4377014

Pharmaceutical Patents in Developing Countries: Policy OptionsAuthor(s): Kumariah BalasubramaniamReviewed work(s):Source: Economic and Political Weekly, Vol. 22, No. 19/21, Annual Number (May, 1987), pp.AN103-AN107+AN109-AN120Published by: Economic and Political WeeklyStable URL: http://www.jstor.org/stable/4377014 .Accessed: 05/03/2012 23:43

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Pharmaceutical Patents in Developing Countries: Policy Options

Kumariah Balasubramaniam

The Paris Convention for the protection of industrial property originally signed in 1883 has since been revised six times. Each revision has extended the exclusive monopoly powers of the patent holders and weakened the bargaining powers of deveioping countries which have to purchase technology from TNCs who own the majority, of the patents. Most national legislations have incorporated the major provisions in the Paris Convention regardless of whether the countries are members of the Paris Union or not. A critical examination of the existing national and international patent systems reveals that these have had an adverse effect on the economic, commercial and technological development of the pharmaceutical sector in the Asian and other developing countries.

The economic and social policy on patent legislation should be to secure the maximum possible benefits in relation to social costs entailed. A rational patent policy should be one of the components of an integrated national pharmaceutical policy. A number of developing countries have in recent years introduced significant changes in their national legislation on patents. These reforms were so designed as to make the patent system strike a balance between the need for economic development and social change on the one hand, and the rights granted by the patents on the other.

I Paris Convention for Protecti'on of

Industrial Property THE Paris Convention is an international agreement for the protection of industrial property. Since 1967, the World Intelle'ctual Property Organisation (WIPO) has provided the International Secretariat for the Paris Convention. There are several forms of industrial property protection for inventions. These include patents, trademarks, inventors' certificates, utility models, industrial designs, service marks and tradenames. Of all these forms of industrial property, patents and trademarks are the two which are of critical importance to the development of t.he pharmaceutical sector in developing countries. In this seminar we shall be looking at patents only.

The international patent system, for the purpose of this paper, may be regarded as a system which consists of two important components: (1) domestic or national law-s and practices and (ii) international agreement.

A country can formulate its own national laws on patents to suit its development needs. However, the scope of policy and legislation and the flexibility of administrative practices open to a country depend on its commitments entered into through its membership of the Paris Convention. Not all developing countries are members of the Paris Convention. However, many of these countries which are not members of the Paris Union have enacted their national legislations on patents. These laws are based essehtially on the provisions contained in the Paris Convention. Annexures 1-5 g ive examples of national patent laws of developing countries both members and non-members of the Paris Union.

The Paris Convention for the protection of industrial property originally signed in 1883 came into effect on July'7, 1884 witth

fourteen member countries. At present there are 97 members (Annexure 6).

The Convention consists of 30 articles, of which the first 12 deal with questions of patents, trademarks and other forms of industrial property and the remainder with procedural and administrative matters, including amendment of the Convention. There is no preamble and no general state- ment of the objectives of the Convention. Article (1), however, makes clear that the Convention is intended for the 'protection of industrial property'. It is in fact a charter of rights for patent-holders, its essential concern being to determine and safeguard their privileges. As contrasted with the detail and precision with which their privileges are stated, there is little about the rights of countries which grant these privileges. There is little recognition of the public interest that is expected to be sei-ved by the system of patents and few provisions about the remedial measures to deal with the possible abuses of the system. The key rules of the Convention are mandatory on the member states. These provisions define the rights of the holders of industrial property and are stated in considerable detail.

ARTICLES IN PARIS CONVENTION OF IMPORTANCE TO DEVELOPING COUNTRIES

The basic rules regarding the privileges and rights of patent-holders are contained in the provisions in various articles of the Paris Convention including: 1 National treatment (Article 2) 2 Right of priority (Article 4) 3 Independence of patents (Article 4-bis) 4 The safeguards against forfeiture for lack

of working the patent (Article 5 A) 5 Stipulation on imports of products

manufactured with a patented process (Article 5quater) A brief discussion of the provisions con-

tained in the above articles will reveal how drug transnational corporations (TNCs) use

them to virtually hold many developing countries to ransom and exert a monopolistic control of the market. A small number of TNCs control the vast majority of pharmaceutical patents (Table 1). National treatment

The principle of national treatment means that as regards the protection of industrial property, each country, which is a member of the Paris Union must grant the same protection to nationals of other member countries as it grants to its own nationals. It will not be possible for a member country, however underdeveloped it is in its economy or in its scientific and technological capacity, to discriminate in favour of its own citizens as a means of inducing local inventiveness and initiatives. It will be clear to anyone that formal equality will operate to the mutual advantage only when the countries involved are at approximately the same level of technological development and if there is genuine exchange of the patent protected technology among them. When the countries involved are at vastly different levels of technological development with one party having no technology to sell, this provision in the Paris Convention gives patent-holders, who are all TNCs in industrially advanced countries, unlimited freedom to utilise their power at the expense of technology buyers in developing countries. Right of priority

According to this provision, any person who has filed a patent in one of the member countries of the Convention has a right of priority in other member countries, a right which in the case of patents, is for a period of 12 months. This provision adversely af- fects developing countries due to the following reasons:

a) This provision may well constitute a strong disincentive to initiate research and development activities in the third world. In- vestments of time and money may become

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useless because of an application made in some other country in the world and still unknown to nationals.

b) For the same reason, entrepreneurs in developing countries would be discouraged in putting new inventions into use. For nearly a year national enterprises will not have any certainty whether they would be asked to

ABLE 1: CONCENTRATION OF PATENTS ISSUED TO LEADING FIRMS IN THERAPEUTIC FIEIDS,

1965-1970

rherapeutic field Number of Percentage Companies of Patents Obtaining Total Issued 10 or More to the Four

Patents Leading Firms

Anti-infectives Antibiotics 9 53 Antiparasitic 11 52 Antibacterial 15 49 Antiviral 6 46

Cardiovascular Vasoactive 1 57 Hypotensives 7 62 Antianginal 1 78 Antiarrythmic 2 55

Blood Coagulants and

anticoagulants 1 38 Hypolipemic 6 58 Hypoglycemic 3 59

Neurological Tranquilisers and

sedatives 13 70 Stimulants and antidepressants 10 56

Anticonvulsants 3 69 Analgesics 9 54

Hormones Prostaglandins 1 94 Corticosteroids 1 50 Estrogens, androgens and progestogens 15 48

Other Antihistamines 1 26 Anti-inflammatory and antipyretic 15 56

Immunosuppressants 1 48 Anticancer 2 44 Gastrointestinal 3 42 Anorexic 1 30 Diuretic 2 63

Source: D Schwartzman, "Innovation in the Pharmaceutical Industry" (John Hopkins University Press, London, 1976), tables 6-8 and 6-9. The original source was Dervent Central Patent Index. Patents were listed the first time they were granted in one of the following countries; United States, United Kingdom, Netherlands, Belgium, France, Sout'i Africa, Canada, Federal Republic of Germany, German Demo- cratic Republic, Japan, Switzerland and the Soviet Union. Patents were for pharmaceutical compounds and process primarily.

stop such use due to the granting of a patent in some other country.

The consequences of this provision could be more drastic if patent-holders take advantage of this provision and deliberately delay their application until the last month of the Convention year, as for example in Canada. Sample statistics from the Canadian patent office indicate that two-thirds of all Con- vention filings are received in the last month of the Convention year.' Such a practice is connected also with the provisions in Arti- cle 4(bis) on independence of patents- discussed below-to lengthen the period of validity of the patent.

It is interesting to note that when the Con- vention was originally framed in 1883, when means of communication were far slower than today, the period of priority allowed was only six months. In the age of electron,c communication, the Convention has been revised to increase the period of priority! This clearly indicates, as will be shown later, that all subsequent revisions of the Paris Convention since 1883, have increased the monopoly powers of the patent-holder. Independence of patents

Patents applied for in the various member countries shall be independent of patents obtained for the same invention in other countries whether members of the Conven- tion or not as regards the grounds for nullity and forfeiture and as regards their normal duration. It would appear that this provision is consistent with the principle that individual countries remain free to decide for themselves on matters such as patentability, duration of patent, etc.

However, in reality, this provision has a negative impact. In many developing couIi- tries, there is an acute shortage of technical staff required to engage in a thorough examination of a patent application for its novelty, inventive activity and industrial applicability. For these countries the value of information on the granting and validity of patents applied for in a developed countiy wotid be quite high.

For example in the early seventies, the United States justice department asked for and obtainqd cancellation of what it regarded as the "fraudulently procured" ampicillin patent and the invalidation of ampicillin trihydrate patents. Patents for this ampicillin were taken out in over 60 countries and in 1968 the worldwide sales by one company alone and its licensees were about $ 170 million.2 The possible costs to developing countries which continued to grant protection to this "fraudulently procured" patent could therefore be quite high. In developing countries when a patent is accepted and filed, it usually runs its full life without any litiga- tion regarding its validity. This is not so in advanced industrialised countries; in the UK 56 per cent of invalidations of filed patents by the courts had been reported for the period 1918-49; the United States Courts of

Appeals invalidated 62.7 per cent of patents litigated during the period 1948-1954.3

If there had been a mechanism formally established for the exchange of information on forfeiture proceedings, developing countries need not continue to protect fraudulent and useless pharmaceutical patents which are damaging to the nationtl economy and people's health. Safeguards against forfeiture for lack of

working and stipulation on imports of products manufactured with patented process These two articles are of great importance

to the development of the pharmaceutical sector in developing countries. One of the arguments for the international patent system is that it facilitates transfer of technology to developing countries. It is assumed that when an invention is patented in a country, that particular invention will be put to effective industrial use. Let us examine this assumption in relation to pharmaceuticals.

Patent protection for pharmaceuticals are of two kinds: (a) Protection for the pharmaceutical product; and (b) Protection for the process by which the product is manufactured. Product patents

When a TNC obtains patent protection for a pharmaceutical product in the country, the provisions in Article 5A of the Paris Convention give it the following privileges:

i) An exclusive right to manufacture, import and distribute the pharmaceutical product in that country; however there is no obligation that the drug should be manufactured locally.

ii) Prevent others from manufacturing, importing and distributing the pharmaceutical product in that country.

In actual practice TNCs use the provisions in this article to secure an exclusive import monopoly in developing countries. The effective utilisation of foreign patents in developing countries is negligible. 'For example, an examination of 2534 patents in the pharmaceutical industry in Colombia revealed that only 10-or 0.3 per cent of the total-were actually used in the production process in the country in 1970.4

While the Convention does not require as such the working of the patented invention, it authtorises remedial action to deal with abuses associated with non-working, through the devise of compulsory licensing in Articles 5A(2) to 5A(4). It has been stated that "these provisions have had a turbulent history because they touch directly on the conflict between the interest of the national economy as a whole and the interest of the individual patentee in obtaining the maximum return for his patent.5 A study by the United Nations has shown that the compulsory licensing procedures as laid down in the Convention have proved in practice of virtually no value whatsoever and in-

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dicated that the provisions for compulsory licences are extremely weak.6

Taken together, the provisions in Article 5A contain a number of obstacles impeding the working of patents particularly in developing countries. The present text pro- tects the patentee in a number of ways: i) A compulsory licence may not be applied

on the ground of failure to work or insufficient working before the expiration of four years from the date of filing of the patent application, or three years from the date of grant of the patent;

ii) A compulsory licence shall be refused if the patentee justifies his inaction by legitimate reasons;

iii) Such compulsory licence shall be non-exclusive;

iv) Revocation of the patent could not take place except in cases where the grant of compulsory licence could not have been

sufficient to prevent the abuse; and v) No proceedings for the revocation of a

patent may be instituted before the expiration of two years from the grant of the first compulsory licence.

Process patents Another element of the import monopoly

aspect of the Paris Convention is given by Article 5quater which "provides that-when a product is imported into a member-state where there exists a patent protecting a process for the manufacture of that particular product, the patentee has all the rights, with regard to the imported product, that would be accorded to him by the law of the country of importation on the basis of the process patent, with respect to products manufactured in that country".

The existing provision contained in Article 5quater refers essentially to the issue of whether a country which, according to its law, grants process patents (with an extension of the protection to the products manufactured by such process) should regard the sale of the product manufactured by such process as illegal only when the product is manufactured in that country, or if such a sale would also be illegal if the product has been manufactured abroad and subsequently imported.

Article 5quater was introduced into the Paris Convention at the Lisbon Revision Conference of 1958 and is, therefore, the youngest of the principal provisions.

REVISION OF PARIS CONVENTION

The Paris Convention has been revised from time to time after its signature in 1883. Six Revision Conferences, starting with the Brussels Conference ended up with the adoption of a revised Act of the Paris Con- vention. There are several interesting features about the increase of the number of developing countries in the membership of the Paiis Convention. At the first revision in 1900 there were only three developing countri,es. The number rose to 14 at the fifth revision

in 1958 when almost all the developed countries (26 of them) had joined (Table 2). The three developed countries which joined after 1958 were Iceland and the Holy See apd San Marino.

Between 1900 and 1958, when the developed countries had an absolute majority, significant revisions of the basic provisions of the convention have tended to strengthen the position of the patentee and weaken- the rights and privileges of the patent granting country. A historical compromise, originally embodied in Article 5, has been steadily diluted, strengthening the interest of individual patentees and correspondingly weakening the defence of the interest of the national economy. As already mentioned, the priority period under Article 4 has been doubled as compared with the original provisions. The introduction of Article 5quater in 1958 added a further constraint on national flexibility to legislate on the extension of the rights of the patentee. After the revision in 1958, the Paris Convention took its present form. Upto 1958, the participation of the developing countries in shaping as well as in the operation of the international patent system has remained minimal.

At the sixth revision in 1967, the number of developing countries had risen to 43; twenty-six African countries, which regained their independence, joined the Paris Union between 1958 and 1967. In spite of the fact that developing countries constituted majority in 1967, the Stockholm revision did not reflect the urgent needs of these countries. It is also relevant to note that some of the largest developing countries have not joined the Convention. Thqse include: Afghanistan, Bangladesh, Burma, Chile, Colombia, Ethiopia, India, Malaysia, Pakistan, Peru, Thailand and Venezuela (Annexure 6). The Soviet Union joined in 1965 and China in 1985. BACKGROUND TO ONGOING REVISION OF

PARIS CONVENTION Initiatives for the seventh revision of the

Paris Convention were started after the Declaration of the New International

Economic Order was adopted in May 1974 by the Sixth Special Session of the UN General Assembly. This Declaration aims at correcting inequialities and redressing existing injustices between the developed and developing countries. The principles upon which the New International Economic Order is to be founded have at their centre the need for restructuring the existing international agreements among countries. Such restructuring is to work towards fulfilling the development objectives of developing countries. This particular requirement would have to be the guiding consideration in the revision of the Paris Convention.

At its Seventh Special Session, the General Assembly adopted Resolution 3362 on Development and International Co-operation. A section of this Resolution provides "International conventions on patents and trademarks should be reviewed and revised to meet, in particular, the special needs of the developing countries, in order that these Conventions may become more satisfactory instruments for aiding developing countries in the transfer and development of technology."

In December 1975 the Ad Hoc Group of Governmental Experts of the Revision of the Paris Convention, set up by WIPO adopted a Declaration of Objectives of the Paris Convention. This Declaration of Objectives comprised inter alia the following objectives to be achieved by the revision:

(a) To give full recognition to the needs for economic and social development of countries and to ensure a proper balance between these needs and the rights granted by patents;

(b) To promote the actual working of inventions in each country;

(c) To facilitate the development of technology by developing countries and to improve the conditions for the transfer of technology under fair and reasonable terms;

(d) To encourage inventive activity in developing countries;

(e) To increase the potential in developing countries in judging the real value of inventions for which protection is requested,

TABLE 2: MEMBERSHIP WITH NATIONAL PATENT LAWS AT TIME OF REVISION OF PARIS CONVENTION

Place and Year of Group of Countries Socialist Countries of Revision Developed Countries Developing Countries Eastern Europe, Asia

and China NMembership No with Membership No with Membership No with

of Paris National of Paris National of Paris National Union Patent Laws Union Patent Laws Union Patent Laws

Brussels 1900 13 20 3 24 Nil 3 Washington 1911 16 22 5 28 3 4 The Hague 1925 22 24 9 42 6 7 London 1934 24 26 9 44 6 7 Lisbon 1958 26 27 14 59 6 8 Stockholm 1967 29 27 43 82 7 8 Geneva 1980-1987 29 27 60 85 8 8 (Ongoing Revision)

Source: Annexure 6.

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ih screening and controlling licbnsing con- tracts and in improving information for local industry;

(f) To ensure that all forms of industrial property be designed to facilitate economic development and to ensure co-operation between countries having different systems of industrial property protection.

The Declaration of Objectives also stated that as far as the Revision of the Paris Con- vention was concerned, consideration should be given to certain defined cases in which exceptions and/or correctives to the principles of national treatment, independence of patents and preferential treatment for developing countries should be allowed.

The Third Ministerial Meeting of the Group of 77 in Manila (January/February 1976) stressed in the Manila Declaration and Programme of Action that 'the economic, trade and development interests of the developing countries should be fully reflected in the revision of the international system of industrial property and, in particular, in the revised Paris Convention'.

ONGOING REVISION OF PARIS CONVENTION

An Ad Hoc Group of Governmental Ex- perts of the Revision of the Paris Conven- tion was set up by WIPO in 1975. The Group held three sessions between February 1975 and June 1976. All member States of the Paris Union and members of WIPO were invited to the first and second sessions and all state members of the United Nations or any other specialised agency of the UN were further invited to the third session. During the sessions of the Group of Experts and throughout the process of preparatory work for the Revision of the Convention, groups of countries had informal consultations. The three main groups of countries that acted in this process were the Group of 77 and other developing countries, Group B (which is the group of industrialised market economy countries) and Group D (comprising the socialist countries of Eastern Europe).

On the basis of a recommendation by the Group of Experts, the Preparatory Inter- governmental Committee on the Revision of the Paris Convention was established in 1977. The Preparatory Committee held five sessions in Geneva between November 1976 and December 1978. To these sessions were invited all state members of the Paris Unioni, of the UN and its specialised agencies as well as a certain number of intergovernmental and non-governmental organisations. The Preparatory Intergovernmental Committee submitted its draft proposals to the Diplomatic Conference. These contained amendments to articles already existing in the Stockholm Act of the Paris Convention or proposals for new articles.

The proposed amendments which are of great relevance to the development of the pharmaceutical sector in the third world are those in relation to Articles 1, 5A and

5quater. The proposed new text of Article 1 in-

troduces as the main change in the current text of the Convention, the recognition of inventors' certificate as a title of industrial property to be accepted on the same footing as patents for inventions. The proposed text includes definitions of inventors' certificates and patents for inventions in order to assert a parallellism and balance between both titles.

The new text of Article 1 also contains alternatives with respect to the question whether the recognition of inventors' certificates should in all cases depend on a free choice between a patent and an inventor's certificate or whether exceptions from the "free choice principle" could be permitted.

The revision of Article 5A constitutes the most important aspect of the present revision process. From the point of view of developing countries the main objective of the revision of these Articles has been the promotion of the working of patents in the country granting the patent. As described earlier the present texts contain a number of obstacles impeding the working of patents and enable patent holders-the TNCs-to obtain import monopoly for their products.

The proposed new text of Article 5A contains provisions authorising national laws to take certain measures under three types of cases, namely: where the patent rights are abused; where the patented invention is not, or not sufficiently, worked in the country where the patent was granted; and where the public interest is involved. In each case, the laws and competent authorities in the countries of the Union would be able to apply several measures, according to the situations referred to previously, within certain limitations. For the case of failure to work or insufficient working, it would be possible for any country to provide for the grant of non- voluntary licences to work the patented invention. Other measures inc-lude, in particular, forfeiture and revocation of the patent in the case of abuse of the patent rights, and-as a subsidiary measure- foreiture and revocation also for the case of non-working or insufficient working of the patented invention. Finally, where the public interest requires exploitation of the invention, it is proposed to allow national laws to provide for the grant of authorisation to exploit or work the invention by the state or by any person designated by the competent national authorities.

It is ar important feature of the draft new text of Article 5A that some of its provisions have been specifically intended for developing countries. For these countries, shorter periods and easier requirements have been submitted, in order that they may regulate more freely the grant of non-voluntary licences and the application of sanctions and other measures to deal with failure to work and abuse of patent rights.

The basic proposal submitted to the

Diplomatic Conference with respect of Article 5quater is that it be omitted entirely from the Convention, or at least that the developing countries be exempted from the obligation to apply this Article. First Session of Diplomatic Conference

The First Session took place in Geneva from February 4 to March 4, 1980. The Con- ference initially ran into some difficulties in approving the Rules of Procedure according to which the Conference would have to function. There was a strong controversy on the rule dealing with the number of votes which would be required to adopt the revised Act of the Convention.

The Group of Developing Countries supported by the Group of Socialist Countries, submitted that the new Act should be adopted by the Conference (meeting in plenary) by a qualified majority of two- thirds of the votes cast. The Group of Developed Countries (Group B) wanted the new Act to be adopted by unanimity arguing that all the previous decisions of the Paris Convention had been adopted by unanimity.

During further negotiations Group B gradually yielded from their original position requiring unanimity and accepted a compromise that the revised Act would be adopted by a qualified majority of unanimity minus 12 votes against. However, when the compromise was adopted, the delegation of the United States of America stated that it could not accept the compromise and that the adoption of this rule would have required unanimity. Second Session of Diplomatic Conference

The Second Session was held in Nairobi (Kenya) from September 28 to October 24, 1981. This session dealt with mainly Article 5A. A new text of Article 5A was provi- sionally agreed upon by the three regional Groups (developing, developed and socialist countries), the United States of America, however, opposing some of the provisions contained in the agreed text of this Article.

In addition to Article 5A, Article 1 was also discussed without reaching a conclu- sion. At this meeting, Australia, Canada, New Zealand, Portugal, Spain and Thrkey supported the position of the developing countries. These six countries stated that they being net technology importers, were being h'armed by the present international patent system.

Third Session, of Diplomatic Conference The Third Session was held in Geneva

from October 4 to 30, 1982 and from November 23 to 27, 1982. While the Main Committee examined other Articles, negotiations on Article 5A continued in an informal body. Delegations from the three regional Groups participated in these unofficial meetings but no consensus was reached. Several proposals on Article 1 were submitted to the Main Committee but no decisions were taken.

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Fourth Session of Diplomatic Conference The Fourth Session was held in Geneva

from February 27 to March 24, 1984. The Main Committee continued its debates on Article 5A. Certain ideas were put forwa,rd by the Group of Developing Countries for consideration by other groups but no new proposals for amendment were presented and no agreement could be reached.

The Main Committee also discussed two new documents containing proposals concerning the definition of patents and inventors' certificates. None of the proposals were rejected or adopted.

SPREAD OF NATIONAL PATENT LAWS Table 2 summarises the changes in the

number of countires having national patent laws between 1900 and 1987. The dates have been chosen to reflect the years when the Paris Convention was revised. This table illustrates the the following:

Twenty-five developing countries which are not members of the Paris Union have established their own national patent laws. These are based essentially on the provisions contained in the Paris Convention (for eg see

TABLE 3: PATENT-LEGISLATION IN 15 DEVELOPING ASIAN COUNTRIES

Country Patents Legislation

Afghanistan No legislation Bangladesh Patents and Designs Act, 1911 Burma Burma Patents and Designs

(Emergency Provision) Act, 1946

Hong Kong UK Patents Ordinance, 1932 India Patents Act, 1970 Indonesia Provisional Patent

Regulation, 1953 (Patent Law under preparation)

Malaysia Act No 291 of 1983. Introduced on October 1, 1986

Maldives No legislation Nepal Patent, Design and TM Act,

1985 Pakistan Patents and Designs Act,

1911 as amended upto 1961

Philippines Act No 165 of 1947 as amended upto 1968

Republic of Patents Act, 1961 amended Korea upto 1980

Singapore Registration of UK Patents Ordinance 1937-55. Patents (Compulsory Licensing) Act, 1968 (studying various option for a national patent law)

Sri Lanka Code of Intellectual Property Act, 1979

Thailand Patents Act, 1979

Source: A survey of the Industrial Property Situation in the Developing Countries of Asia and the Pacific-document prepared by the International Bureau of WIPO (SPAC/83/9) p-5.

Annexures 1-5). By the end of the 19th century the

establishment of national patent laws in nearly all what are now the developed market economy countries was completed. (The seven countries which had not yet introduced patent laws were Australia, Greece, Iceland, Ireland, Leichtenstein, Monaco and South Africa. The Holy See and San Marino are members of the ~Paris Union but have no patent laws.)

On the other hand only 24 developing countries had established their patent laws by 1900. At present 85 of them have their own patent laws. The rise in numbers is mainly explained by the fact that former col- onies whose legal codes included some form of patent system during dependence, came to be shown later as independent countries with national legal codes.

Majority of the developed countries have legislated new laws, many of them within the last 25 years. Among the developing countries the position varies from region to region (see Annexure 6).

In Africa the first patent law still prevails in all the countries and in 13 of them the law dates from before 1950, i e, when they were under foreign domination. There is more evidence of change in Latin America; however 13 of the 25 countries have never brought in fresh patent laws. Asia presents a different picture. Many countries do not have patent laws. In half the number of countries with laws the current legislation is prior to 1950, i e, when they were under colonial rule.

II Major Provisions of National

Legislation on Patents Table 3 gives the existing patent legisla-

tion in 15 developing Asian countries. Twelve of these countries have national legislations giving legal protection to invention by means of patents. Afghanistan and the Republic of Maldives have no. patent legislation. Indonesia has a law known as the Provi- sional Patent Regulation, 1953. Under thiso law, patent applications are received, examined as to form and given a filing date. However, no patents are granted and none will be granted until a patent law has been enacted. The government of Indonesia has been in the process of finalising a draft patent law.

Of the countries listed in table 3, only four, Indonesia, the Republic of Korea, Philippines and Sii Lanka are signatories to the Paris Convention. The eight non- member countries, however, have enacted their national legislation on patents based essentially on the Provisions of the Paris Convention. Copies of the national patent legislations of China, Pakistan, Sri Lanka, Thailand and Vietnam listing the major provisions are given in Annexures 1-5 to com-

pare the legislations in member states and non-member states of the Paris Union.

APPLICATION, EXAMINATION AND GRANTING OF PROTECTION

Under the provisions in the national legislation, the applicant files his application with the competent administration. The application is examined by or on behalf of the competent administration. The examination consists of:

1) Examination as to form; and 2) Examination as to substance. Examination as to form: In this procedure

compliance with the minimum requirements such as complete name and address-of applicant, presence of the necessary documents and information and the payment of a prescribed fee are checked.

Examination as to substance: This procedure requires the patent office to search the state of the art (or requires a report on this from the applicant) and to examine the invention claimed in the application in the light of that art and thereby determines whether the invention fulfils certain criteria of patentability (differing from country to country), the most commonly accepted of which are the inventivv step, novelty and industrial applicability. After the examination and any opposition, the competent administration decides whether to grant a patent of invention.

In Burma and Nepal patents are granted after the examination as to form only.7 In Sri Lanka, under the existing legislation which was introduced in 1979, patent applications are examined as to form only, whereas from 1925 they were examined as to substance also. Now disputes concerning whether or not the invention represents a meaningful technological advance and other grounds of invalidation, are matters for the courts to decide.

In Bangladesh, India, Malaysia, Pakistan, Philippines, Republic of Korea and Thailand, the patent offices examine patent applications as to form and substance before deter- mining whether a patent for an invention can be granted.

Singapore does not examine any patent applications before granting a patent but has a re-registration scheme under which, patent protection is granted to United Kingdom patentees who apply for their patents to be re-registered within three years of the grant of the patents by the UK patent office.

NATURE OF TITLES GRANTED

The two main forms of protection of inventions are patents and inventors' certificates. In practical terms and as a means of stimulating technical progress, patents and inventors' certificates have much in common. The main difference is that whereas the owner of a patent has the right to exclude others from using the patented invention up to a limited period of time, the

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owner of an investors' certificate transfers the exclusive rights to the state, has the right to receive remuneration when savings are made through the use of the invention and this right is not limited in time. Another difference is that a patentee has to pay a fee to have his invention examined and pto- tected; no payment of fees is required for inventors' certificates.

Inventors' certificate is not mentioned in any of the laws of the countries listed in table 3. All socialist countries grant inventors' certificates. Mexico introduced it in its Law of Inventions and Marks in 1981 and amended in 1982.

Inventors' certificates are particulary useful for developing countries. In the ongoing revision of the Paris Convention which attempts to introduce in the Conven- tion for the first time special provisions that will respond to the particular needs of developing countries, one of the amendments to the existing text proposes the recognition of inventors' certificate as a title of industrial property to be accepted on the same footing as patents for inventions.

NON-PATENTABLE SUBJECT MATTER A central feature of any patent law must

be the specification of those items that are eligible to be patented or the exclusion of those that are not. However, a comprehen- sive definition of the subject matter that may be protected by patients has so far not been adopted in any national law.

An examination of the national patent legislation of various countries show thai many countries have recognised the need to discriminate between sectors in their patent policy. The main sector that is excluded from parentability by many countries is that of pharmaceuticals. The exclusion of pha;- maceuticals is based on the consideration that the grant of patents could have adverse effects on the general availability or the price of these which are of vital importance to the people of the country. In this sector the general provision appears to be that the processes of production are patentable but the products manufactured are not: Table 4 shows that a number of countries including many developing countries and a few advanced industrialised countries do not grant patent protection for pharmaceutical products. In our region India, Indonesia and Thailand do not grant patent protection to the pharmaceutical products. Republic of Korea is introducing changes in its patent laws to include pharmaceutical products as subjects for patentability.

DURATION OF PATENTS

One of the aims of granting a patent is to provide an inventor with some return of his investment. It is therefore essential to fix the duration of time during which the patentee can retain monopoly privileges. However, in spite of various comments in the patent literature on the question of duration

of patents, there has been no thorough economic analysis to determine an optimum duration. The notion of a fair return is a highly subjective one and its determination may vary from country to country, from sector to sector and from time to time.

The analytical work in the literature on patents has failed to examine whether optimum duration should be considered only in terms of the private interest of the inventor rather than the public interest of society.

The historical precedent and political compromise which determined the duration of patent rights are very interesting. The 14-year term of the English patents in 1624 was based on the idea that two sets of ap- prentices should, in seven years each, be trained in the new techniques.8

Table 5 gives the duration of patents in eleven Asian countries. Analysis of the duration of patents worldwide reveals that in ad-

vanced industrialised countries patents are mainly granted for 16-20 years. The data for developing countries show a wide range of patent duration ranging from five to twenty years. Costa Rica is the only corntry to give a one-year term for pharmaceutical patents.9 It would therefore appear that a developing country could determine the period of duration of a patent grant in ac- cordance with its own specific requirements and policy considerations. An example of a law under which the appropriate duration of a patent was subject to determination by the government in each case was the Chinese Law of 1950.10

LIMITATIONS OF EXERCISE OF PATENT RIGHTS IN PUBLIC INTEREST

The patent legislations of most countries provide for various measures for the limitation, in the public interest, of the exercise

TABLE 4: COUNTRIES EXCLUDING PATENT PROTECTION TO PHARMACEUTICAL PRODUCTS

1974-75 1979-80 1974-75 1979-80 Developing Countries Senegal x x Argentina x x Syrian Arab Republic x x Benin x x Thailand xe x Bolivia x x Togo x x Brazil xa xa Tinisia x x Cameroon (United Upper Volta x x

Republic) x x Uruguay x x Central African Republic x x Venezuela x x Chad x x Yugoslavia x x Chile x x Developed market- Colombia x x economy countries Congo x x Ecuador x xa Austrla x x Egypt x x Greece x x Gabon x x Italy xa Ghana x x Japan x Guyana X X Norway x x Honduras - x Nra India

s x Portugal x x Indonsia x b xb Spain x x Indonesia x x Switze-rland x Iran x x Iran Coast

x x Turkey x x Iraq x x

Ivory Coast x x Socialist Countries of Korea (Republic of) x x Eastern Europe Kuwait x x Albania xf xf Lebanon x x Czechoslovakia xf xf Libyan Arab Jamahiriya x x German Democratic Mexico x xc Republic x x Morrocco x x Hungary x x Niger x x Poland x x Paraguay x x Romania xf xf Peru xd x USSR xf xf

Sources: "The Role of the Patent System in the Transfer of Technology to Developing Coun- tries" (United Nations publication, Sales No E 75 II D 6), table 14, and "Patents throughout the World", Trade Activities Inc (New York: ed, Anne Marie Green,. 2nd edition, 1980).

Notes x Products are excluded from protection; - Products are granted protection; a Phar- maceutical processes are also excluded from patentability, b There is no patent law in Indonesia; c Processes are not patentable, but they may be protected under inventor's certificates; d Before the introduction of Decision 85, the Peruvian Patent Office refused product patents on the grounds that a patent is to be granted "siempre que sea de in- teres social" (as long as it is in the public interest) (article 46, legislation Decree No 18350, of 1970);. e Patents were introduced in Thailand in 1979; f Only inventor's certificates are granted for inventions relating to medicines.

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of the exclusive rights conferred by the grant of a patent. In the Indian Patent Act of 1970, both the applicable measures to limit the exercise of the patent rights and the grounds upon which the application of such measures are based have been increased and diversified.

FAILURE TO WORK OR INSUFFICIENT WORKING

One of the major purposes of a patent law is to encourage working of inventions in a country. TheParis Convention gives failure to work as an example of an abuse which might result from the exercise of the exclusive rights conferred by a patent. However, no attempt is made in the Convention to define 'working'. The definition will therefore depend on the relevant national law. The tendency in recent patent laws is to specify a clear requirement for manufacture so that importation or sale do not amount to working of the patented invention.

An example is the patent law of Israel, which provides that the exercise of patent rights is regarded as abuse if the product, the subject of the patent, is not manufactured in Israel." USE AND EXPROPRIATION BY THE STATE

Most national laws provide for either use of patented inventions by the state or expropriation of patents by the state. Compen- sation is normally payable to the patentee in either event; the basis of the assessment of compensation and the legal or administrative procedures required are provided for in the national laws. Recent changes in national laws indicate a general trend towards conferring upon the state more extensive

TABLE 5: DURATION OF PATENT PROTECTION IN 11 ASIAN COUNTRIES

Country Duration in Years

Hong Kong' 20 India2 5-7, 14 Republic of Korea 12 Malaysia 1 5 Nepal3 1 5 Pakistan4 1 6 Philippines 1 7 Singaporel 20 Sri Lanka 15 Thailand 1 5

Notes: 1 Patents in UK re-registered and expire when the UK patent expires.

2 Process patent for pharmaceuticals and food are given 5-7 years. Patents in other sectors are protected for 14 years.

3 May be extended for a further term twice.

4 May be extended for a further term of five years or in exceptional cases for 10 years.

Source: Pedro Roffe-Technology Division, UNCTAD, Geneva, Personal Communication.

powers with regard to use of patented inventions and expropriation of patents.

The patent law of India for example contains provisions which give to the state the right to both use the patented inventions and to acquire patents in the public interest, subject to payment of a compensation.

The need to apply punitive measures similar to the three referred to above does not arise when an invention is covered by an inventor's certificate in which case the rights in the invention are vested in the state or a state enterprise. Therefore when such provisions are found in the laws of countries where inventors' certificates are available, they relate to patents only. In such countries, where both patents and inventors' certificates are issued, the number of patents granted is much s'maller than the number of inventors' certificates granted. For example, in the Soviet Union 2,516 patents were granted and 38,632 inventors' certificates issued in 1972.12

III Impact of Patent Protection on

Economic, Commercial and Technological Development of

Pharmaceutical Sector in Developing Asian Countries In contrast to the extensive data available

on foreign trade, national income and numerous other economic variables, information on patents is limited. The first fully fledged patent statute was introduced in Venice in 1474. The next legislation was the English Statute of Monopolies of 1623. However, it was not until the advent of the Industrial Revolution that national patent laws became widespread in Europe. There was a temporary setback. The liberalisation of international trade which was gathering momentum under the banner of 'free trade' in the mid-nineteenth century provoked considerable criticism of patent laws. Some critics asserted that national patent laws, by granting temporary monopolies, acted in the same way as prohibitive tariffs. In two Euro- pean countries, discussion led to the repeal (in the Netherlands) and rejection' (in Switzerland) of national patent laws. The majority of the members of the parliament in the Netherlands, citing as authority classical economists, accepted that a 'good law of patents is an impossibility' and in 1869 the existing patent law was repealed.

However, following the signing of the Paris Convention and during the first quarter of the twentieth century, when the so-called 'advanced industrialised countries' acquired economic and political control of the third world, national patents laws became firmly established in the industrialised countries and the international patent system controlled international trade in technology. Patent lawyers and businessmen offered various arguments to justify the patent system in both its national and in-

ternational aspects. It was after 1970 that studies by Firestone,13 Vaitsos,14 Katz,'5 and the United Nations'6 appeared which examined the impact of the patent system on the economic development of the developing countries and the sectors most affected by patent legislation.

The United Nations report referred to above, analysed the empirical data collected from member countries and found that in- stead of being used in production, an over- whelming majority of patents granted to foreigners through national laws of developing countries have been used to secure import monopolies. It would therefore seem that patent practices of developing countries, following international standards, have legalised this peculiar situation which has come to act as a reverse system of preferences granted to foreign patent holders in the markets of developing countries. A suvery of 22,736 patents registered in Mexico as of February 1980 that were supposed to be worked, revealed that only 1,951 or 8.6 per cent were industrially exploited.'7

The small number of foreign patents which are used in production processes in developing countries does represent a transfer of technology but at a very high price. Examination of the agreements, entered into by developing countries, concerning use of patents through foreign in- vestments or licensing arrangements reveals that these agreements frequently contain not only high royalty payments and charges for technical services raising the direct costs of obtaining the technology, but also restrictive practices and in some instances abuses of patent monopolies, either explicitly embodied in the contractual agreements or im- plicitly followed by subsidiaries and affiliates of transnational corporations, which impose heavy indirect or 'hidden' costs through overcharging for imported inputs. The foreign exchange burden of these costs- much larger than direct costs-applies to all developing countries regardless of whether they have national patent laws, or whether they are members of the Paris Union.

PHARMACEUTICALS AND PATENT SYSTEM

The role of the national and international patent sytem is of great significance in the pharmaceutical industry which is now perhaps the only major industry which depends on patent generated monopoly to protect its innovation. By far the greatest concentration of patents in developing countries is in the pharmaceutical sector. For example, out of a total of 3,513 patented processes or products registered in Colombia in 1970, 72 per cent of them belonged to the pharmaceutical industry and of these only 10 or 0.3 per cent were actually used in the production process.'8

Pharmaceutical patents are a source of monopoly power not only because they give the patentee the exclusive right to exploit his

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innovation commercially for a certain length of time but also, of much more adverse effect on developing countries, they can be used to prevent the importation of cheaper products and to prevent a local manufacturer from starting the production of similar products, even if the patentee does not set up production facilities in that country. An illustrative example was the Andean experience in the early seventies. The Andean group of countries (Bolivia, Colombia, Ecuador, Peru and Venezuela) wished to establish a regional plant for the manufacture of certain antibiotics. The patents for these antibiotics were registered in each country of the Andean group but they could not proceed with local manufacture because the patent holder, a transnational corporation, figured that it was more profitable to export drugs than to give a licence and therefore refused a licence.

Realising that the national legislation in their countries on industrial property prevented their technological development, the Andean group introduced new laws. An example of this is Decision 85 of the Andean commission which dealt specifically with patents, trade marks and industrial designs. The basic principle established in Decisiop 85 was that the interests of the society prevailed over the private privileges of the patent holder. Article 28 of the Regulations of the Andean group completely eliminated import monopoly from among the rights conferred by a patent-a right enshrined in the Paris Convention and fully exploited by all transnational drug companies.

When a subsidiary of a TNC undertakes

production of a patent protected drug in a developing country, there are usually some imports from either the parent company or any of its branches in some other country. The prices recorded for these imports may differ drastically from prices for similar products elsewhere in the world and such 'transfer-pricing', can lead to substantial outflows of foreign currency.

In his pioneering study of this subject Vaitsos has shown that pharmaceutical companies examined in Colombia charged, on the average, prices some 155 per cent in excess of the world average. He estimated that if the same figure held true for all firms in the pharmaceutical industry, the balance of payments cost incurred in 1968 would have been in excess of $ 20 million-in other worlds, over-pricing in the pharmaceutical industry alone was of the same order of magnitude as all known and explicit annual payments for industrial technology made by the whole economy of Colombia.19

Another illustrative example was the level of overcharging by a TNC in its sales to the British National Health Service of its brand- ed products of diazepam (valium) and chior- diazepoxide (librium). The much weaker technological status of developing countries might render them still more vulnerable to foreign exchange costs of this kind.

The British government, following the ad- vice of its Monoplies Commission, ordered Roche Products, a British subsidiary of the world's leading drug company, Hoffman-La Roche Ag of Basel, to cut its selling prices for the tranquillisers by 60 to 75 per cent and to refund $ 27.5 million for overcharging.

The Monopolies Commission found that Roche Products was paying the parent company $ 925 per kg for one substance that could be bought in Italy (were these products were not under patent protection) for $ 22.5 per kg and $ 2,305 per kg for another substance which could be procured in Italy for $ 50 per kg. The overcharging amounted to 41 times the cost of alternative supply in the former instance, and to 46 times in the latter. Official investigations were also taking place in Australia, Belgium, Federal Republic of Germany, Greece, the Netherlands,, New Zealand, South Africa, Sweden, and before the EEC Commission. In self-defence, Hoffman-La Roche has cited Eastman Kodak, Kellog, and Procter and Gamble as being open to attack on similar grounds.20

Table 6 gives import prices of ampicillin and tetracycline by Philippines importers in 1975 and 1976. The import prices in this table show the extent of transfer pricing. The price of ampicillin ranged from US,$ 81 to $ 251 per kg and tetracycline from $ 19 to $ 130.

OWNERSHIP OF PATENTS IN SELECTED ASIAN COUNTRIES

Table 7 gives the number of patent applications filed and patents granted by nine Asian countries to residents and non- residents from outside Asia in 1980. Non- residents owned the vast majority ofthe total patents granted and varied from 77 per cent in India to 99.8 per cent in Singapore. These figures are similar to those reported for other developing countries.21

This table also shows that 25 per cent of TABLE 6: IMPORT PRICES OF SELECTED ANTIBIOTIC DRUGS FOR TRANSNATIONAL CORPORATION AND LOCAL FIRMS

Philippine Importer Mechanism of Transfer Date of Import Source of Import Quantity Import Prices of Technology Kgs (US dollars

Per kg) I Ampicillin Bristol/Mead Johnsona direct investment. 1976 January parent company abroad 115 CIF 177.47

1976 March parent company abroad 50 CIF 189.28 1976 April parent company abroad 100 CIF 242.99

Beechama direct investment 1975 December parent company abroad 393 FOB 200.00 1076 February parent company abroad 362 FOB 251.00

Zodiacb through voluntary licensing 1976 April Beecham, the foreign licensor 25 CIF 115.00 United Laboratoriesb through voluntary licensing 1976 June Beecham, the foreign licenser 1,600 CIF 141.00 Doctors Pharmaceuticalb through compulsory .1976 January from international market 50 FOB 81.38

licensing by open-tender 1.976 May from international market 100 CIF 91.40

by open tender 2 Tetracycline HCI Bristol direct investment 1976 February Bristol (Cristobal) 50 CIF 130.51 Squibba direct investment 1975 January Linson (Ireland) 133 CIF 75.30

(TNC subsidiary) Winthropa direct investment 1975 March Belsman (Hamburg) 150 CIF 38.13

(TNC subsidiary) Cyanamida direct investment 1975 August (New York) 35 CIF 117.00

(TNC subsidiary) United Laboratories through volunta,ry 1975 September Biochemico (Genoa 1,200 CIF 21.76

licensing Pharma (Rotterdam) 1,000 CIF 18.80 Notes: a TNC subsidiary.

b Filipino-owned firm. Source: Technology Resource Centre, Philippines.

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the application filed by residents were granted patents compared to 47 per cent for non-residents. The grand total of patents in force in December 1980 varied from 657 in Sri Lanka to over 12,000 each in India and the Philippines.

The following information on these patents are not available but will be useful for an analysis of the impact of pharmaceutical patents in the economy of these countries. i) Of the grand total of patents, the number

granted for pharmaceuticals: a) for pharmaceutical products, b) for pharmaceutical processes:

ii) Of the total pharmaceutical patents granted, the number put into effective use in the country;

iii) The total number of licensing agreements for manufacturing pharmaceuticals entered into between national manufac- turers and foreign drug firms and the number of licensing agreements among these which involved a patent;

iv) Names and addresses of those corporations which own the pharmaceutical patents.

REGIONAL TRADE IN PATENTED TECHNOLOGY

Table 8 gives the number of patents filed by and granted to residents of seven Asian countries in the other six. It is seen that there is very little intra-regional trade in patented technology among the seven countries. Lndian and Korean residents who filed over 12,000 patent applications in their own countries have only filed one and eight applications respectively within the region. It is of course possible that they had filed patent applications in countries outside the region. Singapore residents on the other hand filed only two in their own country and eight -in the region.

Two possible reasons could be given to ex- plain this phenomenon:

i) The definition of what constitute a resident, whether physical or juridical, usually depends on some kind of consideration relating to the residence of an individual or to the place of legal establishment of a corporation. It is well known that a corporation that is effectively in the control of foreign groups may, under such legislation be treated for legal purposes as a national corporation. Thus for example, a corporation which is established in one of these Asian countries may have the majority of shares owned by foreign interests, yet it is regarded, for legal purposes, as a national entity. Under these circumstances the patents granted to that corporation will be treated as a patent granted to a resident. If this happens, that particular corporation need not file an application in the region since the foreign interests which control this corporation would also have similar establishments in the other countries of the region.

ii) A second explanation is that the majority of patents granted to nationals in developing countries are owned by individuals whereas foreign patents are almost always owned by corporations. Patents owned by individuals are seldom exploited industrially. Many of these patents may be obtained more for intellectual satisfaction than for commercial exploitation. Detailed information as to the ownership of national patents may throw light on why there is little intra-regional trade in Asia.

ADVERSE EFFECTS OF PATENT PROTECTION

The pharmaceutical market in the region is characterised by the dominance of foreign TNCs. Given the oligopolistic structurt in this industry with its concentration of R and D activities and active component manufacture by a small number of these rNCs, the extent of the protection of patents in pharmaceuticals in the countries of the region may further contribute to reinforcing such features.

The impact of patents in a country depends on the extent of protection and the degree of industrial development reached or desired. Of the countries in the region India is the only one where the local industry is advanced and importation of dosage formulations or finished products is minimal. In all other countries, local manufacture does not meet the total requirements, and varying amounts of finished products have to be imported in addition to almost all raw materials and active ingredients for local manufacture of dosage forms. In these countries the crucial problem will be the monopoly of importation either on the basis of product patents or process patents which ex-

tend the protection to products manufactured by patented process.

The exclusive right of the patentee to inf- port can be used to prevent cheaper alternatives from being marketed in a country where product patents are protected. A cheaper generic alternative can therefore be marketed in a country only if there is no product patent law in that country. For example, generic cimetidine is available in Thailand at US $ 0.34 for one day's therapy compared to 'Tagamet', the innovator's brand at US $ 1.68 for one day's therapy.22 This is possible because Thailand does not grant patent protection to pharmaceutical products.

All the countries in the region, except India, manufacture dosage formulations from imported raw materials. Existence of a patent granted in respect of a product is likely to deter or drastically hinder the development of the industry in these countries in spite of the fact that there is free ac- TABLE 8: PATENTS FILED BY AND GRANTED TO

RESIDENTS OF SEVEN ASIAN COUNTRIES IN OTHER SIX IN 1980

Country Field Granted

Indonesia 1 Nil India 1 Nil Malaysia 32 5* Philippines 2 Nil Republic of Korea 8 1** Singapore 8 Nil Sri Lanka 4 Nil Total for the seven

countries 56 6

Notes: * Patents granted 3 in Singapore and 2 in Sri Lanka.

** Patent granted in Philippines. Source: WIPO, op cit, Annexure 4.

TABLE 7: PATENT APPLICATIONS FILED IN AND PATENTS GRANTED BY NINE ASIAN COUNTRIES IN 1980 TO THEIR RESIDENTS AND NON-RESIDENTS FROM COUNTRIES OUTSIDE ASIA

Country Residents Non-Residents No of No of No of No of No of No of Total Grand

Patents Patents Patents Patents Patents Patents Patents Total of Applied Granted Granted Applied Granted Granted Granted Patents in

for in 1980 as a Per- for in 1980 as a Per- in 1980 force on in 1980 centage in 1980 centage 31-12-80

of Total of Total Granted Granted in 1980 in 1980

Bangladesh 34 7 7 102 94 94 101 1071 India 1207 349 23 1817 1152 77 1501 12627 Indonesia 5 Nil - 475 Nil - Nil na Pakistan 37 14 4 369 335 96 349 8081 Philippines 119 93 10 1454 811 90 904 12539 Republic of

Korea 1241 186 11 3829 1446 89 1632 9073 Singapore 2 1 2 631 548 99.8 549 7511 Sri Lanka 13 11 14 607 67 86 78 657 Thailand 18 Nil - 184 Nil - - na Total 2676 661 13 9468 4453 87 5114

Note: na = data not available. Source: World Intellectual Property Organisation, document No SPAC/83/9, dated May 1983,

Annex 3.

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cess to regular supplies of good quality raw materials in cQjntries like Italy, Scandina- vian and socialist countries. The growtXf and development of national firis in the Latin Amerihan countries, despite lack of gdvern- ment support policies, was due to the fact that national firms enjoyed one essential legal condition; in these countries patent protection was not granted for products and process patents in general did not prevent the free importation'of raw materials and active ingredients.23 Process patents may become a hindrance to the local manufacture of raw materials and actit,:' ingredients. It is for this reason that the tnaulonal drug industry in India and Latin America have been arguing for the abolition of pharmaceutical patents.

Perhaps the best argument that a patent free environment is essential for the development of the pharmaceutical industry is given by changes-in the national patent legislation of five advanced industrialised countries- France, Federal Republic of Germany, Italy, Japan and Switzerland, home for some of the big drug TNCs. All these five countries introduced product patents only after their domestic pharmaceutical industries had at- tained a considerable level of development. France introduced product protection in 1958 and Federal Republic of Germany in 1968. As table 4 indicates, Italy, Japan and Switzerland had no product protection in their national laws as late as 1974-75.

PATENT POLICY AS COMPONENT OF AN INTEGRATED RATIONAL DRUG POLICY

It must be emphasised that a rational policy on drug patents by itself will not lead to the development of the national industry, lower drug prices and increase the availability of drugs to all sections of the population. The absence of pharmaceutical patents by itself in a country where foreign firms 'dominate the local market and where the government has not implemented an integrated national drug policy, will hardly modify'the availability and price of pharmaceuticals in that country. This can be best illustrated by comparing the pharmaceutical supply systems in Sri Lanka and Thailand in the early seventies.

Sri Lanka in 1972 introduced pharmaceutical reforms. A rational drug policy was adopted. The national patent laws contained provisions for both product and process patents for pharmaceuticals. However, in spite of the patent protection, an innovative procurement policy which was one of the major components of the new drug policy led to the rationalisation of the pharmaceutical sector. The national formulary contained about 600 dosage forms. All imports'were channelled through a state corporation; imports were restricted to drugs in the national formulary. Drug prices were much lower than during the previous years.24 The World Health Organisation recommended the Sri Lankan model to other countries.25

Thailand on the other hand, in the early seventies did not grant product patents. This policy alone, in the absence of the other components of a drug policy, was not adequate to rationalise the pharmaceutical supply system. An in-depth stud 26 of the pharmaceutical industry in Thailand con- cluded, among other things: i) "The consumption of drugs in Thailand

seems to have lost relation with actual requirements, to be gettitng out of control evolving in a wasteful manner, all of which calls for a gystematic measure. .

ii) "Comparison of consumption and requirement figures shows that health priorities are drug wise disregarded. Only tiny proportions of the patients are treated. Huge amounts of resources are diverted to non-essential drugs".

These examples underscore the fact that patent reforms alone are not sufficient but should be an integrated component of an overall rational drug policy.

IV Review of Recent Changes to Patent

Legislation in Developing Countries27

A number of developing countries have introduced significant changes in their national legislation on patents. These reforms followed the concern expressed by these countries that the patent system should strike a fair balance between the need for economic and social development and' the rights granted by patents. These changes were made to the following provisions in the patent legislation: i) [Non-patentable subject matter; ii) Import monopoly; iii) Non-voluntary licences unrelated to non-

working of patents; iv) Definition of exploitation or working of

the patent; v) Importation and working of patents; vi) Grounds for legal exemption from

working of the patent; vii) Duration of patent protection.

Between 1970 and 1975, five developing countries introduced changes in their patent legislations. India and Peru in 1970, Brazil and Colombia in 1971, and the Republic of Korea in 1973. Since December 1975 at least nine developing countries, of which three (Mexico, Philippines and Sri Lanka) are members of the Paris Union, have introduced substantive changes in their legislation. In two cases (Costa Rica and Honduras), the reform was basically related to specific industrial sectors, mainly pharmaceuticals. Thailand established its first law on the subject. In Colombia Ecuador and Peru changes emerged as a consequence of the incorporation into their national legal system of Deci- sion 85 of the Commission of the Cartagena Agreement (Andean Group). -Further, in Argentina, the interpretation of the 1864 patent law by the courts has reaffirmed the

exclusion of import monopolies based on process patents, and the enforcement of the sanction provided for by the national law in order to avoid non-working of registered patents. The changes in all these countries have, in general, followed a similar pattern, particularly as regards the emiphasis given to working obligations on patentees. Signifi- cant steps have been taken towards adapting the patent system to the needs of economic development.

Nor-patentable subject matter: In 1970 India excluded the patentability of drugs, other chemical products and food. Colombia, Ecuador and Peru are members of the Cartagena Agreement (Andean Pact) and adopted Decision 85 on industrial property in 1977, 1978 and 1979 respectively. This Decision gave the basic legal framework to correct problems due to old patent and trademark laws. In brief Decision 85 pro- hibits patents for pharmaceutical products, active therapeutic substances and food. Ecuador by Decree 951 to 1977 further excluded pharmaceutical processes from patent protection. In 1982, Bangladesh withdrew patent protection for pharmaceutical products. Process patent may be allowed for a limited period of time only if the basic substance is manufactured within the country. The new Mexican Law excludes pharmaceutical products and processes from patentability; processes however may be protected by inventors' certificates. The Thai Law excludes foods, beverages, pharmaceutical products and computer programmes from patentaboility.

Import monopoly: Colombia, Ecuador and Peru on the basis of Decision 85 and Mexico have excluded import monopoly from the rights conferred to the patentee. This very importart change puts emphasis on the industrial function of patents and limits their use as mere instruments for private regulation of trade.

Non-voluntary licences unrelated to non- working of patents: Under Decision 85 of the Andean Group, the patentee enjoys, provided he-works the patent, the exclusive right to use the invention during the first five years. Patents which are worked continue in force for another five years but during this second period of five years they are ipso jure subject to non-exclusive compulsory licences. Non-voluntary licences, unrelated to non- working have also been provided for in Mexico and in the Philippines.

-Definition of exploitation or working of the patent: Decision 85 and the Mexican Law include specifc definition of exploitation. Decision 85 states "working shall mean the permanent and regular use of the patented process or the manufacture of the product covered by the patent in order to put the end result in the market under reasonable marketing conditions, prgvided that such acts have occurred on the territory of the member country which granted the patent.

Importation and working of patents: The

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definition referred to above makes it cleat that imports are not to be regarded as a form of working of a patent. The Indian and Mexican Patent Laws, the Presidential Decree No 1,263 of the Philippines and the Brazilian Code of Industrial Property make it clear that imports are not to be regarded as a form of working of a patent.

Grounds for legal exemption from working the patent: According to the Paris Con- vention the patentee may justify his non- working of the patent by 'legitimate reasons. This very wide concept may cover any possible legal, technical or economic justification for non-working in a particular country. In Decision -85 the legitimate reason has to be recognised as such by the competent national office. In Thailand's Patent Law, the concept of 'legitimate reasons' has been adopted.

Remedies against non-working of Patents: Despite its limited use compuslory licensing still plays a prominent role as a primary remedy against non-working. Recent changes in patent laws have attempted to encourage the granting of compulsory licences in general and to make greater use of revocation.

The Indian Patent Law of 1970 has provided that the duration of process of patents for pharmaceuticals 'is seven years from filing or five years from granting of the patent. However, three years'after the granting, a licence may be applied for if the patented article is not manufactured in India to an adequate extent and supplied on reasonable terms. On the same grounds, and after the same period, patents may be endorsed with the words, "licence of right" by which any person is entitled to a licence upon terms decided, in the absence of agreements, by the controller. Two years after the date of granting a compulsory licence, a patent can be revoked if the "reasonable requirements of the public" are not effectively met.

In the Mexican Law compulsory licences can be granted three years after the registration of a patent. If within one year after the end of this period the patentee has not begun to exploit the patent, or no application for -ompulsory licences have been made the patent lapses.

One of the main objectives of Philippines Patent Law reform of 1978 has been to broaden the grounds and shorten the term for obtaining compulsory licences.

In Thailand, a compulsory licence may be granted when the patented product which is manufactured is being sold at unreasonably high prices or does not meet public demand, without any legitimate reason.

The tArgentina patent reforms came through decisions in courts of law. In 1972, the Supreme Court of Argentina established that a patent was subject to automatic revocation according to an article in the patent law when the invention was not effectively exploited within two years of being granted. A number of other decisions by

lower courts dealt with the applicability of Article 5A of the Paris Convention (para 16-23). They declared the enforceability of the revocation provided for by national law on the grounds thet Article 5A of the Con- vention was not self-executing and that compulsory licences had not been regulated in the country. This interpretation was con- firmed by the Supreme Court thus stressing revocation as a primary sanction against non-working of patents.

Duration of Patent Protection: There has been a trend among developing countries to shorten the period of patent protection. The Mexican law reduced the duration of protection from 15 to 10 years from the date of granting.

Decision 85 provides for initial grants for five years which can be extended for an ad- ditional five years provided that the patent is adequately worked. Before the introduction of this decision patents could last upto 12 years in Ecuador and Colombia and for 10 years in Peru. In the reform of its patent law of 1979, Sri Lanka provides protection for 15 years. According to the previous Patents Ordinance, patents lasted for 14 years from the data of application, but ex- tensions could be granted for 7 or 14 years, or a new patent could be granted if the courts found that the patentee had been in- adequately renumerated by his patent. In Costa Rica, Decree No 6219 of 1978 provides for the grant of pharmaceutical patents for one year provided that the products are made in Costa Rica.

Effects of Patent Policy Changes on In- dustrial Development: Brazil abolished patent protection for pharmaceuttical products and processes in 1969. Argentina grants protection to process patents but not to products. An examination of these two countries provides some information on the effect of patent policy on industrial development.

The abolition of pharmaceutical patents in Brazil has not yet shown'significant effects on the structure of the industry. This is probably due to the great dominance of the Brazilian pharmaceutical industry by TNCs. Between 1971 and 1979 direct foreign investment in the pharmaceutical industry rose from US $ 11.4 million to US $ 646.5 million and 15 national firms were taken over the TNCs. In 1975 the TNCs controlled almost 88 per cent of the total sales.in the Brazilian market.

It would appear that in Brazil, lack of patent protection did not constitute a disincentive for foreign investment. Available data also show that lack of patent protection had not prevented foreign subsidiaries from continuing intrafirm trade and overpricing of invoices. This i's shown by the fact that while the value of pharmaceutical sales rose by 137 per cent in the period 1972-1977, the valfie of pharmaceutical imports rose by 191 per cent.

In spite of the subordinate role to which

national firms have been relegated, a number of these firms have been able to survive and grow mainly on the basis of marketing strategies. The total non-patentability of pharmaceuticals had eased the access by Brazilian firms to raw materials and active ingredients as competitive prices in the international market. A comparisorr between the rate of growth of sales of the ten largest foreign firms and the ten largest Brazilian firms in the period 1974-78 revealed that the Brazilian firms enjoyed a growth rate that exceeded that of the foreign firms.

In Argentina, domestic firms have challenged the domination of the local pharmaceutical market by the TNCs. Their challenge has consisted of a strategy amied at: (a) opposing patent protection in order to permit access to raw materials and active ingredients from cheaper non-patented sources and at a further stage to initiate local production of raw materials; (b) developing marketing skills in the differentiation of new products; (c) using licences to enter into some difficult sub-product markets and (d) enagaging, to a certain extent, in local research and development. In 1978, the national firms controlled 41 per cent of the total pharmaceutical sales in Argentina.

Intergovernmental Decisions: The recent changes in the national patent legislation inl- troduced by developing countries are in conformity with the directives taken at the highest political level.

The fifth summit conference of heads of state or government of non-aligned countries held in Colombo, Sri Lanka, August 1976 unanimously adopted a resolution of pharmaceuticals. This resolution recommended, among other things, that in the context of the revision of the industrial property systems, consideration be given to excluding pharmaceutical products from the grant of patent rights-or alternatively the curtailment of the duration of patents for pharmaceuticals (Annexure 7).

The spokesman for-the governmental experts from the Group of 77, placing the collective views of the developing countries before meeting of the group of governmental experts on the economic, commercial and development aspects of industrial property in the transfer of technology to developing countries, February 1982, UNCTAD, Geneva, recalled the declaration made by his group in 1975 concerning the principles that should guide the revision of the national patent system and reiterated that (a) patents should be conceived as instruments of national economic policy, to be used in conjunction with other policies relating to incentives to national inventiveness, the transfer of technology and foreign investment; (b) that the patent grant should be governed by the criteria of public interest and nationl sovereignty; and (c) that the patent systein should be geared to promoting the scientific and technological capabilities of the patent- granting country and their incorporation ir.

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the production process, and to facilitating access to appropriate foreign technology under fair and reasonable terms and conditions. He also referred to the important changes introduced in the patent system by a number of developing countries during the last decade, which had tended to reinforce the exploitation of patents in the host country.

V C9nclusions and

Recommendations Since its adoption in 1883, the Paris Con-

vention has been revised six times. Each revision has extended the exclusive monopoly powers of the patent holders and weakened the bargaining powers of developing countries which have to purchase technology from TNCs, who own the vast majority of patents.

The Paris Convention has exercised such profound influence on national legislation that, apart from differences in detail, most national legislations have incorporated the major provisions in the Paris Convention regardless of whether the countries are meinbers of the Paris Union or not. A critical examination of the existing national and international patent systems reveals that these have had an adverse effect on the economic, commercial and tech,nological development ofthe pharmaceutieal sector in the Asian and other developing countries.

Many aspects of the patent legislation involve the relationship between the patent owners and consumers. These relationships reflect certain individual and social interests and to protect the society and the consumer.

Patent legislation provides incentives to private parties in the hope of receiving benefits to society. All incentive policies have a social cost. Patent legislation is therefore, a compromise between benefits to individuals (in pharmaceuticals these are all TNCs) and .benfits and costs to societies. Whereas benefits to society are easily quantifiable, the costs are not. This is one of the weaknesses of the present laws on patents.

In certain flelds, more powerful incentives may be needed and, therefore, more extensive rights may have to be provided. On' the other hand, highly important areas of knowledge production and processing have always been excluded from grant of patent protection. It'would,'therefore, appear that efficient patent laws should be highly flexi- ble, tailoring'the term and other provisions of each patent to the particular needs of the society. But this would involve formidable administrative difficulties- and costs. An alternative will be to have provisions in the legislation for modifying the rights and privileges of the patentee.

The economic and social policy on patent legislation should be to secure' the maximum possible benefits in relation to social costs entailed. Policy formulation should, there-

fore, start with a careful comparative assessment of the costs and benefits to the society of all available and relevant devices.

B3eing net importers of technology, Asiant and other developing countries will have interests quite different from those countries which are net exporters of technology and, therefore, cannot copy the measures which have proved successful in advanced industrialised countries. Developing countries have to learn from one another's experience and develop solutions suited to their requirements. This is one of the major challenges in every field or sector concerned with the economic and social development of third world countries.

Developing.countries may.wish to have an interest in adhering to an international convention at less than the maximum level of protection given by other member states. They may want to retain their freedom to grant industrial property rights but for a shorter term, on less extensive basis and to issue compulsory licences more easily and more often.

Patent reforms by themselves will not enable a country to rationalise the pharmaceutical sector. A rational patent policy should be one of the components of an integrated national pharmaceutical policy. The formulation and implementation of such an integrated national pharmaceutical policy is essential for the development of a national pharmaceutical industry, lowering drug prices and increasing the availability of pharmaceuticals to all sections of the people.

A number of developing countries have introduced significant changes in their national legislation on patents. These changes include: 1 Introduction of inventors' certificates; 2 Exclusion of pharmaceutical products and

processes from patentability; -3 Limitation of the duration of patent

grants; 4 A better balance between monopoly rights

of patent holders and public interest, a shift in favour of greater recognition of public interest;

5 Provisions for expediting the procedures for obtaining a compulsory licensing; and

6 Provisions -for revocation or forfeiture of the patent. The recent changes in the national patent

legislation introduced by developing countries are in conformity with the directives taken at the highest political level.

Summarising the analytical discussion in the preceding sections, it seems clear t

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