The U.S. International Trade Commission’s investigation of Trade, Investment, and Industrial Policies in India: Effects on the U.S. Economy held its second and third hearing on Friday, February 14. This blog contains notes on the parts of the second hearing related to intellectual property. Notes on the first are here, and notes on the third are here. Videos of the hearings have been posted here by Knowledge Ecology International.
Pallavi Shroff from the Confederation of Indian Industry opened her testimony describing strong growth of the overall Indian economy, of U.S. exports to India, and of American Drug companies’ market share. Abbot’s market share increased from 2.3 to 7.2% and Pfizer’s has increased as well. Nonetheless, India is still a developing country, and the government has a responsibility to respond to human development challenges. (She quoted Obama saying that healthcare is a “right for all to enjoy,” and said that the same applies to India.) Shroff said that the Indian legal s system provides adequate protection of intellectual property: 72% of pharmaceutical patent applications have been granted, numerous courts have issued favorable rulings to patent holders, one compulsory license has been granted, and one application for a compulsory license has been rejected.
Ron Somers from the U.S.-India Business Council testified that the U.S. and India have a healthy trade relationship, and American businesses are doing well in India, including pharmaceutical companies. He noted there are some areas of conflict, including intellectual property, but warned that antagonism through Special 301 listings or threatened revocation of GSP benefits is a bad way for the U.S. government to advocate for the interests of American firms – it risks messing up a positive, productive relationship. India’s leaders realize that compulsory licenses may discourage innovation, everyone agrees more spending needed in the health sector, and all stakeholders in the media recognize need to have stronger measures against piracy. Amicable diplomacy is the correct way forward in areas where there is conflict.
Linda Dempsey from the National Association of Manufacturers (NAM) acknowledged positive aspects of the business relationships between American and Indian firms (especially in the aerospace and defense industries), but said that India is “by no means an open economy.” The World Economic Forum Global Trade Enabling Report dropped India down to the 100th place in its rankings of national business climates. Access to American-made manufactured goods in India is limited. Producers in India face inspection regimes that threaten their trade secrets. More than a dozen innovative medicines have had patents denied or have been subject to compulsory license. India’s industrial policies target high value sectors of the U.S. economy that are research- intensive and highly dependent on trade. These policies are inconsistent with international norms, and have been “devastating” for jobs in the United States.
Douglas Nelson from Croplife America focused his testimony on the subject of regulatory data protection for agricultural chemical products. In order to sell a new agricultural chemical product, the producer must submit safety and efficacy studies to health regulators for marketing approval. This requires significant time and resources – it costs an average of $256 million to do the necessary studies. Firms submit the data to authorities with the understanding that it is proprietary, and cannot be relied upon by third parties for approval of equivalent competing products. Nelson told the panel that Article 39 of the TRIPS Agreement precludes unfairly relying on others’ data, and in order for a country to comply with this obligation, policymakers must assure the global norm of protection, which is a 10 year period of data exclusivity (a period during which competitors cannot win approval based on the first firm’s data). This 10 year period is found in the laws of the U.S., the EU, and is a requirement of all recent trade agreements with the U.S. Nelson told the Commission that India has no data protection for agricultural chemical products. Seven years ago, a bill to require data exclusivity was introduced to the legislature, but the bill has not become law. As a result, American firms are keeping their products out of the market. They would prefer to enter the market – which would be beneficial to U.S. firms and Indian farmers alike – they need data exclusivity to do so.
Roy Zwahlen from the Biotechnology Industry Organization testified that India is systematically curtailing the intellectual property rights of U.S. companies. It is difficult for biotech firms to obtain and enforce patents in India. Specific problems include patent revocations, actual compulsory licenses and threatened compulsory licenses. Zwahlen said that, despite claims these policies are meant to increase access to medicines, they are actually aimed at growing domestic industry at the expense of U.S. firms. The medicines targeted are cancer drugs for small segments of the population, and the aim is to eventually export generics to other countries. He warned that other nations, including China and South Africa, are considering similar policies.
Questions and Answers
Commissioner Broadbent stressed that the ITC is not trying to write a “gotcha” study fueled by a small group of angry industries. The commission intends to survey the entire economy. It seeks and appreciates a wide range of contributions. The best outcome would be to find a win-win type of agreement between the U.S. and India. She asked Somers to describe how the U.S.-India business relationship is organized, noting that there seem to be numerous working groups and bilateral dialogues. What are the main ones and how are they being managed?
Sommer answered that there are 36 current bilateral dialogs with India, more than the U.S. has with any other country. The Bilateral Investment Treaty (BIT) discussions are probably the ones with the best momentum. The U.S.-Indian strategic dialogue, which is focused on defense and cyber security, is also important. The U.S.-India CEO Forum is important because it puts business leaders directly in touch. The Trade Policy Forum headed by Froman has been effective in getting issues resolved.
Dempsey said there has been little cooperation on the Indian side. NAM was one of the first organizations to call for a U.S-India BIT, and has consistently advocated for it, but India has stalled the talks. The Indian government is in the middle of its own review of the BIT, and concerns have been raised about whether we’ll go down this path. NAM wants to see strong property provisions in the BIT, but they are skeptical about India’s commitment.
Shroff said that the U.S. and India met earlier this month on the BIT and the next round of talks has been scheduled. The U.S. recently conducted a review of its model BIT, and now India is finalizing its own review of its model BIT.
Commissioner Kieff asked about the feasibility of price discrimination schemes in the pharmaceutical market. Wouldn’t profit-maximizing producers rationally choose to provide a good to consumers at diverse prices if they had confidence that they’d be protected from arbitrage? He asked the witnesses if anyone could provide evidence that this kind of “crucial public health enhancing effort” to provide access to medicines could succeed within the private market, without a compulsory licensing effort. Has this been done? Have there been unsuccessful efforts to do this?
Shroff said that Gilead is an example of success. It has partnered with Indian manufacturers to produce their drugs at low cost for Indian and other low-income consumers. Zawhlan also cited Gilead as a success, but stressed that these types of arrangements depend upon enforceable patent rights. Companies need control of their product for such strategies to work. Dempsey said that drug manufacturers are providing deeply discounted medicines in India, but the government is still undermining their property rights.
Commissioner Williamson said that he’d gotten the impression from the previous panel that India had had a period of opening markets, but that recently there has been a move back towards more restrictive policies. He asked the panel to elaborate on this. Somers said that there has been a change due to Indian politicians playing to the domestic market. Shroff noted that upcoming elections have led to some statements reflecting shifting attitudes. Dempsey said that the Indian manufacturing policy released in 2011 was a notable downturn. She also said that India played a role in blocking progress in the multilateral Doha Development Round negotiations – it refused to open its economy.
Commissioner Pinkert asked Shroff if there are concerns among Confederation of Indian Industry members about an inability to enforce their patent rights in India. Shroff said their members think the level of IP enforcement is very high, and this applies to patents, copyright, and trademarks. CII firms are able to secure injunctions when necessary. Indian courts grant the injunctions based on the same legal principles used by courts in the U.S. She said she will cite numerous examples in her post hearing statement. Shroff also said that Indian business groups including CII and the Chambers of Commerce are taking numerous steps to increase awareness of the importance of IP. They have training programs in place for police and junior magistrates. It is a continuous, ongoing effort.
Pinkert asked the others to discuss how IP rights are enforced in India. Zwahlen said that enforcement is vastly inconsistent, and that considerations of access to medicines usually override legal standards in the courts. He acknowledged that there has only been one compulsory license issued, but argued that there is more to the IP environment than this fact – companies need to be able to have patents granted in the first place. In India, this is complicated by pre- and post-grant opposition. If a patent is obtained, then companies have trouble getting and enforcing judgments. Pinkert said it would be helpful for witnesses to include empirical data about the enforcement of patent rights in their post-hearing comments.
Commissioner Johanson addressed Somers. If the bilateral trade relationship between India and the U.S. is as positive and healthy as Somers claims, then why is there so much concern about it coming from Capitol Hill? Somer said that the overall relationship is quite healthy, as illustrated by the overall trade data, but there are challenges in some particular areas, including intellectual property. The economic slowdown and political pressures have also raised the intensity of concerns in these areas.
Commissioner Broadbent asked what the U.S. can learn from the EU’s record of success in India, noting that 31% of Indian imports come from Europe and only 6% come from the U.S. Shroff said European firms take more risks, and have made more of an effort to understand the Indian nation. Somer said that Europeans have a much longer history of economic engagement with India. The U.S. only started really engaging India 22 years ago.
Broadbent asked Nelson if India was out of compliance with the data protection provisions in Article 39 of the TRIPS Agreement. Nelson answered, “we say they are very close to noncompliance.” WTO Members have an obligation to protect companies from “unfair commercial use.” Test data in most industries would be a trade secret, but since our industry deals with chemicals that go into food, we need to reveal our data to health regulators. As a result we’ve breached trade secrecy and we need a societal compromise that regulators will not let anyone else win regulatory approval based on that data for a period of time. This is an international norm that has been codified in all of our trade agreements. India does not provide this period of exclusivity, so we say it violates Article 39.
Broadbent asked if Indian farmers being hurt by the lack of data exclusivity. Nelson said they are, because American companies are not sending their products to India. Brazil provides protection, and its farmers have access to American agrochemical products – as a result Brazilian cotton farmers are able to enjoy a 300% higher yield while using less land.
Broadbent asked the panelist to explain the recent drop in U.S. foreign direct investment to India. The witness cited many reasons, and Dempsey said that part of the reason was a lack of trust due to changes in intellectual property policies. Somers agreed that IP was a big issue, but he said that the Indian government is well aware that it needs to address it.
Commissioner Williamson asked Dempsey about her earlier comment referring to twelve compulsory licenses on medicines, noting that other witnesses have said there have been one. Dempsey said she was referring both to situations where companies have been unable to obtain patent protection, and situations involving compulsory licensing.
