Dwijen Rangnekar: Who is the real pariah?

It is curious that Novartis would prefer moving to China on grounds of IP protection when that country is being hauled up for problems with its patent protection.

Two recent items in this newspaper present a contrasting picture about Intellectual Property (IP)-standards in India and their perception elsewhere. Joe Mathew's article ("India no IPR pariah: US drug lobby report," August 29, 2007) concludes that India is no more an IPR pariah as it does not exist in PhRMA's list of 23 IP-deficient countries. The other, an interview with Novartis MD Ranjit Shahani ("Glivec is not the issue, R&D protection is," August 31, 2007), suggests that the IP-standards are deficient and not in compliance with the TRIPS Agreement. Which of these two stories should we move forward with?

The Novartis story is easy to unpick. It follows their defeat in Chennai court where they sought to establish that provisions in India's patent law were unconstitutional and violated obligations to the TRIPS Agreement. While opting not to appeal this decision, Novartis has with missionary zeal used every media opportunity to discredit the court's verdict. It has also repeatedly threatened to move operations to China. The Chennai court correctly concluded that compliance with international agreements are appropriately dealt at a forum dedicated to resolving such disputes, which here is the WTO's dispute settlement process. Here, Novartis finds itself politically and legally isolated. Switzerland, its host government, does not see cause for a WTO challenge as made abundantly clear by Doris Leuthard, Swiss economic minister, during her August visit to New Delhi. Moreover, during the May 2007 WTO trade policy review, discussed below, Switzerland broadly expressed satisfaction with India's patent law.

Does this mean that India has met its obligations to the TRIPS agreement? Thus, no more an IPR pariah as concluded by Mathew? An answer requires moving beyond a simplistic black and white understanding to areas of grey that abound in matters concerning IPRs. To begin, an inaccuracy in the story has to be corrected. The story is based on PhRMA's submission to the annual USTR's Special 301 review of 'IP-standards'. A table in the appendix lists 23 countries and PhRMA's estimates of lost revenues from deficient IP-standards. India is not mentioned in the table; thus, Mathew conclusion. Unfortunately, reasons for omission are more prosaic: lack of data! A perusal of the report demonstrates that PhRMA finds India's IP-protection deficient and recommends a priority watch listing, that is, amongst the worst 'offenders'.

The USTR heeded this recommendation and included India in its priority watch list with Argentina, Chile, China, Egypt, Israel, Lebanon, Russia, Thailand, Turkey, Ukraine and Venezuela. There is substantial difference between the way India is included here and other countries like Russia and China. The latter two are top priority countries and subject of out-of-cycle reviews. China is also the subject of WTO dispute settlement process initiated by the US and joined by Canada, EU, Japan and Mexico. With respect to India, the USTR's areas of concern are protection of commercial data, WIPO Internet treaties, copyright infringement and optical disk licensing. Clearly, various PhRMA's complaints do not find resonance. There is no mention of section 3(d) of the Patent Act, the provision challenged by Novartis. Neither is there mention of issues like the backlog of applications or the treatment of mailbox applications. This contrasts with the earlier assessments. In 2005 PhRMA estimated losses in India at $3.5 billion, placing it ahead of China ($3.1billion) and at the top of the table! It is easy to quarrel with PhRMA regarding data sources and methodology "" both of which remain grossly obscure in their reports. However, how does one explain this remarkable turnaround for India?

Another demonstration of this turnaround occurred at India's May 2007 WTO Trade Policy Review. The Trade Policy Review Mechanism is part of the Agreements establishing the WTO under which the Secretariat prepares an assessment of a Member's trade policy and other Members review the same. In the May 2007 review, the Secretariat's conclusions on IP are broadly positive with concern moving away from implementation and towards enforcement. For instance, concern is expressed at mechanisms for civilian and criminal prosecution and whether the delays diminish the legal deterrents. The US, Japan and Switzerland raised specific questions on the third amendment. These included section 3(d), provisions on pre/post-patent grant opposition, and the treatment of mailbox applications. With respect to section 3(d), the US raised questions concerning TRIPS-compliance and Switzerland focussed on its implementation.

India's response to these questions makes for interesting reading. It notes that TRIPS-obligations must be viewed in terms of the principles and objectives of the Agreement and various flexibilities as noted in the Doha Declarations. Section 3(d), it argued, was also directed at preventing the practice of evergreening patents in pharmaceuticals. Other members were supportive of India, with Brazil commending the introduction of a new patent law doctrine. On the issue of pre-grant opposition, Switzerland was informed that this has only impacted 199 applications out of a total of over 50,000.

The specific questions aside, most of the discussion on IP focused on institutional and enforcement issues. India reported developments such as the modernisation programme costing $35 million, the establishment of four dedicated IP cells, and increasing computerisation of these offices among others. It also reported the establishment of a fast-track mechanism with the setting up of the Intellectual Property Appellate Board in April 2007. It used this opportunity to remind members of the Traditional Knowledge Digital Library (available in English, French, Spanish, German and Japanese) the use of which by other patent offices would reduce biopiracy cases. In the same breath, it commented on the US grant of IPRs in yoga as "absurd" and an "abuse" of the IP system.

In no way should the review be read as giving a clean chit to India on its IP system. To be clear, TRIPS-compliance can only be decided by a WTO dispute panel "" if and when it is constituted. Yet, few will doubt that this review has been accommodating of India's implementation and moved attention to enforcement. And it is here that the difference from Novartis's media bluster is remarkable. Clearly, something bigger and subterranean has moved.

McKinsey's recent report, "India Pharma 2015," predicts an incremental growth of $14 billion in the next decade "" making India's market growth the third largest in the globe. With the market tripling to $20 billion by 2015, India would be among the top 10 pharma markets. Over the last five years, the report notes, MNCs have lost momentum and market share and it recommends the following strategies: (a) focus on high-end niche markets or specialised sections, (b) customise their business strategies, or (c) invest in local organisation. Independent of these options, the report observes that a "strong local team with local market experience" is necessary, but must be supported by leadership championing business in India.

These market changes are elemental in how India is being constructed in the global IP arena. Thus, the puzzle as to why Novartis would prefer moving to China on the grounds of IP-protection when the latter is being hauled up by PhRMA, USTR and is also embroiled in a WTO dispute?

The author is Academic Fellow, School of Law and the Centre for the Study of Globalisation and Regionalisation, University of Warwick, UK