10.1 Historical Perspective of Patents, Public Health Concerns and Access to Medicines: The Indian Experience

This is not an isolated example that one might think the local industry in India and other developing countries of today were unable to produce enough at that period. On the contrary, colonies like India did not just cater to the local market, but also contributed generously to global markets. But unfortunately, systematically this eroded during colonial rule. The table below reflects the statistics on share of world manufacturing and the dramatic difference between the years 1750 and 1900, hence presents a clear picture of the global manufacturing in this period.⁶⁵⁰ The influence of industrial revolution can be seen in the numbers of Europe from 1860 onwards but until then the statistics favoured the developing countries of today, the erstwhile colonies.

In such backdrop where colonial rulers had choked local industrial development and where indigenous production was destroyed, patent law made its entry into some of these countries. The patent law aimed to protect the rights of the colonial rulers who mainly used it to import among other things, bulk drugs, active ingredients and formulations for pharmaceutical drugs to sell them in the captive colony markets at exorbitant prices. In India it was noticed that 90% of the patents were never worked locally creating constant shortage and high medicine prices.⁶⁵¹ Interesting to note that while colonies had no choice but to follow their rulers’ laws, at the same time some other countries like France, Germany, and Switzerland adopted weak patent laws enabling legitimate reverse engineering and growth of local pharmaceutical industry.⁶⁵² In fact the Swiss legislature initially rejected proposals for enacting patent law until 1887 when it finally passed it. Similarly, Netherlands had repealed their patent law in 1869 and re-enacted it only after the home industry was ready, after more than 40 years in 1910.⁶⁵³

The example of India is important since its patent law was the main pillar behind the growth of the country’s generic pharmaceutical industry and it became an example for other developing countries. After gaining independence, prices of medicines in India were still exorbitant, leading to serious problems related to access to medicines, hindering a meaningful solution to the plethora of diseases and epidemics.⁶⁵⁴ The government commissioned a detailed study under the leadership of retired Lahore High Court judge Dr. T.B. Chand in 1948 and later another study was commissioned in 1957 under the leadership of Justice N. Rajagopala Ayyangar. These two studies analysed patent laws of different countries of the world as they had evolved as well as industrial policies related to pharmaceutical production and recommended sweeping changes. The ‘Tek Chand Committee Report’ and the ‘Ayyangar Committee Report’ formed the foundation of the Indian Patent Act 1970.⁶⁵⁵ India was one of the first developing countries to assess the patent law as one of the main reasons for high price and lack of access to pharmaceutical medicines and subsequently change their patent law.

With the new patent law in effect from 1971, India transformed from a medicine-starved country to not only self-sufficiency, but also became the global supplier of high quality low-priced generic pharmaceutical drugs. Gradually following this example other developing nations also excluded pharmaceutical products from product-patents so that their local industries could reverse engineer and manufacture its generic equivalents locally or be able to legally import generics into their countries.⁶⁵⁶ This undoubtedly had a global welfare enhancing effect, enabling the low-income nations access pharmaceutical drugs at reasonable prices in absence of patents.⁶⁵⁷ However the divide between the industrialised countries as introducers of these drugs globally and the developing countries manufacturing high quality legitimate copies and marketing globally, became a matter of serious contention.

While most of the developing countries were at a very nascent stage of industrialisation during the 1980–1990s, the industrialised countries had moved well ahead. With countries increasingly moving towards laissez faire economy, government support in pharmaceutical production kept reducing while private sector investments in pharmaceutical industry kept increasing. The multinational pharmaceutical giants operating in the global market are some of the lead spenders in r&d across industry with a rapidly expanding investment throughout the years.⁶⁵⁸ While it is true that unlike government backed research, profit motive runs the private pharmaceutical companies and one cannot negate their contribution to new drug discoveries. In such scenario their demand for lead-time over their competitors through patents, were legitimate and the possibility of reverse engineering through weaker patent laws obviously would free-ride on their costs. While the pharmaceutical companies needed sufficiently strong patent laws to recuperate their r&d investments, the patents often lead to a monopoly-pricing situation that increased the drug prices leading to an access problem.⁶⁵⁹ The trips Agreement was introduced within the new wto regime at this juncture in 1994, coming into effect in 1995, with developing countries getting 10 more years with certain conditions and the ldcs are still under extended transition period.

10.2 Post-trips Scenario: Patents, Public Health Concerns and Access to Medicines

It has already been discussed while elaborating on the negotiating history of trips that trips was introduced at this juncture bringing sweeping changes including patent protection for all technologies and minimum 20 years patent term upon filing.⁶⁶⁰ This had an adverse impact on the hiv/aids related drugs since most of them were patented except the basic conventional ones on the who list. This gave considerable leverage to the research-based pharmaceutical companies to negotiate pricing favourable to them while affected countries had already lost the possibility to procure cheaper generic versions post-2005 after the transition period for developing countries lapsed.⁶⁶¹ Historically, cl had been extensively used by the US not as a provision in its patent law (since it does not exist in patent law) but as measure to remedy anti-competitive practices. Brazil, Canada, France and Israel had also used it to a considerable extent.⁶⁶² Hence using cl should not have been a problem hence developing countries facing public health crisis, tried to use the trips provisions of using cl as well as allowing parallel imports to access pharmaceutical drugs at reasonable prices during their national emergencies.

One also needs to understand that cl provisions in the trips Article 31 are extra-ordinary measures to address extra-ordinary circumstances, hence there are elaborate conditions to be met for such grant. Meanwhile when countries were gradually coping with the new compliance requirements introduced by trips, hiv/aids had become a serious health crisis in Brazil and South Africa with most of the African continent affected. It was found that although 95% of the existing essential drugs were not under patents,⁶⁶³ they did not work while the more modern anti-retroviral drugs were under patents and emr and were too expensive. At the same time on the other hand, it was also argued that patents were not responsible for the high price of medicines there were other factors⁶⁶⁴ and it would be wrong to deduce that patent was the only reason since in some of the ldcs patents were not even filed.⁶⁶⁵

10.3 Public Policy Implications of Public Health Crisis Leading to trips Amendment

As mentioned earlier, the hiv/aids problem had already reached a pandemic stage and was posing a worldwide threat particularly in Africa, Asia and Latin America.⁶⁶⁶ Brazil raised the problem at multiple international forums. It moved a resolution before the United Nations Commission on Human Rights claiming that access to medicines for diseases like hiv/aids was a basic human right that needed protection. It also moved a resolution in the Economic and Social Council where it was passed by 52 out of 53 voting members (the US abstained from voting) with the UN General Assembly adopting the Declaration of Commitment on hiv/aids in 2000.⁶⁶⁷ The United Nations General Assembly also held a Special Session on hiv/aids next year from 25th through 27th June 2001, pledging for “Global Crisis – Global Action”.⁶⁶⁸ The resolution emphasised the need to reduce cost of pharmaceutical drugs and related technologies in close collaboration with the private pharmaceutical sector to promote innovation and development of domestic industries in the developing nations.⁶⁶⁹

Brazil and South Africa also initiated domestic measures to make the medicines available at the cheapest possible price by using available trips flexibilities. Hence while Brazil tried to negotiate with the multinational pharmaceutical companies to lower the price of hiv/aids drugs through the threat of issuance of cl, South Africa brought legislation to allow both parallel importation and cl. However, this resulted massive retaliation from the powerful pharmaceutical industry, 41 companies organised under the Pharmaceutical Manufacturer’s Association (pma), moved locally in South Africa. The pma brought a suit before the Pretoria High Court in 1998 alleging that the cl and parallel imports were in violation of the South African patent law and were not in compliance with the trips Agreement.⁶⁷⁰ On the other hand the pharmaceutical companies convinced the US government to bring a complaint against Brazil at the wto dsb on 30 May 2000, alleging that Brazil’s ip law relating to cl was in violation of trips.⁶⁷¹

Given that trips Agreement was not only a legal document but also a political one, inability to use trips flexibilities by sovereign members due to existing power asymmetries between manufacturers and users of medicine, raised international concern.⁶⁷² At the wto this time there was already growing discontentment amongst developing nations on multiple gatt issues like trade in agricultural goods, non-agricultural market access (nama). The trips enforcement issue in the background of the health crisis heightened the conflict between developing and industrialised countries. As a result, the Seattle Ministerial meeting of wto failed leading the path to a development round⁶⁷³ in the next ministerial meeting in Doha Qatar from 14th–19th November 2001. The Director General of the wto, Mr. Mike Moore acknowledged the pitiful state of public health in many developing countries and assured that the trips was balanced enough to provide necessary flexibilities on public health.⁶⁷⁴

The US vehemently opposed both allowing any inclusion of parallel imports and cl, even in case of serious public health problems. Although ironically it did not hesitate considering cl itself when there was a threat of public health crisis.⁶⁷⁶

Following the 9/11 terrorist attacks in USA, there were a series of bio-terrorism scare through use of anthrax-embedded postal mails resulting death of some postal employees. ‘Ciproflaxin’ was the only drug effective in treating anthrax and Bayer held the patent over it. US government tried to negotiate a cheaper price for the drug in US, failing which, after some time joined Canada threatening to issue cl to enable generic production of the drug. This double standard of the US could not help it sustain its negotiating stand at the trips negotiations and it had to accept the developing countries demand. At the same time, there was finally a breakthrough and both Canada and US could negotiate an agreeable royalty rate without using cl. While the cl threat proved credible, the entire episode also exposed the gap in arguments de-linking patents and access to pharmaceuticals drugs.⁶⁷⁷

The intent of the framers of the trips Agreement enabling a wto Member to use necessary flexibilities to take policy decisions in the wake of any public health crisis was confirmed when the Doha Declaration on the trips and public health was adopted on 14th November 2001 affirming Article 8.1 of trips.⁶⁷⁸ The Doha Declaration acknowledged the seriousness and magnitude of the health problems in many developing countries and ldcs with diseases like hiv/aids, tuberculosis, malaria and others and reaffirmed the flexibility available under the trips Agreement.⁶⁷⁹ The declaration brought to the front much-debated issues like cl and exhaustion of rights and in paragraph 5.d stated, ‘The effect of the provisions in the trips Agreement that are relevant to the exhaustion of ipr is to leave each member free to establish its own regime for such exhaustion without challenge, subject to the mfn and nt provisions of Article 3 and 4’ (Emphasis added).⁶⁸⁰

The confirmation of a member to adopt international exhaustion provided clarity amidst different emerging opinions on the contrary.⁶⁸¹ Explained lucidly by Prof. Frederick Abbott, ‘further argument from the US, Switzerland, and the pharmaceutical sector that while Article 6 of the trips Agreement precludes trips dispute settlement on the issue of exhaustion, Article 28 nonetheless prevents parallel importation of patented drugs.’ was proven wrong.⁶⁸² The Doha Declaration thus reaffirmed that the member countries can set up any exhaustion mode and adopt international exhaustion allowing parallel importation.⁶⁸³ Amidst unnecessary clutter of contradicting views, the Doha Declaration reiterated what was already provided for in the trips Agreement.⁶⁸⁴ Often raised doubts about its eligibility being a political document, the Doha Declaration even being a political document, helped to move the discussions on iprs from bilateral levels in fta negotiations back to the multilateral level in an effective manner.⁶⁸⁵ It also provided much needed clarity on the processes for execution of the trips flexibilities without imposing additional legal implications.⁶⁸⁶

In the Cancun Ministerial meeting procedural work to operationalise the Doha Declaration continued at the trips Council. Council chair, Mexican Ambassador Eduardo Pérez Motta presented a solution to the impasse through a self-imposed moratorium on any complaint by members for use of cl until the trips was amended to that effect.⁶⁸⁷ The US refused to accept the Chairman’s proposed dispute coverage and wanted to restrict the diseases only to hiv/aids, Tuberculosis and Malaria. The developing countries were strongly opposed to any dilution of the Doha declaration and were not ready to accept any alteration of the declaration through the footnote since paragraph 1 of the Doha Declaration already stated, ‘from hiv/aids, tuberculosis, malaria and other epidemics.’ (emphasis added). Finally, EU suggested a list of at least 23 other infectious diseases that could be extended on recommendation by the who and US agreed with a footnote to their earlier proposal to include other epidemics of comparable gravity and scale. US, EU and Switzerland joined the moratorium as a stop-gap measure until the final decision to implement the Doha declaration was reached by the General Council of the wto on the 30th August 2003.⁶⁸⁸

Initially there was disagreement on whether production under the cl can be only for the domestic market or in cases of national emergencies or extreme urgencies or for public non-commercial use, could also be for another country.⁶⁸⁹ The implementation of the waiver in Doha declaration confirmed that it would not only be for cases of national emergencies or cases of extreme urgencies or for public non-commercial use in domestic market but also for export to another developing country. Subsequently amidst concerns of misuse, elaborate and stringent procedures were introduced for import and export under cl.⁶⁹⁰ The decision to implement the Doha Declaration was taken on 30th August 2003 following which, the first amendment to the trips Agreement was adopted on 6th December 2005 while the temporary waiver continued until countries adopted the decision.⁶⁹¹ The amendment came in to effect on 17th November 2017 with two-third of the wto members formally accepting it.⁶⁹²

10.4 trips Amendment: Patent Exhaustion Enabling Parallel Trade

A careful study of the global discourse to address the hiv/aids public health crisis that led to the amendment of the trips Agreement will show that a balanced relationship between iprs and human rights is necessary.⁶⁹³ Developing countries needed to carefully incorporate these flexibilities into their laws to enable them to utilise them in time of need.⁶⁹⁴ It has been noticed that the ratification itself and the adoption of Article 31bis has been very slow due to cumbersome administrative requirements for implementation.⁶⁹⁵ After the amendment, countries without the capacity to manufacture pharmaceutical products domestically under grant of cl, should be able to import the patented products from another country under cl however practically that has not been the case. If a country facing public health crisis does not have the capacity to manufacture the medicines domestically under cl and needs to import, the conditions under trips Article 31bis are even more stringent.⁶⁹⁶

This raises the question as to whether the amendment of the trips Agreement and insertion of Article 31bis has provided the much-needed solution of availability of patented medicines at reasonable price in developing countries and developing countries. From its slow and reluctant implementation, the answer would not be difficult to guess however the reasons are many. Multitude of administrative requirements starting from notification to the trips Council, to labelling and listing requirements increase the administrative burden of a resource crunched ldc.⁶⁹⁷ There has been an over dependency on access of patented medicines through grant of cl either within the country domestically or through importation when the alternate option of using international exhaustion and allowing parallel trade is being neither cumbersome nor such restrictive is more favourable.

A wto Member can exercise policy options that it considers most suitable to address access to patented products at low price. Parallel importation is an effective solution, which can be adopted broadly for all products and specifically for making the medicines available at reasonable (lower) price.⁶⁹⁸ Earlier chapters have dealt at length how international exhaustion is the most suitable option from either the perspective of international trade due to its trade-enhancing ability or from the perspective of patent law where one would note that the purpose of a grant of patent is to protect the invention from unauthorised usage and not to allocate geographical markets. Parallel trade is possible only if a country adopts international exhaustion of iprs and the Doha Declaration had clearly reconfirmed that a wto Member can adopt any mode of exhaustion.

Following international exhaustion, allows parallel importation from markets where the price of the medicine is lowest enabling more patients to access the medicines at the same time not undermining the patent rights.⁶⁹⁹ Hence experts often solicit in favour of parallel imports especially for pharmaceutical products as an appropriate option.⁷⁰⁰ The problem occurs when countries have different modes of exhaustion, since parallel trade would likely be considered illegal in the country practicing national exhaustion and infringement proceedings or border measures executed. To add to this problem of uncertainty, there has been an increasing tendency by proponents of national exhaustion to export it to other countries through contractual bindings often under prerequisites of bilateral trade agreements and ftas.⁷⁰¹ These agreements are executed often conditional that the partner country also follows national exhaustion hence actually removing the country’s ability to adopt any mode of exhaustion and engage in parallel trade.

It is argued that if it is illegal to charge over certain bound rates in one country, the pharmaceutical company should be able to choose to sell it at higher rate in another country where it is possible, without having the profit neutralised by international exhaustion.

It is also often argued that the medicines sold for the developing countries at a relatively low price compared to the global market, would be bifurcated to industrialised-country markets as parallel imports, thus not serving the purpose of supplying the markets they are meant for. However, research by the World Health Organisation (who) has shown otherwise. who studies show that often pharmaceutical drugs are sold in developing countries at prices even higher than in industrialised countries hence these arguments do not hold ground.⁷⁰³ It has also been addressed in earlier chapters that the argument of countries no longer choosing price differentiation hence the price in countries practicing international exhaustion will go up, is erroneous. Markets for pharmaceutical products are highly segmented where companies price same products differently depending on their demands and not necessarily paying capacity, which has been clearly established in the who study.⁷⁰⁴ The only reason against parallel imports is it hinders their ability to make higher profits through dividing markets based on patent rights, hence banning of parallel imports by adopting national exhaustion. There might be indeed some valid concerns in specific cases that need to be addressed through appropriate checks and balance measures on a case-by-case basis.

Here while adopting international exhaustion, it must only be applicable to products manufactured under valid patent that has not been subjected to cl. Since in case of a cl the patent is effectively kept in abeyance as such the question of exhaustion cannot arise, thus cannot be included in parallel trade.