Five questions with...

Gregory Kalbaugh, Deputy Vice President, Intellectual Property, Pharmaceutical Research and Manufacturers of America (PhRMA)

Today???s Topic: India???s pharmaceutical IP rights abuses: creating steep barriers to innovation, investment and trade

Greg Kalbaugh is the Deputy Vice President, Intellectual Property for PhRMA, a major trade association representing the country???s leading biopharmaceutical researchers and biotechnology companies. In this role he directs PhRMA???s strategy for global engagement on intellectual property matters.  Previously Mr. Kalbaugh served on the staff of the Senate Finance Committee, where he served as International Trade Counsel to Ranking Member Orrin G. Hatch.  Prior to serving Senator Hatch, Greg was with the U.S. Chamber of Commerce, where he led the Chamber???s initiatives in India related to intellectual property protection.

HUMAN EVENTS: Greg, thanks for joining this week???s ???Five Questions.??? We began our three-interview arc on U.S.-India trade relations with Linda Dempsey of the National Association of Manufacturers, who gave us the 35,000-foot view of things. We continued with Mark Elliot of the U.S. Chamber of Commerce???s Global Intellectual Property Center, with whom we discussed Indian IP rights abuses generally.

In today???s concluding segment we want to broaden our understanding of a key IP issue, that of pharmaceutical patents and how they???re respected ??? or not ??? in India.

One controversial practice at the heart of India???s contentious relationship with pharmaceutical patent holders is compulsory licensing, or CL. Didn???t CL authority originally start out among World Trade Organization members as a way for poorer nations to combat pandemics and other kinds of large-scale national health emergencies, like AIDS in the southern African countries?

Greg Kalbaugh: That???s right, the use of compulsory licenses to expropriate patent rights is a limited section under TRIPS (The Agreement on Trade Related Aspects of Intellectual Property Rights, administered by the World Trade Association), and should only be used in dire circumstances when all other alternatives have been exhausted. Compulsory licenses aren???t meant to be used to further tilt the playing field in favor of domestic industry or as a routine cost-control measure. Yet that???s exactly what India has done.

The grounds under which India issued the compulsory license were basically, ???we don???t like your price and you don???t manufacture the product in India???. That???s totally unacceptable and does a real disservice to innovation and to public health.

HE: How did we go from the original, limited intent of CL authority under TRIPS to India???s compulsory licensing of Nexavar, an anticancer drug that only benefits an estimated 8,000 Indian patients in advanced stages of renal cancer ??? obviously, an infinitesimal fraction of India???s population?

GK: It???s clearly just part of India???s mercantilist industrial policy. And it isn???t limited to intellectual property ??? unfortunately, we???ve seen it across industries. There are domestic content requirements when it comes to information and communications technology, for example. There???s arbitrary taxation across industries, especially for multinational industries, in India. There have been a lot of challenges that have just been part and parcel of these policies.

Requiring that a drug be manufactured locally, in India, has also had an impact on the pharmaceutical industry. If you look at the compulsory licensing ruling on Nexavar, it says that one of the grounds under which they authorized the CL was the fact that the product wasn???t manufactured in India.  So they de facto created a domestic content requirement.

Here???s the bottom line: there have been many patents that have been otherwise undermined, either revoked or denied. It???s not just through CLs. The Glivec case is good illustration of this, a case where a patent was denied on specious grounds under Section 3(d) of the India Patent Act. We recently had another revocation of a commercially valuable patent, so there have been other means by which India is undermining the value of innovation.

HE: India claims humanitarian reasons for compulsory licensing and patent revocation, but the fact remains that India???s recent regulatory, court and trade policy decisions have had the effect of greatly expanding their generic drug manufacturing sector. Are there any mechanisms in place to curb this overtly protectionist behavior, and if not, are there concerns that other nations will follow suit, leading to a more widespread and damaging erosion of pharmaceutical IP protections?

GK: That definitely a big concern and the United States needs to insist that India provide the same level playing field to U.S. companies that Indian companies enjoy in the U.S. market.  At every step of the way India???s industrial policies disadvantage U.S. and global innovators. There???s arbitrary taxation, caps on foreign direct investment (FDI), there are domestic content requirements ??? these are all things that undermine and expropriate the value of innovation.

Over the past year the environment particularly with regard to innovation and intellectual property has deteriorated rapidly. It???s time to put a stop to this and U.S. policymakers have noticed. President Obama has raised the issue, Vice President Biden has raised it, Secretary of State Kerry has raised it, a large segment of the Congress has raised it with their Indian counterparts, and U.S. governors have now raised it as well. It???s time for India to take concrete steps to actually put a stop to this and create a level playing field for U.S. companies.

HE: The Indian government is considering price controls rather than compulsory licensing to make essential medicines affordable. What is PhRMA???s position on this proposal?

GK: Indian price controls set a ceiling for essential medicines, most of which are not on patent. The challenge is not an issue of pricing; the challenge is access to healthcare in India. India spends a miniscule amount of its GDP on healthcare as compared to similarly situated countries, even when compared to countries in the region. India collects more in taxes on pharmaceuticals than it spends on pharmaceuticals. The issue is creating a healthcare infrastructure and having the government of India actually devote resources to that. This is a government that not only has a moon program; they now have an active Mars program. This is a government that???s engaged in giving aid to other governments via foreign aid programs, yet it spends such a miniscule amount on health that its patients don???t have access to meaningful healthcare.

HE: How have India???s IP rights abuses like CL and patent revocation chilled foreign direct investment (FDI) from U.S. pharmaceutical manufacturers?

GK: FDI into India has slowed across the board, and it has slowed noticeably. I was just in India, and if you read the Indian press the Prime Minister has even expressed concern about it. It???s not rocket science to recognize that when you restrict FDI in lucrative sectors, when you impose domestic content requirements, when you undermine intellectual property at every step of the way and you put in place other mercantilist policies, that you???re going to have a reduction in FDI.

The solution is simple: level the playing field. There???s no question that FDI would be dramatically larger. PhRMA???s member companies and other companies in other industries would be much more interested in and willing to invest in India if you know, for example, in our industry, that your innovation will be respected and protected.

HE: readers are grassroots conservative activists who strongly value the principles of free, transparent and open markets. What can these activists do to help support PhRMA in your efforts to strengthen pharmaceutical trade relations and investment between the world???s largest democracy and the world???s mightiest democracy?

GK: I think there???s nothing more essentially conservative than asking for a level playing field and free markets, and that???s exactly what we don???t have with regard to India. What I would suggest readers do is contact their representatives ??? their Congressmen, Senators and Governors ??? and contact the Administration, and insist that India provide that level playing field and insist that we maintain a laser-beam focus on making sure that India lives up to its commitments.

Indian companies have a level playing field when they come to the United States. If you look at our industry, consider that Indian generics producers doing business here, a significant percentage of their revenue is earned here in the U.S. We don???t have that same playing field in India ??? the deck is stacked against us. I would ask your readers to weigh in with their representatives, write op eds and letters to the editor, to get engaged.

PhRMA is also a member of the Alliance for Fair Trade with India, and I would recommend visiting the AFTI website at AFTI is seeking action to resolve a host of discriminatory trade practices and improve intellectual property rights protections in India, and the AFTI website is an excellent online resource for your readers to go to broaden their understanding of these issues.

HE: Forced localization. Excessively high tariffs. Arbitrary taxation on FDI. And a recent history of IP rights abuses that strikes at the very core of confidence in investing in and trading with India. The White House, the Congress, and governors across the United States have questioned these troubling policies at the highest levels of the Indian government. But that???s not enough. Your continued input is vital to insure that these issues remain high profile, and high priority. India could very well turn out to by this country???s strongest trading partner??? but only when our true spirit of partnership is reciprocated with free, fair, open and transparent access to the Indian marketplace.

To learn more about this issue readers are encouraged to visit the Alliance Fair Trade with India (AFTI) website at: