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LATEST NEWS UPDATES | The Real Concern by Ashok V Desai

The Real Concern by Ashok V Desai

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published Published on Oct 19, 2010   modified Modified on Oct 19, 2010

A patent is an artificial property right; it is created by the government, and would not exist if there were no government or if it did not grant patents. It is then for the government to decide whether to grant a patent or not. But a government would not normally make the decision arbitrarily; it would follow some rules. The rules universally followed are novelty, non-obviousness and commercial value. A patentable idea should not repeat an already existing idea; it should not be an idea that could occur to anyone without an effort, and it should have the potential of creating a product or a process that can be profitable. These were the principles behind the Indian patent law. In 1970, the government got Parliament to pass a new patent act. It restricted the patentor’s rights in two important ways. First, it disallowed product patents in chemicals and pharmaceuticals. Second, it gave the government power to override the patentor’s right and allow anyone else to use the patent without getting the patentor’s agreement.

The vast majority of patents are taken out in industrial countries; India is more a user than a producer of patents. So it is in India’s interest to limit and weaken patent rights. If, to take the extreme case, the government did not issue or protect patents at all, any Indian would be able to read the descriptions of the patents granted in industrial countries, reproduce the products or process without paying any royalty, and make easy money. When something is in someone’s self-interest, he tries to find unselfish reasons for it; given the fertility of the Indian mind, it is not difficult to do so. For the Indian government, it was the medical needs of poor Indians. Poor man! What sins are committed in thy name!

Industrial countries, in which most patentable inventions originate, were annoyed with India’s 1970 act. After a quarter century of protest, negotiation and bargaining, they managed to persuade the Indian government to bring back product patents in drugs and chemicals in the 2005 patents amendment act. But on compulsory patents, it did not budge.

It is now five years since the amendment was passed; in all these years, the controller of patents has not issued a single compulsory licence. One applicant asked for three compulsory licences, but before the controller of patents could make up his mind, the applicant withdrew his application. Compulsory patents cannot be conferred on people like Padma Shris; they have to be asked for before they are given. And there do not seem to be any applicants around. Was the fuss about compulsory licences then unnecessary? The department of industrial promotion and policy itself seems to be having some doubts, and has issued a discussion paper.

It is not as if there was enormous demand for compulsory patents before their enactment in 1970. It just happened that the government needed some drugs during and after the 1965 war with Pakistan but was not prepared to import them, and Indian drug makers were prepared to produce the drugs, but the foreign companies that held the patent refused to let them. A handful of such cases went to court, and Indian courts supported foreign patentors, because the patent act gave them absolute rights of use over their patents. A frustrated government combined with a few nationalist drug manufacturers to pass the 1970 act.

That act did lead to patent breaking; a few copycat drugs were produced in India. But something else happened that had nothing to do with the act. Patents are public documents. Indians learnt to read foreign patents, and make drugs whose patents had expired. There was nothing illegal about that even in industrial countries; and it saved Indian companies the cost and bother of having to do research and develop drugs no one had made. Hundreds of such companies came up; they not only swamped the Indian market and displaced multinational organizations, but they also began to build up a sizeable export business.

Foreign multinational companies were incensed. They began to evergreen patents — they would make small changes to a patent that was about to expire and take out a patent for a drug which was substantially the same. They began to sue Indian exporters in countries to which they exported drugs. As Indian companies’ exports grew, these harassment tactics became more vexing. Both the companies and the Indian government began to take them seriously. That was one reason why the Indian government negotiated a compromise with industrial countries in the Uruguay round and agreed to reintroduce product patents in drugs.

There may be a similar reason why the compulsory licensing provision has been unused. It cannot be used unless some Indian drug maker asks for a compulsory licence. If the manufacturer is exporting or intending to export drugs, he would not want trouble with foreign manufacturers. So actual and potential exporters are unlikely to ask for compulsory licences.

We do not know if exporters are becoming more important amongst drug producers, but two tendencies are clear. First, the industry is becoming more concentrated: the share of the 10 largest companies in the industry’s output grew from 20 per cent in 1996-97 to 39 per cent in 2008-09. And the share of exports in the industry’s production increased from 19 to 52 per cent between the same years. An industry that is exporting more than half of its output is bound to worry about what problems it might face abroad if it displeases foreign producers by producing their drugs without their consent.

If Indian producers do not ask for compulsory licences, the provision for them in Indian law becomes irrelevant to foreign companies. In this respect, the law has become a dead letter, and no one bothers about it any more. The department of industrial policy and promotion is flogging a dead horse. It might as well forget about compulsory licensing, and concern itself with issues of more current relevance.

They are two. One, as earlier mentioned, is growing concentration in Indian industry. The other is purchases of Indian firms by foreign firms. The Singh family sold off Ranbaxy, India’s largest firm, to Daiichi in 2008. Indian firms are controlled by promoters. They get old. They do not always have heirs; sometimes they have too many. In those circumstances, they find it easier to sell their stake and divide up the money. So it is possible, though not necessarily likely, that the industry would pass into foreign hands, or at least cease to compete with foreign industries.

What should, therefore, worry the DIPP is the fall in the emergence of new entrepreneurs in the industry. The reservoir of knowledge in descriptions of patents, current and expired, continues to grow; so do the opportunities of exploiting it for profit. But somehow, the supply of Indian entrepreneurs to exploit those opportunities is declining. This is true not only of pharmaceuticals. Take any industry, and you will find that the formation of new firms has declined drastically. Young men find it easier to learn a bit of information technology, get a job, and live well. Where are the Reddys of tomorrow? Can they think of nothing better than opening illegal mines?

The Telegraph, 19 October, 2010, http://www.telegraphindia.com/1101019/jsp/opinion/story_13073164.jsp

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