Project Report

Program & Batch: Term: Course Name: Name of the faculty: Topic/ Title : Original or Revised Write-up: Group Number: 3 PGDM 2013-15 1 Legal Environment of Business Mr.P.K Goel Novartis Case Study Original

Contact No. and email of 7840083844/ft13pallavijain@imt.ac.in Group Coordinator: Group Members: Sl. Roll No. Name 1 1301-373 Pallavi Jain 2 1301-188 Sameer Bhatia 1301-032 Arpit Jain 3 1301-107 Abhinav Rao 4 1301-543 Neha Goyel 5 1301-316 Ankur Kumar 6

Introduction
Intellectual Property Rights (IPR) plays a key role in protecting the inventions by industries where huge R&D expenses are involved. Not only this, they are instrumental in shaping the investment decisions of many companies. IPR related issues like patents, trademarks, and copyrights are governed by many acts and regulations. In the Indian scenario, they are governed by the Indian Patent (Amendment) Act, 2005. Before the amendment in 2005, these issues came under the purview of what was known as Indian Patent Act, 1970. India had to amend its Act in compliance with TRIPS (Trade Related Intellectual Property Rights Agreement). The fundamental rights of an innovator are protected through patent protection under TRIPS.

The Background of the Novartis Case

Novartis is a world renowned pharmaceutical company and a world leader in research and development of products to improve well-being of people. It had applied for a patent for one of its anti-cancer drugs, Glivec. Glivec, also known as imatinibmesylate, prolongs the life of patients suffering from chronic myeloid leukaemia (CML). Novartis had already acquired the EMR (Exclusive Marketing Rights) of the product in 2003 under the TRIPS agreement forcing the Indian companies to withdraw the production of generic drugs. Also, it is noteworthy that Novartis could not apply for a patent for its anti-cancer drug in 1994 as India granted only process patents then. It was only in 1995 that India became a signatory to the TRIPS agreement under the General Agreement on Tariffs and Trade (GATT). Under TRIPS, countries were given 10 years to comply with the provisions of the agreement and to grant patents in areas where they were not given. Consequently, India amended its Patent Act in 2005 and started granting product patents as well. Therefore, the case of Novartis was taken up in India before Intellectual Property Appellate Board (IPAB) but IPAB denied Novartis the patent claim in 2009. Even the Madras High Court dismissed the appeal of the pharmaceutical giant. Left with no other option, Novartis was forced to appeal to the Supreme Court against the judgement by IPAB. The Supreme Court of India pronounced a landmark judgement in the case on 1st April, 2013.

The Judgement
The Novartis beta crystalline (a form of imatinibmesylate) patent application was processed by the Supreme Court for grant of patent. The Court dismissed the plea of the company saying that the beta crystalline form was a tweaked version of the already known substance called imatinibmesylate and hence, does not qualify for a patent. As per the Court, the drug did not meet the criteria of inventiveness as laid out in section 3(d) of the Indian Patent(Amendment) Act,2005. Not only this, the Court also ruled that Novartis was selling the drug at an exorbitant price (12 lakh per patient) which was a violation of Right to Life under the Article 21 of Indian Constitution.

Section 3(d) of Indian Patent Act

The Section 3(d) of the Indian Patent Act stipulates that a tweaked form of an already known substance does not qualify for a patent unless it shows significantly enhanced efficacy as compared to the known substance. The Section states: Salts, ethers, esters, polymorphs, metabolites, pure form, particle size, isomers, mixtures of isomers, complexes, combinations and other derivatives of a known substance shall be considered to be the same substance unless they differ significantly in properties with regard to efficacy. (Chandra, 2011) The section terms the incremental innovation/tweaking in a product as evergreening and prohibits the same. It also lays down the three important parameters based on which a product is eligible for a patent. The three parameters are novelty, utility and full disclosure. The Section states that the patents cant be claimed for products which are just incremental innovations over the existing products. It also mentions that the company has to demonstrate the improved therapeutic efficacy of the drug in order to qualify as patentable.

Elaborating on the reasons of rejection

It was observed that Novartis could not establish the improved efficacy of the beta crystalline form of imatinib mesylate and hence, the judgement went against it. Moreover, the Supreme Court came down heavily on the company ruling that the drug was priced at a non-affordable price to the patients which was a violation health rights of CML patients. Indian generic producers like Cipla and Ranbaxy made the same drug available to patients at one-twelfth of the price charged by Novartis. The Supreme Court took cognizance of all these issues and came out with its judgement.

Arguments by Novartis
The company refutes the allegations of evergreening by saying that the beta crystalline form of imatinib mesylate is not a tweaked version but a major breakthrough. It is of the view that it took years to come up with this form of the drug and hence, it is not just an incremental innovation. Also, Novartis defends itself against the accusations of being anti-poor. It boasts of running several health campaigns in India in collaboration with WHO and directly benefitting the poor people of the country. Novartis further goes on to say that it has always endeavoured to increase public access to medicines and hasnt even challenged the granting of a compulsory license to the local manufacturers to produce generic drugs.

Implications and Significance of the judgement

The Supreme Court judgement will have ramifications all over the world. It is a landmark judgement in the sense that it goes beyond the legal boundaries of patent disputes. It is a telling commentary on the patent regimes in the developing countries and how these regimes need reform at the earliest. It also raises a million dollar question as to what qualifies as an innovation. It will encourage research and development in innovation rather than impeding the process. It also has implications for drug access throughout the world. The patients will get easy access to nominally priced drugs and this will have a positive effect on the overall well being of nations. By discouraging evergreening, the judgement prohibits companies to claim for patents for products with incremental innovation. By introducing the precautionary principle , the judgement has outlined steps to safeguard the Right to Health and Right to Life of individuals. The Supreme Court ruling doesnt comment on the fairness of TRIPS but it indirectly suggests a review of the agreement. The TRIPS agreement needs to take into account the issues related to the health and life of individuals. The judgement has been criticised by the pharmaceutical industry saying that it will discourage spending in R&D and will hamper investment opportunities in countries. But all in all, this is a positive judgement with multidimensional implications.

Pharmaceutical industry and the Patent Law

Another case quite similar to the case of Novartis was decided by the Supreme Court of India in March 2013. This was the Bayer-Natco case. The Indian manufacturer Natco filed a case against Bayer for a compulsory license for Bayers drug Naxaver. The Supreme Court decided in Natcos favour and it was issued a compulsory license to manufacture the drug thus paving the way for competitive prices for the drug in the country. The two issues in the course of two months will force the pharmaceutical MNCs to take stock of the situation and come up with products which are genuinely patentable.

Recommendations opportunities

for

Novartis

to

strategise

for

future

growth

Indias pharmaceutical industry is today the third largest market globally in terms of volume and 14th largest by value. Therefore the need of the hour for pharmaceutical MNCs like Novartis is to focus on real innovation rather than mere incremental innovation. Moreover, the R&D expenses should be allowed to come in the public domain so that the actual cost of these drugs can be ascertained. Novartis needs to avail the opportunities presented by the exponentially growing Indian market. If the company decides to withdraw its investments from the country, it emerges out as the biggest loser as the local producers have the ability to manufacture generic drugs at affordable prices. Although the judgement is a setback to Novartis, but the company needs to continue investing in research and development of life

saving drugs. No company would like to lose out on a market which is expected to grow by 15 to 20% annually to become a 74 billion US$ market by 2020.

References

Chandra, R. (2011, September 10). '3(d)' Effect: The Novartis-Glivec Case. Economic and Political Weekly , pp. 13-15. Chaudhuri, S. (2013, April 27). The Larger Implications of the Novartis-Glivec Judgement. Economic and Political Weekly , pp. 10-12.