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19 September 2014Patents

India focus: serious challenges

“India has some of the best chemists in the world and ought to have a huge innovative pharmaceutical industry, but there is a certain level of protectionism stopping that from happening,” says Jason Rutt, executive at Rouse & Co International LLP.

Despite such creative potential however, India has been criticised, particularly in the West, for cheating pharmaceutical companies and favouring their generic rivals. In its annual Special 301 Report this year, the US Trade Representative said some innovators, particularly in the pharma sector, face “serious challenges” in securing and enforcing their patents in India.

US drug giant Pfizer has gone further, writing to the Indian government earlier in the year urging it to “shift from using destructive IP policy as an access strategy”.

As you might expect, however, there are two sides to the story, and even a third, more nuanced view of the situation in India.

For Western pharma companies, one of the biggest bugbears is Section 3(d) of India’s Patent Act, which essentially stops people patenting a new version of an already-patented substance—a process known as ‘evergreening’. As the section states, “the mere discovery of a new form of a known substance which does not result in the enhancement of the known efficacy of that substance” is not considered an invention.

Most famously, drug company Novartis tried to patent an updated (and, it argued, improved) version of its leukaemia drug Glivec (imatinib) in India but, with the help of Section 3(d), the application was struck down by the country’s Supreme Court in 2013, despite being approved in most major territories.

Section 3(d), the US government has argued, may limit the patentability of potentially beneficial innovations.

“Such innovations would include drugs with fewer side-effects, decreased toxicity, improved delivery systems, or temperature or storage stability,” the Special 301 Report says.

Dan Monaco, partner at Drinker Biddle & Reath LLP, says Section 3(d) is the “main substantive problem” with Indian patent law and has been interpreted too broadly.

But others, even US lawyers, are more defensive of the section. While controversial, it is not necessarily a bad provision in itself, says Kevin Noonan, partner at McDonnell Boehnen Hulbert & Berghoff LLP.

“There are many people in the US Congress who would say pharma patent evergreening is a bad thing ... And there are lots of policymakers who would say if you’re spending your time and effort finding a new formulation of an old drug, you’re not doing research on new drugs.”

Other problems

Section 3(d) is just one area in which India’s patent system provokes Western ire, however. Compulsory licences, which allow companies to make and sell generic versions of patented drugs before the patent expires, are arguably just as controversial.

In the only Indian case to date, the Controller of Patents granted Natco Pharma a licence to produce generic versions of Bayer’s kidney cancer drug Nexavar (sorafenib). It was handed down in part because the German company failed to “work” the patent in India, as it imported its products rather than manufacturing them there. Bayer has twice appealed unsuccessfully.

That decision, argues the Special 301 Report, could inappropriately pressure innovators outside India—including those in sectors beyond pharma, such as green technology and information and communications technology—to manufacture in India in order to avoid being compelled to license an invention to third parties.

However, Ashwani Balayan, partner at ALG India Law Offices in New Delhi, says he does not believe there should be further concerns for Westerners.

“I do not see any trend towards the issuance of compulsory patent licences. Although I agree that no objective standards or guidelines have been set in place—to determine whether the criteria for the grant of a compulsory licence have been met—and there is scope for transparency in the system, the standards do not appear to be so low as to raise any concerns.

“In fact, quite a few applications have been rejected in the past,” he says.

Compulsory licences are by no means restricted to India. In the US, says Monaco, there is actually a form of compulsory licence in place as a result of a judicial decision.

“A 2006 Supreme Court decision—eBay Inc v MerExchange LLC—says an injunction is not necessarily granted to the prevailing patentee, and if not they have to fix the royalty rate to compensate the patentee.

“Fortunately, however, there is no political pressure for a statutory compulsory licence.”

Politics is arguably at the heart of much of the controversy surrounding India’s patent system. Unlike the US and UK, India has a huge number of people living in poverty. According to the CIA, in 2010 around 30% of India’s population were living below the poverty line, compared with just over 15% in the US in the same year. The figure (2011) for the UK was marginally higher, at around 16%.

Noonan says with India’s huge population, and a large and educated middle class who want cheaper drugs, there is plenty of posturing from politicians, generic companies and non-governmental organisations to point out the often large differences between drug prices and the poor’s wages.

"People are moaning today about problems they are having, but they are historic and they will disappear to some extent in the future.”

“There is a great political push, as there is in the US, for cheaper drugs. Pharma’s problem is that they see India, perhaps naively, as a semi-Western democracy so they expect it to play by Western rules. But India is subject to internal politics like any other country, and probably no-one has been elected in India by saying we have to protect the rights of Western drug companies.

“Imagine where you have millions in poverty and there is a drug that could help them if their life depended on it, which frequently it does. If people in that country cannot afford the drug, the alternative is letting the government rely on exceptions under the World Trade Organisation (WTO) to adopt the patent law to that country and encourage generic competition so the poorest can be treated,” he adds.

In the face of an arguably crude debate over cheating pharma companies and supporting society’s most needy, Rutt says he has a more nuanced view of the situation in India.

“Indian patent law has changed over the last ten years. It signed up to TRIPS in 1995, which meant it had to introduce patent claims into its legislation by 2005.

“Yet all the battles they are fighting are under the old patent law system. Glivec is the prime example—a compound patent was filed before 2005, so Novartis would have never been able to obtain a compound patent.

“As a result, there is a really retrospective slant to this. People are moaning today about problems they are having, but they are historic and they will disappear to some extent in the future,”
he says.

Different opinions

India’s patent law is still a cause for concern, argues Rutt.

“It’s the fundamental point about what is and isn’t patentable, and this is where the patent law goes wrong. The courts follow the law correctly but the law is incorrect.

"It’s not politically tenable to take a pill that costs $1 in the US and charge $1 (or its equivalent) for that pill in a place like India."

“The best example is the recent patent examiner guidelines, which are trying desperately to skew something to make drug patents less likely to be patented. To do so flies in the face of logic and they end up tying themselves in knots.”

There are clear differences of opinion between Westerners and Indians, but can these divergent views ever be reconciled? For Balayan, the answer is yes, although he says it may take time.

“With upgraded infrastructure and more awareness, we can expect a better enforcement system of IP in India,” he argues.

Noonan disagrees. He says the “ship has sailed in India” and pharma companies must accept that they cannot avoid generic competition there.

“It’s not politically tenable to take a pill that costs $1 in the US and charge $1 (or its equivalent) for that pill in a place like India. There are more reasonably priced drugs on offer and too many loopholes provided by the WTO.”

With the increasing use of personalised medicine in the future, adds Rutt, the US is even less likely to accept unfavourable conditions
in India.

“Most personalised medicines won’t be blockbusters—they will be small, targeted drugs—so it will be much harder to swallow that someone else is taking those medicines, because development costs will stay the same, there will be smaller patient numbers and profitability will be much less.

“If the US is the only country paying full price for drugs (which happens now), then they’re funding the rest of the world’s healthcare. I can’t see them swallowing that,” he says.

Some Westerners would argue that in contrast to China, the only country whose population is larger than India’s, and a fellow emerging and developing economy, India has failed to address IP concerns sufficiently and build a system wherein foreigners feel confident working. After all, the Chinese government finances the global patent costs of local innovators.

“The thing that sticks in many people’s craw is that India has the money to do the macho things like nuclear weapons and sending people into space and but it won’t provide healthcare to the needy, and that winds up pharma companies,” says Rutt.

As we know, however, this is a complex political debate, and one which may not be resolved for a long time.

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