Chapter 6

ENFORCEMENT OF DSB'S RULINGS: A CASE STUDY

In the last chapter we have made a close perusal of all the TRIPS cases that have

come up before WTO' s dispute settlement mechanism for adjudication. In most of

the cases notifications of mutually agreed solution or judgements made by panelIAB

indicate that those municipal laws upon which the complaints were targeted, were

found inconsistent with Annex 1 C of the WTO Agreement, i.e., Agreement on

TRIPS.

According to TRIPS Agreement, a WTO member is obliged to publish all laws and

regulations, and final judicial decision and administrative rulings of general

applications pertaining to IPRs, so that other governments and right holders could get

acquainted with its laws.' It is also mandatory for every nation to notify all those

laws and regulations to the TRIPS council.* If it is found that any of the IPR laws is

inconsistent with the TRIPS Agreement, an aggrieved member could have recourse to

dispute settlement procedures. And if the panel/AB finds that a measure is

inconsistent with the Agreement, it could rule for a modification in laws. Failure to

make a modification in law may result in payment of compensation or suspension of

' WTO, Annex I C: ' Ageemnent on Trade-related Aspects of Intellectual Property Rights', [hereinafter TRIPS Agreement] In the Results of the Uruguay Round of Multilateral Trade Negotiation: The Legal Texts (Geneva: WTO, 1995). TRIPS Agreement, Article 63 stipulates that a WTO member is obliged to publish all laws and regulat~ons, and f i judicial decision and administrative rulings of general applications pertaining to IPRs, so that other governments and right holders could get acquainted with its laws.

Id, Article 63.2. (Also see Article 68, wlnch establishes a Council for TRIPS to monitor the operation of TRIPS Agreement.) 3 Annex 2: 'Understanding on the Rules and Procedures Governing the Settlement of Disputes'[hereinafter DSU] In the Results of the Uruguay Round of Multilateral Trade Negotiation: The Legal Texts (Geneva: WTO, 1995).DSU, Article 22.2 reads:

If the Member concerned fails to bring the measure found to be inconsistent with a covered agreement into compliance therewith or otherwise comply with the recommendations and rulings within the reasonable period of time determined pursuant to paragraph 3 of Article 21, such Member shall, if so requested, and no later than the expiry of the reasonable period of time, enter into negotiations with any party having invoked the dispute settlement procedures, with a view to developing mutually acceptable compensation. If no satisfactory compensation has been agreed within 20 days after the date of expiry of the reasonable period of time, any patty having invoked the dispute settlement procedures may request authorization from the

To have a proper perspective of the implications of WTO' s dispute settlement

mechanism's rulings on the national laws and legislations, an examination of

alterations/amendments a nation has made in its municipal laws to comply with DSB'

s rulings becomes imperative. For this, this chapter will be focussing on the

enforcement aspects of WTO' s rulings by analysing their effects on municipal laws.

Consequently, a close examination of the modifications made by India in its Patent

Law (1970) to comply with the WTO's determinations in DS 50 (India vs. the United

States) and DS 79 (India vs. the European Communities) is done.4

In the subsequent section, an analysis of Article 21 (DSU) that deals with retaliation

authorised by WTO for failure to bring an inconsistent measure into conformity with

WTO ruling is also made. Here, Ecuador's initiative against the European

Communities shall be dealt with as a case study.5

6.1 India Legal System

6.1.1 India Legal System and International Treaty Obligations

Without appropriate legislation, international treaties or agreements entered into by

India would not have the force of municipal law. There are innumerable provisions in

the Constitution of India that outline Indian obligations vis-A-vis the international

comity of nations. Powers regarding international treaties are, in fact, distributed

between the executive and legislature. However, there is a specific Article in Part IV

of the Indian Constitution, i.e., Article 51 in the Directive Principles of State Policy

that deals with international treaties.

Article 51 of D~rective Principles of State Policy

Article 51 embodies the 'object of India in the international sphere'.6Article 51 reads:'

DSB to suspend the application to the Member concerned of concessions or other obligations under the covered agreements.

' WTO Panel, lndia: Patent Protection for Pharmaceutical and Agricultural Chemical Products (hereinafter lndia Patents (US)] WTO Doc., WTDS 50R dated 5 September 1997; Appellate Body, India Patent Protection for Pharmaceutical and Agricultural Chemical Products WTO Doc., WTDS 50IABIR dated 19 December 1997; WTO Panel, India: Patent Protection for Pharmaceutical and Agricultural Chrmicnl Products [hereinafter India Patents (EL')], WTO Doc., WTODS 79R dated 24 August, 1998. 5 WTO Arbitrat~on, European Communilies: Regime for the Importation, Sale and Distribution of Bananas, WTO Doc., WTIDS 27IARBIECU dated 24 March 2000.

Durga Das Basu, Shorter. Constitution oflndia (Nagpur: Wadhwa, 2001) p.51.

The state shall endeavour to

(a) promote ~nternational peace and security;

(b) maintain just and honourable relations between nations;

(c) foster respect for international law and treaty obligations in the dealings of organised

peoples with one another; and

(d) encourage settlement of intemational disputes by arbitration.

However, this Article is only a directive,' which the state has to follow in its relations

with other nations to promote intemational peace and security. So if this Article is to

be binding on municipal courts, legislation is required.' But if the municipal law is

silent on a question related to intemational treaty obligations, the municipal courts

could observe rules of intemational law."

Powers ofthe Executive and International Treaty Obligations

According to Article 73 of the Constitution of India, the Government of India is

bestowed with the executive powers over all subjects in which Parliament has

legislative competence. Article 73 (1) states:"

Extent of executive power of the Union: Subject to the provisions of this Constitution, the

executive power of the Union shall extend

(a) to the matters with respect to which Parliament has power to make laws; and

(b) to the exercise of such rights, authority and jurisdiction as are exercisable by the

Government of lndia by virtue of any treaty or agreementt2 Provided that the

executive power referred to in sub-clause (a) shall not, save as expressly provided in

this Constitution or in any law made by Parliament, extend in any state to matters

with respect to which the legislature of the state has also power to make laws.

Government of lnd~a, The Constitution of lndia [as on 1" February, 2990). [ hereinafter Indian Constitution], (New Delhi: Ministry o f . . .. . ... ..... , 1990). ' Id . Article 37 reads:

The provisions contatned in this part shall not be enforceable by any court, but the principles therein laid down are nevertheless fundamental in the governance of the country and it shall be duty of the state to apply these principles in making laws.

" Ali Akbar Kushami Mirzu V. United Arab Republic, AIR 1966 SC 230, paragraph 30: 1966 (1) SCR 719. I 0 Grumaphunr (bmpuny uflndia Ltd., V. Birendra Bahadur Pandey, AIR 1984 SC 667 (paragraph 6); Also see People's llnlonjur Civil Liberties V. Union of lndia, AIR 1997 SC 568. I I Indian Cunsritutiori. Article 73(1), supra note 8. " Id.

This implies that the executive power of the Union Government shall be coextensive

with the legislative power of the Union Parliament, i.e., it includes those matters that

are in List 1, i.e., Union List of seventh schedule of the Constitution. However, in

exceptional cases, the powers of the Union Government shall extend to List 111 as

well.

Besides, under Article 123(1) of the Constitution, the President has the power to

promulgate Ordinances when the Parliament is not in ~ e s s i o n . ' ~ Thus Article 12314

reads:

Article 123(1): If at any time, except when both Houses of Parliament are in session,

the President is satisfied that circumstances exist which render it necessary for him to

take ~mmed~ate action, he may promulgate such Ordinance as the circumstances

appear to htum to require.

However, Article 123(2) stipulates that such an ordinance shall cease to operate when

the Parliament is summoned to reassemble."

Power of the Legislature and International Treaty Obligations

As already indicated, an international treaty obligation, to receive binding nature

before the municipal courts in India, should be supplemented with appropriate

legislation. This implies that ratification of an international treaty by the Parliament

of India is imperative. This is provided in Articles 246 and 253 read with Entry 14 of

List I of the Seventh Schedule of the Constitution.

Article 246 enumerates provisions regarding the distribution of legislative powers

between the Union and the State Legislatures. Accordingly, Parliament is bestowed

with exclusive power to legislate on matters contained in List I in the Seventh

13 It is based on this power to legislate that the President has issued Patents Amendment Ordinance, 1994. 14 Indzan Const~rut~on. Article 123, supra note 8 says:

An Ordinance promulgated under tlus article shall have the same force and effect as an Act of Parliament. but every such Ordinance:

( a ) shall be laid before both Houses of Parliament and shall cease to operate at the expiration of six weeks fiom the reassembly of Parliament, or if before the expiration of that period resolutions disapproving it are passed by both Houses upon the passing of the Second of the Resolutions; and

(b) may be withdrawn at any time by the President. I 5 The Patent Amendment Ordinance lapsed, when the Parliament did not pass resolution approving the same.

Schedule, i.e., Union List.'" The Parliament could also legislate on matters contained

in List 111 i.e, "Concurrent List" of the Seventh ~chedule." And State Legislatures

are granted with exclusive power to legislate on List I1 of the Seventh Schedule i.e.,

the "State List".

But Article 253 says:'"

Legislutionfor giving efect to international agreements: Notwithstanding anything in

the foregoing provisions of this Chapter, Parliament has power to make any law for

the whole or any part of the temtory of India for implementing any treaty, agreement

or convention w l ~ h any other country or countries or any decision made at any

international conference, association or other body.

This Article was ~ntended to give sanctity to Article 51 of the Directive Principles.

This Article by the words "notwithstanding the foregoing provision" also confers the

Union Government with gubernatorial powers to "invade" List I1 and usurp the

powers of the state legislature. Consequently, an international agreement which was

ratified by the Union Government would "override and prevail over" any inconsistent

State Act."'

Indiu as a WTO Memher

India ratified the Agreement establishing the World Trade Organiation. The

Agreement came into force on 1 January 1995. It is obligatory on the part of every

member to implement the agreements of WTO. Thus Article XIV:2 reads:

A member which accepts this Agreement after its entry into force shall implement

those concessions and obligations in the Multilateral Trade Agreements that are to be

16 Indian Constitution, Article 246 (I) , supra note 8 reads: Notwithstanding anythng in clauses (2) and (3), Parliament has exclusive power to make laws with respect to any of the matters enumerated in List I in the Seventh Schedule (in this Constitution referred to as the "Union List").

I' Id., Article 246 (2) states that: Notwithstanding anything in clause (3) Parliament, and, subject to clause (I), the Legislature of any state . . . also have power to make laws with respect to any of the matters enumerated in List 111 in the Seventh Schedule (in this Constitution, referred to as the "Concurrent List").

18 Id., Article 253 I9 Basu, supru note 6, pp.1 174-5.

implemented over a period of time starting with the entry into force of this Agreement

as 1f1t had accepted this Agreement on the date of its entry into force."

Consequently, this Ageement which, inter alia, contained an Agreement on TRIPS

shall have to be implemented by a WTO Member.

In a bid to honour its TRIPS commitments as a WTO member, the President of India

on 31 December 1994 promulgated the Patents (Amendment) Ordinance, 1994," to

amend the Patents Act of 1970. This was primarily intended to give effect to India's

obligations as a WTO member in consonance with Articles 70.8 and 70.9 of the

TRIPS ~greement .~ ' The Ordinance was issued by the President in accordance with

the powers granted under Article 123(1) of the Indian ~ o n s t i t u t i o n . ~ ~ The Ordinance,

which became effective on I January 1995, lapsed on 26 March 1995. Subsequently,

the Patents (Amendment) Bill 1995 was introduced in the Lok Sabha of the Indian

Parliament to give permanent legislative effect to the provisions of the Ordinance.

The Lok Sabha passed the Bill. But in the Rajya Sabha it was referred to a Select

Committee for examination and report. While the Bill was pending before the Select

Committee, the tenth Lok Sabha was dissolved. Consequently, the Patents

(Amendment) Bill 1995 lapsed.24

Failure to bring a new legislation after the constitution of eleventh Lok Sabha

prompted the United and later the European Communities to initiate

litigations before the WTO' s dispute settlement mechanism. They contended that

lndian patent law was inconsistent with the TRIPS Agreement of WTO. The WTO' s

judiciary ruled against India. Consequently, India was asked to change its domestic

patent law in accordance with the WTO' s rulings. India complied with WTO' s

rulings by passing the Patents (Amendments) Act, 1999 (No.17 of 1999). This Act -

20 WTO. 'Agreement Establishing the World Trade Organisation', Article XIV: 2, in the Results of the Uruguay Round of Multilateral Trade Negotiation: The Legal Texts (Geneva: WTO, 1995). 2 1 For a textual treatment of the Patents (Amendment) Ordinance 1994, see P.Narayanan, Patent Law (Calcutta: Eastern Law House, 1998) pp.936-938; B.K.Keayla, TRIPS Agreement on Patent Laws: Impact on Pharmacrutical (2nd Health for all (New Delhi: Centre for Study of Global Trade System and Development, 1998);T. Ramappa, Intellectual Proper& Rights Under WTO: Tasks Before lndia ( New Delhi: Wheeler Publications, 2000); Pratyush Nilotpal, lndia and WTO: A Study ofthe Impact on Indian Economy, ( Delhi: Cipra Books, 2000). '' For a detailed analysis of these articles and the ensuing dispute see Chapter 5, pp. 2.3 An ordinance passed by the President ceases to apply at the expiration of six weeks from the reassembly of Parliament. See supra notes 13-15. 24 lndia patent^. (ELI), supra note 4, paras. 2.2-2.4.

amended the Patents Act 1970 (No. 39 of 1970). Before delving deep into the

amendment which India has made in 1999 to give effect to WTO' s ruling, it would

be better to outline Indian patent law history and the major provisions of the Patents

Act, 1970. This IS explained in the subsequent part.

6.1.2 History of Indian Patent Law

In India, patent rights for invention have always been the creation of statutes of Indian

~egislature.~" India's patent law is a legacy of its British past. The first Act regarding

patent rights was passed in 1856 (Act VI of 1856). It granted certain exclusive

privileges to inventors for a period of 14 years. It was modeled on the same lines as

the British Patents Act of 1852.~' The Act of 1856 was repealed in 1857, because it

had not received the consent of the Council of Directors of the East India ~ o r n ~ a n ~ . ~ ~

This Act was re-enacted with modifications under Act No. XV of 1 8 5 9 . ~ ~ Thus the

real legislative story begins with the "Act for granting exclusive privileges to

inventors" of 1859."' Under this Act an inventor by filing a specification of his

invention could obtain patent rights of making, selling and using the invention in

India for a period of 14 years from the time of filing such specification. This Act was

followed by the Patterns and Design Protection Act in 1872; and in 1883 the

Protection of Invention Act was passed. These Acts were consolidated by the

Inventions and Designs Act of 1888 and later by the Indian Patents and Designs Act

of 191 1 (Act I1 of 191 1) which replaced all the previous ~ c t s . ~ ' When India became

independent the governing legislation that was in force was the Indian Patents and

Designs Act. 191 1 .'?

- 25 India: Patents (US), suprn note 4. This was also the first case in which, India was tested vis-a-vis its commitments to WTO " P.Narayanan, .supnr note 21, p.4. (Also see E.C.Onnond, The Law of Patents in India (Calcutta: Eastern Law House, 1936)). '' Id. (Also see S. Chandrasekharan, Patent System in India and filing Procedures, Seminar on intellectual Property Rights (Chennai: Anna University, 1998) p.28. 2% Rajeev Dhavan, Lindsay Haris and Gopal Jain, "Whose Interest? Independent India, Patent Law and Policy", in National Working Group on Patent Laws, Conquest by Patent: On Patent Law and Policy (New Delhi: National Working Group on Patent Laws), I. Patent Laws, I. 29 Narayanan, supra note 21, p.4. 30 Dhavan, et.al., mpru note 28, p. " Id. (Also see Narayanan, supra note 21, p.4). The 191 1 Act provided a patent term of 16 years. 12 However, significant amendments were made to this Act like Indian Patent and Design (Amendment) Act (VII of) 1930, the Indian Patent and Design (Amendment) Act (IX of) 1945 (see Dhavan, et.al., suprtr note 28).

In 1948 the Government of India appointed the Patents Enquiry Committee headed by

Dr. Bakshi Tek Chand. It was supposed to review the patent law in India.

The Patents Enquiry Committee Report 1948-1950

The Patents Enquiry Committee was appointed by the Government of India to

examine the work~ng of Indian patent system and the then existing patent legislation.

The committee was also asked to suggest measures for improving Indian patent

system so that national interest could be encouraged by invention and their

commercial development could be fostered.33 The Committee was presided by Dr.

Bakshi Tek Chand, a retired judge of the High Court and a member of the Constituent

Assembly .The committee consisted of six other member^.'^

The Committee after making a study on the legislative history of patent laws in

~ n d i a ~ ~ had examined the existing Indian laws and statistics on the patent applications

that were made3%ased on these laws. A cross-national study of the patent laws that

existed worldwide was also undertaken."

The Committee submitted an interim report in August 1949. It suggested an

immediate amendment to the Patents and Designs Act, 1999. These suggestions,

which were intended to prevent the misuse or abuse of patent monopolies in India

through compulsory licensing, were much similar to the recommendations made by

the Swan Committee in ~ n ~ l a n d . ~ ' Accordingly, the Government of India accepted

the recommendations and amended Sections 22, 23 and 23A to 23G of the Indian

Patents and Designs Act, 1911 (vide Act No.32 of 1950). The final report was

submitted on April 1950.

'' Government of India, The Putents Report ofEnquiiy Committee (1948-50) (Delhi: Government of India, 1950) p.l

he other members lncluded two lawyers fromCalcutta (S.M.Basu and N.Barwell), two industrialists (G.Bewoor from Tata Industries and S.P.Sen from the Bengal Chemical and Pharmaceutical Works), an ex-army Major General (S.S.Sokhey) and a civil servant (K.Rama Pai), who had 28 years of experience of the working of the patent system as Member-Secretary (See id..,pp.l-2). 31 Id., pp. 11-33. '' ld.,pp. 121-136. '- Id., pp. 5-10. '* The Labour Government of Great Britain has appointed Deparhnent Committee under the Chairmanship of Sir Kenneth R. Swan (a distinguished Patent attorney). This Committee was asked to suggest desirable recommendations to change the Patents and Designs Act. The Committee submitted two interim reports in 1945 and 1946 and a fmal report in 1949. The U.K. Government made changes to its patent law by passing the U.K. Patents Act of 1949.

Regarding inventions, which were capable of patenting, the Committee held that a

"wider meaning" should be given to invention. It should include inventions that were

capable of application for industrial uses even if they were concerned with "process"

only. But substances prepared or produced by chemical processses or intended for

food or medicine were not patentable, except when they were made by the intended

processes; so were inventions which were contrary to law or mortality . An invention

to be "useful" should make a technical advance on the existing stock of knowledge.39

The Committee strongly supported India joining the International Convention for the

Protection of industrtal Property. This was because of the avowed objective of the

Convention to confer "priorities". Thus any person who first applies for a patent in

any of the member-states would be entitled to claim patent rights in other member

states from the date of the application made in the state of origin. The Committee

observed:

Indtan inventors who seek to obtain patents in foreign countries are at present

hand~capped for want of this priority.40

But the Ayyangar Commission criticised this suggestion.41 The reason that motivated

Chand Committee to made such a suggestions was, in fact, a reflection of "general

mood to be internationalist at a time when so many other initiatives were espoused in

respect of the United Nations, International Court of Justice, GATT and so on."42

A bill to give effect to the recommendations of the Patents Enquiry Committee Report

was introduced in the Lok Sabha as Bill No. 59 of 1953. It was not proceeded with

and it lapsed with the dissolution of Lok Sabha. But the Bill generated a great debate

on Indian patent law. Subsequently, the Government of India entrusted a two-

member Committee headed by Justice Ayyangar to make recommendations on the

revision of patent law.

Ayyangar Committee"

19 Chand Committee. supra note 33, pp. 65-66. ' O Id.. ~ .110 . . . II Justice N. Rajagopala Ayyangar, Report of the Revision of the Patents Law (Delhi: Government of India, September 1959). '"ajeev Dhavan, "A Monopoly by Any Other Name: An Introduction" insupra note 28, p.8. 13 Ayyangar Committee, xupru note 41

The report contained two parts. The first part consisted of the general aspects of

patent system, evils that beset the Indian patent system, recommendations that were

needed to the Lndian patent laws, etc. The second part was in fact, a clause by clause

analysis of the lapsed Bill of 1953 and the requisite changes, which should be made to

this Bill.The Report has also made a detailed examination of the Patent Committees

and legislation in the U.K., Australia and Canada to arrive at its conclusions. The

Committee was of the opinion that it would not be possible to relate industrial growth

of any country to its patent system. After analysing various patent systems operating

in different nations, the Commission concluded that there was no "sufficient

justification" to alter a century-old Indian patent law44. However, the Commission

called for minimising the abuses of a patent monopoly by defining inventions

precisely and by making certain invention which could retard research, industrial

progress and national health n ~ n - ~ a t e n t a b l e . ~ ~ The Commission also suggested

remedies against foreign-owned patents that were not worked in the country leading

to the blockage of industrial growth and preservation of import monopoly in this

country.

The Commission did not endorse the Patents Enquiry Committee's perception

regarding the desirability of India joining the International on vent ion.^^ Instead, it

held that due to this existence of wide economic gap between the developed and

developing member nations of the International Convention, the continued existence

of the Convention would retard the development of backward territories. Besides, the

Convention would become an instrument in the hands of economically powerful

nations to defend their monopolies.47 Despite the existence of a considerable latitude

for the operation of municipal laws, the Convention's Articles related to patents were

more suited to the industrially advanced nations than to the under-developed

countries. 48

The Commission thus recommended multilateral treaties for reciprocal arrangements.

This would serve Indian interests better than joining the convention, because 90

percent of the patents on the Indian register then belonged to foreigners. Hence, if

4 1 Id., paras 39-43 " Id., para 44. 46 See Chand Comi t tec , supvu text 40. 47 Ayyangar Committee, suprrz note 41, para 305 '"Id., para 306.

securing pnority rights for Indian inventors were the sole objective, it could be

attained by "entering into treaty arrangements on reciprocal grant of priorities".49

Consequently, the existing Indian laws could be kept intact.However, the Commission

made recommendations regarding the desirability of India joining the International

Convention regarding trader nark^.^^ But such a perception was kept confined to the

law relating to trade marks and unfair trade competition."

It took almost twenty-two years after the Chand Committee for the Indian Parliament

to give shape to a comprehensive patent law. This much time was sufficient for the

Indian parliamentarians, lawyers and others to get enlightened on the pertinent issues

associated with patents. Constructive debates took place in Parliament. Bills

regarding patents were introduced in 1 9 6 5 ~ ~ and 1967.'~ Both these bills were

referred to the Joint Committee of the Parliament.

It was this long gestation period of two decades in India's patent legislation finally

paved the way for the Patents Act 1970.

The Patents Act 1970

The Indian Patents Act passed in 1970 consisted of 163 Sections contained in twenty-

three chapters. The Act says that a patent can be obtained only for an invention. An

"invention" means any new and useful -

(i) art, process, method of manner of manufacture;

(ii) machine, apparatus or other article;

(iii) substance produced by manufacture and includes any new and useful

improvement of any of them, and an alleged in~ention. '~

Inventions not Putentuhle

The Act says that an invention,55 which is frivolous or contrary to law or morality or

injurious to public health; a mere discovery of a scientific principle or any new

10 Id., para 308. 5" Id., paras 86-87. 5 1 Id., para 306. '' Bill No.62, The Patents Blll 1965 (Gazette Text, Part 11, Section 11, 21 September, 1965). 5 In 1967 another bill was introduced to amend and consolidate the laws o f patents along with the Patents and Designs (Amendment) Bill, 1968. 51 Patents Act. 1970. Act No.39 of 1970 [[hereinafter 1970 Patents Act], Section 2 (I) (1).

property; a mere arrangement or rearrangement or duplication of known devices; any

process for the medicinal, surgical, curative prophylactic or other treatment of human

beings, animals or plants -- is non-patentable. Inventions relating to atomic energy are

also excluded from patentability.56 Similarly, Section 5" says that in the case of

inventions:

(a) cla~m~ng substances intended for use, or capable of being used as foods8 or medicine

or drug."' or

(b) relatlng to substances prepared or produced by chemical processes (including alloys,

optlcal glass, semi-conductors and inter-metallic compounds), no patent shall be

granted in respect of cla~ms for the substances themselves, but claims for the

methods or processes of manufacture shall be patentable.

The Act says that the term of patent for any invention shall be fourteen years from the

date of patent. However, for an invention claiming the method or process of

manufacture of food, medicine or drug the term of patent shall be five years from the

date of sealing of the patent, or seven years from the date of the patent wluchever

period is shorter.

However, a patent could be revoked by the Central Government if the central

Government is of the opinion that a patent is mischievous to the state or prejudiced to

the public.6' Similarly, the Central Government could ask the Controller of Patents to

revoke a patent, where a compulsory license or license right has been granted and the

licensee is unable to make available the patented invention to the public at a

55 Id., section 3 . 56 Id., section 4. 51 Id., section 5 . I8 Id., section 2 ( 1 ) (g) defines food as '"any article of nourishment and includes any substance intended for the use of babies, Invalids or convalescents as an article of food or drink'. 59 A wide definit~on is given to 'medicine and drugs in Section 2 (1). ( See i d , ). Thus it includes:

(i) all medicines for internal or external use of human beings or animals; (ii) all substances intended to be used in diagnosis, treatment, mitigation or prevention of

d~seases in human beings or animals; (iii) all substances intended to be used for or in the maintenance of public health, or the

prevention or control of any epidemic disease among human beings or animals; (iv) insecticides, germicides, fungicides, weedicides and all other substances intended to be

used for the protection and preservation of patents; (v) all chem~cal substances which are ordinarily used as intermediation in the preparation or

manufacture of any of the medicines or substances above referred to. 60 Id., section 53 .

Id., section 66.

reasonable price or to enable it to meet the reasonable requirements of the public even

after two years from the date of grant of such a licence.62 The Controller should

decide on such a request within one year.

Working of Parents and Cbmpulsoty Licences

Patents are granted to encourage inventions and to get inventions worked on a

commercial scale and make it available to public without delay. In fact, they are not

granted to create a monopoly for the patentee.63 Thus if the reasonable requirements

of the public regarding a patented invention are not satisfied or the patented invention

IS not available to the public at a reasonable price at the expiration of three years after

sealing, an interested party could pray for the grant of a compulsory licence.64

However, before granting a compulsory licence, the Controller should take the

following matters"' into account:

(i) the nature of invention, the time which was elapsed since the sealing of the

patent and the measures already taken by the patentee or any licencee to

make full use of the invention;

(ii) the ability of the applicant to work the invention to the public advantage;

(iii) the capacity of the applicant to undertake the risk in providing capital and

working the invention if the application were granted.

Licences of ~ i ~ h t " ' '

There are certain areas where the Controller need not have to comply with these

procedural formalities. If the Cenb-a1 Government makes an application to the

Controller and if the Controller is satisfied with the condition that reasonable

requirements of the public are not satisfied or if the patented invention is not available

at a reasonable price, he could endorse the patent with the words "Licences of right".

- - ~~p -

62 Id., section 89. 6 3 Id., section 83 that deals w~th "General Principles" reads:

(a) that patents are granted to encourage inventions and to secure that the inventions are worked in India on a commercial scale and to the fullest extent that is reasonably practicable without undue delay; and

(b) that they are not granted merely to enable patentees to enjoy a monopoly for the importation of the patented art~cle.

64 Id., section 54 on "Compulsory Licenses". 65 Id., section 85 . 66 Id.. sections 86-88

But in certain areas - food, medicine, drugs or chemical processes including alloys,

optical glass, semi-conductors and inter-metallic compounds - an automatic "licence

of right" could be granted.

If after getting a compulsory licence or licences of right two years expire, the

Controller could revoke the patents for non-working. However, for all these, i.e.,

granting compulsory licence or licences of right or revocation, it should be

demonstrated that the reasonable requirements of the public are deemed to be

satisfiedh8 and the invention is not available at a reasonable price. The second part is

easy to be quantified, but the first part, i.e., reasonable requirements of the public is

"very open e n d e d . " b u t some guidelines are provided in Section 90." Accordingly,

if the indigenous production of the patented good is prejudiced or a substantial

amount is met by importation, Section 90 could be invoked.

It is clear that the Patents Act, 1970 was intended to stimulate the indigenous Indian

pharmaceutical industry. Consequently, the multinationals were dislodged from their

<> ' Id., section 89 6X Id., section 90 reads. 6,, Rajeev Dhavan. L~ndsay Harris and Gopal Jain, 'Power without Responsibility: Aspects of Indian Patent Legislation' In supru note 28, not paged. ?il 1970 Patents Act, section 90, supra note 37, spells out reasonable requirements as follows: (a) If . . .

(i) an existlng trade or industry or the development thereof or the establishment of any new hade of indushy in India or the wade or indushy of any person or classes of persons hading or manufacturing in lndia is prejudiced; or

(ii) the demand for the patented article is not being met to an adequate extent or on reasonable terms from manufacture in India; or

(iii) a market for the export of the patented article manufactured in India is not being supplied or developed; or

(iv) the establishment or development of commercial activities in India is prejudiced; or (b) if by reason of conditions imposed by the patentee (whether before or after the commencement

of this Act) upon the grant of licenses under the patent; or upon the purchase, hire or use of the patented article or process, the manufacture, use or rate of materials not protected by the patent, or the establishment or development of any trade or indushy in India, is prejudiced; or

(c) if the patented invention is not being worked in India on a commercial scale to an adequate extent or is not being so worked to the fullest extent that is reasonably practicable; or

(d) if the demand for the patented article in India is being met to a substantial extent of importation from abroad by (i) the patentee or persons claiming under him; or (ii) persons directly or indirectly purchasing from him; or (iii) other persons against whom the patentee is not taking or has not taken proceedings for

infringement; or (e) if the working of the patented invention in India on a commercial scale is being prevented or

hindered by the importat~on from abroad of the patented article by the patentee or the other persons referred to in the preceding clause.

dominant position and became a junior partner in the industry. But the WTO's ruling

forced India to alter its municipal patent law. This is stated in the very object of the

Patents (Amendment) Act, 1999. Paragraph 8 o f the statement o f Object and Reasons

reads:

The United States of America raised a dispute against India at the WTO alleging non-

fulfillment of India's obligation in this regard. A Panel set up by the Dispute

Settlement Body (DSB) of WTO examined the allegations made by USA and

subm~ss~ons made by India and ruled that India had not complied with its obligations.

On an appeal made by India, the matter was considered by the Appellate Body of the

WTO. whlch also recommended that India take necessary steps to comply with its

obligattons. It was subsequently determined that this be done by 19' April, 1999.

Failure to comply with these obligations within the stipulated period may entail action

against lnd~a in terms of the Dispute Settlement Understanding of the WTO

Agreement 'I.

In order to fulfil these obligations the Patents (Amendment) Act, 1999 was passed.

Apparently, in tune with globalisation o f Patent Law, the Amendment Bill also

deleted Section 39'* of the Patent Act 1970, which stipulated that:

(I) No person resident in India shall, except under the authority of a written permit

granted by or on behalf of the Controller, make or cause to be made any

application outside India for the grant of a patent for an invention unless -

a. an application for a patent for the same invention has been made in India, not

less than SIX weeks before the application outside India; and

b. either no directions have been given under sub-section (1) of section 35" in

relation to the application in India, or all such directions have been evoked.

( 2 ) The Vontroller shall not grant written permission to any person to make any

appl~cat~on outs~de Ind~a without the consent of the Central Govemment.

" Patents (Amendment) Act. 1999 (No. 17 of 1999), bereinafter 1999 Amendments]. 72 Consequently, amendments related to Section 39 have been effected on Sections 40, 64 and I18 (See id .) . 1 Section 35 ( I ) reads:

Where in respect of an application made before or after the commencement of this set for a patent, it appears to the Controller that the invention is one of a class notified to him by the Central Government as relevant for defence purposes, or where otherwise the invention appears to him to be so relevant, he may give directions for prohibiting or restricting the publication of information with respect to the invention or the communication of such information to any person or class or persons specified in the direction.

(3) T h ~ s section shall not apply in relation to an invention for which an application

for protection has first been filed in a country outside India by a person resident

outs~de ind~a .

Accordingly, an Indian resident was not able to file a patent application outside India

for an invention he made in India. If he wanted to file a patent application outside

India, h e should seek the permission o f the Controller after getting a patent in India.

Now this section is no more in Indian Patent Law. This provision, in effect, targeted

national defence for the provision applied to space technologies, strategic

technologies, and defence t e c h n o ~ o ~ i e s . " ~

But the Act has a new section i.e., section 157-A exclusively relating to the protection

o f security o f India as well. It states that the Central Government shall

(a) not disclose any information relating to any patentable invention or any

applicat~on relating to the grant of patent under this Act, which it considers

prejudicial to the interest of security of India;

(b) take action including the revocation of any patent which it considers necessary in

the rnterest of security of India."

6.1.3 The Patents (Amendment) Act, 1999

To fulfil India's obligations vis-8-vis WTO's ruling on Articles 70.8 and 70.9'~ of the

TRIPS Agreement, an amendment had to be made in its Patent Act, 1970.

~ ~~

74 Prithivraj D. Chavan, Combined discussion regarding disapproval of the Patents (Amendments) Ordinance, 1999 and passing of the Patents (Amendment) Bill, 1998 (hereinafter Lok Sabha Debates) XI1 Lok Sahha Debates, Session IV (Budget), Tuesday, March 9, 1999. 75 There is a similar section in TRIPS Agreement as well. Article 73 reads:

Nothing in this Agreement shall be construed: (a) to require a Member to furnish any information the disclosure of which it considers

contrary to its essential security interests; or (b) to prevent a Member from taking any action which it considers necessary for the

protection of its essential security interests; (i) relating to fissionable materials or materials from which they are derived; (11) relating to the traffic in arms, ammnnition and implements of war and to such

traffic in other goods and materials as is carried on directly or indirectly for the purpose of supplyng a military establishment;

(iii) taken in time of war or other emergency in international relations; or (c) to prevent a Member from taking any action in pursuance of its obligations under the

United Nations Charter for the maintenance of intemational peace and security. 76 TRIPS Agreement, Articles 70.8 and 70.9, supra note 1, read:

8. Where a member does not make available as of the date of entry into force of the WTO Agreement patent protection for pharmaceutical and agricultural chemical products commensurate with its obligations under Article 27, that Member shall:

Accordingly, for the implementation of obligation regarding Article 70.8 a "means"

by which application for patents on pharmaceutical and agricultural chemical products

could be made; for implementing Article 70.9, India should have granted exclusive

marketing rights for such patent application till 31 December 2004.

This was done by including Chapter IV A (Exclusive Marketing Rights). Up till the

amendment, India did not grant product patents for pharmaceuticals, food or

substances produced by chemical processes (Section 5, the Patents Act 1 9 7 0 ) . ~ ~ After

WTO' s ruling in India-Patents cases, a new clause was added to section 578, the

Patents Act 1970. (Section 5 of 1970 Act says that inventions capable of being used as

food, medicine, drug or relating to substances produced by chemical processes are

non-patentable. In these cases only methods or processes of their manufacture are

patentable.) But the addendum to Section 5 makes this redundant. The new insertion

reads:

. . . a c l a ~ m for patent of an invention for a substance itself intended for use, or capable

of being used, as medicine or drug, except the medicine or drug specified under sub-

clause (v) of Clause (I) of sub section (i) of Section 2,79 may be made ."

This insertion (i.e. Clause 2) should be read along with Article 24-A (Application for

grants of exclusive rights) and Article 24-B (Grant of exclusive rights). Article 24-A

authorises the Controller to hold an application for patent till December 31, 2004. He

I S not supposed to grant patent rights during this period. But he shall provide

(a) notwithstanding the provisions of Part VI, provide as from the date of entry into force of the WTO Agreement a means by which applications for patents for such inventions can he tiled:

(b) apply to these applications, as of the date of application of this Agreement, the criteria for patentability as laid down in this Agreement as if those critieria were being applied on the date of filing in that Member or, where priority date of the application; and

(c) provide patent protection in accordance with this Agreement as from the grant of the patent and for the reminder of the patent term, counted from the filing date in accordance with Article 33 of this Agreement, for those of these applications that meet the criteria for protection refel~ed to subparagraph @).

9. Where a product is the subject of a patent application in a Member in accordance with paragraph 8(a), exclusive marketing rights shall be granted, notwithstanding the provisions of Part IV. for a period of five years after obtaining marketing approval in that Member or until a product patent is granted or rejected in that Member, whichever period is shorter, provided that, subsequent to the entry into force of the WTO Agreement, a patent application has been filed and a patent granted for that product in another Member and marketing approval in such other member

- 7 See wpra notes 57-59 for a deta~led d~scuss~on. 3 See supra text 57 79 1970 Patent., Act , clause ( I ) of subsect~on ( I ) of Sechon 2, see supra note 59

exclusive marketing rights to the product. This means that Section 24-A has two parts.

The first part says that no patent shall be given to medicine or drugs till December 31,

2004; but the Controller shall keep the patent application till the end of transitional

period provided to developing countries; the second part says that exclusive

marketing rights, i.e., r~ghts to sell or distribute the product in question, shall be given

to such patent applications. The Controller is to refrain from providing EMRs if the

invention is ftivolous or contrary to law. Similarly, EMRs could not be given to

inventions related to atomic energy. The section also stipulates that an application for

EMR shall be made in a prescribed form .*'

Article 24-B, in fact, establishes the relationship between Indian patent system and

international convention. Accordingly, EMRs are granted to those inventions that

have received patent rights in any other convention country. Consequently, an

invention that has received patent in any other WTO member nation would be able to

get EMRs(i.e., right to sell or distribute and not to manufacture) till 31 December

2004.82 Howeer, EMR s shall not be available to medicine or drug specified under

sub-clause(v) of Clause(1) of subsection (i) of Section 2.

-

XO Inserted by 1999 Amendments, supra note 71. Section 2 (with effect from Is' January 1995). X I Id., section 24-A, reads:

Appiicut~onfOr grunt of exciusive rights: Notwithstanding anything contained in sub-section (1) of Section 12, the Controller shall not, under that sub section, refer an application in respect of a claim for a report till the 3 1'' day of December 2004 and shall, where an application for grant of exclusive right to sell or distribute the article or substance in India has been made in the prescribed form and manner and on payment of prescribed fee, refer the application for patent, to an examiner for making a report to him as to whether the invention is not an invention with the meaning of this Act in terms of Section 3 or the invention is an invention for which no patent can be granted in terms of Section 4.

" Section 24-B, supra note reads: Grunt (?fexrlusrvr Rights: (1) Where a claim for patent covered under sub-section (2) of Sec. 5 has been made and the applicant has,-

(a) where an invention bas been made whether in India or in a country other than India and before fillng such a claim filed an application for the same invention claiming identical article or substance in a convention country on or after the 1'' day of January, 1995 and the patent and the approval to sell or distribute the article or substance on the basis of appropriate tests conducted on or after the 1" day of January, 1995, in that country has been granted on or after the date of making a claim for patent covered under sub-section (2) of Sec. 5; or

(b) where an invention has been made in India and before filing such a claim, made a claim for patent on or after the Is' day of January, 1995 for method or process of manufacture for that invent~on relating to identical article or substance and has been granted in India the patent therefore on or after the date of making a claim for patent covered under sub-section (2) of Sec. 5 and has recelved the approval to sell or distribute the article or substance from the authority specified in this behalf by the Central Government, then he shall have the exclusive right by himself, lus agents or licensees to sell or distribute in India the article or the substance on and from the date of approval granted by the Controller in this behalf till a period of five years or

Article 70.8 of the TRIPS Agreement and Section' 24-A of the Amendment Act, 1999.

Section 24-A clearly stipulates that the Controller shall not grant patents for a claim

under sub-section (2) of section 5; however, he would keep the application till 31''

day of December 2004. This grace period is in accordance with Article 65.2 and 65.4

of the TRIPS ~greement . '~ For such applications, the Controller shall provide EMRs

to sell or distribute the article in question. But EMRs, should be given only to those

claims that do not come under sections 384 and 4.85 However, an application to this

effect shall be made in a prescribed form and manner and on payment of prescribed

fee." And if it is decided by the Controller to grant EMRs, it should be in a manner

as provided in Section 24 0.

Thus Section 24-A creates a "mail box system" or "means" as required by Article

70.8 which states that a country that was not providing patent protection for

pharmaceutical and agricultural products should provide "a means by which

applications for patents for such inventions can be filed".

Article 70.9 of the TRIPS Agreement and Section 24-B of the Amendment Act, 1999

Article 70.9 states that for an application claiming patent protection for

pharmaceutical and agricultural chemical products in a country that is availing

transitional benefits, exclusive marketing rights could be granted for five years. This

till the date of grant of patent or the date of rejection of application for the grant of patent, whichever is earlier. (2) Where the specifications of an invention relatable to an article on a substance covered under sub section (2) of Section 5 have been recorded in a document or the invention has been tried or, used, or, the article or the substance has been sold by a person, before a claim for a patent of that invention is made in India or in a convention country, then the sale or distribution of the article or substance by such person, after the claim referred to above is made; shall not be deemed to be an infringement of exclusive right to sell or distribute under sub (I). Provided that nothing in this sub section shall apply in a case when a person makes or uses section an article or a substance with a view to sell or distribute the same. The details of invention relatable thereto were given by a person who was holding an exclusive right to sell or distribute the article or substance.

" When the WTO Agreements took effect on 1 January 1995, developed nations were given one year to promulgate law and practices that conform with TRIPS Agreement. Developing countries along with countries in the process of transformation from a centrally-planned to a free-enterprise economy would have a five year transition period; and the least developed countries would get a 11 year transition period.Developing countries that do not have a product patent regime would get an additional five years (i.e. ten years ;n toto) to provide patent protection. However, in such cases they should accept the filing of patent applications for pharmaceutical and agricultural chemical products From 1 January 1995. (See TRIPS Agreement, Article 65 on "Transitional Arrangements", supra note I.) "4 Section 3, supra text 55 i s Section 4, suprn text 56. I b 1999 Amenrlmml.~, section 24-A, supra note 71. For textual treatment of section 24-A see supra text 63

Article was elaborated in the India-Patents Case case as well. Accordingly,

the conditions that need to be satisfied for obtaining EMRs for a product are as

follows:

(a) A mail box application has been filed in India in respect of a pharmaceutical or

agr~cuitural chemical product;

(b) A patent application has been filed in respect of that product in another WTO

member after i January 1995;

(c) The other member has granted the patent;

(d) The other member has approved the marketing of the product; and

(e) India has approved the marketing of the product

[ndia complied w ~ t h its TRIPS obligations under Article 70.9 by inserting section 24-

B that dealt with granting of EMRs. Thus EMRs are granted for claims for patents

covered under sub-section (2) of section 5, if

(a) a patent has been granted for such products in a convention country on or after the lsl

day of January, 1995 and an approval to sell or distribute the patented article is

granted there

(b) a mail box application for patent is filed in India on or after 1'' January 1995 for a

product under sub section (2) of Section 5.

EMRs are granted for a period of five years. EMRs would enable the person, his

agents or licencees to sell or distribute a product in India for a period of five years or

till the date of the grant of patent or till the date of rejection of application for the

grant for patent, whichever is earlier.However, the Central Government is authorised

to seal or distribute the article or substance where an EMR is granted under Section

24-B if it is necessary for the protection of public interest.

6.1.4 Analysis

By incorporat~ng Chapter IV-A in the Patents Act, 1970, the Amendment Act 1999

has substantially altered the basic structure of Indian patent law. The major criticisms

that are often levelled against these amendments include the absence of sufficient

safeguards to preserve public interest, lack of adequate debates in both Rajya Sabha

(7 WTO Panel, lndru Patrntr Case (US), supra note 4, para 7.60.

and Lok Sabha, altenng the structural framework of federalism by infringing upon the

powers guaranteed to states, inadequate provisions for compulsory licensing, etc.

Perhaps the most debated issue in the Amendment Act, 1999 is the absence of a

clause relating to proper examination of an application for EMR by the Indian

authorities before granting the same. Thus an EMR could be granted for an invention

if it does not come under Section 3 or Section 4.88 Most of criteria that were set forth

in granting in EMRs in India were external to this country. 89 Thus India has to grant

EMRs if a patent is granted in a convention country and market approval is granted in

that country. These conditions could be easily achieved in Burkina Faso, Tunisia,

Zambia or even in America because America has a very liberal patent regimcgO Thus

if a company gets a patent in a convention country it can get EMRs in other nations.

"without any security and without any control over them". Consequently, the EMRs

become "unfettered statutory import monopolies with no obligation for manufacture

or any obligation for transfer a technology".y'

To avail a patent, one has to meet the three criteria for an invention, i.e., they are new,

involve an inventive step and are capable of industrial application.92 And patent gives

the patent holder three rights: the right to manufacture, sell and distribute; whereas

EMRs only give right to sell and distribute. In India, patents are given after a careful

examination, which is enumerated under Chapter IVY3 and Chapter v~~ of the Patents

Act; whereas before granting EMRs such an examination under the chapters are not

inc~uded.~'

Of course, there is a safeguard by incorporating Section 24 C that deals with

"compulsory licences". But it has been dubbed as "a bogus safeguard, hocus-pocus

~

*X 1970 Patenr c r , section 3 sets forth clauses that deal with 'What are not Inventions' and Section 4 deals with atomic energy, which is not patentable. However, TRIPS Agreement itself excludes patent protection for invention "relating to fissionable materials or the materials from which they are derived. 89 India Patenr (use /US). supra note 4 (Also see supra text 87). "' Prithivraj D. Chavan, Luk Sabha Debates, supra note 74 .

'I2 TRIPS Agreement, Article 27 , supra note 1 . " Chapter IV on "Examination of Application" contains thirteen sections that deal with examination of patent application, powers of Controller, effect of acceptance etc. (See 1970 Patents Act, sections 12- 24, supra note 37, ). 'I4 Chapter V on "Oppos~tion to Grant of Patent" contains four sections (See id., sections 25-28) '" Lok Sabha Drhnte.5. suDrr1 note 7 4 .

safeguard, deceptive safeguard and untenable safeguard"96 because the compulsory

licence section as contained in section 24C apply in relation to an "exclusive right to

sell or distribute" and not to manufacture. Consequently, protection is provided to

foreign nationals alone."' Section 24C (a)(i) stipulates that the "working of an

invention shall he deemed to be selling or distributing of the article or substance".

There was no provision for transfer of technology as stated in Article 7 of the TRIPS

~greement" for a provision for local working of patents; but only an "unfettered right

to import".'" Thus it becomes an "epic example of egregious exploitation through

intellectual tyranny".""' Consequently, the government's right to control pricing

through Drugs Prices Control Order (DPCO)"' became ineffective, for DPCO could

be effective only against local drugs.'02

The Patents Act, 1970 was instrumental in controlling drug prices in India. For

example, ten tablets of 150 mg dose of Ranitidine Zantac costs Rs.7.17 in India; in

Pakistan it costs Rs.122.16; in the United Kingdom it costs Rs.320.85 and in the

United States, these ten tablets cost ~ s . 7 3 0 . 6 2 . ' ~ ~ Thls wide disparity is because of the

absence of product patent and the consequent reliance of Indian manufacturers on the

process of reverse engineering. Now this process would be reversed

The Act also sidelined the Standing Committee Report on ~ o m m e r c e . ' ~ ~ This 45 -

Member Committee unanimously decided that before presenting the Bill before the

two houses, the Report of the Committee should be discussed threadbare. It also

recommended that the state governments should also be consulted with because

pharmaceuticals and agrochemicals came under their purview as per the State List in

Seventh Schedule. Besides, it was also stated that advice and opinions of a wider body

of experts, lawyers and scientists should be solicited.

- ~ --

9" S.Jaipa1 Reddy, Lok Sabhu Debates dated 10 March 1999. (Also see: Chavan, Lok Sabha Debates dated 9 March 1999) supra note 74 . 9' Varkala Radhakrishnan, Lok Sabhu Debates, dated 9 March 1999, id. 9X Article 7,TRIPS Agreement reads:

The protectlon and enforcement of intellectual property rights should be contribute to the promotion of technological innovation and to the transfer and dissemination of technology, to the mutual advantage of producers and users of technological knowledge and in a manner conducive to social and economic welfare, and to a balance o f rights and obligations.

V'i Chavan, suprn note 74. tilo Reddy, id "'I Ministry of Chemicals and Fertilisers 1112 Chavan, supru note 74. "" T.R.Balu. Lok Sr~hho Debates, dated 10 March 1999, id.

id.

Surprisingly, the Forum of Parliamentarians on Intellectual Property that consisted of

Dr. Murali Manohar Joshi, George Fernandes and others who were against the bill,

have brought the bill.lu?n a passionate speech before the Lok Sabha, S. Jaipal Reddy

from the Congress (1) lamented:

. . . this is a Bill which is being enacted by the House against the heart of the House.

Therefore, I can think of no other legislation in this country that has such a precedent

or a parallel. We have enacted many controversial Bills over which the House was

intellectually div~ded. But now the House is ideologically unified and politically

divided. None of these things that the TRIPS treaty represents a positive or some even

a mixed package for us. It is almost an unmixed evil, an unmixed curse and we are

prepared to swallow this bitter medicine as a nation. That is what is agonizing. When

the hon. Minister talks of provision of compulsory licencing, I would call this a piece

of compulsory legislation We are compelled to legislate. Can there be anything more

humiliating than that?'Ob

The debates that took place in the Indian legislature clearly demonstrated that hearts

of the parliamentarians, irrespective of their party lines, were all against amending the

Patent Act 1970 which was framed in such a way wherein "medical discoveries would

be free of patents and there will be no profiteering from life or death".'07 But still the

Parliament was forced to pass legislation in a hurry to abide by the WTO' s

determination to amend Indian patent law before April 1999, which manifested that

WTO has become a de,facto world government in respect of commerce and trade.

And if Indian Parliament did not pass the legislation, it would have enabled the

United States and the European Communities, the complainants in India-Patents

cases to receive DSB authorisation to impose retaliatory measures against India. This

was exactly what happened when the European Communities failed to implement

WTO rulings in the banana case. Here Ecuador was authorised by the DSB to

retaliate against the EC. Since WTO authorises cross-retaliation Ecuador decided to

retaliate in the TRIPS sector. The effectiveness of TRIPS as a tool of retaliation is

examined below.

6.2 TRIPS as a tool of retaliation .. .-

l o ' Raghuvansh Prasad, Lok Sabha Debates, dated 10 March 1999, supra note 74 '06 Reddy, Lok Sabha Debates, dated 9 March 1999, id. lo' Indira Gandhi, 1981

In this section, decision of WTO Arbitration regarding European Communities

Regime for the Importution, Sale and Distribution of ana an as'^^ is examined

apparently because of the following reasons.'09

(a) It is the first time the WTO has authorised trade retaliation affecting the

protection of intellectual property rights;

(b) It is the first time that a developing country gets WTO authorisation to

impose retaliatory measures;

(c) It is also the first time that WTO allowed "Cross-retaliation".

6.2.1 Background

The parties to this dispute were Ecuador, the complainant and the European

Communities, the defendant."' Ecuador's population is 12 million, whereas that of

EC is 375 million. Ecuador's share of world merchandise trade is below 0.1 percent,

while the EC's world merchandise trade share is approximately 20 percent. Ecuador's

GDP at market price in 1998 was US $20 billion and that of 15 EC member states was

US$ $7,996 billion. The per capita income of Ecuador in 1998 was US $1600,

whereas EC's GDP per capita is US $22,500.

The economy of Ecuador revolves around the banana sector. It is the largest exporter

of bananas in the world and the largest exporter to the European market. Banana

production is the largest source of employment. It is also the largest source of foreign

earnings. Approx~mately 11 percent of Ecuador's population depends on this sector.

Banana product~on represents nearly 5.2 percent of the GDP and its exports (in goods

only) is nearly 25.45 percent of Ecuador's total merchandise exports.'"

These facts clearly demonstrate the extremely asymmetrical nature of trade

relationship that exists between the two disputants - the European Communities and

Ecuador.

1 #I8 Andrew S.B~shop, The Second Revolution in International Trade: Ecuador goes Ape in Banana Trade War w~th European Un~on', International Legal Perspectives, Fall 2001lSpring 2002. I n9 Arbitration, European Communities: Regime for the Importation, Sale and Distribution of Bananas WTO Doc., WT DS27/ARB/ECU, dated 24 March 2000. 110 Id., para 125. I , Iri., para 129.

EU's failure to implement the AB's recommendation induced Ecuador to move to

DSB seeking its authorisation to suspend concessions or other obligations under the

TRIPS Agreement, the GATS and GATT 1994 in an amount of US $450 milliontt2

under Article 22.2 of the DSU."~ Ecuador announced that if DSB authorised

suspension of concessions, Ecuador would apply this against 13 of the EC member

states. European Communities contended that the amount of suspension of concession

proposed by Ecuador was excessive. It also alleged that Ecuador failed to follow the

principles and procedures set forth in Article 22.3 of DSU"~ that deals with cross

sectional retaliation. The DSB referred the matter to arbitrat i~n."~

6.2.2 The Jurisdiction of Arbitrators

The measures in dispute were regarding the revised EC - banana regime as contained

in EC Regulation 1637198 and 2362198, which entered into force on 1 January 1999.

Based on the panel report. the EC revised its banana regime; but that too was found

inconsistent with Articles 1 and XI11 of GATT and Articles I1 and XVII of GATS."~

It was the jurisdiction of Arbitrators to determine: (i) whether the level of suspension

of concessions or other obligations requested was equivalent to the level of

nullification; (ii) whether the principles of procedures concerning the suspension of

concessions or other obligations across sectors and/or agreements pursuant to Article

22.3 of the DSU were followed."' Accordingly, the minimum requirements for a

request for authorisation of suspension of concessions or other obligations pursuant to

Article 22.2 of the DSU must contain a specific level of suspension and should

specify the agreement and sectors under which concessions would be suspended."*

(i) Level of Suspension

112 Id., , para 1 . i l l DSU, Art~cle 22.2. supr-u uote 3. 114 Id., Article 22.3 reads: 115 Members of the arbihat~on panel were Stuart Harbinson (Chairman), Kym Anderson and Christian Baberli (Members j. ' I 6 Arbitration, suprn note 109, para 14. 117 Id., para I I . I18 E C Hormu~rs case wh~ch sets the minimum requirements as follows:

(i) the quest must set out a specific level of suspension, i.e. a level equivalent to the nullification and ~mpairment caused by the WTO - inconsistent measure, pursuant to Article 22.4; and (iij the request must specify the agreement and sector(s) under which concessions or other obligations would be suspended to Article 22.3

(Quoted in Arbination, supro note 109, para 21).

To meet the first minimum requirement, Ecuador set out the specific amount of US $

450 million as the level of proposed suspension of concessions or other ~ b l i ~ a t i o n s . " ~

However, it added that the direct and indirect harm and macro economic repercussion

of its entire economy amount to altogether US $1 billion.

But the arbitrators concluded that Ecuador could obtain authorisation by the DSB to

suspend concessions or other obligations of a level not exceeding US $201.6 million 120 per year.

(ii) Principles and Procedures

Article 22.312' of DSU enumerates the principles and procedures to be followed for

trade retaliation. Thus the complaining party should first seek suspension of

concessions in the same sector(s), where nullification or impairment was found. If it

was not effective it should seek suspension in other sectors under the same

agreement; and if this was also not effective and the circumstances are serious enough

suspension could be brought under another covered agreement.

The report of the reconvened panel in this dispute found the revised banana regime of

EU to be inconsistent with Articles 1IZZ and XII '~' of GATT as well as Articles 11"~

and ~ ~ 1 1 ' ~ ~ of GATS with respect to EC's commitments on wholesale trade services

within the sector of distribution services.'26

' I q I d , para 22. l Z 0 Id., para 173. "I See suDra note 114 for textual treatment of Article 22.3 of DSU -

122 GATT Article on General Most-Favoured-Nation Treatment says: With respect to customs duties and charges of any kind imposed on or in connection with importation or exportation or imposed on the international transfer of payments for imports or exports, and with respect to the method of levying such duties and charges, and with respect to all rules and formalities in connection with importation and exportation, ...any advantage, favour, privelege or immunity granted by any contracting party to any product originating in or destined for any other country shall be accorded immediately and unconditionally to the like product originating in or destined for the territories of all other contracting parties

I" This Article enables a Meber to impose restrictions on imports to "safeguard its external financial position and its balance of payments" However, such restrictions shall not damage the commercial or economic intersts of other members or unreasonably prevent the imports.( See GATT ArticleXII OM "Restrictions to Safeguard the Balance of Payments".) 124 Article 11: 1 on Most-Favoured-Nation Treatment reads:

With respect to any measure covered by this Agreement, each Member shall accord immediately and unconditionally to services and service suppliers of any other Member treatment no less favourable than that it accords to like services and service suppliers of any other country.

I z 5 Article XVII on Nurional Treatment reads

Ecuador requested the suspension of concessions in the following orders:

(a) Trade in services12'

Ecuador proposed to suspend the following subsector in its GATS schedule of

specific commitments:

B. Wholesale Trade Services (EPC 622)

Regarding intellectual property rights Ecuador specified the following categories set

out in Part I1 ofthe TRIPS Agreement:

Section 1: Copyright and related rights, Article 14 on "Protection of

performers and producers of phonograms (sound recordings)

and broadcasting";

Section 3: Geographical Indications;

Section 4: Lndustrial designs.

Ecuador did not seek withdrawal of concession in the goods sector.lZ9 The EC

alleged that while seeking suspension of concession, Ecuador failed to follow the

principles and procedures.'30

6.2.3 Findings of the Arbitration

The arbitrators rejected the contention of the European communities stating that

owing to the existence of considerable economic differences between a developing

WTO Member and the world's largest trader, suspension of commitments under

~ ~

1. In the sectors mscribed in its Schedule, and subject to any conditions and qualifications set out therein, each Member shall accord to services and service suppliers of any other Member, in respect of all measures affecting the supply of services, treatment no less favourable than that it accords to its own like services and service suppliers 2. A Member may meet the requirement of paragraph 1 by according to services and service suppliers of any other Member, either formally identical treatment or formally different treatment to that it accords to its own like services and service suppliers. 3. Formally identical or formally different treatment shall be considered to be less favourable if it modifies the conditions of competition in favour of services or service suppliers of the Member compared to like services or service suppliers of any other Member.

"" Arbitration. supra note 109, para 62. 127 Iri, para 3. '2R Id., para 4~

Id., para 2 .

GATT of GATS alone would not be "practicable or effective".13' Hence Ecuador was

authorised to cross-retaliate.

6.2.4 Why TRIPS turned out to be the best tool of retaliation

Retaliation in Goods:

In its submission, Ecuador had made a distinction between "primary" and

"investment" goods on the one hand, and "consumer" goods on the other. Ecuador

argued that its imports of primary and investment goods amount to approximately 85

percent.'32 Consequently, suspension of concessions regarding the goods was not

practicable and effective for they were used as inputs in the domestic manufacturing

process.'" Similarly, imposing prohibitive tariffs on EC imports of such goods would

increase the cost of domestic production and would harm Ecuador more than the

European communitie~."~ Besides, Ecuador, being a developing country, accounts

for a negligible proportion of the EC's exports of those goods, the suspension of

concessions would only have a negligible effect on EC exports.'35

Retaliation In Services

Regarding GATS within the sector or distribution services Ecuador proposed r , 136 suspension of concession, only in "wholesale trade services . According to the

Services Sectoral classification List, the principal sector of distribution services

comprises the subsectors of "commission agents' services", "whole trade services", 7, 137 "retailing services", "franchising" and "others . Ecuador entered into specific

commitments on market access or national treatment only on "wholesale trade

services" and hence it could propose retaliation only in this sector, which was not

effective or practicable.

.

""d., para 67. 13' Id., para 126. "' Id., para 89. I33 Developing countries demand for capital goods (see Raul Prebish, etc.) 134 Arbitration . supra note 109, para 91 "I Id.. para 95. However, with respect to consumer goods the arbitrators held that Ecuador has not followed the pr~nciples and procedures of Article 22.3 in considering suspension of concession on consumer goods is not practicable or effective. Here, Ecuador argued that its import is only 15%. Arbitrators decided that Ecuador could not conclude that suspension in this area was not effective. 13' Id., para 103. 13' WTO, Annex IB: .General Agreement on Trade in Services', [hereinafter GATS Agreement], Article 22.3 ( F ) ( ~ i ) in the Results of the Uruguay Round of Multilateral Trade Negotiation: The Legal Terts (Geneva: WTO, 1995).

Regarding suspension of commitments in sectors other than distribution services,

Ecuador has made commitments on market access andlor national treatment in

business services, communications, construction and engineering, financial services,

health and social services, different types of transport services, tourism, travel,

recreational and cultural services, e t ~ . ' ~ ~ ~ o w e v e r , in many of these sectors Ecuador's

specific commitments exclude supply mode one (cross border supply) i.e., Article

1 :2(a).13tj

Consequently, Ecuador's suspension of concession would be oriented to commitments

concerning commercial presence (i.e., Article I:2(c)) of EC service supplies, or in

other words, foreign direct in~estment.'~' And suspension of commitments

concerning commercial presence would destroy the investment climate in Ecuador.

Hence trade retaliation in this sector would be ineffective in this sector and could

prove detrimental to a developing country like ~ c u a d o r . ' ~ ' It would also force the

existing EC service suppliers to transfer investment from Ecuador. Hence retaliation

in service sector was not effective and practicable.

Retaliation in TRIPS

After concluding that retaliation in goods (GATT) and services (GATS) were

meffective and not pract~cable, the Arbitrators emphasised that the "circumstances are

serious enough" to authorise suspension of concessions. The Arbitrators underlined

the importance of banana trade to Ecuador and supported Ecuador's claim that:

. . . The banana sector is the lifeblood of its economy. Ecuador is the largest exporter

of bananas in the world and the largest exporter to the European market. Banana

product~on IS also the largest source of employment and the largest source of forelgn

. ~~

128 Arbitration, supra note 109, paras 105.107. I19 GATS Agreement. Article 1:2, supra note 137 defmes trade in services as the supply of service:

For the purposes of ths Agreement, trade in services is defined as the supply of a service: (a) f ~ o m the territory of one Member into the territory of any other Member; (b) in the territory of one Member to the service consumer of any other Member; ( s ) by a sen:ice supplier of one Member, through commercial presence in the territory of any other Member; (d) by a service supplier of one Member, througb presence of natural persons of a Member in the territory of any other Member.

(Also see foot note to Article xv which reads: A future work programme shall determine how, and in what time-frame, negotiations on such multilateral disciplines will be conducted.

1411 Arbitration, supru note 109. para 108. 14) Id., paras 109- 1 1 I

eamlngs. Nearly 1 I percent of Ecuador's population is totally dependent on this

sector. Banana exports (in goods only) represent 25.45 percent of Ecuador's total

merchandise exports. Banana production represents nearly 5.2 percent of the GDP. In

1:cuador's vleu. the banana industry is of greater importance to its economy than the

whole agr~cuitural sector in most developed

The Arbitrators also considered Ecuador's arguments plausible that WTO -

inconsistent aspects of the EC's import regime aggravated its economic problems.

Ecuador in its submission noted that it was facing the worst economic crisis in its

history. Its economy shrunk by 7percent in 1999 and total imports decreased by 52

percent unemployment rose to 17 percent.143

Accepting Ecuador's contention relating to the "broader economic consequences" of

EC's actions, the Arbitrators authorised DSB to suspend certain obligations under the

TRIPS Agreement. Given these circumstances, the Arbitrators told that suspension of

concessions in TRIPS was imperative to make retaliation effective and practicable.'44

Ecuador sought to limit its suspension of concession in three areas of intellectual

property protection: (a) copyright and related rights, Article 14 on "Protection of

performers, producers of phonograms sound recordings and broadcasting

organizations"; (b) geogaphical indications; and (c) industrial designs.

The Arbitrators also analysed some procedural issues associated with suspension of

concessions in TRlPS vis-a-vis some other international conventions on IPRs which

are incorporated into the TRIPS Agreement. Accordingly, Article 2.2 of the TRIPS

Agreement provides:

Nothing In Parts I to IV of thls Agreement shall derogate from exlstlng obllgat~ons

that Member\ hake to each other under the Pans Conventlon, the Beme Conventlon,

I" /(I., para 129 113 Ici, para 132 144 Some witers. especially from the developing countries, state that subscription to TRIPS is detrimental to the ~ndigenous industrial growth of developing countries. They argue that a strong patent regime would lead to a mushrooming nrowth of multinational companies and dismantle the domestic - - - industries. This would. In m, diminish the economic welfare. As a corollaw to the above line of thinking we could deducr that suspension of TRIPS obligations would resblt in the increase of economic welfare. Naturally. TRIPS has become the most effective tool of trade retaliation for a developing country.

the Rome ( 'onvent~on and the Treaty on Intellectual Property Right m Respect of

Integrated C ~ r c u ~ t s . " ~

This Article refers to the obligations, which member countries of these Convention,

who are also WTO members, have between themselves under these four treaties. For

example, in this case Ecuador, apart from being a WTO member has ratified the Paris,

Beme and Rome Conventions as well. Here the Arbitrators took the view that

interpretation of these treaties would not come within its jur i~dic t ion. '~~

But the Arbitrators concluded that goods, for example, phonograms, produced due to

the suspension of concessions should be used only in domestic market.14' It would

still be treated as pirated copyright goods, because they were produced without the

consent of the right holders. Hence, it could not be exported, because Article 5114' in

Section 4 on "Special Requirements Related to Border Measures" contained in Part 111

of the TRIPS Agreement were applicable to them.

Arbitrators concluded that the authorisation of suspension of concessions by DSB

would be temporary. After the removal of WTO-inconsistent measure at issue and a

solution remedying the nullification or impairment of benefits, the suspension would

be lifted.'""his means a Member must implement DSB's recommendations in the

end.

145 DSU, Article 22.2. sup,rr note 3. 146 Arbitraton, supru note 109. paras 148-152. 147 Id., para 153. 148 TRIPS Agrecnrmr. Artlclt. 5 1 ,supra note 1 provides that:

Members shall, in conformity with the provisions set out below, adopt procedures to enable a right holder, who has valid grounds for suspecting that the importation of counterfeit trademark or pirated copyright goods may take place, to lodge an application in writing with competent authorities, administrative or judicial, for the suspension by the customs authorities of the release into free circulation of such goods. Members may enable such an application to be made in respect of goods, which involve other infringements of intellectual property rights, provided that the requirements of this Section are met. Members may also provide for corresponding procedures concerning the suspension by the customs authorities of the release of infringing goods destined for exportation from their territories.

I49 DSLI, Article 22.5, suprn note 3 states: Members shall, in conformity with the provisions set out below, adopt procedures to enable a right holder, who has valid grounds for suspecting that the importation of counterfeit trademark or pirated copyright goods may take place, to lodge an application in writing with competent authorities, administrative or judicial, for the suspension by the customs authorities of the release into free circulation of such goods. Members may enable such an application to be made in respect of goods, which involve other infringements of intellectual property rights, provided that the requirements of t lus Section are met. Memhers may also provide for corresponding procedures concerning the suspension by the customs authorities of the release of infringing goods destined for exportation from their territories.

6.3 Conclusion

A review of the instances cited above would reveal that the enforcement aspect of

WTO' s dispute settlement mechanism is exceptionally strong. The hasty nature in

which the Bill for amending the Patents Act, 1970 before April 1999 and the

consequent compliance by the Indian Parliament clearly demonstrate the strength of

WTO' s DSB to pierce into the domestic legislations through its time-bound rulings.

This extremity in swift actions by the losers in a dispute could well be attributed to the

fear of retaliation, which inter aliu, includes cross-sectoral retaliation as well, for non-

compliance with WTO ruling.

Compliance with the TRIPS Agreement, which was hitherto perceived by the

developing countries as a thorny issue (admittedly it is so) has equally provided them

with an effective weapon in their armoury to fight against the rule violations by the

rich countries. This was exhibited by the Arbitrators' decision in EC - bananas case

following Ecuador's complaint. Thus the third world equally wields the power to

check rich countries treaty violations through their effective participation in WTO' s

dispute settlement mechanism.