Many stakeholders around the world believe that Intellectual Property Rights (IPR) environment in China is far better than what we have in India. Interestingly “2010 Special 301 Report” of the United States of America dated April 30, 2010, paints a totally different picture.
The priority watch list (PWL)’ countries:
The Office of The United States Trade Representative, in the Press Release of ’2010 Special 301 report’, mentioned the names of PWL countries as follows:
“Trading partners on the Priority Watch List (PWL) do not provide an adequate level of IPR protection or enforcement, or market access for persons relying on intellectual property protection. China, Russia, Algeria, Argentina, Canada, Chile, India, Indonesia, Pakistan, Thailand, and Venezuela are on the Priority Watch List. These countries will be the subject of particularly intense engagement through bilateral discussion during the coming year”.
It is, therefore, quite clear that so far as IPR environment is concerned both China and India feature in the PWL of America. This totally breaks the perceived myth, as is being very often made out to be by many, that China is a better implementer of IPR than India.
Reasons for featuring in the ‘Priority Watch List’ (PWL):
“2010 Special 301 Report” makes the following comments for China and India being in the PWL of the USA:
1. China will remain on the Priority Watch List in 2010 and will remain subject to Section 306 monitoring. China’s enforcement of IPR and implementation of its TRIPS Agreement obligations remain top priorities for the United States…the overall level of IPR theft in China remains unacceptable.
2. The United States is heartened by many positive steps the Chinese government took in 2009 with respect to these issues, including the largest software piracy prosecution in Chinese history, and an increase in the numbers of civil IP cases in the courts.
3. The United States is also deeply troubled by the development of policies that may unfairly disadvantage U.S. rights holders by promoting “indigenous innovation” including through, among other things, preferential government procurement and other measures that could severely restrict market access for foreign technology and products.
4. China’s IPR enforcement regime remains largely ineffective and non-deterrent.
5. The U.S. copyright industries report severe losses due to piracy in China.
6. Counterfeiting remains pervasive in many retail and wholesale markets.
7. China maintains market access barriers, such as import restrictions and restrictions on wholesale and retail distribution, which can discourage and delay the introduction into China’s market of a number of legitimate foreign products that rely on IPR.
8. China’s market access barriers create additional incentives to infringe products.
9. China adopts policies that unfairly advantage domestic or “indigenous” innovation over foreign innovation and technologies.
10. Draft Regulations for the Administration of the Formulation and Revision of Patent-Involving National Standards, released for public comment in November 2009 by the Standardization Administration of China (SAC), raise concerns regarding their expansive scope, the feasibility of certain patent disclosure requirements, and the possible use of compulsory licensing for essential patents included in national standards.
11. With respect to patents, on October 1, 2009, the Third Amendment to China’s Patent Law, passed in December 2008, went into effect. While many provisions of the Patent Law were clarified and improved, rights holders have raised a number of concerns about the new law and implementing regulations, including the effect of disclosure of origin requirements on patent validity, inventor remuneration, and the scope of and procedures related to compulsory licensing, among other matters. The United States will closely follow the implementation of these measures in 2010.
12. The United States encourages China to provide an effective system to expeditiously address patent issues in connection with applications to market pharmaceutical products.
13. The United States continues to have concerns about the extent to which China provides effective protection against unfair commercial use, as well as unauthorized disclosure, of undisclosed test or other data generated to obtain marketing approval for pharmaceutical products.
14. Generally, IPR enforcement at the local level is hampered by poor coordination among Chinese government ministries and agencies, local protectionism and corruption, high thresholds for initiating investigations and prosecuting criminal cases, lack of training, and inadequate and non-transparent processes. As in the past, the United States will continue to review the policies and enforcement situation in China at the sub-national levels of government.
1. India will remain on the Priority Watch List in 2010.
2. India continues to make gradual progress on efforts to improve its legislative, administrative, and enforcement infrastructure for IPR.
3. India has made incremental improvements on enforcement, and its IP offices continued to pursue promising modernization efforts.
4. Among other steps, the United States is encouraged by the Indian government’s consideration of possible trademark law amendments that would facilitate India’s accession to the Madrid Protocol.
5. The United States encourages the continuation of efforts to reduce patent application backlogs and streamline patent opposition proceedings.
6. Some industries report improved engagement and commitment from enforcement officials on key enforcement challenges such as optical disc and book piracy.
7. However, concerns remain over India’s inadequate legal framework and ineffective enforcement.
8. Piracy and counterfeiting, including the counterfeiting of medicines, remains widespread and India’s enforcement regime remains ineffective at addressing this problem.
9. The United States continues to urge India to improve its IPR regime by providing stronger protection for patents.
10. One concern in this regard is a provision in India’s Patent Law that prohibits patents on certain chemical forms absent a showing of increased efficacy. While the full import of this provision remains unclear, it appears to limit the patentability of potentially beneficial innovations, such as temperature-stable forms of a drug or new means of drug delivery.
11. The United States also encourages India to provide protection against unfair commercial use, as well as unauthorized disclosure, of undisclosed test or other data generated to obtain marketing approval for pharmaceutical and agricultural chemical products.
12. The United States encourages India to improve its criminal enforcement regime by providing for expeditious judicial disposition of IPR infringement cases as well as deterrent sentences, and to change the perception that IPR offenses are low priority crimes.
13. The United States urges India to strengthen its IPR regime and will continue to work with India on these issues in the coming year.
Responses and reactions in India:
‘Special 301 Reports’ have always been received with skepticism both by the Government of India and the domestic media. Even in the past, PWL status has hardly bothered either India or China to bring in a radical change in the IPR environment of the respective countries, as desired by the USA.
A recent article on the ‘Special 301 Report 2010’ that appeared in ‘Business Standard’, Sunday, May 2, 2010 comments as follows:
“India, in fact, continues to be on the ‘priority watch list’ of the USTR’s ‘Special 301’ report, despite a detailed submission of the intellectual property rights (IPR) compliance measures initiated by it in 2009”.
Many stakeholders in India feel and have also articulated that despite the country taking important steps to improve implementation of IPR within the country, the position of India in ‘Special 301 Reports’ has not changed much since last so many years. India, therefore, envisages no harsh measures by the US Government as a result of being continuously in the PWL of the ‘Special 301 Reports’.
Why then China attracts more Foreign Direct Investments (FDI) than India in the Pharmaceutical space?
In my view, this has got not much to do with the IPR environment in these two countries. The key ‘Game Changers’ for China, I reckon, are as follows:
1. Larger market size due to greater access to medicines:
Access to medicine in China covers 85% of their 1.2 billion population, against 35% of 1.1 billion population of India.
2. Larger market size due to better affordability of medicine:
Around 85% of the population in China is covered through various medicine price reimbursement schemes. Whereas in India around 78% of such expenditure is ‘out of pocket’ expenses. Conversely, not more than 22% of the population is currently covered by drug price reimbursement schemes in India.
3. Strong signals to the Government that ‘innovative companies’ are contributing to the ‘Economic Progress’ of the country:
In such a booming pharmaceutical market scenario, it is essential for the business to keep the government engaged to help create a more ‘innovative pharmaceutical business’ friendly environment, where even a slight improvement in the prevailing IPR conditions will give a significant boost to their business performance.
IMS forecasts that by 2013 China is going to be the third largest pharmaceutical market in the world with an estimated turnover of US $66.7 billion against 13 ranking of India in the same league table, with an estimated turnover of US $15.5 billion.
Similar trend was observed in the immediate past, as well. As reported by IMS MAT September 2009, China registered a turnover of US $24 billion with 27.1% growth against US $7.7 billion with 12.9% growth of India, during the same period. IMS, based on their research data forecasts that during 2008-13 period, China will contribute 36% of the growth of the Asia Pacific Region, against 12% of India.
Under this situation, it appears quite prudent for the ‘innovative pharmaceutical companies’ to send signals to the Chinese Government that they are contributing to the ‘Economic Progress’ of the nation by making significant direct investments, obviously with an expectation to get more business friendly environment in that country.
Recent ‘Healthcare Reform’ in China has further improved its market attractiveness.
Thus the business attractiveness of China as a pharmaceutical market scores much higher than India, fetching more FDIs for them, prevailing IPR environment and PWL status in the ‘Special 301 Reports’ for the country not withstanding.
Overall IPR environment in India, many experts strongly believe, does not seem to be much different from China, if not a shade better. While interacting with Chinese experts recently in that part of the world, I understand, ‘Data Protection’ is just ‘on paper’ in China, causing a huge issue for the innovator companies in that country. Similar situation prevails so far as the effectiveness of patent enforcement mechanism is concerned, where innovator companies are fighting and required to fight such infringement cases in the provincial level and in so many provinces of the country, posing a huge challenge to the patent holders.
So far as PWL status in ‘Special 301 Reports’ is concerned, it seems to have almost lost its relevance, as both India and China become stronger economies with increasing global dependence on them, consistently registering double digit or near double digit GDP growth.
In china, the pharmaceutical market attractiveness, its size and growth are driven by two key factors as mentioned above, viz, huge domestic market access/ penetration and better affordability of medicines through various effective medicine price re-imbursement schemes, across the country. The recent ‘Healthcare Reform’ of the country has added further momentum to this progress.
So long as India does not take robust policy measures, followed by their effective implementation to address, much ignored, the access and affordability issues of medicines for the common man, the country will continue to be a laggard, compared to China in the race of market leadership within the global pharmaceutical industry.
By Tapan Ray
Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.