In 1977, Donald Smith and his father, Frank Smith, of Orlando, Florida secured the US Patent No. 4,022,227 for a hairstyle that would enable ‘patients’ with partial baldness to cover their pate by growing hair longer on the sides and combing it over. While the prevalence of this patently unflattering ‘combover’ style precedes the Smiths’ patent, its popularity has remained unabated to this day. The Smiths have, however, failed to garner even a dime through royalty, despite the sanction of the law. An Ig Nobel Prize for absurd and improbable research in 2004, with no monetary benefits, is the biggest reward they have yet got for their thought.
Not all frivolous patents go unrewarded. When such patents are in the realm of medicines and have a public health implication, then the reward for the patent holder can be at considerable costs to the larger public good. India has been the key protagonist of a long-drawn-out drama, to set in place a national patent regime that provides incentives for research and development (R&D), prevents abuse of patents and protects public interests (public health in particular) while meeting its international obligations under the Trade Related Intellectual Property Rights (TRIPS) Agreement. A stage show, that has had global and national audiences and actors comprising civil society groups, national and multinational pharmaceutical firms, least developed, developing and developed country governments; economists, lawyers and lawmakers.
From a simplistic and narrow pharmaceutical perspective, instituting a patent regime that is compliant with the TRIPS Agreement, required repealing the controversial feature of the Indian Patents Act 1970 that enabled process patents whereby domestic firms could develop generic copies of patented drugs by following a different manufacturing process. This needed to be replaced with a system that allowed product patents with 20-year validity for pharmaceutical products. Successive amendments of the Act in 1999 and 2002, an Ordinance in 2004 and the recent Amendment Bill in March 2005 have all been key milestones on the route to compliance. While campaigners for access to cheaper medicines express disappointment at amendments that exceed the requirements of the TRIPS Agreement, coalition equations and rediscovery of ‘national interests’ by political parties paved way for a final bill that was not as excessive as it could have been.
Several questions abound about the efficacy and impact of the new law. Is it all good and does it reflect a consensus of national interests, as the government believes? Will it be able to ensure affordable drugs and treatment in a country where the per capita health expenditure was as low as US$ 22 in 1998? Will the current Bill improve access to more effective treatments and drugs for diseases prevalent in India? Can the domestic industry cope with the opportunities and challenges that will arise?
Some Good, Mostly Bad?
Indeed, there are many broad positives in the new bill. Pre-grant opposition that would enable a member of public to challenge a patent application before it is granted has been restored. The process of issuing a compulsory licence (CL), that will enable the government to authorise a third party to produce a patented drug in the event of a national emergency (for example a plague epidemic) has been sped up. Further, exports to countries with inadequate manufacturing capacities are also permitted under CL. The bill also provides a measure of immunity to producers of generic versions of drugs that have application pending in the mailbox from excessive royalty demands and litigation.
However, considerable ambiguities that could dilute the gains persist. Firstly, what can be patented (scope of patentability) under Section 2 of the Bill that accepts ‘inventive step’ as a feature that involves technological advance, economic significance or both, opens up possibilities for pharmaceutical firms to file patents for marginal improvements on known molecules or by merely citing economic potential. Not specifying pharmaceutical substance as a new ‘chemical’ entity could allow formulations, isomers and other incrementally modified drugs to be considered as new inventions. If one views the 8926 mailbox applications for patents that the Indian Patent Office received during 1999-2004 against the 274 new chemical entities that the US Federal Drug Administration approved during 1995-2004, it would be naive to conclude that we are in the midst of a pharmaceutical revolution. Evergreening of patents to extend monopoly rights by citing trivial advances, therefore, still remains a possibility.
Secondly, while the Bill allows for public and interested parties to oppose patents before they are granted, it is unclear whether challengers to patent applications will have access to all relevant information. What is clear, however, is that the controller of patents has the final say and contestants will have no room for appeal at the pre-grant stage.
Thirdly, producers of generic versions of new drugs in the mailbox can continue to produce them even after grant of patent, if they were producing them before 1st January 2005. These generic manufacturers who have made ‘significant investment’ will however, have to pay a ‘reasonable royalty’. The subjectivity over ‘significant investment’ and ‘reasonable royalty’ opens them for interpretation. Besides, where a web of patents (patent thickets) covers a single pharmaceutical product, the prohibitive cumulative royalty that the generic producer might end up paying could make drugs frightfully expensive.
Fourthly, the Bill stipulates that applications for CL will be considered only three years after the grant of a patent. When better drugs that can save lives exist, the issuance of compulsory licences to ensure availability and affordability should have been weighed by public health concerns, albeit with justifiable royalties to the patent holders.
The Bill assigns considerable discretionary powers to the office of the Controller of Patents in framing rules and in deciding on pre-grant opposition. While such powers might enable faster decision-making process, it is worth debating whether the Patents Office has the requisite management, technical and infrastructural capacity to face up to the challenges that the new Bill brings.
A Consensus through Consultations?
Nevertheless, civil society organisations (CSOs), public health campaigners and the domestic pharmaceutical firms have been celebrating the minor gains that moderated the final Bill significantly from the December 2004 Ordinance. In all fairness, the turn of events that swayed the governments to incorporate some of the TRIPS flexibilities was perhaps more a fallout of realpolitik and political realignments than a willingness on the government’s part to listen to civil society and public opinion. This is disconcerting. For one, in a democracy, defining and protecting national interest is not the sole preserve of the government. For all the competence that the government machinery might embody, public sentiments, even if India were insular to the pleas of other developing countries dependent on it for cheap generic drugs, need to be respected.
Besides, popular opinion was not predominantly in favour of India reneging on its commitments, but to operate within the flexibilities that the TRIPS Agreement and Doha Declaration allowed to ensure access to cheaper medicines and drugs. In a country where public health expenditure was 0.9% of the GDP in 2002 (WDR, 2004), 97% of the private expenditure on health is out of the pockets of patients (WHO, 1998), and less than 50% of the population have access to essential drugs or have been immunised (WHO, 1998), public health concerns need to be accommodated sufficiently while defining national interests.
Cheaper Drugs, Better Drugs?
Will the prices of drugs and health care rise? Kamal Nath, Union Minister for Commerce and Industry, has tried to allay fears of galloping drug prices by pointing out that 97% of the drugs are off patent and none of the drugs on the Essential Medicines List are on patents. Estimates of the value of drugs that would get into the product patent regime vary from US$140 million based on the Minister’s figures to US$ 700 million according to the Pharmaceutical Research and Manufacturers Association of America (PhRMA). How much of these estimated values get transferred to the end-customer as a mark-up on price and by when, remains to be seen. India will have to plan ahead to establish a credible and comprehensive mechanism to monitor and enforce affordability and accessibility of essential medicines, once they come under patents. Canada’s Patented Medicines Prices Review Board that exclusively monitors the prices of patented drugs provides a model for emulation.
Will the current Bill improve access to treatment and R&D for new drugs in a largely poor nation with a high incidence of tropical and communicable diseases? Reverse engineering facilitated by the Indian Patents Act 1970 helped create a strong domestic pharmaceutical industry with the capability to develop cheaper generic versions of patented drugs. As a consequence the share of domestic pharmaceutical firms in India increased from 32% in 1968 to 77% in 2003 (UNCTAD, 2004). Although India accounts for only 1.5% of the global pharmaceutical market of US$ 480 billion, it accounts for an estimated 20% of the global consumption (Goldman Sachs, 2004). The difference in value and volume would indicate that Indian firms service the high volume–low priced segment of the market.
Domestic Industry to the Fore?
Can the domestic industry shift from being primarily a producer of cheap generics to a developer of proprietary drugs, new drug delivery systems and new chemical entities? India has several advantages. It has 64 United States Federal Drug Authority approved producing plants, the most outside the US. It has cheaper, yet highly skilled labour, low clinical trial and fixed asset costs. (UNCTAD, 2004) Indian firms, such as Ranbaxy and Dr. Reddy’s are committed to increasing their R&D expenditure to 10% of their revenues from around 7% today (Economist, Sept 2003).
However, these advantages have to be put in perspective. Pfizer’s global R&D expenditure of US$ 7.1 billion is roughly the size of the entire Indian pharmaceutical industry’s domestic and export market. It is estimated that the industry spends up to US$800 million to bring a new molecule to the market (DFID Report “The Effect of Changing Intellectual Property on Pharmaceutical Industry Prospects in India and China”, 2004). Even if money can buy more in India, drug development costs are astronomical. Which is perhaps why domestic firms, namely, Ranbaxy, licenses new discoveries to multinational firms for trial and development (Economist, September 2003). So long as this remains a viable strategy, R&D of these companies might focus on drugs that are relevant to the market of the multinational partner. Observers point out that even if R&D expenditure by Indian firms go up, it is likely to focus on areas where they can make quick money – diseases more prevalent in rich countries, such as cardiac diseases and diabetes. In 1999, only 16% of the R&D expenditure in India was spent on infectious and parasitic diseases prevalent here (DFID, 2004). Product patents will be beneficial to India if it leads to research and development for the supply of new drugs relevant to its disease profile.
For this to happen, Indian firms will have to buck the current trend and invest more in diseases such as AIDS, dengue, malaria and tuberculosis. Current figures are heavily skewed against poor man’s diseases. The Commission on Intellectual Property Rights reported in 2002 that firms tend to spend on drugs that have a market potential of around $1 billion per annum or more, which is not often the scenario for drugs meant for developing country markets. Of the 1223 drugs introduced between 1975 and 1996, only 13 were aimed at tropical diseases. Only US$ 400 million of the US$70 billion spent on health research was spent on research on AIDS and malaria in 1998 (Sudip Chaudari, 2003).
If the product patent regime leads to an era where even Indian domestic firms move on to more lucrative segments of the markets, then the repercussions on public health in the developing world could be catastrophic. Public policy initiatives to address this market failure have to be strengthened. Public-private partnerships, public investment in R&D, providing incentives to private firms for research could be some of the strategies. Bold approaches are also called for. The Institute for OneWorld Health, a US based not-for-profit pharmaceutical company follows an interesting model. It gets owners to donate intellectual property on drugs for diseases with huge public health impact but no market potential (for example, diarrhoea, which kills 2m people a year in developing countries), raises funds from donors and gets researchers to contribute their expertise, mostly for free.
Defining National Interests…
The US Special 301 Report of 2004 states rather unabashedly that the United States will advance its national interests in guaranteeing a higher degree of intellectual property protection through a variety of mechanisms including the negotiation of free trade arrangements and the use of Generalised System of Preferences. If the Indian government were ever to articulate its national interests in such a manner, it would be welcome to see it defining the accessibility and availability of drugs to millions of poor in India and elsewhere as one of the key guiding principles while administering the new patent regime. A patent regime that ensures access to new drugs for diseases prevalent here at affordable prices. And keeps innovative hairstyles and frivolous patents out.
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