Changes In India's Patent Law

India is among the world's top five drug producers in terms of volume, though its $7 billion market does not rank as high in value.1 Prices are low because of the profusion of generic drug makers and the competition among them - made possible through the old Patents Act of 1970.

The procedure for obtaining a patent in India, and matters connected therewith are detailed in the Patents Act 1970 and Patent Rules framed thereunder.2 The Patents Act 1970 is modeled substantially on the U.K. Patents Act of 1949.3 The basic concepts of this law in India and U.K. being the same, the decisions of English Courts along with leading English authorities on the subject are often cited by lawyers and Judges alike in the interpretation of some of the provisions of the Indian Act. Not surprisingly, even decisions of Commonwealth Countries have persuasive value in Indian courts.

The Old Law

The Act of 1970 defines an invention as follows:

Invention means any new and useful

(i)art, process, method or manner of manufacture,
(ii)machine, apparatus or other article,
(iii)substance produced by manufacture, and includes any new and useful improvement of any of them, and an alleged invention.4

Indian courts have held that a method or process is a "manufacture" if it (1) results in the production of some vendible product, or (2) improves, or restores to its former condition a vendible product, or (3) has the effect of preserving from deterioration some vendible products to which it is applied.5

Before 1970, India's patent laws, like many others, were derived from its colonial days resulting into some of the world's highest drug prices. However, by 1970, India, along with other developing countries had adopted "process patenting regime".6 The Act of 1970 by granting "process patents" on drugs in combination with extensive use of fertilizers and pesticides not only led to low drug prices but also extended life expectancy and ended regular famines. In order to appreciate the gravity of the amendment and its repercussions on the international drug industry it is imperative to understand the difference between "product patents" and "process patents". Process patenting implies the patenting of the method of manufacturing a product. Under the Indian Patents Act of 1970, process patenting was provided for. Aside from the fact that India has surplus flow of relatively cheap labor, it also has a long tradition of manufacturing drugs of various types. This resulted into several new techniques of making drugs cheaply. After the product has been manufactured with the patented process, it would then be known as patented product in patented in a country adhering to process patenting, such as India. Any other manufacturer cannot produce a product by the patented process, although the manufacturer can produce it by another process. Thus, patenting a product assumes a slightly different complexion from the patenting of a process.

The Act of 1970 stated that with regard to medicine or drug and certain classes of chemicals no patent is granted for the substance itself even if new, but a process of manufacturing the substance is patentable.7 Therefore, with respect to food, medicine or drugs, patents were granted only for the process of manufacture of the substance but not for the substance itself. Such restrictions on the grant of product patents do not exist in virtually any other country. All Western countries grant "product patents" on new inventions - i.e. the patent is granted for the substance itself. However, since 1970, India has granted "process patents," which allow another inventor to patent the same product as long as it was created by a "novel process". In pharmaceutical industry, it could mean that a tiny tweak in the synthesis of a molecule yields a new patent. Several companies can produce the same drug, creating competition that drives down prices and puts multinational corporations that spend millions of dollars in research and development at a serious disadvantage.

The old patent system allowed Indian pharmaceutical companies to copy drugs patented abroad by merely changing their manufacturing process. This served two purposes: one, it kept cost of drugs inexpensive in India; two, it also allowed a local pharmaceutical company to thrive which otherwise would have faced multi-million dollars lawsuit for patent infringement. By copying drugs other companies spent millions of dollars to develop, Indian pharmaceuticals companies could sell them at as little as one-tenth their original prices.

The 2005 Amendments to the Old Law

It is widely believed that the 2005 amendments8 were made mainly due to international pressure, as the World Trade Organization ("WTO") demanded that India observe international drug patents. In 1995, the WTO's Trade-related Intellectual Property Rights (TRIPS) agreement was reached in Marrakesh, Morocco, where India, along with many other countries, agreed to grant 20-year patents on pharmaceutical products from January 1, 2005. The new WTO regime effectively outlawed the generic production of new medicines.

In March 2005, India's Parliament approved patent regulations to stop local drug makers from copying new drugs developed by other, primarily Western companies. The new law, amending India's 1970 Patent Act, affects everything from electronics to software to medicines, and has been expected for years as a condition for India to join the World Trade Organization. Previously, companies could copy drugs discovered or invented by other companies by tweaking the processes used to make them. As an executive of a leading Indian company puts it: "The winner used to be the guy who could copy faster. Now that has completely changed so that companies that don't innovate will die, especially in the pharmaceutical industry".9 The new patent system recognizes registered original drugs as products no matter how they are produced, thus making it illegal to copy drugs still under patent. Also, it appears that the 2005 amendments have done away with the practice of "evergreening" of pharmaceutical patents, where patent owners allegedly try to extend patent life through grant of new patents by minor "innovations" or improvements on formulations, dosage forms or minor chemical variations of an earlier patented product. However, the new law10 also makes it clear that any invention that enhances the known efficacy of the substance or results in a new product or employs at least one new reactant is patentable and that only the mere discovery of a new form or of any new property or new use of a known substance or process is excluded. It may not be too difficult to prove that the improved dosage form is more efficacious or that one new reactant is involved in the known process to make the product.11

These amendments to India's patent law have sparked worries that Indian companies will face tough global competition, and that the cost of medicines would jump in poor countries now supplied by Indian generic drugs. Since 2000, the gathering momentum of the global popular outrage against a tighter patent regime has become a powerful countervailing force due to emergence of the AIDS crisis.12 Many international aid organizations use inexpensive Indian generic drugs to save money as they save lives. For example, India is a big supplier of low-price generic versions of drugs for treating AIDS. In Africa, exports by Indian companies, especially Cipla and Ranbaxy Laboratories, helped drive the annual price of antiretroviral treatment down from $15,000 per patient a decade ago to about $200 now. Though the new patent law is not as restrictive as many feared and won't dry up supply of today's generic AIDS drugs, international organizations worry that the need to pay royalties or get licenses may constrict supplies of new drugs. All generic drugs could have been removed from the market. However, all the generic drugs already approved in India can still be sold, though sellers must pay licensing fees.13

Nonetheless, many of India's innovative companies14 have welcomed the stronger patent protections saying that these changes have made India more competitive on global scale and will trigger further investment and innovation in India.15 It is expected that with the stronger patent protection, more multinational corporations will tap India's relatively inexpensive engineers, scientists and computer programmers for product design, drug development and clinical testing. In fact, multinational corporations such as General Motors Corp., Microsoft Corp. and Nokia Corp. already have research facilities in India. Financial and country analysts expect the research- outsourcing industry to grow to more than $10 billion globally in the next five years.16

As India opens its markets and its companies venture abroad, companies are seeking to ensure that they profit from their own innovations. The list of top applicants in 2004 shows the importance of patents in global competition. Among the top applicants are Sony Corp, Procter & Gamble Co. and DaimlerChrysler AG - all with more than 300 applications each last year. From the Indian side, the top applicants include Dr. Reddy's Laboratories Ltd. and Ranbaxy Laboratories Ltd. - both have more than doubled their research-and-development spending to about 10% of revenue. 17 Nicholas Piramal, a generics company based in Mumbai, India, has invested $100 million in research and development in the last couple of years. India's generic drug companies, which until now made money copying best-selling foreign drugs, has now increased spending on research with an eye to launch low-cost drugs for the global market. As Dr. Swati Piramal, director for strategic alliances and communications of Nicholas Piramal says: "If an Indian company makes a drug whose development costs are under $50 million, compared with a billion-dollar-plus development costs in the West, we will be able to change the paradigm of drug discovery."18

Ambiguities in the New Law

The 2005 amendments to the patent law have many ambiguities that need to be addressed. To illustrate a few: under the new law, a maker of generics can apply to copy a patented drug, but only after it has been marketed for three years. The generic's maker however must pay a "reasonable" royalty. The new law does not define what can be considered to be "reasonable". This can result into unwarranted complications and needless litigation.19 Further, the amendments have sparked fears that with the new law, prices on patented breakthrough drugs would most likely rise to nearly the level in the United States, while prices on more commonly used drugs would most likely rise only moderately. The Indian government has said it would step in if price rises were excessive but has not said how that would be determined.20 In fact, the new law bars the government from over-riding any patent for at least three years - a provision not required under the TRIPS Agreement. Further, the new law states that the Controller of Patents has a series of wide-ranging discretionary powers to determine all kind of criteria like "reasonable affordability," "reasonable pricing," and "reasonable royalty."21 As Subbaraman Ramkrishna, senior director for corporate affairs at Pfizer India Ltd. noted, the word "reasonable" appears 42 times in the bill, giving the impression that royalty rates would be imposed subjectively.22 Lastly, with the removal of Section 5 of the law, it is not clear if chemical processes continue to be defined to include biochemical, biotechnical and microbiological processes.23

Conclusion

The amendments made to the patent law by India have been ostensibly to comply with its WTO obligations on intellectual property, the amended law represents a compromise between opposing interests. This compromise has resulted in a complicated and confused law with potential negative consequences that could have been avoided. The new law at times seems to exceed the requirements of the Agreement on TRIPS, or has provisions unique to India, and at other times, appears to be in conflict with the TRIPS Agreement. It is also believed that India, ironically, has swung from one extreme to another, moving from 1970 law that was clearly anti-patent to a law that is pro-patent applicant but not necessarily pro-innovation.24 At a time when there is increasing skepticism around the world over the patent-system as it has evolved so far, particularly in the U.S.25, it remains to be seen whether the hybrid Indian patent-system stands the true test of time.

"The works of founders of states, law givers, tyrant destroyers and heroes cover but narrow spaces, and endure but for a little time, while the work of the inventor though of less pomp is felt everywhere and lasts forever".26

Endnotes

1See The New York Times, March 24, 2005, Section C , Page 6 , Column 5
2P. Narayanan, Intellectual Property Law (2nd edition) at page 14, Eastern Law House.
3This Act has been replaced by Patents Act 1977 resulting into substantial changes in the U.K. Patent Law.
4Section 2(1)(j) of The Patent Act, 1970. This definition has been retained by the amended law.
5P. Narayanan, supra at page 14.
6Asthana, B. N., Patents in the WTO Regime, Chartered Secretary, December 2002, page 1657
7Section 5 of Th e Patent Act, 1970 states, inter alia, "In the cases of inventions - (a) claiming substances intended for use, or capable of being used, as food or as medicine or drug, or (b) relating to substances prepared or produced by chemical processes .... no patent shall be granted in respect of claims for the substances themselves, but claims for the methods or processes of manufacture shall be patentable.
8The 2005 amendments have made many changes to the Act of 1970. However, this article focuses on the change made to adopt "product patenting" system and its eff ect on the international drug industry.
9Shrikumar Suryanarayan, President for Research & Development at Biocon Ltd., Bangalore, India. See Wall Street Journal, dated April 11th, 2005 at A20.
10Section 3(d)
11A Confusing Patent Law for India, Economic and Political Weekly, April 16, 2005
12V. Sridhar, A Tempered Patents Regime, Frontline, Volume 22 - Issue 08, Mar. 12 - 25, 2005
13There are also provisions allowing companies that make generics to copy drugs in the future. However, there are relatively tough criteria for such copying, and activists predict that prices for newly invented drugs will be much higher, because drug-makers will have the same 20-year patent monopolies as they have in the Western countries. See http://www.doctorswithoutborders.org/.
14As Indian economy opens up to foreign competition, its leading companies are increasing their spending on research and development to stay competitive. Indian companies applied for nearly 800 patents at the World Intellectual Property Organization last year - more than twice the number of patents it applied for four years ago. See Wall Street Journal dated April 11th, 2005, page A20
15The "mailbox" system designed by Indian Government two years ago in which drug makers could deposit patents they hoped to file when the law was amended had 1,500 proposals from Indian companies and 7,000 from foreign ones, suggesting the new law would benefit foreign companies more.
16See Wall Street Journal, dated April 11th, 2005 at A20.
17Id.
18See The New York Times, March 24, 2005, Section C , Page 6 , Column 5
19Couple of years ago, U.K.- based GlaxoSmithKline demanded 40 percent of the sales proceeds of an AIDS drug it licensed to a South African company. However, under pressure from South African regulators and activists, it later licensed it to three rival companies for only 5 percent.
20See The New York Times, March 24, 2005, Section C , Page 6 , Column 5
21Id.
22Id.
23See Footnote 7
24A Confusing Patent Law for India, Economic and Political Weekly, April 16, 2005
25See Jaffe, Adam and Josh Lerner, Innovation and its Discontents, Princeton University Press, 2004
26Francis Bacon, quoted in Mainly on Patents at page 1, edited by Felix Liebesny, Butterworths