Addressing the challenges and concerns in Compulsory licensing in the Pharmaceutical Industry in India

Introduction

An inventor receives a “patent, as a legal right,” in exchange for granting his creation to the public. Patents are granted by the respective Governments after technical and standard examinations, which once granted ensures a form of monopoly for the patent holder.

The granting of patents on medications and related processes effectively demonstrates the relevance of patents to many aspects of human existence, especially to health care and pharmaceuticals.

In terms of patents, the pharmaceutical sector is concerned with the product and manufacture (product and process patents) of chemicals used to create pharmaceuticals and treatments that prevent, cure, and sustain numerous diseases in humans and animals. Patents are based on the fundamentals of innovation and the ability to develop a new and original idea. Since the pharmaceutical industry has the capability of developing innovations that contribute to the advancement of medical sciences in treating or curing diseases, the pharmaceutical industry finds itself the opportunity to obtain a patent. This blog will discuss the legal status of patents in India and issues revolving around the grant of Compulsory Licensing(“CL”) in the pharmaceutical industry in the Indian context.

 Compulsory licensing

CL in the pharmaceutical industry originates from legal reasoning due to the rising conflict regarding the functionality of intellectual property (“IP”) rights and public health needs and access. Section 84 (1) of the Indian Patents Act, 1970, provides the provision and the purpose of compulsory licenses. The concept of compulsory license came into the glaring scenario of the Intellectual Property Rights (“IPR”) domain after the Doha Declaration. Pharmaceutical Industries were seen taking advantage of the patent privilege and enjoyed a monopoly. Since these pharmaceutical corporations would have the monopoly to develop medications for illnesses that other companies were not providing, the price could be set for them, creating a restrictive type of cost access for the general population.

In Britain, where neoliberalism was initially established, Compulsory Licenses are used to lower expenses in the National Health Service.

TRIPS and Compulsory Licensing

During the COVID-19 pandemic, India and South Africa proposed to the Council for Trade-Related Aspects of Intellectual Property Rights (“TRIPS”) to recommend the WTO General Council waive the implementation, application and enforcement of Articles 1, 4, 5, and 7 of Part II of the TRIPS. The primary reason to temporarily suspend these sections was to ensure the facilitation of access to pharmaceutical and medical products, especially in developing the TRIPS Agreement. The proposal received resistance from the developed countries that innovation and pharmaceutical supply chains will be disrupted.

Furthermore, Article 31 of the TRIPS, permits CL under specific circumstances. This allows the government of countries to use patents without the consent of the patent holder, specifically to tackle the emergency health issues of national security. However, Article 31(f) restricts the use of compulsory licensing if the same disrupts the pharmaceutical market due to the supply of generic medicines to countries which have limited production capacity.

Constitutional validity

Judicial precedents as well as legislative laws protect the IP holders in the Indian landscape. Hence there is a clear, active and well-established relation between such pharmaceutical patents, and the right to life and health of a person under Article 218 and Article 19 (1)(g) i.e. freedom of trade, profession, and business of an individual under the Constitution of India.

Furthermore, Article 300A of the Indian Constitution, also guarantees that no person shall be deprived of his property which is protected by the authority of law. This provision initially aimed at tangible property, but in recent times this can be applied to IP as well because Indian courts have recognised IP as ‘property’. This was held in the case of R.G. Anand v. M/s Delux Films. Patents, copyrights, and trademarks bear economic value and are crucial for the inventors. Article 300A ensures that unjust and biased restrictions should be scrutinised and empowers IP holders to take legal recourse against unauthorized deprivation, thereby fostering a fair and stable environment for IP investment and innovation in India.

Challenges

The grant of compulsory licenses to companies in the pharmaceutical industry may pose various challenges to the initial IP holders. Furthermore, the grant can also lead to the overall development of the IP industry. The major problems which may be witnessed due to the CL include:-

Firstly; the pharmaceutical company’s motivation to keep allocating their private finances to research and develop new medications for that country rapidly diminishes when the government grants CL. The licensee gains the most from the inverter’s work with minimal research. This leads to a situation where the private funds will not be involved in Research and Development in the future and the growth in the pharmaceutical industry becomes stagnant.

Secondly; the health risks of CL include the possibility that pharmaceutical companies will cease producing medications for diseases that afflict developing countries, as well as the possibility that generic medications produced domestically or imported into these countries will be of inferior quality to those produced by multinational pharmaceutical companies. Recently, China and India are both significant global suppliers of generic medications and “The risk to human health is growing exponentially” as production is shifted to these nations. Furthermore, the quality checks in India or China conducted by the Food and Drug Administration are significantly low when compared with developed nations like the USA. If the rules related to the grant of Compulsory Licenses are not amended then there will be more chances that these generic drugs, of poor and contaminated quality, will circulate in the market and will impose health hazards in the international as well as domestic market.

Thirdly; the potential risk that a developing or poor country might face is the reduction in the Foreign Direct Investment by multinational companies. In the same way that robust IPRs encourage more investment, poor intellectual property rights cause investment to decline.  A pharmaceutical business is likely to steer clear of foreign direct investment with a country if it learns that the protection of its property rights is in jeopardy. For developing countries, this has a significant cost because FDI is a key driver of economic expansion. A country which issues CL will be viewed as one which has weak IP laws in the International Market and hence a reduction in investment by foreign developed or developing countries will be observed. Egypt is the quintessential illustration of the reduction in foreign investment in the past 20 years in the pharmaceutical industry owing to weak IP laws. Furthermore, the economic growth which can be gained from the investment is also significantly reduced in Egypt. The Indian scenario will be no exception if the conditions remain the same in granting Cumpolsory Licensing, 

Fourthly; the developed countries’ significant economic growth depends upon their protection of IP rights in one or another form. Now, if countries will grant Compulsory Licenses arbitrarily and without just reasoning then the same might pose economic devastation to the developed countries which spent a hefty amount on research and development of drugs. Americans might lose tens of thousands of jobs if the pharmaceutical industry collapses and further has a catastrophic effect on the country’s economy. This will create trade frictions between India and other nations which will deteriorate the economies and the overall investment in the pharmaceutical industry.

Conclusion & Way Forward

The relationship between pharmaceutical patents and CL requires an important underlying balance between the ownership of the invention and public health interest. Even though, Section 84 of the Indian Patents Act and Article 31 of TRIPS offer CL as a way to ensure the provision of essential medicines during outbreaks, its usage hitches. They comprise challenges of creativity, questions about the reliability of generics, and threats to economic development.

On the constitutional front, under Article 300A India recognises IP as ‘property’, and its connection with fundamental rights like Article 21 and Article 19(1) (g) of the constitution.. However, overutilization of compulsory licenses may have negative implications on the image of the Indian IP system which adversely affects its economic growth and investment promotion, especially in the area of trade.

It is therefore of crucial importance to achieve an adequate balance between compulsory licensing’s fair use and the promotion of innovation, in one regard, and equity in health care in the other to protect the sustainable development of the pharmaceutical industry.