Foundational Patent
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This article has been written by Ruddhi Bhalekar.


“Desperate times call for desperate measures” has become the motto of most of the pharmaceutical companies in the world today. Innovation is the key element for development of any kind. In the pharmaceutical industry innovations lead to providing better accessibility to affordable medicine thus enabling to protect the health of the general public at large. It is safe to say that one of the industries gaining momentum at this point of time is the pharmaceutical industry. All the companies are in the process of conducting clinical trials and researches in order to discover a drug to overcome the effects of the present situation caused undoubtedly by the prevalent COVID-19 virus which has presented an opportunity to India and other countries to establish themselves in the world pharmaceutical market by developing innovative medicine which will in turn enable us to overcome the pandemic and benefit the innovating company by filing a patent for same to reap rewards.

Article 25 of the United Nations Universal Declaration of Human Rights (UDHR) states that: 

Everyone has the right to a standard of living adequate for the health and well being of himself and of his family, including food, clothing, housing and medical care and necessary social services.

The Indian Pharmaceutical industry is the third largest in the world majorly consisting of generic companies.[1] The patents filed by Dr. Reddy’s Laboratories Ltd have increased from 18 to 22 and Cipla’s from 16 to 18 for the years 2018 and 2019 respectively. They form a part amongst the top applicants under the Patent Cooperation Treaty (PCT).[2] The drugs and pharmaceutical sector attracted a cumulative FDI inflows worth US$ 16.25 billion between 2000-2019 as reported by the Department for Promotion of Industry and Internal Trade (DPITT).[3]

The right to health has been guaranteed by Article 21 of the Indian Constitution and thus it is necessary for making available to the general public medicines at affordable prices which is impossible when foreign companies make and acquire patents over it and impose high import tariffs. (11.6%) The trend that can be witnessed in the Indian pharmaceutical company with respect to producing pharmaceutical products in entirety or as a new medicine (one that is foundational in nature) is considerably low. In other words there is a lack of originality in terms of product patents in the medicines produced. Reverse engineering is what made Indian companies succeed but this formula of success in this field has now become ancient. Although India has trotted its way to become the world’s largest supplier of generic medicine the shift from import substitution to innovation has been unsatisfactory.

The changes in the patent regime have contributed drastically to cause turbulence in the market and in some ways have discouraged innovation from being the primary goal of the Indian pharmaceutical companies. 

Various Impacting Legal Provisions

The following provisions of the Indian patents act 1970 have had the following effect on lack of innovation in the pharmaceutical industry:

  • PROCESS PATENTS REGIME: Indian Patents Act 1970 has undergone amendments which have caused an effect on the pharmaceutical industry. The recommendations laid down by Justice Bakshi Tek Chand’s committee had suggested that there needed to be special restrictions placed on food and medicine. Post such reforms in the patent regime, the committee under the chairmanship of Ayyangar had made changes such that it allowed only process patents and successfully blocked out product patents with respect to pharmaceutical products. This action was pursued majorly by the legislators to boost the domestic companies at large.

The effect of inserting such a provision eventually caused a number of generic companies to manufacture products based on reverse engineering which led India to acquire a major share of the global demand market. It benefitted consumers on the contrary to get access to cheaper/ affordable medicines. Thus the focus of most companies shifted from producing original/ innovative medicines which were foundational through R&D to producing medicines through reverse engineering in order to maximise profits.

  • MEMBERSHIP OF WTO: India being a member country of the WTO had to formulate laws in such manner that they complied with the TRIPs agreement. Therefore after 2005 there were subsequent changes in the Indian Patents Act of 1970. Two major changes were brought due to it:
  1. Introduction of product patent in pharmaceutical products.
  2. Introduction to the concept of compulsory licensing.

Both these changes subsequently led to mutating India’s role as the largest manufacturer/ supplier to LDC as the entry of new generic companies was thus difficult and they had to switch their strategy from producing medicines that were licensed or being invented by themselves.

  • SECTION 84 OF THE INDIAN PATENT ACT: It gives opportunities to generic companies to manufacture patented products after acquiring a compulsory license after granting of 3 years but this can be done only under some circumstances which are:
  1. When reasonable requirement is not met.
  2. When it is not available at an affordable price.
  3. When it is not a working patent in that country.

It has been granted by India only once in the case of Natco filing an application for Bayer’s product (Nexavar). This decision of the Court had gained acerbic criticism globally as it was considered to be unfair by the MNCs and was seen as a section to be exploited in the coming years. But all other applications have been dismissed thus keeping in place the value of this provision. The contention of most of the MNCs involved in the business of patenting their products in foreign markets had perceived it as a threat for them to invest in R&D to produce innovative product to be later fallen to such a fate of compulsory licensing in turn decreasing their scope to gain commercially by exploitation of the product. In fact studies have shown barring some exceptions there is no link between compulsory licensing or sluggish innovation rates or declining R&D.[4]
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  1. SECTION 92 OF THE INDIAN PATENT ACT: It provides for a similar provision on the notification of the Central government. Post 2005 Compulsory Licensing had given a liberty to export products to developing countries who did not have the capacity to manufacture it themselves thereby the base for developing medicines from scratch was again nullified since the pharmaceutical companies would direct most of its investment to generate maximum revenues by acquiring such license which was easier. This provision thus enabled generic companies to provide the patented drug to be available at any cost lesser than the patented drug itself this way the innovating companies were dispirited to innovate further and to obtain patents in the country. Although the companies whose drugs are utilised under compulsory licensing are prone to the issue of getting adequate remunerations for the high cost that would have been incurred during the R&D phase of the drug. If the reward system is not accurate it would be a serious disincentive for furtherance of much needed drug discovery and development programmes. Natco Pharma manufacturers contended that the generic versions can be manufactured at one-fifth of the cost of the patented product.[5] If the reward system is not adequate to recoup the innovator’s investments in high cost, long gestation R&D activity that will be a serious disincentive for furthering of much needed drug discovery and development programmes.[6]
  2. SECTION 3(D) OF THE INDIAN PATENT ACT: Innovation in today’s world is not only considered to be absolutely novel or breakthrough inventions driven by technology but by invention emanate from regular exploitation of prevailing technologies.[7] After the introduction of Section 3(d) in the Indian Patent Act 1970 there was an uproar caused by the foreign pharmaceutical companies in lieu of the section preventing evergreening of pharmaceutical drugs. Evergreening had led the companies to acquire the market to a larger extent as the patent protection would extend to 20 years after minimum changes in the composition, number of doses or such other minor combination. Consequently the US had put India into its priority watchlist citing that there were discrepancies in India’s patent regime. This led to a concept of developed nations versus developing and less developed nations. The invention that undergoes patent eligibility test under section 3(d) has to satisfy efficacy test along with other patentability tests (novel, inventive and commercially applicable). Efficacious derivatives of known substances can only be eligible for patent.[8] According to a report by US –India Business Council (USIBC), incremental innovations led to discovery of new forms which were personal to the patients profile thus making them more efficient. This resulted in the focus of generic companies being shifted to invest in R&D in order to come up with innovative products to subsequently acquire the market. 
  3. DRUG PRICE CONTROL ORDER: The price control measures exercised by the government are the key element in any country’s health policy. In India the drugs deemed as essential in compliance with the Drug Price Control Order 2013 (DPCO) are made available to the public at a lesser cost than they would have been marketed in reality. If these measures are used by the Government extensively it discourages the entry of new drugs into the market. The fear of the pharmaceutical companies is that they may fail to recover production costs. 

The R&D in the pharmaceutical companies has risen dramatically since the 1990s thus leading to change in the world order in terms of pharmaceutical products. The West which was predominant in this sector has been rubbing shoulders with developing countries like India, Brazil, etc. Several Indian companies including Ranbaxy, Dr. Reddy’s and Nicholas Piramal are already pursuing research and development in some areas and are determined to be neck to neck with their foreign counterparts.[9] The Patent filing trend has considerably increased over the past 4 years.

The Indian generic companies have realised the need to undertake innovation of medicines to conquer the world market. According to IBEF’s report Pharma Vision 2020 by the Government of India’s Department of Pharmaceuticals has aimed to make India a major hub for end-to-end discovery of drugs. There have been key ventures in various Indian states for instance Lupin has a USFDA approved plant at Tarapur, Maharashtra, Piramal’s USFDA approved manufacturing plant in Hyderabad, Cipla has a formulation manufacturing plant in Indore among others.[10] Yet major R&D companies are facing a huge crisis with increasing legal and regulatory constraints, expensive clinical trials and protection of patented products. Even though there is a risk of huge investments failing to produce effective products the companies should not be discouraged as the losses will be mitigated once the product is ready to be commercially exploitable.

The take of Indian pharmaceutical companies with regard to such a failure should be looked as stepping stones to success. The considerable rise of the term of the patent to 20years was done with the view of keeping in mind the companies investing in R&D to recover such costs. Indian companies have already acquired a large part of the market by developing medicines through process patents now more than ever this regime of Indian generic companies need to be challenged to give rise to filing of product patents in the pharmaceutical industry. Indian companies have shown interest in inventing new molecules with significant therapeutic properties and it would be worthwhile for India to continue and grow on this path to become a leader in innovation of drugs in the world. 


Gilead licensing its drug (Remdesivir) has been the newest development for making India accessible to medicine that has been considered effective for treating COVID patients. It is exemplary to make companies understand the importance of innovating effective medicine. The remunerations generated from such a deal will help acquire more markets for the drug in the future.

Compulsory licensing allows a government to produce, import, sell and use generic products before expiry of the patent by licensing a company, government agency or other party the right to use a patent without the consent of the patent holder. The objective of granting compulsory licenses is to prevent the abuse of monopoly granted by the patent, and to safeguard the public welfare and health care issues prevailing in the nations. In the present context, the exercise is sought to obtain permission to manufacture the generic versions of a patented drug.


  1. Gokhale & Kanan (2017) Patenting trends in Indian Pharmaceutical industry, Annals of Library and Information Studies Vol-64 
  4. Colleen Chien, (2003) Cheap Drugs at What Price to Innovation: Does the Compulsory Licensing of Pharmaceuticals Hurt Innovation? 18 BERKLEY TECHNOLOGY LAW JOURNAL 853 
  5. Mathur. H ( 2008), Compulsory Licensing under Section 92A:Issues and Concerns. Journals of Intellectual Property Rights Vol 13 
  6. Ibid v
  7. Foray D, (1992) Production and distribution of knowledge in the new systems of innovation: The role of intellectual property rights, Science, Technology Industry Review, 16 
  8. Basheer S & Reddy P,(2008) The ‘Efficacy’ of Indian Patent Law: Ironing Out Creases in Section 3(d), Script-ed 
  10.  Ibid ix

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