A proposal to further extend the already 20-year-long patent term for pharmaceuticals is on the negotiation table of the Regional Comprehensive Economic Partnership (RCEP). As India negotiates the RCEP, a free trade agreement that can change the intellectual property (IP) landscape of its member countries, this week, we need to look closely at the proposal in the broader context of how the term of protection for IP rights has increased steadily over the years. More so for the generic pharmaceutical companies in India that manufacture patented drugs after the expiry of the patent term. Any extension of the patent term will adversely affect access to the cheaper medicines that they manufacture.
A patent is an exclusive right granted for an invention which is new, useful, and non-obvious.
In developed countries, IP protections incentivise individuals for their creativity and public disclosure of technical information, which aid the promotion of new knowledge and increased innovation.
In several developing countries, IP protection was either introduced through colonial-era laws or when they joined the World Trade Organisation (WTO), of which the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) is a part.
Patents are now granted for inventions across technologies—from kitchenware to biologics—each having the same term of protection. The protection grants the applicant a right to exclude others for a 20-year period—the length of a patent. After this period, it enters the public domain and can then be accessed and used by anyone.
Term of exclusivity
The term of a patent is a maximum time period during which it is valid and can be enforced. The longer the patent term, the greater the exclusivity for the invention and the greater the time taken for the technology covered by the patent to enter the public domain, thereby creating a technological lock-in.
A patent could have a shorter term than the specified 20-year period for a variety of reasons: A challenge to a patent may result in its early invalidation, and non-payment of renewal fees could result in its lapse.
Historically, the Crown in the UK granted patent-like privileges for a 14-year period, as it usually took seven years each to train two apprentices in a new technology that came from continental Europe through migrants. Thus, the UK capped the term of a patent at 14 years.
Despite the influence of Common Law, many erstwhile colonies legislated shorter terms of protection after independence. For instance, India had a five- to seven-year patent term for pharmaceuticals before becoming a member of the WTO.
The present 20-year patent term was mandated by the TRIPS agreement. Though there was some logic in English Law as to how it arrived at the 14-year patent term, the present patent term that countries agreed to during the TRIPS negotiations did not have any sound logic other than protecting the interests of particular industries.
Technology-agnostic term
The common term of protection that applies to all technologies regardless of the pace of technological development came from a provision of the TRIPS agreement. However, in some sectors like information technology and electronics, where technology is ever-changing, granting 20-year protection does not make sense.
In industries where prices gradually decrease within the first few years of the introduction of the new technology, such an extensive period of protection without an economic basis is unwarranted. Moreover, having a technology-agnostic patent term creates an unnecessary deadweight loss where a shorter protection is required for an invention.
Thus, considering the evolving nature of technology, it is imperative to have a technology-specific patent term—differential period of protection across different industries, so as to foster knowledge and innovation in the market.
Copyright, the other form of IP right that protects artistic and literary works, went through a similar phase in the US, where the term was extended just to prolong market exclusivity. Lobbying by the entertainment industry to keep Mickey Mouse, an artistic work, from falling into the public domain resulted in the extension of copyright term for corporate authorship to its present term of 95 years from first publication or 120 years from creation. In contrast, the term of a copyright in India for similar works is 60 years from publication.
Patent-term extension
Developed countries, on behalf of their pharmaceutical companies, seek a term extension arguing that it is necessary to recoup the research and development (R&D) costs. The proponents also argue that patent-term extension could make up for the loss of effective patent term—time lost in getting regulatory approval or owing to delays at the patent office.
However, these arguments are untenable. Consistently, major pharmaceutical companies report profits that are many times more than the costs involved in R&D. Any further extension in the term of the patent will result in corporate welfare at the cost of social welfare.
Given India’s strength as a world-class supplier of affordable generic medicines, granting a longer term for patents will result in delays in the entry of generic versions and could adversely affect access to medicines.
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Steve Ovett, the famous British middle-distance athlete, won the 800-metres gold medal at the Moscow Olympics of 1980. Just a few days later, he was about to win a 5,000-metres race at London’s Crystal Palace. Known for his burst of acceleration on the home stretch, he had supreme confidence in his ability to out-sprint rivals. With the final 100 metres remaining,
[wptelegram-join-channel link=”https://t.me/s/upsctree” text=”Join @upsctree on Telegram”]Ovett waved to the crowd and raised a hand in triumph. But he had celebrated a bit too early. At the finishing line, Ireland’s John Treacy edged past Ovett. For those few moments, Ovett had lost his sense of reality and ignored the possibility of a negative event.
This analogy works well for the India story and our policy failures , including during the ongoing covid pandemic. While we have never been as well prepared or had significant successes in terms of growth stability as Ovett did in his illustrious running career, we tend to celebrate too early. Indeed, we have done so many times before.
It is as if we’re convinced that India is destined for greater heights, come what may, and so we never run through the finish line. Do we and our policymakers suffer from a collective optimism bias, which, as the Nobel Prize winner Daniel Kahneman once wrote, “may well be the most significant of the cognitive biases”? The optimism bias arises from mistaken beliefs which form expectations that are better than the reality. It makes us underestimate chances of a negative outcome and ignore warnings repeatedly.
The Indian economy had a dream run for five years from 2003-04 to 2007-08, with an average annual growth rate of around 9%. Many believed that India was on its way to clocking consistent double-digit growth and comparisons with China were rife. It was conveniently overlooked that this output expansion had come mainly came from a few sectors: automobiles, telecom and business services.
Indians were made to believe that we could sprint without high-quality education, healthcare, infrastructure or banking sectors, which form the backbone of any stable economy. The plan was to build them as we went along, but then in the euphoria of short-term success, it got lost.
India’s exports of goods grew from $20 billion in 1990-91 to over $310 billion in 2019-20. Looking at these absolute figures it would seem as if India has arrived on the world stage. However, India’s share of global trade has moved up only marginally. Even now, the country accounts for less than 2% of the world’s goods exports.
More importantly, hidden behind this performance was the role played by one sector that should have never made it to India’s list of exports—refined petroleum. The share of refined petroleum exports in India’s goods exports increased from 1.4% in 1996-97 to over 18% in 2011-12.
An import-intensive sector with low labour intensity, exports of refined petroleum zoomed because of the then policy regime of a retail price ceiling on petroleum products in the domestic market. While we have done well in the export of services, our share is still less than 4% of world exports.
India seemed to emerge from the 2008 global financial crisis relatively unscathed. But, a temporary demand push had played a role in the revival—the incomes of many households, both rural and urban, had shot up. Fiscal stimulus to the rural economy and implementation of the Sixth Pay Commission scales had led to the salaries of around 20% of organized-sector employees jumping up. We celebrated, but once again, neither did we resolve the crisis brewing elsewhere in India’s banking sector, nor did we improve our capacity for healthcare or quality education.
Employment saw little economy-wide growth in our boom years. Manufacturing jobs, if anything, shrank. But we continued to celebrate. Youth flocked to low-productivity service-sector jobs, such as those in hotels and restaurants, security and other services. The dependence on such jobs on one hand and high-skilled services on the other was bound to make Indian society more unequal.
And then, there is agriculture, an elephant in the room. If and when farm-sector reforms get implemented, celebrations would once again be premature. The vast majority of India’s farmers have small plots of land, and though these farms are at least as productive as larger ones, net absolute incomes from small plots can only be meagre.
A further rise in farm productivity and consequent increase in supply, if not matched by a demand rise, especially with access to export markets, would result in downward pressure on market prices for farm produce and a further decline in the net incomes of small farmers.
We should learn from what John Treacy did right. He didn’t give up, and pushed for the finish line like it was his only chance at winning. Treacy had years of long-distance practice. The same goes for our economy. A long grind is required to build up its base before we can win and celebrate. And Ovett did not blame anyone for his loss. We play the blame game. Everyone else, right from China and the US to ‘greedy corporates’, seems to be responsible for our failures.
We have lowered absolute poverty levels and had technology-based successes like Aadhaar and digital access to public services. But there are no short cuts to good quality and adequate healthcare and education services. We must remain optimistic but stay firmly away from the optimism bias.
In the end, it is not about how we start, but how we finish. The disastrous second wave of covid and our inability to manage it is a ghastly reminder of this fact.