India seeks more foreign investment but throttles IP rights through compulsory licensing

By Steve Brachmann
June 24, 2015

Arun Jaitley

Arun Jaitley, Indian’s Minister of Finance, Minister of Corporate Affairs and Minister of Information and Broadcasting of India. Via Wikipedia Commons.

The economy of the country of India has been making some of the strongest gains of any nation in recent years. One of the BRICS countries having a rapidly emerging economies, India is expected to enjoy greater than $3 trillion in economic activity by the end of 2019, which would make it the world’s seventh-largest economy. In the first quarter of 2015 alone, the country’s economic growth rate was 7.5 percent; it was the second straight quarter in which the Indian economy outpaced the Chinese economy’s growth rate. Indian Prime Minister Narendra Modi has been making a push towards growing the country’s manufacturing sector so that it contributes one-quarter of the country’s gross domestic product by 2025.

This backdrop of exciting economic growth has to some degree obscured an issue which has proven to be increasingly worrisome for foreign investors and companies. In terms of honoring intellectual property rights, there are many who have noted that India has been producing an incredibly poor track record. For example, India ranked last in an index, devised by the U.S. Chamber of Commerce’s Global Intellectual Property Center (GIPC), of foreign countries and their handling of IP rights, trailing such nations as China and Russia.

In the middle of June, India’s Minister of Finance Arun Jaitley toured the United States in an effort to encourage more investment from this country. Jaitley noted that India’s stance on intellectual property rights was a contentious issue raised in meetings with American counterparts, which included U.S. Secretary of the Treasury Jacob Lew and U.S. Secretary of Commerce Penny Pritzker. The most recent annual report on intellectual property rights issued by the U.S. Trade Representative’s office stated that India has been weak in protecting trade secrets and lax in allowing trademark counterfeiting. The USTR’s intellectual property report placed India on a priority watch list along with 12 other countries, including China, Russia, Argentina, Pakistan, Thailand and Ukraine.

A few characteristics of India’s handling of IP issues have given foreign bodies much cause for concern. India is not one of the 36 sovereign bodies which have signed the multilateral Patent Law Treaty, which include the European Patent Organisation, the United States, France, Brazil and Germany. The foreign nation also cannot be counted among the nearly 100 countries which have ratified either of WIPO’s Internet Treaties (the Copyright Treaty and the Performances and Phonograms Treaty), both of which seek to establish international standards for copyright protections in cyberspace. Most recently, India has been resisting strict patent legislation for the proposed Regional Comprehensive Economic Partnership of ASEAN countries, maintaining that India’s intellectual property policy is WTO-compliant in order to fight stringent rules proposed by Japan and South Korea.

[Bio-Pharma]

A recent trend towards compulsory licensing has also raised red flags for many. In March 2012, the Indian Patent Office granted the country’s first compulsory license to a domestic pharmaceutical company for a cancer drug developed by Bayer AG. At a time when India’s economy is climbing to new heights and foreign investors are interested in entering the market, some find the fact that the Indian government would essentially commandeer foreign IP to be threatening.

The drug industry seems to be a sector which is particularly affected by India’s domestic IP policy. In early 2013, Swiss drug maker Roche withdrew its India patent for the breast cancer drug Herceptin. It’s been alleged that the Indian government would likely have issued a compulsory license for the drug, causing Roche to pull their drug from the market.

Of course, India is a nation with an economy that is rapidly developing so it has a strong short-term interest in devaluing intellectual property rights. The country’s pharmaceutical industry is forecast by PricewaterhouseCoopers to become one of the top 10 markets in the world by the year 2020. Generically branded drugs make up about three-quarters of the country’s entire pharmaceutical market and over-the-counter medications almost account for another 20 percent; patented medicines have only captured 9 percent of the Indian drug market. Section 84 of The Patents Act, passed by India in 1970, governs compulsory licensing. It allows anyone to petition the Indian patent office for a compulsory license of a patented technology if the technology is not available at a reasonable price or if they allege that the “reasonable requirements of the public” have not been met. As other posts on IPWatchdog have pointed out, India cloaks its compulsory licensing policy in the friendly guise of protections for consumer rights but generic manufacturers wind up being the major beneficiaries.

Providing avenues for subverting patent rights may make it easier for Indian consumers to benefit from inventions but it has some serious long-term consequences. Representatives of foreign governments have grown increasingly angered by what they perceive as violations of international norms in intellectual property rights protections, evidenced by this Wall Street Journal opinion piece penned by a German member of the European Parliament. Instability in IP rights protections has also likely contributed to a restriction of foreign business investment. A GIPC survey of the BRIC countries, excluding South Africa, found that India has the lowest level of foreign direct investment among them. India may be an emerging economy but it is emerging less rapidly than Brazil, Russia and China. (China is no bastion of intellectual property rights defenders either, as we’ve covered elsewhere here on IPWatchdog.)

There is some indication that the stance of India’s governmental regime on intellectual property rights could strengthen in the coming years. The 2015 USTR report on international IP protections noted that increased bilateral engagement between the United States and India would be taking place in the coming years; the two nations will be working together in the hopes of drafting both a bilateral investment treaty and a totalization agreement that would reduce tax concerns for professionals working in foreign countries. India is also investing more heavily in patent processing, recently announcing that the government would hire an additional 1,000 patent office employees so that it can clear the country’s backlog of patent applications over the course of the next 18 months. This backlog had been growing since the end of 2013 according to statistics collected by the World Intellectual Property Organization. Compulsory licensing, however, will likely remain a thorn in the side of foreign firms looking to bring their technology into India’s consumer market in the coming years.

The Author

Steve Brachmann

Steve Brachmann is a freelance journalist located in Buffalo, New York. He has worked professionally as a freelancer for more than a decade. He writes about technology and innovation. His work has been published by The Buffalo News, The Hamburg Sun, USAToday.com, Chron.com, Motley Fool and OpenLettersMonthly.com. Steve also provides website copy and documents for various business clients and is available for research projects and freelance work.

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 6 Comments comments.

  1. Anon June 24, 2015 11:13 am

    If we reduce our country to “pirate status,” then the denigration of IP laws in general would once again work in our favor.

    Any student of history can appreciate that at certain relative norms, IP theft is a benefit – a true benefit for a nation playing “catch-up” with others. In the historical cycle of strength of IP systems, the most innovative countries have always wanted the strictest IP laws.

    As the US loses its place among the world leaders for innovation, perhaps we should plant those seeds for becoming (once again) a Pirate Nation ourselves.

    I recognize that this is a radical break with my usual stance here – but we should at least consider this radical break given the apparent facts that the patent system that has placed us in a position of leading the world in innovation has been co-opted and broken. We no longer have that same patent system. Maybe we should stop trying to clutch onto something that is in truth gone, and accelerate through the historical cyclical trend as quickly as possible.

  2. Anonymous June 25, 2015 2:57 am

    As this article acknowledges, there has been exactly one (1) compulsory license issued by the Indian government. I’m not sure how one can look at a single data point and conclude that it constitutes a “trend”.

  3. Anon June 25, 2015 3:59 am

    Get your facts straight before making a publication. TRIPS is still considered to be the minimum standards and India is strictly adhereing to it in all manner. WCT WPPT and all others you mentioned herein are mere TRIPS Plus measure which need not be followed by any nation. And already TRIPS as well as the Doha Ministerial Declaration has clarified that its for member countries to decided what are the factors for compulsory license. Indian Patent Office issued compulsory license after reviweing India’s position on the same and describing it as a trend is incorrent

  4. Raymond June 25, 2015 4:18 pm

    India’s patent laws are WTO/TRIPS compliant and are one of the strongest patent laws around. It is funny that we consider a patent regime to be flawed when it does not allow for “evergreening” as in the case for pharmaceuticals granting companies monopoly over drugs for decades, how does that foster innovation? India’s patent laws helps their generic pharma, you say, how is that different to US/Swiss and other big pharma countries fighting tooth and nail to impose their choice patent laws on other sovereign countries? National interest of countries plays an important factor in law making, why should we begrudge India’s patent laws if their national interest colors them? Compulsory licensing is a very valid provision in patent law and most countries have them for various situations, India is not out of line and it has so far been used only once for a pharma drug. The big pharma in US and EU is not concerned about market access in India where they make only a tiny fraction of their profits, they are more concerned about the trickledown effect when other countries start going the India route. Heaven forbid if people in developed countries start questioning the insane prices of drugs!!

  5. Gene Quinn June 26, 2015 10:43 am

    Anonymous-

    Just to clarify, the article talks about the first issued compulsory license, but does not say that only a single compulsory license has been granted. Another example of a drug where the patent owner abandoned the patent is also provided.

    Please also see:

    http://pharmabiz.com/ArticleDetails.aspx?aid=75138&sid=1&utm_source=feedly

    http://www.business-standard.com/article/current-affairs/compulsory-licensing-soon-for-export-of-generic-drugs-by-india-115030900013_1.html

    http://www.lawyerscollective.org/updates/supreme-court-says-no-to-bayer-upholds-compulsory-license-on-nexavar.html

    Given the recency of the first compulsory license, the recency of the Supreme Court decision refusing to overturn the Bayer compulsory license and given attempts to modify TRIPS to allow for the exportation of generic versions of drugs created under a compulsory license there is a disturbing trend.

    -Gene

  6. Madhav Kulkarni June 30, 2015 2:29 am

    1. How many compulsory licenses given so far in India.
    2. Are Compulsory Licenses applicable to any technology?Are they granted in any/all technologies?
    3. TRIPS states “The principal requirement for the issue of a compulsory license is that attempts to obtain a license under reasonable commercial terms must have failed over a reasonable period of time.” Source:
    4. The Patent Act of India states: Any person interested may make an application to the Controller for grant of Compulsory License for a patent after the expiry of three years from the “date of grant” of the patent on the following grounds:
    I. that the reasonable requirements of public with respect to the patented invention have not been satisfied, or
    ii. that the patented invention is not available to the public at reasonably affordable price, or
    iii. that the patented invention is not worked in the territory of India.
    5. Are Compulsory Licenses granted by the Government without scrutiny?

    The author may take reasonable efforts to review 5 points above and re-write the article. Looking forward for a new version.