Intellectual Property Protection

While several important and authoritative voices have called for improved intellectual property protection in India over the past year, and while the World Trade Organization (WTO) has made clear in three separate rulings that India should meet its minimal requirements under the TRIPs principles of the WTO, there has been no major change in the intellectual property situation in India which remains one of the world's worst offenders of patent rights.

The Indian press has even highlighted the findings of the recent World Bank Development Report, which claims that "at least 25 per cent of global chemical and pharmaceutical companies are unwilling to invest in India as the protection offered to intellectual property rights (IPR) by New Delhi is too inadequate to allow them to transfer the latest and effective technologies."2

Based on the refusal of the Government to provide pharmaceutical patent protection, India has become a haven for bulk pharmaceutical manufacturers who pirate the intellectual property of the world's research-based pharmaceutical industry. The achievement of effective Intellectual Property Rights should be seen as necessary if India wants to attract foreign investment and successfully implement its globalization plans.

Based on the Indian Patent Act of 1970, India only provides seven years of process patents for pharmaceuticals. Given the lengthy development time for pharmaceuticals (between 10 and 12 years), due to mandatory regulatory requirements for safety, quality and efficacy testing for drugs, a seven year process term, even if it were acceptable, is so short that the patent "protection" would expire even before the relevant product is ready for market launch.

In order to attract foreign direct investment and join the growing group of developing and newly industrialized countries that have decided to offer first-rate patent protection, India should adopt a patent law which offers immediate product patent protection for pharmaceuticals in line with highest international standards, and offering protection for all products not yet available in the Indian market.

In a presentation to the "International Symposium on Health Care Horizons," held in New Delhi in November 1997, executives from Arthur D. Little suggested why India could be an excellent market for bulk active and intermediate pharmaceutical ingredients:3

The implication here was that the one main roadblock to real success was the lack of adequate and effective intellectual property protection.

Unfortunately, India has indicated that it wishes to avail itself of the ten year transition period permitted by the WTO TRIPs agreement for developing countries and thereby has chosen to delay any significant improvements to its current patent regime until 2005. Nevertheless, India has a few immediate TRIPs obligations, notably to provide a statutory basis for its implementation of the mailbox requirements and the five year marketing exclusivity provision stipulated in the TRIPs Agreement. Yet, at this point in time, India has failed to comply even with these minimum TRIPs obligations.

The issue regarding implementation of TRIPs "mailbox" in India may be summarized as follows:

Mailbox and Marketing Exclusivity Provisions: The TRIPS language and accompanying explanatory documentation are clear. Article 70.8 (mailbox provision) requires a country such as India, which did not provide product patent protection to pharmaceutical products on January 1, 1995, to establish, starting on that date, a system that will permit innovators to file patent applications for such products. In addition, once the conditions of Article 70.9 are met, the product that is the subject of the patent application that was registered in the mailbox will be granted "exclusive marketing rights" if it was not yet patentable

The problem is that, to-date, despite the recent rulings by separate WTO Dispute Resolution panels that India is in violation of its TRIPs obligations by failing to provide a statutory "Mailbox" mechanism, India has not provided a statutory basis for its implementation of Articles 70.8 and 70.9. Even an earlier ordinance designed to implement those articles - now expired - was seriously flawed. The Indian ordinance called for a "marketing exclusivity scheme" that imposes the burden of enforcement of the right on the patent holder and includes compulsory licensing provisions by which the Indian Government could require the holder of the exclusive marketing right to permit local Indian companies to copy the patent holder's product.

This Indian provision is the antithesis of the "marketing exclusivity" called for in Article 70.9, which requires a government to keep copied products off the market administratively. This is generally accomplished by the government's denial of marketing approvals to copied products. As the GATT Secretariat explained in its January 1992 analysis, it is "the Indian Government that would have the obligation to ensure exclusive marketing rights for the owner of the U.S. patent." A marketing exclusivity scheme that leaves the enforcement of the right to the patent holder and includes compulsory licensing falls far short of that intent. It also should be emphasized that, while Article 70 requires a country to promulgate a Mailbox Provision in Indian Law, that Mailbox in no way serves as a substitute for a valid patent law.

PhRMA applauds and support the measures taken by the U.S. Government last year to ensure that India properly implements its TRIPs obligations. through its successful "suit" against India within the WTO Dispute Resolution process.4 PhRMA believes that the U.S. Government should continue to make the issue of India's failure to implement its TRIPS obligations a prominent element in its ongoing bilateral contacts with India.

Despite the shortcomings in India, PhRMA was pleased to learn that the Union Cabinet decided on September 17, 1998 to fall in line with the decisions of the dispute resolution body (DSB) within the WTO. This should mean that, before April 19, 1999, India should carry out its basic WTO obligations to enact a provision setting up a formal "Mailbox" for patent filings. PhRMA also has learned that a Group of Ministers5 in India has opted for an eventual New Patents Bill, which is slated to be introduced in the Indian Parliament's Winter Session in late 1998. This is a significant step by Indian standards, since, as of today, in food, chemicals and pharmaceuticals, India has granted only three product patents.6

Government Drug Pricing Policy

The Indian Government's liberalization and economic reforms have not yet been 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.

Since 1989, the Government has been reviewing changes in the Drug Policy, and a new Drug Policy was promised for many years. After a gap of almost five years, the Prime Minister cleared the New Drug Policy in August and the Cabinet Committee on Economic Affairs approved this, on September 15, 1994.

The new policy is an improvement over the existing policy. However, price controls cover about 50% of industry sales from an earlier ratio of 75%. There is no system allowing automatic increase of prices to offset cost increases and inflation. The research-based pharmaceutical industry has made an offer in "good faith" to the Government of India to provide all drugs needed for the national health program at "cost price" if the Government of India abolishes price controls as defined through the DPCO. Our industry would urge any new Government in India, which takes office in the wake of the fall of the last Government on November 28, seriously to consider abolishing the DPCO. The DPCO is neither in the interests of the Indian economy nor of the Indian pharmaceutical industry, nor-- and most importantly -- in the interests of Indian patients.

In the area of drug pricing, India imposes some of the most stringent price controls in the world due to the rigid provisions of the Drug Price Control Order. In the eyes of many research-based company managers in India, this strict pricing regime combined with the lack of any meaningful patent protection make India virtually non-viable for research-based companies from a commercial standpoint, especially if those companies were to consider placing on the Indian market the latest and best innovative drugs. Foreign companies also experience arbitrary BICP (Bureau of Industrial Cost and Pricing) pricing norms, arbitrary local FDA decisions, high (42%) import duties and complex import procedures.

PhRMA and its member companies in India desire that:

Import Policies

The Government of India has stated its intention to progressively lower import tariffs on pharmaceuticals; however, duty rates 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 though and tariff rates are currently at 54% (35% import duty + 15% customs excise duty + 4% special tax). PhRMA urges U.S. negotiators to insist that tariffs be brought down to the level of zero, the goal for GATT signatories.

Standards, Testing, Labeling, etc.

There currently are no discriminatory regulations for pharmaceutical multinationals, except for the problem of trademarks and the regulations concerning the size and placement of the generic name on medicines in India.

Government Procurement

There are no restrictive "buy national" policies and orders are based on a tender system.

Investment Barriers

Although the Government has announced relaxation of equity holdings for foreign companies from 40% to 51%, the conditions are not yet favorable. Especially with the current price control regulations, there is no incentive to increase equity holdings in India. Governmental Regulations and procedures governing local share-holding for PhRMA member companies are both stringent and non-transparent. Decisions by the Foreign Investment Promotion Board also appear to be somewhat arbitrary and poses difficulties for companies in opening 100% owned subsidiaries.

Drug Price Liability

The issue of Drug Price Equalization Account (DPEA) continues unresolved and the Government has put up fresh claims to companies. The liabilities and claims are significantly high and, if not resolved, will have a very major impact on the finances of many research-based drug companies.

Potential Exports/Foreign Sales:

The lack of an effective and statutorily-based mailbox will affect the ability of innovators to assert, in any subsequent patentability determinations, the original filing date. This lack of a clear early filing date is tantamount to the total absence of any meaningful patent protection for an industry, such as ours, in which innovation depends on timely patent protection.

Identifiable damages: PhRMA places current annual losses in India due to the absence of patent protection for pharmaceutical products at about $500 million. This amount includes the damages to innovators in India whose pharmaceutical product patents are being infringed, as well as the damages incurred when pirated products are exported by local companies.



2The Hindu Business Line, Mumbai, October 5, 1998, page 9.

3"Investment Opportunities for Multinational Companies in the Indian Health Care Market," International Symposium on Health Care Horizons, New Delhi, November 17-18, 1997,Arthur D. Little International, Inc. Wiesbaden, Germany.

4The WTO agreed with the U.S. case, and ruled against India in July 1997. The WTO adopted the report on India on September 5, 1997. India also lost the subsequent appeal on December 19, 1997. India also lost a similar WTO case filed by the European Commission in September 1998.

5The Group of Ministers are M.M. Joshi, Y. Sinha, R. Hedge and S. Bakht.

6"Patently Pragmatic," Bibek Debroy, Business Today, September 22, 1998, page 34.