The TRIPs Agreement and its effect on

Indian Pharmaceutical Industry

Ishaan Punj
Roll no.15
MBA-IB

Contents

1. Introduction

2. Research Objective

3. Need of the Study

4. Review of Literature

5. Findings
a. Genesis of patent system in India

b. Trips Exclusivity

10

c. Impact on drugs

13

d. Impact on research

14

e. Productivity

15

f. Import scenario

18

6. Conclusion

25

7. References

27

1. Introduction

Competition is central to the operation of any market or sector. For the economic
development of any nation, a country should ensure fair and healthy competition to
attain inclusive growth. The main idea behind any competition policy is to preserve
and promote competition, so as to enable efficient allocation of resources in the
economy. It is expected that competition would result in lower prices, better
quality products and would encourage invention and innovation all of which
maximizes social welfare.
The Competition Act, 2002 was formulated for the purpose of economic
development and it was enacted on January 13, 2003. The Competition
Commission of India (CCI) was established on October 14, 2003 and it became
functional from May 2009. The establishment of the commission is to prevent anti
competitive practices having adverse effect on competition, to promote and
sustain competition in market, to protect the interest of the consumers and to
ensure freedom of trade carried out by other participants in the Indian market, and
for matters connected therewith.
Health sector is one of the most important sectors in the world and healthcare
industry is the worlds largest industry valuing $ 2.8 trillion. Drugs and
pharmaceutical sector, an important part of health sector, have a vital role to play
in the process of economic development of a nation. Pharmaceutical sector is one
of the most dynamic, research intensive industry and falls under the priority sector
as is concerned with the welfare of individuals. Global pharmaceutical sector
accounts to $ 643 billion in 2006 and it is expected to become $ 1300 billion in
2020. The pharmaceutical market generated total revenue of $ 10838.7 million in
2009, representing a compound annual growth rate of 11.3 percent for the period
spanning 2005-09. Sustained research and development is very important for this
sector in order to obtain improved, quality medicine at low prices. This sector is
influenced by sets of rules and regulations so as to promote better research and

development, to keep in view the necessity and welfare of the consumers, to

control public and private expenditure etc.

This high-technology and knowledge intensive sector has a two tier structure:
The larger firms which account for majority of the investment in research and
development and hold maximum number of patents.
The smaller firms which mainly produce off-patent products or are under license
to a patent holder
Moreover, the global pharmaceutical industry can be divided into two broad
structures:
Bulk drugs: This part consists of 20 percent of the pharmaceutical sector. It
basically consists of the active pharmaceutical ingredient or the chemical molecule
that is responsible for the therapeutic effect. This segment has grown at an annual
growth rate of 20 percent in the past decade. The Indian pharmaceutical industry is
the
Formulations: This division consists of the rest 80 percent and has grown at a rate
of 15 percent annually. Firms which are into production of formulations are further
classified into innovating firms and non-innovating firms. Today, the whole world
acknowledges the supremacy of Indian pharmaceutical capabilities in chemistry,
manufacturing and adhering to stringent guidelines of most advanced nations. In
addition to generating revenues and securing appropriate medicines for its citizens,
the pharmaceutical industry propels the country to emerge as a knowledge
economy. Intricate science, technology, legal aspects and regulations involved in
pharmaceuticals industry creates a great scientific and business tempo that propels
the nation. The diffusion impact of such knowledge economy will help various
sectors to think of global dominance following the example of pharmaceutical
industry and would provide means and drive in such achievement. Due to excellent
regulatory and fiscal climate, we have travelled a significant distance. India needs

to protect what it has achieved, and draw key milestones, road maps and measure
our success with conscious effort to emerge as an alternate power in the global
health sector.
It is known that competition in any sector is desirable and pharmaceutical sector is
no exception. The question of intellectual property right comes as it is costly to
produce any new knowledge or product. Copying of an already existing knowledge
is easy, costless and it is basically a public good with the property of non
excludability and non rivalries. Hence the concept of Intellectual Property Right
(IPR), which gives the inventor monopoly power for a limited time period to avoid
the free rider problem. Thus there is a tradeoff between competition which is
supposed to be welfare maximizing and the grant of intellectual property right
which retards competition for a short period of time resulting in a dichotomy
between the two. Some people criticize IPRs as monopoly power that would affect
the growth and expansion of the health sector. However, the monopoly power in
the short run would encourage more innovation and greater enthusiasm in research
and development which would be beneficial in the long run. Patent is one of the
IPRs which gives the inventor sole right to produce his property or license it to
other producers. But misuse of this right is not desirable and it is not expected that
patent holders would get into anti competitive ways such as ever-greening of
patents, patent pooling etc.India being one of the members of the World Trade
Organization (WTO) has to comply with the clauses of Trade Related Aspects of
Intellectual Property Rights (TRIPS) from 2005 onwards. It is possible that TRIPS
agreement would have some impact over Indias economy on all sectors including
pharmaceutical sector. The impact of TRIPS on pharmaceutical 8 sector could be
immense due to the introduction of product patent which was earlier not there in
India. In this paper, I would like to take a close look on the impact of TRIPS
agreement in the pharmaceutical sector in India with some emphasis on the anticompetitive attitude of the intellectual property holders and its negative impact on
society.

2. Research Objective
To study the effect of Trips agreement on Indian pharmaceutical industry

3. Need for study

Although a lot many research have been conducted on this issue with respect to the
Asian pharmaceutical industry but an in-depth study in Indian context has been
missing. While there is no dearth of research and trend analysis of the production
and trade of pharmaceuticals from India, there is a lack of structured analysis of the
trade of pharma industry in particular which is emerging as a credible foreign
exchange earner for the economy. This research aims to fill that gap by providing
an analysis of the same

4. REVIEW OF LITERATURE
Ramani, (2002),according to the research paper ,The Indian pharma industry has
developed enough capabilities and patents to make ourselves self sufficient in
health care needs and also improve our export ability thereby making it a strategic
trade sector in the Indian economy. The Indian pharmaceutical industry exports
generic drugs to Commonwealth of Independent States countries, Africa, and to the
highly regulated markets of US and Europe. The Indian pharma industry is
characterized by low degree of concentration; & a large number of firms with
almost similar market shares, a low level of Research & Development intensity
ratios with a high level of brand proliferation. The ease of imitation in reverse
engineering further resulted in intense competition amongst the Indian firms for
market share, hampering the development of various networks of research
institutes, academia and industry

(Wendt, 2000), according to the research ,during the last three decades the large
private Indian pharmaceutical firms have focused their efforts on reverse
engineering the various process of R&D, and the activity was limited to applying
the known knowledge, or to making small adjustments in the contents. The 1972
Patent Act therefore changed the pattern of competition towards volume / price led
competition rather than traditional pharmaceutical competition based on the
development of new medical treatments.
(Clark, 1990) showed that in order to adapt and change as a response to such
challenges of technological capabilities, firms must learn not only new components
of knowledge but also the new linkages between the components and so requires
the reconfiguration of existing system of managing and creating knowledge in new
way. In case of pharmaceutical R&D, the biotechnological change required new
competencies in both research and process development, and subsequently it
altered the relationship between different components of knowledge involved in
pharmaceutical R&D. Therefore as a response to biotechnological change, large
pharmaceutical firms not only developed new competencies through discontinuous
learning but also reconfigured existing system of managing and creating
knowledge in new way.
(Cheri,2004),carried out a research on the introduction of product patents in India
and China and its subsequent impact. This study reveals that enhanced IP
protection in China and the approaching introduction of product patent law in India
are already having an effect on the product and market strategies of Indian firms.
The introduction of product patents means that Indian firms will have reduced
revenue options for the sale of drugs domestically, since generic copies of newer
drugs will become illegal. To compensate for this revenue loss, Indian firms have
increased their emphasis on exporting to the more profitable regulated markets, as
evidenced by the large concentration of FDA approved manufacturing. MNCs have
been interested in working with Indian firms for some time, attracted by the lower
cost structure estimated to be one-eighth (in R&D) to one-fifth (in
manufacturing) compared to Western firms; advanced chemistry and process
engineering skills; and large market size. In conclusion, the prospects are
extremely positive for the future of the Indian industry, in contrast to what many
would predict.

(Spender, 1996), according to his research the realization that the new patent
regime will restrict, not end reverse engineering means that only a handful of
pharmaceutical firms in India has started moving towards innovative activity, as
the others do not yet perceive a need for innovative R&D in the immediate future.
This has restricted the number and nature of firms chosen for the study. A number
of firms(10 to12) have invested in innovative R&D and have products in advanced
stages, but for the purposes of analysis only those firms have been selected for the
study which has filed patents in USA and India for new drug delivery systems or
new chemical entities. Some of them have out licensed their molecule to the
multinational pharmaceutical firms thereby demonstrating the capability in
innovative research.

Genesis of patent System in India and Trips Arrangement

Product Patent and Process Patent and its History:
The first legislation relating to patents in India was the Act VI of 1856. The main
motive of this legislation is to promote invention of new and useful products and to
give incentive to the inventor to disclose the technology by conferring them limited
monopoly right for a period of fourteen years. Subsequently this act was modified
in 1857, 1859 and 1872 according to changes in the laws made in the United
Kingdom. But all these previous Acts were replaced by the Indian Patent and
Design Act, 1911 which brought patent administration under the management of
Controller of Patents for the first time. For securing priority this act was further
amended in 1920 in order to have reciprocal arrangements with United Kingdom
and other nations also. Further amendment of this act was done in 1930 and 1945.
However, after independence, there was a strong need to review the patent law to
suit the new political and economic environment of the country. Hence,

Government of India constituted a committee under the chairmanship of Dr.

Bakshi Tek Chand in 1949. Based on the recommendation of the committee, the
1911 Act was amended in 1950 in relation to compulsory license, prevention of
abuse of patent right, to make sure that food, medicine and other surgical and
curative devices are available cheap to the common people. In 1957, Government
of India appointed another committee, headed by N. Rajagopala Ayyangar. This
committee also dealt with anti-competitiveness in the patent system. These
committees found that more than 90 percent of Indian patents were held by
foreigners and more than 90 percent of them were based on work done outside
India. Thereby foreigners were exercising monopolistic rights over Indians at that
time. In order to reform this act, further changes were made in patent law which
formulated the Patent Act of 1970, effective from April, 1972. Under this act,
patents are mainly granted to encourage inventions and to secure inventions in
India so that it can result in high scale commercialization and profit in the long run.
The Patent Act of 1970 was of real importance. The main features of this act were:
There were no product patent system for pharmaceuticals, food and chemicalbased products. These sectors were only covered by process patent (Section 5).
The term of the process patent was seven years from the date of application or
five years from the date of sealing patent, whichever period was less (Section 53).
In order to ensure effective role of domestic enterprises, there was a system of
licensing of right which prevailed for the sectors covering process patents
(Section 87 & 88).
There were no restrictions on export of pharmaceutical products or other products
(Section 90(a) (iii)).
The patent holder was under obligation to work with the patent in the country
itself. Non working of patent might lead to withdrawal of monopoly power of
patent. (Section 83). This was mainly done to encourage in development of new
Indian industries and sustain better employment opportunities in India.
The royalty ceiling was stipulated at four percent of sale price in bulk of the
patented product for licenses of right (Section 88(5)).

The fundamental principle of Indias patent law is that patents are granted only for
those innovations which are new and useful and which would have some utility to
human kind. The mere improvement or combination of two or more things is not
patentable. According to Section 48 of Indian Patent Act 1970, the patentee has
exclusive right to the product or process and no third party can exercise the
patentees right without his/her permission. For a product patent, the rights consist
of making of the product, using or selling it. For a process patent the right consists
of using that particular process in making the product or selling the process
mechanism. Via this act, the Government had the right to use a patented invention
in necessary circumstances. Moreover clauses like compulsory licensing, licenses
or right and revocation of patents were put in so as make a healthy working of
patents in India. The average number of Patent applications before Paris
Convention in India is around 3000 among which 1000 are from Indians.

TRIPS Agreement and data exclusivity

Another controversial TRIPS compliance issue in India is data exclusivity. In the
case of pharmaceuticals, data exclusivity provides protection to the clinical data
generated by innovator companies to prove the safety and efficacy of their
products. Innovator companies are required to submit clinical test data relating to
safety and efficacy to national regulatory authorities to obtain market approval for
new drugs. Generic companies are not required to conduct their own clinical
testing and submit their own test data to gain market approval. If a country does
not grant data exclusivity rights, generic companies can refer to or use the data
submitted by innovator companies when they apply for approval of their products.
Article 39(3) of the TRIPS Agreement requires WTO members to protect
confidential information (undisclosed data) against unfair commercial use. Strictly
speaking, the TRIPS Agreement does not refer to data exclusivity, nor does it refer
to any period of data protection. The introduction of data exclusivity depends on
the interpretation of Article 39(3) of the TRIPS Agreement because data protection
regimes vary considerably among WTO members. The most difficult issue is
whether government use of data submitted by innovator companies to determine
bioequivalence of generic drugs is a commercial use or not.

Impact after Implementation of trips agreement

The growth Indian Pharmaceutical industry has been characterized by extensive
Governmental control and absence of strong patent protection before 2005. Grant
of product patent became one of the necessary conditions in order to become a
member of World Trade Organization. There were almost fifty developing
countries which did not exercise product patent in the pharmaceutical sector during
the Uruguay round of GATT and actually resisted introduction of product patent in
this sector for the fear of increase in drug prices. Indias advantage remained in
formation of generic drugs and it remained competitive in the world
pharmaceutical market in terms of price mainly through reverse engineering and
advantage of process patents. It was the developed countries that feared their
monopoly rights and profit margins might get affected from low price drugs

supplied by countries like India. Thus these developed countries were keen in
implementation of product patent for all WTO members. In the TRIPS agreement,
more than 100 countries have agreed not to free-ride on invention efforts of others.
TRIPS may be the result of the world resurgence of capitalism and hence cannot be
a cause of strengthening the world patent system. Introduction of product patent is
expected to impact Indian pharmaceutical market. It is true that there would be
huge pressure on copiers and firms which work mainly based on the process of
reverse engineering and reformulation of the latest drugs. But it is expected that
Indian companies would work on Research and Development for innovation of
newer drugs, at least for the diseases which concerns developing countries. R & D
for drugs meant for diseases like malaria, typhoid, cholera etc. are generally not
carried out by developed countries and these diseases tend to possess serious threat
to health sectors of many developing countries. So introduction of product patent
might enhance R & D in these concerned issues which would result in improved
health scenario and in effect sustained economic growth.

 Impact on prices of drugs

It is true that under any kind of intellectual property right, the price of that
particular commodity will be high. This is due to the reason that monopoly price is
always higher than perfect competition prices. Though producer surplus increases
under monopoly, consumer surplus is less under compared to perfect competition
and there is a net deadweight loss in the former case. Moreover, we are usually
more concerned about increase in consumer surplus than producer surplus as it is
assumed that consumer surplus indicates better welfare situations.

 Impact on Research and Development Expenditure

There has been a steady increase in R & D expenditure by domestic companies
over the past 15 years. In India, R & D expenditure done by Indian companies is
1.5 to 4 times more than that of foreign companies based in India. It is worth
noting here that domestic pharmaceutical companies over time are putting in
higher percentage of sale proceeds in R & D expenditure compared to foreign
companies. This shows that Indian companies are trying their best to catch up with
the developed countries in a globalized world where intellectual property rights are
highly rewarded. The reason why foreign pharmaceutical companies are putting in
less investment may be attributed to either of the two reasons. Firstly, they are not
much confident regarding the returns from India in terms of rewards and profits
even after implementation of TRIPS strategy in India after 2005. Secondly, they
have no incentive for development of Indian R & D and train Indian people with
the high tech knowledge or are basically pretentious about their R & D activities
based in India. The growth rate is quite fluctuating and nothing can be concluded,
apart from the fact that it showed a positive growth rate for 15 years. The foreign
companies also showed an absolute increase in R & D expenditure, except in 1999
and 2007.

 Productivity in the Indian Pharmaceutical Industry

Sato and Kamiike estimate the production function and total factor productivity
(TFP) of the pharmaceutical industry in India in order to understand the drug
policy and the industrial development described above. It employs the growth
accounting approach and the production function approach to estimate TFP growth
and clarifies the characteristics of the Indian pharmaceutical industry. TFP is
defined as a residual of economic growth that cannot be measured by an increase
in factor inputs such as capital and labour. In other words, the residual of economic
growth not explained by input growth can be interpreted as pure technological
progress under certain conditions. The growth accounting approach measures TFP
growth as a residual by subtracting the overall contribution of factor inputs from
the growth rate of real value added. The production function approach clarifies the
technical relationship between output and production factors. It can examine
economies of scale, technological level, and substitutability between capital and
labour. By using the production function approach, not only TFP but also other
structural features of production like scale economies and non-neutral
technological progress can be understood. Sato and Kamiike use the Annual
Survey of Industries (ASI), which is collected by the Central Statistical
Organization of India, as the main data set. Empirical analysis is based on nationaland state-level data for the period 1973 to 1997 in the case of the growth
accounting approach and for the period 1984 to 1997 in the case of the production
function approach. The primary unit of enumeration in the survey is a factory in

the case of manufacturing industries, and data are based on returns provided by
factories. The ASI factory frame is classified into two sectors: the sample sector
and the census sector. The sample sector consists of small plants employing 20 to
99 workers if not using electricity and 10 to 99 workers if using electricity. The
census sector comprises relatively large plants. It covers all units having 100 or
more workers and also some significant units that although having fewer than 100
workers, contribute significantly to the value of the manufacturing sectors output.
While units in the census sector are approached for data collection on a complete
enumeration basis every year, sample sector units are covered on the basis of welldesigned sampling. The sector covered by the ASI is called the registered or
organized sector. According to the National Account Statistics of India, the
registered sector covers 65 percent of the total value added in the manufacturing
sector in 1997.

According to Figure 5-1, TFP fell from 1973 to 1979 and then increased slowly but
steadily from the 1980s. It means that productivity improvement has been the
driving force of the sustainable growth of the Indian pharmaceutical industry since
1980. In addition, the production function approach finds that firstly, there are
economies of scale, secondly, the average annual growth rate of TFP is reaching
about 7 to 10 percent, and thirdly, there is labour-saving technical progress.

Based on the estimation results, Sato and Kamiike summarize the development
history of the pharmaceutical industry as follows:
(1) While Indian companies were protected and foreign companies were regulated
by drug price controls, regulations on foreign share holdings, and anti-patent
policy, TFP itself fell in the 1970s. This is because the growth of foreign
companies, which were more efficient, had been suppressed by strengthening
regulation and the growth of Indian companies was insufficient to recover the drop.
At the same time, the oil crisis probably influenced the fall in TFP.
(2) Indian companies raising the share of the domestic market and improving the
level of technology have been increasingly export-oriented since the early 1980s
when economic liberalisation started. As the export markets and the domestic
market expanded with a learning effect and an economies of scale effect, the
international competitiveness of the Indian pharmaceutical industry improved.
(3) In addition, the Drug Policy of 1986 saw the enforcement of stricter regulations
for foreign companies again and the deregulation of Indian companies. Then,
economic reforms in 1991 significantly relaxed the regulations on foreign
investment. During this period, the Indian pharmaceutical industry with
international competitiveness in the field of generic drugs, which were easily
imitated, competed with foreign companies. The Indian pharmaceutical industry,
gradually accumulating R&D capabilities, achieved trade surplus all over the world
in the late 1990s.
(4) Two important institutional developments can be emphasized. Firstly, the Drug
Price Control Order (DPCO), which was introduced in 1970 with the aim of
supplying drugs at affordable prices to the poor, gave the Indian pharmaceutical
industry the incentive to export rather than sell to the domestic market because
drugs could be sold at higher prices in overseas markets than in the domestic
market. Secondly, good manufacturing practice (GMP) increased the reliability of
Indian drugs in the world market. India decided to introduce GMP in the Drug
Policy of 1986. GMP was laid down in Schedule M of the Rules and came into
force in 1987. The introduction of GMP has contributed to the enhancement of
trust in Indian products in the global market. In addition, complying with the GMP
standards of US and Europe has increased exports to Western countries and has

expanded opportunities for contract manufacturing. Generally speaking, the DPCO

provides incentives towards export orientation and GMP gives an institutional
basis for supporting the export orientation of the Indian pharmaceutical industry.

Import Export Scenario

One of the most important motives for development is to promote export of
pharmaceuticals. India is a well known world market player for drugs and has
performed quite well.

For the past decade it is seen that India has a remarkably positive trade balance.
India is one of the best players in the world market due to its strength in production
of low priced drugs through reverse engineering. This development of skills in
reverse engineering perhaps might be accounted for the sustained development in
educational infrastructure in India over time. If we look in terms of absolute
values, then both exports and imports have increased over the years, exports
increasing more. Growth rate of imports shows that there has been a decline after
2009-10. As such India is almost self sufficient in the production of majority of
formulations and other pharmaceuticals. Manufacturers of drugs and

pharmaceuticals are free to produce any drugs approved by the drug control
authorities. Pharmaceutical sector accounted for 4.5 percent share in total exports
in 2006-07 and 2007-08. This share increased to 4.7 percent and 5.0 percent in
2008-09 and 2009-10 respectively and again dropped to 4.2 percent in 2010-11. On
the other hand share in total imports in this sector constitutes only 0.6-0.7 percent
over the same time period.

FDI situation
With the introduction of product patent in India, it is expected that more foreign
companies will apply for patent of their products and there will be a boost in R &
D investment.

R & D is an important part of the pharmaceutical sector without which the sector
cannot thrive and develop. It is expected that after implementation of TRIPS
Agreement, investment by multi-national corporations (MNCs) would rise in India.
But the actual scenario is quite different. If we compare the top ten pharmaceutical
companies in the world market and their expenditure on research and development
with that of MNCs operating in India in this sector, it is seen that R & D

expenditure on average for the former is Rs 162.94 crores while that of the latter is
only Rs 60.15 crores. Moreover, when we look for the data of R & D expenditure
as a percentage of sales the average for world top ten companies is around 8.53
percent while that for MNCs operating in India is only 3.54 percent. This shows
that much new development in this sector in India is not possible. This kind of
attitude for MNCs world-wide have developed due to the apathy developed among
them as India did not allow product patent in this sector before 2005. R & D
intensity of Indian companies when compared with global major players is
minuscule. So with such low R & D expenditure it is quite difficult to attain
competition and ensure development. Ranbaxy Ltd. is the largest Indian MNC in
terms of R & D expenditure and accounts for Rs 460.51 crores, an amount much
larger than the top ten companies in the world. Introduction of product patent
might result in a number of static costs and dynamic gains. The sudden
introduction of a twenty year intellectual property right from a free market scheme
is bound to have economic impacts. The static cost constitutes of monopoly pricing
and the dynamic gains consist of innovation. Now if the world consists of one
single country, then net gain and loss would not matter much. But in a multi nation
scenario, we would be keen in examining what gains are accruing to India out of
the product patent rights. In a single country world the identity of the inventor is
not of much concern. The transfer of consumer surplus from the consumers to
profits which accrue to the producer will basically change the distribution of
income and the overall welfare of the country will not be affected much. But in a
multi country world, the static cost consists of not only the deadweight loss
accruing to the economy, but also will have a strong bearing who is the patent
holder. If the newly available patent rights are assigned entirely to individuals or
groups outside India, then the consumer surplus will be a net loss without any gain
in profits. All the monopoly profits will go to foreign firms in terms of royalty
payments. Moreover, if the production of the drugs is not made in India, but is
imported from somewhere else, i.e., if local production is replaced by imports, then
there might occur a loss in skilled employment as well. As a result of this, there
will be a loss in balance of payment and loss of self-sufficiency. Now it is expected
that introduction of patents will help in knowledge diffusion which would help in
increasing the efficiency of production of drugs and efficiency in research and
development for the innovation of newer drugs. But to obtain the new knowledge,

one of the important factors is location. Intellectual property laws matter to

location decisions too.

Anti competitiveness and abuse of patent Rights

Patent right is basically given to the discoverer to reap benefits of his invention.
The main function of CCI is to enquire into any of the anti-competitiveness going
on in the economy and impose proper penalties for that. Many patent holders try to
abuse the patent right in various forms. Abuse of dominance basically concerns
itself to the unilateral act of dominant firms as it might infringe competition laws.
One of the major forms of abuse of patent right is ever-greening of patents. Evergreening of patents basically give the patent holder the chance to retain monopoly
over its product after the patent period has expired by bringing about small changes
and then claiming a patent right for another twenty years. The patent holder in
order to retain its royalty payments sometimes buys out competitors or frustrates
competitors out of the market for a longer period of time. Also, the patent holder
fears the competition which comes from generic drugs that may result in a decline
of the drug price resulting in lower profit margin. Generic drugs sometimes can
reduce price even to the extent of 90 percent. The patent holder in order to have
monopoly right usually claim large number of complex and often highly
speculative patents, thus ever-greening the intellectual right. When the generic
drug manufacturers intend to copy the drug at the time of the expiry of patent right,
the patent holder intends to threaten away the generic drug manufacturers for
breaching of their ever-greened patents and try to get a court order so as to stop the
marketing of the generic drugs. Many of the multinationals have slowed down their
research and development in new invention of novel drugs and try to make their
way out by changing the mere composition of already existing drugs, in order to
get access to easy price competition. Ever-greening of patent is the most common
way of anti-competitiveness in the pharmaceutical industry. The ultimate
consequence is borne by the patients who have to live on with not only poor
quality of drugs, but also have to pay a higher price for it. The Indian patent law
has the provision which prohibits the patent of a new form of a known substance,
unless it significantly improves the medical efficacy of the drug. This fact is
elaborately stated in Section 3(d) of the Indian Patent Act. This particular clause
considers salts, esters, ethers, polymorphs, metabolized, pure forms, particle size,

isomers, complexes, combination and other derivatives of known substances as the

same substance, unless they differ a lot with respect to efficacy.
One of the examples of ever-greening of patents is the Novartis case of the drug
Glivec, a drug used for the treatment of acute Myeloid Leukaemia. Novartis, a
Swiss pharmaceutical drug maker company wanted the patent of the Gleevec
(name used in US) drug in the name of Glivec in India. Recently, in April 2013,
Supreme Court denied the case of Novartis after the six year legal battle saying
that the small changes and improvement in the drug Glivec did not amount to
innovation which deserves a patent. When this company was first given exclusive
marketing rights for Glivec in November 2003, the price increased from $230 to
$2740. The key motive of the manufacturer is to gain a patent so as to extend
control over the product. This is nothing but a way of cheating on the implicit
bargaining of patents. Therefore, such kind of regulation would definitely help a
developing country like India to work on generic versions which would be
affordable by the poor population of India and should be set as an example for all
other developing countries wherein it is impossible to afford patented drugs.
Patent troll is another kind of anti competitiveness observed in the economy. It is a
derogatory term used for a person or company that enforces its patents against one
or more alleged infringers in a manner considered unduly aggressive or
opportunistic, often with no intention to manufacture or market the product. A
related, less derogatory concept is Non-Practicing Entity (NPE) which describes a
patent owner who does not manufacture or use the patented invention. Basically a
patent troll uses patents as legal weapons, instead of actually creating any new
products or coming up with new ideas. Trolls are in the business of litigation (or
even just threatening litigation). They often buy up patents cheaply from
companies down on their luck who are looking to monetize whatever resources
they have left, such as patents. Unfortunately, patents are being issues for ideas
that are neither new nor revolutionary, with these patents covering a broad ground
as their territory, including many things that should never have been patented in
the first place. Armed with these overbroad and vague patents, the troll then sends
out threatening letters to those they deem infringe their patent(s). These letters
threaten legal action unless the alleged infringer agrees to pay a licensing fee,
which can often range to the tens of thousands or even hundreds of thousands of
dollars. Many recipients of these threatening letters actually chose to submit to the

threat, and pay, since the alternative is a much more expensive and enduring legal
endeavor. Faced with the dire scenarios, fight against patent abuses has been
picking up momentum with efforts ranging from celebrated judgment against
patent trolls to formulation of full blown piece of legislatures to curb such
practices. Latest attempt by a Texas Senator is Patent Abuse Reduction Act, 2013
(PAR). The Patent Abuse Reduction Act beams necessary sunlight onto these alltoo-frequent proceedings and is a major step toward fixing the problem of patent
abuse. Few of the features of PAR are:
Section 285 institutes a loser pays rule for unreasonable litigation. This is the
ultimate tool for balancing litigation, freeing businesses and individuals from
having to shoulder the massive financial burden of fighting a frivolous patent
infringement claim.
One of the most expensive parts of a patent lawsuit is something called
discovery where companies are forced to organize and hand over huge number
of internal documentation to the patent trolls so that they can introduce evidence
of patent infringement. Trolls use discovery to drive up the cost of the lawsuit,
making it cheaper to settle, and to fish for more ways in which they can apply their
claims. Section 300 of the PAR Act adds fairness to the discovery process by
limiting discovery until after the meaning of the patent has occurred, and shifting
much of the cost of unreasonable discovery back to the patent troll.
Patent trolls usually hide their actual owners behind shell companies. These
patent trolls do not want publicity because they dont want to be known for who
and what they are. Section 281A of the bill removes the anonymity of patent trolls
and forces them out of hiding, by requiring them to identify not only themselves,
but any other businesses or individuals who are co-owners, assignees, licensees or
have a legal right to enforce the patents in question, along with exposing any
person or business with a financial interest in the patent infringement case.
Patent trolls are notorious for hiding their claims behind weak lawsuit pleadings.
The current standards for making an accusation of patent infringement do not
require plaintiffs to explain what they allege to be infringing or how the defendant
infringes. This lack of clarity forces anyone accused of patent infringement into an
endless (and expensive) guessing game. Section 281A of the Patent Abuse

Reduction Act forces patent assertion entities (PAEs) to spell out their claims and
be specific about their complaints. These specifics include how the patent is being
abused; the names, model numbers and other information of the products or
services alleged to infringe the claim and where the infringement occurs; and a
host of other factors most patent trolls can currently omit from their suits.

Conclusion
Introduction of TRIPS Agreement, which mainly concerns product patent in all
sectors and increased the length of patent to twenty years is bound to affect Indias
pharmaceutical sector. Under Indian Patent Act, 1970, product patent was not
allowed for pharmaceutical products, agricultural products, food products and any
kind of chemical products. It seems from the preceding sections that grant of
intellectual property right for an invention is absolutely necessary in the domain of
pharmaceutical sector. Though it creates a short term monopoly and loss in social
welfare, but the long term benefits are enormous. Secondly, the idea of making
India compliant with TRIPS policy thereby attracting more foreign direct
investment or multi-national corporations in this sector, needs to be looked into
carefully. Majority of the foreign pharmaceutical companies based in India spend
much less than half of what an Indian company spend on R & D of the sector. On
the other hand, if we compare the R & D expenditures of the companies working in
India and top ten pharmaceutical companies in the world, we would see that
companies based in India spend at least 2.5 times less than the latter. Thus, it is
quite obvious that it is very difficult for India to reap the benefit from IPRs.
Thirdly, India is a net exporter of pharmaceutical products, mainly generic versions
with an export growth rate of around 4.5-5 percent and import growth rate of
around 0.7 percent. So this sector needs proper regulation so that it can improve
Indias balance of payment situation. Lastly, pharmaceutical sector needs to be a
highly regulated sector not only in terms of price and quantity, but also in the way
it functions. India being a 1.2 billion population country with a large chunk of

people living below the poverty line, the Government should look into the abuse
of patent rights and monopoly rights in this sector, because this sector is a vital
priority sector. Another factor which can hinder growth is that small companies
which were mainly benefited from the protective regime before 2005 may
eventually close up or may be forced to become contracting units. The main
function of CCI is to check all possible anti-competitive practices going on in this
sector like ever-greening of patents, patent pooling, not letting in manufacturers of
generic drugs for marketing, right to licenses, patent infringement etc. The main
motive is basically to boost competitiveness in the economy. Few suggestions that
might boost up competitiveness are discussed as follows:
To provide subsidies for investment in R & D so that it might boost up inventions
under the new patent regime in this sector.
To rationalize Drug Price Control Order: It is extremely important to have
liberalized price control regime. Price control is mainly done to ensure availability
and quality medicines at affordable prices. But price control should not be to such
an extent that it makes firms unprofitable to invest in R & D. Moreover, under
WTO regime, without this investment, the nation can never come to the forefront
and become a global leader.
An academic cum industrial relationship can further be explored. The R & D can
be encouraged in different universities or academic institutions, while industries
can take up the commercialization part. In this case the IPR will be owned by the
academic institutions and they can share only a part of the total profit. This will not
only improve academic excellence in India, but help in better inventions.
Exemptions in tax: Income tax exemptions should be given for clinical trials in
order to boost up profits and encourage research.
The procedure for procurement of licenses should be made more stringent,
including extensive disclosure of exhaustive personal, financial and business
information and a detailed background check. This would tackle the problem of
spurious drugs. Moreover, most of the cases relating to spurious drugs remain
undecided for years and there is strong need for mechanisms which would result in
faster trials. Intellectual property right in the pharmaceutical sector is an important
issue. Given that India is still a developing country, and hence is vulnerable to

global shocks, regulation policies in this sector should be seriously taken into
account. Given the bright future of Indias pharma sector, India needs to give
special attention to exim policies, so as to get the maximum return out of it. Also, it
needs to look into the issues of R & D investment which will boost up this
sector. India should adopt a balanced approach in making regulations and policies
for this sector. Policies should be made taking into consideration Indias strength.
One of the strengths of India from long has been its know-how in herbal
medicines. India exports about five percent medicinal plants and herbal medicines
and comes after China (exports about 30 percent). The Indian herbal market is
expected to double from $1.5 billion in 2010 to $3.0 billion in 2015. Intellectual
property right in these traditional medicines is very important. There is a renewed
interest in the modern world to shift from the modern medicines to traditional
medicines. India is working hard to retrieve its past knowledge in an organized
fashion by the formation of Traditional Knowledge Digital Library (TKDL). Since
these herbal medicines does not come under the purview of TRIPS Agreement and
research in new chemical products involve huge investment expenditure, Indian
companies should work in herbal medicines. Moreover, the Government should
help in the set up laboratories for research and development in herbal medicines.
Hence India should encourage healthy competitive practices. In the long run, due
to the introduction of patents researchers in India and abroad, there will be
renewed opportunities in India and the consumers will be benefited. Without this
opportunity, India will face nothing but brain-drain

References
1. Competition Law and Indian Pharmaceutical Industry, Centre for Trade and
Development, New Delhi, 2010.
2. Lanjouw, JO. The Introduction of Pharmaceutical product Patents in India:
Heartless Exploitation of the Poor and Suffering?, National Bureau of
Economic Research, Working Paper 6366,1998.
http://www.nber.org/papers/w6366
3. Adelman, MJ and Sonia, B. Prospects and Limits of the Patent Provision in the
TRIPS Agreement: The Case of India, Vanderbilt Journal of Transnational Law.
4. FDI Statistics, Department of Industrial Policy and Promotion, Ministry of
Commerce and Industry.
http://dipp.nic.in/English/Publications/FDI_Statistics/FDI_Statistics.aspx
5. TRIPS Agreement, http://www.wto.org/english/tratop_e/trips_e/t_agm0_e.htm
6. TRIPS Agreement,
http://www.worldtradelaw.net/uragreements/tripsagreement.pdf
7. Indian Patent Act, 1970,
http://www.ipindia.nic.in/ipr/patent/patent_Act_1970_28012013_book.pdf
8. The Competition Act, 2002, Competition Commission of India.
9. http://www.rackspace.com/blog/how-the-new-patent-abuse-reduction-act-levelsthe-playing-field/