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

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.