Legal Forum: Patents Pending

India's new patent law is politically unpopular and still needs Parliament's confirmation. But it's shaping the future.
Mar 01, 2005

Nagendra Setty
An important new law went quietly into effect at the beginning of this year. It promises to have immense effects on the pharmaceutical industry: It will reshape one of the world's largest markets, make an important population of scientists and researchers more accessible to American companies, alter the infrastructure that supplies the developing world with drugs for AIDS and other diseases, and push a group of ferociously competitive companies away from generics and toward proprietary drugs.

Significantly, it wasn't passed either by the United States or the European Union, but rather, by India, the world's fourth-largest pharmaceutical market and the home of significant resources in pharma manufacturing and R&D.

The new law alters India's approach to patents. Since 1972, patents in India have been governed by the Patents Act of 1970. The law had a couple of key limitations that have affected commerce in India. The relevant one for pharma is that it made it illegal to patent pharmaceutical products—actual formulations as opposed to manufacturing processes.

That basically allowed Indian pharmaceutical firms to compete based on the R&D done by Big Pharma elsewhere, spurring the development of India's successful generics industry. And that was the key notion that India had to correct to get into compliance with its obligations to the World Trade Organization, specifically to the 1994 Agreement on Trade-Related Aspects of Intellectual Property (TRIPS).

TRIPS gave India until the end of 2004 to amend its patent laws. As the deadline approached, India's Parliament was unable to pass a bill, so President A.P.J. Abdul Kalam issued a decree amending the patent law. The decree went into effect January 1 but will expire in six months unless passed by Parliament. In that sense, the decree is probably best regarded as a proposal—one favored by at least a significant minority of India's lawmaking bodies. It is expected that there will be a considerable amount of lobbying before the proposal passes. There is also some significant opposition, but it seems likely that before too long, product patents will be an established part of Indian law.

Changing Gears The presidential decree covers only compounds patented since 1995. Products patented earlier remain fair game. And, as in the United States, generics companies will be able to conduct research and make other preparations to compete with patented products while patent is still in effect.

The change in the patent laws will have a major impact on the Indian pharma industry—but it is something companies have been preparing for. In 2000, according to a senior official from one of the Indian pharmaceutical companies, 10 to 20 percent of Indian pharmas' revenues came from proprietary drugs. The other 80 or 90 percent was coming from generic drugs. But in the years since, companies have made good use of the advantages given to them by the old patent law and their lower cost structure. They've done a good job of planning for the conversion from pure generic to a combination of generic and proprietary compounds. They didn't pay out enormous dividends during that time, and they used their profits to supply R&D pipelines with new compounds. By 2005, they expect to see 40 percent of revenues coming from proprietary products. And based on their data, that figure will grow to the 70 to 80 percent range within the next five to 10 years.

Pleasing the West Politically, the new patent proposal has not been uniformly well received, for obvious reasons. First and foremost, there is the issue of drug prices, which will almost certainly rise under the new law. There is a strong minority sentiment that this particular piece of legislation was aimed primarily to please the West and it went further than it had to, failing to take advantage of some carve-outs TRIPs made available to developing nations.