Inside US Trade
April 15, 2005

The U.S. pharmaceutical industry believes India's new law providing patent protection for pharmaceutical products clearly falls short of India's World Trade Organization obligations, but industry sources said there have yet to be any calls within the industry for the U.S. to challenge the law in the WTO. However, these sources said there is already some early discussion within the industry of whether the U.S. should refuse to re-establish Generalized System of Preferences (GSP) benefits to India as a result of the shortcomings in India's law.

The new patent law establishes patent protections prospectively, which means pharmaceutical patent applications registered under a so-called mailbox arrangement allowed under WTO rules will not get the protections promised to them under the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), drug industry sources said. Around 9,000 patent applications have been registered in the mailbox since it was set up in 1995.

Specifically, under a late amendment to the legislation, generic drugs will continue to be able to be sold in India under the new law, even if a patent for that drug is eventually granted by India. The legislation only requires that the generic manufacturer provide a "reasonable royalty" to the patent holder in such circumstances, without defining what this sum would be.

This provision of the law would effectively prevent the holder of a patent from enforcing the patent, according to industry sources, since the generic version of the drug under patent could remain on the market provided the generic drug-maker had made a "significant investment" and was "producing and marketing the concerned product" prior to Jan. 1, 2005. For enterprises meeting this requirement, the law states that no infringement proceedings shall be instituted.

The law was passed in an effort to meet India's obligation under TRIPS to provide patent protections as of this year. India was required to provide patent protections for pharmaceuticals because of the expiration of a TRIPS transition period under which developing countries could choose not to grant patent protections for pharmaceuticals and agricultural chemical products until Jan. 1, 2005.

Developing countries that chose to not implement patent protections under TRIPS were required to set up a mailbox under which companies could register patent applications for their drugs so they would receive patent protection after Jan. 1, 2005. They were also required to provide the patent protection accorded under TRIPS to any products for which applications were filed under the mailbox so long as those applications met the criteria for protection under TRIPS. This arrangement is laid out in Article 70.8 of the TRIPS agreement.

Article 70.9 of TRIPS then states that members must provide five years of exclusive marketing rights for the product covered under the mailbox from the date on which marketing approval is granted in the importing member.

Industry sources said India's new law is in clear violation of Articles 70.8 and 70.9 of TRIPS because India is not providing five years of exclusive marketing rights and is not providing patent holders with any recourse to seek the removal from the market of products that violate their patent.

Complaints about the Indian patent law, and particularly the mailbox provision, were raised this week at a pharmaceutical industry meeting in Florida, where the consensus was that the mailbox provision in the India law was in violation of TRIPS. But industry sources said not every TRIPS violation rises to the level of a WTO case in explaining why there is no advocacy for a WTO case. One industry source said companies are still studying the law, and another said the industry is watching to see how the Indian government implements it.

A spokesman for the Office of the U.S. Trade Representative said USTR is still reviewing the law as well.

On the other hand, some industry sources said they believed the Bush Administration should consider the fact that India's law falls short of TRIPS when it considers whether to re-establish full trade preferences to India provided under GSP. Industry sources said they believed India would push for the re-establishment of full GSP benefits because of the passage of the patent law.

India lost some GSP benefits in the early 1990s for failing to have adequate intellectual property protection, primarily due to the lack of patent protections. The industry is not actually lobbying the administration to refuse to reinstate certain Indian GSP benefits, an industry source said. Industry sources cited several specific potential problems with India's law, including that the definition of a "reasonable royalty" that would be paid to patent holders is something that must still be decided by the Indian government. An industry source predicted its value would be "peanuts," while an NGO source said this would likely be determined in court challenges in India once a royalty payment under the new law has been provided.

Canada has placed a cap on the reasonable royalty to be paid to the holder of a patent for a drug that is produced in Canada for production under a compulsory license and export to another country. It capped this royalty at 4 percent of the value of the generic product, but also tied the royalty rate to the United Nations human development index. This would ensure that a poorer country would pay a lower royalty rate than a richer country.

One health activist source said Canada's rules seemed to have gained some acceptance with other WTO members, but said they were intended only for the production of drugs under a compulsory license for export, while India's would be for production and distribution in India.

Industry sources said the Indian law also falls short of what is required under WTO rules for producing a drug under a compulsory license. Specifically, they said Article 31 of TRIPS says authorization for a compulsory license should only be granted after the proposed user of the license has made efforts to obtain authorization from the right holder within a reasonable period of time. The Indian law would cap the reasonable period of time at six months, which one industry source said is "a pretty short period," particularly considering such negotiations can often take a couple of years.

One health activist source said six months is not too short a period to determine that a patent holder has no intention of voluntarily agreeing to allow the product under patent to be produced under a compulsory license. This source argued the reasonable period of time for negotiations is used by pharmaceutical companies to delay and complicate the issuance of a compulsory license.

Another problem with the law, industry sources said, is that it appears to make it harder for patent holders to obtain patent protection for drugs that are slightly altered for different uses, such as to treat different conditions. Under the law, India requires that these so-called "second-use" patent protections can only be obtained if the drug in question has undergone a "significant innovative step."

The U.S. industry's view is that this would go beyond the requirements of TRIPS Article 27 for recognizing a patent, which states that patents should be available for any inventions, whether products or processes, in all fields of technology provided that they are "new, involve an inventive step and are capable of industrial application."

Despite these complaints, some industry representatives are publicly hailing the law for potentially opening the door to increased foreign investment by research-based drug companies in India. For example, Jeff Sturchio, Merck's vice president for external affairs, human health for Europe, the Middle East and Africa, said his company is encouraged by the law and sees it as an important step forward. He said Merck has reopened an Indian subsidiary after selling its interests in that country in 1986, when it felt India's regulatory environment was bad for business, because it believes the environment in India has significantly improved for research-based firms.

Health activists that had been lobbying the Indian government on the law hailed it as a significant victory in that it would ensure AIDS patients would continue to have access to cheap medicines. However, health groups including Doctors Without Borders said the problem with the Indian law is that it would not apply to future patent applications, which could make it more difficult to deliver cheap, essential medicines for AIDS and other diseases in the future.

The key to determining whether India's law can be used to promote public health, one health source said, is how India implements its compulsory licensing rights under the law and TRIPS. India previously has not used compulsory licensing to produce drugs because it has not provided patent protections under TRIPS. Compulsory licenses allow the production of patented material without authorization from the patent holder, but TRIPS places certain conditions on the use of compulsory licensing.

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