Losing ground to Big Pharma,
bit by BIT
India needs to revisit its bilateral investment treaties programme to ensure that multilateral gains on patents are not lost
Desperate
to finance the high Current Account
Deficit (CAD), India has approved seven proposals for brownfield FDI (foreign investment in existing companies) in
the pharmaceutical sector.
Under the extant
regulatory framework, 100 per cent
FDI in the pharma sector is allowed through the automatic route in new projects
(greenfield investments) but brownfield
investments require the approval of the Foreign Investment Promotion Board
(FIPB).
Given the critical
linkages of the pharmaceutical sector with public health, this piece seeks to
highlight the need for caution in
approving FDI in the pharma sector in the light of India’s
international commitments under Bilateral Investment Treaties (BIT).
Gains
International
commitments on intellectual property rights especially patents have always been
a sensitive issue especially in the context of the pharmaceutical sector.
While one side of the
debate argues that stronger patent
protection incentivises innovation, the other side has argued that a strong patent regime results in a
monopolisation of production of essential medicines, accompanying high prices, and consequent exclusion of
large sections of the population from essential medicines.
This
tension was best depicted in the troubled negotiations that led to the adoption
of the Agreement on Trade Related Aspects of Intellectual Property Rights
(TRIPS). The agreement brings the protection of intellectual property within
the multilateral framework of trade rules established by the WTO.
In these negotiations,
while the developed nations wished to
keep to a minimum government interference with intellectual property,
including the interference through compulsory
licensing (authorising a third party to produce the patented drug), developing
nations tried to preserve their regulatory freedom.
A compromise is embodied in Article 31 of TRIPS, which allows countries to issue compulsory
licences on patented drugs.
While this provision does not lay down the grounds on which
compulsory licences may be issued, it provides certain procedural safeguards and requires payment of “adequate
remuneration” to the patent holder.
Indian patent law
Even
after the agreement entered into force on January 1, 1995, certain concerns
remained, which were sought to be addressed by the Doha Declaration on TRIPS
and Public Health.
The declaration reiterated the commitment of
WTO countries not to sacrifice public health at the altar of patent protection.
It clarified the sovereign right of individual countries to
decide for themselves the circumstances warranting issuance of compulsory
licenses.
Making use of the
flexibilities in TRIPS, the Indian
patent law has made an attempt to balance the need for patent protection of
pharmaceutical drugs with the public interest of access to medicines.
Thus, while it allows patenting of pharmaceutical
inventions, it does not allow ever greening of patented drugs by prohibiting
patents on “the mere discovery of a new form of a known substance.”
Further, it also
allows for the grant of compulsory
licences at any time after three years from the sealing of a patent.
The requirement to
wait for three years is waived in cases of national emergency or extreme
urgency.
Patents can also be revoked in public interest.
Relying
on this balanced statutory framework for patent protection, India issued
compulsory licence on German drug major Bayer
AG’s cancer drug Nexaver in March 2012.
Also, the Supreme
Court in Novartis A.G. v. Union of India upheld
the rejection of a patent application by Novartis, a Swiss pharma major, to
patent a new version of the anti-leukaemia
drug Glivec.
Conceding bilaterally
However,
the gains that India got multilaterally on patents and public health may be
lost bilaterally through BITs.
BITs are treaties aimed at protecting foreign investment.
These treaties allow
foreign investors to bring cases, in front of three privately appointed
arbitrators; against host states challenging the latter’s sovereign regulatory
measures. This is known as investment
treaty arbitration (ITA).
India has entered into BITs with 86 countries out of which 73 have
already come into force. This includes almost
all the major European countries like the United Kingdom, Germany and
Switzerland.
Further, in recent
times, many foreign corporations — from global telecom giants to hedge funds —
have issued ITA notices to India for
alleged BIT breaches.
Most
Indian BITs define investment broadly to include intellectual property like
patents. This gives an ITA tribunal jurisdiction over regulatory actions of
India that impact the intellectual property like a patent held by a foreign
pharmaceutical company.
Indian BITs protect “investments” from expropriation. The term
“expropriation” is defined in Indian BITs to include direct taking of an asset by the government as well as all other
measures having the effect of “direct taking” that deprive the investor of an
asset or its use.
Typically, Indian BITs permit expropriation only for a
public purpose, in a non-discriminatory
manner and against compensation. Often, the expression “compensation”
is qualified by adjectives like “prompt,”
“effective,” “fair,” and “full,” with a requirement to pay interest on
compensation.
This makes the
compensation requirement in BITs much more stringent than the “adequate
remuneration” requirement mandated by the TRIPS agreement for issuance of
compulsory licence.
Since
patents fall within the definition of
“investment,” its “taking” by way of compulsory licensing or its revocation
would trigger the expropriation provisions in Indian BITs.
This would give a privately-appointed arbitral
tribunal an opportunity to decide whether sovereign measures like issuance of
compulsory licence or revocation of patents is legal or not.
Further, to bring this
international claim, the foreign investor is not required to exhaust local
remedies or get the approval of her government.
In
this regard, it is important to
derive warning signals from the service of an ITA notice, under the North
American Free Trade Agreement (NAFTA), by Eli Lilly and Company, a
U.S.-based corporation, against Canada for invalidating two of its
pharmaceutical patents.
Consequently, nothing
stops Bayer and Novartis from initiating international law proceedings against
India under India’s BITs with Germany and Switzerland.
To add to the worries,
the proposed India-U.S. BIT is back
in the news and progress is expected on that front during the meeting
between Prime Minister Manmohan Singh and President Obama in late September.
Apart from the
protection already enjoyed by pharma firms under the WTO, a BIT with the U.S.
will grant additional protection to the
patent rights of American pharma companies in India.
Thus, it is imperative
that India revisits its BIT programme to ensure that multilateral gains on
patents and public health are not lost bilaterally.