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(I) Introduction
On May 8, 1981, Prime Minister, Late Mrs. Indira Gandhi, addressing the World
Health Assembly in Geneva, said:
Affluent societies are
spending vast sums of money understandably on the search for new products and
processes to alleviate suffering and to prolong life. In the process, drug
manufactures have become a powerful industry. My idea of a better- ordered world
is one in which medical discoveries would be free of patents and there would be
no profiteering from life or death.-
Quoted in B.K.Keayla, Conquest by Patents, 1998
The national sentiment on
the issue of product patents is well captured in the above oft -quoted
statement. But the Indian Patent Act of 1970 was amended on March 22, 2005, to
fulfill its obligation under the TRIPS agreement, thus marking the end of a
protected era and signaling a new phase in the integration of India into the
global pharmaceutical market. It is indeed ironical, as the people who claim to
represent her legacy foist a very different world on the people of this country,
with the passing of the Patents (Amendment) Act, 2005(the
Act).
India, without a doubt,
recognizes that there is perhaps no industry that relies as heavily on patents
as the pharmaceutical industry. And now that the Patents (Amendment) Act, 2005
provides for the Trade Related Aspects of Intellectual Property Rights (TRIPS)
regime, it is indeed very important to understand the impact it will have on the
$4.5 billion Indian Pharmaceutical Industry representing 1.6% of the global
market , and, also considering the fact that “patent” is a critical issue that
impinges upon the life of every common man.
(II) The Pharmaceutical
Industry and the Indian Patent System
The first Indian Patent Act was enacted in 1856 which was replaced by a more
comprehensive Patents and Design Act in 1911. The Act of 1911 allowed for
product-patents for drugs and medicines. The consequences of having strong
intellectual property laws in place were that the foreign companies or the MNCs
enjoyed a complete monopoly and charged exorbitant prices, and thus dominated
the Indian drug market. They were engaged mainly in the import of drugs from
their country of origin. During that time the MNCs who were controlling 80% of
the market did not come forward with financial investment and technological help
to establish drug production centres in India. An American Senate Committee
headed by Senator Kefauver stated in 1959 in its report that
in drugs, generally, India ranks amongst the highest priced nations of the
world.
The Indian Patents Act, 1970
was a response to the Patents Act, 1911, as according to one commentator, the
1970 Indian Patent Act stemmed from a 1959 Ayyangar Committee report that
examined the reasons for the high cost of drugs in post - independence India and
concluded that
the high prices resulted
from the monopoly control foreign based pharmaceutical companies exercised over
the production of drugs. Thanks to the prevailing patent regime.
To remedy this issue the Act of 1970 not only excluded drugs from the product
claims category but also redefined the
working of the patent
as its commercial exploitation within India, and excluded any importation from
abroad. It also introduced safeguards like the Automatic Right to License in the
case of life-saving drugs. These safeguards along with the Drug Price Control
Order, 1970, which put a cap on the maximum price that could be charged, ensured
that life-saving drugs are available at reasonable prices.
The Act of 1970 was hailed
by many developing countries and UNCTAD (United Nations Conference on Trade and
Development) as one of the most progressive statutes which safeguards the
interest of both the inventor and the consumer in a balanced manner. This Act
was a product of deep consideration and long deliberation to synchronize with
the Directive Principles of State Policy contained in the Constitution which
provides in Article 39 that:
":39. The State shall, in particular, direct its policy towards securing
(a) .
(b) That the ownership and control of the material sources of the community are
so distributed as best to sub serve the common good; and
(c) That the operation of the economic system does not result in the
concentration of wealth and means of production of the common detriment."
With a regulatory system focused on process patents which encouraged local firms
to come up with cheaper processes through reverse engineering, thus cutting the
cost of production, helped to establish the foundation of a strong and highly
competitive domestic pharmaceutical industry, and being in the grip of a rigid
price control framework transformed into a world supplier of bulk drugs and
medicines at affordable prices to common man in India and the developing world.
The evolution of the domestic pharmaceutical industry constitutes one of success
stories of the Indian economy. From being an import dependent industry in the
1950s, the Indian pharmaceutical sector has today achieved global recognition as
a low-cost producer of high-quality pharmaceutical products and its annual
exports turnover is in excess of $1.5 billion. This could be possible only
because there was no product patent system for drugs and pharmaceuticals.
But under the Patents (Amendment) Act, 2005 patents will be granted both for
products and processes for all the inventions in all fields of technology. The
other implications for the pharmaceutical sector under this new patent system
are:
(a) Term of the Patent: The patent term will be twenty years from the date of
the application under Article 33 of the TRIPS agreement (compared to the seven
years under the 1970 Act), which is applicable to all the member countries and
thus rules out all the differences in the protection terms prevailed in
different countries;
(b) Authorization for use of Patented Product: Patents will be granted
irrespective of the fact whether the drugs were produced locally or imported
from another country; though the grant of the patent excludes unauthorized use,
sale or manufacture of the patented item, yet there are clauses which provide
manufacturing or other such rights of the patented item to a person other than
the patent holder under Article 31.
(c) Reversal of Burden of Proof: Under Article 34 the onus of proving on the
legal complaint that process used by another enterprise is totally different
than the patented process would lie with the defendant and he will have to prove
that he is not guilty of infringement. (in the 1970 Act, the responsibility was
with the patent holder).
This is the broad framework, which will guide the pharmaceutical industry of
India in the WTO regime.
(III) Impact on the Pharmaceutical Sector on the Introduction of Product Patents
This amendment to the Act of 1970 making the Indian Patent Act TRIPS compliant
has accompanied intense debate and the striking feature of the continuing
discussions about pharmaceutical product patents is the divergence between the
strength of the claims made by both sides and the weakness of the empirical
foundations for those claims.
(a)
Product Patents and Prices of Medicines
Much of the debate on the impact of product patents on the pharmaceutical
industry in India has centred on the issues of price of the patented product and
their accessibility.
The AIDS epidemic has made evident the fact that the cost of health care and
drugs is becoming prohibitive in the entire world as a result of implementing
the product patent system. The debilitating immune disorder currently afflicts
some 40 million people worldwide. The more telling fact in the data shown is
that, while most new AIDS drugs are developed in North America more than 70
percent of AIDS patients live in sub-Saharan Africa, where few can afford the
drugs they desperately need to survive . Effective antiretroviral (ARV)
treatment to combat the disease can cost up to US$15,000 annually ; even the
cheapest current costs is US$350 per year which exceeds the annual per capita
incomes of many of the most severely affected areas. In poor countries, drug
prices are closely connected to exclusive marketing rights (EMRs) and product
patents, and patents preventing generic drug production, or cheap imports put
drugs beyond the reach of the common people. For example, Flucanazole, an ARV,
was not patented in Thailand. Pfizer was selling the drug for US $6.2 while the
Thai manufacturer priced the drug for US$ 0.3, 207 times cheaper than Pfizer. In
South Africa, the same drug was priced at US$ 21.4 because no generics were
available.
The prices of drugs in India are in fact much lower than the prices in other
countries like Pakistan, U.K. and U.S.A., where product patents are in force.
Ranitidine is sold by Glaxo in India at Rs. 7.20. The same product is sold by
the same company in Pakistan at Rs. 65 and in the U.S.A. at Rs. 545. Similarly,
the anti-viral drug Aciclovir costs Rs. 33.75 in India while the same drug is
sold in Pakistan at Rs. 363.
Irrespective of the competition, because of the socio-welfare implication of the
pharmaceutical prices, all over the world other than in the US, the prices of
medicines are subject to government regulations. In France and Italy, the
manufacturer’s price must be approved for a product to be reimbursed by the
social insurance programme. In the absence of such health security schemes and
with the very low purchasing power of the people in India, the Government of
India has brought certain essential drugs under the price control. The price
control along with the amendment of patent laws in early ‘70s resulted in a
declining impact on prices. Based on India’s own experience and on a selective
comparison of prices of a few drugs in countries where product patents is in
force, intellectuals forewarn that the stronger protection would result in
increase in the prices of the drugs and thus medicines will be inaccessible to
common people.
One of the major advantages of the universal system is that, it would facilitate
access to new medical products. While the welfare loss due to the possible price
increase in the post WTO regime is highlighted in most of the studies, the
welfare loss due to the non-introduction of new-patented drugs in India due to
the weak protection regime is not discussed adequately. In this context, one of
the advantages of the product patents is that the stronger patents will provide
access to the latest inventions in drugs, which the developed world will not shy
away from introducing in India. It is observed that, though Pakistan also has
process patent regime, some of the new drugs that were introduced in Pakistan by
the MNCs were not introduced in India at all even though these MNCs were present
in the country. This is because the MNCs feared about the competition from the
counterfeit products in India, whereas in Pakistan MNCs are stronger than the
domestic firms.
But it also argued that since the new patent regime would either raise the
prices of new drugs to the international level or make the Indian population
wait until the patent expires and drugs become cheaper, they in any case will be
consuming
old drugs, and the purpose of getting quicker access to new drugs
will be defeated. So actually prices would increase without much welfare gains
in terms of access to new drugs.
It is also possible that higher prices charged by the MNCs may not really affect
the consumers because; the research activities undertaken by the MNCs are
totally different and not pertain to the Least Developed Country (LDC) market.
Only 13 of 1373 new molecules developed during the last 30 years target diseases
of tropical countries like India. Hence it can be said that the percentage of
population affected by the price rise would be very less.
A related issue is the wider use of cost effective generic drugs. In the US and
some parts of Europe, the pharmacists are authorised to dispense generic drugs
in the place of a prescription drugs, which will cost less than the prescription
drug. Thus, the consumers have the option to choose between the generic and the
branded drug. However, if the doctor writes it as `dispense as written’ then the
pharmacist cannot change the drug. Unlike the other consumer items, in the case
of drugs, the consumer goes by what has been prescribed by the physician. Hence,
in the post WTO regime, the physicians will play a crucial role in choosing
between a patented drug and a generic drug, in cases where alternatives are
available and help the consumers from being exploited by the market forces.
There is nothing in the GATT treaty, which prevents India from continuing to use
price regulation to protect the consumers against exploitation through high
prices. The drug price control mechanisms prevalent in India are applicable on
the patented drugs too.
(b)
Product Patents and Research and Development
One of the advantages of the universal patent regime is that private venture
capital firms become willing to invest in technology based start up companies;
technical knowledge flows more readily from university laboratories to the
market place and local firms become willing to devote substantial resources to
internal research. Available evidence shows that patents are important for
chemicals and particularly for pharmaceuticals basically because of the huge R&D
costs incurred by the firms . Also, the purpose of the patent is to provide a
form of protection for the technological advances and thereby reward the
innovator not only for the innovation but also for the development of an
invention up to the point at which it is technologically feasible and
marketable.
The higher cost of the R&D proves to be an effective entry barrier for new firms
and hence only firms with large flow of funds become responsible for industrial
inventive activity . In developing countries, only a few firms have
sophisticated R&D facilities and others benefit mainly from the spillovers of
the resultant R&D. But, in order to move on to the higher echelon, firms need to
invest in R&D. More often small firms shy away from investing in R&D because;
financial risk is too high as there are more possibilities of failure than
success. For instance, cost of developing one new drug in the US increased from
$54 million in 1970 to $231 million in 1990. Recent studies indicate that 1 out
of 5000 compounds synthesized during applied research eventually reaches the
market. Other estimates indicate that of 100 drugs that enter the clinical
testing phase I, about 70 complete phase I, 33 complete phase II, and 25-30
clear phase III. Only two-thirds of the drugs that enter phase III is ultimately
marketed.
According to a US FDA report 84 per cent of new drugs placed on the market by
large US firms during the period 1981-88 had little or no potential therapeutic
gain over existing drug therapies. Similarly in a study of 775 New Chemical
Entities introduced in to the world during the period 1975-89, only 95 were
rated to be truly innovative.
Because of these reasons and due to the protected policy regime, the R&D
investment in India has been very low and started picking up only in the early
‘90s .Of the Rs.1, 800 crores spent on R&D in 1998, 35 per cent belongs to the
public and joint sector and that of the private sector is about 65 per cent. In
spite of the growing investment in R&D, R&D as percentage of sales ratio
stagnates around 2 per cent. Further of the 1261 Department of Science and
Technology recognised R&D units, 256 have spent more than Rs. 1 crore every
year. 350 have spent between Rs.25 lakhs and Rs. 1 crore and the remaining below
Rs. 25 lakhs . This indicates that most of the R&D investment was perhaps
directed towards process improvements and adapting the technology to local
conditions thus resulting in technology spillovers rather than in new product
developments. For instance, the UK multinational Glaxo was faced with several
local competitors on the first day when its subsidiary marketed its proprietary
drug Ranitidine in India , because the competitors enabled by the weaker patent
regime were ready with the indigenous version of Ranitidine.
The more recent
case of adapting the technology developed elsewhere to local conditions enabled
by the process patent regime is the case of Viagra introduced by Pfizer. A
patent for this drug was granted by the US patent office to Pfizer in 1993. The
company spent about 13 years and several millions of dollars to develop the
drug. Apparently what took Pfizer 13 years and millions of dollars in R&D to
perfect, the Indian firms have managed to do in weeks, for a fraction of costs.
Of the 30 raw materials used in this drug, 26 are available locally. Utilising
the information that was available on the Internet, US patent records and
industry literature some of the Indian firms started their work on the
indigenous version of Viagra, which was available in the market within weeks of
Pfizer formally launching the product. Absence of stronger protection in the
chemical and pharmaceutical sector in developing countries like India is cited
as one of the reasons that holds back foreign investment especially from
countries like the US, Japan and Germany . However, with the change in scenario,
domestic companies, which had invested in biotechnology, were finding the lack
of protection as a problem to commercialise their innovations , because in DNA
recombinant technologies, novelty is the product. The process of discovery is
complicated, but once the product is obtained, its propagation can be achieved
in many ways.
There has been an apprehension that in the wake of globalisation the focus of
research in the LDCs could change and the major R&D firms may be more involved
in drug discovery that addresses the global diseases and neglect the research
that is more relevant for the LDCs. In this context Amit Sen Gupta, of the
National Working Group on Patent Laws, adds: “I think for me it’s frightening
that ten or twelve people today are deciding what are the kind of drugs that
need to be researched because clearly those drugs are being researched not
because of the health needs but based on how much profits they can bring in.
That’s why you have research money going into drugs for baldness or Viagra but
the last drug for tuberculosis was 30 years back. When you deny people cars or
washing machines they don’t die, when you deny people drugs they die
and they
die in millions.
With transition into the new regime many Indian companies are mobilizing their
resources war chest with an increase in their R&D budget. Government of India (GOI)
encouraged the R&D in pharmaceutical companies by extending 10 year tax holiday
to this sector. Besides, planning commission earmarked $34 million towards drug
industry R&D promotion fund for the tenth plan.
(c)
Product Patents and Foreign Direct Investment
One of the expected outcomes of strengthening the IPR is the increase in foreign
direct investment (FDI) in R&D, direct manufacturing or joint ventures. However,
the impact of stronger patents on FDI remains inconclusive from the available
evidence since IPR is only one of the factors in attracting FDI. FDI flows
depend on skills availability, technology status, R&D capacity, enterprise level
competence and institutional and other supporting technological infrastructure .
Highlighting the FDI flows to countries with allegedly low levels of IPR
protection, Correa observes that the perceived inadequacies of intellectual
property protection did not hinder FDI inflows in global terms. Thus FDI
increased substantially in Brazil since 1970 until the debt crisis exploded in
1985, while in Thailand FDI boomed during the eighties. In contrast developing
countries that had adopted stronger protection have not received significant FDI
inflows. He further observes that FDI in the pharmaceutical industry outpaced
FDI in most other sectors in Brazil after patent protection for medicines was
abolished in that country. In Italy after the introduction of process patent
protection in 1978, FDI increased. Myriam Orlenna, Executive Director of the
Chilean National Industry Association declared, “The trade benefits and
investments which were promised in exchange for the implementation of a US style
patent law have never materialized.” Hence, it appears that patent production
does not have significant impact on FDI.
(d)
Product Patents and Technology Transfer
To qualify for the patent, an invention should be novel, non-obvious and capable
of industrial application. As per this, the applicant reveals the content of the
patent in the patent application, which is in the public domain. However, such
disclosure could undermine the competitive advantage of the invention
encouraging the innovator to protect the invention as a trade secret rather than
with a patent. For as detailed earlier in the case of Viagra, it is possible to
get access to patent information from the patent office of any of the countries
and develop a new product based on the information obtained in the patent
application form thanks to the rapid development of information technology. A
sizeable level of technology currently available is due to `spill overs’ or
developing an alternative process that is very close to the existing one. This
is the reason why the actual technology in a patent is often kept as a trade
secret and which leads to entering in to a separate licensing agreement with the
innovator for the transfer of that technology.
The high cost of development and rapid obsolescence may prevent the transfer of
technology and the patent holder may prefer direct exploitation or import of
products than transferring the technology or know-how. Fear of competition also
dissuades the transfer of technology or demands a high royalty for the transfer,
but huge royalties may have a negative impact on the expenditure on R&D. In the
case of India, though in the pre’70s era, the technology transfer by the big
TNCs did not support the indigenous technological abilities, yet in the post
‘70s, a large number of small and medium size firms have also been transferring
their drug technologies to India, thus encouraging an atmosphere of competition
in technology transfer . But India has encountered difficulties in getting
access to technology for a component known as HFC 134 A, which is considered the
best available replacement for certain chlorofluorocarbons. Patents and trade
secrets cover this technology, and the companies that possess them are unwilling
to transfer it without majority control over the ownership of the Indian
company.
(IV) Conclusion
The strength of the Indian pharmaceutical industry is in reverse engineering.
Such units by utilising the provisions under compulsory licensing and exceptions
to exclusive rights under the TRIPS agreement should aim at producing the
generic version of the patented product and those that are nearing patent
expiry. Such firms should also be engaged in research leading to new drug
delivery mechanisms and in identifying new uses of existing drugs. In this
context, it is also essential to protect the innovations that have been
introduced by the technology spillovers. In order to develop domestic
innovations, developing countries require utility models or petty patents. These
petty patents can be available for a shorter period of time for process
innovations made over an existing product. The TRIPS agreement leaves members to
introduce such legislation, as there are no specific rules on this subject. Such
patents will encourage the small firms.
It is true that the impending WTO regime has stimulated the R&D investment in
India. Some of the big units have started strengthening their R&D and have also
filed number of applications for patents. There is some evidence available
regarding the mergers and amalgamations to pool the human and financial
resources to strengthen the R&D in new product development. These firms will
definitely benefit by the stronger protection. Some of the R&D and manufacturing
facilities set up in these firms meet the international standards, and they have
already been approached by multinationals for conducting research and
undertaking manufacturing on their behalf. Besides the R&D investment in
traditional chemical based screening, some of the R&D firms are looking for
breakthroughs in biotechnology research.
One of the concerns regarding product patents is the access to patented
products. Some of the provisions within the TRIPS agreement mentioned in the
above paragraphs clearly indicate that price controls could be imposed on the
patented products. However, exemptions from price controls has been suggested by
the government for the products that are produced domestically using the
domestic R&D and resources and are patented in India. Such exemptions will keep
the prices high and make access to the drugs difficult.
A majority of the population does not have access to the essential medicines
(most of which are off patent) either in the government or private health care
systems because they are not within their capacity to reach. Now that the
percentage of drugs under price control has been reduced drastically it is
essential to keep the prices of the essential drugs under check, especially
those concerning the common diseases.
Also the government should probe in to factors that contribute to the widening
gap between the proposed FDI and the actual FDI and rectify these bottlenecks.
Similarly the difference between the number of patents filed and the patents
granted calls for a detailed analysis to figure out where the Indian firms are
lacking.
The real impact will be seen only over the next 2-3 years in the field of
innovative drug discoveries: estimated to be only 3 per cent of the global
formulations market. Foreign brokerage Refco Global Research commenting on the
new product patent regime says, "The average developing time for such drugs is
10-12 years, so the earliest drugs are not likely to come through until
2006-07." Thus firm conclusions of the impact of the new IPR regime must await
further implementation of the Act.
As far as India’s pharmaceutical industry is concerned, various options are
possible in the WTO regime. But ultimately, the path currently being followed by
international
standards for patent protection moves inevitably toward a clash between public
health and intellectual property. Despite the Doha Declaration’s affirmation of
public health as the paramount concern, it is not clear how such an objective
would be achieved, because generic substitution is so instrumental in the effort
to improve drug accessibility. Stringent intellectual property protection for
pharmaceuticals would only retard public health initiatives in the coming years.
Given the rapid evolution of the AIDS crisis throughout the world, with more
than 35 million cases alone in India , a twenty-year
term of market exclusivity for new treatments is not reasonable if we expect to
make real progress in containing the disease. It might well be appropriate for a
governing body to clearly define a list of
essential
medicines, such as
antiretroviral (ARV) agents, that would be subject to somewhat more relaxed
patent protection compared to other drugs.
The critical point is that
the pharmaceutical industry and trade negotiators alike should not forget the
true goal of drug innovation: saving lives. Profit should always be a means to
this end, not vice versa. Only by keeping this principle in mind and achieving a
better understanding of the modern world health situation can we hope to
effectively ensure the safety and well-being of the people of India and the
world’s population as a whole in the twenty-first century and beyond.
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The author can be reached at :suudipta@legalserviceindia.com
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Product
Patent for the Indian Pharmaceutical Sector under the TRIPS
regime
