How fair is America’s ‘fair trade’?

The report of the first investigation is to be delivered to the Congress on 15 December 2014, and the second will be submitted on 24 September 2015.[1]

The specific complaints, which prompted the USITC and U.S. Trade Representative’s (USTR) investigations, relate to a few Indian court and government decisions and one part of India’s 1970 Patents Act, namely Section 3(d), which guards consumers against frivolous patents and re-patenting of the same drug by changing a few molecules

The USITC is described on its website as an “independent” quasi-judicial federal agency with broad investigative responsibilities on trade issues. It provides advice on trade policy to both the legislative and executive branches of the U.S. government. What it says can also affect the USTR decision on India.

Significantly, the public comments filed on the USTR website show genuine and widespread support for India’s generic drugs industry, often referred to as the “world’s pharmacy” for supplying medicines at affordable prices. From Africa to even North America, Indian generic substitutes are saving lives. Medecins sans Frontieres or Doctors Without Borders, an organisation that has won the Nobel for its humanitarian work, is a loud and consistent supporter, as its detailed filings show.[2]

 India’s IPR policy

The Indian government, for the record, does not officially participate in investigations under another country’s laws. That said, there is no use pretending that it can ignore them completely, since U.S. officials have made the investigations a part of the bilateral agenda. This makes it impossible for a country to sidestep these issues.

The Modi government has taken several steps since May to engage various stakeholders in the U.S. to show it takes copyright and patent protection seriously. Commerce Minister Nirmala Sitharaman announced on September 8 that India will have a “national IPR policy in place soon” which will not be “restrictive but promote national interest.”[3]

India has well-established laws to protect intellectual property (IP), but the minister said it was important to “spell it out in the form of a policy for the entire world to see.” She said all existing laws and rules would come within the framework of the policy, which will strengthen IPR and also “upgrade” officers who deal with these complex issues.

The announcement has done little to calm U.S. industry, as public comments submitted to the USTR website demonstrate. The campaign against India’s IP regime is largely mounted by U.S. pharmaceutical and information technology companies using various industry associations, including the powerful US Chamber of Commerce.

There is a sense in Washington that if the U.S. is not tough with India, it will send the “wrong” signal to other countries. Simply put: if India can be pressured to comply with U.S. demands, smaller countries will follow. Bruised by China, American officials are determined not to allow a massive trade imbalance with India, which means America First on all counts.

As a result, the campaign from Washington has been full of heat. India is painted as a serial violator of sacred norms, which, if not brought under control, will pollute the whole planet. It conveniently ignores the fact that Indian laws are compliant with the norms of the World Trade Organisation (WTO) and Trade-Related Aspects of Intellectual Property Rights (TRIPS), under which developing countries have certain rights. The campaign also forgets that the basic legal principle governing IP issues revolves around balancing the conflicting interests of a patentee’s exclusive rights and those of the public at large.

Pharmaceuticals and ‘public good’

While pharma companies couch their rhetoric in the language of concern for public good, they often fight unethically behind the scenes. It is no secret that the cost of cancer drugs has become an issue in the U.S. itself, with doctors forced to prescribe medicines keeping the patient’s pocket in mind rather than his health. Yet, the companies demand that cheaper cancer drugs be denied to Indians.

The Indian Supreme Court’s decision not to grant a patent to Novartis for the anti-cancer drug Glivec (marketed in the U.S. as Gleevec) in April 2013 because it failed “both the tests of invention and patentability” since it was merely a different form of an already-known compound, was taken badly by the U.S. industry long used to easy patents and “evergreening” profits. Evergreening is a term used to describe obtaining a new patent for the same drug with minor modifications.

The 200-page judgement of the Supreme Court is textbook-worthy because of its clarity and dismissal of the spurious logic forwarded by pharma companies. It can, and will be, used by courts in other countries, something that scares lawyers on pharma payrolls.

The other issue deemed egregious by U.S. business was India’s decision to grant one compulsory license (CL)—only one—for an anti-cancer drug. An Indian company, Natco, was given a CL in 2012 against Bayer to produce an affordable generic version of Nexavar. Bayer’s price was $5,098 for a month’s regimen, while the generic cost $160 for the same.[4] Bayer gets a 6% royalty from Natco’s profits from selling the generic version as per the norm.

Reports in January that an Indian government panel was looking into 20 other HIV and diabetes drugs under patents for possible CLs for three of them, has created a furore in U.S. industry circles. More than 65 million Indians suffer from diabetes, while 2.1 million are living with HIV.[5] No new CLs have been granted, given the long bureaucratic process, but pharma lobbyists in the U.S. are using the reports to whip up sentiment against India.

Responses to the U.S. reviews

U.S. industry lobbyists have used these developments in India to maximum advantage to create pressure on their own government, which in turn has mounted pressure on the Indian government. The USITC and USTR reviews come against this context.

By the October 31 deadline for public comments, 21 industry associations, individual companies, NGOs, and experts had filed detailed comments on the USTR website.[6]

Comments from industry associations and individual companies broadly make the same points—that section 3(d) of India’s Patents Act places an additional burden on them; that it is out-of-step with the TRIPS agreement; that it does not provide “patent term restoration” for pharmaceuticals, which is a sweetheart method devised under U.S. law to extend patents to compensate for the time lost in research and development of a product; and that it gives only limited protection to exchange of confidential information.

Additionally, the heavy backlogs in processing patents and trademark applications, the lack of a trained judiciary in IP matters, large-scale software piracy, threat of compulsory licensing, and India not being a party to agreements that “shape” the IP architecture, are also debilitating.

Some complaints certainly are legitimate, such as the long court delays in India (five to seven years to cancel a trademark while infringement continues), the lack of trained personnel, and a lack of automation. But the rest are essentially complaints stemming from companies not getting their way.

The submission by Bayer makes the extraordinary claim that judicial delays might be “by design.” It demands that the U.S. government must “seek commitments” from India “not to grant any additional compulsory license unless it is to meet genuine health emergencies” as declared under TRIPS.

It goes on to claim that India’s health policies are not “designed to broaden access to medicines” and there is “no discernable justification (for CLs) from the perspective of health care.” India is pursuing “a thinly disguised industrial policy to support local champions at the expense of innovative global companies like Bayer.”

This view is very much a part of the mix in Washington. Since history is often deemed irrelevant, especially when its cognisance would undermine U.S. claims, it becomes pointless to tell U.S. companies that their innovations have largely come at the expense of the country’s taxpayers through grants from government institutions, and that the process of industrialisation is replete with countries usurping technologies from others.

Countering the complaints

The comments from the other side—from concerned experts and NGOs in the field—not only demolish most of the complaints by companies and trade associations with scholarly evidence, they also highlight the spirit of the original agreements under the WTO. The loud noise against India for issuing one compulsory license should be seen against the hundreds of CLs granted by the U.S. and European Union countries.

An exhaustive submission of several documents by Knowledge Ecology International (KEL), an award-winning non-profit organisation dedicated to social justice for marginalised groups, gives many examples where the U.S. government has used CLs. It brought anti-trust suits against Microsoft in 1997 and gave CLs to a number of protocols for Windows. In 1998, it ordered Monsanto to license certain corn germplasm to 150 seed companies to ensure competition.

In 2005, the Federal Trade Commission forced a CL on Unocal for low-emission gasoline to save consumers from higher prices. Interestingly, USTR Froman, who will decide whether to name India on the 301 list, intervened in 2013 to allow Apple Inc. to infringe a Samsung patent on smartphones and tablets in the U.S. in the public interest.

As for pharma and health-related devices, the U.S. government has intervened often with CLs—in the case of Abbot’s HIV drug Ritonavir, in the 2010 action by U.S. and Germany to force a CL for the drug Fabrazyme, in the 2010 Affordable Care Act (Obamacare) when a CL was given for patents associated with biologic drugs, and after a 2010 Florida court decision when Johnson & Johnson was allowed to infringe CIBA’s patent on soft contact lenses in the public interest.

There are numerous other examples. The US government has intervened in every conceivable field at home—from banks, data, technology, medicine, cable television, video to stem cell lines—to protect the public interest.

James Love, director of KEL, warned that if the U.S. did anything to reduce the availability of low cost generic drugs from India, it would have “huge consequences” around the world. No other country can supply a “range of low cost affordable generic drugs at this point in time.” If the U.S. shuts down India as a source, the U.S. “shuts off the entire developing world.” [7] For this reason, the current USTR review is of “enormous moral, social and economic significance.”

TPP and the rights of sovereign states

The Confederation of Indian Industry (CII), too, has raised pertinent issues through public comments, including the fact that as developed countries try to open large markets in the developing world, they are attempting to tilt the balance in their favour by trying to change multilateral agreements such as TRIPS.

In the U.S.-led ultra-secret negotiations for the Trans-Pacific Partnership (TPP), which includes some developing countries, powerful countries are trying to remove the flexibility for developing countries under TRIPS. The “TPP may prevent farmers from saving seeds that contain patented/protected seed material even when such use is for their own personal consumption,” the CII filing says. The TPP is also reportedly trying to make violations of trade secrets a criminal offence.

“CII is concerned that this would affect the interest of Indian industries as many complexities will be generated and in effect, an even and common level field for trade and commerce created through WTO will be vitiated,” the statement says.

The TPP is likely to skew existing multilateral arrangements. Officials in the U.S. State Department have even bragged that countries not included in the TPP or other west-led trade groupings would be “left behind” in the game.

According to a declaration issued on 15 April, 2014 by Germany’s Max Planck Institute for Innovation and Competition, prepared in consultation with scholars from 25 countries, sovereign states have the right to define the parameters and scope of what can be patented and when CLs can be granted under articles of the TRIPS agreement. For U.S. industry lawyers to claim otherwise, they say, is a misreading of the agreement.

The final word must go to Medecins sans Frontieres, an organisation that is respected worldwide, when it says India’s role in providing affordable drugs is “critical.” The cost of HIV drugs fell almost 96% in 2001 and almost 12 million people were in treatment in 2014, many of them under U.S.-funded global health programmes.[8]  Even the U.S. dollar stretched further, thanks to generics.

Seema Sirohi is a Washington-based analyst and a frequent contributor to Gateway House: Indian Council on Global Relations. Seema is also on Twitter, and her handle is @seemasirohi

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