WTO Agreement on TRIPS

The WTO Agreement on patents and other intellectual property rights is titled - "Agreement on Trade-Related Aspects of Intellectual Property Rights, Including Trade in Counterfeit Goods", commonly known as 'TRIPS'. A brief resume of the development and present status of the drug industry in the country will be helpful in better understanding of the future implications of the TRIPS patent regime for the nation and the industry.

During 1947 to 1972, the Indian Patent Act of 1911 providing a strong product patent regime was in force. Most of the effective drugs though patented by foreign companies, were not produced in India. The FDI in drug industry was minimal just enough for marketing activities. The country was totally dependent on imports for bulk drugs, and there was some productions or formulations mainly by few national sector units. The drug prices were the highest in the world.

Under the Indian Patent Act 1970, in force since 1972, product patents were not allowable and only process patents were granted in respect of inventions relating to drugs and medicines, and foods and agrochemicals. This has enabled indigenous drug industry to manufacture the products patented in other countries by developing and using a different process i.e., by reverse engineering. This has been largely responsible for the nation and the Indian drug industry achieving excellent al-round progress and development. Developing its own technology and producing widest range of drugs of standard quality at lowest costs, the national drug industry has enabled the country to become self-sufficient, self-reliant with the consumers being provided getting effective drugs at prices cheapest in world.

Many of the drugs produced by Indian manufacturers satisfy the most stringent quality standards of regulatory authorities - even of advanced countries like USA and EU - and being cost effective, compete with established products of multinational corporations in international markets. More importantly, even with limited financial and other resources, some of the units have achieved remarkable progress in research of new molecules, new drugs and delivery systems. Some of the inventions have been patented in USA and other countries.

It is against this background that we have to assess the possible impact and implications of the TRIPS product patent regime on the national drug industry, availability of drugs in the country, and future growth, R & D and exports. The significant changes required to be introduced for TRIPS compliance having implications for the Indian drug industry and availability of drugs to consumers are: -

Product patents to be allowed for all products including drugs medicines, food and agro chemicals effective from 2005.
This will close the option of reverse engineering which has largely contributed to the excellent growth and progress achieved by the Indian drug industry since 1972. It will not be possible to produce the patented product by adopting a different process. In absence of competition, the patent holder will be able to demand excessive prices denying availability of such drug to large majority of the people. Research and benefit of more economical or efficient processes will be denied to the people.
All fields of technology to be covered by patents protection without discrimination.
This means patent protection has to be provided even for new or uncovered fields of technology like bio-technology, genetic-engineering, micro-organism, and agriculture etc. These are new fields of technology having vast scope and potential for development and improving living standards of people. India is only beginning to acquire the expertise and set up research facilities. It is said that most of the drugs in current use are chemical products and would soon be replaced by more effective drugs based on bio-tech and genetic engineering. Monopolisation by foreign companies in this field of technology at this initial stage, will almost totally close the door for India and the Indian drug industry for future research, growth and development in this vital field. The nation and consumers will be dependent on foreign companies for such products.

Importation to be accepted as working of the patent for the purposes of enjoyment of patent rights.
This means patentee will be under no obligation to produce the patented product locally. The removal of import and tariff barriers as per the WTO requirements, will further facilitate the patentee to avoid local production and to rely on imports from its own home country. This will mean dependents on foreign supplies and drain on foreign exchange. The nation and the consumers stand to loose.

Twenty-year term for all existing and future patents.
This will mean longer term of monopoly. In absence of competition nation and consumers could be denied availability of the patented product for long. In case of pandemics like AIDS/HIV, large majority of the poor would be denied benefit of research and new drugs for twenty years - which in most cases may be during their life time.

On the other hand, the generic industry will not be able to take up the production of these drugs for twenty years. It will discourage further research and development on the patented product.

Adverse impact of TRIPS -
These changes will have adverse implications for the drug industry and consumers in India. As recently observed in Sub-Saharan African countries, the impact of the strong product patent protection could indeed be very grave, if the national patent law fails to provide for effective and efficient compulsory licence system. Fortunately, many of the doubts and controversies about the interpretation of some of the TRIPS provisions are now cleared and set at rest by the Doha Declaration on TRIPS and Public Health (Declaration). Understanding and applying TRIPS provisions correctly, and as reaffirmed by Doha Declaration, can considerably remove the problems and remedy the situation.

The Doha Declaration on TRIPS -
This Doha Declaration aims at providing 'access to medicines for all' and recognises and reaffirms the flexibility of TRIPS provisions and the right of Members to use to the maximum these flexibilities by adopting effective compulsory licences systems to provide affordable medicines for its citizens. India had played a very decisive role in drafting and adoption of this Declaration. A balanced, effective and efficient compulsory licence system, which is permissible under TRIPS, can considerably resolve the problems.

The Patents (Second Amendment) Act 2002 - Restricted compulsory licence system -
However, The Patents (Second Amendment) Act 2002, adopted by Parliament during the budget session, has unnecessarily deleted some of the beneficial provisions of Patent Act 1970, and adopted more restrictive compulsory licence provisions than required either by TRIPS or the Doha Declaration. Bill has deleted the automatic licences of right provisions of Sec 84, 87 & 88 of Patent Act 1970, and prescribe onerous conditions and procedural requirements for grant of compulsory licences. This has to be further amended to provide effective and efficient compulsory licence arrangement. What is required are national and political will and determination to adopt such effective compulsory licence system.

The future -
The experience gained, the know-how and technology developed, the cost effective production facilities established, availability of low cost technical man power and labour, the doctors' and consumers' confidence established, during last 3 decades, by the Indian drug industry gives confidence and assurance that Indian drug industry can and will be able to meet the new challenges even under the TRIPS product patent regime.

Intrinsic strength of national drug industry -
The phenomenal progress, technological capabilities, and cost and production efficiencies achieved by the Indian drug industry are demonstrated by the facts: -
that in February 2001, CIPLA offered to supply one year course of the triple combination drug required for treatment of AIDS/HIV to countries in Africa, @ US $ 350, as against the patent holder's price of US $ 10,000 to 12,000 for the same quantity of the same drug.
that even under the continuing process patent regime of Patent Act 1970, many of the national sector units like Ranbaxy, Dr. Reddy's Laboratories, CIPLA, Sun Pharma, Wokhardt, Zydus Cadila, J. B. Chem, and others have come out with original research on development of new drugs, delivery systems and even new molecules, acquiring patents in countries like USA and others;
that some of the multinational corporations have entered into arrangements with some of these Indian Companies for research or co-marketing such new products for other countries, confirming the value of such research;
that the products of Indian manufacturers are accepted on WHO lists of essential drugs and also approved by regulatory authorities in USA, and EU countries;
that some of the Indian companies have set up their own associate companies or entered into collaboration for production, marketing or research in other countries; and
that the exports of drugs have gone from Rs.1490crores in 1992-93, to Rs.8730crores in 2000-2001, i.e. more than six times in 8 years.

The WTO and TRIPS Agreements have brought some side benefits for the Indian drug industry. On expiry of the patent term, it is open to generic manufacturers to produce and market the drug. Because of the cost and price difference, it is possible for them to derive maximum advantage when the market is thrown open on expiry of the patent term. The introduction of the Bolar type provision by the amending Act permits generic manufacturers in India, to obtain market approval from the regulatory authorities during the patent term itself, so that immediately expiry of the patent terms they can produce and market the drug, not only in India, but also in other countries. Because of the established capacity, potential for expansion, technical capability, international quality standards, low cost production, the generic manufacturers in India stand to gain considerably. This may induce even foreign patent holders to have their patented products manufactured by Indian companies for their exports to other developing countries. The cost of research being much lower than in most advanced countries, the Indian drug industry may also find foreign companies entering into arrangements for research.

Though therefore, TRIPS patent regime has certain disadvantages, it also brings some benefits for the Indian drug industry. By adopting a more efficient and effective compulsory licence system, the possible adverse impact of the new patent regime can be substantially over come.

TRIPS impact - does not attract, but actually repels, FDI in drug industry -
FDI grows during 1970 to 1994 under weak PA.'70 -
Surprising as it may appear, the increase of investments by foreign drug companies and expansion the production of their bulk drugs and formulations - including their products patented in other countries but not in India - was remarkably and substantially much greater during the 'weak patent regime' of Patent Act 1970, than during the earlier period of strong patent protection. In fact, had the government of India not been very restrictive in granting permissions and licences, under FERA, Industrial licensing, Import control, MRTP etc., as requested by the foreign companies, their investments and productions in India would have been much greater.

Post TRIPS - FDI in drug industry migrates from India
Yet more surprising is the systematic closing down of many of the existing production facilities, offices and establishments set up by some of the foreign drug companies or their associates in India during 1970 to 1994, and transfer or shifting of their capital from India, after India signed the WTO Agreement, and committing itself to introduce and establish the TRIPS patent regime. This clearly shows that contrary to the claims made, TRIPS patent regime actually repels rather than attract FDI.