What is the Impact of TRIPS on Pharmaceutical Industry in India? A Comprehensive Analysis

GLA University - B.Com | LLB | B.A.
GLA University | B.Com | LLB | B.A.

This article is a nuanced understanding of the impact of TRIPS on pharmaceutical Industry and the right to health. Since its making, the TRIPS Agreement or Trade-Related Aspects of Intellectual Property Rights Agreement has affected IPR, especially in developing countries. The article gauges how the pharmaceutical industry functions and interact with India’s Patent Act and its subsequent amendments. Abinaya K does a detailed analysis of practices like ‘evergreening of patents’. She also provides alternatives such as compulsory licensing and price ceilings to balance and protect the right of health for the consumer at large.

What is the Impact of TRIPS on Pharmaceutical Industry in India? A Comprehensive Analysis

By Mani Abinaya K, an Advocate and graduate from School of Excellence in law, Chennai. 

Introduction

Patent grants exclusive monopoly rights to the patent holder or inventor for twenty years. After the expiry of such a period, the innovation falls into the public domain.

In 1995, the Trade-Related Aspects of Intellectual Property Rights Agreement (TRIPS Agreement) mandated developing countries to protect product patents. The TRIPS Agreement sets out minimum standards of patent protection and its implementation, and the same brought a radical shift in the pharmaceutical industry. Since its formulation, the intellectual property (IP) regime of member nations of the World Trade Organisation (WTO) witnessed a change. And so did India.

As a member of WTO, India had to amend the Indian Patent Act 1970 and fulfil its obligation in three amendments to the Indian Patent Act 1999, 2002 and 2005.

The 2005 amendment to the Indian Patent Act struck down the process patent regime and introduced the product patent system. After the Amendment, the generic industries that succeeded in patents and reverse engineering were not allowed.

As the pharmaceutical industries spend billions on research and development, the same reflects on the price of the product.

While access to affordable medicine constitutes a fundamental part of the right to health,  rising prices affect accessibility in developing countries like India, which has a significant population under the poverty line. Therefore, to ensure maximum access to health services, India has implemented the TRIP flexibilities and effective utilisation of compulsory licensing.

The recent decisions of the Supreme Court on this subject indicate that the Indian judiciary has been trying to strike a balance between public need and scientific progress.

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This paper will analyse the impact of the TRIPS agreement on the pharmaceutical industry in India and the role of Indian Patent law. It also discusses how India uses the flexibilities under TRIPS for the effective implementation of compulsory licenses. Finally, the piece will understand the role of the Indian judiciary, which attempts to strike a balance between the right of the patentee and the fundamental right of health.

TRIPS and its Flexibilities

The TRIPS Agreement was negotiated during the Uruguay Round[1] of the General Agreement on Tariffs and Trade (GATT) between 1986 and 1994[2]. Before TRIPS, IPRs were administered through several treaties by the World Intellectual Property Organization (WIPO). The TRIPS Agreement stipulated conditions dealing with patent eligibility, patent quality and patent protection. In addition, it sought to ensure adequate security of IPRs in line with the public health of the developing countries.[3]

The developing countries argued that the patent laws might limit their citizen’s access to affordable drugs. They were also unsure of the extent of the TRIPS flexibilities and its impact on their rights. Due to such concerns, the Council for TRIPS, in June 2001, systematically dealt with the relationship between public health and TRIPS.[4]

The concerns of the developing countries concerning pharmaceutical patents were explained and clarified by the 2001 Doha Declaration on TRIPS and public health.

The 2003 decision enabled the countries which cannot manufacture medicines themselves to import the medicines made under a compulsory license[5]. The Doha Declaration affirmed that the provisions of the TRIPS Agreement were to be read in the light of promoting ‘access to affordable medicines for all’.[6] This declaration highlighted the potential of a nation to exploit the flexibilities included in the TRIPS Agreement, including the compulsory licensing and agreed to expand exemptions to protect pharmaceutical patents for least developing countries by 2016.

Apart from compulsory licensing, the other flexibilities are parallel importation, provisions relating to the patentable subject matter, research exception, provisions relating to data protection, competition and control of anti-competitive practices and bolar provision. The Doha Declaration on the TRIPS and Public Health Agreement further expanded and reaffirmed the flexibilities.

Amendment of Indian Patent Law and Overall Impact of TRIPS on Pharmaceutical Industry

From 1995 to 2005, Indian Patent law was amended thrice to comply with TRIPS. [7]The Patents (Amendment) Act 1999 implemented the mailbox procedure as per Article 70.9 of the TRIPS Agreement that enabled pharmaceutical inventions to be accepted and put away in a mailbox, to be examined in 2005.

The Second Amendment in 2002 introduced a 20-year patent term.[8] Here, the burden of proof for process patent infringement got reversed, and requirements for compulsory licensing also got modified[9].

The Third and the latest Amendment, in 2005, the Patents (Amendment) Act 2005, gave full patent protection to pharmaceutical products[10].

Before the 2005 Amendment, there was no product patent for pharmaceutical products. This Amendment introduced product patent instead of process patent, allowing a broader system for a compulsory license. Further, it introduced a mechanism covering both ‘pre-grant’ and ‘post-grant’ opposition to patent applications, including provisions on ‘patentable subject matter’ and ‘exhaustion of patent rights,’ and most notably observe creating an ‘inventive step’ for patentability within the patent regime.

Granting product patents to pharmaceutical innovation has affected developing countries like India by directly restricting the availability of affordable drugs and by indirectly eliminating the generic competition that had survived so long by providing patented medicines at an affordable price.

The Pharmaceutical industries in India, before 1970, were under the control of foreign companies. However, between 1970 and 2005, the Indian pharmaceutical industries had enormous growth. This development was due to the adoption of the Patent Act of 1970.

This Act introduced the process patent and also shortened the term of pharmaceutical patents. The absence of the product patent enabled the production of drugs at the original cost. It also allowed generic companies to cut drug production costs which declined the growth of foreign pharmaceutical companies in India.[11] As a result, by 1990, India was self-sufficient in the production of bulk drugs.

After the 2005 Amendment, the product patent regime was allowed in India. However, the Indian generic industries were not allowed to ‘reverse engineer’ the patented drugs, resulting in increased medicines prices.

Evergreening of Patents

While ensuring that the inventors are given their patent rights and their accompanying benefits, it is also vital to keep in mind the rights of the people.

Article 21 of the Constitution guarantees protection of life and personal liberty to every citizen. Since the right to health is integral to the right to life, the government has a constitutional obligation to provide health facilities[12]. Therefore, the government must ensure that the patent holders do not exercise their exclusive right over their patented products for a long time, giving them unfair exploitation of the patent.

People must be able to access and afford life-saving drugs.

Section 3(d) of the Patents Act, 1970 was amended to ensure that patented products do not stay patented for a long time by making minor or insignificant modifications. This Amendment had aimed to prevent ‘patent evergreening’.

Evergreening refers to the practice whereby pharmaceutical firms extend the patent life of a drug by obtaining additional 20-year patents for minor reformulations or other iterations of the drug without necessarily increasing the therapeutic efficacy.[13] And the Novartis case very well highlights the importance of this provision.

In 1998, Novartis AG, an international pharmaceutical company, filed an application as per the TRIPS agreement before the Madras Patent Office for granting a patent for an anticancer drug named ‘Glivec’.

The fact was that another drug under the name Zimmerman patent existed used for the same purpose as ‘Glivec’. The Madras Patent Office rejected the application on the grounds that the innovation lacked novelty and failed to satisfy the test of non-obviousness. It was held that the drug is not patentable under Section 3(d) of the Patents Act as it did not have any significant therapeutic efficacy over its already existing form.

In its two writ petitions filed before the Madras High Court under Article 226 in 2006, Novartis stated that Section 3(d) of the Patents Act was unconstitutional. It reasoned the same by arguing that the Section violated Article 14 of the Constitution and was also non-compliant with the TRIPS agreement.

In 2007, the case got transferred to the Intellectual Property Appellate Tribunal (IPAB). In its decision, the tribunal stated that the drug had passed the test of novelty and non-obviousness, but it could not be patented as it was held as a non-patentable drug by way of Section 3(d).

In 2009, Novartis filed a Special Leave Petition (SLP) before the Supreme Court. The issue was to ascertain the meaning of a known substance and efficacy under Section 3(d). The Supreme Court in 2013 held that the beta crystalline form of Imatinib Mesylate is a new form of the known substance, that is, Imatinib Mesylate and that the word efficacy referred to therapeutic efficacy. As a result, the Novartis drug showed no increase in therapeutic efficacy and hence cannot be patented. Thus, the Supreme Court’s judgment attempted to avoid the evergreening of patents.

Large pharmaceutical companies tend to make small and inconsequential changes to the already patented drugs, claiming patent rights over 20 years. This is an unsustainable practice, especially in a developing country like India, where the population is high, and there is a need for life-saving drugs every day. Moreover, the availability of medicines at a cheaper rate is critical, which would not be possible if the companies continued to hold patent rights.

But this could lead to another problem. If only one company held the right to produce and distribute drugs with a specific function, no other company could make drugs with the same effect. Thus these drugs under product patent will continue to have a high price. However, one can attempt to solve this issue by ‘compulsory licensing’.

Compulsory License

Compulsory licensing is

“authorisations, permitting a third party to make, use or sell a patented invention without the patent owner’s consent.”[14]

Section 84 of the Indian Patents Act, 1970 provides for the conditions under which a compulsory license can be granted regarding the invention. The conditions are, when:

  1. The reasonable requirements of the public concerning the patented invention have not been satisfied, or
  2. The patented invention is not available to the public at a reasonable price or
  3. The patented invention is not used in India.

One such case of granting a compulsory license is NATCO vs Bayer. Bayer was a pharmaceutical company that held the patent rights over an ingredient ‘Nexavar’, which was used to treat liver and kidney cancer in 2008.

Natco then applied to the controller for a compulsory license to manufacture this drug. It reasoned that Bayer had failed to meet the adequate medicine supply. Furthermore, it stated that the drug wasn’t available at a reasonable price and wasn’t manufactured in India. The controller considered the conditions and made the following observations:

  1. Reasonable requirements of the public:

Even after the expiry of three years from the date of grant of the patent, the drug was not imported as per the requirement. Further, it was available only to 2% of the consumers. Hence the public’s demand remained unfulfilled.

  1. Affordability of the drug:

A primary reason why consumers didn’t purchase the drug was its cost, Rs.2,80,000 per month.

  1. Not utilised in India:

Functioning in Indian territory would also require manufacturing to a reasonable extent in India. Yet, even after four years, Bayer failed to manufacture the drug in India and only imported it.

As the conditions in Section 84 were satisfied, the controller granted a compulsory license to NATCO. Thus, granting a compulsory license is an important provision provided for in the Act.

When a patent holder hasn’t made the necessary steps to provide the drugs at a reasonable price, the controller or any other person interested in the product can step in and offer or apply for a compulsory license.

This ensures that the patent-holding company doesn’t have unmitigated power to manufacture and distribute the drug. Moreover, the patent holders can guarantee that such compulsory licenses will not be granted unless they satisfy the conditions under Section 84.

Section 92 is another provision for granting a compulsory license. This Section provides for the application for a compulsory license by the controller of the patent. It states that an application can be filed under (i) a circumstance of national emergency, (ii) a circumstance of extreme emergency (iii) a case of public non-commercial use.

Thus, if the controller feels that a condition has arisen requiring the grant of the compulsory license, they can do so by way of this Section. The issue with this Section is that there is no standardised definition for the term ‘national emergency’ internationally.

No two countries are similar in their demography, geography, environmental conditions, resources etc. Thus it would be impossible to fix a standard or a mark to be deemed a national emergency for all the countries. Furthermore, if only one per cent of the population gets affected, the same cannot be termed a national emergency in another country. Thus, there cannot be a fixed international definition for a national emergency.

Drug Prices Control Order

The Drug Prices Control Order (DPCO) is an order issued under section 3 of the Essential Commodities Act (ECA), 1955. It seeks to regulate the prices of pharmaceutical drugs. It also comes up with the list of drugs to which the price ceiling shall apply and the formula or method for calculating the ceiling price.

The National List of Essential Medicines (NLEM) lists the pharmaceutical drugs that fall under price control, and the present order consists of 680 drug formulations. This aims to ensure that essential medicine and drugs don’t get priced exorbitantly to the extend of unaffordability. The government decides the essentiality of medicine based upon the country’s disease burden, priority health concerns, affordability concerns etc.

Until 2013, the ceiling price was fixed based on the cost-based pricing method. The ceiling price was calculated as a multiple of the cost that it took producers to promote and distribute a pharmaceutical drug.

In 2013, India adopted market-based pricing, whereby the government determined the ceiling prices, that is, the maximum mark-up that a retailer can charge over the reference price. The same is the simple average of the prices of all the brands with a market share of greater than or equal to 1 per cent based on market data provided by a market research firm, IMS Health. [15]

In the economic survey (2018-19,) the impact of the DPCO on the price and quantity of essential drugs was examined. Two drugs, Glycomet and Glimiprex-MF were taken for comparison.

Both are used for controlling high blood sugar.

Even though Glycomet came under the price control in DPCO in 2013 and Glimiprex did not. Also, the price of the former increased more than that for the latter after DPCO 2013.

The prices of the drugs that came under the DPCO 2013 increased on an average of Rs.71 per mg of the active ingredient and by Rs.13 per mg of the active ingredient for the drugs that did not.

DPCO, 2013 successfully reduced the prices of the essential drugs by retailers and chemists but impacted the drugs that were sold in hospitals. The DPCO thus had an opposite effect than what it intended to do. It increased the prices for the more expensive formulations more effectively than, the cheaper ones.

It ultimately failed in its attempt to make the drugs affordable.

 Finding a Balance

Justice Rajagopala Ayyangar, in his report on the revision of the patent laws in India in 1959, observed the Swan Committee’s view:

“The theory upon which the patent system is based is that the opportunity of acquiring exclusive rights in an invention stimulates technical progress in four ways: first, that it encourages research and invention; second, that it induces an inventor to disclose his discoveries instead of keeping them as a trade secret; third, that it offers a reward for the expenses of developing inventions to the stage at which they are commercially practicable; and fourth, that it provides an inducement to invest capital in new lines of production which might not appear profitable if many competing producers embarked on them simultaneously. Manufacturers would not be prepared to develop and produce important machinery if others could get the results of their work with impunity”[16].

If labour and the time that a person spends on an invention is not rewarded, they may lose the desire to work. Therefore, just like physical labour is rewarded, intellectual labour must be rewarded too.

The question is whether laurels and praise are enough encouragement for inventors. Given the economically competitive nature of the world, the answer is a resounding no. First, there must be a significant financial benefit to encourage further research and invention.

Second, an inventor might keep the inventions for personal reasons alone, even if such an invention could be of significant use to others. That would be the basic human instinct. In the absence of a reward, inventors would not be ready to disclose their inventions and make them known to the world.

Thirdly, there must be compensation for the expenses incurred by the inventor to get their invention to the stage of being employed commercially.

Finally, giving exclusive rights to produce a product and sell them would significantly push companies to invest capital in such a new line of products under no pressure of any competition. They can reap the rewards if they succeed. These are the reasons why patent rights and benefits must be given to inventors. It is both for personal and societal benefit.           

With respect to medicines and pharmaceutical products, there must be a more sensitive and lax approach. Article 7 of the TRIPS Agreement states that the protection and enforcement of IPRs should contribute to the promotion of technological innovation and in a manner conducive to economic and social welfare[17].

Article 8 states that the members may adopt necessary measures to protect public health and nutrition and prevent the abuse of intellectual property rights by the rights holder while formulating or amending their laws and regulations[18].

Even Article 7, which lays down the agreement’s objectives, consider the economic and social well-being of the people. Although limited exceptions can be provided to the exclusive rights conferred by a patent as long as the patent owners’ interests are not violated. This is provided in Article 30 of the TRIPS[19].

Article 31 further provides the WTO member countries to allow the use of the patented product without the authorisation of the patent holder. These provisions are in place so that while conferring exclusive rights to the patent owners, the well-being of the public is not sacrificed.

It is an attempt to uphold the rights of the patent holders and the welfare of the people at large. Additionally, the legislature took certain steps to avoid patent evergreening. Fixing the ceiling prices for certain essential drugs and compulsory license work in this regard is an attempt to further public and patent holders’ interests at the same time.

Shortcomings of Granting Compulsory License

When it comes to providing compulsory licenses, specific issues arise in its implementation and monitoring. Sometimes, when a manufacturer is granted a compulsory license to produce a drug in a particular situation, it might pave the way to creating grey markets.

When legitimate medications make their way to distribution channels not authorised by the drug manufacturers, it is considered a grey market. Thus when a manufacturer gets the compulsory license to produce a drug, they may sell the drugs to people other than the target public, that means to the people for whom the compulsory license was given in the first place.

The generic company (licensee) may manufacture the drugs and sell them in another country due to reasons such as higher value for the drugs etc. This leads to economic loss to both the government and the patent owners. Also, when a compulsory license is given to fulfil the need for many drugs/medicines, the royalty given to the patent owners might be of a lesser value than the one they may be entitled to under normal circumstances. A royalty payment will be higher in high and middle-income countries with a lower burden of diseases[20].

Section 3(d) attempts to curb patent evergreening. But the issue with it is that the controller of patents has unfettered power and has the sole authority to decide upon the question of whether granting a particular patent would lead to patent evergreening or not.

They may decide if the new invention has an innovative step and if it increases the therapeutic efficiency. In some instances, Section 3(d) is being deliberately ignored and not being applied correctly while granting secondary patents[21].

Suggestions and Conclusion

A proper application of Section 3(d) is necessary to ensure that no essential drugs remain patented for an unreasonable amount of time.

Governments must make domestic patent laws more flexible. And they must promulgate provisions that ensure that the disadvantaged populations of the country also have access to essential drugs priced expensive. In addition, the government must exercise flexibility in granting compulsory licenses to protect the patent holders’ rights so as to make sure that the patent owners get a reasonable amount of royalty for their inventions.

Also, they must track the distribution of drugs manufactured by the generic manufacturers after granting compulsory licenses to avoid creating grey markets.

Patent holders can be encouraged to license out their drugs at a lower price. They could also be given tax benefits as further encouragement.

Government can further acquire the patent rights of certain life-saving drugs and enable the manufacture of these drugs by generic companies. By taking similar steps, the governments, especially in underdeveloped and developing countries, can ensure that the patent holders’ rights are protected. And thus also ensuring that the public’s health is protected by providing the public access to patented drugs.

Endnotes

[1] The Uruguay round was the eighth round of multilateral trade negotiation, and took over seven years to complete.

[2] “WTO | Understanding the WTO – Intellectual property: protection and enforcement” Intellectual property: protection and enforcement, www.wto.org/english/thewto_e/whatis_e/tif_e/agrm7_e.htm.  Accessed 20 Apr. 2021.

[3] Guennif, Samira and N Lalitha. “TRIPS Plus Agreement and Issues in Access to Medicines in Developing Countries”. Journal of Intellectual Property Rights, vol 12, 2007. pp. 471-479., Accessed 16 Apr. 2021.

[4] The World Health Assembly had in 1996 examined the relationship between public health and the TRIPS Agreement, as it was mandated to report on the impact of the work of the WTO with respect to national drug policies and essential drugs. This was addressed in a resolution on the reverse drug strategy resolution WHA49.14www.who.int/phi/WHA49.14.pdf. Accessed 19 Apr. 2021.

[5] verkey, Elizabeth. law of patents 565 2nd ed., eastern book company, 2012.

[6]“Blic Health” THE DOHA DECLARATION ON THE TRIPS AGREEMENT AND PU, www.who.int/medicines/areas/policy/doha_declaration/en/.  Accessed 15 Apr. 2021.

[7] Chaudhuri, Sudip. The WTO and India’s Pharmaceutical Industry: Patent Protection, TRIPS, and Developing Countries Oxford University Press, 2005, 65.

[8] Prior to the 2002 Amendment, pharmaceutical process patents issued under the 1970 Act lasted for a period of five years from sealing, or seven years from the date of the patent, whichever was less.

[9] The Patent (Amendment) Act 2002, No.38, Acts of Parliament, India, 2002 http://www.wipo.int/wipolex/en/text.jsp?file_id=207496 accessed on 15 Apr. 2021.

[10] Basheer, Shamnad. “Indias Tryst with TRIPS : The Patents (Amendment) Act, 2005”. The Indian Journal of Law and Technology, vol 12005, 2005. pp. 15., Accessed 15 Apr. 2020.

[11] Mehta, Pradeep S. “TRIPS and Pharmaceuticals: Implications for India”. vol 12005, 1998. pp. 97-106., Accessed 15 Apr. 2020.

[12] State of Punjab vs Mohinder Singh Chawla (1997) 2 SCC 83.

[13]R, Sushmita. “EverGreening: An Abuse of the Patent System” academike, 16 Jan. 2015, https://www.lawctopus.com/academike/evergreening-an-abuse-of-the-patent-system/. Accessed 15 Apr. 2021.

[14] Sharma, Aayush. “India: Compulsory License: The Most Happening Section Of The Patents Act, 1970” mondaq, 15 Oct. 2015, https://www.mondaq.com/india/Intellectual-Property/435044/. Accessed 14 Apr. 2021.

[15] “Economic survey 2020-2021” indianbudget, https://www.indiabudget.gov.in/economicsurvey/doc/echapter.pdf. Accessed 14 Apr. 2021.

[16] Ayyangar, Shri Justice N. Rajagopala. “Report on the revision of the Patents Law” https://spicyip.com/wp-content/uploads/2013/10/ayyangar_committee_report.pdf. Accessed 15 Apr. 2021.

[17] World Trade Organization, https://www.wto.org/english/docs_e/legal_e/27-trips_03_e.htm.  Accessed 15 Apr. 2021.

[18] Ibid

[19] Anurag, Akshay. “Pharmaceutical Patents And Healthcare: A Legal Conundrum” scconline, 9 Mar. 2019, https://www.scconline.com/blog/post/2019/09/03/pharmaceutical-patents-and-healthcare-a-legal-conundrum/.  Accessed 14 Apr. 2021.

[20] Kaur, Amanpreet and Rekha Chaturvedi. “Compulsory Licensing of Drugs and Pharmaceuticals: Issues and Dilemma”. Journal of Intellectual Property Rights, vol 20, 2015. pp. 279-289., Accessed 14 Apr. 2021.

[21] Chatterjee, Patralekha. “Five Years After The Indian Supreme Courts Novartis Verdict” Intellectual Property Watch, 20 May 2018, https://www.ip-watch.org/2018/05/20/five-years-indian-supreme-courts-novartis-verdict/.  Accessed 15 Apr. 2021.

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