PROPOSED PATENTS AMENDMENTS - A REVERSAL

In our last issue we had discussed Patents (Amendment) Ordinance, 1994 which was promulgated by the President on December 31, 1994. The purpose of the Ordinance was to bring about changes to (Indian) Patents Act, 1970 (the Act) to comply with obligations imposed by the GATT/TRIPS Agreement.

Indian Law permits the government to make laws by Presidential decree but they must be ratified by the Parliament within six weeks of its next session. Accordingly, a bill for amendment of the Act, (which would have ratified the Ordinance) was placed before the Parliament early this year. Unfortunately, the ruling party which has only 91 of 240 seats in the upper house of the Parliament failed to persuade the opposition parties to support the bill. As a result, the ruling party was constrained to withdraw the bill and the Ordinance lapsed.

India is now in a very awkward situation. On the one hand, it is still a signatory to the GATT and a member of WTO and therefore, committed to honour the obligations imposed by the GATT. On the other hand, the first step taken to comply with the basic minimum requirements imposed by the GATT has become infructuous. However, the lapse of the Patents (Amendment) Ordinance will not affect any of the patent applications for pharmaceutical substances per se filed while the Ordinance was in force. These applications will continue to be in the Black Box till December 31, 2004 after which date, they will be taken up for examination for grant of patent. In the interim period, it is possible to obtain exclusive marketing rights (pipe line protection) in respect of the subject matter of these applications as provided for under Article 70(9) of the GATT/TRIPS Agreement and Section 24(B) of the erstwhile Patents (Amendment) Ordinance, 1994.

According to reliable sources in the Ministry of Industry and the Indian Patent Office a new Bill for amending the Act will soon be placed before the Parliament. The ruling party is convening meetings with opposition parties in this regard. It is believed that the expected amending Act will relate back to the date on which the Ordinance lapsed and be consistent with it. On this assumption many pharmaceutical companies are continuing to file applications for pharmaceutical substances per se under Article 70(8) of the GATT/TRIPS Agreement.

As had been advised in our earlier issue, the Indian Government had brought out a separate notification declaring all the member countries of WTO as convention countries for the purposes of claiming priority. This was without prejudice to the reciprocal arrangements India enjoys with Australia, Canada, Eire, New Zealand and the United Kingdom. Fortunately, this notification was not a part of the Ordinance which has lapsed but was under the powers conferred upon the Government under Section 133 of the Act. Therefore, an Indian application can claim priority from one or more applications filed in one or more of these countries provided the Indian application is filed within twelve months from the date of filing of the earliest (basic) application.

There has been and is still some confusion with regard to the earliest date to which the provisions relating to priority will extend. Since the notification in question came into effect on January 3, 1995 it was assumed that an Indian application could be filed on January 3, 1995 claiming priority from a corresponding application filed in a member country of WTO on January 3, 1994. However, the views of patent attorneys as well as the Indian Patent Office and other Government departments on this issue are divided. The opinion of many senior Controllers of the Indian Patent Office - which is shared by us - is that priority can be claimed only from an application filed in a member country of WTO on or after January 3, 1995. The reason for this is couched in Section 135 of the Act, which refers to "convention country" and "application filed in a convention country.". Since most of the member countries of WTO were not "convention countries" within the meaning of Section 135 of the Act prior to January 3, 1995, it is argued that priority cannot be claimed from an application filed in any of these countries prior to January 3, 1995.Notwithstanding this confusion, many applications are being filed claiming priority from applications filed in member countries of WTO prior to January 3, 1995. At the worst, claims to priority on these applications may be rejected in which case these applications will be converted to non-priority applications. We expect this question to be resolved soon. At present, the Indian Patent Office is waiting to see the reaction of Patent Offices of other countries in parallel situations.

Under the Act, where an invention was made by an Indian resident (irrespective of his nationality) no application could be filed or caused to be filed by him outside India until six weeks had elapsed after Indian filing. The Patents (Amendment) Ordinance 1994 had done away with this provision. Now, with the lapse of the Ordinance, the situation with regard to inventions by Indian residents has reverted to status quo ante. In other words, till a new law is passed, where an Indian resident is involved, it is mandatory that an application for patent is first filed in India. A corresponding application may be filed in any foreign country only after six weeks from the date of filing in India.

FOREIGN INVESTMENT - AN UPDATE ON CHANGES

In our previous issue we discussed the latest industrial policy and shared with our readers our experience under the new liberalised industrial régime.

Heretofore, the Government had rather liberally been granting approvals to overseas companies to set up wholly owned subsidiaries in all sectors. The communists and rightists have been vocal in voicing their displeasure over Government permitting wholly owned subsidiaries in the consumer goods sector. Discouraged further by recent electoral defeats in a few States, the Government appears to be succumbing to needs of populism and is, to that extent, trying to slow down the momentum that the economic reforms has gathered.

It seems now to be veering towards a policy (in the consumer goods sector) which would prescribe participation by Indian partners in the equity of a joint venture company - howsoever minimal. Indications are that the Government may be happy even with a 15-20% equity participation by an Indian partner. Government's rationale is hard to decipher considering the fact that under (Indian) corporate law, a shareholder needs at least 25% plus one share to acquire blocking rights or veto powers.

In our opinion, changes contemplated by the Government are likely to be counter-productive in the long run and may give wrong signals to the overseas community. It is to be hoped that the Government would not take any steps that may be perceived as reversal of economic reforms.

The Government has been averse to payment of royalty in consideration of technology by wholly-owned subsidiaries to their parent companies. However, it is now considering permitting payment of royalty in such cases. In fact, it has already made exceptions in a few cases - on selective basis and allowed payment of royalty keeping in mind the importance of technology, the company's contribution towards its development and the credentials of the parties. In view of the fact that such payments will be funded by the foreign investors and that the rate of withholding tax on lump sum and royalty in most cases is higher than the rate of withholding tax on dividend, it may be expected that what has recently been practised as an exception will become a rule.

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