Striking a Balance Between Protection of Pharmaceutical Industry and the Consumer - Patent Law

Striking a Balance Between Protection of Pharmaceutical Industry and the Consumer through Patents, Price Control, and Other Interventions.

Abstract

As is in the case of most developing countries, India’s patent regime projects an unresolved confusion. This is especially true when we deal with patents in the pharmaceutical industry. The US has put India on its Special 301 priority list amongst countries with serious intellectual property rights deficiencies.

On the one hand, we are combating pressure from the west due to our resilient efforts to not grant patent protection to high costing and unaffordable drugs and for allowing Indian manufacturers to generically produce the same for cheaper. On the other hand, we have employed a pretty inefficient price control mechanism.

Being a member of the WTO and the largest consumer market in the world, India faces severe pressure from western countries. The west has constantly been lobbying for stricter patent laws to protect the interests of western pharmaceutical companies. It has been argued that generic Indian manufacturers have been taking advantage of the R&D done by western pharmaceutical companies and therefore have been able to market similar drugs for cheaper.

It is also fair to say that a vast majority of Indian consumers who need essential lifesaving drugs are not economically capable of paying prices set by big pharma and are hence dependent on generic producers.

To put forward a third paradigm, it is viewed by activists and some scholars that India has been taking half measures. India could do more in terms of opting for a more efficient system of setting ceiling price, compensating companies for R&D initiatives for essential lifesaving drugs, and providing patents with price and production regulations to be enforced on the launch of the product in the Indian market

This article will focus on the conflicting personality of India’s patent protection policies, international pressure, and the long-term and short-term effects of such regulations on both the consumers and the Indian pharmaceutical market.

Introduction

The world health organization recently stated that there had been no significant developments in antibiotics in the past decade or so; this comes with the backdrop of a fear that we are now encountering more and more drug-resistant bacteria. With the evolution of drug-resistant bacteria, new diseases, the increase in cancer, and other life-threatening illnesses, it is becoming increasingly necessary to dwell deeper into the sphere of R&D in the pharmaceutical industry.

When we talk about innovation and the pharmaceutical industry, we must understand that we have had many breakthroughs in recent years. Still, these developments have not benefitted the more extensive section of society due to the high price set for these breakthrough drugs and treatments.

Patenting helps us address at least the first problem and is directly responsible for the second. Patents provide pharmaceutical companies the incentive to invest more money into R&D.

A company can charge a much higher rate for drugs once they hold patents for them, but this directly leads us to our second problem, most people cannot afford breakthrough treatment or medicines. This is even more true in the case of the third world, developing countries like ours.

This article aims to evaluate these problems and strike a balance between consumer protection and the protection of pharmaceutical Industries. In other words, we will try to align affordability and incentivize innovation and make it possible to talk about the two in the same breath.

What is a Patent?

A patent is a kind of intellectual property that gives its holder the right to exclude others from using, marketing, making or selling an invention for a set period of time. The Patent Act, 1970, which has been amended multiple times, governs the law relating to patents.

For there to exist Patentability, the following conditions must be fulfilled:

a) The invention must fall into one of the five classes, process, machines, the composition of matters, and new use of any of these.

b) The invention must be non-obvious, useful, and novel.

Brief History

Intellectual property is a product of the creation of one’s mind. It is intangible property over which the owner can claim absolute rights. Patents are intellectual property over which the patent holder has the right for a specified period of time. The Patent Act, 1970 is the principal law governing patents in India. Initially, only process patent was permitted, and no product patent was granted; this was changed by a subsequent amendment in 2005.

India being a part of the World Trade Organization(WTO), signed the Trade-Related Aspects of Intellectual Property Rights(TRIPS) Agreement in 1995. The TRIPS agreement laid down certain basic standards of patent law that needed to be followed by all countries. This led to the 1999 amendment of the Patent Act, the amendment provided pipeline protection till the country formulates a policy to give product patents. It laid down the process for filling product patents for drugs and agrochemicals with effect from 1st January 1995 as mailbox applications. The amendment also granted Exclusive Marketing Rights on these patents.

The Patent Act, 1970 was further amended in 2002; the amendment provided a uniform cover of 20 years of patent validity. It also defined the term invention as given in the original Act consistent with the TRIPS Agreement.

The 2005 amendment brought about the third set of changes; product patent was introduced. A new property, new use, and new form of a known substance could now be patented subject to provisions of section 3(d) of the Act and the notion of increasing efficacy of the product as stated in the provisions.

Patentability

Under the Indian Patents Act, Patentability is defined as“A new product or process involving an inventive step and capable of industrial application. ”The following are essentials of Patentability:

a) Newness: The Patentable subject matter must not be known before the date of patent filing. It must not have been published elsewhere.

b) Inventive Step: Feature of invention which involves some technical advancement or economic significance which did not exist before.

c) Industrial applicability: The invention must be made capable of use in some industry.

India’s Stand Against Big Pharma:

India is a developing nation with a relatively low per capita income, and as per the National Family Health Report(NFHS-4), only 27.3% of Indians have health insurance covers. With most Indians having to pay medical expenses from their own pockets and the increase in cancer cases in India, the country has no choice but to oppose high prices that accompany drugs brought in by Big Pharma. India has employed many mechanisms to keep Patent rights which provide exclusive ownership over the drug to the patent holder and drug prices in check. Provisions which have been criticized the most are: section 3(d), compulsory licensing under section 84 of the Act; price control by the way of establishing a ceiling price and form 27 and section 146 of the Act which calls for disclosure of whether companies are using their patents in India and to what extent are companies using their patents.

Section 3(d)

Section 3(d) reads, “the mere discovery of a new form of a known substance which does not result in the enhancement of the known efficacy of that substance or the mere discovery of any new property or new use for a known substance or of the mere use of a known process, machine or apparatus unless such known process results in a new product or employs at least one new reactant. Explanation. For the purposes of this clause, salts, esters, ethers, polymorphs, metabolites, pure form, particle size, isomers, mixtures of isomers, complexes, combinations and other derivatives of known substance shall be considered to be the same substance, unless they differ significantly in properties with regard to efficacy”

This section prevents pharmaceutical companies from claiming patents on new forms of known substances unless such new form enhances efficacy and discovery of a new property or use of known process unless there is the creation of a new product or at least one new reactant. The section aims to prevent the evergreening of patents by companies.

In the 2013 case of Novartis AG vs. Union of India, the petitioner filed an application in the Chennai patent office in 1997 in relation to a drug named GLIVEC, which was a slightly different version of their previously patented drug. The application was rejected on the grounds of section 3(d) of the Act. It was held that the case failed the test of efficacy provided under the section.

Compulsory license u/s 84

A compulsory license is a statutory license granted by the controller of Patents to a third party, allowing the third party to produce the patented product or process without the patent holder's consent. Such a license can be granted on the following grounds as mentioned under section 84 of the Patent Act,1970, a) reasonable requirements by the public concerning the patented invention which have not been satisfied, or b) the patented product is not available to the public at an affordable price or c) the patented invention is not worked in the territory of India. A compulsory license can only be granted upon expiry of 3 years from the date of grant of patent.

Natco Pharma ltd, India vs Bayer Corporation, USA was the first time that compulsory license was granted in India. Byer’s liver and kidney cancer drug was accessible to only 2% of the patients, a compulsory license was granted in favor of Natco after which Natco was free to produce as much as they wanted so long as they paid 6% royalty to Bayer and donated drugs to 600 needy patients each year.

Price Control

The Government has recently decided to limit profitability on 42 non-scheduled cancer drugs to 30%; this is in addition to the 57 drugs already under the price control regime. In India, price control is done through the Drug Pricing Control Order. We generally use the simple average mechanism for price control and determination of ceiling price, which would be discussed later in this article.

Form 27 and Section 146

Form 27 calls for compulsory disclosure of whether companies are working their patents and to what extent. Non-disclosure could lead to fines and even up to 6 months of jail time under section 146 of the patent act. A sample survey found that 35% of patentees did not file form 27 between 2009 and 2012; those who had filed burdened the disclosure with ambiguities.

In 2015, the academic Shamnad Basheer filed a writ requesting that the court direct patent registration offices follow the statute and comply with its requirements.

The companies fear that if such disclosure is made in cases where the patents are either not being worked in India or are being used to a very limited extent, it could lead to compulsory licenses.

The cases of Pfizer Products, Novartis, Bayer, etc., and the steps taken by the Indian Government have resulted in pressure from the western countries and lobbying forces of Big Pharma. It has been time and again contended that the Indian laws go against the spirit of the TRIPS Agreement; the municipal court has time and again ruled that it is the municipal law that would prevail in a conflict between the agreement and municipal law. There is no doubt that there is merit in the arguments of both sides, and here we will try and find what more we could do to strike the right balance.

Finding the Right Balance

To discuss this, we need to go back to the two contentions made in the beginning. There are two problems: incentivizing innovation that can be solved by granting patents. The second problem is the higher cost of essential lifesaving drugs due to the lack of competition directly from the patenting regime.

The Indian law seeks to balance the two sides using the mechanisms discussed above. But, many would argue that the means are not adequate. They fail to incentivize innovation and also are not effectively controlling the cost of treatment. Though drugs are cheaper in India than in most countries, it could be argued that we could do more.

Before we move to what we can do better, we must discuss what we are doing wrong.

Flaws in the Indian System

A 2018 article in the Economic Times contended that the Indian pharmaceutical industry is set to grow to 100 billion dollars by 2025. But India’s IP laws prove to be a hindrance to R&D investments. India has garnered a reputation in the market for the production of generic drugs and non-enforcement of patent rights. As the case presented before clearly shows, India takes little to no interest in granting and protecting patents. Less than 5% of drugs in India are patented. This dissuades foreign companies from investing capital in India. Big Pharmaceuticals invest a lot of money in R&D. Generic producers of medicines take advantage of India’s patent laws and sell generic versions of these drugs with little investment.

The second flaw is that though the Government does all this to reduce the price of essential drugs and make them more easily available, the Government seems to be failing at this. The price control mechanism used in India is the simple average mechanism. All companies with more than 1% market share in similar drugs are grouped, and the simple average of their prices is taken. This method a market-based pricing method; it would be much more fruitful if we applied the cost-based pricing method. The problem with the market-based pricing method is that the initial cost in itself may be too high.

What could be done instead?

To counter the first problem and maintain relatively low prices, India could grant patents for a longer duration on the condition of sale at a fixed rate, making sure that generic versions of the drug do not flood the market. This would make it worthwhile for big pharmaceutical companies to spend on R&D and sell for cheaper as without competition for a longer period; the company would manage to profit even with selling at lower rates. That which could also be done is giving grants to companies pursuing essential lifesaving drugs and processes. These grants could also be given to companies working on drugs required for the treatment of rare diseases as R&D is those fields that are not particularly rewarding.

The Government could compensate companies for breakthrough innovations in healthcare and encourage investment in deficient sectors, like new antibiotic discoveries, which are slowly becoming the need of the day.

Lastly, the Government should use cost-based pricing methods rather than market-based pricing methods to establish a ceiling price and cost control.

Conclusion

Healthcare in India and throughout the world is slowly becoming more and more expensive; this is especially true in the US. People often struggle with bankruptcy due to medical bills skyrocketing because of an illness. Many cannot afford essential lifesaving drugs. On the other hand, pharmaceutical companies are businesses and need to maximize their profits, it is high time that we start reconsidering our policies and aim at finding a middle ground. R&D in the pharmaceutical industry is important for our society's future; therefore, IP laws and patent protection are necessary, but it is equally important that we make healthcare affordable. Although solutions suggested in this article would increase Government’s investment in health care, they could potentially benefit consumers, lower the cost of healthcare, increase the standard of living and encourage foreign investment.

Author - Siddhant Singh