European Union has proposed a settlement of the dispute by confirming the detailed principles agreed in the Understanding to guide border enforcement of intellectual property in the EU. In addition, EU agreed to India’s request for adoption of guidelines which would confirm the principles agreed to in the Understanding with a view to give greater and immediate legal certainty for producers and traders. EU also agreed to reflect the principles contained in the Understanding in its proposal for a new Regulation to replace Regulation 1383/2003. In return the EU sought an assurance that India would refrain from further steps in the ongoing dispute. Mr. Jean-Luc Demarty, Director General, European Commission sent a letter to this effect on 17 June 2011 to Commerce Secretary Shri Rahul Khullar.

India has taken note of the commitments offered by the EU. India has reiterated the core principle of the Understanding that the mere fact that medicines are in transit through EU territory, and that there is a patent title applicable to such medicines in the EU territory, does not in itself constitute enough grounds for customs authorities in any Member State to suspect that the medicines at stake infringe patent rights. However, a situation in which medicines are in transit through EU territory and there is adequate evidence that satisfies the customs authorities that there is a substantial likelihood of diversion of such medicines on to the EU market may constitute enough grounds for customs authorities to suspect that the medicines at stake infringe patent rights in the EU.

In a related development the European Commission has adopted a proposal for a new Regulation to replace Regulation 1383/2003. India trusts that the EU will reflect appropriately the principles set forth in the Understanding, in particular, the core principle of the Understanding, in the Regulation to be adopted to replace Regulation 1383/2003. India is also conveying its views to the EU on the replacement Regulation proposed by the Commission.

Meanwhile, so long as the EU and its Member States adhere to the principles contained in the Understanding with respect to generic drugs in transit through the EU, India has assured the EU that India will not request the establishment of a dispute settlement panel at the WTO. With the exchange of these letters, India and the EU have reached, for the present, an informal settlement of this dispute. India would watch with interest EU’s further steps in implementing its commitments. India’s options to revive the dispute remain intact in case the EU does not abide by the core principles agreed to in the Understanding.

India initiated dispute settlement consultations on 11 May 2010 at the World Trade Organization (“WTO”) with the European Union (EU) on the issue of detention of Indian generic medicines while in transit through the EU. The dispute was triggered by the repeated instances of detentions/seizure at EU ports, particularly in the Netherlands, of Indian generic drugs destined for export to Latin American and other countries. The detentions were made by invoking the EC’s Regulation 1383/2003 which contains customs procedures for taking action against goods suspected of infringing intellectual property rights (IPRs). These detentions were made during the period October – December 2008 at Schiphol airport, Netherlands. The consignments were initially detained and later, either destroyed or returned to India or allowed to proceed to the destination.

The detentions by the customs authorities of these generic medicine consignments were in violation of the obligations of the EU and the Netherlands under Article V of GATT which enshrines freedom of transit of goods through the territory of each contracting party of GATT via the routes most convenient for international transit. The detentions were also inconsistent with the EU and its Member States’ obligations under Articles 41 and 42 of the TRIPS Agreement as these detentions created barriers to legitimate trade, led to abuse of the rights conferred on the owner of a patent, were unfair and inequitable, unnecessarily burdensome and complicated and created unwarranted delays.

Moreover, these detentions were inconsistent with certain fundamental obligations of the EU under Article 31 of the TRIPS Agreement read together with the provisions of the Decision of the General Council of August 30, 2003 on the Implementation of Paragraph 6 of the Doha Declaration on the Trips Agreement and Public Health to ensure access to medicines for members of the WTO (“Members”) with insufficient or no capacity in the pharmaceutical sector to enable them to address their public health problems.

India was joined by Brazil in this dispute; Brazil also filed a similar complaint against the EU before the Dispute Settlement Body of the WTO. India and Brazil jointly held two rounds of consultations with the EU on 7-8 July 2010 and 13-14 September 2010 in Geneva. During these consultations, EU acknowledged that some provisions of the EC Regulation 1383 were misinterpreted by the customs authorities while detaining the Indian generic drugs. EU showed willingness to resolve this dispute without resorting to the WTO dispute panel.

Thereafter, India engaged in extensive consultations with the EU with the assistance of legal experts. Finally, after several rounds of discussions, India and EU reached an “Understanding” which, inter-alia, contains the principles to guide border enforcement of intellectual property in the EU.

Freedom of transit for generic medicines: transit alone should not justify customs seizure, diversion risk may warrant action. The Understanding establishes that mere transit of medicines through EU territory, despite applicable patent titles, does not alone justify customs suspicion of patent infringement; however, where customs possess adequate evidence of a substantial likelihood of diversion onto the EU market, suspicion and enforcement action may be warranted. The EU agreed to adopt guidelines and reflect these principles in the proposal to replace Regulation 1383/2003, while India has reserved the right to pursue WTO dispute proceedings if the core principle is not respected.