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India: Proposal to Tighten FDI Investment in Pharmaceuticals Through Use of Compulsory Licensing

(Sept. 1, 2010) A discussion paper made public on August 24, 2010, by India's Department of Industrial Policy and Promotion (DIPP), under the Commerce and Industry Ministry, seeks public comment, through September 30, on issues of compulsory licensing (CL) and certain other government response options related to ensuring the availability and affordability of critical drugs in India. Although provisions on CL are found in India's Patents Act, no compulsory licenses have as yet been issued. (Madhur Singh, India May Issue Compulsory Licenses to Control Drug Prices, WTO REPORTER (Aug. 27, 2010), Bureau of National Affairs online subscription database, http://news.bna.com/wtln/WTLNWB/split_display.adp?fedfid=17681549&vn
ame=wtobulallissues&fn=17681549&jd=a0c4b0j5c2&split=0
.)

The immediate impetus for the paper is the wish to address the concern that the recent wave of foreign firms' acquisitions of Indian pharmaceutical companies may make affordable patented and generic drugs less available in India. Because most of the drugs are imports, there is the further concern that the country is overly reliant on China for drug intermediates. More than 40% of drug ingredients are estimated to be Chinese imports; according to a government official, “[t]he two primary issues here are the quality of such ingredients and the extreme dependency we have on them.” (India: Commerce Ministry Urges Tighter FDI Restrictions in Pharmaceutical Sector, THE FINANCIAL EXPRESS (Aug. 25, 2010),Open Source Center No. SAP20100825494003.) The issuance of the paper follows on the presentation in the Indian Parliament on August 4 of a report by the parliamentary standing committee on health and family welfare calling for policy measures “to ensure that major Indian pharmaceutical companies remain in Indian hands.” (Singh, supra.)

Under compulsory licensing, the government can issue a license to a third party, other than itself and the patent holder, to produce and market a patented product or process without the patent holder's consent. Compulsory licensing is allowed by the World Trade Organization's agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs), and “is used to ensure essential drugs are available at reasonable prices.” (Singh, supra.) The discussion paper indicated that invocation of conditional CL did not contravene the TRIPS agreement: “[t]here is no restriction (under TRIPS) that such measures should be taken only to address public health concerns. The grounds under which a CL can be issued are not stipulated.” (THE FINANCIAL EXPRESS, supra; TRIPS Material on the WTO Website, http://www.wto.org/english/tratop_e/trips_e/trips_e.htm#WhatAre (last visited Aug. 25, 2010).) The paper also gave examples of instances of the use of CL abroad, among developed countries (Canada, Italy, the United Kingdom, and the United States) as well as among the developing and least developed countries (Brazil, Ecuador, Kenya, Malaysia, South Africa, and Thailand). (Discussion Paper, Subject: Compulsory Licensing (Aug. 24, 2010), Bureau of National Affairs website, http://pub.bna.com/ptcj/DiscussionAug24.pdf.)

The DIPP is interested in finding an effective means of using the Patents Act's CL provisions as one means of handling concerns such as those mentioned above. Under the current Patents Act, “CL can be invoked only when there is a national emergency or extreme urgency or for public non-commercial use of the drug.” (THE FINANCIAL EXPRESS, supra; arts. 84-92, The Patents (Amendment) Act, 2002, No. 38 of 2002 (June 25, 2002), Controller General of Patents Designs and Trademarks website, http://ipindia.nic.in/ipr/patent/patentg.pdf; see also Art. 92A, THE PATENTS (AMENDMENT) ACT, 2005, No. 15 of 2005 (Apr. 4, 2005) [on compulsory license for export of patented pharmaceutical products in certain exceptional circumstances], Controller General of Patents Designs and Trademarks website, http://ipindia.nic.in/ipr/patent/patent_2005.pdf.)

The DIPP proposes tightening restrictions on FDI in the pharmaceutical sector by broadening the scope of the CL provisions. Among other matters, in revisiting 100% FDI in pharmaceuticals, it “wants to know whether it is necessary to make it mandatory for all patent holders to manufacture patented products in India for their rights to remain valid.” (THE FINANCIAL EXPRESS, supra.) The past failure to issue compulsory licenses is reportedly due to a lack of clear guidelines on the provisions' application. Therefore, the paper also poses the question, among other issues to be resolved, of whether guidelines are needed to amplify the requirements for issuance of a CL notification by the Central Government, whether the grounds set forth (national emergency, etc.) are “sufficient to meet all the circumstances and exigencies that may necessitate” compulsory license issuance, and whether the term “public non-commercial use” necessarily implies free distribution. (Id.; [DIPP], Discussion Paper, supra.)

Some of the other possible options available to the government (characterized as “short-term options”) that are mentioned in the paper to address concerns about the drug sector, aside from prompt issuance of a compulsory license to a qualified company for production of a critical drug or invocation of a provision on government use, include:

1) invocation of the 2002 Competition Act to determine whether anti-competition actions of a company or a company's abuse of a dominant position are causing adverse pricing or availability;

2) review of the FDI policy for pharmaceutical companies and possibly shifting of the currently allowed 100% FDI in the pharmaceutical sector, via an automatic route, to the government route. This rerouting of proposals for mergers and acquisitions to the Foreign Investment Promotion Board (FIPB) for scrutiny could enable the FIPB to monitor whether a foreign company is bringing in new technology while taking over an Indian company.

3) Expansion of the ambit of the National Pharmaceutical Pricing Authority, by authorizing it to regulate prices for a larger number of drugs than the current 74 (of the 500 most used bulk drugs) under statutory price control imposed by the Drug (Price Control) Order of 1995. (Singh, supra; Discussion Paper, supra.)

However, the paper exclusively discusses the compulsory licensing option as “a focused and sharp response” and does not further discuss the other options. (Discussion Paper, supra.)