July 21, 2016

India-US Relations: The IPR conundrum

~ By N K Singh

Broadly speaking, Intellectual Property Rights (IPR) refers to “the general term for the assignment of property rights through patents, copyrights and trademarks. These property rights allow the holder to exercise a monopoly on the use of the item for a specified period” (OECD). There are varied interpretations but the key components need to harmonize the incentive for innovation, exploiting frontiers of knowledge with the need to harness these applications for the wider benefit of users, particularly in enhancing human welfare. The broad features of this harmonizing process are embedded in the WTO agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS).

India and the USA are two of the largest democracies in the world.  As a result, the shared values of democracy have contributed to strong bilateral relations between the two countries. The bilateral Global Strategic Partnership between the countries got a boost through the India-US Delhi Declaration of Friendship released in January 2015. The declaration states that each step taken to strengthen bilateral ties shall shape international security along with regional and global peace. Further, India’s Act East Policy and USA’s Pivot to Asia Policy together provide immense opportunities for both countries as well as Asia-Pacific countries to strengthen regional ties. Therefore, there exists immense scope and ground for further mutual co-operation and stronger bilateral ties between India and the USA.

The Indo-US relationship has undergone tectonic shifts, both in deepening and diversifying its engagements. This is reflected in the significantly higher levels of trade flows (bilateral trade between India and USA stands at around $100 billion), direct foreign investment, collaboration in the field of intellectual attainments between educational institutions, Research & Development, improvements in competitiveness of manufacturing and enhancing agricultural outcomes. The US leadership in the cutting-edge of knowledge and innovation has unique attributes. In recent years, the strategic partnership between India and the US has broadened from defence, collaboration, purchases and partnerships in multiple ways. It is the endeavour of the Modi government to deepen this relationship and ameliorate persistent and subsisting constraints. One area which the US perceives as a continued dampener, if not an irritation, are issues connected with protection of IPR.

In the area of Intellectual Property Rights (IPR), both India and the United States are compliant with the WTO TRIPS Agreement. India amended its Indian Patents Act 1970, in order to better align its laws in line with the TRIPS Agreement. The most important amendment related to the introduction of product patents for 20 years, including the pharmaceutical products. On the other hand, the United States also amended its Patent Act in several respects for compliance with its obligations under TRIPS. The most important among them related to determining the first to invent in priority disputes.

Despite the compliance of their individual patent laws with the TRIPS rules, differences arise on account of their differing views on the approach to IPR protection. In 2014, India remained on the Priority Watch List of the “Special 301” annual report released by the office of the US Trade Representative (USTR). Inadequate IPR protection and enforcement in several areas, including pharmaceuticals, IT and publishing, were alleged as the reasons for this. In a development that disappointed India, even in its 2015 Special 301 Report, the US once again put India on the ‘Priority Watch List’. According to the USTR, India and China are major sources of counterfeit pharmaceuticals shipped to the US. Its 2014 report alleged that up to 20% of the drugs sold in the Indian market are counterfeit, putting patient health and safety at high risk. As India is one of the largest sources of generic drugs globally (exporting pharma products worth $15 billion annually to over 200 countries), such allegations could adversely affect the country’s image globally.  The report highlighted issues with India’s patent regime, trade secrets protection, digital and physical copyright piracy as well as IPR protection. To address these issues, the USTR also announced plans to undertake “out-of-cycle” review of India in 2014.[1] However, the report also acknowledged significant improvements in India’s IPR legal framework and enforcement system. Further, despite having been put on the priority list India was not designated a priority watch country. Being declared a priority watch country could have propelled penal action against India. On the other hand, the 2015 report has noted India’s recent conscious efforts to create new channels of engagement. It expects these efforts to bring about “substantive and measurable improvements” in the country’s IPR regime in order to benefit multiple benefits for creative and innovative industries.

Following the first amendment of its patent law in 2005, India reintroduced product patents for pharmaceuticals, food and chemicals. Patent disputes between India and the United States are most pronounced in the Pharmaceuticals sector.  From 2012 onwards, India has either denied or revoked patents for certain foreign drugs which failed to meet its “enhanced efficiency” requirement for patentability. As per India, this requirement is crucial for protecting against the companies that seek to extend the life of their patents by making minor modifications of their patented products to (called “evergreening”). In addition to this, compulsory licenses for pharmaceuticals, patented products and other products have been either issued or promoted (under its National Manufacturing Policy) by Indian government. The United States, on the other hand, believes that the requirement of “enhanced efficiency” is likely to have the effect of limiting the “patentability of potentially beneficial innovations…”. This could include drugs with “fewer side effects, decreased toxicity, improved delivery systems, or temperature or storage stability.”  Section 3(d) of India’s Patent Law (which denies patents for incremental innovations to avoid ‘ever-greening of patents) is thus a contentious bilateral IPR issue.

In 2012, India’s patent office allowed Hyderabad-based Natco Pharma to make generic version of German pharmaceutical company Bayer’s cancer drug Nexavar. Bayer lost its appeal in the Supreme Court in December in 2013. Also, in the same year, the Supreme Court denied a patent to Swiss MNC Novartis for its cancer drug Glivec. It is worth noting here that in an editorial, the Boston Globe found the Supreme Court correct in being skeptical of the “evergreening” of the patent. It went so far as to suggest that the US needs to tighten its rules concerning patenting changes to drugs. Another US drug giant, Pfizer, is also involved in patent-related disputes in India.

Apart from pharmaceuticals, other areas of dispute relate to copyright violations in publishing and cinema and software piracy. A report by Business Software Alliance (BSA) estimates that India’s piracy level stood at 60%, as the country recorded installation of $2.9 billion worth of unlicensed software in 2013. The revenues of companies get adversely affected as a result of such volumes of piracy. These issues have been discussed several times between the two countries. The Pharmaceutical Research and Manufacturers of America (PhRMA) has repeatedly claimed that India’s IPR laws do not comply with TRIPS Agreement. However, India repeatedly and rightly asserted that it is TRIPS compliant.

India has highlighted the fact that several MNCs operational in the country have been found to be guilty of ‘patent squatting’. Consequently, they refrain from marketing patented drugs and deny access of patents to life saving drugs. This is detrimental to the interests of consumers and adverse impact on their health and social well being. Moreover, data on patents granted in several fields (including pharmaceuticals) between January 2005 and October 2014 reveals that 82% of patents were granted to foreign companies. This belies the argument that Indian patent regime discriminates against foreign companies.

Another issue raised by the US concerns a trend in India towards localization barriers to trade and indigenous innovation policies. India’s National Manufacturing Policy 2011 called for increased local content requirements in government procurement in certain sectors. These sectors included information and communications technology and clean energy. Based on this policy is India’s Preferential Market Access mandate, which imposes local content requirements for government procurement related to electronic products. Another localization measure includes the Indian National Security Council proposal (2014) to store electronic communications between users in India locally on Indian servers. These measures have been a source of immense friction between the US and India.

In 2013, the United States challenged India’s local content requirements and government subsidies for solar panel production by requesting formal consultations in the WTO. It contented that these measures greatly restricted US market access in India. India has also repeatedly raised the issue of copyright piracy and misappropriation of traditional knowledge with the US.

A global index that maps the IP environment in 30 countries worldwide, namely the GIPC Index, India ranked 29 amongst all 30 countries in 2015. However, there has been an improvement in the overall score relative to the previous editions. According to Global IP Center (GIPC), the Indian IP system has the following strengths:

  • Basic IP framework introduced in mid-2000s, including 20-year patent protection
  • Ex-officio powers introduced in 2007 for the deputy and assistant commissioners of customs

In addition, GIPC cites the key areas of weakness of India’s IP system as:

  • Regulatory data protection not available
  • Patent term extension not available
  • Use of compulsory and non-compulsory licensing for commercial and non-emergency situations
  • Limited Digital Rights Management (DRM) legislation
  • High levels of software piracy, music piracy, and counterfeit goods
  • Poor application and enforcement of civil remedies and criminal penalties
  • No civil statutory damages available for copyright infringement
  • Not a contracting party to any of the major international treaties referenced in the GIPC Index.

It is worth noting here that this index has been largely developed by the US Chamber of Commerce, with significant inherent biases which overlook the strengths of the Indian system and the systemic efforts being made to further improve the IP regime as well as perceptions connected with our laws.

There is no doubt, that there are issues on which further work needs to be undertaken but there is no doubt that our IPR regime is fully compliant and consistent with the international standards and obligations under the WTO framework. According to a senior Indian official, “…our laws are drafted in a way so as to protect both our consumer and industry’s interest. The new IPR policy that we are coming out with will take care of any anomalies or vagueness in our existing regime and make it tight and also fast-track clearances of patent applications.”

The IPR issues between India and the United States have been identified as most crucial for their bilateral trade relations. Accordingly, several discussions and dialogues have been organized on this, over the years. Under the Trade Policy Forum (TPF), India and the US have set up a high-level working group on Intellectual Property. This body has emerged as the principal trade dialogue body between the two countries. The five areas covered under the forum primarily comprise of the following:  Agriculture, Investment, Innovation and Creativity, Services and Tariff and Non-Tariff Barriers.

Underscoring its commitment to making its National IPR policy more internationally aligned, the Indian government is working on a draft National IPR Policy (2014). The policy seeks to “harness the full benefits of creation and innovation in the larger interest of society and citizens…The policy will aim to foster predictability, clarity and transparency in the entire IP regime in order to provide a secure and stable climate for stimulating inventions and creations, and augmenting research, trade, technology transfer and investment.”

In addition to this policy measure, the Indian government has already constituted an IPR think tank under the auspices of the Department of Industrial Policy & Promotion (DIPP). This body oversees the formulation of a National IPR Policy through stakeholder consultation. Also, a joint committee has been set up between India and the US to discuss and resolve key IPR issues.

India recognizes the need for a policy aligned with global standards, as has been re-iterated by Prime Minister Narendra Modi, “India should align its IPR laws with global standards”. At the same time, the integrated policy also needs to protect special strengths of the country. Efforts in this direction have already been initiated in the past. These include:

  • Trademark law brought at par with international practices- For this the Trade and Merchandise Marks Act 1958 was replaced by the Trade Marks Act 1999.
  • Protection to Geographical Indications provided- This was done through enactment of the Geographical Indications of Goods (Registration and Protection) Act 1999.
  • Copyright law modified- The law was amended in 2012 to make Indian copyright law compliant with the WIPO Copyright Treaty (WCT) and WIPO Performances and Phonograms Treaty.
  • Patent law more aligned with TRIPS

The country and the present Government’s will to bring greater harmony in the US-India bilateral relations is strong. This has been indicated on various fronts by the several joint dialogues and co-operation forums organized towards this objective, especially in the last year and a half. The IPR issue, being one of the key strains on the evolving bilateral ties, has been assigned high priority by India. India’s focus on IPR and related issues is reflected in the following statement made by President Pranab Mukherjee on May 11, 2013: “Innovation is increasingly recognized as the currency of the future…India’s innovation bottom line is not very encouraging as the number of patent applications filed annually in leading countries like US and China is roughly 12 times more than that of India…We should step up our expenditure on research to pursue innovation in a big way. The private sector should also increase their share of spending to levels prevalent in countries such as Japan, US and South Korea.”

There is no doubt that given the renewed emphasis on economic growth, Make in India, Start-up India and multiple other policy changes, we need to:

  • Improve our domain knowledge, particularly negotiating skills and deepening the training and understanding of India’s personnel on IPR related issues. Unfortunately, pedagogic skills and university curriculum need to be broadened to include IPR related issues as part of the teaching program. The number of domain experts and lawyers on IPR related issues is limited. However, inarguably this issue will be significant as India aligns itself even more with the changing norms of globalisation. These problems will become even more complex, as in addition to multilateral institutions there will be pressure from Preferential Trading partners. Therefore, we must equip and prepare ourselves for these evolving trends.
  • The total number of filing of patent applications by individuals, institutions and companies remain rather small. The DIPP pointed out that “Even though there are improvements in the number of total filings by Indians, still it is fact that filing of patent applications by individuals by Indians are just around 20 per cent which is in sharp contrast with many developed countries, despite our country having a vast pool of scientists and technologists and being worldwide recognised as a hub for research….We lack in creation of sufficient IP based knowledge assets…. The low patent portfolio of the country is seen as a stumbling block for achieving competitive edge in the domestic as well as global markets.” Creating awareness, deepening domain knowledge and improving the filing of patents is an area where we need to redouble our efforts. Patent filing and acceptance need much higher priority than ever before.

The dialogue on IPR between India and the US is an ongoing one. Both sides need to appreciate each other’s point of view. There are no quick fixes. India cannot accept discriminatory and unfair imputations, nor act in disregard of its overriding national interests. Ameliorating the IPR irritants is an aspirational goal but must be consistent with India’s over-riding national interests and priorities. Deepening the engagement between India and the US will help dispel misunderstanding and secure acceptance of what we genuinely believe is both responsible and reasonable.

The author is a former Member of Parliament, Rajya Sabha.

(This article appeared in India Foundation Journal, January-April 2016 issue.)


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