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A question of standards,not principle

The Novartis verdict is not about innovation vs socialism. It has to do with higher vs lower standards

Written by Vinay Sitapati | Published: April 4, 2013 3:21:45 am

India is no insecure dictatorship junking international obligations for cheap populism. The highest court of the world’s largest democracy has made a nuanced distinction between real innovation and marketing gimmickry. Yet,the Swiss pharmaceutical giant Novartis’s response to the recent Supreme Court verdict in Novartis vs Union of India has been imperial in tone. The judgment “discourages innovative drug discovery”,it claimed. It accused Indian law of lagging behind the global standard and bemoaned “India’s growing non-recognition of intellectual property rights”. Is there any worth to this whining?

The facts are this. Novartis patented Imatineb,an anti-cancer drug,in the US in 1993. This was before 1995,when India’s international intellectual property rights (IPR) obligations began kicking in; so manufacturers in India were free to copy this drug. In 1998,Novartis attempted a new Indian patent for a modified version of that original drug,claiming in their application that while providing no new medicinal benefits,the new drug “stores better and is easier to process”. If the new patent were granted,Novartis would have gotten a 20-year monopoly on the “new product”. The stakes were high. Novartis’s version costs well over Rs 1 lakh a month,while generic versions — which the new patent would have rendered illegal — cost less than a tenth of that. We all like Manichaean struggles,and many good-versus-evil narratives could be spun around this fight: a rich multinational looting the poor,a scruffy upstart taking on a global leader,Third World populism killing the international rule of law or the West binding the rest in an unfair legal tangle. Which narrative did the Indian legal system buy into?

Well,India has reformed its patent laws to comply with the international IPR regime. The key change has been to allow patents for products,not just processes (to put it crudely,under the new law,a rose that is grown another way is still a rose that can’t be copied). This new regime favours Western pharmaceuticals,which can zealously protect their products from imitations. Besides,Novartis’s patent quest was entertained by four different judicial bodies: the patent office,the specialist Intellectual Property Appellate Board (IPAB),the Madras High Court and the Supreme Court. These are technically competent: the IPAB is an expert body and the 112-page SC judgment contains chemical equations and diagrams. They are also independent: the Supreme Court is perhaps the only one in the world where politicians play no overt role in appointments. These decisions were on clear legal grounds,publicly available and subject to appeal. The message has been consistent: Indian law meets international standards,and Novartis’s new drug was not innovative and useful enough to merit a separate patent. The courts avoided easy black-and-whites to give Novartis a fair hearing,yet upheld the letter of the law. This was the rule of law at its fairest. The US Chamber of Commerce has criticised the verdict,complaining that even China and Russia have given patent rights to this new drug. But would these two autocracies have provided Novartis with even a tenth of the due process that India’s legal system did?

Contrary to Novartis’s eruptions,the judgment is loaded in favour of innovators. It upholds the “product patent” regime that is the cornerstone of the international IPR regime. The court did not claim that the exigencies of poverty trump the rights of innovators. What it did do was protect genuine innovators. But it also prevented companies from tweaking a patent about to expire,pretending to have created a “new product”,thus extending the patent period — a chicanery known as “evergreening”. This is not idle angst. That Western pharmaceuticals sometimes game patent laws is an open industry secret. In their exhaustive empirical study of America’s patent regime,Innovation and its Discontents,two American academics argue that that the idiotically low bar for approving patents has actually hurt innovation in America,while benefiting a few grasping pharmaceutical companies.

Their findings echo those conducted by the European Union in its 2009 “Pharmaceutical Sector Inquiry Report”. The report found a wide variety of patent abuses that Western pharmaceuticals commit,causing a “decline of novel medicines reaching the market”. This is more alarming in countries where the poor cannot pay for expensive medicine,a concern that Indian politicians of all stripes expressed in 2005. During the parliamentary debate,some MPs even referred to the high cost of Novartis’s drugs compared to generic versions available. As a compromise,Parliament amended our patent laws by imposing a standard for granting patents higher than in the US,but still compliant with India’s global obligations. The question then is not one of principle (innovation versus socialism),but one of standards (higher versus lower) within a bandwidth compliant with international norms. Parliament wanted to discourage non-innovative marketing tactics from ratcheting up the price of medicines. The court was right to uphold this legislative intent.

The US Chamber of Commerce’s petulance apart,industry is less bothered with the commercial travails of one Novartis (a company that just paid its outgoing CEO $78 million can hardly play the poor victim). Industry at large is concerned about policy predictability. The narrow scope of the judgment and the fair treatment of Novartis should reassure investors that they are not subject to the whims of populism — the kind of leviathan heavy-handedness that was the hallmark of Pranab Mukherjee’s forgettable years as finance minister. The judgment is as investment-friendly as the 2012 verdict where the SC resisted intense government pressure and saved Vodafone from the whimsical wrath of the taxman. It provides a clear standard on which medical research,both local and foreign,can rely for genuine innovations.

The Supreme Court of India has much to account for. For an institution so preachy,it is often blind to its own opacity. It could do more to untie procedural knots and judicial delays. For all it flaws though,it remains uniquely capable of cutting through comic-book narratives and easy ideologies with a remarkable judgment that balances rewards for genuine innovation with the clamour for affordable medicine. And it has done this by simply upholding the rule of law. China take note.

The writer is a PhD candidate at Princeton University and visiting scholar at Centre for Policy Research,Delhi

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