Western warnings

Union Minister of Commerce and Industry Anand Sharma receives U.S. Secretary of Commerce John Bryson in his office in New Delhi in March. In their talks, Bryson raised the issue of grant of a compulsory licence to Natco for the production of the anti-cancer drug sorafenib developed by Bayer.-RAJEEV BHATT

India is coming under increasing pressure from the U.S. and the European Union for the strict patentability criteria it applies for medicines.

AS was only to be expected, the two landmark decisions made by the Indian patent office in recent times concerning pharmaceutical patent cases have not gone down well with the multinational drug industry. First, there was the rejection in 2006 of the patent application by the Swiss multinational Novartis for imatinib mesylate (sold under the brand name of Glivec, or Gleevec), its incrementally modified drug for leukaemia, or blood cancer. Then, on March 12, 2012, the Indian generic drug company Natco Pharma Ltd was granted a manufacturing licence to produce a generic version of the patented liver and kidney cancer drug sorafenib tosylate of the German multinational company (MNC) Bayer (brand name Nexavar) through the first-ever invocation of the compulsory licence (CL) provision in the Indian Patents Act, 1970 (as amended in 2005). The CL was granted to ensure affordability of the drug to Indian cancer patients. Natco will now produce the drug at a price that will be 97 per cent lower than Bayer's even after paying 6 per cent royalty on net sales to Bayer.

Bayer will most likely appeal against the order. Novartis challenged the patent office's rejection of its patent application first at the Intellectual Property Appellate Board (IPAB) and subsequently in the Madras High Court. Both upheld the Patent Controller's decision and rejected Novartis' appeals against the Indian government. Now the company has appealed to the Supreme Court. The first hearing is slated for July 10. These two cases have demonstrated how flexibilities available in the Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement (for patent protection) of the World Trade Organisation (WTO) can be successfully used to serve public health interests in developing countries over the interests of the private monopoly of profit-driven drug MNCs. The flexibilities in the TRIPS Agreement allow governments to decide what type of innovation is patentable. The criteria of novelty, inventive step, and industrial applicability are not defined in the agreement and are left for individual governments to determine within existing national legislation and circumstances. These are also, therefore, test cases for the Indian judiciary, and if these orders can be sustained in the face of imminent legal battles, they will serve as important precedents for exploiting the full power of the Indian Patents Act, while conforming to the WTO's intellectual property rights (IPR) regime, to ensure the Indian public access to health care it can afford.

Drug majors around the world, American companies in particular, which have, of course, been watching the Novartis case anxiously for the past five years, have been further jolted by the latest decision on Nexavar. The president and chief executive officer of the Pharmaceutical Research and Manufacturers of America (PhRMA), John Castellani, issued the following statement immediately after India granted the CL for the indigenous production of Nexavar's generic version:

While India has not routinely issued CLs, PhRMA believes it is not an appropriate tool even if granting CLs may be a legal option. Legitimate health emergencies that require making exceptions to IPRs can, and should, be accommodated under the international framework, but only after exhausting all other efforts and under extraordinary circumstances. [O]ne aspect that is particularly troublesome is the contention that working' a patent requires a company to manufacture within India. It is our firm belief that this is fully at odds with India's TRIPS commitments (as well as broader WTO obligations), and distorts what was intended as a public health exception into an industrial policy. CLs cannot solve India's larger problems regarding access to medicines and health care.

The PhRMA's contentions are patently wrong as the decision is in full compliance with the Doha Declaration on the TRIPS Agreement and Public Health of November 2001 and Article 31 of TRIPS. But the protest was conveyed more brazenly to the Indian government when the visiting United States Commerce Secretary, John Bryson, raised the issue of India granting a CL to Natco in his meeting with Commerce and Industry Minister Anand Sharma on March 25. Bryson apparently said that any dilution of the international patent regime was a cause for deep concern for the U.S. This was clearly an unwarranted remark on the part of the U.S. official because if there was any perceived violation of TRIPS, the correct forum for the U.S. to address the issue was the WTO.

The U.S. has instituted an internal mechanism under its trade policy to deal with what it perceives as trade barriers in its trading-partner countries on the basis of an annual assessment in what is called the Special 301 Report by the office of the U.S. Trade Representative (USTR). India has consistently been placed in the Priority Watch List of the report. Following the court's rejection of Novartis' appeal in 2009, the 2010 report included a response of the USTR to the Indian decision.

The report said: The United States continues to urge India to improve its IPR regime by providing stronger protection for patents. One concern in this regard is a provision in India's Patent Law that prohibits patents on certain chemical forms absent a showing of increased efficacy. While the full import of this provision remains unclear, it appears to limit the patentability of potentially beneficial innovations, such as temperature-stable forms of a drug or new means of drug delivery (emphasis added, throughout).

The wording clearly reflects the U.S.' objection to the Indian patent office not granting a new patent for a new chemical form of a patented drug that the manufacturer claims had increased bioabsorption but for which there was no proven increased therapeutic efficacy. The 2011 report, too, essentially repeated the same objection to the restricted scope of patentability of drugs under the Patents Act. The administration's objection to the Bayer-Nexavar case is bound to be reflected in the 2012 report, given that the PhRMA has already voiced its protest. Drugs are big business around the world for the U.S. industry, and the PhRMA, which acts as the prime lobby group for the U.S. drug industry, naturally has a major influence on the contents of the Special 301 Report.

In its submission to the USTR on the 2012 Special 301 Report, the PhRMA said the following with regard to the patentability criteria exercised by the Indian patent office in the Novartis case: Some of the standards for patentability in India are not transparent and are inconsistent with the TRIPS Agreement. For example, Section 3(d) of the [Indian] Patents Act creates additional hurdles to the grant of certain chemical compound patents, and appears to be applied only to pharmaceuticals. Under this provision, salts, esters, ethers, polymorphs, and other derivatives of known substances are presumed to be the same substance as the original chemical and thus not patentable, unless it can be shown that they differ significantly in properties with regard to efficacy. These additional requirements for patentability beyond novelty, commercial applicability and non-obviousness are inconsistent with the TRIPS Agreement.... Article 27 of the TRIPS Agreement provides a non-extendable list of the types of subject matter that can be excluded from patent coverage. This list does not include new forms of known substances lacking enhanced efficacy', as excluded by Section 3(d) of the Indian law. This argument is misplaced because the rejection is on the grounds of the new drug not meeting the basic criterion of patentability, which is novelty, meaning that it should be a new compound and should involve an inventive step. Novartis was seeking a patent for just the beta crystalline variant of a patented amorphous molecule, claiming merely better bioavailability. Such an incremental modification is not something that involves inventiveness, the court contended.

On the issue of CLs, which is another key issue of concern to the PhRMA, its submission, made in February, a month before the decision on the Bayer case was pronounced, stated: Domestic companies have started filing CL applications with the Indian patent office, apparently prompted in part by government statements suggesting that CLs may be a means for ensuring availability and affordability of drugs worldwide. At a minimum, India should ensure that the CL provisions comply with TRIPS by... eliminating price as a trigger to CL. (Section 84(1) (b) of the Indian Patents Act permits a CL if the patented invention is not available to the public at a reasonably affordable price.)

This again is a misplaced objection because a country is free to decide on the reasons for granting a CL as is clear from the Doha Declaration, which says: Each member has the right to grant compulsory licences and the freedom to determine the grounds upon which such licences are granted; Each member has the right to determine what constitutes a national emergency or other circumstances of extreme urgency, it being understood that public health crises, including those relating to HIV/AIDS, tuberculosis, malaria and other epidemics, can represent a national emergency or other circumstances of extreme urgency. The patent office exercised the freedom of granting the CL to Natco on the issue of affordability, given that Natco's generic drug will cost Rs.8,800 a month as against Bayer's Rs.2.8 lakh a month and that cancer treatment is lifelong.

Retaliation following the listing of a country on the watch list includes the U.S. initiating dispute settlement mechanisms at international trade forums such as the WTO, elimination of preferential tariff preferences under bilateral trade agreements, if any, and even unilateral trade sanctions against the named country. Bryson's remarks are perhaps a veiled threat of such action against India since there are many such pharmaceutical patent cases pending in Indian courts for which these cases could become precedents, affecting the potentially huge market of American MNCs.

Trade policy forum

There exists a bilateral engagement between India and the U.S. under what is called the U.S.-India Trade Policy Forum (TPF) formed in 2005 alongside the various India-U.S. agreements that came into being, including the nuclear deal. The TPF has five focus groups: agriculture, investment, innovation and creativity (IPR), services, and tariff and non-tariff barriers. Under the TPF, a framework for cooperation and trade was signed two years ago.

Although its proposed work plan does not specifically mention IPR, it does include a group focussing on tariff and non-tariff barriers, which is aimed at promoting policies to expand market access, including adopting transparent, WTO-policies. It is quite likely that this bilateral forum will begin to be used by the U.S. to bring on pressure on contentious issues concerning IPR.

Interestingly, the scheduled meeting of the TPF has been postponed twice by the U.S. since October, the most recent being the meeting of the Commerce Minister with USTR Ron Kirk in January. According to media reports, this is because of insufficient progress achieved on the various issues, increasing market access to U.S. companies, in particular. Clearly, the U.S. will increase pressure on the IPR issue in the wake of the recent CL decision at the next meeting of the TPF, which has been pushed to mid-2012. The Indian government would do well to guard against that. Health-care activists and IPR experts have voiced similar concern over the proposed India-European Union (E.U.) Free Trade Agreement (FTA).

According to reports, the 27-nation bloc has been pressing India to agree to an IPR regime over and above TRIPS. This demand is related to the area of pharmaceuticals, particularly after the Novartis decision, and this demand in all likelihood will become stronger now. Recently, however, Minister Anand Sharma assured a visiting UNAIDS (Joint United Nations Programme on HIV/AIDS) executive that India would reject efforts to include a data exclusivity clause in bilateral agreements and affirmed the Indian government's full commitment to ensure quality generic medicines through compulsory licensing and other TRIPS flexibilities. Notwithstanding this, in a recent article in The Guardian, Philippe Douste-Blazy, U.N. Special Adviser on Innovative Financing for Development, and Denis Broun, Executive Director of Unitaid, an international facility for the purchase of drugs for HIV/AIDS, malaria and tuberculosis hosted by the World Health Organisation in Geneva, wrote: If stringent patent and border measures are agreed on at the E.U.-India FTA summit, patients in poor countries will no longer have access to cheap generic medicines; India's role as the pharmacy of the South' could well come to an end.

The U.S. has already begun to exert such pressures and force countries in some other parts of the world into accepting IPR protection standards that are stronger than the TRIPS regime. Under the Trans-Pacific Partnership, a multilateral free trade agreement between the U.S. and the countries of the Asia-Pacific region that seeks to further liberalise these economies, the U.S. intends to broaden the scope of patentability by eroding the flexibility afforded by TRIPS by requesting TPP partner countries to pass new laws and rules that severely limit the ability of each country to define what is patentable. The nine countries currently negotiating the TPP are Australia, Brunei, Chile, Malaysia, New Zealand, Peru, Singapore, the U.S. and Vietnam. Japan and South Korea are intending to join the group shortly.

A leaked draft of the chapter on IPR in a U.S.-negotiating TPP text, which reflects the U.S. position on this multilateral arrangement, indicates that the U.S. is demanding aggressive IPR provisions that go beyond what international trade law (under TRIPS) requires: Each Party, says the draft U.S. proposal, shall confirm that: patents shall be available for any new forms, uses, or methods of using a known product; and a new form, use, or method of using a known product may satisfy the criteria for patentability, even if such invention does not result in the enhancement of the known efficacy of that product. This is the patent evergreening technique that Novartis tried to employ, which the Indian patent office rejected. Evergreening of a patent allows pharmaceutical companies to obtain or extend monopoly protection for old drugs simply by making minor modifications to existing formulae. The international organisation Medecins Sans Frontieres (Doctors Without Borders), which provides affordable health care around the world, points out: Evergreening significantly delays the arrival of more affordable generic medicines into the market. The TPP draft text further wants plants and animals and diagnostic, therapeutic and surgical methods for the treatment of humans or animals, which are explicitly ruled by TRIPS to be non-patentable, to be patentable.

In addition, another leaked document pertaining to the TPP seeks to eliminate the process of pre-grant opposition to a patent application, which is an important tool to prevent patent applications based on weak or erroneous information. The U.S. proposal, if accepted, would allow opposition only after the patent is granted.

Although this does not directly or immediately affect the Indian situation, it does portend ominous moves on this front by the U.S. on India as well. This is evident from the remarks Ron Kirk made recently: U.S. involvement in the TPP is predicated on the expansion of the agreement to include more economies in the Asia-Pacific region[and] should set the standard for 21st century trade agreements going forward.

It, therefore, stands to reason that the norms that emerge from the TPP negotiations will serve as the template for future U.S. trade agreements across the world. Using the leverage of the many countries in the TPP fold, and perhaps in other bilateral agreements, which accept this new enlarged premise for patentability, the WTO, too, eventually might come under pressure to change its rules of dispute settlement and arbitration. The implications of this are that IPR regimes, in particular the strict patentability criteria for drugs, of countries such as India, which have the responsibility of extending affordable health care to millions, will increasingly come under severe attack from the U.S. and the E.U., where nearly all the big drug multinationals operate and profit at the cost of the suffering poor of developing countries.