Working Statements in India: Are You Compliant? – Update

This is an update to our post of January 21, 2018, regarding working statements in India. Specifically, the hearing originally scheduled before the Indian High Court for January 25, 2018, was postponed until February 5th.  During the hearing on February 5th, counsel for the Petitioner, Mr. Shamnad Basheer (an Intellectual Property Professor and activist), continued to argue that the patent working requirement has never been taken seriously by Patentees and unless there is a threat of sanction, Patentees would continue to ignore this statutory mandate.  Mr. Basheer’s counsel suggested that Patentees who had failed to comply with the working requirement (either in whole or in part), be given a deadline in which to comply.

Counsel for the Indian Patent Office (IPO), Mr. Mahajan, admitted that the patent working requirement has never been enforced against non-complying Patentees. Mr. Mahajan stated that until there was a legal framework in place to initiate prosecution against non-compliant Patentees, there was little that the IPO could do.  He noted that Section 122 of The Patents Act,1970 (Patents Act) only provided for a fine or, in limited circumstances (such as when deliberately providing false information), imprisonment for non-compliant Patentees.  Counsel for the government further stated that there needed to be a specific framework (namely, specific rules) to enforce the penalties as provided under Section 122 of the Patents Act.

The Court asked the IPO representative who was present in the court to file an affidavit on February 7, 2018, listing the various steps as well as provide a timetable for implementing a robust enforcement framework for prosecuting non-compliant Patentees.

During the subsequent hearing on February 7, 2018, Mr. Mahajan informed the Court that the IPO had not yet completed its plan for creating a robust enforcement framework for the working requirement.  Nonetheless, the Court passed an order requiring that the IPO strictly enforce Form 27.  The Court also directed the IPO to file an affidavit by February 20th outlining a time plan for putting an enforcement mechanism into place.  A further hearing has been scheduled for March 1st.

The Court’s order also provided some clarification regarding the issue of identifying licensees in Form 27 as well as the issue of the confidential nature of such licenses.  This issue was a key concern raised by Ericsson as part of its intervention application.  In its order, the Court stated that Form 27 did not require that all licensing terms be provided. Rather, the only details regarding such licenses that needed to be provided were those specifically provided for in Form 27. Interestingly, with respect to this point, Form 27 is rather open ended and asks, “Details licenses/sublicenses if any”.  A Patentee is simply required to demonstrate how its Patent has been worked through one or more licenses. In the event there is a court order preventing a Patentee from even disclosing the existence of a license, this can be specifically mentioned in Form 27 as the reason for non-disclosure. Patentees should keep in mind that licenses should not only be disclosed on Form 27, but should also be registered with the IPO pursuant to Sections 67-69 of the Patents Act (the Controller can redact confidential portions of a license at his or her discretion).  Such licenses are open to public inspection under Article 72.  Additionally, Patentees should keep in mind that it is not sufficient to simply state on Form 27 that the patent has been “worked” without anything more. There must be some data and/or other information to support this claim.

With the proceedings thus far in this case, the ball is now in the IPO’s court to decide how to enforce the penalties prescribed under Section 122 for non-compliance with the working statement requirement while at the same time, taking into consideration the difficulties of Patentees in fulfilling this unique requirement under Indian patent law. Under the current legal system in India, criminal liability, including a fine assessed against a person, can only be enforced by the criminal courts comprising Magistrates and Session Judges and not by executives such as the Controller of Patents, unless such power is specifically conferred to such executives under statutory law.  Practically speaking, what this means is that to make the IPO a law enforcing agency to enforce the provisions of Section 122, an amendment would be required to the Patents Act, 1970. Passage of such an amendment could prove to be a long and drawn out process. Furthermore, if the IPO is made responsible for enforcing Section 122, it would face the additional burden of having to monitor all working statements, which would include examining these statements from a compliance perspective as well as conducting penal proceedings in accordance with the principles of natural justice.  Adding these responsibilities will put additional an work load on the IPO which is already crumbling under the weight of having to examine over 70,000 pending patent applications filed almost six to seven years ago.  Given the circumstances, the IPO will have to take a practical and pragmatic approach to handling the monitoring and enforcement of working statements and it is likely it may have to frame rules that would allow for any person aggrieved by the non-filing or incomplete filing of a working statement to raise the issue before the criminal court system, thus limiting the role of the IPO in these cases to that of assisting the criminal court with factual determinations. In addition to making new rules to enforce non-compliance, the IPO may also need to amend the format of Form 27 to make it practical for technology companies to submit their working details. The affidavit that IPO will be filing with the Court by February 20 may provide further insight on these issues.

Please continue to watch the BRIC a Wall blog for updates on working requirements in India.

This post was written by Lisa Mueller and Manisha Singh of LexOrbis.

Working Statements in India: Are You Compliant?

After a patent issues in India, the Patentee and each licensee (whether a nonexclusive or exclusive licensee) is required to file a working statement on an annual basis.  The working statement provides details describing the extent to which the patented invention was worked on a commercial scale in India during the previous calendar year.  The working statement must be provided to the Indian Patent Office (IPO) within three months from the end of the year, namely, by March 31st,using Form 27 (as required by pursuant to Section 146 (2) of The Patents Act, 1970).  Form 27 can be filed at IPO electronically by the Patentee, licensee or via an agent on behalf of the Patentee and/or licensee.

The legislative text in India is very clear that the granting of patents is not merely to “enable Patentees to enjoy a monopoly for the importation of the patented article”, but also to “secure that inventions are worked in India on a commercial scale and to the fullest extent reasonable”.  However, in the context of Article 27(1) of the TRIPS Agreement, it has been debated whether or not “importation” of a patented product or a product produced through a patented process constitutes working of the patent in India.  Some recent judicial decisions have upheld importation as constituting working of patent, particularly in situations where it is economically more practical to produce a patented product outside of India.

The purpose of a working statement is to inform the public whether a patented invention is or is not being worked in India.  In the event a patent has not been worked for three years from the date of grant, or, if the reasonable requirements of the public with respect to the patented invention have not been met, an interested third party can use this information to approach the Patentee for a (voluntary) license to the patent.  If, in response to such a request, the Patentee refuses to license the patent,  requests unreasonable terms to grant the license, or completely ignores the request (after the passage of  a reasonable amount of time), the third party can approach the IPO to request a compulsory license.  Once a compulsory license is issued, the government or any interested person can, two years after the expiration of the date of the order granting the first compulsory license, apply for revocation of the patent if the patented invention has not been worked in India (within those two years).  Therefore, under these circumstances, the burden falls on the licensee (of the compulsory license) to provide evidence of working in India to avoid revocation of the patent.

While a patent will not be held abandoned for failing to file a working statement, there are consequences for failing to make the submission.  Specifically, failure to file a working statement may result in a penalty of up to $25,000 U.S. dollars.  Additionally, knowingly furnishing false information in a working statement or knowingly or having reasons to believe that the information submitted is false or not true may result in criminal prosecution and imprisonment of up to six months.  Moreover, failure to submit a working statement may provide a valid ground for the granting of a compulsory license by the IPO.

If a patent is not being worked in India, the Patentee (and licensee) can provide one of the following explanations as to why the patent was not worked:

  • Lack of market potential for the invention; Market is being developed;
  • The invention may be worked in the future depending on market demand and/or when the technology is mature;
  • Patentee is actively working to develop a market for the patented product/process in India. The technology is available for licensing; or
  • Patentee is looking for working opportunities in a large scale.

If a patent is worked in India, the Patentee and licensee(s) are requested to provide: (1) the amount and value (in Rupees) of the patented invention; (2) whether the patented invention was or was not manufactured in India; and (3) whether the patented invention was imported from other countries (and if so, provide the country(ies) the patent invention is imported from).

Additionally, regardless of whether or not the invention is worked or not worked in India, the Patentee and licensee(s) must also indicate whether:  (1) any licenses and/or sublicenses were granted during the year; and (2) the public requirement has been met partly/adequately to the fullest extent possible at a reasonable price.

On January 10, 2018,  counsel for the Controller General of the IPO, appearing before  a Division Bench of the Delhi High Court, agreed to file a status report on the extent of non-compliance with working statements as well as the actions taken by IPO to amend the Patent Rules concerning working statements.  These submissions were made by the counsel for the IPO in response to a writ petition filed on January 19, 2015, by Shamnad Basheer, an Intellectual Property Professor and activist (Shamnad Basheer v. Union of India & Others (UOI)).  In his writ petition, Mr. Basheer highlighted the non-compliance of many Patentees and licensees in connection with working statements.  This writ petition appears to be the first attempt by any third party to enforce the working requirement using the judicial system.  Not surprisingly, on October 28, 2015, several months after Mr. Basheer filed his writ petition, an application to intervene in the litigation was filed by Mr. Narendra Reddy Thappeta.

In his writ petition, Mr. Basheer noted several examples of non-compliance with Section 146 (2) including:

  • Grant of compulsory license to Natco Pharma (Natco) in connection with Indian Patent No. 215758 covering an anti-cancer drug: In the compulsory license granted on March 9, 2012, Natco was required to provide an accounting of sales to the Controller on a quarterly basis (by the 15th of the succeeding month).  Mr. Basheer sought information from IPO about whether such reports had been filed and received information that “no details” were available.  Mr. Basheer informed IPO of the lapse several times by Natco but no action was taken.
  • Form-27 submitted by Ericsson: Ericsson refused to disclose licensing details in the form citing that the information was “confidential” or a trade secret.  Mr. Basheer pointed out that the Controller took no action with respect to this violation of  Section 146(2).

With respect to Ericsson, the Court noted that all Patentees and licensees are required to submit the details of licenses and sublicenses and that this information could not be termed “confidential” and that IPO had to treat non-inclusion of this information as a failure to comply with the requirements of Section 146 of the Patents Act, 1970. The Court adjourned the matter until January 18th and asked the Government to indicate whether amendments to Form 27 had been effected pursuant to the Patent (Amendment) Rules, 2015.  Not surprisingly, the Court’s order set off a debate on working statements in the country, particularly with respect to the type and extent of information to be submitted.

During the hearing on January 18, 2018, counsel for Natco presented evidence that it had submitted sales figures with the IPO on a quarterly basis and that its submission was available on the IPO’s website.  Unfortunately, the evidence submitted by Natco raised concerns about the quality of the data management performed across the multiple offices of the IPO.  Also during the hearing, the UOI raised concerns about the “confidentiality” of the information submitted as part of the working statement.  Specifically the UOI argued that the information relating to the amount and value of the patented invention worked in the country was sensitive information that could be misused to the disadvantage of the Patentee and/or licensee(s).  Additionally, the UOI argued that Form 27 simply requires mentioning the number of licenses and sublicenses granted during the previous year, not the name of each licensee and amount of each license.  Finally, arguments were made regarding the format of Form 27, specifically, that it was not suitable for all types of inventions.  It was argued that the form works well for Patentees of pharmaceutical inventions, but does not work well for Patentees in others sectors, such as in information and technology.  Specifically, Patentees in these areas find it difficult to provide information for at least the following reasons:

  • Patented inventions such as iPads or computers are often covered by hundreds of patents (for their various components and subcomponents);
  • Patentees of subcomponents may not always have control or knowledge regarding larger, composite products that incorporate their subcomponents to be able to accurately identify which of their patents require a working statement;
  • The global nature of the market makes it difficult to determine the amount and value of the patent invention;
  • There is a lack of an established market value for software such as auto-lock (which is not subject to FRAND); and
  • There is no uniform or standard method for determining public demand. For example, for subcomponents incorporated into larger, composite products, it is not possible to identify the public demand for the patented subcomponent separately.

The Court set another hearing for January 25, 2018.

In view of the writ petition and the Court’s direction to the Controller of IPO to file a status report on the extent of non-compliance and the action taken with respect to that noncompliance, Patentees and licensees should expect increased scrutiny and enforcement of Form 27 and its requirements.  The IPO is likely to amend the format of Form 27 to make it more practical to provide working information by technology companies.  Patentees and licensees should carefully review Form 27 and their responses to make sure they are fully compliant before filing in the IPO.  In cases where the correct working information was not provided due to difficulties in collecting and collating such information, it is recommended that the correct information be collected now and an amended Form 27 be filed with the IPO for any previous year in question.  In cases where the statement was filed as “worked” without providing  any additional information as to the specifics of the working, it is strongly recommended that the Patentee and/or licensee(s)  provide the additional information (via an amended Form 27) as quickly as possibly as the IPO may treat the previously submitted information as “false or incorrect” information.

The hearing in the writ petition is now scheduled for January 25, 2018, and we expect the Court will issue a decision clearly laying down the guidelines with regard to filing of the working statements to end the legal controversy associated these submissions.

Please continue to watch the BRIC Wall Blog for updates on the working statement issue in India.

This post was written by Lisa Mueller and Manisha Singh of LexOrbis.