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Patent concerns

Print edition : Sep 24, 2010

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THE DRAFT NATIONAL Pharmaceutical Policy-2006 drew attention to the high prices and consequent low demand for drugs needed to treat cancer and HIV/AIDS. Here, a child survivor of cancer at an event organised by the Indian Cancer Society in New Delhi in June to spread awareness of the disease.-SHIV KUMAR PUSHPAKAR

THE DRAFT NATIONAL Pharmaceutical Policy-2006 drew attention to the high prices and consequent low demand for drugs needed to treat cancer and HIV/AIDS. Here, a child survivor of cancer at an event organised by the Indian Cancer Society in New Delhi in June to spread awareness of the disease.-SHIV KUMAR PUSHPAKAR

The discussion paper on compulsory licensing of patents will have achieved its purpose if it can lead to a proactive policy in the area of drugs and health.

IN a proactive move to ensure a fair balance between protection of intellectual property rights and protection of the public interest, the Department of Industrial Policy and Promotion (DIPP) of the Ministry of Commerce and Industry has chosen to put out a discussion paper on the issue of Compulsory Licensing of Patents. Compulsory Licensing (CL) involves providing for an agent other than the holder of the patent for a product or process to produce or market that product without the consent of the patent holder.

In principle, the right of the government to resort to compulsory licensing can be invoked when the patent holder does not work the patent, or does so in a manner that is inimical to the public interest, leading to unreasonable prices, inadequate technological progress, or inability to deal with public health or other emergencies.

The factors motivating the release of the paper are spelt out clearly. India having signed on to the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) under the World Trade Organisation (WTO), having suitably modified its Patents and Trade Marks Acts and having enacted the Designs and Geographical Indications Act, has a transparent regime for the protection of intellectual property (IP). However, any regime that protects IP must provide for ways to prevent the misuse of that protection or of its use in situations where it obviously hurts the public interest. One of the accepted and tested mechanisms to deal with situations of improper use is compulsory licensing. The paper claims to be motivated by the desire to develop a predictable environment for the use of such measures.

None can criticise this benign motive. But stating it in this fashion underplays the significance of the paper and the discussion it seeks to initiate. The paper is also welcome and significant because it spells out the circumstances in which the compulsory licensing option is available to the government, as defined by international and domestic treaties and laws. The discussion it generates will, therefore, hopefully help clarify when it will be appropriate for the Indian government to exercise this legal right and intervene in favour of the public interest and against the holder of a patent.

Such a discussion is important because, as the paper notes, after India amended its Patents Act to make it TRIPS compliant and recognise product patents, the government has not exercised the right to compulsory licensing even once. This is despite the fact that in a crucial public health-related area like drugs and pharmaceuticals, the transition to the new regime must have made a considerable difference. As is widely recognised, the pure-process and no-product patenting regime of the past had helped ensure both adequate availability and low prices of essential drugs within the country.

The government's reticence to exercise the CL option is not because such caution is the norm across the world. In fact, developed countries such as Canada, the United Kingdom and Italy and developing countries such as Brazil, Thailand, Malaysia, South Africa and Kenya have resorted to such licensing in the case of drugs and pharmaceuticals, especially during the past six years.

Considerable flexibility

While noting the excessive caution on the part of the Government of India, the discussion paper underlines an important issue. While much of the discussion on CL has been in the context of the need to ensure local working of the patent to support public, non-commercial use (as in the public health system) or to deal with national emergencies, the TRIPS agreement does not restrict the right to CL to such situations.

In fact, when the aim of the measure is to deal with anti-competitive practices, the agreement provides considerable flexibility to governments. In most areas there are no restrictions on the circumstances in which a CL can be issued nor is the procedure to be adopted for issuing a CL specified. Even in the case of drugs and pharmaceuticals, there is no restriction that such measures should be taken only to address public health concerns.

Thus, states the discussion note, significant flexibility is provided to the member countries for the issue of a CL. Fortunately for India, because of public discussion and debate, our own Patents Act has not foreclosed the ability of the government to make appropriate use of this flexibility.

Having underlined these issues, the paper makes an important contribution by seeking to illustrate the implications of the flexibility available in the case of the drugs and pharmaceuticals sector. It begins this discussion by considering whether there is a case for intervention in the public interest in this industry, where policy should be motivated by the objective set by the National Pharmaceutical Policy-2002 of ensuring abundant availability at reasonable prices of good quality essential pharmaceuticals of mass consumption.

While India had been able to make substantial progress in this direction, especially during the years when the government did not recognise product patents and allowed patented drugs to be produced indigenously using alternative processes, there is, according to the paper, cause for concern about the development of the industry in recent years.

To start with, despite past achievements, the objective of ensuring adequate availability of essential drugs at reasonable prices has not been realised. It was for this reason that the draft National Pharmaceutical Policy-2006 included among the government's objectives the tasks of a) ensuring availability of good quality medicines at reasonable prices; and (b) improving access to essential medicines for the common man and the poorer sections of the population. In particular, it drew attention to the high prices and consequent low demand for drugs needed to treat cancer and human immunodeficiency virus/acquired immune deficiency syndrome (HIV/AIDS).

The discussion note also draws attention to the forty-fifth report of the Department-related Parliamentary Standing Committee on Health and Family Welfare, which expressed its concern about:

a. The high prices of newly patented medicines, which were not being regulated by the National Pharmaceutical Pricing Authority.

b. The increasing incidence of unorthodox practices, such as the substitution of regulated drugs with alternatives incorporating new ingredients, so as to avoid regulation.

c. The super profits being generated by some drug companies that exploited their monopoly position and set the prices of their products substantially above cost.

d. The takeover of Indian drug companies by foreign companies and the need to ensure that major Indian pharmaceutical companies remained in Indian hands.

Examining recent developments in the industry the discussion paper, too, finds that there is:

(i) evidence of growing concentration in the drugs and pharmaceuticals industry, driven by mergers and acquisitions; (ii) evidence of increasing control of firms in the industry by multinationals through acquisition of large Indian firms; (iii) evidence of a growing focus on export markets even when domestic needs are inadequately met; and (iv) evidence that anti-competitive practices may be resulting in high and unreasonable prices.

Moreover, argues the paper, foreign acquisitions of Indian firms besides strengthening their oligopolistic power deriving from patents may weaken the government's ability to intervene to realise its drug policy objectives. This, in its view, could happen for a number of reasons. To start with, large Indian pharmaceutical companies which have been taken over by foreign companies may not be willing to apply for a Compulsory Licence even if eligible. Thus, when the government notifies a public emergency (for example) and recognises the need for the issue of a CL for a particular drug, adequately capable manufacturers may not be available to apply for CL and work the patent at a reasonable cost. Foreign companies may also utilise the Indian companies they take over as conduits to sell higher cost patented drugs or branded generics rather than the cheaper generics that were being sold earlier.

Case for intervention

All of this makes a case for strong intervention to deal with structural processes that could lead or are leading to anti-competitive practices. The government should not only adopt but also go beyond the obvious option of exercising the right to CL in times of emergency.

It can do so by invoking the right under government use for non-commercial purposes provision or by invoking just the requirement to make available drugs at reasonable prices. Both TRIPS and the domestic legal framework centred on the Patents Act permit such intervention, according to the paper. And they do so with rather lenient requirements for royalty payment (of say 5 per cent), linked on the one hand to the price of the drug concerned in global markets and on the other to the (relative) per capita income of the country issuing a compulsory licence.

But intervention need not stop here. The government can invoke the Competition Act, 2002, to examine whether the high price and/or inadequate availability of a drug is a consequence either of an anti-competitive act or of the abuse of a dominant position, and initiate suitable action. A study commissioned by the Competition Commission is under way on the state of competition in the pharmaceuticals industry. It would be interesting to examine the implications of its findings in the light of the DIPP's views on the role of monopoly.

The government can also review the decision to allow foreign equity investments of up to 100 per cent in pharmaceutical firms through the automatic route, and examine investments on a case-by-case basis to establish whether they could lead to outcomes that go against the thrust of the drug policy. And, finally, the government can extend the scope of drug price regulation to bring a larger number of drugs under its purview.

Thus, while the DIPP's immediate concern is the issue of compulsory licensing, the implications of its analysis go beyond that. The effort to initiate this debate and set its tone needs to be lauded. The paper makes it clear that much can be done even within the law as it stands if objectives and guidelines are defined clearly. It ends with a set of questions relating to the terms on which compulsory licences should be issued and the original patent holder compensated. Hopefully, they will spur a much-needed debate that leads to a more proactive policy than the one pursued hitherto in an area as crucial as drugs and health. This could then influence policy in other important areas as well.

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