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Saturday, Mar 12, 2005

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Opinion - Leader Page Articles

The draft patent law

By Frederick M. Abbott, Amy Kapczynski & T. N. Srinivasan

Its generic manufactures are too crucial for India, and for the world, to be allowed by a misguided patent law to be wiped out.

THE BASIC purpose of any patent system that grants a temporary monopoly or exclusive rights to an innovator is to stimulate innovation and also investment in the production of the newly innovated goods and services. The utilitarian justification for the system is the expectation that the gains to society from greater innovation will outweigh the effects that higher prices have on consumers. There is, however, little empirical evidence that patents function as intended, although in selected industries such as pharmaceuticals the association between innovation and patent protection is somewhat stronger. (Josh Lerner, "150 years of Patent Protection," American Economic Review Papers and Proceedings 92 (May), 2002: 221-25, and Lee Branstetter & Marko Sakakibara, Do Stronger Patents induce More Innovation? Evidence from the 1988 Japanese Patent Law Reforms, RAND Journal of Economics 32: 77-100 (2001))

Until recently, patent systems around the world differed dramatically, for example, in terms of what innovations were deemed patentable and how long patents lasted. This was sensible because social benefits and costs from patents vary according to the type of innovation and the countries' stages of development. For example, India's Patent Act of 1970 excluded patents on products such as pharmaceuticals and foods. Undoubtedly, this encouraged the phenomenal growth of the generic pharmaceutical industry in India.

All this changed with the signing of the agreement concluding the Uruguay Round of multilateral trade negotiations under the auspices of GATT in Marrakesh in 1994. This agreement created the World Trade Organisation and included a treaty called the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS), which mandates a U.S.-style patent system for all members of the WTO. TRIPS requires countries to offer patents in all fields of technology, to products as well as processes, and establishes a uniform 20-year term for all patents regardless of the social cost and benefit from the patented innovation. The only concession to the varying stages of development among countries was the longer time allowed to developing and least developed countries to bring their national patent system into conformity with the TRIPS Agreement. India was generally required to conform its patent system to TRIPS standards by January 1, 2000, and did so. But India had until January 1, 2005 to provide product patent coverage for pharmaceuticals and agricultural chemicals. The Patent Ordinance, promulgated in December 2004, addressed this requirement.

In its current session, Parliament will debate and enact legislation to replace the Ordinance. It must consider how to structure it to India's advantage while conforming to TRIPS. The option not to grant product patents for medicines is no longer available. Not only does India have to provide patent protection for medicines developed after January 1, 2005, it also has to consider applications filed during 1995-2005 under the so-called "mailbox" provision (Article 70.8) of TRIPS. Because these applications might cover brand name products for which Indian companies are currently providing cheaper generic substitutes (e.g., antiretrovirals), it is likely that prices of essential drugs will go up significantly once patents are granted. It would indeed be a major calamity if India's efforts to contain the AIDS epidemic and prolong the lives of the millions who are HIV positive is hampered, if not crippled, because Indian generics are pushed out of the markets by the newly granted patents on branded products.

Details of the 7,000 applications in the mailbox have recently been made public. An analysis by the Indian Pharmaceutical Alliance of these suggests staggering and disturbing implications. Since only 250 of the applications could relate to new chemical entities and associated new drugs that were developed outside India during the 10-year period of 1995-2005 (See National Institute for Health Care Management, Changing Patterns of Pharmaceutical Innovation (2002) relied on by the U.S. Federal Trade Commission in To Promote Innovation: The Proper Balance of Competition and Patent Law and Policy, October 2003.), the other 6,750 must relate to something else — including, for example, minor changes to the structure of molecules. Indian generic producers who are manufacturing drugs which were invented even before 1995 could now be blocked from the market as foreign producers might be granted Indian patents for older drugs based on later-filed something else patents. Very few Indian generic producers have the financial means to fight protracted legal battles with the major multinational pharmaceutical companies over the thousands of something else patents or will choose to do so.

Nothing in the TRIPS Agreement requires India to accept this onslaught. As per Article 27 of TRIPS, the three criteria for patentability are "novelty," "inventive step" and "capability of industrial application." That most of the claims in mailbox applications are not "inventive" in a patent law sense will be obvious to anyone in the pharmaceutical industry. For example, a patent application may cover the idea of combining two anti-AIDS medicines in a single tablet, on the theory that putting the medicines together makes it easier for the patient to adhere to a treatment regimen. (The incentive for pharma companies to apply for such patents is obvious — if granted, such patents could be used to extend the life of existing patents indefinitely. This is known as "evergreening" in the literature.) The theory may be true but the idea is obvious. And if such applications are rewarded with patents, they will block generic versions of combination pills — produced by Indian companies, which today make the world's cheapest AIDS treatments, upon which hundreds of thousands of patients around the world depend for their lives.

The Indian Parliament can prevent these problems by allowing patents only for new chemical entities and for modifications to these entities that are clinically demonstrated to be a significant therapeutic improvement over any previously patented form of the medicine. Such a demonstration, though not required under U.S. or European patent law, is permitted by TRIPS.

Secondly, Indian law should retain maximum flexibilities available in TRIPS Articles 30, and particularly Article 31 relating to compulsory licensing. India currently allows the grant of compulsory licenses, but the procedure is cumbersome and offers many opportunities for patent holders to delay or prevent the grant of such licences. This process must be streamlined. In addition, the Ordinance imposes an unnecessary hurdle on many developing countries without their own manufacturing capacity who might want to buy low-cost drugs from India as permitted under the waiver to Articles 31 (f) and (h) of TRIPS adopted on August 30, 2003 by the WTO General Council. The Ordinance requires them to grant a compulsory patent license even if the drug is not patented there. This hurdle is unnecessary, benefits no one, and is not required by the waiver, of which India was, in fact, a champion! India's generic producers, who could produce for export, need as much breathing space as can be legally provided without violating TRIPS so that they continue their successful supply of low-cost products to Indian and world markets.

Third, India's Patent Act of 1970 included a so-called "pre-grant opposition" right to third parties seeking to challenge a patent application before the patent was granted. The Ordinance apparently changes this from a right to a discretionary act by the Controller General of Patents who decides whether a challenge should be allowed. Since the TRIPS Agreement as well as patent laws in a number of developed countries permit the use of pre-grant opposition, it is important for India to allow them. This is particularly important with respect to the mailbox applications because, without effective pre-grant opposition, generic producers may need to challenge thousands of improvidently granted patents in the courts, placing them at a significant disadvantage compared to the better financed foreign multinationals.

Fourthly, Parliament should consider whether India would benefit from a global exhaustion regime — i.e. from allowing medicines that have been lawfully placed on the market with the consent of patent holder in another country to be imported into India. The U.S. Congress is considering this as a strategy to lower the price of medicines. Finally, India should join with other like-minded developing countries in the ongoing Doha Round of multilateral trade negotiations in pressing for further liberalisation of Articles 30 and 31 of TRIPS to enable developing countries to meet public health concerns in the manner they deem best. Countries should have the freedom to apply social cost-benefit calculus relevant to their circumstances in a transparent and predictable manner in determining whether to grant a patent and, if so, on what terms.

There is an expectation that by legislating a highly protective patent regime — such as that of the Ordinance — India would attract substantial investment by foreign multinational drug companies and would become an attractive venue for clinical testing of drugs. Such investment, whether greenfield investments, buy-outs of, or mergers with, Indian producers could indeed be attractive. However, the downsides are significant. Most likely, prices of medicines in India will go up substantially. It is possible, though not inevitable, that foreign and domestic companies in India will tilt their research towards generating drugs, including the so-called lifestyle drugs, for upscale world markets, rather than work on developing drugs for diseases, such as malaria and tuberculosis, afflicting billions of the poor in the developing world. There is a danger that India, instead of promoting a homegrown pharmaceutical revolution, will end up encouraging giant pharmaceutical oligopolies. As the New York Times editorial (March 5, 2005) said: "Seldom has India's Parliament considered anything of such global import. If Parliament can preserve India's ability to provide generic[s] . . . it will make the difference between life and death for millions of people at home and abroad." Indian generic manufactures are too crucial for India, and for the world, to be allowed by a misguided patent law to be wiped out.

(Frederick M. Abbott is Edward Ball Eminent Scholar at Florida State University College of Law, Amy Kapczynski is post-doctoral fellow at Yale University, and T.N. Srinivasan is Samuel C. Park Jr. Professor of Economics at Yale University.)

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