INDIA

Measured by any standard, India fails to provide adequate and effective protection for intellectual property rights or fair market access for products or corporations dependent on intellectual property protection. The Indian Government is fully aware of its obligations under the WTO TRIPS Agreement, but is unprepared to meet its current obligations. Accordingly, PhRMA urges the U.S. Trade Representative to designate India as a Priority Foreign Country (PFC) through the 2001 “Special 301” review process and to initiate a dispute settlement action in the WTO against the Government of India on the basis of its failure to meet current WTO TRIPS obligations.

PhRMA member companies believe it is imperative that the U.S. Government initiate dispute settlement proceedings against the Government of India as the first step towards reforming their fundamentally deficient regime. The Indian regime has become a “model system” for opponents of strong intellectual property protection systems. Those who cite the “benefits” of the Indian regime tend to be those who support weakening the disciplines of the WTO Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS Agreement). In other areas of its trade regime, India continues to resist U.S. requests for improved market access and other needed reforms. Furthermore, India continues to block the international consensus that is needed to continue market access and other trade reforms sought by the United States in new multilateral trade negotiations in the WTO. Initiation of a trade dispute would at a minimum preserve the ability of the United States to protect its rights under the WTO, and discourage other countries from taking the Indian path, which has proven to be a developmental cul-de-sac.

Intellectual Property Protection

India has missed multiple deadlines for compliance with current WTO TRIPS obligations applying to developing countries. Notwithstanding that India has elected to delay full patent protection until 2005, India remains seriously out of compliance with current obligations.

As explored more fully in Appendix A, India’s industrial property system was designed to allow local Indian industries to free ride on the innovations of inventors and companies from developed countries like the United States. Their patent system denies rights for pharmaceutical and other chemical product inventions and makes procurement and enforcement of patent rights virtually impossible. Most U.S. companies do not even attempt to obtain patents in India because of the difficulties they face in obtaining, licensing and enforcing rights, and the inherent weakness of the rights available in the status quo.

Moreover, India has refused to take the difficult steps needed to reform its fundamentally flawed industrial property system. India declined the opportunity to use the five-year transition period under the TRIPS Agreement to bring about the legislative and regulatory reforms to comply with its obligations. India chose instead to fight the U.S. and European Union on a simple transitional measure it had failed to implement, and has led political attacks on the TRIPS Agreement in the WTO that have increased in virulence and scope in recent months*. Now, more than one year after India was obligated to have its reforms in place, the situation in India remains bleak for industrial property reform.

The Deficient Patent Regime of India

The Indian industrial property system, particularly its patent law, has been designed to punish importers of patented technology into India, and to coerce local production and distribution of products. As described in past “Special 301” submissions, the current Indian patent regime contains many inconsistencies with the TRIPS Agreement:

• The Indian patent system curtails or eliminates rights for foreign-originated technology or importers of patented products in a wide variety of ways. Sanctions under the Indian regime include disqualification of standing to obtain patents, special compulsory licensing penalties for those who import patented products and those who do not manufacture patented products in India.
• 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, and semiconductors.
• The term of protection for pharmaceutical process patents in India is only seven years under the existing Patent Act of 1970. As of January 1, 2000, India has been obligated by TRIPS Article 33 to provide a minimum term of at least twenty years from the filing date of the patent application.
• The Indian compulsory licensing system, with its infamous practice of “licenses of right” and unbridled government use authority, does not contain the safeguards required by TRIPS Article 31 and targets and penalizes U.S. inventors, particularly those that do not manufacture their inventions within India.
• The numerous deficiencies of the Indian patent system have resulted in very weak and ineffective patent protection in India. The experience of PhRMA member companies has been so negative with regard to the Indian system that most companies have abandoned efforts to obtain or enforce patents in India.

The Draft Patent Legislation

The Government of India and its Parliament are currently considering patent reform. We are discouraged that India waited until mid-November, 2000, less than two months before the deadline for TRIPS implementation, to start the legislative process to amend its patent law. In and of itself, this is evidence of India’s overall bad faith with respect to TRIPS obligations. More recently, the Parliamentary Patent Select Committee charged with preparing the legislation has engaged in tactical delays to prevent introduction of the overdue patent reform bill. The most recent example is further delay in a planned six-country visit to ostensibly research the TRIPS implementation efforts of Argentina, Brazil, China, Japan and Korea with a report to follow prior to discussion of the patent law before its formal consideration in the Parliament. PhRMA believes that the date for introduction and substantive debate of the legislation will slide well into the year 2001.

The proposed legislation does improve certain features of the Indian system. These improvements, however, build on a fundamentally flawed regime. Unfortunately, the draft legislation is also regressive in a number of areas. In fact, the legislation introduces several new provisions that are inconsistent with TRIPS and fails to remove many of the most offensive inconsistencies noted above.

• The draft law, if enacted, would continue to discriminate against foreign patent owners who manufacture products outside of India. The new law retains sanctions, including compulsory licenses, for patent owners who do not "work" their patented inventions within India. Local working as a requirement for full enjoyment of patent rights without the recognition that the obligation may be satisfied through importation is prohibited under Article 27.1 of the TRIPS Agreement.
• Some improvements would be made to the existing compulsory licensing regime in Indian law. However, an extensive amount of authority would continue to be available to the Indian Government to use patented technology without the consent of the patent owner and in a manner inconsistent with Articles 27 and 31 of the TRIPS Agreement.
• Competitors would continue to have the right to harass and challenge patent applicants and patent owners. Numerous grounds will continue to be available under the law to oppose, cancel and revoke patents on grounds not permitted under the TRIPS Agreement. For example, the Indian system of pre-grant opposition would be altered to provide two new grounds for opposing patent grants that are not allowed under Article 29 of TRIPS. Combined with the backlog of more than 30,000 applications pending in India and the dearth of qualified examiners, the opposition proceedings would easily allow competitors of patent applicants to delay the issuance of a patent until the expiration of the term. This would effectively eliminate patent protection for important inventions.
• The draft law, in contravention to Article 28.1 of the TRIPS Agreement would exclude product-by-process protection for certain types of products that are now denied full product patent protection under Indian law. This exclusion also violates Article 27.1 of the TRIPS Agreement, which forbids discrimination as to the field of technology of the invention. In addition, the product-by-process protection would only be available to patents issued on applications filed after January 1, 2000, in contravention of the transition provisions contained in Article 70.2.

As noted above, the Indian patent regime currently, and will continue to, falls far short of India’s obligations under the TRIPS Agreement. More troubling is the apparent lack of political will and commitment to the establishment of a modern patent system that delivers the patent exclusivity, which is a necessary precondition to significant investments in India by our industry.

We are also disappointed that India’s greatest efforts have been reserved for Geneva, where, rather than sincerely attempting to meet its own obligations, it has sought the support of other WTO Members for weakening the industrial property standards now found in the TRIPS Agreement. From this we can only conclude that the Indian Government is fully aware of its obligations under the TRIPS Agreement, but is unprepared to meet its current obligations. In the summer of 2000, India tabled a proposal in Geneva recommending that the TRIPS Agreement be amended to serve as a lever for technology transfer to developing countries and to eliminate binding obligations in the area of industrial property.

Exclusive Marketing Rights; Absence of Data Exclusivity

India is particularly hostile to intellectual property rights that would interfere with the commercial strength of its domestic pharmaceutical and chemical industries. This explains India’s essentially non-functional patent system and the decision of the Government of India to refuse to grant exclusive marketing rights (EMR) or rights in data used to obtain marketing approval for pharmaceutical and other chemical products.

India fought against implementing its obligations under Articles 70.8 (“mailbox”) and 70.9 (exclusive marketing rights) until the complete WTO dispute settlement process had been completed. It made substantial commitments to the United States to settle the dispute. These commitments were to have resulted in establishment of an efficient process for granting exclusive marketing rights. However, since that settlement, the Indian regulations passed to implement the agreement have been challenged in two courts, and the Indian Government has made no effort to prevent third parties from obtaining marketing approval for covered products. India thus has ignored its obligations to settle the mailbox/EMR disputes to the detriment of U.S. interests.

India has also elected to ignore its obligations under Article 39.3 of the TRIPS Agreement. Neither the Indian Government nor the Indian Parliament has even raised the idea of implementing legislation that would provide protection for test data submitted by innovators to obtain marketing approval for their new products. The absence of such protection renders the Indian IP regime inconsistent with Article 39.3 of the TRIPS Agreement.

In the fall of 2000, the Government of India reported that several thousand EMR applications have actually been filed, and that none have been issues. It has become clear from the stand taken by the Patents Office that the system is totally geared towards rejection of such claims. Flimsy technical objections that amount to nit picking are raised at every step, and the Patents Office refuses to admit judicial evidence in defense. It is thus virtually impossible to obtain and enforce EMRs without taking recourse to a long and tortuous legal process, which may be resolved only years after the claim in question has been rendered completely academic.

Non-Functional Patent Office

India’s Patents Office is essentially non-functional. In anticipation of the improvements required by the TRIPS Agreement, there has been a surge in the filing of patent applications and many more are expected. 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 over 30,000 unprocessed applications, which, measured against the average output of the collective Indian Patents Office, 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 new and improved facilities, underlying problems in India’s patent law render effective patent administration impossible. The Government of India needs to follow-up its modernization efforts at the administrative and legislative level to make it possible to operate a modern patent office in India.

Market Access Barriers

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 under 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, particularly if those companies were to consider placing the latest and best innovative drugs on the Indian market. Foreign companies also experience arbitrary BICP (Bureau of Industrial Cost and Pricing) pricing norms.

The present pricing regime is more than five years old. Recognizing that the pricing regime needs change, the government constituted a committee to propose a new pricing policy. The committee’s report was subjected to the review of a special task force, yet no meaningful new price control regimen has been established. 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 interest of the Indian economy nor of the Indian pharmaceutical industry, nor – and most importantly – in the interests of the Indian healthcare 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 takes measures to adopt a system of market-based pricing in India in the near-term.

Import Policies

PhRMA member companies operating in India also face high 44% effective import duty for active ingredients and 66% for the finished products import and complex import procedures. The Government of India has stated its intention to progressively lower import tariffs on pharmaceuticals. Duty rates, however, 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 and tariff rates are currently high. PhRMA urges U.S. negotiators to insist that tariffs be brought down to zero, the goal for GATT signatories.

Standards, Testing, Labeling, etc.

Except for the problem of trademarks and the regulations concerning the size and placement of the generic name on medicines in India, there currently are no discriminatory regulations for pharmaceutical multinationals. PhRMA member companies operating in India have reported experiencing arbitrary local FDA decisions.

Damage Estimate

PhRMA is currently studying methodology for estimating damages caused by absence of intellectual property protection in India. 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.

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FOOTNOTE

* In light of its complete abrogation of TRIPS obligations and the certainty that it would lose in the WTO if and when challenged, the Indian Government has embarked on a campaign to demonize and delegitimize the WTO and the available dispute settlement processes. The WTO has provided improved access to dispute settlement panels of benefit to developing countries. Nonetheless, Indian officials consistently attack both the WTO TRIPS Agreement and the panel process as evil tools of developed countries to vanquish competitors in developing countries, e.g. “the WTO is a satanic force, depriving the 'human development' of India." See IDMA Bulletin XXXI (25) 7th July 2000, pp. 577 - 580, as well as subsequent IDMA Bulletin XXXI (28) 31st July 2000 pp. 634 - 637, XXXI (29), 7th August 2000 pp. 672 - 675XXXI (33) 7th September 2000 pp. 767 - 769.