Product Patent and Exclusive Marketing Rights- Loopholes in the TRIPS Agreement and its Repercussions on India

The TRIPS (Trade Related Aspects of Intellectual Property Rights) agreement, which came into effect from 01/01/1995, ushered in a new era of Intellectual Property law in India and the developing world by introducing the system of Product Patent and Exclusive Marketing Rights.

Product Patent is the granting of patent to the ‘final’ product irrespective of the process used for obtaining the product. Once you obtain a patent on the product, then one is precluded from manufacturing that product, even though with a different process.

The term Exclusive Marketing Rights (EMRs) means the right to sell or distribute the article or substance covered in a patent or patent application in the country. EMRs will be granted when the there is no system of product patent in a country. It is only a temporary arrangement which will cease to have effect when product patent regime is introduced.

Loopholes in the agreement:
a). The first shortcoming is regarding the transitional arrangements and the grant of EMRs.

Article 65.3 of the TRIPS agreement lays down that developing countries may have a transition period of 5 years to bring its laws in conformity with the TRIPS. Further, Article 65.4 provides that this period may be extended to five years more if that country does not provide for product patent. Therefore, a developing country having no provision for product patent may have a transition period of 10 years (i.e before 2005) if it chooses.

Article 70.8 of the agreement further states that where a Member does not make available as of the date of entry into force of the WTO Agreement patent protection for pharmaceutical and agricultural chemical products (i.e. product patents), that Member shall provide as from the date of entry into force of the WTO Agreement a means by which applications for patents for such inventions can be filed. This is the mailbox provision.

Further, according to Article 70.9 of the agreement, where a product is the subject of a patent application in a Member state (i.e. in the mailbox), exclusive marketing rights shall be granted, for a period of five years after obtaining marketing approval in that country or until a product patent is granted or rejected in that Member state, whichever period is shorter, provided that, subsequent to the entry into force of the WTO Agreement, a patent application has been filed and a patent granted for that product in another state and marketing approval obtained in such other state.

Reading Article 65.3, 65.4, 70.8 and 70.9 together, it is clear that a developing country which does not provide for product patents will have at the most, 10 years to amend its patent laws, and while an application for product patent is pending during these years, it will provide EMRs to these products for a period of five years until its patent laws are amended accordingly.

Clearly, there might be a situation where EMRs have been granted for a period of 5 years but the laws have still not been amended. If an inventor of a pharmaceutical product obtained an exclusive marketing right in 1997 and made his product known and widely used in a developing country having no product patents, his competitors could enter the market in the year 2002 and free-ride on the inventor's marketing efforts for three years. Only in the year 2005 could the inventor again enjoy the exclusive rights of a patent owner (if the patent were granted then).

b). The second short coming is regarding the conditions needed to be fulfilled for obtaining an EMR- misuse of EMRs

Article 70.9 of the agreement states that EMRs lay down the following conditions of obtaining an EMR for a particular product-

1. A patent application is pending in that member country where EMR is being sought.

2. A patent has been granted for that product in another member country.

3. Marketing approval has been obtained in such other member country.

There may be a case where a product may be very useful in one country (and hence a patent has been granted there) but it is totally worthless in another country but market approval has been obtained by the virtue of its popularity in the former country. For instance, consider a pill that has been invented by a drug manufacturing company of U.S.A which maintains the body temperature in extremely cold conditions. This pill will be very useful in countries like Russia, Sweden, Norway, Iceland, Canada and other polar countries where temperatures dip to -35 degrees Celsius. It will be easily granted a patent in those countries. However, the company may want to market its product in India seeing its immense marketing possibilities. The pill is very popular all over the world and hence, meets the market approval in India also. If the company files for a patent in India, it will be granted an EMR even if the product is not at all required. Therefore, the company can reap in the benefits of this shortcoming till the period of EMR expires even though its patent application is rejected afterwards.

Repercussions on India:
Provisions of Indian Patent law and its incompatibility with TRIPS:
The Indian patent law is found to be inconsistent with the TRIPS on the following areas as far as product is concerned:

The patent law of India, in the pre-WTO period , conferred 7 years as the term of patent in case of food or pharmaceutical product and 14 years in case in any other product.However this was changed to 20 years irrespective of the type of product in pursuance of the TRIPS agreement. Patents will be granted irrespective of the fact whether the drugs were produced locally or imported from another country.

Indian Patent law permits only process patents in case of food or medicine or drug i.e. the “final” food product or medicine or drug could not be patented. Only the processes manufacturing them could be patented. These products could be manufactured by other processes. To comply with the provisions of the TRIPS agreement, India had 10 years to amend its patent laws (5years for being a developing country and 5yrs for being a country not granting a product patent, fully in accordance with article 65.3 and 65.4of the agreement)

Effect on Public Health in India:
India is one of those countries where the public health presents a very sorry state.

1. India has the highest number of AIDS patients in the world. The latest official figure of people living with HIV/AIDS stands at 2.31 million.

2. India has one of the highest numbers of diabetes patients in the world.

3. From February 2006 to October 2006, 151 districts in 8 states/provinces of India affected by chikungunya fever. More than 1.25 million suspected cases have been reported from the country; in some areas reported attack rates have reached 45%.

4. 1145 cases of Japanese encephalitis have been reported from 14 districts of Uttar Pradesh Province, India from 29 July to 30 August 2005. About one-fourth of these have died.

5. From 1 June to 28 October 2003, 1723 dengue fever had created havoc in Delhi. There were 4 deaths.

6. India is also home to 2.5 million Dementia/Alzheimer’s disease patients.

This is apart from hundreds of people dying because of lack of health facilities, poverty and high cost of medicines. India does not have a very vibrant medical insurance sector which will cushion the ever rising costs of drugs and treatment. In a country where one-fourth of the population is not able to obtain basic amenities of life, and where the state of public health is dismal as illustrated above, the only possible solution for availability of cheap drugs in bulk is process patent.

A majority of the population does not have access to the essential medicines (most of which are off patent) either in the government or private health care systems because they are not within their capacity to reach. Product patent has led to skyrocketing of the prices of drugs which can’t be afforded by a majority of population. Let us take a few illustrations-

1. Indian Institute for Chemical Technology developed AZT, the AIDS anti-retroviral drug, through an alternate process without replicating the patent-holder, Borrough-Wellcome’s process. The technology was passed on to CIPLA. It was also sold to a Brazilian manufacturer. The cost of the crucial drug through this route was down to less than a third of Burrough-Wellcome’s price, and thus became more affordable.

2. Gleevac, the anti-blood cancer drug developed by Novartis costs around $2750 a month. However, its generic version manufactured by Indian companies costs about one-tenth of the price, thus making it more affordable.

Therefore, a regulatory system focused only on process patents helped to establish the foundation of a strong and highly competitive domestic pharmaceutical industry which in the grip of a rigid price control framework transformed into a world supplier of bulk drugs and medicines at affordable prices to the common man in India and the developing world.

Effect on Indian Pharmaceutical Industry (IPI):
Process patent helped to flourish IPI into a world-class generics industry. In the domestic market, the share of Indian companies has steadily increased from around 20 per cent in 1970 to 70 percent now. Ranbaxy Laboratories is the market leader in terms of revenues followed by Dr Reddys Laboratories and then Cipla. Glaxo is one of the few multinationals to figure among the top ten pharma companies in India. India and Japan are the only two countries where pharmaceutical companies of USA and Europe do not dominate. However, since the implementation of the product patent regime, the small scale companies have been hard hit. Market share of the top 20 companies has increased while more than half of the small scale pharmaceutical units have closed down in the last 2 years.

Indian pharmaceutical companies have grown enormously in numbers in the absence of product patents during the 70s and 80s. From 10 in 1970 to 48 in 1982 and 60 in 1993, the growth cannot go unnoticed.

Therefore we see that, in the absence if product patents, the IPI not only grew but flourished. Even though the presence of Multinational pharmaceuticals was negligible, but the booming IPI more than made up for that. However there have been ups and downs in the IPI ever since the system of EMRs and product patents were introduced. The growth of pharmaceutical exports declined from 20.73% in 2000-2001 to 11.13% in 2001-2002. It again picked up to 21.2% in 2002-2003. This erratic change in exports can be attributed to the speculation and uncertainty related to the introduction of the product patent regime.

Clearly the inconsistencies in exports show that product patent does not augur well for IPI. The product patent system favours only a small number of MNCs. The MNCs want to exploit the huge potential of Indian markets and want to reap maximum benefits from the booming Indian economy.

Conclusions and Recommendations:
The introduction of product patent system in India has made it very difficult to make drugs accessible to the common man. However there are many provisions in the patent law of India which will help in controlling the price of drugs so that it is affordable. Some of the public interest provisions which are enshrined in the Patent Act of India are:
1. Conditional grant of patent (Section 47): Empowers the Government to import, make or use any patent for its own purpose. For drugs, it also empowers import for public health distribution

2. Revocation of patent in public interest (Section 66): Empowers the Government to revoke a patent where it is found to be mischievous to the State or prejudicial to the public

3. Grant of compulsory license (Sections 82 to 94): Chapter XVI deals with the general principles and circumstances for grant of compulsory licenses in order to protect public interest particularly public health and nutrition. These provisions check the abuse of patent rights. They can be invoked if the reasonable requirements of the public with respect to patented inventions have not been satisfied, and the patented invention is not available to the public at a reasonably affordable price, and if the patented invention is not worked in the territory of India. Section 92 of this law provides for action in case of national emergency, extreme urgency and public non-commercial use, and can be invoked without the grace period of 3 years from grant of patent.

4. Use of invention for the purpose of Government [Sections 100 & 101]: Compliments Section 47.

5. Acquisition of invention and patent for public purpose [Section 102]: Empowers the Government to acquire a patent to meet national requirements.

6. Bolar provision [Section 107 (A) (a)]: Facilitates production and marketing of patented products immediately after expiry of the term of patent protection by permitting preparatory action by non patentees during the life of the patent. It has been named after a Canadian Case Roche v Bolar.

7. Parallel import [Section 107 (A) (b)]: Provides for import so that patented product can become available at the lowest international price.

Parallel importing consists of purchasing proprietary drugs from a third party in another country, rather than directly from the manufacturer, and taking advantage of the fact that pharmaceutical companies sometimes charge significantly lower prices in one country than in another. For many countries, like India, parallel importing may well be the best way to improve access to essential drugs because of limited local capacity to produce raw materials and undertake drug manufacturing

For instance, in Britain, where parallel importing is common, the list price for Glaxo Wellcome's Retrovir is £125, but consumers can purchase the same proprietary drug imported from other European countries for as little as £54. Price for the same product can vary widely among countries because of many factors, such as differences in intellectual property rules, differences in local incomes, and the degree of competition among producers. For example, a 1998 study by the Consumer Project on Technology found prices for SmithKline Beechman's version of Amoxil was $8 in Pakistan, $14 in Canada, $16 in Italy, $22 in New Zealand, $29 in The Philippines, $36 in Malaysia, $40 in Indonesia, and $60 in Germany.

To lower the cost of drug therapies in developing countries, a number of approaches have been tried or are currently being used. The following is a brief description of some of the other approaches:

Therapeutic value pricing. This approach has been adopted in Australia. An official, independent body determines the drug price on the basis of therapeutic value. When a new drug becomes available for marketing, the benefits and health outcomes of the new drug are carefully compared with similar, existing drugs and a comparative price is estimated.

Pooled procurement. For countries with small national populations, pooled procurement may be an option. This has been tried in the Caribbean, where seven different countries have joined together to purchase drugs

Negotiated procurement. Large organizations buying drugs in large amounts can also bring down prices. For instance, some large health maintenance organizations in the United States have been able to negotiate significantly lesser prices than the official price of a drug.

Planned donations. In the past, many countries have received donations of about-to-expire stocks of drugs. The World Health Organization (WHO) is now encouraging planned donation programmes for drugs that are still in use. For example, Johnson and Johnson now have a planned giving programme (addressing a range of diseases), with three years of donations planned three years in advance.

Lobbying Pharmaceutical Companies. UNAIDS has lobbied pharmaceutical companies to lower the prices of their drugs in developing countries. In addition, treatment activists in many countries have been lobbying many pharmaceutical companies directly for some years. One result was the decision by GlaxoWellcome in 1997 to halve the then cost of an annual course of AZT-the price is still substantial, however.

Therefore, there are ways through which India can make life-saving drugs affordable to its masses. It can enforce any of the provisions of the patent law in the interest of the public or adopt any one of the mechanisms described above.

End-Notes
# See Indian Patent Act, 1970, Section 53.
# See TRIPS Agreement, Article 33.
# See S. 5(a) of the Act.
# Monthly report of National AIDS Control Organization, October, 2008.
# Report of the WHO Regional office in South-East Asia, 17 October, 2006.
# Report of the WHO Regional office in South-East Asia, 13 September, 2005
# Report of the WHO Regional office in South-East Asia, 9 November, 2003.
# Kannan Sivaprakasam, Tale of Two Patent Regime and Indian Pharmaceutical Industry.
# H. Redwood, New Horizons in India – The Consequence Pharmaceutical Patent Protection.
# See Director General of Commercial Intelligence and Statistics.
# Compulsory Licensing and Parallel Importing, Background Paper, International Council for AIDS service Organization, July 1999.
# Ibid.
# By Mini Gautam and Anshuman Chanda, King’s College, London