The Business Impact

Despite the present and previous governments' best attempts to waffle, eventual adherence to trips will transform the legal framework. It is also going to radically alter competitive equations. For starters, better intellectual property protection will facilitate the transfer of technology. That is vital for a country that is so dependent on technology imports that, according to a study by the PHD Chamber of Commerce & Industry, 95 per cent of industrial production is based on imported technology. Second, better IPR protection will facilitate the transfer of better technology. Foreign firms are often accused of transferring second-best, outdated technologies to their Indian partners, but it is often forgotten that a lax IPR regime does not offer much incentive to do otherwise.

But, most important of all, better IPR protection will facilitate the shift from technology-seeker to technology-provider. Right now, India spends less than 1 per cent of its Gross Domestic Product (GDP) on Research & Development (R&D). Of this, corporates' contribution only amounts to a paltry 15 per cent, or less than 0.12 per cent of GDP. Observes Aditya Trivedi, 38, Secretary, Institute of Intellectual Property Development: ''We are not a technology-producing nation. To either make or buy technology successfully, you need strong systems of patent protection.''

Empirical evidence bears this out. Cross-country analysis suggests that as the quality of intellectual property protection improves, expenditure on R&D by industry as a whole will climb. Specifically, the switch from process patents to product patents will transform the pharmaceuticals industry. And with the trips agreement expanding the scope of patent protection to include all fields of technology, similar transformation could sweep the biotechnology industry and, to a lesser extent, software.

PHARMACEUTICALS. Post-trips scenarios for the pharmaceuticals industry often verge on the apocalyptic. Says N.B. Zaveri, 61, legal counsel for the Indian Drug Manufacturers' Association: ''Drugs under development for treatment of diseases such as cancer, tuberculosis, and aids will be under patent and, hence, will be priced beyond the reach of all but a microscopic minority for 20 long years. Meanwhile, indigenous industry will be adversely affected. Already, many units have been forced to close down.'' Such doomsday scenarios are not surprising. After all, the rapid growth of the Indian pharmaceuticals industry owes much to a lax patent regime. In the 27 years since the Patents Act, 1970, came into being, the industry moved from trading in transnational brands to producing-and exporting-pharmaceutical substances and formulations. Since product patents were ruled out, Indian firms could freely reverse-engineer, the polite term for organised piracy. That made drugs available in India at a fraction of their price abroad for a fraction of investment. Naturally, numbers mushroomed. There are over 24,000 pharmaceutical manufacturers in India, some of them operating out of garages. This multiplicity spends, on an average, 1.80 per cent of its total turnover on R&D. In the US, the comparable figure is 16 per cent.

The introduction of product patents is bound to whittle down the number of manufacturers. For those that do survive, expenditure on r&d must grow exponentially. Agrees R. Vasant Kumar, 37, the Director (Strategic Planning) of the Rs 1,333.70-crore Ranbaxy Laboratories: ''The basis for sustained competitive advantage in this industry will be R&D.'' Prices too are bound to rise, but the scope and extent of price-rise is exaggerated. Less than 10 per cent of India's list of essential drugs are covered by patents worldwide. Moreover, prices of essential drugs are low not because of process patents, but because of Drug Price Control Order (DPCO). Nothing in the trips agreement requires such price-controls to be revoked.

Even if the DPCO is, eventually, scrapped, prices of patented drugs will not skyrocket. Sure, a patent, by definition, confers a limited monopoly. But most new drugs are substitutes for existing drugs. Their therapeutic properties and side-effects may differ slightly, thus making it difficult for the monopolist to extract full monopoly prices. And remember, even a monopolist can charge only what the market can bear. Explains Dilip Shah, 57, CEO, Vision Consulting, a pharma consulting firm: ''The assumption that drugs will retail here at international prices is a mistaken one. The Indian consumer is used to cheap drugs, and will not fork out 10-12 times more for a basic drug.'' Adds Kallad Anji Reddy, 57, the Chairman of the Rs 261.72 crore Dr Reddy's Laboratories-which has filed 26 product patents worldwide: ''Indian firms need product patent protection to encourage research in developing inexpensive drugs that suit the Indian disease profile.''

There are additional safeguards. Suppose a blockbuster life-saving drug does come along for which there are no substitutes. If it can be demonstrated that the drug is not being made available to the public at a reasonable price, the government can grant a compulsory licence to work the patent. Suggests Ramakrishna: ''Given the trips agreement, there is no leeway on the granting of product patents. There is, however, considerable leeway when it comes to compulsory licensing provisions. That can still be explored.''

THE CEO SUMMARY: Unable to seek protection under process patents, manufacturers will have to develop their own technology and products.

BIOTECHNOLOGY. In a way, the furore over process versus product patents is anachronistic. While we stall the implementation of even the minimum requirements, case law in other countries and international conventions is pushing out the frontiers of patentability. The standard test for conferring IPRs is the distinction between discoveries and inventions. The rule is simple: inventions are patentable, discoveries are not. But when biological techniques are used to create animate matter that is commercially viable, that seemingly-simple distinction gets blurred. And the age-old, unwritten taboo against patenting life-forms breaks down.

Until recently, plants were the only life-form eligible for patents, and that too only in a few countries. In 1980, however, the United States Supreme Court, in a landmark decision, allowed patent protection for genetically-engineered bacterium. Since then, progress has been fast and furious, with the first patent for a genetically-engineered mammal rolling out in 1988. International agreements have kept pace. Article 27.3 of the trips agreement requires patent protection for micro-organisms, non-biological, and microbiological processes. What does that mean? First, that genes, gene sequences, cell cultures, and viruses can now be patented. And second, plant varieties will also qualify for protection.

While, it is difficult to fully gauge the economic implications of patenting life-forms, it is a safe bet that the pharmaceuticals industry will, once again, find its rules being rewritten. For, the drug discovery process is beginning to move away from developing molecules that correct chemical imbalances in the body to identifying and administering genetic codes that enable the body to correct these imbalances itself. That will bring many new forms of treatment under the ambit of patents.

Meanwhile, the possibility of patenting seed varieties has already run into controversy. The dire scenarios that have, at various times, been propounded by both the Bharatiya Janata Party and the Left Front: if plant varieties are allowed patent protection, the seed trade will be dominated by plant breeders (read: transnationals like Cargill, the $47.53-billion Unilever, and the $7.51-billion Montsanto), who will then proceed to extract heavy royalties from farmers. The freedom to retain seeds for future sowing periods will be limited, seriously hampering indigenous capability to adapt seeds to local conditions. Worse, the patenting of wild germplasm and plant varieties will lead to full-scale bio-battles between nations. Developing countries like India boast abundant biological diversity, but have inadequate systems of registration. Developed nations can, therefore, draw freely from this rich genetic-base, patent it as an invention after some slight modification, and sell this ''stolen'' variety at exorbitant prices.

These fears-which have proved effective in deferring the introduction of a Plant Varieties Protection Bill-are overblown. Any system of plant-breeder rights will involve trade-offs between the plant-breeder, the farmer and the researcher. The trips agreement simply requires protection of plant-breeder rights through either patents or a sui generis system. Effectively, each country is left free to evolve its own system although these arrangements will be subject to review by the WTO in 1999. Indeed, the draft version of the Plant Varieties Bill, which has been doing the rounds of the various ministries for the past 3 years, attempts to achieve a balance between the various parties. While it will grant plant-breeders exclusive commercial rights to any plant variety developed from germplasm, farmers will reserve their traditional privileges to save, use, and exchange these seeds.

Indian agricultural scientists have built up considerable strengths in seed research, especially when it comes to tropical varieties. Protection of commercial rights will enable better prices for Indian seeds and encourage future research. Notes Debroy: ''We should not underestimate the potential of our agricultural scientists for developing improved strains of wheat and rice.'' The farmer does not necessarily lose out even if prices of protected seed varieties do rise. Argues Ashok Gulati, 44, nabard Professor, Institute of Economic Growth: ''Farmers will buy the seeds only if they feel that the increased yields justify the higher prices-just as they were willing to pay more for high-yielding varieties of wheat and rice.''

To minimise the threat of biopiracy, legislation can be introduced to protect India's germplasm. Ideally, legislation would recognise traditional knowledge-bases and specify the terms and conditions under which foreign entities (either companies or individuals) can tap biological resources, including, of course, the compensation to be paid to local communities. Certainly, there is no external compulsion to introduce such legislation, but globally, applications for patents on plant and animal wealth have surged. The US alone has granted 32 patents on various properties of neem.

Unsurprisingly, instances of cross-border litigation involving patents are also on the rise, as the disputes over turmeric, neem, and, more recently, basmati attest. Documentation of our germplasm combined with a clear definition of various rights would, no doubt, strengthen India's legal position. The Ministry of Environment and Forests has already drafted such a bill, the Biological Diversity Conservation Bill. A draft Geographic Appellations Bill-which would protect distinctive characteristics that arise from geographic location-is also being circulated among various ministries. Although both Bills have fallen prey to the same legislative paralysis that has characterised every attempt to introduce intellectual property protection laws in India, they will, eventually, have to be enacted.

THE CEO SUMMARY: While pharma companies will find genetically-engineered products being patented, seed-makers will secure higher prices.

SOFTWARE. The increasingly-tricky distinction between discovery and invention is recoding the protection norms for the software industry as well. IPR protection for software has traditionally been confined to copyrights, and the trips agreement continues with that tradition. Computer programs are based on mathematical algorithms, and mathematics cannot be patented. Therefore, software could only be protected as a literary work, i.e., protection could be granted not to the algorithm itself, but to the implementation of that algorithm. Once again, it was the US courts that broke with tradition. A Supreme Court ruling in 1991 held that while a mathematical algorithm could not be patented, it could be part of a larger patentable process or machine. The mere presence of software in an invention does not render it unpatentable. Which means that patents may now be granted for computer-controlled machines, for certain operating systems and compilers, and, at times, for application software.

Why would anyone opt for patents over copyrights given the fact that the novelty criterion for patents is usually very difficult to satisfy? Primarily because the protection is of a stronger variety. Copyright infringement is fairly easy to get away with since it can always be claimed that the algorithm was used for a different implementation. A patent, on the other hand, locks in a particular piece of source-code, or a particular algorithm, thus making copying far more difficult. In an industry where innovation lifespans are short and piracy is rampant, tighter norms can protect competitive advantage, a fact that US software companies have been quick to realise. Already, the United States Patent Office has granted over 3,500 software patents, and the rate at which applications are being filed is accelerating.

For the Indian software industry, the immediate impact may be marginal. Low value-added bodyshopping and data-processing constitutes the bulk of software exports-products that are scarcely likely to be patented. But ignoring the global shift towards software patents could prove expensive in the future. Points out the Naresh Chand Gupta, 31, the Managing Director, Adobe Systems (India), who has applied for 2 software patents in the US: ''The Indian software industry essentially focuses on developing commercial applications for export. It has to start churning out intellectual property. But the lack of an adequate intellectual property protection regime hampers the migration from service technology to original products.''

THE CEO SUMMARY: Software companies will be able to establish patent rights over their customised products, gaining a competitive edge.

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