The U.S. Chamber of Commerce’s (Global Intellectual Property Center) submission (7 February 2014, USTR-2013-0040) to USTR’s 2014 Special 301 Review requests USTR classify India as a Priority Foreign Country specifically citing concerns over compulsory licensing. The submission noted that India was “taking measures across sectors, including pharmaceuticals, medical, and green technologies, to advance a program to compulsory license foreign proprietary technology, in direct contravention of the more limited scope of compulsory license provisions in the WTO TRIPS Agreement.”
The docket number for this submission is: USTR-2013-0040.
Here are some choice quotes from the Chamber’s submission to USTR.
The Chamber strongly recommends that India be designated a Priority Foreign Country.
Over the past two years, the IP environment in India has deteriorated rapidly, making India an outlier in the international community. While the then-President of India declared this decade to be India’s “Decade of Innovation” in 2010, India’s policies are inconsistent with the former President’s rhetoric.
India has the weakest IP environment of all countries, according to both the 2014 and 2012 editions of the Chamber’s International IP Index, which maps the IP environment in 25 countries around the world based on existing international standards and best practices. The studies found that the continued use of compulsory licenses, patent revocations, and weak legislative and enforcement mechanisms raise serious concerns about India’s commitment to promote innovation and protect creators.
India’s failure to develop and adhere to international best practices in the field of IP rights has hindered its economic development, especially over the last year when its IP environment deteriorated considerably. The resulting lack of confidence has directly impacted India’s foreign direct investment44. In 2011 and 2012, $35.1 billion of foreign direct investment flowed into India; by 2013, that number dropped dramatically to $22.4 billion, according to India’s Department of Industrial Policy and Promotion45. Further, World Bank data indicates that charges and receipts from IP-based assets increase economic growth and while payments to Indian residents for the use of IP assets was $300 million in 2011, the payments to the other BRIC economies ranged from between $600 million to more than $1 billion, placing India at a significant competitive disadvantage46.
44 A recent study by the Organization for Economic Co-operation and Development (OECD) concludes that a 1 percent change in the strength of a national IP environment, based on a statistical index, is associated with a 2.8 percent increase in foreign direct investment inflow.
45 Wolfgang, Ben, “U.S. drug industry upset with Indian policies on patents,” Washington Times September (2013) http://www.washingtontimes.com/news/2013/sep/26/us-drug-industry-upset-with-indian-policies-on-pat/
46 World Bank, Databank, Science and Technology Indicators, Charges for the use of intellectual property, receipts (BoP, current US$), indicator source note.
As demonstrated below, industries across all sectors face significant challenges in securing adequate and effective IP protections and enforcement in India- including with respect to patents, copyrights and trade secrets – and are being denied fair and equitable market access in India for their IP. And in spite of recent calls for greater investment by foreign industry, the Indian government continues to put forward discriminatory measures to advance local production at the expense of foreign companies. While the Chamber commends the Government of India (GOI) for recognizing the importance of intellectual property in their National IPR strategy and taskforce, to date there has been no demonstrable progress in confronting or overcoming the issues around intellectual property protection, particularly as they affect the pharmaceutical and copyright industries.
Many of these problems have been identified year after year by USTR in its Special 301 report. Indeed India has been designated as either Priority Watch List or Priority Foreign Country every year since the report’s inception in 1989. Not only is India making no effort to correct the challenges identified repeatedly in USTR’s Special 301 report, consistent with the statutory definition of a Priority Foreign Country, they are also continuing to impose measures and take actions that rise to the level of the most onerous or egregious IP acts, policies or practices that have the greatest adverse impact on U.S. businesses. Moreover, India has demonstrated no effort to engage in bilateral dialogue to address these concerns, while they continue to be a leader in efforts to weaken IP internationally.
Developments related to patents in India last year created more concerns and challenges for companies who wish to invest in India’s innovative potential.
As described more fully below, this negative trend is affecting U.S. industries across sectors in a number of ways. First, India uses the additional criteria of “enhanced efficacy over existing therapies” when considering the patentability of new pharmaceuticals. This impermissibly adds a fourth criterion to the internationally accepted test under TRIPS. As a result, products that receive patents around the world are being denied these same protections in India.
There’s no adequate response to this. When challenged, Indian officials say that they are TRIPS compliant and a country of laws. They also add that if there are concerns better legal arguments should be presented to the Indian courts. However, India’s policies are clearly discriminatory, in contravention to their obligations under TRIPS. In addition, other countries such as South Africa, Brazil, Argentina and even China are closely monitoring this new “Indian IP Model.”
Technology Transfer and Compulsory Licensing
The Government of India is taking measures across sectors, including pharmaceuticals, medical, and green technologies, to advance a program to compulsory license foreign proprietary technology, in direct contravention of the more limited scope of compulsory license provisions in the WTO TRIPS Agreement. One primary purpose appears to be to enable domestic industries to avoid paying commercial rates for technologies and to shield domestic companies from foreign competition. For example, India has announced its intention to engage in policies that would violate the intellectual property rights of foreign green technologies in order to favor domestic companies.
According to India’s new National Manufacturing Policy, for example, a domestic clean technology company has the option to ask the government to issue a compulsory license for a patented technology under one of the following two conditions: (1) if the patent holder is not providing the technology at a reasonable rate, or (2) if the technology is not being “worked on” in India. This policy is fraught with many challenges, such as vague definitions as to what is and is not a “green technology” and even more vague conditions under which a compulsory license would be appropriate. This raises a general concern that India’s policy on compulsory licenses is not limited to pharmaceutical patents and can easily spread to other IP-intensive sectors of the economy.
The National Manufacturing Policy lists healthcare-related technology as another strategic industry, alongside clean technology, and related to this, India is reportedly in the process of expanding its “essential medicines” list to other product categories as well.
In March 2012, the Indian Patent Board issued a compulsory license on Nexavar, a Bayer drug used for cancer treatment. While the Patent Board claimed to be acting in accordance with the
Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement, the fact that Nexavar is not manufactured locally is not a condition for issuing a compulsory license under TRIPS.
India, in contrast to 2012, has not issued any new compulsory licenses under Section 84 of the Indian Patent Act (Amended). The Chamber applauds the Indian Patent Office for rejecting a petition for a compulsory license from an Indian generic pharmaceutical company on an anti- cancer medicine on grounds that the Indian firm did not make a “prima facie” case for a compulsory license. However, in 2013, the Indian Government made clear that it is actively considering a number of innovative biopharmaceutical medicines in the areas of cancer and diabetes for a compulsory license under a separate provision of the Indian Patents Act (Section 92). While the Indian Government has yet to make a formal announcement about these and potentially other medicines, the Chamber is continuing to monitor the situation carefully to ensure that any actions taken by India with respect to CLs are consistent with India’s international obligations. In the meantime, India’s failure to address concerns regarding its local working requirement at a minimum has created significant economic harm and uncertainty for U.S. innovators.
Another area of increasing concern is the recent pattern of patent denials on inventions that have been widely deemed as patentable in most other jurisdictions. The most prominent of these cases is the April 1, 2013 Supreme Court decision to deny a patent to an anti-cancer medicine that has been granted a patent in 40 other jurisdictions. In this case, the Supreme Court confirmed the rejection of the patent application, ending several years of efforts by the innovator company to gain patent protection in India. In the Supreme Court’s reasoning, the invention did not fulfill the unique additional patentability criterion under Section 3(d) of the Indian Patent Law because it was an attempt of “evergreening” in view of an older patent application, an application that was never filed in India, not granted in India, and the product it referenced was never introduced in
Furthermore, the Supreme Court defined Section 3(d)’s requirement of increased efficacy to mean specifically “therapeutic efficacy,” meaning that there should be demonstrated additional benefits evidenced in clinical trials. This requirement would exclude non-clinical advantages that
a new form of a known compound may have and which would be sufficient to pass the classical patentability criterion of inventive step. Non-clinical improvements can include important technical advances particularly useful for India, e.g. improving shelf life or increasing the efficiency of manufacturing processes thereby contributing to make pharmaceutical products more affordable.
Lastly in regards to the Supreme Court’s decision, contrary to an internationally well-established principle of patent law that the wording of a patent claim can protect more than what is specifically disclosed in the patent application, the Court stated it is not in the interest of India to provide patentees with protection that goes substantially beyond what was specifically disclosed in the patent application; compounds which fall within a chemical formula of a claimed group of compounds in a patent application, but which are not specifically disclosed in the patent could be regarded as not protected. Already we have seen instances of patents having been found to be valid but not infringed based on the doctrine that a patent claiming a group of chemical compounds is not infringed by a specific compound that falls within the claimed group of compounds, but is not specifically disclosed in the patent.
India’s actions are not about access to medicine. In many of these cases, the drug maker gave the drug to Indian consumers either free of charge or at a greatly reduced cost. In the case of Glivec, Novartis provided the leukemia drug to 95 percent of the 16,000 patient population for free, while the remaining 5 percent was heavily subsidized. The annual cost for Glivec generic treatment is approximately $2,100 or three to four times the average annual income in India. Thus, it is actually more expensive for Indian patients to obtain access to these medicines after the patent revocation than it was before.
Patent revocations also go beyond the pharmaceutical sector. In July 2013, IPAB denied Monsanto’s patent application for a genetically-engineered method of increasing climate resilience in plants, the first such denial under Section 3(d) for a patent not related to pharmaceuticals. The continued deterioration of the Indian IP environment will have far-reaching implications on foreign direct investment, technology transfer, and economic growth.
Following on the pattern which began in 2012, the Indian Patent Office and Intellectual Property Appellate Board (IPAB) rejected a number of patents of U.S. companies, biopharmaceutical patents that had been granted in many other jurisdictions and are globally recognized as being breakthrough and innovative. In general, these patents have been revoked as a result of post- grant oppositions or petitions by alleged patent infringers, with the rationale that the invention lacked inventiveness or was obvious.
In a continuation of a case that was begun in 2012, the patent covering a kidney cancer drug was re-examined on appeal and reinstated in 2013 for the time being. Separately, patents on two ophthalmic drugs and a well-known anti-cancer drug were revoked. While not involving a U.S.- based company, we note that a German entrepreneur and inventor had 19 patents related to wind energy revoked in 2013. A further 28 more patents are in dispute, with a total market value of about $1 billion. While Indian courts decided in 2012 not to revoke a product patent held by a small U.S.-based biotechnology company, the same court revoked a related process patent granted to the same company.
India’s National Manufacturing Policy and its draft IPR Policy are not the only evidence of the government’s failure to provide for effective IPR protection and enforcement. Other examples include a 2010 discussion paper published by a department in the Ministry of Commerce (DIPP) and which argued that “compulsory licensing has a strong and persistent positive effect on domestic invention” and encouraged India’s Controller General of Patents to grant a compulsory license if, among other things, he was satisfied that the patented invention is not being worked (i.e., manufactured) in India.47
47 See http://dipp.nic.in/…/Discuss paper/CL DraftDiscussion 02September2011.doc .
48 Known as Form 27, Statement Regarding the Working of the Patented Invention on Commercial Scale in India, available at: http://ipindia.nic.in/ipr/patent/patent_formsfees/Form-27.pdf.
Additionally, India’s patent statute requires every patentee and licensee to furnish periodic statements that include significant details of how they are working each patented invention on a commercial basis in India or, if not worked, the reasons why and the steps being taken to work the invention.48 Not only is this “Form 27” process highly burdensome from an administrative
point of view, but we are concerned that the information that is provided could be used at some point to justify compulsory licenses in a variety of industries, as specifically contemplated in the Form. Recently, Form 27 submissions have become publicly available – which is likely to result in even greater pressure on Indian authorities to compulsory license the covered products.49 An additional problem is that most questions in Form 27 are only directly answerable in a one- patent-one-product context and cannot clearly be answered, for example, where multiple patents relate to a single product – which is the case for many of today’s most cutting-edge industrial, manufacturing, and information technologies, for example. Notwithstanding the impracticality of attributing a specific commercial value to one patented feature of a complex technology, the form calls for criminal and civil penalties for submission of false information.
49 See http://ipindiaservices.gov.in/workingofpatents/
50 Some of these actions have been based on Section 84 of India’s Patent Act that states: “(1) At any time after the expiration of three years from the date of the [grant] of a patent, any person interested may make an application to the Controller for grant of compulsory license on patent on any of the following grounds, namely:— (a) that the reasonable requirements of the public with respect to the patented invention have not been satisfied, or (b) that the patented invention is not available to the public at a reasonably affordable price, or (c) that the patented invention is not worked in the territory of India.” Section 84 of India’s Patent Act violates the WTO TRIPS Agreement’s national treatment provision in Article 3, which mandates that WTO
members protect IP regardless of its origin, as well as TRIPS Article 27.1, which explicitly prohibits discrimination in national
patent laws based on “whether products are imported or locally produced.” Section 84 also exceeds several TRIPS compulsory
licensing restrictions, for instance Article 31(h) requiring pricing to be based on the “economic value of the authorization.”
Since 2012, India has also infringed, overridden, or revoked nearly a dozen pharmaceutical patents held by foreign firms, in part because the patented product was manufactured outside of India. These and other instances of broad compulsory licensing are based on Section 84 of India’s Patent Act50 and pose a clear risk not only to U.S. pharmaceutical industries, but to advanced manufacturing, industrial, and other innovative U.S. businesses as well. The risk of a further broadening of India’s compulsory licensing practices to other categories of technology is very real, as evidence, for example, by the reports of additional “essential technologies” lists for on-pharmaceutical products that we already mentioned above.
Finally, the Indian Government has so far failed to pass the National Innovation Act,51 which could have been a positive step towards providing a more robust IPR environment. The Innovation Act would include a range of measures to promote innovation (including an annual “Science and Technology Plan” and provisions to aid public/private partnerships, promote
innovation financing and establish special innovation zones). It would also codify rules on the protection of confidential information, which to date relies on common law principles, meaning that the scope of protection is unpredictable.
Regulatory Data Protection/Data Exclusivity
The Chamber also underscores the critical importance of regulatory data protection to the biopharmaceutical and agrochemical industries. Pursuant to Article 39.3 of the TRIPS Agreement, protection must be extended against unfair commercial use of scientific data by makers of generic copies of innovator products (i.e., products that must be shown for the first time to be safe and effective or to not cause significant risk). The GOI should provide a period of data protection that includes both non-disclosure and non-reliance, thereby recognizing the considerable effort and expense required to create these products. Despite acceding to TRIPS, India has yet to implement any meaningful protection for the data that must be generated and shared with regulatory authorities to prove that pharmaceutical and agricultural chemical products are safe and effective.
The Chamber encourages the United States to work with India to prevent the unauthorized disclosure of data submitted for marketing approval.
Copyright Law Reform
India has an extensive copyright industry, producing more feature films, than any other country in the world. However, the government’s copyright legislation fails to adequately protect Indian creators and innovators. Although we commend the GOI for taking steps in 2012 in passing a Copyright Reform Bill, this legislation contains many deficiencies that cause it to fall short of its intended purpose to implement the WIPO Copyright Treaty. Moreover, there are numerous provisions that inappropriately and unproductively interfere with the free market for copyrighted works, including provisions that create legal uncertainty regarding transfer and ownership of rights, and rights of remuneration. This uncertainty has significant negative ramifications for distribution of India’s creative works, since those involved in distribution chains, particularly new distribution models through the Internet, need legal clarity on ownership and cost issues. Finally, the amendments have broadened India’s copyright exceptions in a manner that seems to
be incompatible with the Berne three-step test, including the expansion of the private use exception to the potentially broad and ill-defined ‘private and personal’ use, and thus could significantly undercut the rights of creative industries.
The motion picture industry continues to face further challenges relating to piracy in India. The revised copyright legislation fails to provide adequate and effective protections to prevent the unauthorized copying of movies in theaters and optical disc piracy. India is among the top ten countries in the world for Internet piracy. According to a study released by the Motion Picture Distributor’s Association (MPDA), pirated films out of India appear on the Internet in an average of 3.15 days, making India one of the top ten worst countries in the world. In addition, in 2012, the Entertainment Software Association (ESA) reported that India is sixth in the world in terms of number of connections by peers participating in the unauthorized file sharing of certain ESA member titles on public peer-to-peer networks. Lastly, camcording incidents in India continue to be a serious problem, with India accounting for 53 percent of all forensic matches in the Asia Pacific in 2012. We urge the United States to work with India to make sure that criminal anti- camcording provisions are adopted either separately or as part of a revision to the Copyright Bill and that an effective optical disc law is adopted.
The film industry is not the only victim of piracy in India. The recording and music groups estimate a total of $431 million in lost revenue in 2011 to piracy, and the reported rate of PC software piracy in 2011 was 63 percent in India, with the commercial value of unlicensed U.S. software in India estimated to be more than $2.9 billion.
In addition to strong intellectual property laws, better enforcement mechanisms are essential to combating intellectual property theft in India. Significantly more needs to be done to enhance the tools for rights holders and enforcement authorities to address the problem. A critical area of focus should be developing ways to incentivize intermediaries to cooperate with rights holders and enforcement officials to combat online intellectual property theft, including by imposing liability in appropriate circumstances on intermediaries that fail to take necessary measures to
respond to acts of infringement.
In addition, judicial reform measures, such as the imposition of deterrent fines and imprisonment, and the establishment of specialized intellectual property courts, judges, and prosecutors are encouraged. The United States should also encourage India to empower customs officials to seize counterfeit and pirated goods ex officio and to destroy these goods, once judged illegal, so that they do not reenter the marketplace.
As highlighted in the GIPC Index, Indian law does not provide strong or specific protection for trade secrets or confidential information. The current applicable statute is the 1872 Contract Act. Common law does provide a measure of protection, and there is some judicial precedent. However, because legal redress through the Indian justice system is a long and arduous process, it is difficult to secure even this measure of protection. In addition, Indian law does not provide for closed proceedings in relation to the trade secret or confidential information, which can thus be made public during the course of litigation.
Other IP Challenges
India’s tax policies provide further concern to industry, specifically, the policies related to compensation for captive development centers. U.S. multinationals generally assign routine development work to their India development centers. The development centers bear no financial risk for their development work and do not own any of the resulting IP rights. Accordingly, they are compensated on the internationally accepted cost-plus method. India’s tax authorities are increasing their application of the profit-split method to determine development center compensation, effectively allocating a portion of the U.S. parent’s IP profit to India. India’s development centers operate similarly to other international development centers and should be similarly compensated on the internationally-recognized cost-plus basis to reduce controversy and minimize double taxation.
In addition to domestic policy actions such as those outlined above, we continue to be very concerned about India’s policy position on intellectual property in a range of international fora. India has played a leading role in driving an IP weakening agenda at the UNFCCC, WTO, and
WIPO, where government officials consistently represent intellectual property rights as a barrier to economic advancement and access to technology for developing countries even though the evidence does not support this view. These claims threaten to undermine not only U.S. innovation and industries, but also economic development and innovation in India, where domestic companies are in the process of maturing their capabilities in the IP generation and policy advocacy space. They also continue to distract negotiators in these and other fora from the real technology, trade, environmental and healthcare-related issues that they are or should be seeking to address.
Unfortunately, India’s influence with respect to intellectual property policy may be expanding. In May 2013, the BRICS IP Offices agreed on a roadmap for collaboration.52 The roadmap identifies India as the lead IP office to improve the influence of BRICS offices within WIPO and other forums.
52 Available at: http://www.rupto.ru/rupto/nfile/786b6c92-696b-11e3-731c-9c8e9921fb2c/SIGNED-BRICS-IP-OFFICES- COOPERATION-ROADMAP.pdf