People's Democracy

 ECONOMIC NOTES  

PATENT CONCESSION

  C P Chandrasekhar

THE government has initiated the final move to introduce product patents in India. On the penultimate day of the winter session of parliament, the union minister of law and justice and company affairs, Arun Jaitley, introduced the Patents (Amendment) Bill, 2003, that incorporates provisions recognising product patents. This implies that India would meet, well ahead of schedule, the January 2005, deadline set by the Trade Related Intellectual Property Rights (TRIPS) provisions of the Uruguay Round Agreement (URA). The haste suggested by this unscheduled introduction of the bill at this early stage indicates that pressures to comply rather then sheer inevitability have motivated the government. However, with the Congress party having agreed to go along with the new amendments to the Patents Act of 1970, the deed would be done definitely before the end of the next session of parliament.

This final step towards WTO compliance comes in the wake of two other sets of amendments to the 1970 Act, passed in March 1999 and June 2002, which were in keeping with the step-wise process of “harmonization” of patent legislation envisaged for developing countries by the URA. But the imminent step constitutes a qualitative leap, inasmuch as it does away with a major form of protection afforded to domestic industry hitherto. Industries such as pharmaceuticals and chemicals, which till now exploited the possibility of producing commodities that were patent protected by adopting a novel or different process of production, would have to settle for producing products whose patents have expired, those for which a licence has been obtained from the patentee or those in which the local producer has obtained a patent.

DEFENDING THE PATENTS BILL

Those advocating this bill use three kinds of arguments to defend their case. First, that adopting these amendments was inevitable given India’s commitment as a signatory of the URA. Second, that there are few areas in which this would adversely affect existing domestic production, since much of that consists of patent-expired products. Finally, that there are many safeguards which would be built into the Act that would alleviate its adverse consequences. Important among these are provisions enabling the grant of compulsory licences for export to countries which have inadequate or no manufacturing capacity to meet drugs needed to meet public health emergencies. While such provisions are permitted by an August 2003 agreement aimed at implementing Clause 6 of the Doha Declaration on TRIPS and Public Health, the terms of that agreement place the burden of proof of inadequate capacity on the importing country, creating bureaucratic bottlenecks that could be exploited to protect monopoly over global product markets.

In fact, what defensive arguments of the kind detailed above do is to divert attention from the fact that theoretically and historically there is little to defend the TRIPS agreement. The problem stems from the notion of intellectual property itself. Recognising such property involves two stages: first, conceptually dissociating a set of intangibles from a product/process --- be it the scientific knowledge or the design features incorporated in the product/process --- and giving them the status of commodities; and second, attributing juridical rights of ownership over an intangible to an agent based on the acceptance of the agent’s claim to have been the first to generate that intangible. Once these conceptual transitions are made and the relevant property right is recognised “in law”, the exercise of that right requires restoring the link between the intangible and the product and imposing restrictions on the production, exchange and use of the product itself. Essentially, the protection of the intellectual property embodied in a process or patent implies that it cannot be replicated in any form whatsoever for a specified period of time for purposes of production, consumption and commercial gain.

The justification for these restrictions stems from the fact that the effort and the investment required for generating the intangible that adds value to the product is a “sunk cost” that needs to be recouped. IPR advocates argue that unless the inventor is provided a guarantee through protection that he/she would be able to recoup those costs, inventive activity would not be economically justified and would dry up. This argument is advanced despite the fact that in the early history of capitalism, including during the years of the industrial revolution, no such protection was available. It hardly bears stating that the lack of intellectual property rights (IPR) protection notwithstanding, invention and innovation were at the core of the process of early capitalist accumulation.

PROFITS ENSURE INNOVATIONS

In fact, economists who emphasised the centrality of innovation in the dynamic of capitalism, saw the “pioneer” profits that would accrue to the entrepreneur during the period of time when his “novel” innovation is sought to be replicated by competitors as adequate to guarantee that the process would continue. The period during which pioneer profits can accrue only increases with the growing centralisation and concentration of capital. In the course of that process, the barriers to entry into production tend to increase for two reasons. First, the critical size of capital required for entry tends to increase. This restricts competition, since the number of those with adequate capital for entry would be smaller. Further, the risk associated with entry would be higher, since the loss that would be suffered by the potential entrant in case of inability to compete successfully with incumbent firms is higher. Second, innovation is in practice incremental and results from problems encountered in production. This implies that the process of technological change too is often internal to incumbent firms, which undermines the position of potential competitors even further.

Though factors associated with technological change and the processes of centralisation and concentration tended to increase the potential for pioneer profits over time, they also resulted in the emergence of monopoly. And it was with the emergence of monopoly and with the growing integration of science and production that legal protection of the profits from innovative activity was demanded and ensured. Oligopolists who controlled the evolution of technology wanted to protect themselves not just with the force of their accumulated staying power, but by using the external barrier that the rule of law, banning the use of “knowledge” that was patent- or copyright-protected, offered. In addition, where they were willing to share knowledge, payment of appropriate fees and royalties were seen as necessary, paving the way for the commercialisation of knowledge. All of this was to be ensured legally for a period of time seen as being an adequate or reasonable recoupment period.

WANTING LEGAL PROTECTION

Further, inasmuch as the emergence of monopoly saw the internationalisation of markets and production, the “knowledge generators” wanted the legal protection they won for themselves on the above grounds in individual nations to be codified in the form of international law. This was done through international agreements in which countries signed into mutually applicable conventions and committed themselves to adhere to the protectionist code. The problem remained, however, that the accession to the multiple agreements offering such global protection in different areas was voluntary, and countries could retain the right to devise their own forms and degrees of protection by not signing on to the more general framework. Furthermore, the only way in which the government of a country could be held fully accountable for violations of (IPR) by individual agents located in that country was the use of extraneous sources of power.

It should be obvious that the reasoning behind the provision of such protection had to ignore a range of ambiguities. First, since knowledge is incremental, there was bound to be controversy surrounding any demand for some property right over that incremental knowledge. It required establishing that an inventor has added value to the knowledge incorporated in previous processes or products on which the new innovation was based. The question as to what exactly is novel and different about a particular process or product was not always easily answered. An element of arbitrary judgment was inevitable. Second, inasmuch as new knowledge is incremental, there must be some way to apportion the implicit or explicit royalty paid for proprietarial knowledge among all those whose right is still valid. It was not clear whether the market would be an appropriate means to determine those shares. Third, since there was a large amounted of pre-existing knowledge on which new knowledge was built that was, if anything, common property, it was not clear how communities or society at large would be paid by the innovator for use of this common property. Finally, patent and other such protection seemed to clearly privilege risks associated with technology generation over those faced when investing in commodity production. For example, it is by no means clear why investments in agriculture by the government and the private sector, which are also quite risky and provide society substantial ‘external benefits', should be subjected to international competition through liberalisation, even while investments in innovation are protected.

TRIPS ADVANCING PATENT PROTECTION

Despite these objections that can be raised against patent protection, the latter was substantially advanced by the TRIPS agreement, which was a major step forward in the protection afforded to oligopolistic firms from the developed countries. The reasons are many. First, since TRIPS linked intellectual property protection to participation in a multilateral trade agreement, it forced any country which wanted to be part of the multilateral trade regime to accept a minimum set of common laws for protection for intellectual property (IP).  Second, it created an international body, in the form of the Dispute Settlements Panel of the WTO, to which IPR violations can be referred, without having to depend on the national bodies created within countries to oversee the implementation of laws relating to IP. Third, it generated a framework in which governments had to take responsibility for intellectual property violations by agents within their countries, since retaliatory actions against such violation could take forms that affected not just the accused violator, but other economic agents engaged in trade. Thus the Uruguay Round agreement not merely forced recognition of property rights over knowledge, but created a workable mechanism to enforce those rights by linking IPRs and trade.

What all this suggests is that even if the government is being forced to push through product patents because of the need to keep step with the international community, the focus of its attention should be to find ways to prevent the misuse of monopoly by international firms as well as to ensure that domestic firms maximise the advantages to be derived from any loopholes or weaknesses that remain in the agreement. This is the area in which consensus should be generated so that the government has domestic social sanction to face up to the predatory practices of transnational capital. Unfortunately, the eagerness to comply with TRIPS provisions, indicated by the unscheduled introduction of the Bill, points to the fact that the government’s concern is to please developed-country governments rather than protect its own producers.