[Ip-health] News: Frontline (India)- Patent concerns

Terri - Louise Beswick Terri at haiweb.org
Thu Sep 9 02:00:10 PDT 2010

Volume 27 - Issue 19 :: Sep. 11-24, 2010




Patent concerns




The discussion paper on compulsory licensing of patents will have
achieved its purpose if it can lead to a proactive policy in the area of
drugs and health.


IN a proactive move to ensure a fair balance between protection of
intellectual property rights and protection of the public interest, the
Department of Industrial Policy and Promotion (DIPP) of the Ministry of
Commerce and Industry has chosen to put out a discussion paper on the
issue of Compulsory Licensing of Patents. Compulsory Licensing (CL)
involves providing for an agent other than the holder of the patent for
a product or process to produce or market that product without the
consent of the patent holder.


In principle, the right of the government to resort to compulsory
licensing can be invoked when the patent holder does not work the
patent, or does so in a manner that is inimical to the public interest,
leading to "unreasonable prices", inadequate technological progress, or
inability to deal with public health or other emergencies.


The factors motivating the release of the paper are spelt out clearly.
India having signed on to the Agreement on Trade-Related Aspects of
Intellectual Property Rights (TRIPS) under the World Trade Organisation
(WTO), having suitably modified its Patents and Trade Marks Acts and
having enacted the Designs and Geographical Indications Act, has a
transparent regime for the protection of intellectual property (IP).
However, any regime that protects IP must provide for ways to prevent
the misuse of that protection or of its use in situations where it
obviously hurts the public interest. One of the accepted and tested
mechanisms to deal with situations of improper use is compulsory
licensing. The paper claims to be motivated by the desire to "develop a
predictable environment" for the use of such measures.


None can criticise this benign motive. But stating it in this fashion
underplays the significance of the paper and the discussion it seeks to
initiate. The paper is also welcome and significant because it spells
out the circumstances in which the compulsory licensing option is
available to the government, as defined by international and domestic
treaties and laws. The discussion it generates will, therefore,
hopefully help clarify when it will be appropriate for the Indian
government to exercise this legal right and intervene in favour of the
public interest and against the holder of a patent.


Such a discussion is important because, as the paper notes, after India
amended its Patents Act to make it TRIPS compliant and recognise product
patents, the government has not exercised the right to compulsory
licensing even once. This is despite the fact that in a crucial public
health-related area like drugs and pharmaceuticals, the transition to
the new regime must have made a considerable difference. As is widely
recognised, the pure-process and no-product patenting regime of the past
had helped ensure both adequate availability and low prices of essential
drugs within the country.


The government's reticence to exercise the CL option is not because such
caution is the norm across the world. In fact, developed countries such
as Canada, the United Kingdom and Italy and developing countries such as
Brazil, Thailand, Malaysia, South Africa and Kenya have resorted to such
licensing in the case of drugs and pharmaceuticals, especially during
the past six years.


Considerable flexibility


While noting the excessive caution on the part of the Government of
India, the discussion paper underlines an important issue. While much of
the discussion on CL has been in the context of the need to ensure local
working of the patent to support public, non-commercial use (as in the
public health system) or to deal with national emergencies, the TRIPS
agreement does not restrict the right to CL to such situations.


In fact, when the aim of the measure is to deal with anti-competitive
practices, the agreement provides considerable flexibility to
governments. In most areas there are no restrictions on the
circumstances in which a CL can be issued nor is the procedure to be
adopted for issuing a CL specified. Even in the case of drugs and
pharmaceuticals, there is no restriction that such measures should be
taken only to address public health concerns.


Thus, states the discussion note, "significant flexibility is provided
to the member countries for the issue of a CL". Fortunately for India,
because of public discussion and debate, our own Patents Act has not
foreclosed the ability of the government to make appropriate use of this


Having underlined these issues, the paper makes an important
contribution by seeking to illustrate the implications of the
flexibility available in the case of the drugs and pharmaceuticals
sector. It begins this discussion by considering whether there is a case
for intervention in the public interest in this industry, where policy
should be motivated by the objective set by the National Pharmaceutical
Policy-2002 of ensuring "abundant availability at reasonable prices of
good quality essential pharmaceuticals of mass consumption".


While India had been able to make substantial progress in this
direction, especially during the years when the government did not
recognise product patents and allowed patented drugs to be produced
indigenously using alternative processes, there is, according to the
paper, cause for concern about the development of the industry in recent


To start with, despite past achievements, the objective of ensuring
adequate availability of essential drugs at reasonable prices has not
been realised. It was for this reason that the draft National
Pharmaceutical Policy-2006 included among the government's objectives
the tasks of a) ensuring availability of good quality medicines at
reasonable prices; and (b) improving access to essential medicines for
the common man and the poorer sections of the population. In particular,
it drew attention to the high prices and consequent low demand for drugs
needed to treat cancer and human immunodeficiency virus/acquired immune
deficiency syndrome (HIV/AIDS).


The discussion note also draws attention to the forty-fifth report of
the Department-related Parliamentary Standing Committee on Health and
Family Welfare, which expressed its concern about:


a. The high prices of newly patented medicines, which were not being
regulated by the National Pharmaceutical Pricing Authority.


b. The increasing incidence of unorthodox practices, such as the
substitution of regulated drugs with alternatives incorporating new
ingredients, so as to avoid regulation.


c. The super profits being generated by some drug companies that
exploited their monopoly position and set the prices of their products
substantially above cost.


d. The takeover of Indian drug companies by foreign companies and the
need to ensure that major Indian pharmaceutical companies remained in
Indian hands.


Examining recent developments in the industry the discussion paper, too,
finds that there is:


(i) evidence of growing concentration in the drugs and pharmaceuticals
industry, driven by mergers and acquisitions; (ii) evidence of
increasing control of firms in the industry by multinationals through
acquisition of large Indian firms; (iii) evidence of a growing focus on
export markets even when domestic needs are inadequately met; and (iv)
evidence that anti-competitive practices may be resulting in high and
unreasonable prices.


Moreover, argues the paper, foreign acquisitions of Indian firms besides
strengthening their oligopolistic power deriving from patents may weaken
the government's ability to intervene to realise its drug policy
objectives. This, in its view, could happen for a number of reasons. To
start with, large Indian pharmaceutical companies which have been taken
over by foreign companies may not be willing to apply for a Compulsory
Licence even if eligible. Thus, when the government notifies a public
emergency (for example) and recognises the need for the issue of a CL
for a particular drug, adequately capable manufacturers may not be
available to apply for CL and work the patent at a reasonable cost.
Foreign companies may also utilise the Indian companies they take over
as conduits to sell higher cost patented drugs or branded generics
rather than the cheaper generics that were being sold earlier.


Case for intervention


All of this makes a case for strong intervention to deal with structural
processes that could lead or are leading to anti-competitive practices.
The government should not only adopt but also go beyond the obvious
option of exercising the right to CL in times of emergency.


It can do so by invoking the right under government use for
non-commercial purposes provision or by invoking just the requirement to
make available drugs at reasonable prices. Both TRIPS and the domestic
legal framework centred on the Patents Act permit such intervention,
according to the paper. And they do so with rather lenient requirements
for royalty payment (of say 5 per cent), linked on the one hand to the
price of the drug concerned in global markets and on the other to the
(relative) per capita income of the country issuing a compulsory


But intervention need not stop here. The government can invoke the
Competition Act, 2002, to examine whether the high price and/or
inadequate availability of a drug is a consequence either of an
anti-competitive act or of the abuse of a dominant position, and
initiate suitable action. A study commissioned by the Competition
Commission is under way on the state of competition in the
pharmaceuticals industry. It would be interesting to examine the
implications of its findings in the light of the DIPP's views on the
role of monopoly.


The government can also review the decision to allow foreign equity
investments of up to 100 per cent in pharmaceutical firms through the
automatic route, and examine investments on a case-by-case basis to
establish whether they could lead to outcomes that go against the thrust
of the drug policy. And, finally, the government can extend the scope of
drug price regulation to bring a larger number of drugs under its


Thus, while the DIPP's immediate concern is the issue of compulsory
licensing, the implications of its analysis go beyond that. The effort
to initiate this debate and set its tone needs to be lauded. The paper
makes it clear that much can be done even within the law as it stands if
objectives and guidelines are defined clearly. It ends with a set of
questions relating to the terms on which compulsory licences should be
issued and the original patent holder compensated. Hopefully, they will
spur a much-needed debate that leads to a more proactive policy than the
one pursued hitherto in an area as crucial as drugs and health. This
could then influence policy in other important areas as well.




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