In
a proactive move to ensure a fair balance between
the protection of intellectual property rights and
protection of the public interest, the Department
of Industrial Policy and Promotion of the Ministry
of Commerce and Industry has chosen to put out a discussion
paper on the issue of Compulsory Licencing of Patents.
Compulsory Licencing (CL) involves providing an agent
other than the holder of the patent for a product
or process to produce or market that product without
the consent of the patent holder. In principle, the
right of the government to resort to compulsory licencing
can be invoked when the patent holder does not work
the patent, or does so in a manner that is inimical
to the public interest, leading to ''unreasonable
prices'', inadequate technological progress, or inability
to deal with public health or other emergencies.
The factors motivating the release of the paper is
clearly spelt out. With India having signed on to
the Agreement on Trade-Related Aspects of Intellectual
Property Rights (TRIPS) under the WTO and with it
having suitably modified its Patents and Trade Marks
Acts as well as having enacted the Designs and Geographical
Indications Act, it has a transparent regime for the
protection of intellectual property (IP). However,
any regime that protects IP must provide for ways
to prevent the misuse of that protection or of its
use in situations where it obviously hurts the public
interest. One of the accepted and tested mechanisms
to deal with such situations of improper use is compulsory
licencing. The paper claims to be motivated by the
desire to ''develop a predictable environment'' for
the use of such measures.
None can criticise this benign motive. But, stated
in this fashion it underplays the significance of
the paper and the discussion that it seeks to initiate.
The paper is also welcome and significant because
it spells out the circumstances in which the compulsory
licencing option is available to the government, as
defined by international and domestic treaties and
laws. The discussion it generates would, therefore,
hopefully help clarify when it would be appropriate
for the Indian government to exercise this legal right
and intervene in favour of the public interest and
against the holder of a patent.
Such a discussion is important because, as the paper
notes, after India amended its Patents Act to make
it TRIPS-compliant and recognise product patents,
the government has not exercised the right to compulsory
licencing even once. This is despite the fact that
in a crucial public health-related area like drugs
and pharmaceuticals the transition to the new regime
must have made a considerable difference. As is widely
recognised, the pure-process and no-product patenting
regime of the past had helped ensure both adequate
availability and low prices of essential drugs within
the country.
The government's reticence to exercise the CL is not
because such caution is the norm across the world.
In fact, developed countries such as Canada, the United
Kingdom and Italy and developing countries such as
Brazil, Thailand, Malaysia, South Africa and Kenya
have resorted to such licencing in the case of drugs
and pharmaceuticals, especially during the past six
years. While noting the excessive caution on the part
of the government of India, the discussion paper also
underlines an important issue. While much of the discussion
of compulsory licencing has been in the context of
the need to ensure local working of the patent to
support public, non-commercial use (as in the public
health system) or to deal with national emergencies,
the TRIPS agreement does not restrict the right to
compulsory licencing to such situations. In fact,
when the aim of the measure is to deal with anti-competitive
practices, the agreement provides considerable flexibility
to governments. In most areas there are no restrictions
on the circumstances in which a CL can be issued nor
is the procedure to be adopted for issuing a CL specified.
Even in the case of drugs and pharmaceuticals there
is no restriction that such measures should be taken
only to address public health concerns. Thus, states
the discussion note, ''significant flexibility is
provided to the member countries for the issue of
a CL.'' Fortunately for India, because of public discussion
and debate, our own Patents Act has not foreclosed
the ability of the government to make appropriate
use of this flexibility.
Having underlined these issues the paper makes an
important contribution by seeking to illustrate the
implications of the flexibility available in the case
of the drugs and pharmaceuticals sector. It begins
this discussion by considering whether there is a
case for intervention in the public interest in this
industry, where policy should be motivated by the
objective set by The National Pharmaceutical Policy
2002 of ensuring ‘abundant availability at reasonable
prices of good quality essential pharmaceuticals of
mass consumption'. While India had been able to make
substantial progress in this direction over the years,
especially during the years when the government did
not recognise product patents and allowed patented
drugs to be indigenously produced using alternative
processes, there is, according to the paper, cause
for concern about the development of the industry
in recent years.
To start with, despite past achievements, the objective
of ensuring adequate availability at reasonable prices
of essential drugs has not been realised. It was for
this reason that the draft National Pharmaceutical
Policy 2006 had included among the government's objectives
the tasks of: a) ensuring availability of good quality
medicines at reasonable prices; and (b) improving
access to essential medicines for the common man and
the poorer sections of the population. In particular,
it drew attention to the high prices and consequent
low demand for drugs needed to treat cancer and HIV/AIDS.
The discussion note also draws attention to the forty-fifth
report of the Department Related Parliamentary Standing
Committee on Health and Family Welfare which had expressed
its concern about:
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The
high prices of newly patented medicines which were
not being regulated by the National Pharmaceutical
Pricing Authority.
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The
increasing incidence of unorthodox practices such
as the substitution of regulated drugs with alternatives
incorporating new ingredients so as to avoid regulation.
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The super profits being generated by some drug companies
that were exploiting their monopoly position and
setting the prices of their products substantially
above cost.
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The takeover of Indian drug companies by foreign
companies and the need to ensure that major Indian
pharmaceutical companies remain in Indian hands.
Examining
recent developments in the industry the discussion paper
too finds that there is: (i) evidence of growing concentration
in the drugs and pharmaceuticals industry, driven by
mergers and acquisitions; (ii) evidence of increasing
control of firms in the industry by multinationals through
acquisition of large Indian firms; (iii) evidence of
a growing focus on export markets even when domestic
needs are being inadequately met; and (iv) evidence
that anti-competitive practices may be resulting in
high and unreasonable prices. Moreover, argues the paper,
foreign acquisitions of Indian firms besides strengthening
their oligopolistic power deriving from patents, may
weaken the government's ability to intervene to realise
its drug policy objectives. This, in its view, could
happen for a number of reasons. To start with, large
Indian pharmaceutical companies, which are been taken
over by foreign companies, may not be willing to apply
for a Compulsory Licence even if eligible. Thus, when
the government notifies a public emergency (for example)
and recognizes the need for issue of a CL for a particular
drug, adequately capable manufacturers may not be available
to apply for CL and work the patent at a reasonable
cost. Foreign companies may also utilize the Indian
companies they take over as conduits to sell higher
cost patented drugs or branded generics rather than
the cheaper generics that were being sold earlier.
All of this makes a case for strong intervention for
dealing with structural processes that could lead or
are leading to anti-competitive practices. The government
should not only adopt but also go beyond the obvious
option of exercising the right to compulsory licencing
in times of emergency. It can do so by invoking the
right under government use for non-commercial purposes
provision or by invoking just the requirement to make
available drugs at reasonable prices. Both TRIPS and
the domestic legal framework centred on the Patents
Act permit such intervention according to the paper.
And they do so with rather lenient requirements for
royalty payments (of say 5 per cent) linked on the one
hand to the price of the drug concerned in global markets
and on the other to the (relative) per capita income
of the country issuing a compulsory licence.
But intervention need not stop here. The government
can invoke the Competition Act 2002 to examine whether
the high price and/or inadequate availability of a drug
is a consequence of an anti- competitive act or the
abuse of a dominant position, and initiate suitable
action if this is true. There is a study underway on
the state of competition in the pharmaceuticals industry
commissioned by the Competition Commission and it would
be interesting to examine the implications of its findings
in the light of the Department of Industrial Policy
and Promotion's views on the role of monopoly.
The government can also review the decision to allow
foreign equity investments of up to 100 per cent in
firms in the pharmaceutical sector through the automatic
route, and examine investments on a case-by-case basis
to establish whether or not they could lead to outcomes
that go against the thrust of the drug policy. And,
finally, the government can extend the scope of drug
price regulation to bring a larger number of drugs under
its purview.
Thus, while the DIPP's immediate concern is the issue
of compulsory licencing, the implications of its analysis
take it much further. The effort to initiate this debate
and set its tone needs to be lauded. The paper makes
it clear that much can be done even within the law as
it stands if objectives and guidelines are clearly defined.
It ends with a set of questions relating to the terms
on which compulsory licences should be issued and the
original patent holder compensated. Hopefully they would
spur a much-needed debate that leads to a more proactive
policy than pursued hitherto in an area as crucial as
drugs and health. This could then influence policy in
other important areas as well.
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