PhRMA Submission to USTR on India for the 2002 Special 301 Report


The Indian Government has failed to meet current WTO TRIPS obligations to provide intellectual property protection for pharmaceutical products, although we have seen limited progress in reducing market access barriers discriminating against the U.S. pharmaceutical industry. India relentlessly promotes short-sighted political goals at the expense of its international obligations and its own long-term economic interests. However, it is indisputable that India also lacks the intellectual property infrastructure and capacity to meet minimum international standards and badly needs technical assistance in this area. In this context, the U.S. should both pursue a high-level dialogue to promote compliance with WTO disciplines across the board, including intellectual property, and at the same time expand international assistance opportunities for the training of patent examiners among other urgently needed technical cooperation. In current circumstances, PhRMA has no recourse but to continue to seek Priority Foreign Country (PFC) for India in 2002.

Intellectual Property Protection

India has missed multiple deadlines for compliance with current WTO TRIPS obligations applying to developing countries. Notwithstanding that India has elected to delay full patent protection until 2005, India remains seriously out of compliance with current obligations. Although most WTO TRIPS obligations took effect for India from January 1, 2000, TRIPS Article 65.4 delays the obligation to administer the formal system of patent examination and registration required by TRIPS Articles 27 - 34 for pharmaceutical and agro-chemical products. Only these TRIPS obligations, and no others, are affected. Accordingly, the Indian Government is bound by the January 1, 2000 deadline for requirements to respect the confidential protected data of originator firms, and formal protection for confidential data (39.3), as well as a panoply of enforcement and judicial remedies (TRIPS 41 - 61). In addition, the Government of India had been obligated since January 1, 1995 to enact a patent mailbox (Article 70.8), and provide exclusive marketing rights (EMR) (Article 70.9). In fact, the Parliamentary Committee, which deliberated on the amendments, made in the Patents (Second Amendment) Bill, 1999 for the last two years, delayed India’s meeting its TRIPS obligation. More alarming however, is the that fact that in its Report submitted in December 2001, the Committee has further diluted the draft legislation, severally undercutting if not eliminating, anticipated benefits accruing to patent holders.

So, we are left to India’s current industrial property system, which was designed to allow local Indian industries to free ride on the innovations of inventors and companies from developed countries like the United States. Their patent system denies rights for pharmaceutical and other chemical product inventions and makes procurement and enforcement of patent rights virtually impossible. Most U.S. companies do not even attempt to obtain patents in India because of the difficulties they face in obtaining, licensing and enforcing rights, and the inherent weakness of the rights available in the status quo. Because of this, PhRMA members face losses not only in India, but also around the world wherever Indian companies export infringing pirate copies of patented products.

Moreover, India has refused to take the difficult steps needed to reform its fundamentally flawed industrial property system. India declined the opportunity to use the five-year transition period under the TRIPS Agreement to bring about the legislative and regulatory reforms to comply with its obligations. India chose instead to fight the U.S. and European Union on a simple transitional measure it had failed to implement, and has led political attacks on the TRIPS Agreement in the WTO. For example, after losing two WTO challenges on non-implementation of its obligations under TRIPS Articles 70.8 and 70.9 which, India should have had in place by January 1, 1995, it brought in place a legislation on EMR which was clearly TRIPS non-compliant and flawed. Under the guise of examination of the mailbox application with regard to patentability under the 1970 Act, a requirement which does not find mention in TRIPS, India is yet to approve a single application for EMR despite a number of qualified applicants. The process has been made so non-transparent and difficult that PhRMA members who have filed for EMR’s now have little hope of ever receiving the rights to which they are entitled.

A detailed discussion of the Indian regime and pending law is attached to this submission.

Data Protection

India has also elected to ignore its obligations under Article 39.3 of the TRIPS Agreement. Neither the Indian Government nor the Indian Parliament has even raised the idea of implementing legislation that would provide protection for test data submitted by innovators to obtain marketing approval for their new products. The absence of such protection renders the Indian IP regime inconsistent with Article 39.3 of the TRIPS Agreement. Even the leading generic industry organization, the Indian Pharmaceutical Alliance (IPA) advocates in favor of a system for data protection along the lines of the U.S.

In addition, the Ministry of Health is completely unprepared for adoption and implementation of data protection, and requires technical assistance along the lines provided in Egypt by US AID under the Strengthening Intellectual Property Rights in Egypt (SIPRE) program.

Non-Functional Patent Office, lack of other IP Infrastructure

In addition to the difficult situation posed by lack of patent protection, PhRMA members are gravely concerned by the absence of needed resources to upgrade India’s capacity in the patent area. India’s Patents Office is essentially non-functional. In anticipation of the improvements required by the TRIPS Agreement, there has been a surge in the filing of patent applications and many more are expected. The Indian Patents Office, based on its size, degree of modernization and past practices, is and will be unable to cope with these filings. Recent statistics indicate a backlog of over 30,000 unprocessed applications, which, measured against the average output of the collective Indian Patents Office, will not be examined or granted well into the latter part of the next decade.

While we appreciate India’s current efforts to invest approximately $20 million in new and improved facilities, underlying problems in India’s patent law render effective patent administration impossible. The Government of India needs to follow-up its modernization efforts at the administrative and legislative level to make it possible to operate a modern patent office in India. The U.S. Government should provide needed assistance to India as a developing country WTO member for capacity and infrastructure in this area.

Market Access Barriers

Last year the Indian Government has increased the limit of Foreign Direct Investment (FDI) from 74% to 100% in the Pharmaceutical sector. However, the Government’s stated liberalization Policy and economic reforms is yet to be fully extended to the Pharmaceutical Industry. The industry is unable to attract fresh investment and the research-based pharmaceutical industry is either withdrawing from India or not expanding operations.

In the area of Drug Pricing, India has recently announced the Drug Policy 2002, which tries to ostensibly reduce the span of control, but retains some of the most stringent price controls and monitoring in the world under the rigid provisions of Drug Price Control Order (DPCO). Moreover, the new policy discriminates against drug discovery through foreign R & D by exempting for 15 years drugs discovered through indigenous R & D from coming under the purview of DPCO.

In the eyes of many research-based company managers in India, this pricing regime, combined with the lack of any meaningful patent protection, make India less viable for research-based companies from a commercial standpoint, particularly if those companies were to consider placing the latest and best innovative drugs on the Indian market. Foreign companies also experience arbitrary BICP (Bureau of Industrial Cost and Pricing) pricing norms. We do not expect a significant improvement from the new pricing policy that is underway in India. Our industry would urge any new government in India to consider seriously abolition of the DPCO. The DPCO is neither in the interest of the Indian economy nor of the Indian pharmaceutical industry, nor, and most importantly, in the interests of the Indian healthcare consumer. Import Policies

PhRMA member companies operating in India also face high 44% effective import duty for active ingredients and 66% for the finished products import and complex import procedures. The Government of India has stated its intention to progressively lower import tariffs on pharmaceuticals. Duty rates, however, remain unacceptably high. In 1996, tariffs were brought down to 85% with plans to further decrease rates to 25% by the end of 1999. Progress has been slow and tariff rates are currently high. PhRMA urges U.S. negotiators to insist that tariffs be brought down to zero, the goal for GATT signatories.

Standards, Testing, and Labeling

India has little or no regulatory framework for Clinical trials. Though the Government made a genuine attempt to bring in a radical reform in drug manufacturing practices in the country by bringing in the rules of Good Manufacturing Practices (GMP) last year, the nontransparent and labyrinthine procedures in the Drug Controller’s Office does not inspire confidence.

Except for the problem of trademarks and the regulations concerning the size and placement of the generic name on medicines in India, there currently are no discriminatory regulations for pharmaceutical multinationals. PhRMA members companies operating in India have reported experimenting arbitrary local FDA decisions.

The Deficient Patent Regime of India

The Indian industrial property system, particularly its patent law, has been designed to punish importers of patented technology into India, and to coerce local production and distribution of products. As described in past “Special 301” submissions, the current Indian patent regime contains many inconsistencies with the TRIPS Agreement:

The Indian patent system curtails or eliminates rights for foreign-originated technology or importers of patented products in a wide variety of ways. Sanctions under the Indian regime include disqualification of standing to obtain patents, special compulsory licensing penalties for those who import patented products and those who do not manufacture patented products in India.

The Indian patent system also denies eligibility to a wide range of technologies that are within the core of the U.S. industrial base, including not only pharmaceutical and agricultural chemicals, but also other types of chemical products, glass products, and semiconductors.

The term of protection for pharmaceutical process patents in India is only seven years under the existing Patent Act of 1970. As of January 1, 2000, India has been obligated by TRIPS Article 33 to provide a minimum term of at least twenty years from the filing date of the patent application.

The Indian compulsory licensing system, with its infamous practice of “licenses of right” and unbridled government use authority, does not contain the safeguards required by TRIPS Article 31. It thus targets and penalizes U.S. inventors, particularly those that do not manufacture their inventions within India.

The numerous deficiencies of the Indian patent system have resulted in very weak and ineffective patent protection in India. The experience of PhRMA member companies has been so negative with regard to the Indian system that most companies have abandoned efforts to obtain or enforce patents in India.

The Draft Patent Legislation

The Government of India and its Parliament are currently considering patent reform. We are discouraged that India waited until mid-November, 2000, less than two months before the deadline for TRIPS implementation, to start the legislative process to amend its patent law. In and of itself, this is evidence of India’s overall bad faith with respect to TRIPS obligations. More recently, the Parliamentary Patent Select Committee charged with preparing the legislation has engaged in tactical delays to prevent introduction of the overdue patent reform bill. The most recent example is further delay in a planned sixcountry visit to ostensibly research the TRIPS implementation efforts of Argentina, Brazil, China, Japan and Korea with a report to follow prior to discussion of the patent law before its formal consideration in the Parliament. PhRMA believes that the date for introduction and substantive debate of the legislation will slide well into the year 2001.

The proposed legislation does improve certain features of the Indian system. These improvements, however, build on a fundamentally flawed regime. Unfortunately, the draft legislation is also regressive in a number of areas. In fact, the legislation introduces several new provisions that are inconsistent with TRIPS and fails to remove many of the most offensive inconsistencies noted above.

The draft law, if enacted, would continue to discriminate against foreign patent owners who manufacture products outside of India. The new law retains sanctions, including compulsory licenses, for patent owners who do not "work" their patented inventions within India. Local working as a requirement for full enjoyment of patent rights without the recognition that the obligation may be satisfied through importation is prohibited under Article 27.1 of the TRIPS Agreement.

Some improvements would be made to the existing compulsory licensing regime in Indian law. However, an extensive amount of authority would continue to be available to the Indian Government to use patented technology without the consent of the patent owner and in a manner inconsistent with Articles 27 and 31 of the TRIPS Agreement.

Competitors would continue to have the right to harass and challenge patent applicants and patent owners. Numerous grounds will continue to be available under the law to oppose, cancel and revoke patents on grounds not permitted under the TRIPS Agreement. For example, the Indian system of pre-grant opposition would be altered to provide two new grounds for opposing patent grants that are not allowed under Article 29 of TRIPS. Combined with the backlog of more than 30,000 applications pending in India and the dearth of qualified examiners, the opposition proceedings would easily allow competitors of patent applicants to delay the issuance of a patent until the expiration of the term. This would effectively eliminate patent protection for important inventions.

The draft law, in contravention to Article 28.1 of the TRIPS Agreement would exclude product-by-process protection for certain types of products that are now denied full product patent protection under Indian law. This exclusion also violates Article 27.1 of the TRIPS Agreement, which forbids discrimination as to the field of technology of the invention. In addition, the product-by-process protection would only be available to patents issued on applications filed after January 1, 2000, in contravention of the transition provisions contained in Article 70.2.

As noted above, the Indian patent regime currently, and will continue to, fall far short of India’s obligations under the TRIPS Agreement. More troubling is the apparent lack of political will and commitment to the establishment of a modern patent system that delivers the patent exclusivity, which is a necessary precondition to significant investments in India by our industry.

We are also disappointed that India’s greatest efforts have been reserved for Geneva, where, rather than sincerely attempting to meet its own obligations, it has sought the support of other WTO Members for weakening the industrial property standards now found in the TRIPS Agreement. From this we can only conclude that the Indian Government is fully aware of its obligations under the TRIPS Agreement, but is unprepared to meet its current obligations. In the summer of 2000, India tabled a proposal in Geneva recommending that the TRIPS Agreement be amended to serve as a lever for technology transfer to developing countries and to eliminate binding obligations in the area of industrial property.

Exclusive Marketing Rights

India is particularly hostile to intellectual property rights that would interfere with the commercial strength of its domestic pharmaceutical and chemical industries. This explains India’s essentially non-functional patent system and India’s decision to refuse to grant exclusive marketing rights (EMR) or rights in data used to obtain marketing approval for pharmaceutical and other chemical products.

India fought against implementing its obligations under Articles 70.8 (“mailbox”) and 70.9 (exclusive marketing rights) until the complete WTO dispute settlement process had been completed. It made substantial commitments to the United States to settle the dispute. These commitments were to have resulted in establishment of an efficient process for granting exclusive marketing rights. However, since that settlement the Indian regulations passed to implement the agreement have been challenged in two courts, and the Indian Government has made no effort to prevent third parties from obtaining marketing approval for covered products. India thus has ignored its obligations to settle the mailbox/EMR disputes to the detriment of U.S. interests.

In the fall of 2000, the Government of India reported that several thousand EMR applications have actually been filed, and that none have been issues. It has become clear from the stand taken by the Patents Office that the system is totally geared towards rejection of such claims. Flimsy technical objections that amount to nit picking are raised at every step, and the Patents Office refuses to admit judicial evidence in defense. It is thus virtually impossible to obtain and enforce EMRs without taking recourse to a long and tortuous legal process, which may be resolved only years after the claim in question, has been rendered completely academic.

Damage Estimate

Please see Appendix C for a Charles River Associates (CRA) study which conservatively estimates losses in India due to the absence of intellectual property protection at more than $1.7 billion dollars annually. Note also, however, that the damage caused by the inadequate protection of intellectual property rights in India reaches beyond direct losses caused by displaced sales in India. Indian bulk pharmaceutical companies aggressively export their products to third countries where intellectual property laws are similarly lax. The damage caused to U.S. pharmaceutical manufacturers due to the deficiencies of the Indian patent regime thus goes beyond displaced sales in the Indian market, and reaches to the ability of U.S. companies to compete in other significant markets, especially in the Asia-Pacific and Middle East regions.

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