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India's Disputed Ruling on Pharmaceuticals and Patents



On April 1, the Indian Supreme Court rejected the attempt by Novartis, the Swiss pharmaceutical company, to patent a new version of the leukemia drug Glivec. The latest verdict follows previous rulings that granted compulsory licenses to an Indian generic drug manufacturer for a kidney cancer drug (Nexavar) patented by Bayer. Five important questions are raised by these rulings.

1. What do the recent rulings say about rule of law in India?

The perception, even caricature, of India (among foreigners doing business especially) is one of pathological dysfunction: bureaucrats obstruct, politicians plunder, policemen harass, and judges delay. The quip on rule of law is that India may have rule but China has law. There is some truth in this caricature. That is all the more reason to celebrate the recent ruling, beyond whether or not one agrees with its judgment and the supporting legal arguments.

In the Novartis case as in the Nexavar case, India has provided due process for foreign companies and patent holders comparable to those in advanced democracies. Patent offices have decided on patents and compulsory licensing granted to Indian companies; their verdicts have been challenged before an independent appellate body, whose verdicts have in turn been contested in the courts.

In every instance, the deciding authority has reviewed the arguments and facts, drawn on evidence, relied upon domestic and foreign precedents, and explained its decisions. Even if outcomes have gone against foreign companies, there can be little doubt about procedure. And in a country notorious for interminable delays in administrative and judicial procedures, patent-related cases have been decided in timely fashion.

2. Is India anti-intellectual property (IP) and anti-foreign?

Taken individually, the patent cases do not point to categorical hostility to IP protection or to foreigners. The spirit imbuing all the recent patent cases in India has been to strike a balance between the legitimate returns to inventors and investors against the concerns of consumers in a country where the affordability of drugs is of paramount political and social concern. But that is unavoidable if, for example, the prices charged by a drug company exceed the income of more than 99.999 percent of households in a country and if generic alternatives are available at one-tenth or even one-thirtieth the cost.

But balance and fairness toward foreigners and to the demands of intellectual property rights have not been ignored. For example, the Indian Supreme Court decided to take on the Novartis case instead of waiting for the lower courts out of concern that delays could cut into the life of the patent. Also, when deciding on the compulsory licensing fee that generic drug makers should pay Bayer (the German maker of the cancer drug Nexavar) the Indian patent office opted for the highest end of the range recommended by the World Health Organization (WHO). And in the subsequent review, the appellate body increased this fee further. Hostility to foreign companies would have translated into weaker protections than this.

India is transitioning from a development stage of being a net user of technology (which favored weak IP protection) to one of being both a user and producer of technology (which favors stronger IP protection). The drug industry too has evolved from exclusively comprising generic manufacturers to one with greater representation of research and development-based companies.

In implementing the World Trade Organization's TRIPs (Trade-Related Intellectual Property Rights) agreement, domestic patent law has been strengthened from virtually no protection for pharmaceuticals to some protection. But recent rulings and the underlying Indian law still tend to favor weaker rather than stronger protection of IP. This reflects the strength of the generic drug industry and of consumer groups advocating affordable health care. The challenge for India will be to ensure that the law does not get out of step with the demands of a country that needs foreign investment and new technologies.

3. Does the Novartis ruling show that India is an outlier?

Critics have suggested that India is a deviant for being the only country where Novartis' claim has been rejected. Left out is the fact that even in the United States, the Novartis application—which was really for a successor version of Glivec—was in fact first rejected by the patent office, only for a higher authority to overturn the initial ruling. The Indian verdict, like that of the US patent office, may well be more within the range of reasonable interpretations of what constitutes patentability than has been asserted by critics.

To some extent, Novartis was hoist by its own petard. Drug companies in a rush to file patents make very broad claims to maximize the scope of their monopoly. A consequence is that subsequent patents' claim to novelty get undermined. That said, Indian patent law, especially Section 3 (d), governing such cases, has arguably introduced a new requirement of &"efficacy" that could limit the scope of patent protection for future inventions. The Supreme Court ruling on the interpretation of this term confuses as much as it clarifies.

Whether Indian law and the recent rulings are deviant can only be tested through impartial international adjudication by the WTO (World Trade Organization). As I said in my recent testimony to the US Congress, recourse to the WTO's dispute settlement process may be necessary and desirable to settle the competing claims of foreign companies and India.

4. What was the Novartis case really about?

Leaving aside all the technical arguments, the Novartis case was sui generis. The drug Glivec was a genuinely new and important discovery deserving of patent protection. But in a bit of bad timing for Novartis, the patent underlying Glivec was filed just before India changed its IP laws. So, technically speaking, India could claim that it had no obligation to protect Glivec.

But if the spirit of the WTO's TRIPs agreement was that large countries such as India should contribute in part (not fully) to the financing of research and development of major drug discoveries, then the Supreme Court ruling could be seen as unsatisfactory. In retrospect, perhaps both Novartis and the Indian government should have attempted a negotiated settlement that recognized the unique situation relating to the Glivec patent rather than opt for the high profile legal route. The Novartis ruling could illustrate the maxim that special cases make for confusing law.

5. Will there be international consequences from recent rulings?

Other developing countries, such as Brazil, Thailand, and even China, could be emboldened by the Indian example and decide to dilute their own patent protection regimes. Even more consequential could be the impact on advanced economy patent regimes.

The US patent system has come in for intense scrutiny for its patent proliferation (including frivolous patents), its increasing tendency to hinder competition rather than promote innovation, and especially for its capture by patent owners with deep pockets. (These are explained at length in an excellent recent paper in the Journal of Economic Perspectives by Professors Boldrin and Levine of the University of Washington, St. Louis, MO). A body of opinion argues vehemently that in fact the US patent system is broken and needs radical overhaul.

At such a time, the Indian Supreme Court ruling—as a new and independent voice—could add to the momentum for a fundamental reassessment. The ruling is appealing because it asks a question that was both naïve and salient. The judges wanted to know whether the Novartis patent is a ruse to prolong an existing monopoly beyond reasonable limits, a question that has wider resonance.

Is India undervaluing patents or is the rest of the world overvaluing them? That might be one of the more intriguing questions raised by the Supreme Court ruling.

Note: The author would like to thank Jayashree Watal for helpful discussions.

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