Thursday, September 25, 2008

WTO law and India's patent limitations

Thanks for giving us the opportunity to guest post on our research concerning the relationship between free trade and intellectual property rights, set forth in our paper entitled How Innovative is Innovative Enough? Reflections on the Interpretation of Article 27 TRIPS from Novartis v. Union of India. The case studied is relevant, first, for understanding how developing countries can implement the law of the World Trade Organization (logo below right) in a way that is not harmful to their economies; second and more generally, to defy the misconception that WTO law demands the implementation of ‘pro-patents’ patentability standards.
In 2006, a major lawsuit was initiated by the Swiss pharmaceutical company Novartis AG. It targeted Section 3(d) of India's Patents Act. As amended in 2005, states:

(3) The following are not inventions within the meaning of this Act, --
(d) The mere discovery of a new form of a known substance which does not result in the enhancement of the known efficacy of that substance or the mere discovery of any new property or new use for a known substance or of the mere use of a known process, machine or apparatus unless such known process results in a new product or employs at least one new reactant.

In its lawsuit Novartis petitioned the High Court of Madras (left) to declare that Section 3(d) did not comply with the 1994 Agreement on Trade-Related Aspects of Intellectual Property Rights, better known as the TRIPS Agreement. On August 6, 2007, all the petitioner's requests were rejected by the High Court of Madras. The Court did not enter into the merits of the compatibility question, however, as it ruled that it had no jurisdiction on that issue.
Our analysis begins where the verdict of the High Court of Madras ends, as we study the compatibility question in substantive terms. The core of the question relates to the interpretation of Article 27 of TRIPS, which sets out the criteria for patentability (i.e. an invention should be non-obvious, novel and useful). Section 3(d) of India's Patents Act, which identifies cases of inventions that are non-patentable, can be conceptualized as a rule establishing heightened patentability standards. This makes it more difficult for a patent applicant to be granted patents.
Are the standards endorsed by Section 3(d), we ask, compatible with Article 27 TRIPS?
We conclude that they probably are. Our conclusions are derived from the analysis of the economic effects of the disputed rule. This analysis is due because the TRIPS Agreement lists among its purposes the promotion of social and economic welfare (Article 7 ). Customary rules of interpretation of public international law provide that the purposes of the Agreement are to be taken into account in order to clarify the wording of ambiguous rules; in this case the rule set out in TRIPS Article 27.
To assess whether Section 3(d) may contribute in achieving greater welfare, we reviewed a number of economic studies. Some focused on the general effects of a heightened nonobviousness standard; others, on the more contingent issue of the welfare effects of stringent patent regimes on the post-2005 Indian market for pharmaceuticals. Most of these studies suggest that Section 3(d) may contribute to promote welfare. Accordingly, it is likely to be compatible with the TRIPS Agreement.
Our analysis has a number of interesting implications. Most crucially for a general understanding of Article 27 TRIPS, we have shown that the degree of stringency of the patentability standards is far from obvious! ‘Pro-patents’ patentability standards do not necessarily enhance innovation; to the contrary, in many circumstances they can stifle it. This means that the belief that in the post-2005 regime India ought to adopt ‘pro-patents’ patentability standards is misguided. The standard carved into Section 3(d) appears legitimate, therefore; other developing countries may decide to follow suit.

(More WTO news below)


1 comment:

Patrick S. O'Donnell said...

"to the mutual advantage of producers and users of technological knowledge and in a manner conducive to social and economic welfare, and to a balance of rights and obligations."

Although I agree with your overall analysis and the tenor of this important blog post, I don't think the phrase "in a manner conducive to social and economic welfare" is equivalent to the "promotion" of such welfare. There's a subtle difference that may be exploited for interpretive purposes. The latter is more "pro-active" as it were.... A quibble, perhaps, but such differences in meaning may have consequences. In addition, the time frame used to discuss this question may be pertinent: for example, what is not conducive to social and economic welfare in the short-term, *may* be so in the long run (on the order of 'one step backwards, two steps forward': Jon Elster has written about such things in several books). I can imagine those with a contrary argument to yours saying something of this sort.

That said, and again, I think this is important stuff and am glad to see you writing about it.