iam: India is making IP a priority, but sending mixed signals to the market

The signature economic policies of the Modi government in India – including ‘Make in India’ and efforts to keep tech startups at home – have provided plenty of opportunity for leaders to publicly acknowledge the importance of intellectual property to the country’s development. Patent protection remains a hot-button issue, but it has been good to see discussion of IP policy at the forefront. Recent questions over the government’s compulsory licensing policy, along with a few IP-related measures in its proposed budget, suggest that support for a strengthened patent system remains uneven.

The big news of the past week was the revelation by Reuters that Indian officials have told US trade groups behind closed doors that authorities would not issue compulsory licences for pharmaceutical patents going forward. In its submission to the United States Trade Representative as part of the annual Special 301 Report research process, the US-India Business Council (USIBC) wrote: “Despite compulsory licensing denials, industry continues to be concerned by the potential threat of compulsory licensing. The Government of India has privately reassured… (that) it would not use Compulsory Licenses for commercial purposes.” Some media reports have portrayed the comment as evidence of a backroom deal, with Knowledge Economy International commenting: “If such an agreement in fact exists, this is extremely troubling news.” In reality, the assurance is probably far from a definitive promise. The caveat that such actions will not be taken for “commercial purposes” leaves plenty of wriggle room, given that most advocates of compulsory licences justify them on public health grounds, not commercial ones. And the USIBC itself seems to remain more concerned than reassured.

Past experience does seem to indicate that compulsory licences are the exception rather than the rule in India. Just one has been granted – allowing Natco Pharma to produce Bayer-patented Nexavar – while numerous others have been rejected by the IP Office. The latest such case came in January, when Lee Pharma’s application to produce AstraZeneca’s patented diabetes drug Saxagliptin was once againdismissed. But as work continues on a new national IP policy that IAM understands will be published very soon, officials have publicly declared that they will retain the right to grant compulsory licences. If it is indeed the case that different tunes are being sung in private and in public, nobody on either side of the debate is likely to be happy.

The government’s recently introduced budget is similarly mixed. It proposes to slash the tax on income from patent royalties from the current 30% to just 10%. The rate would apply to Indian individuals and companies exploiting patents “developed and registered in India” beginning in 2017. This is an improvement over past efforts at boosting domestic R&D which have focused on subsidising patent applications. There is not much to suggest that legal and filing fees are prohibitive, and even the country’s most valuable companies file in relatively low numbers. Boosting the profits of owning a patent, rather than cutting the costs, is a sensible approach. It will take much more than a tax cut to develop a monetisation environment that incentivises invention and patent filing, but it’s a start.

Another section of the budget dealt with policies to support start-ups, and this too had a patent element. Eligible start-ups can enjoy a 100% tax exemption for a period of three years, and one path to eligibility is having a granted Indian patent in the relevant area of technology. But as the law firm SS Rana points out: “It takes years for a patent to get granted, by which time the entity would no longer be able to avail the tax exemption, hence, leaving a question mark on the practicality of the said provision.” It could be a case where policymakers’ enthusiasm for IP has outpaced their practical understanding of the system.

Plenty of crucial policy debates over intellectual property remain unresolved in India, but the government’s awaited IP strategy should provide more clues as to which way the wind is blowing. Talking to operating companies and even a few NPEs, they’re paying closer attention than ever. From where I’m sitting, the overall trend looks favourable for patent owners.