This article discusses the concept of “Parallel Importation” as provided by the Indian legislature in clause (b) of Section 107 A of the Patents Act, 1970. For the uninitiated, the Indian Legislature has laid down a provision, namely, Section 107 A in the Patents Act, 1970, where it has been mentioned about certain acts that are not to be considered as an infringement. The said provision is divided in two parts, namely, Bolar Exemption and Parallel Importation. We have already discussed about “Bolar Exemption” under Section 107 A(a) of the Patent Act, 1970, which can be accessed from the given link: [https://www.mondaq.com/india/patent/1135110/construing-section-107-a-of-the-patents-act].
The subject article is the follow up article, which throws light on the later clause of the Section 107 A of the Patents Act, 1970, recited as:
“(b) importation of patented products by any person from a person [who is duly authorised under the law to produce and sell or distribute the product].”
Section 107 A (b) of the Patents Act, 1970 is based on the concept of “Doctrine of Exhaustion” enshrined in the Trade-Related Aspects of Intellectual Property Rights (TRIPS). We shall now discuss the very aspect of this doctrine and parallel importation and their importance in the Indian Patent Legislature:
Doctrine of Exhaustion in TRIPS
Doctrine of Exhaustion is defined as exhaustion of patentee’s right after first sale of the patented product. It means once the patentee has sold out his patented product, he cannot regulate its movement after sale i.e., he cannot regulate its re-sale and redistribution of the sold patented product as he has already exhausted his exclusive right vested in him. The patented product covered under this doctrine broadly includes all the patented processes, or the product obtained using patented process.
However, the term “Exhaustion” has not been explicitly defined or mentioned in TRIPS Agreement. Article 28 of the TRIPS confers exclusive rights on the patentee to prevent third parties not having the owner's consent from the acts of: making, using, offering for sale, selling, or importing for these purposes that product. Under Article 28, TRIPS has emphasized on the term “importing” with a footnote reciting: “This right, like all other rights conferred under this Agreement in respect of the use, sale, importation or other distribution of goods, is subject to the provisions of Article 6.”
Article 6 recites: “For the purposes of dispute settlement under this Agreement, subject to the provisions of Articles 3 and 4 nothing in this Agreement shall be used to address the issue of the exhaustion of intellectual property rights”.
Given the above, the intention of the TRIPS is clearly evident, which is to promote parallel importation among the members/countries of World Trade Organization (WTO). In fact, WTO has realized the legal principle of exhaustion, parallel, or grey imports in their agenda. The intent of the TRIPS is that even if a country allows parallel imports in a way that the other member country of WTO might think that it violates the TRIPS Agreement, it cannot raise as a dispute before the WTO. Therefore, the TRIPS Agreement provides flexibility to the WTO member countries to incorporate the principle of exhaustion into their domestic laws, which cannot be brought under the dispute resolution mechanism by the other member countries. The said has also been clarified by the Doha Declaration, Article 5(d) 1.
Therefore, the principle of exhaustion as required by the TRIPS Agreement among the WTO members connotes the doctrine of International Exhaustion. The said doctrine can be interpreted as if a patented product has been placed, lawfully in the market of one of the WTO member countries, then the product can be imported to the other member country without infringing the Patentee’s rights.
The Application of the doctrine of Exhaustion varies from countries to countries. It is because some countries have adopted “international exhaustion”, and some other countries have adopted either “national exhaustion” or “regional exhaustion” The Indian legislature has not clarified the kind of exhaustion it has adopted by laying down the clause of parallel importation. Therefore, this article will now try to evaluate the said point.
Section 107 A (b) of the Indian Patents Act
Section 48 of the Indian Patent Act confers upon the patentee the exclusive right to prevent third parties from the act of making, using, selling or importing that product in India if the subject matter of the patent is a product.
However, Section 107 A(b) of the Patents Act, states that importation of patented products by any person from a person who is duly authorized under the law to produce and sell or distribute the product do not constitute an act of infringement.
The following passages of this document will now examine the development and notion of Section 107A (b) of the Patents Act, 1970:
As per Patents (Amendments) Act (2000), Section 107A (b) recites:
“Certain acts not to be considered as infringement. - For the purposes of this Act,-
(b) Importation of patented products by any person from a person who is duly authorized by the patentee to sell or distribute the product, shall not be considered as an infringement of patent rights.”
The expression “duly authorized by the patentee” in the Act of 2002, provided a very limited scope to the act of importation. The Section under Patents Act, 2002 required the third party to ensure that the subsequent seller from whom the product has been bought, should be duly authorized by the patentee.
The Section 107A (b) was later amended in its present form through the Patents (Amendments) Act, 2005, reciting:
“Certain acts not to be considered as infringement. - For the purposes of this Act,-
(b) importation of patented products by any person from a person who is duly authorized under the law to produce and sell or distribute the product.”
Given the above, if a patented product is first sold by the patentee or authorized person, parallel import is allowed by the third party, provided that the import is from a person duly authorized under the law i.e., the importer need not ensure that the sellers from whom they buy the product are authorized by the patentee as long as the sellers are authorized under the law to produce, sell or distribute the product.
There is not much judicial precedents in India regarding Section 107 A (b) of the Patents Act. Unlike Section 107 A (a) relating to “Bolar Exemption” which explicitly states the country to which the law is applicable with the expression “under any law for the time being in force, in India, or in a country other than India,” there is no such explicit disclosure in Section 107A (b). The expression “duly authorized under the law” is therefore subjected to various interpretations.
One side of the argument arise from plain reading of the statute, referring the law to that of the exporting country and not India. The interpretation is based on the concept that the producer, seller or distributor to the third party is based in the exporting country, therefore applying “under the law” to the Indian law is flawed.2 The said interpretation would be of no importance or value in case the patent is owned by the patentee in India. Therefore, from the said interpretation, it seems that the language of Section 107A (b) supports international exhaustion.
Another line of argument for the language of Section 107 A (b) gives other side of interpretation. The said stands on the fact that the patent rights are territorial in nature and the intent of the parliament is not to recognize the law of other country or the application of the law of the other country for importation into India, especially if there is no existing patent in the “other country.” Because if it is the case, then it would contravene with the rights under Section 48 of the Patents Act, which provides exclusive right for the patentee to prevent others to import the product to India, without his consent.
Further, a Circular No. 13/2012 issued by the Indian customs, titled “Enforcement of Intellectual Property Rights on imported goods - Clarification on the issue of parallel imports” dated May 8, 2012, reflected on the parallel import as import of original/genuine products (not counterfeit or pirated) which are sold/ acquired legally abroad and imported into the country, by persons other than the intellectual property right holder without permission/authorization of the IPR holder. The circular went on to further state the Section 107 A (b) of Patents Act provided for parallel imports as cited by Department for Promotion of Industry and Internal Trade (DPIIT).
However, the use of the term “which are sold/acquired legally abroad” in the circular implied that the expression “duly authorized under the law” in Section 107A (b) pertains to law of the exporting country and not India.
A public interest litigation (PIL) was filed before the Delhi High Court against the circular issued by Indian customs, asserting that Section 107A(b) of the Patents Act, 1970 permits imports of patented products only from a person who is duly authorized under Indian law. Any import which is sourced from a person who is not duly authorized under Indian law does not receive the benefit of Section 107A (b), and hence violates the right of import granted to a patentee under Section 48 of the Patents Act3. However, the Court dismissed the PIL, opining that the persons who are allegedly affected by the said circular and the provisions should approach the Court. Therefore, the said PIL did not amount to any clarification regarding the phrase “duly authorized under the law.”
Another case which might have thrown light on the phrase “duly authorized under the law” is Strix Limited v. Maharaja Appliances. The said case revolves around the import of patented product, a kettle, from a supplier from China by the defendant amounting to the infringement of the patent product in India and also violation of the patentee’s rights vested under Section 48 of the Patents Act. The defendant asserted their arguments by submitting that the import did not encroach the rights of the patentee, in view of Section 107 A (b) and also on the basis that the Chinese supplier held a patent in China for the same product. However, since no proof was provided by the defendant over the existence of Chinese Patent, the case was dismissed.
Therefore, the Court neither provides any clarity on the “law” referred in Section 107A(b) nor on whether the first sale has to be done by the Indian Patentee to evoke Section 107 A(b) by the defendant, in the event a Chinese Patent existed. Hence, due to the lack of precedents in India with regard to the provision of Parallel Importation, the terms laid down in the said provision were open to different interpretations.
However, the said ambiguity was clarified by India in a trade policy review of India4 dated 14 September 2011 and 16 September 2011 by undertook by the WTO. In the review meeting, Brazil and Japan raised the question of parallel imports, international exhaustion regimen in India and also questions the law of which country is being referred to in “duly authorized under the law”.
India in reply, stated that "parallel imports are allowed when authorized under the law. The expression “under the law” in section 107A (b) of the Patents Act should be interpreted as the law of the country where a person is duly authorized under the law to produce, sell or distribute the product. India follows international exhaustion of rights for Patents. Under section 107A of the Act, importation of patented products by any person from a person who is duly authorized under the law to produce and sell or distribute the product is not considered an infringement of patent rights. Therefore import from country will be allowed from a person who is duly authorized to produce/sell or distribute the product.”
The consequence of such interpretations are reflected in an article published on livemint5 emphasizes the ambiguity in Section 107A (b). It was mentioned that such interpretations would give an added advantage for the local pharmaceutical drug companies to import drugs patented in India from other least developed countries, such as Bangladesh, Nepal, Africa, without any authorization of the Patent holder. The local Indian companies can import drug from these countries where pharma patents are not in effect as long as the country’s domestic law authorizes the manufacturers of that country to produce, sell and distribute such drugs. The article opines of how such imports may be violation of Article 28 of the TRIPS agreement.
Prior to 2005 amendment, the third party could import only from a person “duly authorized by the patentee” to manufacture and sell the product. With the 2005 amendment, any person can import from a person duly authorized under the law without any authorization of the patentee. Since 107 A(b) does not explicitly define the phrase “duly authorized under the law.” It is believed that Section 107 (b) should be read in conjunction with Section 107 A (a) which clearly indicates that Indian legislature follow International Exhaustion. The said is also evident from the WIPO’s Questionnaire6 on Exceptions and Limitations to Patent Rights in relation to the Patent law in India, provided by the Indian Patent Office, wherein it was submitted that the policy objective of following international exhaustion regimen under Section 107(A)(b) is to allow importation of patented products in the country from such markets where the product has been placed in duly authorized manner. However, keeping in mind Section 48 of the Patents Act, a clear interpretation of the provision under Section 107 A (b) by the Indian Courts are much desired.
 National Exhaustion refers to a situation where the law of a country recognizes, that upon the first sale of the product which is protected by an IP right, the right holder loses the right to control its movement only within the territory of the country.
 Regional Exhaustion is a broader variant wherein the law under a regional or bilateral treaty such as the EU recognizes regional exhaustion. This means that once the goods are put in the stream of commerce after the act of first sale, the right owner cannot control its movements in the entire region i.e. in the States which form members of the regional treaty/arrangement.