Reflecting on the US Special 301 Report 2016: Patently Insignificant(?)

The United States Trade Representative (USTR) on 12th April released its 2016 version of the annual Special 301 Report on IP protection and enforcement. I understand that many of our readers may already be aware of this development. Therefore, albeit a bit belated, I have tried to analyze this Review and its impact that on India. Unsurprisingly, India has been featured in the Priority Watch List. India has had the honor of being featured on this list since 1974. In fact, in 2014 India even came close to being named a Priority Foreign Country; USTR’s high-handed label for countries least compliant with American IP policy.  Anubha Sinha has covered this close encounter on SpicyIP here.

In the present post, I have focused only on the patent-specific issues of the review (Long post ahead!). Throughout my post, I will be referring to testimonies given at the Special 301 Review Public Hearing (the Hearing) where various stakeholders presented their opinions on the review. This mechanism was introduced by the Obama Administration in 2010 in order to ensure a fair and transparent evaluation in the Report. Prakruthi Gowda has covered this ‘Obama-ization’ of the Review on SpicyIP here.

The only government representations came from Bulgaria, Ukraine, Egypt and the Czech Republic. Fortunately, no other country seems to be affected by a unilateral and coercive diplomatic measure adopted by the US. Corporate greed was represented by the likes of PhRMA, Business Software Alliance (BSA), Intellectual Property Owners Association (IPO). Alliance for Fair Trade with India (AFTI) and US-India Business Council (USIBC) formed the two India-specific organizations; which harped on India’s IP inadequacies. Fret not, a few pro-public interest organizations like Knowledge Ecology International (KEI), Public Citizen’s Global Access to Medicines Program (Public Citizen) and Union for Affordable Cancer Treatment (UACT) were also present.

Background

The US is authorized to prepare this Report under Section 301 of the US Trade Act, 1974. Under this statutory mandate, the USTR scrutinizes IPR protection and enforcement practices of its trading partners to ensure their alignment with US law and policy. Where the USTR determines that certain acts of a trading partner are below par, it is authorized to take retaliatory measures against such foreign countries. However, as Jayant Kumar has noted here on SpicyIP, the USTR generally foregoes retaliation and instead negotiates with ‘defaulters’ to enter into free trade agreements. This is an inappropriate tactic employed by the US to circumvent WTO procedures which specifically provide for dispute resolution in such circumstances.

Essentially, the US sets up a governmental body under a statute it has enacted, requires this body to review IP policies of foreign countries and empowers it to take action against those who don’t adhere to US policy. This is probably the reason why the only time it creates any buzz in India is when it’s vehemently criticized and torn apart inter alia by newspapers and blogs.

An Out of Context Review

India is listed as on the Priority Watchlist because it failed to address IPR concerns identified by the USTR in its Out-of-Cycle Review (OCR); a tool that it uses to “encourage progress” on the said concerns. Swaraj has previously covered the OCR process here in SpicyIP. This year’s review starts off with a bittersweet comment on India’s general approach towards IP protection. It then moves into a targeted ‘assessment’ of issues relating to India’s National IPR Policy, copyright and piracy, patent and public health, trademark and counterfeiting and localization trends.

To be fair, the US has commended India for passage of the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts, 2015 and for the efforts of the Andhra Pradesh and Telangana governments in deploying strict anti-piracy campaigns and arresting 11 members from an international piracy ring. The US also seems particularly ecstatic about India’s rejection compulsory licensing applications for two pharmaceutical drugs.

The 3(d) Problem

The glorious new batch of 459 patent examiners should feel honored that their hiring and training is the only development in the patent landscape that the US truly likes about India. Apart from this there is nothing but disappointment in the USTR’s eyes because of the gargantuan challenges faced by US innovators in securing and enforcing patents in India. In particular, the USTR has taken issue with the infamous Section 3(d) of the Indian Patents Act, 1970. The US believes that its prevailing interpretation (under the Novartis precedent) “may have the effect of limiting the patentability of potentially beneficial innovations which include… drugs with fewer side effects, decreased toxicity, improved delivery systems, or temperature or storage stability”.  Of course it limits patentability to undeserving innovation; the provision was the included for the very purpose of preventing ever-greening in pharmaceutical drug patents. It is one of those things which set India far apart from an overly capitalistic country which grants patents for “anything under the sun made by man”.

The Public Citizen’s testimony at the Hearing also throws some light on this issue. On behalf of Public Citizen, Burcu Kilic (Legal Counsel, Global Access to Medicines Program) has stated that, “If the subject of  patent monopoly is not something that is patent-eligible subject matter, there is no possibility of a patent being granted, even if the subject matter claimed is new, involves an inventive step, and is industry related applicable… Section 3(d) is structured as a subject matter eligibility threshold, not as a patentability test. India’s Section 3(d) complies with the TRIPS Agreement. The Special 301 Report shouldn’t cite India for its TRIPS-compliant interpretation of patent-eligible subject matter.”

Compulsory Licensing

The Report states that “the US is firmly of the view that international obligations such as those in the TRIPS Agreement have sufficient flexibility to allow trading partners to address the serious public health problems that they may face. Consistent with this view, the United States respects its trading partners’ rights to grant compulsory licenses in a manner consistent with the provisions of the TRIPS Agreement and the Doha Declaration.”

Despite this kind gesture, the US has offered no comment in the Report on its alleged agreement with India for putting a cork on compulsory licensing for pharmaceutical inventions. See Prof. Shamnad’s critique on this here. In the Hearing, USIBC President Dr. Mukesh Aghi has testified that “the Ministry of Commerce [of the Government of India]… has assured industry that it will be final decision-making authority on the issue of compulsory licenses in the country.” Additionally, he has stated that US member companies (of the USIBC) have invested almost $15 billion into India in 2015 and plan to invest $27 billion in 2016 because they “feel quite assured by the IP commitment the Indian government has made.” Needless to say that if India doesn’t comply, Dr. Aghi recommends that India be downgraded in the Report. The worrying bit is that if Dr. Aghi’s former statement is true and if the anti-CL assurance is indeed a part of India’s so-called IP commitment, this highly disturbing arrangement will have serious and drastic repercussions on the public health scenario in India. I am also curious to know exactly how the Ministry of Commerce plans to assume this position of the ‘last authority’ on a quasi-judicial question such as the issuance of compulsory licenses.

On the other hand, KEI director Mr. James Love has stated in the Hearing that “If that agreement is [entered into] with the United States government, given the fact that 80 percent of the world’s population is essentially priced out of new prices for new cancer drugs and drugs for other severe illnesses, I think that that agreement should be made public.” So far, we know that the existence of any such assurance was rubbished by the Ministry of Commerce.

As noted above, the US is very happy for India’s refusal of two CL applications since 2013. One of these covered a cancer treatment drug called Dasatnib. On this point, UACT director (and cancer patient) Manon Ress stated in the Hearing that:

“PhRMA makes reference to a compulsory license for the cancer drug dasatinib, which treats leukemia — once leukemia is resistant to Gleevec, you have to take dasatinib or you are dead — which was proposed like other several case involving expensive cancer drug. It was never issued after pressure from industry and USTR.”

In fact, the UACT had requested the USTR to back off and relieve pressure caused by the Out of Cycle Review on the Indian government. Covering the UACT’s submission, Prof. Shamnad observes in his post that the DIPP was “opposing the compulsory license [for Dasatinib], motivated primarily by concerns that a compulsory license would create trade and foreign policy problems with the United States”. This was despite the fact that the Ministry of Health was keen on issuing a CL under Section 92. I read with renewed interest Prof. Shamnad’s quintessential question: “One wonders none of our generic majors are interested in going the section 84 route for Dasatinib…One also wonders why BDR did not take another shot at triggering this license. After all, its application was never rejected on merits. But merely on the ground that it had failed to demonstrate that it negotiated in good faith.” Is it possible that the rejection and eventual abandonment of the Dasatinib CL pursuit was truly owing to US pressure?

Best IPR Practices

The Report also applauds several countries for their efforts to encourage “innovative mechanisms that enable government and private sector right holders to … license pharmaceutical patents voluntarily and on mutually-agreed terms…” However, India doesn’t find a mention here despite Gilead’s voluntary licensing agreements (VLAs) with 7-8 Indian generic firms for manufacturing and selling Sofosbuvir (Sovaldi); a blockbuster drug for Hepatitis C. Its probably a good thing that the VLAs found no place in the Review; since the VLAs reek of anti-competitive terms and other elements against public interest.

Local Working Woes

The US is aggrieved by India’s local working requirements for patents. In particular, the Report points out that “the Patents Act’s requirements under Section 8 are out of step with the practices of other countries and out of date, as much of the information required is readily available to patent officers online”. Furthermore, “Form 27” requires patent holders to provide detailed information on an annual basis that is used by the patent office to determine whether a patent is sufficiently worked in India. Patentees thus face the serious consequence of possibly having their patent revoked or subject to a compulsory license if they fail to meet the standard.” The specific scenario where a local working requirement would affect innovators was beautifully explained in the Ayyangar Committee Report. I have reproduced the relevant paragraph below.

Para 38

“Where the patentee has no intention of working the invention in this country either because he considers that this is not profitable or because he prefers to expand the production in his home country so as to achieve there greater efficiency and more production or is otherwise not interested in working the invention in India, the grant of the Indian patent might tend to improve the economy of the patentee’s home country but offers little advantage to us. Unless therefore the
law provides for measures to be taken to compel the patentees to work the invention within
the country, and these measures are effective to achieve their purpose, the social cost involved
in the grant of the patent is not offset by any benefit to the community.”

Therefore, US companies need not fear revocation or compulsory licensing of their inventions as long as they adhere to this fair and simple requirement for local manufacturing.

The US seems rather confused about its stand on one aspect of Indian policy. On the one hand it applauds Prime Minister Modi for “Make in India” and “Start-up India” initiatives, which are intended to encourage domestic innovation and manufacturing activities by foreign investors. On the other hand, it severely criticizes the India’s proposal to offer expedited patent examination for applicants that manufacture or commit to manufacture their inventions in India. The US believes that this “incentive to localize manufacturing goes against international patent norms and runs counter to increasingly globalized trade and sourcing trends.” Coincidentally, AFTI executive director Brian Pomper had stated in the Hearing that “There are parts of Make in India… there was a suggestion… that entities that commit to manufacturing in India would get expedited review with the patent office. Those sorts of things I think we would not support. We think that’s the negative aspect of Make in India.” Seems like just another stark example of US allegiance to private corporate concerns. And guess what; the newly amended patent rules have been altered accordingly. After all these years of displaying resistance and taking a firm stand, has India now begun caving to US pressure?