Patents are not just about pharma

When we talk about supporting innovation in India, the first things that come to mind are the availability of capital and people with the right skills. But the efforts and risks involved in innovation won’t make sense unless inventors and firms can get value out of their innovative activity.

When will innovation make money for inventors? That depends on issues like: Are users willing to try out new products and services? Do the capital markets place a premium on companies that are more innovative? Can an inventor protect his innovation from being copied by others?

This article focuses on the last question — the issue of value appropriation — and asks a broad question: Does India provide a supportive environment for appropriating value from innovation?

While Independent India started off with a fairly strong IP protection system — largely a colonial legacy — growing disquiet about this system, particularly in the area of pharmaceuticals where strong patent protection was seen as enabling multinational drug companies to charge high prices for essential drugs, led India to make important amendments to the Patents Act, including removal of product patents, and providing relatively short periods of patent protection.

The new legislation — the Indian Patents Act of 1970 — is commonly credited with the growth of India’s generic pharmaceutical industry and some of the lowest priced drugs in the world. By the 1990s, many things had changed. India had climbed on the globalisation bandwagon, and international talks were on to provide a supportive environment for global trade.

These talks expanded in scope to incorporate IP protection. In 1995, India signed up for the GATT treaty and promised to put in place stronger IP laws by January 1, 2005.

India kept its promise, though not everyone is happy about this! But, the timing was right — by 2005, many Indian companies were taking innovation more seriously, and were therefore looking for stronger IP protection for their inventions.

Where do we stand today?

Information : While the law changed, the procedural aspects of patenting have taken time to catch up. One of the important characteristics of a good patent system is easy availability of information about what patents have been issued. For several years, this was a major bottleneck in India with such information not available online, and only through a set of CDs compiled by TIFAC (Technology, Information, Forecasting and Assessment Council) in Delhi. Even now, though there is an online database, it is nowhere as powerful or as comprehensive as the US Patents and Trademarks Office Web site.

Procedures and Process : Another important procedural issue is the speed with which the Patent Office considers applications, and the quality of the examination process. The importance of this dimension was recognised some years ago and a drive to hire and train patent examiners was launched.

But I saw a recent advertisement of the Controller General of Patents, Designs & Trademarks calling for applications for trademark examiner positions in which they are offering a consolidated salary of Rs 25,000 per month to people with a degree in law and three years experience. It will be a challenge to get well-qualified people at that level of compensation.

In an alternative effort to speed up the process, there was a proposal to involve the CSIR in preliminary screening. But this was objected to by many as the CSIR itself is an active player in the IP space and is, in fact, the Indian entity with the largest number of US patents.

While it’s difficult to judge the quality of patent examination, what we do know is that after an initial spurt in examination and grants, the process has slowed down, while the number of applications is on the increase.

The Law Itself

There has been a reasonably widespread acceptance of the amendments to the Patents Act made in 2004, 2005 and 2006 except for a couple of issues.

The first issue is the now infamous Section 3 (d) that seeks to prevent evergreening by pharmaceutical companies by requiring a major inventive step, as reflected in enhanced therapeutic value for a molecule to be awarded a patent.

This has been a contentious issue almost since Day 1 of the new patents legislation, and a series of refused/cancelled patents to big name pharmaceutical companies has shown that the law has bite.

The second issue has been compulsory licensing. On March 9, 2012, the Controller General of Patents issued the first post-2005 compulsory licence to Natco Pharma to manufacture its equivalent of Bayer’s Nexavar, a drug for treatment of kidney cancer.

This has stirred a hornet’s nest as it has raised contentious issues like (1) what is a reasonable price for a drug? (2) what constitutes “working” a patent? and (3) what is the appropriate royalty to be paid to the inventor company in the event of compulsory licensing?

It’s fascinating to note that most of the controversies regarding the new patent law in India have centred around the pharmaceutical space.

Globally, the big debates on IP in recent times have been in the smart phone space involving companies such as Apple, Samsung, and Google (Motorola Mobility). India is still not a big market for high-end smartphones, and therefore the IP regime in these areas is not of immediate consequence.

However, it must be noted that, in our obsession with healthcare, we might be missing out on developments in other sectors that call for changes in our IP laws.

A new generation of software product companies is emerging from India and large companies such as TCS and Infosys are embracing products and platforms in their quest for “non-linear” growth.

But we continue to deny software products patent protection and limit their IP protection to the Copyrights Act.

Awards & Enforcement

Indian courts tend to be conservative in penalties and awards for IP violations, unlike the multi-million dollar awards of American courts.

There is the distinct possibility that an inventor may not receive adequate compensation for infringement of his IP rights.

This becomes particularly critical in the case of the small inventor who anyway fights a David vs Goliath battle if the infringer is a large company with the ability to exploit all the procedural opportunities for delay in the Indian legal system.

There will also be a need to ensure greater consistency in judicial decisions in the IP domain.

Without any disrespect meant to our honourable judges, it is evident in some of the recent judgments that they have struggled to cope with the technicalities involved.

Not too far in the future, when we have a critical mass of IP cases, it will help to have a single court at the appellate level as has been done in the US.

Our priority should be on improving IPR-related information flows, better processes and procedures, and enforceability, and on shifting our attention beyond the healthcare industry.

(The author is a Professor of Corporate Strategy & Policy at the Indian Institute of Management, Bangalore (IIMB).)

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