Daiichi Sankyo vindicates Indian patent regime

Justice Rajagopala Ayyangar’s bold patent law reforms, suggested way back in 1959, which catalysed the Patents Act, 1970, stand vindicated now. The biggest tribute to his genius has come from an unlikely source: Daiichi Sankyo Co. Ltd, a Tokyo-based company that is acquiring a majority stake in India’s largest pharmaceutical company, Ranbaxy Laboratories Ltd. With this milestone, the Indian intellectual property rights (IPR) regime has come full circle. To be sure, ancient India did not boast of a robust intellectual property law regime. When ancient Indians stumbled upon a valuable creation, perhaps they resorted to trade secrets. The Vedas, the sacred text on rituals, were accessible to only a few. If Vedic words found their way to the unintended beneficiary, the legal regime ensured harsh punishment for infringing a trade secret. Enforcement of trade secrets is characterized with unreasonable complexity and expense. It imposes an incalculable moral and pecuniary burden on society. The biggest problem with trade secrecy is that it is exclusionary: Society is worse off with limited or no access to valuable knowledge. A way out is IPRs. In exchange for a limited monopoly right, IPRs create disincentives for keeping information inaccessible. Information is notoriously difficult to produce but facile to reproduce. This militates against an innovator’s desire to reap the full benefits, leading to the problem of inappropriability. IPR’s grant of limited monopoly attenuates inappropriability and increases incentives for innovators. India’s tryst with the modern form of IPRs began with the advent of the British Raj. The oldest Indian patent law in 1856 predated the First War of Independence. The British were quick to modify it in 1859. However, the inarticulate major premise of the amendment as well as subsequent enactments in 1872, 1883, 1888 and 1911 remained the same: further the British interest at the cost of Indian welfare. By 1947, though India had witnessed significant strides in steel production, textiles and food processing, the pharmaceutical industry was conspicuous by its absence. The 1911 Act had achieved its draconian goal of thwarting the industry’s endeavour of manufacturing drugs invented abroad. At the dawn of independence, therefore, medicines were prohibitively expensive. Multinational companies dominated the industry. On 10 January 1948, the government appointed a committee to be presided over by Bakshi Tek Chand, a retired judge of the Lahore high court, to review patent laws with a view to ensuring the system was more conducive to national interest. Based upon his recommendations, compulsory licensing provisions were strengthened to aid indigenous manufacturers. But the working of compulsory licensing remained replete with bottlenecks. The government then set up another committee in April 1957 under the chairmanship of justice Ayyangar, a retired judge of the Supreme Court. This committee’s report, submitted in 1959, advocated process patent and barred product patent. As is the wont of Indian government, it took more than a decade to give effect to justice Ayyangar’s recommendations. The Patents Act, 1970, came into force on 20 April 1972, a good 13 years after the report. At one stroke, the Act kicked off the industry’s leadership in generic drug manufacturing. Process patent ensured that indigenous manufacturers were free to reverse-engineer medicines. This dramatically brought down prices. Though the Indian market lost sheen for multinational companies, domestic capability started to take root. This was in accordance with a deliberate, strategic national goal. Having been a witness to the ill-effects of multinational dominance, India was keen to bolster domestic capacity. The process patent regime had its run till 2005. The Trade-related Aspects of Intellectual Property Rights, or TRIPS, agreement at the World Trade Organization (WTO), makes product patents mandatory. The Patents Act has been amended to incorporate this. While the TRIPS agreement was being negotiated, India fought hard to stall the inevitable. Faced with a potential loss of leverage in negotiating tariffs in other sectors, it finally budged. The change in stance had a condition attached: special and differential rights for developing countries to implement TRIPS obligation after 10 years of WTO coming into existence. Interestingly, 36 years after justice Ayyangar’s recommendations were implemented, Malvinder Singh is reaping huge profits: $4.5 billion. The much-maligned, poor-cousin generics industry is catching up with the lucrative proprietary medicines market. As societies balance the benefits of IPRs on innovation with concomitant social costs, the generic drug market is bound to grow. With significant cost arbitrage in research and development, an Indian pharmaceutical company provides the proverbial icing on the cake. Daiichi Sankyo is paying a premium of more than 50% on Ranbaxy’s average daily price on the National Stock Exchange for the last three months. This is an obvious endorsement of what Patents Act had set out to do: create national pharmaceutical champions. Perhaps a part of the profits, in true spirit of IPRs, ought to find a way back to justice Ayyangar! By Ms.Bobby Aanand, Metropolitan Jury.

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