Intellectual Property Protection
India has a pervasively discriminatory patent regime that makes competition on the basis of innovation virtually impossible. It has used this regime over the past 30 years to establish the world's largest and most aggressive bulk pharmaceutical industry, encompassing over 24,000 companies. The success of the Indian copy-cat pharmaceutical industry is directly tied to the absence of effective patent protection for pharmaceutical innovation in India. Accordingly, even though India enjoys other advantages that would otherwise attract research-based pharmaceutical companies (e.g. India's well-educated English-speaking professional class, democratic political values, etc.), there are several significant research-based firms with no presence in India. In contrast, many research-based pharmaceutical companies maintain a presence in China, which provides product patent protection, despite a difficult political and business environment. The Indian patent system was the most direct motivation for U.S. efforts in the Uruguay Round negotiations relating to patents, and the negotiators of the TRIPS Agreement fully expected that India's implementation of its TRIPS obligations would produce the most dramatic level of reform.
The Indian Government is fully aware of its obligations under the TRIPS Agreement, but now openly admits that it is unprepared to meet either its current obligations or those that take effect on January 1, 2000. While the World Trade Organization (WTO) has made clear in three separate rulings that India should meet its requirements under the TRIPS principles of the WTO, India has failed to date to implement appropriate, conforming mailbox and EMR procedures (current obligations required under Articles 70.8 and 70.9 of the TRIPS Agreement). India, while not providing product patent protection, seeks to illegally graft elements of a patent examination system onto required mail box and exclusive marketing rights (EMR) procedures. In particular, India permits third parties to obtain "compulsory licenses" of the exclusive marketing right, and permits the Government to essentially ignore those rights if it deems doing so expedient. Other provisions make the concept of exclusivity in marketing a proprietary pharmaceutical an illusion in India.
The current Indian patent regime is thoroughly inconsistent with the TRIPS Agreement:
Generally speaking, the Indian patent system curtails or eliminates rights for foreign-originated technology or importers of patented products in a wide variety of ways including through disqualification to obtain patents, special compulsory licensing conditions for foreign-manufactured patent-protected technology, exclusion of certain technology areas that are not presently exploited in India and through other means. 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, semiconductors, and other technologies.
India only provides seven years of process patents for pharmaceuticals under the existing Patent Act of 1970. 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.
The Indian compulsory licensing system, with its infamous practice of "licenses of right" and unbridled Government use authority, targets and penalizes U.S. intellectual property rights owners, particularly those that do not manufacture the invention within India.
We are discouraged that India waited until Mid-November, less than two months before the deadline for TRIPS implementation, to start the legislative process to amend its patent law. There is little likelihood that this will succeed. As the U.S. has seen from previous efforts, an administrative stop-gap solution is only a temporary fix. We are also disappointed that India's greatest efforts have been reserved for Geneva and Seattle, where it has attempted to gain support from other WTO member states for weakening IP protection, rather than sincerely attempting to meet its own obligations. The U.S. government should continue to utilize WTO dispute settlement procedures to hold India to both current commitments and its January 1, 2000 obligations.
Administration of India's Patents Office is non-functioning. India is presently experiencing a surge in patent application filings that will increase dramatically during the latter half of 1999. 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 nearly 30,000 unprocessed applications, which, measured against the average output of the collective Indian Patent Office system, 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 a new patent office, underlying problems in India's patent law render effective patent administration impossible. The Government of India needs follow-up its modernization efforts at the administrative and legislative level to make it possible to operate a modern patent office in India.
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. 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 (DPCO). 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.
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. Individual research-based firms have held good faith discussions with the Government of India for provision of needed drugs at preferential rates in return for market-based reforms. Our industry would urge any new Government in India to consider seriously abolition of 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 the Indian health care consumer.
PhRMA and its member companies desire that:
The Government of India remove the anomalies in the present Price Control Order.
The Government of India take measures to adopt a system of market-based pricing in India in the near-term.
PhRMA member companies operating in India also face high (42%) import duties and complex import procedures. 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. PhRMA member companies operating in India have reported experiencing arbitrary local FDA decisions.
Potential Exports/Foreign Sales
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. PhRMA estimates the losses attributable to the deficiencies in the Indian intellectual property system to be approximately $500 million per year.