Ayyangar’s Ghost and the Indian Patent System: Preserving Confidentiality of Patent Licensing Agreements – Part I

by Yogesh Pai

The Context:

The Indian Patents Act, 1970, [hereinafter: “the Act”] is largely an outcome of a comprehensive review of the patent system by Late Justice N. Rajagopala Ayyangar as it prevailed in the early and mid-20th century. The report on the ‘Revision of the Law in India Relating to Patents for Inventions’ (1959) advocated strong reforms on compulsory licensing and commercial working of patented inventions in India. Under the Act, any patented invention which is not commercially worked by way of local manufacturing may trigger the grant of a compulsory licence by the Government on an application made by any interested third party after three years of the patent grant. The patent subjected to such a compulsory licence (which in essence is a forced contract) may finally be revoked for the same reason after two years from the date of grant of the compulsory licence. While importation of products embodying the patented invention may satisfy the requirement of working, the patentee must be able to justify (on case-by-case basis) why local manufacturing is not possible within India.

It is clear that the intent of the Act is not to allow patentees to merely exploit the Indian market without providing the incidental benefits of local manufacturing. So a textual disclosure of an invention is clearly not the only quid pro quo underlying the Indian patent system. In many ways, the social bargain in the Act is designed to force vertical integration by requiring the patent holders to ‘work’ (produce/import/licence) the patented invention on a commercial scale and to the fullest extent possible in India. Although India has amended her patent law thrice since the signing of the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS- 1995), Justice Ayyangar’s scepticism that public interest may be defeated without provisions to ensure full, commercial and territorial working of the patent still informs the public policy debate on patents in India.

To ensure that sufficient information on working is made available by the patentee or her licensee, Section 146(2) of the Act requires an annual disclosure about the extent of commercial working of the patent through FORM 27. Section 146(3) read with Rule 131(3) of the Patents Rules 2003 [hereinafter: “the Rules”] provides discretion to the patent office to publish the information received by them in FORM 27. The refusal or failure of the patentee/licensee to furnish the information is punishable with a fine, which may extend to ten lakh rupees or with imprisonment (up to six months) in cases where such information is found to be false. FORM 27 requires the patentees to provide details pertaining to the status of working, the extent of working (quantum and value of patented product manufactured/imported), the licences and sub-licences granted during the relevant year, and the extent to which public requirement has been met at a reasonable price. But patentees have often provided very broad and ambiguous information fearing that any detailed disclosure in FORM 27 may act as a trigger for a compulsory licence or may lead to public disclosure of confidential terms in Patent Licensing Agreements (PLAs).

A PIL(L!) to Induce Working or Disclosure of Confidential PLA Terms?

In a Public Interest Litigation (PIL) filed by Prof. Shamnad Basheer against the Union of India, the Delhi High Court has recently directed the Union Government to suggest steps and a timeline for enforcing the requirements of the Act against errant patentees. As per the petitioner, the patent office has failed in its statutory duty to seek adequate information through FORM 27 and initiate prosecution where such information has not been provided or has been wrongly provided. It is pertinent to note that the Counsel appearing for the Government agrees with the petitioner on the need to enforce the mandate under the Act. This has provoked many patent owning firms to file intervention petitions in the current matter.

So far, so good! However, what the petitioner demands in the context of disclosure of licensing details are deeply problematic for several reasons, which I argue are also against the letter and spirit of the Act. The petitioner states that the existing requirements in FORM 27 lack precision due to which a number of submissions by the patentees do not provide adequate details of licensees or licensing arrangements. It is true that many patentees have pleaded confidentiality terms involved in PLAs and may have agreed to share it in confidence with the Indian Patent Office upon a specific request. It is certainly not the case that patentees/licencees cannot provide such privately available information. But the core question is if such confidential information contained in PLAs can and ought to be subject to public disclosure under Section 146(3) of the Act.

In order to make the disclosure of licensing information more effective, the petitioner has demanded that FORM 27 must require disclosure of specific details viz., “whether the patent has been licenced in the first place; if so, it must then call for more elaborate details, such as the names of licensees, broad terms of licence, whether products are being manufactured under the licence, whether such licenses are exclusive or not, etc.” Not surprisingly, such a requirement to disclose the terms of the licence will include licensing rates and other terms and conditions contained in PLAs. While such information may be readily available with the patentees/licensees in PLAs, it is damaging to require them to disclose confidential information contained in them. As I explain below, this will risk making the patent rights redundant in India and in all those jurisdictions where patentees are engaged in licensing activities involving similar patent portfolios. Requiring elaborate disclosure of terms contained in PLAs may not only harm individual parties, but may have a cascading effect on an entire ecosystem of patent licensing activities world-wide. This is especially true of critical sectors such as Information and Communication Technologies (ICT), which involve extensive licensing of patented technologies on a global scale. [continued]

The author is currently an Assistant Professor of Law and Co-Director of the Centre for Innovation, IP and Competition at National Law University Delhi. CIIPC is currently working on a project in this area titled Practising Patents in India. Views are personal.