Wednesday, 16 March 2011

Compulsory Licensing: A much needed step?

Just few months back, Indian Pharma giant Piramal healthcare Ltd hit the headline for being acquired by US Pharma Company Abbott, the deal worth $3.72 billion. Three years back in 2008, Japanese drug maker Daiichi Sankyo bought Delhi based Ranbaxy Laboratories for $ 5 billion. In every second day, some news of M&A, TakeOver or Slump Sale is coming from Indian Pharma industry and that has bothered the policymakers, especially in post 2005 scenario.
In almost all the cases, Indian companies have been acquired by the overseas companies and that has raised the concern about chances of non-availability of patented drugs locally. Experts believe, this could lead to increase in prices even in the cases of generic drugs. So, DIPP (Department of Industrial Policy & Promotion) is going to implement the Compulsory Licensing for Pharmaceuticals, which is naturally opposed by foreign lobby groups. Now the debate is about, whether at all this Compulsory Licensing is needed & would it affect India’s long term vision in the context of innovation and foreign deals?
Before divulge into any more, let see what is Compulsory Licensing.
“Compulsory licensing is a system whereby the Government allows third parties (other than the patent holder) to produce and market a patented product or process without the consent of the patent owner. Through such interventions, the Governments balance the rights of the patent holder with its obligations to ensure working of patents, availability of the products at a reasonable price, promotion and dissemination of technological invention and protection of public health and nutrition.”
Almost all the developed, developing and under developed countries have Compulsory Licensing provisions. United States of America has six provisions for CLs. Canada practiced the same for a long time. United Kingdom has the proviso in the British Law itself. Italy invoked the same whenever it felt the ‘emergency’. Post Doha round of TRIPS agreement on Public Health, Brazil, Thailand, South Africa, Kenya, Ecuador too have adopted the CL policy.
When the Controller issues a CL on the basis of Central Government’s special notification or of the importing country’s notification or issuance of CLs, they are referred as Category I CLs. The rest falls under Category II where Controller independently takes the call on issuance of CLs.
Under the Indian Patent Act 2005, the issue of CLs has been addressed explicitly in 4 sections. The sections are as follows:-
• Section 84: General CLs (on the basis of application)
• Section 91: Special CLs (on the basis of related patent application)
• Section 92: Special CLs (in the case of National/Extreme Emergency & Public non-commercial use based on notification by Central Govt)
• Section 92A: Special CLs (for manufacture and export of patented pharmaceutical product to any country having insufficient or no manufacturing capacity in the pharmaceutical sector for the concerned product to address public health problems). In addition, use of inventions for the purpose of government and acquisition of inventions by Central Government is clearly mentioned.
There was (and is) argument, whether by bringing the provision of CLs India is violating the TRIPS Compliance. The argument doesn’t have any acceptance as TRIPS has clarified its stand in the context of Public Health in Doha. “In ‘Doha Declaration on the TRIPS agreement and Public Health’ it specifically clarifies that the TRIPS agreement does not and should not prevent Members from taking measures to protect public health. It further affirms the Members rights to protect public health and in particular to promote access to medicines for all.” Article 31 of TRIPS agreement qualifies “other use without authorisation of Right Holder” on 12 specific conditions. Though there is restriction regarding the issuance of CLs in semi conductor technologies, but there’s absolutely no restriction on the issue of public health. TRIPs also stipulate that ‘the right holder shall be paid adequate remuneration in the circumstances of each case, taking into account the economic value of the authorization.’
But the question is, when Strategic Business Alliance in form of M&A, Take Over is common to all industries, why government is only worried about the Pharma sector. Just see the current situation of the industry.

MNCs are taking over the Indian companies. There are increasing concerns by the Government, if such takeover trend continues, an oligopolistic market may develop, which may result in a few companies dictating prices of life saving drugs of HIV/AIDS, Hepatitis C.
• This continuous Takeover trend may weaken the government’s ability in the extreme cases through CLs, because of following reasons:-
• Big Indian pharmaceutical companies, which have been taken over by foreign companies, may no longer be willing to apply for a Compulsory Licence even if eligible.
• When government notifies a public emergency and recognizes the need for issue of a CL for a particular drug, sufficient number of capable drug manufactures may not come forward to apply for CL and work it at a reasonable cost.
• There is a concern that foreign companies may utilize the marketing channels of the Indian companies they take over to sell higher cost patented drugs or branded generics rather than the cheaper ones. This may push up drug prices in general.
• Some of the Indian companies taken over were recipients of substantial grants as well as tax concessions. Thus a significant portion of their market value arose because of state support and they were catering to niche markets for relevant drugs. With their transfer to foreign control, they may no longer be interested in doing so.
And to combat these situations, government has only 4 options.
o By invoking ‘Government Use’ provision or by issuing CLs in case of national emergency
o Invocation Of Competition Act, 2002 to check the market reality i.e. price or availability of a drug, consequence of an anti competitive agreement, abuse of dominant position by a company
o Reviewing the policy on foreign investment for pharmaceutical companies. Presently, investment up to 100% in the pharmaceutical sector is on the automatic route. This could be shifted to the government route so that proposals could be scrutinized by the FIPB. This could be a way of monitoring whether new technology is being brought in by a foreign company while taking over an Indian company.
o More power to National Pharmaceutical Pricing Authority
Indian Patent Act, 1970 did not allow product patent of "substances intended for use, or capable of being used, as food or as medicine or drug." This actually catapulted the reverse-engineering mechanism by Indian firms. It encouraged the local firms to produce copies of the drugs by developing their own process. Before the first amendment of the Patent Act in 1995, Government took two major decisions,
 Introduction of ‘DPCO’ to protect the Consumers’ interest
 ‘ Process Patent’ was allowed
In 1995, India became the member of WTO and signatory of TRIPS Agreement. There on, the business aspect of intellectual property rights took a huge turn, the management of IPRs have become an important discourse in the Indian context too. So let’s see what happened between 1995-2005:
• Exclusive Marketing Rights- This new provision has been incorporated in the Patents Act, 1970 as amended by The Patents (Amendment) Act, 1999 with effect from 1st January, 1995 . EMR will be valid for a period of five years or till the date of grant of the patent or date of rejection of the application for the grant of patent whichever is earlier.
• It is now possible to make an application for patent claiming for a substance itself intended for use or capable of being used as Medicine or Drug, excepting the intermediate for the preparation of drug.
• India joined the Paris Convention and the Patent Cooperation Treaty in 1999.
• Abolition of product patents in chemicals and pharmaceuticals has facilitated the development of local technological capability in chemicals and pharmaceutical industry by enabling the domestic firms in their process innovative activity.
Finally, in 2005, Patent Act was amended and some new provisions were included, those are:-
• Provision related to black box application
• Parallel import, grey imports, ”Exhaustion” of rights
• Compulsory licenses
• Herbal preparations
Now in the present context, it seems CLs is the only way out for a poor country like India. The way medicine prices are increasing, the days are not far away when it would be out of reach for the poor. Already, maximum people are beyond reach of costly drugs of Cancer, AIDS or Hepatitis C. Health Care is one of the sectors where India is giving maximum importance, so its government’s duty to make the healthcare industry an easy access for all by ensuring availability of quality medicines in reasonable price and improving the accessibility of essential medicines.
Industry experts believe, the proposed Approval (Government) Route for foreign investment in Pharma sector is a good idea. It would help even in monitoring new technologies, if any, brought by the foreign companies while striking a business deal with an Indian company. On the other hand, technological innovation might get a boost by way of providing technical know-how.
As of now it seems government is a step ahead, though March 31st will give the final answer.

• DIPP Draft on Compulsory Licencing
• TRIPS: India - Patent Protection for Pharmaceuticals (Article)
• Journal of Intellectual Property Rights

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