of the drug development, patents are filed on other aspects of active ingredients such as different dosage forms, formulations, production methods etc. These patents are referred to as secondary patents. Secondary patents also emerge from changes in dosages or uses discovered during clinical trials.
The TRIPs agreement, concluded on April 15, 1994, mandated that developing countries, including India, strengthen their intellectual property rights regime. Consequently, the Act was amended in 1995, 2002 and 2005.
Two alterations are relevant for this discussion. First, there was a change in the statutory subject matter. Under the post-amendment regime, product patents are also protected. Earlier, in the pharmaceutical industry, the patents were granted only for the methods or processes of manufacturing of drugs. Second, the duration of patent protection in pharmaceuticals was increased to twenty years.
Tackling the Problem
Patent thickets arise when a multitude of overlapping secondary patents are active in an industry. Hence, for a thicket to arise in an industry, presence of two phenomena are inescapable. First, escalation in patent filings. Second, rise in the erroneous grant of secondary patents by the IPO.
I will use these phenomena as indicators to study whether the amended provisions of the Act (Table 1) have induced the players in the pharmaceutical industry to change their behavior/strategies in a manner which creates a conducive environment for the rise of patent thickets.
Indicator 1: Rise in Patent Filings
The lack of product protection allowed domestic firms to produce generic and cheaper alternatives of the original drugs through reverse engineering. This deprived the companies from rightful royalty payments and exclusive market access, which discouraged them from investing in Research and Development (“R&D”) in India.
This changed with the post-TRIPS patent regime. The increase in the duration and scope of patent rights incentivized the domestic and foreign entities to undertake R&D activities in India, which in turn, resulted in an exponential rise in the R&D expenditure in the Indian pharmaceutical industry (“the industry/the sector”). For instance, pharmaceutical giants like Ajanta Pharma, Ind-Swift Laboratories and Cipla increased their R&D expenditure (as a percentage of their sales turnover) from 0.6, 1.8, and 3.1 percent to 6.1, 6.9 and 6.1 percent respectively in the last two decades. A few other firms like Dr. Reddy Laboratories, Cadila Healthcare, Lupin, Panacea Biotec and Sun Pharmaceuticals entered double digits in their R&D expenditure percentage.
A part of R&D efforts are targeted towards synthesis of the active ingredients. The rest is to discover new uses, methods of administration, formulations, combinations, salts or physical variants of the existing chemical compounds. This rise in R&D expenditure has enabled the pharmaceutical giants to aggressively file for primary and secondary patents. Consequently, the IPO has faced an exponential jump in the applications submitted for patents in the pharmaceutical sector alone. For instance, in 2000 only 883 pharmaceutical-related patent applications were filed- whereas in 2022, 5622 such applications were received.
This increase in the patent filings was largely due to large pharmaceutical companies. SMEs lack the technical expertise to fund research for the manufacturing of new active ingredients. In the absence of a novel active ingredient, the consequent research, which is the focus of secondary patents, is also unavailable. Hence, the R&D expenditure of SMEs has remained constant and therefore, their patent applications have remained minimal even in the post-TRIPs regime.
Circling back to pharmaceutical giants, an interesting trend in the filings was the shift in the subject matter of the patent applications post 2005.. Prior to the amendment, a majority of the patent applications were targeted towards the process patent (fig 4). However, once the passage of filing the product patent application was cleared, the pharmaceutical giants’ applications were focussed on product protection (fig 5).
Fig 4: Patent applications filed (1990-2003)
Fig 5: Patent applications filed (2005-2009)
At this stage, it can be concluded that the post-TRIPs patent regime had two primary consequences. First, the number of patent filings in pharmaceuticals increased drastically. Second, there is a palpable shift from process to product as a subject matter of the patent applications.
However, these changes do not answer the key question of this paper- ‘will patent thickets arise in the industry?’. For a thicket to exist, a high number of overlapping active secondary patents must be present in the sector. Hence, to reach a conclusive answer, it is pertinent that these patent requests not only are largely for secondary patents but also are erroneously granted by the IPO.
Indicator 2: Erroneous Grant of Secondary Patents
The process of granting a patent is lengthy and time consuming. An exhaustive procedure is desirable to weed out the secondary patents. However, the time taken for grant of a patent is far longer than the prescribed deadlines because first, IPO is grossly understaffed and undertrained, second, pharmaceutical patent applications are examined by a group of ‘Chemistry and Allied subjects’, which receives an exponential number of applications. This resulted in procedural delays, which was one of the primary reasons for extending the duration of patent protection. It ensured that the patentee not only recovers the R&D expenditure incurred during the synthesis of the product but also earns monopoly profits for a reasonable period of time. However, enjoyment of exclusive rights for up to two decades is warranted only when every patent is protecting an innovative effort. Unfortunately, this is not the case in the pharmaceutical industry.
For the past few decades, it has been a common practice for originators to file fresh patent claims to protect minor modifications to/new uses of the existing product. This practice is referred to as ‘evergreening’ in common parlance. It allows the originators to create artificial barriers to entry for the generics by unfairly extending their monopoly in the market.
The post-TRIPs patent regime introduced s3(d) in the Act to protect the generics from the vicious practice of evergreening. Under the Act, a discovery of a new form, property or use of an existing/known substance is not patentable unless it results in employment of a new reactant or enhancement of efficacy. The explanation further states that the resultant efficacy should be significantly different in properties when compared to the efficacy of the previous product.
The anti-evergreening provision adds an additional layer of protection against incremental patents. Besides satisfying the basic criteria of novelty, inventive step and industrial application, as provided in s2(j), a secondary patent must fulfill the requirement of enhanced efficacy. The Supreme Court, in Novartis [the judgment which upheld the constitutional validity of s3(d)], reaffirmed this position. It also elucidated the scope of the provision by making the following consequential observations. Enhancement of efficacy constitutes ‘improvement of therapeutic efficacy’. It cannot be reduced to mean only alterations to the physio-chemical properties of the drug, discovery of more beneficial uses of a known compound (or its minor modifications) or increased bioavailability. In addition, the applicant has to explicitly provide research data providing relations between enhanced therapeutic efficacy to bioavailability. Novartis, therefore, raised the threshold for granting secondary patents in pharmaceuticals.
Besides s3(d), clauses (e) and (i) of s3 also prevent pharmaceutical evergreening. The former disallows patenting of combinations, if the resulting product is an “aggregation of the properties of the components thereof”. The latter prevents any method of treatment to be patented. Hence, due to the presence of stringent two-tier regulations (requirement of a valid invention+conditions of anti-evergreening provisions), one might presume that patent thickets cannot arise in India.
However, a detailed scrutiny of the activities at the IPO tells us a different story. I will make a two pronged argument to substantiate this hypothesis.
1. Quantitative analysis
The number of patents granted in the pharmaceutical industry have increased substantially in the post-TRIPs regime. A hike of more than ten times (150 in 1999 to 1930 in 2020) in the number of patents granted has been observed in the pharmaceutical industry. Hence, it is evident that a copious number of patents are present in the sector.
Once again, this phenomenon is concentrated among the pharmaceutical giants because of their financial strength. SMEs, on the other hand, with their limited resources, barely have any granted patents to their name (Fig 6).
Fig 6: The pharma giants collecting high number of product patents (2005-2010)
2. Qualitative analysis
Secondary patents are minor modifications to the primary patent covering an active ingredient. They are often overlapping in nature and therefore, their presence creates a conducive environment for the growth of patent thickets. In this section, I will highlight that a majority of the granted patents are secondary product patents, whose presence might translate into patent thickets in the near future.
I have relied on patents granted from 1996-2016 (two decades from the adoption of TRIPs) in the pharmaceutical industry to exhibit the overwhelming presence of secondary patents in pharmaceuticals. In this period, the total number of patents granted under the IPC category A61K were 5842, out of which sufficient data was not available for 965 patents. From the remaining, 2293 were product patents related to pharmaceuticals (Fig 7).
Out of 1654 secondary product patents, 78%, 18% and 4% are likely to violate s3(d), s3(e) and s3(i) respectively of the Act. It implies that exhaustive scrutiny by the Controller was warranted in these cases. There was a very high probability of these applications being rejected/amended/revoked if IPO had undertaken a detailed enquiry. Unfortunately, 85% of these applications were approved without any elaborate review (absence of a written order), and therefore, are existing as patents protecting minor modifications of the existing products in the pharmaceutical industry (Fig 9). Furthermore, none of these secondary patents applications made a valid and appropriate submission in this regard, thereby, contravening anti-evergreening provisions as laid down in Novartis.
Fig 9: level of scrutiny for secondary patent applications
This brings us to the conclusion of the section, wherein it is proved that there exists a high number of secondary patents in the market. These patents are filed at different times, which results in extension of the monopoly of the pharmaceutical giants in the market. Since secondary patent claims are primarily for minor alteration to the main inventions, they are often overlapping in nature. If the IPO keeps operating with the same error rate, these overlapping secondary patents will dominate the industry and might translate into patent thickets.
The Way Ahead
As highlighted, there exists a large number of secondary patents which should not have been granted (suspect patents). The question that then arises is why anti-evergreening provisions are failing in the pharmaceutical industry. The answer lies, once again, in the behavioral tendencies of different stakeholders in the industry including the examiners at IPO. First, IPO is very understaffed vis-a-vis the applications filed in a year. This inevitably results in secondary patents being overlooked for a detailed scrutiny, which contributes to an increasing number of suspect patents in the economy. Second, confusion regarding the application of s3(d) and s3(e) is artificially created by the applicants. In cases where elaborate review of applications is undertaken, the companies argue that their case falls under s3(e) and not s3(d). The latter, having the requirement of therapeutic efficacy, has a higher threshold than the former, which is based on presence of synergistic effect. This allows companies to evade scrutiny of anti-evergreening provisions and secure twenty-year protections for minor alterations (secondary patents).
In light of the above, one wonders what is the way ahead. I recommend active measures to ensure effective implementation of existing anti-evergreening provisions.
1. Updating the Guidelines
The guidelines for examination of patent applications for pharmaceuticals were introduced by IPO in 2014 to ensure consistency, uniformity and transparency in the process of granting patents. Furthermore, in 2019, a manual for the patent office was published to provide profound insight in the process. However, neither of these documents contain specific guidelines regarding anti-evergreening provisions. They provide selective paragraphs from the judgment of Novartis, which is grossly insufficient to determine what is unpatentable in practice. Hence, I recommend inclusion of explicit pointed instructions dealing with the scope of anti-evergreening provisions in the guidelines for patent examiners. This will ensure efficient and effective weeding out of secondary patent applications, which is pertinent especially considering limited manpower at the IPO.
2. Enhancement of Disclosure Requirements
Currently, the applicant is not required to distinguish between the primary and secondary patent. The patents are divided based on the language and the scope of the claim. This increases the error rate at IPO. If applicants are required to disclose whether their invention falls in primary or secondary category, the examiners can proceed with increased accuracy rate. This can be implemented by floating a checklist, which allows easy categorization of the patent applications.
These recommendations are not exhaustive but merely indicative of the nature of reforms which will benefit the industry.
In this paper, I have used the twin indicators of increase in patent filings by the applicants and escalation of suspect patents by the IPO to conclude that there has been a rise in the number of overlapping secondary patents in the industry. This creates a conducive environment for the growth of patent thickets in the pharmaceutical industry.
It is, however, impossible to give a definitive answer to the question of- whether thickets will arise in India. It is because the industry of pharmaceuticals is influenced by factors other than the overwhelming presence of secondary patents. A few of these factors are listed below. First, there is a strong compulsory licensing regime in India, where a person can file an application for a compulsory license if conditions like “reasonable requirements of public” or “use of patented invention in the territory” are unsatisfied. This prevents the originators from charging exorbitant prices for the drug and discourages the growth of patent assertion entities. Second, unlike the U.S., the Indian judiciary is averse to granting injunctions to potential infringers. This reduces the thread of hold-up, which is the primary reason for defensive patenting in other jurisdictions.
Due to these factors, the rise of patent thickets is not an immediate risk in India. Nevertheless, it is advisable that IPO takes active measures to reduce its error rate and clearance time. The overwhelming number of pending patent applications and suspect patent grants create strong feedback effects, which are manifested in two ways. First, since upon publication, a patentee enjoys the rights over the inventions irrespective of whether the patent is later accepted or rejected, the applicant is incentivized to file a rocketing number of applications. This not only increases the workload at the office but also distorts the market by allowing the firms to extract monopolistic rents over weak patents as well. Second, acceptance of marginal patents of a company encourages its rivals to engage in aggressive patent filings, which further increases the pending applications at the IPO. This contributes to high error rates, and the cycle continues.
 Extracted from the prowess database, CMIE.