Guest column : Indian patent rulings and impact on emerging economies

Dr Kristina LybeckerRecent Indian patent rulings, as well as those to come, are changing the intellectual property rights (IPR) landscape for emerging economies. They are watched with keen interest by other developing nations to measure the response of innovative pharmaceutical firms and the global community. Whether or not they are precedent-setting remains to be seen. 

Reflecting on the implications of these decisions for the developing world requires an understanding of the justification for issuing compulsory licenses and an awareness of the potential consequences.

Why the licence?

Compulsory licenses are issued for a variety of reasons: to strengthen public health, as a means of industrial policy, and for political motives.  The potential consequences of the compulsory license are closely tied to the motivation for its issuance.

Compulsory licenses based in clear public health objectives with transparent legal justifications rest on more solid legal ground and are less likely to be challenged.  Those more likely based in political or industrial policy objectives are certain to be less well-received, provoking legal challenges and possible retaliatory actions, including market withdrawal by the manufacturer, pressure from trade partners, or formal action via the World Trade Organization.

Only for the big boys?

Regardless of the motivation, the threat of compulsory licenses is most credible for nations with large markets and significant domestic production capacity.  In light of this, it is particularly significant that China is considering the use of compulsory licenses.  The Indian decisions of the past year may prove especially useful for China if they indeed pursue compulsory licensing.

In contrast, for developing nations lacking the production capacity, distribution networks or buying power, effective use of compulsory licenses is essentially out of reach.  A recent study by Beall and Kuhn confirms this.  Through an examination of all compulsory license episodes and announcements since 1995, the authors find that a decade after the adoption of the Doha Declaration, compulsory license activity has significantly diminished since 2006 and there is low probability of much future use of compulsory licenses.

This study points to the limitations of compulsory licenses and the distinctive characteristics of the Indian market that have facilitated their use and at the same time preclude their use by other nations.

Recent Indian decisions must also be viewed through the lens of concurrent developments in international trade forums.  For developing nations that have joined free trade agreements stipulating commitments beyond those specified in the TRIPS Agreement, the recent Indian decisions are largely irrelevant.  In particular, some of these agreements restrict the grounds for compulsory licenses and require that countries not utilize parallel imports.

The right instrument?

Globally more than 1.7 billion people have little or no access to essential medicines.  The sheer magnitude of these numbers mandates an examination of the barriers to access to medicines and potential remedies.  Arguably, compulsory licensing has a role in enhancing access, but must be utilized judiciously and only after alternative strategies are exhausted.

History reveals that it is important to approach compulsory licensing with skepticism, caution, and full recognition of the secondary effects that may negate the immediate benefits of expanded access.  Beyond the retaliatory actions mentioned above, the undesirable secondary effects that must be considered include: the risk of diminished direct investment as firms seek more innovation-friendly legal environments and the potential for a reduction in the innovative pharmaceutical industry’s incentives to innovate.

This is the third and final column in a series on India’s recent actions on drug patents and their implications.The first and second columns dealt with their possible impact on pharma strategies, and on India’s IPR ecosystem.

Dr Kristina Lybecker is Associate Professor of Economics at Colorado College in Colorado Springs. Kristina is an economist with a PhD from the University of California at Berkeley. She specialises in innovation and intellectual property rights and has been writing on these issues for 12 years. She is currently employed full-time at Colorado College. In the interests of transparency, the writer states that she has been commissioned to work for the pharmaceutical industry on issues of innovation, corruption, counterfeiting and intellectual property rights. However, she has not been compensated or otherwise rewarded for this piece which stems from her intellectual interest in the topic and closely relates to her academic research.

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