Special 301 Report 2019: A Deliberate attempt to weaken India’s Patents Act and to tarnish Indian generic pharmaceutical industry

By Reji K Joseph Last updated Sep 12, 2019

The US allegation on threat of exercise of compulsory license by India shows lack of appreciation of the US for multilateral rules and its quest for denying other countries the same policy options, which the US itself is actively pursuing, opines Reji K Joseph, Associate Professor, Institute for Studies in Industrial Development (ISID)

The office of the United States Trade Representative (USTR) has released its Special 301 report for the year 2019 recently, wherein India continues to be a Priority Watch List country. Section 301 of the US Trade Act 1974 provides for identification of those countries whose policies result in the denial of adequate and effective intellectual property rights (IPRs) protection or fair and equitable market access to the US persons that rely upon IPRs and have adverse impact on products from the US. It also empowers USTR to pursue a course of action that would elicit favourable response from Priority Watch List countries.

Some aspects of the Indian pharmaceutical sector have been a major factor for USTR to place India in the Priority Watch List. This year’s Special 301 report raises three major allegations against the Indian pharmaceutical sector — (i) threat of exercise of compulsory license, (ii) lack of proper incentives to innovators due to section 3(d) of the Patents Act and (iii) Indian pharmaceutical sector being the largest producer and exporter of counterfeit medicines globally. A careful examination of these charges levelled against Indian Patents Act and Indian pharmaceutical industry shows the deliberate attempt of the US to weaken a well-crafted TRIPS compliant patent legislation and malign a vibrant generic pharmaceutical industry.

Threat of exercise of compulsory license

India has issued only one compulsory license so far – the license issued to Natco in 2012 on the anti-cancer drug ‘Nexavar’ of Bayer. Thereafter, India never issued another compulsory license owing to many reasons including pressure from the US. However, the US has issued a number of compulsory licenses for various purposes, including promotion competition, facilitation of licensing of technologies and protection of public health. When the threat of Anthrax attack loomed in 2001, the Secretary of Department of Health and Human Services (DHHS), US, threatened to issue compulsory license to authorise imports of generic ciprofloxacin for stockpiling when Bayer, who held the patent for ciprofloxacin, could not meet the demand in a timely manner.

Article 31 of the TRIPS agreement provides for issuing of compulsory licenses. The declaration on the TRIPS Agreement and Public Health (Doha Declaration 2001) clarifies leaving no scope for any ambiguity that TRIPS agreement allows members to grant compulsory licences for the protection of public health and that members have the freedom to determine the circumstances in which compulsory license can be granted.

Lack of proper incentives due to section 3(d)

The TRIPS agreement also grants freedom to all Member countries to decide on the patentability criteria. This is one of the core flexibilities provided to Members in the TRIPS Agreement. India is well within its rights to have in place a patent regime that puts a check on evergreen and frivolous patenting. Section 3(d) permits only those innovations in the pharmaceuticals arena, which prove enhancement in therapeutic efficacy, to be patented. This provision indeed raises the bar of innovation. If the US has any regard for quality of innovations, it should appreciate section 3(d).

The reason why the US targets some key provisions of India’s Patents Act is that many developing countries stared emulating India’s legislation. Countries like Philippines, China, South Africa, Brazil, etc have amended their patent laws taking inspiration from India’s Act. Philippines amended section 22 of its Intellectual Property Code in 2008 to put in place a provision similar to section 3(d). When India issued its first compulsory license in 2012, China soon amended its legislation to allow granting of compulsory license to domestic pharmaceutical firms for the manufacturing of patented drugs. Therefore, the attempt by the US is to tarnish and weaken a well-crafted piece of ‘mother legislation’, as far as developing countries are concerned. If the US has any respect for rule of law, it should raise its apprehensions on the Patents Act of India in the Dispute Settlement Body of WTO, which is the most competent authority to vet it’s TRIPS compliance.

India as a major source of counterfeit medicine

The Report states that “a 2019 publication produced by the Organisation for Economic Co-operation and Development (OECD), ‘Trends in Trade in Counterfeit and Pirated Goods,’ finds that India is among the top five provenance economies for counterfeit goods. A 2017 report from the OECD and the European Union Intellectual Property Office, ‘Mapping the Real Routes of Trade in Fake Goods,’ revealed India to be a key producer and exporter of counterfeit foodstuffs, pharmaceuticals, perfumes and cosmetics, textiles, footwear, electronics and electrical equipment, toys, games, and sporting equipment. The 2017 report also found that 55 per cent of global seizures of counterfeit pharmaceuticals, by total value, originated in India, making it, by far, the largest producer.” A reading of these two reports shows that USTR has selectively chosen from them and presented in the Special 301 report in such a way to tarnish the image of ‘pharmacy of the world’.

USTR’s allegation on India as the largest producer and exporter of counterfeit medicines is based on two OECD-EUIPO publications – Mapping the Real Routes of Trade in Fake Goods (2017) and Trends in Trade in Counterfeit and Pirated Goods (2019). Both the publications are based on data on seizures of counterfeit and pirated goods by national customs authorities, gathered from World Custom Organization (WCO), European Commission’s Directorate General for Taxation and Customs Union and US Customs and Border Protection. These publications define counterfeit and pirated goods as those tangible goods infringing ‘patents, trademarks and design rights’ and ‘copyright’, respectively.

This definition of counterfeit goods is not the same as the one provided in the TRIPS Agreement, which defines counterfeit goods in relation to infringement of only trademarks. Trademark counterfeiting is a deliberate action with the intention to deceive. By including other IPRs also into the purview of counterfeit goods, OECD and EUIPO are expanding the coverage of term ‘counterfeit’ to include even those IPR infringements, which do not have any intention to deceive. Through this, OECD and EUIPO are inflating the statistics on global trade in counterfeit goods.

The OECD-EUIPO report (2017) uses the seizures data for the years 2011 to 2013 and the OECD-EUIPO report (2019) uses data for years 2014 to 2016. The 2017 report shows that 55 per cent of the seizures of counterfeit pharmaceutical products originated from India. Eighty-two percent of seizures of the ‘so-called’ counterfeit pharmaceutical products was routed through postal services. Normally, large commercial-scale exports are conducted through sea routes. It could be possible that patients in the US are trying to buy cheaper generic medicines from India, which are sent to them through post. If that is so, much of the exports from India, which is classified as counterfeit medicines, is in fact not counterfeits; but may be infringing the patent rights.

The OECD-EUIPO 2019 report, however, presents a very different picture. Although it does not provide data separately for seizures of counterfeit pharmaceutical products, available data in the report suggest that trade in counterfeit pharmaceutical products is not a major issue as compared to the magnitude of trade in many other counterfeit products and India is not a major source of counterfeit products.

Pharmaceuticals does not figure in the list of ‘top 20 industries with respect to their propensities to suffer from counterfeiting’, provided in Table 4.2 of the report (below).

And, India ranks only 12th in the list of ‘top 25 provenance economies in terms of their propensity of export counterfeit goods’, provided in Table 4.1 (below).

OECD and EUIPO defines a provenance economy as “an economy detected and registered by a reporting customs agency as a source of an item that has been intercepted in violation of an IP right”. The 2019 report shows that India’s share in global trade in counterfeit and pirated goods is 3.4 per cent in 2016 as compared to 47 per cent of China and 16.4 per cent of Hong Kong. This is not to justify any trade in counterfeit and pirated products in which Indian producers are involved, but to point out that the US is making a huge issue out of something which requires a much lighter or a totally different treatment.

While the US is pointing its finger at India using the 2019 report, it is conveniently forgetting the fact that there are fingers pointed at it as well. The 2019 report provides a list of provenance economies in counterfeit and pirated goods (combined) in which the US is also figuring in as one of the top countries. In the list of ‘top 25 provenance economies for counterfeit and pirated goods, 2014-2016’ (Figure 4.1 – below), the US ranks 10th, just three positions below India.

It should be noted that the US does not figure in the list of provenance economies in counterfeit goods. This indicates that the US is a major source of pirated goods. Germany ranks 9th in the list. The definition of pirated goods in the TRIPS Agreement is ‘connection to infringement of copyrights’. Interestingly, nowhere in the report, a separate list for leading provenance countries for pirated goods is provided. The OCED-EUIPO reports seem to be designed and presented in such a way that developing countries are projected as source of all problems. The US probably should spend more time to find out the reasons for why it is figuring among top provenance economies and plug the holes than harassing other countries who have put in place well-crafted TRIPS compliant IPRs legislations.

References:

OECD-EUIPO (2017), Mapping the Real Routes of Trade in Fake Goods, OECD Publishing, Paris. https://euipo.europa.eu/tunnelweb/secure/webdav/guest/document
_library/observatory/documents/reports/Mapping_the_Real_Routes_of_Trade_in_Fake_Goods_en.pdf

OECD-EUIPO (2019), Trends in Trade in Counterfeit and Pirated Goods, Illicit Trade, OECD Publishing, Paris.
https://read.oecd-ilibrary.org/trade/trends-in-trade-in-counterfeit-and-pirated-goods
_g2g9f533-en#page3