By JOHN W. MILLER in Brussels and GEETA ANAND in MumbaiIndia plans to file a complaint with the World Trade Organization alleging that the European Union allowed big pharmaceutical companies to use the bloc's tough patent laws to have national customs agencies detain generic drugs in transit to developing countries, according to India's commerce secretary.On more than 20 occasions since late last year, border inspectors in the Netherlands and Germany have held up Indian medicines used to treat AIDS, Alzheimer's disease, heart conditions and other ailments, saying they violated patent laws in the EU, although the drugs weren't intended for sale there, according to EU and Dutch customs officials and to lawyers for Indian pharmaceutical companies.At the request of companies including Sanofi-Aventis SA, Novartis AG and Eli Lilly & Co., the drugs were then detained for periods that extended for as long as eight months, according to letters sent by the companies to customs officials and reviewed by The Wall Street Journal.Indian generics makers say they have had to divert shipments at higher cost to transit hubs outside the EU, and to hire lawyers to defend their right to have the drugs shipped safely to their destination.Dutch customs officials are still holding on to the Indian generics drug giant Cipla Ltd.'s shipment of a schizophrenia medicine seized in November, according to Cipla and Lilly."We see this as an attack on the Indian generics industry," says Rajeev Kher, joint secretary of commerce in India, adding that he is preparing a complaint that India will soon file at the WTO.Getty ImagesThis handout picture released by the Spanish police on June 09, 2009 shows fake Viagra pills seized after the arrest of four people suspected of importing tens of thousands of the fake versions of the impotence drug in Alicante. Spanish police said they have seized more than 9,000 fake Viagra pills produced in China and India and sold over the Internet.EU officials say their national customs agencies have the right to enforce intellectual property laws in their countries, and they deny any violations of other WTO rules. The EU is "complying with its WTO obligations," says spokesman Michael Jennings.Some trade experts say India may have a good chance of winning. The EU argument that goods in transit must comply with local regulatory requirements is shaky, says Frederick Abbott, an international trade legal expert at the Florida State University.The world's biggest pharmaceutical companies often hold patents on their medicines in the U.S. and EU, which have some of the toughest intellectual property laws. Many of these companies' patents don't apply in developing countries, which have kept patent protection weaker in an effort to keep prices low for their far poorer populations. The U.S. isn't a major transit hub for generics, and doesn't claim that patent laws should apply to goods in transit to other countries.Weaker patent laws in developing countries allowed India and others to develop a booming business making and selling copies of branded pharmaceuticals, known as generics, both internally and to other nations. Indian pharmaceutical exports, mostly generics, grew to $4.9 billion last year from $1.5 billion in 2003, according to Global Trade Information Services.An EU regulation adopted in 2003 tasks national customs offices with policing intellectual-property laws on goods entering or transiting through their posts. The goal, EU officials say, was to take a bite out of the world's $500 billion annual trade in counterfeit goods, which are illegal copies of products masquerading as the real thing, usually of low quality.The law wasn't applied aggressively to pharmaceuticals until last year. The EU launched a crackdown aimed specifically at "counterfeit" medication, EU officials say. However, generic drugs, which are regulated replicas of brand-name drugs, are getting caught in the same dragnet.On Oct. 8, Dutch customs agents at Schipol Airport in Amsterdam intercepted a 50 kilogram, $52,500 shipment of generic blood-thinner clopidogrel, according to papers supplied by the manufacturer, Chandigarh, India-based Ind-Swift Ltd.One ingredient identified the drug as under patent to Sanofi-Aventis of France. Following the EU's 2003 regulation, Dutch customs seized the drugs on behalf of Sanofi.In two letters, a lawyer for Sanofi told the recipient in Colombia, a company that sells pharmaceuticals called Betalactamicos SA, that they had violated Sanofi's EU patent rights. The lawyer invoked a July 18, 2008, Dutch court ruling that the same intellectual property rules must apply to goods in transit as if they had been "manufactured in the Netherlands."The second letter, reviewed by The Wall Street Journal, was titled "counterfeit clopidogrel" and threatened "further action" if the goods weren't destroyed and the claim wasn't settled out of court. In April, the claim was settled. Sanofi consented to the drugs' release in May, six months after the shipment was seized, according to Ind-Swift and Sanofi.A spokesman for Sanofi said the company doesn't comment on cases involving other pharmaceutical companies.Ind-Swift has since changed the route of all of its shipments, sending them instead through Singapore or Malaysia at double the cost, says N.R. Munjal, vice chairman of Ind-Swift.The European Federation of Pharmaceutical Industries and Associations said in a statement that EU countries have the right "to stop products that they suspect may be counterfeit from entering the supply chain."In November, Dutch officials seized two shipments from Mumbai-based Cipla, one of capsules of the Alzheimer's disease medicine rivastigmine and another of tablets of the antipsychotic medicine olanzapine, according to Cipla and Dutch customs officials.Novartis, manufacturer of rivastigmine, asked Cipla to sign a letter admitting that it had infringed on the European company's patents and promising that Cipla wouldn't do so again, Cipla and Novartis said.Cipla refused, saying the company believes a shipment in transit can never infringe on an EU patent, said Patsy Jeffery, who handles legal affairs at Cipla.The shipment, bound for Peru, was detained for five months, after which Novartis agreed to allow the medicine to continue on its journey. A spokeswoman for Novartis, Lisa Gilbert, says the company allowed the drugs to be released after it became clear they were headed for Peru, where there would be no patent violation.The Peru-bound shipment of olanzapine, the schizophrenia treatment that is one of the biggest-selling medicines in the world, is still being held in the Netherlands. Cipla is trying to negotiate the release of the medicine with Lilly, the patent holder in the Netherlands. The medicine has been held for more than eight months, Ms. Jeffery said.A spokesman for Lilly, Jamaison Schuler, says the company is discussing with Cipla how to "amicably settle this dispute." In general, he says, the company believes customs should check generics in transit to make sure they're not counterfeit and they don't violate patent laws.Dutch officials say they were merely doing their jobs. "We subscribe to the rights of developing countries to have access to this medication," says Ruud Stevens, a spokesman for the Dutch economics ministry. "But we have to enforce EU patent law."After India files its complaint, the WTO could, after a nine-month investigation, dismiss the case, or rule that India has the right to impose retaliatory tariffs on the import of goods from the EU.
