Battles Over Patents: Is India Changing The Rules Of The Game?

Over the last couple of years, news of pharmaceutical patents and India’s attempts to protect and manage its market has caught the attention of intellectual property observers everywhere and the pharmaceutical industry in particular.

High-profile developments have included India’s awarding of its first compulsory licence for a patented drug and Swiss pharmaceutical giant Novartis’ long-running court battles challenging India’s patent law.

And if developments so far this year are any indication, IP issues in the pharmaceutical sector and the quest to improve access to medicines – not just in India but also in South Africa – look set to keep observers engrossed for a while to come.

First, news emerged of an email said to have originated from US pharmaceutical firm Merck that detailed a campaign to derail plans for patent reforms in South Africa.

The email, published by Knowledge Ecology International (KEI), can be accessed here [pdf].

Civil society groups campaigning for improved access to medicines were still denouncing the campaign and those behind it when remarks by the CEO of Germany’s largest pharmaceutical company Bayer AG about their oncology drug Nexavar being created for “Western patients who can afford” the expensive product rather than “the Indian market” came to light. The comments drew flak from dismayed campaigners.

Video footage of the Financial Times conference where the comments were made can be viewed here.

Bayer is so incensed by the issuance of the compulsory licence on its drug in India that its CEO Marijn Dekkers said the decision was “extremely politically motivated and essentially … theft” by the Indian government.

Rohit Malpani, director of policy and analysis at Médecins Sans Frontières (MSF), disputed that interpretation. “What the Indian government has done is fully consistent with trade rules under the WTO [World Trade Organization] as well as its own national law, which has put WTO rules into effect,” he told Intellectual Property Watch. Last year, Malpani testified at a US congressional hearing on India’s trade policies.

The text of the oral testimony can be found here.

Dekkers said the issuance of the compulsory licence and the lack of protection for patents would quash innovation in the sector. But some observers question whether a compulsory licence on one largely unaffordable drug has the potential to dent the resources of a company like Bayer or adversely impact its R&D efforts.

Ken Shadlen, reader at the London School of Economics and co-editor of the book Intellectual Property, Pharmaceuticals and Public Health, told Intellectual Property Watch: “I think few people really believe that a compulsory licence on one drug in one country where they were actually selling very little of it because the price was unaffordable is going to have huge effects on innovation.”

While admitting that the impact would be “marginal,” Bayer said in a written response to Intellectual Property Watch that it was the prospect of a “spillover” they are worried about and that spillovers “are a general threat for the whole industry.”

“Economically, there is no massive impact so far but this could change if more products are involved,” Bayer said, adding that if countries like India are regarded as a “role model” for other countries, “IP protection could be diluted in several jurisdictions.”

That may well prove a watershed moment and therefore cause for serious concern for the big research-based pharmaceutical companies. The trend toward reform is already evident by moves in South Africa to overhaul the country’s patent laws in an attempt to address concerns over the cost of drugs.

Moreover, middle income states like India, China, South Africa and Brazil have the potential to evolve into highly profitable markets for big pharmaceutical concerns, as the market continues to grow in those countries. Given the prospect for future revenues, Malpani said: “The companies are concerned about the precedent this is setting where in the long term they want to prevent these countries from using these measures to protect public health.”

It is with the intention of preserving their lucrative and so-far dependable business model – one that is guaranteed by the patent regime – that pharmaceutical firms are fighting tooth and nail. Big Pharma is convinced that challengers to their expedient set-up must be fended off at any cost, including through the well-tried method of political pressure.

This month, for instance, the US Chamber of Commerce appealed to the US government to step up pressure on India over IPRs, with a view to stopping Indian companies from producing cheap versions of patented medicines. The US has already put India on its “Priority Watch List” that features countries whose IP protection practices it believes need close monitoring.

The Chamber now wants the US Trade Representative (USTR) to classify India as a Priority Foreign Country, which would consign it to a list of worst offenders in relation to protecting intellectual property.

Meanwhile, the US International Trade Commission held a two-day hearing last week to look into Indian trade and investment practices. The sessions featured numerous US-based speakers from all sides of the issue.

Information about the ITC hearing is available here.

KEI videotaped a number of the witnesses’ presentations, available here.

MSF has drawn up a timeline of US pressure on India. It can be read here [pdf].

There are frequent trade-offs between governments, especially when it comes to trade issues. So some are asking if countries like India and South Africa can hold their own, especially given the pressure from western governments.

Shadlen said: “It’s obviously difficult because there are inter-governmental relationships and there are a lot of issues at play. The Indian government has withstood pressures for quite some time. I don’t except major changes in India’s policies because of complaints by individual firms and because of external pressures.”

As for South Africa, that country is no stranger to collective onslaught by pharmaceutical firms: around the turn of the 21^st century, 39 mostly multinational companies took the government to court over a law that made medicines more affordable. The South African government held its ground, and eventually in 2001, owing to pressure from the public and from European governments, the companies dropped the case.

As the country now prepares for crucial patent reforms, the government in Pretoria appears to be once again showing resolve. The trade minister recently told Intellectual Property Watch that they were moving towards “striking a balance between innovation, affordable medicines, and to modernise our IP regime” (IPW, Developing Country Policy, 22 January 2014).

This time, too, there seems to be a fair amount of backing for their cause. WHO Director General Margaret Chan came out strongly in support of South Africa, stating unequivocally that “no government should be intimidated by interested parties for doing the right thing in public health” (IPW, WHO, 24 January 2014).

The bid to forestall reforms in South Africa and disputes over patents in India are part of a bigger conflict over the price of medicines. In the low and middle income countries, these moves owe in particular to governments being painfully aware of the need to upgrade healthcare systems and expand access to medicines.

Meanwhile, another cause for concern for brand-name pharmaceutical companies stems from developments closer to home: countries in the West too, many yet to recover from the financial crisis and some potentially slipping deeper into economic decline, may be taking note of the fact that moves India has made have brought drug prices down drastically.

“Citizens of developed countries may ask why their own governments are not taking similar measures when affordability of medicines has become such a central problem to every healthcare system,” Malpani said.

Indeed, developed countries may already be tightening their belts. “Large pharmaceutical companies are coming under pressure to reduce prices in many OECD countries, where cutbacks are leading to governments negotiating reduced prices,” said Shadlen.

Being based in developed countries, big pharmaceutical firms have always been able to depend on their interests being protected where it matters the most: in the United States and Europe. It is here that these companies “expect paybacks for expensive medicines”, as the Bayer response states. Any enfeebling of that arrangement would be seen as detrimental to the interests of the industry.

The entire spectrum of events and responses from governments and pharmaceutical firms is essentially a backwash of the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) coming into force in 1995. As developing countries began looking for ways to secure affordable drugs for their citizens within the limitations of the agreements they signed up to, responses like the ones we are seeing in India – challenges to the patent regime and the ensuing legal disputes – resulted.

And actions by India against big pharmaceutical firms are seen by many as a game-changer. India has managed to keep some exorbitantly priced drugs at bay by either denying a patent (as in the case of Novartis’ Glivec) or by issuing a compulsory licence for a patented drug (Bayer’s Nexavar).

Perhaps more significantly though, it has offered hope for other countries seeking to go down that path. If more developing countries do initiate reforms and developed countries push ahead with efforts to lower drug prices, that could well mean crunch time for Big Pharma, forcing it to rethink its business model, including shifting the focus from high profit margins to bigger volumes.

While acknowledging that there have been “some good first steps in the last decade,” Malpani insisted that countries like India and South Africa have an obligation “to not stop focusing on the needs of their own citizens, because certainly the companies themselves are not stopping with the endless pressure to push up IP rules in these countries.”