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Patents and Pharmaceuticals in India

provision was not there in the patent laws of the past, no technological progress would Patents and have occurred. According to Chaudhuri India has not taken advantage of the

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Patents and Pharmaceuticals in India

The WTO and India’s Pharmaceuticals Industry: Patent Protection, TRIPS, and Developing Countries

by Sudip Chaudhuri; Oxford University Press, New Delhi, 2005; pp xvi+358, Rs 650.

C NIRANJAN RAO

P
atents are supposed to be a means of encouraging investment in research and development (R&D) by private sector firms. There are inter-industry differences in how they are dependent on the patent system. The pharmaceutical industry is particularly dependent on the patent system because of two reasons. One, the technology is easy to reverse engineer, and the other, there are no entry barriers to the industry. This is the reason why most of the debate concerning patents has centred on the pharmaceutical industry.

In India, there was a particularly rich debate on the relationship between patents, and development, which started soon after independence. Efforts to develop a patent system of its own started in 1948 and culminated in the Patents Act, 1970. Till about 1986, there was a debate on whether India should join the Paris Convention. The inclusion of the so-called Trade Related Aspects of Intellectual Property Rights (TRIPS) as a negotiating subject at the Uruguay Round of multilateral trade negotiations of the General Agreement on Tariffs and Trade (GATT) was the reason for another round of debate. The debate continues with the implementation of the TRIPS agreement in India since 1994.

Given this context, the book under review would have been rather welcome to put all this in perspective. But it is disappointing work. The book has a strange imbalance, perhaps because it has been written over a two-decade period.

Chapter 2 gives an historical account of the Indian pharmaceutical industry. One interesting fact is that while the technology gap between Indian firms and foreign firms was non-existent before the therapeutic revolution around 1940, it started increasing later when foreign firms began investing in R&D while the Indian firms concentrated on developing alternate processes for known drugs. The therapeutic revolution also made patents important for the industry. The chapter also brings out clearly how the Indian Patents Act, 1970 was crucial in the growth of the Indian pharmaceutical industry. The chapter also deals with the public sector where the author seems to overemphasise its importance, and the role of public sector laboratories in developing indigenous technology, a treatment which is superficial and not well documented.

TRIPS and the 1970 Act

The 1970 Act gave space to Indian firms to develop alternate processes, and they did so successfully. These firms were able to develop alternate processes, keep prices low, introduce new drugs in the Indian market much earlier than before, and later on in the 1990s started exporting to developed country markets. All these would not have been possible without the 1970 Act.

Chapter 3 provides an interpretation of the TRIPS agreement and comments on how the 1970 Act was amended to make TRIPS consistent. Chaudhuri says “… flexibilities, which are promised in TRIPS” (pp 11 and 64), why promised why not provided? Chaudhuri discusses the socalled flexibilities under four headings, exemptions from grant of patents, exceptions to exclusive rights, limiting data protection, and compulsory licensing and government use. All these are minor except compulsory licensing, which we will discuss later. For example, under exceptions to exclusive rights, Chaudhuri discusses research and experimental use. If this provision was not there in the patent laws of the past, no technological progress would have occurred. According to Chaudhuri India has not taken advantage of the “flexibilities” provided by the TRIPS agreement.

Recently it has become a fashion in academic, bureaucratic and activist circles to talk about flexibilities in the TRIPS agreement. It is strange to hear comments such as “TRIPS provides flexibilities for governments to fine-tune the protection granted in order to meet social and economic goals” (p 11). On the one hand they say that TRIPS is a harsh agreement and on the other say that it has “flexibilities”. If there are “flexibilities”, then what is the problem with the TRIPS agreement? Most of these so-called ‘flexibilities’ are a mirage.

We will examine only Chaudhuri’s interpretation of the compulsory licensing provisions (of the non-emergency kind) of the TRIPS agreement. According to Chaudhuri, Article 31 stipulates the conditions under which a compulsory licence can be issued and not the grounds on which a compulsory licence can be issued. According to Chaudhuri (and others he refers to) the ground on which a compulsory licence can be issued which fulfils the conditions stipulated by the Article 31 is that “any qualified entity who fails to get a licence from the patentee on reasonable terms and within a reasonable period of time can apply for and be granted a compulsory licence” (p 88). Is it in fact so simple? This procedure resembles the “licence of right” provision of the 1970 Act, which has been removed as not consistent with the TRIPS agreement. (Under the licence of right provision in the 1970 Act, applicable to chemical, pharmaceutical and food products, the applicant could not be denied a licence for production of the patented product.) Under the licences of right, the patentee cannot refuse to give a licence, but can dispute the royalties to be paid. Chaudhuri gives the example of onlyChina, as having such a licence of right provision. Which other countries have adopted such a provision? And how has China used this provision since the mid-1990s.

Chaudhuri criticises the amendment to the 1970 Act regarding compulsory licensing provisions. India has broadly retained the grounds on which a compulsory

Economic and Political Weekly May 20, 2006 licensing can be issued in the 1970 Act removing only the provision that a compulsory licensing can be issued if an export market is not fulfilled. Chaudhuri says the provisions in the 1970 Act are cumbersome and the main reason for this provision not being used (these provisions were not applicable for drug inventions which were covered under the licences of right). We do not think so. Between 1972 and 1994, there were 24 applications for compulsory licences and only two were granted (Chaudhuri does not discuss the Indian experience with compulsory licensing under the 1970 Act). While the two compulsory licences were granted in late 1970s, no compulsory licence was granted after that. Ironically it was an administrative process. Another interesting fact is that among the applicants for compulsory licensing, we do not find any large Indian firm; all of them are small firms. There are reasons to expect that large Indian firms, which are dependent on foreign firms for their technological requirements, will not queue up in droves for applying for compulsory licences however user-friendly the provisions are.

R&D Strategy

If patents are meant to encourage investment in R&D through a legal monopoly, then compulsory licences are a means to encourage accessibility by reducing that monopoly. Essentially there is a conflict between the two. It has to be recognised that compulsory licensing may discourage investment in R&D, because there is a trade off. But Chaudhuri seems to suggest that a generalised compulsory licensing regime will provide the same returns to the patentee as in a no compulsory licensing regime, “If generic companies are given licences to produce a patented drug on payment of royalty, then competition among manufacturers would drive down prices, but the royalty paid to the innovators would continue to provide funds and the incentives for R&D” (p 83). Will the royalties provided by the compulsory licensees be the same, as the patentee would have got under a no compulsory licensing regime? Most probably not. If the prices are competitive, where does the extra normal profits come from? This sounds similar to the “inventors certificates” in place in former socialist countries, where the inventor has the right over the invention but cannot monopolise it and get royalty according to use?

Chapter 4, which is complimentary to chapter 3, deals with foreign companies in the Indian pharmaceutical industry mostly in the post-independence period. Apart from patent law, it deals with policies towards foreign direct investment (FDI) and the drug policies. The chapter documents the misuse of the Patents and Designs Act, 1911 by foreign companies, which kept prices high and prevented the development of alternate processes and manufacture of drugs in India.

While the 1911 Act did not actually provide for product patent protection, in effect it did so by granting patent protection to as many processes as the patentee chose. While during the period from independence to about 1970 the FDI policies as well as the patent system were favourable for foreign companies they were reluctant to start production in India. It is interesting to note that foreign companies invested more between 1972 and 1994 than the previous period, but it may be more due to industrial policies than changes in the patent law. This investment started declining again after 1994 because of changes in industrial and trade policies (p 136).

Chapter 5 gives an account of pharmaceutical R&D in India by foreign as well as Indian companies and also by the public sector. It says that none of these efforts are significant generally and specifically in relation to the neglected diseases. The private sector companies will not invest in R&D for neglected diseases because of low purchasing power of the people concerned. It has nothing to do with the patent system. Chaudhuri offers only a token criticism of the failure of the Indian public sector and the public-funded laboratories in this regard.

Other Issues

Chapter 6 deals with the generic pharmaceutical exports from India and basically concentrates on the US market. This chapter also discusses some of the R&D strategies of Indian companies and covers the development of non-infringing processes and novel drug delivery systems. Chapter 7 deals with accessibility of drugs and covers drug prices, drug quality, health insurance and differential pricing. While health insurance in India is in its infancy, Chaudhuri convincingly shows that differential pricing is not a viable and practical option to make drugs accessible.

Patents give a temporary legal monopoly so that the inventor can get extra normal profits. These extra normal profits are supposed to encourage investment in R&D. How can the inventor get extra normal profits, if the prices of the product patented drugs do not go up? Higher prices are the cost a society pays for encouraging inventions. And higher prices will make drugs inaccessible to a large section of the people.

Another major issue is the drug quality control system in India, which has been a major failure. One of the consequences of this is the dominance of branded offpatent (or not patented in India) drugs in the formulations market leading to market dominance by certain firms. Here branded drugs are partially fulfilling the role of drug quality control. Another instance is the “Delhi Model”, which the author approvingly cites as a case of institutional buying of drugs. The model incorporates a tender system, which essentially does the job of drug quality control.

There is an important question regarding the WHO essential drug list. The question is whether patented drugs are included in the list. Chaudhuri says, “One criterion for inclusion in the list is the price, and expensive drugs may not have been included” (p 228). Let us say there is an essential drug, which is under patent and hence its price is high, will it be included in the list or not? If the answer is no then the list should be called an affordable essential drug list.

Chapter 8 deals with drug price control experience in India. It shows that price control measures have been quite inadequate and not very successful because of various reasons, including administrative ones. Another aspect is that the price control regime has been diluted over the years. The author comes to the conclusion that it was the patent system, which was more important in the control of prices rather than the elaborate price control regime, and that under a product patent system an effective price control may not be possible.

Another important point brought out by Chaudhuri is that the mailbox provision that came into effect (more or less) in 1994 has deterred domestic firms from developing alternate processes. He says “In the previous patents regime, the indigenous companies would have developed processes for these drugs and put them in the market, forcing the price to fall. But this is not possible in the new product patent regime” (pp 140 and 311). This is in slight contradiction to his statement “It has been reported that Indian generic companies are producing and marketing a number of drug products for which MNCs have failed

Economic and Political Weekly May 20, 2006

mailbox applications” (p 69). If his previous statement is correct then the developed countries might have achieved a near product patent regime even during the socalled 10-year transition period between 1995 and 2004.

The traditional chemical-based pharmaceutical industry seems to have reached a plateau with new inventions becoming a rarity during the past two to three decades. This is one of the reasons why the invention of new drugs is becoming expensive. In this scenario biotechnology holds the future for the pharmaceutical industry. As TRIPS provides for patenting of biotechnology inventions this is the area which causes concern, not only about prices of drugs, but also of technological capability of Indian pharmaceutical firms in biotechnology. The book completely ignores this aspect.

The book while providing occasional brilliant insights into the working of the patent system and its various nuances, falls short of being a significant contribution to the debate on patents and pharmaceuticals in India.

m

Email: niranjan@cess.ac.in

Economic and Political Weekly May 20, 2006

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