Amendments to the Combination Regulations
The Competition Commission has notified further amendments to the Competition Commission of India (Procedure in regard to the transaction of business relating to combinations) Regulations, 2011 (“Regulations“). The Competition Act, 2002 prohibits combinations which cause or are likely to have an adverse effect on competition in India. Schedule 1 of the Regulations contains a list of combinations which ordinarily would not result in an adverse effect on competition in India and hence such combinations are not required to be notified to the Competition Commission. The amendment dated 4 April 2013 modifies the categories of combinations listed under schedule 1 to the Regulations as follows:
(1) Creeping acquisition under category 1:
Prior to the amendment, any acquisition that resulted in the acquirer holding 25% or more shares or voting rights was required to be notified to the Competition Commission in accordance with the Regulations. Now, an acquirer or its group holding 25% or more but less than 50% shares or voting rights in an enterprise can acquire additional shares or voting rights in the enterprise up to 5% in a given financial year without notifying the Competition Commission provided that it satisfies the following two conditions:
(i) its shareholding post the acquisition should be less than 50%; and
(ii) the acquirer or its group should not control the enterprise as a result of such acquisition.
The limitation under this category relates to gross acquisition of 5% shares or voting rights in one financial year. This threshold is consistent with the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011. As a consequence of use of the term financial year the acquirer or its group can acquire 10% shares or voting rights within a span of two days without notifying the Competition Commission.
(2) Increase in scope of category 5 and deletion of category 9:
Exemption under earlier category 5 which covered acquisition of “stock-in-trade, raw materials, stores and spares in the ordinary course of business” has been extended to acquisition of “stock-in-trade, raw materials, stores and spares, trade receivables and other similar current assets in the ordinary course of business“. Simultaneously category 9, “An acquisition of current assets in the ordinary course of business“, stands deleted. These amendments are not substantive and are merely optical changes.
(3) Intra Group Acquisitions:
(i) Prior to the amendment, category 8 covered “acquisition of control or shares or voting rights or assets by one person or enterprise of another person or enterprise within the same group“. The term group as per the Competition Act, 2002 includes two or more enterprises that can, directly or indirectly, exercise 26% or more voting rights in another enterprise. Therefore, an enterprise holding 26% or more voting rights in a target enterprise could subsequently acquire control over the target enterprise without notifying such an acquisition under the Regulations. The amendment deletes the term “control“. Therefore, such acquisitions will now need to be notified as per the Regulations.
(ii) The amendment to category 8 additionally provides that intra group acquisition of shares or voting rights or assets where the acquired enterprise is jointly controlled by enterprises that are not a part of the same group will now have to be notified as per the Regulations.
(4) Category 8 A has been deleted and replaced by Category 9. Erstwhile Category 8 A applied to merger or amalgamation involving (i) a holding company and its subsidiary which was wholly owned by enterprises of the same group; or (ii) subsidiaries which were wholly owned by enterprises of the same group. Category 9 applies to merger or amalgamation of (i) two enterprises where one enterprise holds more than 50% shares or voting rights in the other enterprise; or (ii) merger and amalgamation of enterprises in which more than 50% of the shares or voting rights in each of the enterprises are held by enterprises within the same group. The amendment broadens the scope of the category as it removes the requirement of “wholly owned“. Also, the amended Category 9 does not apply to transactions that result in transfer from joint control to sole control.
In conclusion, except for intra group acquisitions the amendments increase the scope of the entries contained in schedule 1 to the Regulations. The increase in the scope of the schedule to the Regulations can be seen as a step forward towards fast tracking the regulatory process for merger and acquisitions in India.
Saumya Sharma [saumya.sharma@pxvlaw.com]
Maharashtra Amendment to the Registration Act
Through a circular dated 7 March 2013, the Maharashtra Government has implemented the provisions of Registration (Maharashtra Amendment) Act, 2010 (“Act“). The Act has been made applicable on and from 1 April 2013.
The Act brings in major changes to the Registration Act, 1908 (“Registration Act“) as applicable to the State of Maharashtra.
Few of the changes brought in by the Act are discussed below.
The Act has added certain documents which are now compulsorily registrable in Maharashtra:
(a) Agreement relating to the deposit of title deeds, where such deposit has been made by way of security for the repayment of a loan or an existing or future debt;
(b) Sale certificate issued by any competent officer or authority under any recovery act; and
(c) Irrevocable power of attorney relating to transfer of immovable property in any way, executed on or after the commencement of the Act.
The Act also sets out the procedure to be followed when the immovable property is located in Maharashtra but equitable mortgage over the property is created outside Maharashtra.
In terms of the Act (Sections 89B and 89C inserted by the Act), the mortgagor creating equitable mortgage (outside Maharashtra) over an immovable property located in Maharashtra will need to send a ‘notice of intimation‘ of creation of mortgage to the Registrar within whose jurisdiction the property is located. The mortgagor sending ‘notice of intimation‘ will also need to furnish the following details to the Registrar:
(a) names and addresses of the mortgagor and the mortgagee;
(b) date of creation of mortgage;
(c) amount received under the mortgage;
(d) rate of interest payable;
(e) list of documents deposited; and
(f) description of the property.
If the mortgagor fails to send the ‘notice of intimation‘ to the Registrar as aforesaid and subsequently enters into a transaction related to or affecting the mortgaged property with a third party, in terms of the Act, such transaction will be void. In such situations the third party will be entitled to (a) refund of the amount paid with respect to such transactions; (b) interest at the rate of 12% from the date the amount was paid; and (c) compensation for any damages suffered by the third party.
Further, failure to send the aforesaid ‘notice of intimation‘ would lead to the mortgagor being imprisoned for a minimum term of 1 year which may extend upto 3 years and fine.
Maharashtra, as a state has the highest stamp duty rate in the country with loans and mortgages, subject to exorbirtant ad valorem stamp duties (capped at Rs 10,00,000 for mortgage). Further, Maharashtra is one of the few states to have extended the stamp duty payable on mortgage to any document evidencing deposit of title deeds (declaration of deposit and memorandum of entry, standard documentation in relation to equitable mortgage, are not, strictly speaking, instruments for the purpose of stamping). With the new amendment, the stamp duty net has become wider (a requirement for registration necessarily requiring that the document is also stamped) and now extends to equitable mortgage created outside Maharashtra for property in Maharashtra.
Anuj Sahay [anuj.sahay@pxvlaw.com]
Analysis of the Supreme Court’s Novartis Judgement
A. Introduction
The Supreme Court in a recent landmark decision has rejected a patent application made by the drug manufacturer, Novartis AG (“Novatis“) in relation to its cancer cure drug Gilvec. This decision is a significant development in India’s nascent patent regime. This brief note analyses the implications of the judgment.
B. Brief History of the Novartis Case
On 17 July 1998, Novartis filed an application before the Patent Office, Chennai for grant of patent on the beta crystalline form of Imatinib Mesylate (“Drug“), which is used for the treatment of leukemia. On 25 January 2006, the Assistant Controller of Patents and Designs passed an order rejecting the patent claim filed by Novartis on the grounds that the invention claimed by Novartis was obvious, anticipated and that the grant of patent on the Drug is not permitted under Section 3(d) of the Patents Act, 1970 (“Patents Act“). Against this order, Novartis filed an appeal in the Madras High Court, which was later transferred to the Intellectual Property Appellate Board (“IPAB“). The appeal was rejected by the IPAB on 26 June 2009. Aggrieved by the rejection of grant of patent on the Drug, Novartis approached the Supreme Court. The Supreme Court in its judgment dated 1 April 2013 (“Judgment“) has upheld the rejection of Novartis’ patent claim on the Drug.
C. Analysis Of The Judgment
In terms of the Patents Act, for a new product or process to qualify as an “invention”, the following criteria must be met:
(i) it must be new;
(ii) it must involve an inventive step, i.e. a feature of the product/process;
(A) involves a technical advancement as compared to the existing knowledge; and/ or
(B) has economic significance;
and that makes the product/process non-obvious to a person skilled in the art;
(iii) it must be capable of industrial use.
Further, for an invention to be patentable, it must not fall under the categories set out in Section 3 and 4 of the Patents Act. The main issue facing the Supreme Court was whether the Drug stands the test of patentability as specified in Section 3 (d) of the Patents Act, the relevant potion of which reads as follows:
“the mere discovery of a new form of a known substance which does not result in the enhancement of the known efficacy of that substance or the mere discovery of any new property or new use for a known substance or of the mere use of a known process, machine or apparatus unless such known process results in a new product or employs at least one new reactant.”
Section 3(d) of the Patents Act was inserted through amendments made to the Patents Act in 2005, at the time when India was making its intellectual property regime compliant with the Agreement on Trade Related Aspects of Intellectual Property Rights. The basis for including such provisions in the Patents Act was to avoid ‘evergreening’ – a term given to the practice of extending the patent life of a drug by making incremental and minor changes to an existing drug.
The Supreme Court held that, the term “efficacy” in Section 3(d) meant “the ability to produce a desired or intended result”. Therefore, the test of efficacy in the context of section 3(d) would depend upon the result, the function or the utility that the product under consideration is desired or intended to produce. Consequently, the court concluded that in the case of a medicine that claims to cure a disease, the test of efficacy could only be “therapeutic efficacy”, i.e. the capacity of the drug for beneficial change.
The court further held that a mere change of form with properties inherent to that form would not qualify as an enhancement of the efficacy of a known substance.
Thereafter, the court concluded that the physiological properties of the Drug, i.e., more beneficial flow properties, better thermodynamic stability and lower hygroscopicity do not result in enhancement of “therapeutic efficacy”. Further, on Novartis’s claim that increase in bioavailability results in enhancement of therapeutic efficacy from the known substance, the Supreme Court held that the same will need to be collaborated with necessary data and research in each case and as Novartis did not submit any material to demonstrate this, the Drug fails to satisfy the test laid down in section 3(d) of the Patent Act.
It must be noted that the rejection of Novartis’ patent claim over the Drug does not impact the patentability of incremental chemical and pharmaceutical substances. The Supreme Court has clearly stated that Section 3(d) does not bar patent protection for all incremental inventions of chemical and pharmaceutical substances, leaving the question of patentability of such substances to be determined on a case-to-case basis. Therefore, in interpreting cases under Section 3(d), courts in India will now look into the ability of the product to materially improve upon an existing result.
D. Conclusion
The Judgment has largely been welcomed as it has paved the way to increased accessibility of the Drug in India at reasonable prices. However, in spite of the fact that the Judgment clarifies that it must not be construed as a ban on patent protection to all incremental inventions of chemical and pharmaceutical substances, the pharmaceutical industry has signalled that the Judgment may have an adverse impact on investments in drug research and development in India.
However, this apprehension may be misplaced. The Judgment upholds and affirms the “product patent” regime and actually protects genuine innovators. What the Judgment has considered as not patentable are minor tweaks to a patent that is about to expire in order to cloak it in the garb of a “new product”. The Indian law therefore appears to have been interpreted in consonance with international standards, i.e. protection of an innovative new product as opposed to a minor change to the product. The Judgment is narrow in scope and therefore provides a clear expectation to companies in terms of objectively identifying the standards on which drug research should be based in order for a new drug to be afforded protection under the Indian patent regime. What the Judgment does not do is base its logic and reasoning solely on the availability of the Drug at a reasonable cost. The reasoning is firmly based in strict legal interpretation and the certainty and lack of subjectivity that such an interpretation provides ought to be welcomed.
PXV Law Partners 