India passes new IPR policy, but compulsory licensing and incremental patents still an issue

India passes new IPR policy, but compulsory licensing and incremental patents still an issue

The Indian government has passed a new intellectual property rights policy, which may sound like good news, and a step in the right direction to enhance Prime Minister Narendra Modi’s vision of ‘made in India’ products through enhanced innovation. But is it really addressing the concerns of international companies doing business in India?

Not according to a briefing note from specialist foreign direct investment firm Dezan Shira & Associates, which says it is a disappointment in two key areas. It says the greatest concern for the United States Chamber of Commerce (USCC) is an Indian rule prohibiting patents for incremental changes and India’s use of compulsory licensing provisions as a means of effectuating technology transfer.

It says that compulsory licensing has long been a sore spot between the US and India. This tool, legal in certain circumstances under the WTO, can be invoked to allow a company to produce a patented product without the consent of the patent owner. For example, the Indian Patents Act allows compulsory licenses for drugs if they are considered unaffordable and if the Indian government grants permission for drug makers to manufacture them.

The new policy specifically states that “India will continue to utilize the legislative space and flexibilities available in international treaties and the TRIPS Agreement” to gain access to licenses for drugs as it deems necessary. This, says the note, is a troubling development.  Studies referenced by the United States Trade Representative suggest that up to 20 percent of drugs sold in the Indian market are counterfeit and could represent a serious threat not only to patent-holders, but also to public health and safety.

Another area of disagreement, the rule under the Indian Patents Act, which sets the standard under Indian law for “innovation”, essentially prohibits patents for incremental improvement or innovation. Again, taking the pharmaceutical sector as an example, companies frequently apply for patents covering incremental changes in drugs, but India’s law does not recognize incremental changes as patentable. Critics argue that denying patents for improvements to existing technologies, which must rise to the same rigorous standard of “novel, useful and non-obvious”, undermines the incentives that encourage innovation.

“Yet, India’s new intellectual property policy keeps this rule intact,” says the briefing note. “That the new national intellectual property rights (IPR) policy does not resolve either of these concerns with India’s existing intellectual property policy is a disappointment.”

India currently ranks 37 out of 38 countries in the USCC Global Intellectual Property Chamber Index. Based on 30 indicators spread across six categories – patents, copyrights, trademarks, trade secrets, enforcement, and international treaties – the index gives India a score of 7.05 out of 30 possible points.

The note suggests that the United States is cautiously optimistic regarding India’s evolving intellectual property landscape. India issued a draft for public comment for the new national policy and subsequently held hearings with interested stakeholders, which the US saw as a significant step forward in transparency.  Additionally, India has maintained strong channels of communication on IPR with the US since Modi’s first trade policy forum with the US. And India’s increasingly public recognition of the importance of IPR – highlighted in the new policy – is encouraging.

However, the USTR recognizes continued reasons for concern in the Indian IPR environment – in addition to the problems with the new policy as outlined above. Another concern for USTR is that India’s proposed patent rule amendments could introduce new incentives to pressure patent applicants to localize manufacturing in India and require the submission of sensitive business information to India’s Patent Office.

To read the full briefing note, click here.

Dezan Shira & Associates is a foreign direct investment practice, providing services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN.

[Photo credit: SME Joinup]

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