The Hindu Business Line : Patent ordinance and reality check

To meet its WTO commitment, India has brought in an ordinance to usher in the product patent regime. But of the effect on the ground things are not too clear, though the ordinance appears to create a milieu for the IT and pharma industries to grow and consolidate. G. Srinivasan traces the story of the midnight ordinance and after.

THE midnight ordinance amending the Patent Act 1970 to bring in the product patent regime fulfils Indis's major obligations to the World Trade Organisation (WTO) signed in Marrakesh in April 1994.

With the 10-year pipeline protection period becoming a thing of the past on January 1, opinion is sharply divided within the pharmaceutical industry with one section, particularly that manufacturing generic drugs and formulations, voicing reservations over the product patent regime while those that used the decade-long transition phase to branch out heaving a sigh of relief that their products cannot now not easily be copied elsewhere.

Caught in the patent melee are the political parties which have banded together for and against the product patent regime for drugs and agro-chemicals as they fear, often mistakenly, that this will push up the cost of even essential medicines and put them beyond the affordability of common people.

Non-governmental organisations added to the general din when they appealed to the Union Commerce and Industry Minister, Mr Kamal Nath, that "they are extremely concerned that supply of affordable generic medicines may dry up after 2005 with India and other developing counties implement the TRIP Agreement," since competition from Indian generic companies has played a key role in reducing the price of life-saving HIV/AIDs and other medicines. Amidst the welter of claims and counterclaims, what is the reality?

India has been the beneficiary of the rule-based global trading system, with its exports accelerating from $32 billion a decade ago to $64 billion now, and all set to double in the next five years. This fiscal India's exports are set to cross $75 billion, accelerating economic activity with concomitant benefits.

But New Delhi had had to suffer the wrath of trade majors such as the US and the 25-member European Union (EU) for not having ready the process to usher in a product patent regime from January 1, 2005, as successive governments since 1995 have been deferring the issue of amending the Patent Act 1970 for the purpose.

The BJP Government amended the Act in March 1999 and June 2002 to meet India's obligations under the Agreement on Trade-related Aspects of Intellectual Property Rights (TRIPS). The two amendments were less controversial as they primarily focussed on the obligations which came into effect from January 1, 1995 (in respect of amendments made in 1999) and those that came into force from January 1, 2000 (for amendments notified in June 2002).

While making the latter amendments, also provided were adequate safeguards for protection of public interest, national security, biodiversity, and traditional knowledge and also clauses to simplify certain procedural aspects. The Joint Committee of Parliament, which vetted the amendments notified in June 2002, provided in the legislation the flexibility for timely and efficient response to national and public interest requirements/concerns, especially those pertaining to public health and nutrition.

The Third Amendment to the Patent Act was to fulfil India's obligations under the TRIPs Agreement to put in place a product patent regime. However, as this amendment Bill, introduced by the then Commerce Minister, Mr Arun Jaitley, inthe last winter session of Parliament, lapsed with the change of the guard at the , the new Congress-led Government inherited the unenviable task of bringing the Third Amendment Bill before the House.

A six-month-old Government banking on the external props of the Left parties could not fashion a strategy to even silence its critics from within the coalition to come out with a Bill amending the Patents Act for the third time.

But also worried over the prospect of reneging on international obligations, the UPA Government had no option but to fall back on the ordinance approach at the end of the winter session of Parliament. In the Budget session, the Government will have to pilot a Bill to replace the ordinance.

Mr Kamal Nath has defended the ordinance move stating that it had some significant refinements. "We have introduced a provision for patenting of software that is embedded in hardware. We have also provided for a definite pre-grant opposition procedure. The earlier Bill had only a post-grant opposition with a weak pre-grant representation. After extensive discussions we have decided to have both pre-grant as well as post-grant opposition. Another modification is the introduction of a provision to protect Indian industry from infringement proceedings with retrospective effect. We have specifically provided that patent rights for mail box applications will only be available prospectively."

The last point would definitely be in the interest of the Indian pharma industry because patent rights will be available only from the date of grant of patent and not retrospectively, from the date of publication.

Critics, however, contend that the pre-grant opposition gives only the same limited representation for third parties and on far fewer reasons than the extant law. It does not provide for a hearing, only a representation.

Again, the issue of patentability is left wide open to different interpretations. The relevant Section 3 brings in the term `mere new use' rather than `new use' which might let an applicant take ample advantage of the provision, provided a new chemical reactant is used.

But warts and all, the Patents (Third) Amendment ensures that the reasonable requirements of availability and affordability of drugs are taken care of and public interest is safeguarded.

Mr Nath underscored this when he said the law effectively balances and calibrates intellectual property protection with public health concerns and national security.

Illustrating this point, the Minister pointed to the conditional grant of patent which allows the government to import, make or use any patent for its own purpose, while for drugs, it also empowers import for pubic health distribution.

Again, the government is empowered to revoke a patent if it is found to be "mischievous to the State or prejudicial to the public".

The Government can also invoke without the grace period of three years from grant of patent to take action in case of national emergency.

As India has effectively built process technology for several drugs and formulations and has a booming export market in pharma products, the amendment also provides for the introduction of a clause to enable grant of compulsory licence for export of medicines to countries which have insufficient or no manufacturing capacity to meet emergencies in line with the Doha declaration on TRIPs and public health.

The fear that prices of medicines would escalate is unfounded since 97 per cent of all drugs manufactured in India are off patent. Medical experts note that about 15 new molecules come into the market each year (roughly 500 molecules in all existing).

But after ten years from the advent of product patents, patented products would reach a maximum of 22 per cent of all medicines and would then taper off.

That means over 75 per cent of all drugs and medicines would always be off patent and 75-85 per cent of all drugs would always be accessible as today.

Pharma and the information technology (IT) industry have emerged as the brightest rays of the sunrise sectors and the patents ordinance provides for an enabling milieu for both to grow and consolidate.

India's WTO engagement during the last decade has encouraged the domestic pharma companies to adopt a strategy of R&D-based innovative growth even as they create waves across the developed world too.

Besides, once product patent is ushered, even multinationals would outsource their R&D activities to low-cost destinations such as India, which has considerable talent and technology as several indigenous big pharma firms have got their discoveries patented abroad so as to safeguard their intellectual property from pilferage and replication.

It is time the Indian industry rose above from its parochial groove to look at the global market even as the local concerns would be adequately safeguarded to ensure affordable availablity of essential drugs and formulations.

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