[This piece has been authored by Sanya Goel, a student at the Jindal Global Law School.]
Keywords: Intellectual Property, Free Market, Socialist
Introduction
The New Economy refers to the emergence of a new economic system that has evolved from a classical manufacturing-based economy to a service-based economy that is increasingly dependent on technology and innovation. Given the fact that India is emerging as a knowledge economy from a large industrial economy, as noted by the World Bank, dependence has increased on products that are embodiments of ideas. Innovation in the form of Intellectual Property has evidently proved itself to be an important economic stimulant. Despite immense progress in every field, India remains to be a nation with socialist goals which is reflected not only in the preamble, but in the competition act as well which aims for consumer welfare in the name of a fair and competitive marketplace. What goes unnoticed to the eye is that innovation in the form of the intellectual property leads the economy to increased levels of productivity that eventually results in consumer welfare. The waiver of the TRIPS agreement on the 17th of June, 2022 seems like a solution to the COVID-19 crisis in a way but it has a snowball’s chance in hell to be able to do anything but leave us with wreckage of progress that the global community has made up until now.
This article not only examines the recent TRIPS waiver and its dire consequences that will cost us years of progress but also notes that even though compulsory licensing seems like the alternative socialist solution on the face of it, it has dangerous implications for innovation in the future.
TRIPS Waiver and its Aftermaths
The Trade-related aspects of Intellectual Property Rights or TRIPS agreement lays out the minimal requirements for how national governments must regulate certain types of Intellectual Property (IP) which are applied to the nationals of other member nations of the WTO as well. All the member nations of the World Trade Organization (WTO) are bound by this international legal agreement. Given the ongoing COVID-19 crisis, a temporary waiver of the TRIPS provisions was proposed in October 2020 by India, Kenya, South Africa and Eswatini. From Part II of TRIPS, Sections 1 (Copyright), 4 (Industrial Designs), 5 (Patents), and 7 (Protection of Undisclosed Information) would not be executed, applied, or mandated by the WTO under the terms of the proposal, which asked for a waiver from them. This waiver would solely apply to the prevention, control, and treatment of the COVID-19 crisis. An agreement on the controversial waiver was reached by the WTO on the 17th of June, 2022 after a 4-day long ministerial conference that was stretched to the 6th day. The TRIPS waiver was a result of the common misconception that IP protection hinders the production of vaccines and that the main obstacle in the way of achieving a globally vaccinated population is the monopoly of pharmaceutical companies. When in reality, developing an efficient distribution system is what is required to achieve the same. The waiver of intellectual property rights would act as fuel for future abuse of IP and hamper innovation severely rather than serving as a help to increase vaccine production. The very factor that led to the creation of the COVID-19 vaccines, i.e. incentives for innovation in the form of IP protections is being undermined by the waiver. Even if the waiver allows for developing nations to replicate the vaccines, specific conditions need to be fulfilled with regards to their storage and transportation like extremely cold temperature, especially for the mRNA vaccines. Hence, what is needed is not an elimination of IP protections, but rather an enhanced system of distribution. While the initial proposal for the waiver included all medical treatments and drugs related to COVID-19, the current agreement is solely for the vaccines. However, the World Trade Organization organized a meetup a few months later to discuss the rest of the medical categories to also be included in the waiver. This not only undermines the definition of a ‘global health crisis’ and an ‘emergency’ but also inspires the global community to follow the same steps in any upcoming health crisis.
Compulsory Licensing: Barking up the Wrong Tree
A hotly debated relationship between IP and Competition Law is very often described as a ‘tale of uneasy bedfellows’, meaning two fields that share the same job to achieve the same goal, i.e. a competitive and fair marketplace but are different in their views. While IP grants exclusive rights such as patents and allows innovators to have control over their innovation, competition law discourages exclusivity but is claimed to be in favor of innovation which is evidently not the case. The Competition Act, 2002 allows for the ‘establishment of a commission to prevent practices having an adverse effect on competition, to promote and sustain competition in markets, to protect the interests of consumers’. The Competition act allows for a compulsory license to be granted not only in situations of medical emergencies such as COVID-19 but also in situations where the public interest is affected by the prices charged by the IPR holder for the commodity. A wrong precedent for the same was set in the significantly famous case of Natco vs. Bayer in which a compulsory license was granted for the first time in India because the controller, in this case, interpreted the phrase ‘reasonably affordable price’ mentioned in condition 3 of section 84 of the Patents Act with reference to the price to the consumers rather than with reference to buyer’s cost price. A similar occurrence was noticed in MCX Stock Exchange Ltd & Ors vs. National Stock Exchange of India Ltd & Ors where the term ‘unfair pricing’ was interpreted in relation to the cost of the competitors and not the patent holders. The authority to grant a compulsory license is given to the Competition Commission of India (CCI) by the Competition Act, 2002 which openly serves the interest of the common man rather than the competitive process. It clearly allows for the granting of a compulsory license in order to serve the interests of everyone but the innovators themselves.
The argument of compulsory licensing for the waiver is also an extremely flawed one because it will only let foreign manufacturers copy the vaccines but will not contribute to scale up the distribution. On the face of it, this seems to solve the problem of affordability of vaccines for developing and third-world countries because the cost of replicating i.e. the variable cost is obviously going to be less than the cost of the research and time i.e. the fixed cost that led to the innovation in the first place. Moreover, granting a compulsory license is evidently not the only viable solution because companies like AstraZeneca are selling their vaccines at the cost price in developing countries and developed countries are donating vaccines in significant amounts. The CEO of the Serum Institute of India, Adar Poonawala seconds this as he noted that the real issue is not merely following instructions to replicate vaccines, but the real issue is doing it on a large scale even if you manage to replicate it.
What is important to note is that out of a free-market economy where prices are decided by sellers and a regulated market economy where the prices are decided by the government, India is increasingly moving towards a free-market economy and compulsory licensing for the prices decided by the sellers in the name of ‘consumer welfare’ is not only unfair but also undermines the entire concept of a free market. The CCI has the power to issue a compulsory license even in the absence of exceptional circumstances and only to cater to its socialist goals that absolutely disrupt the balance between competition law and IP law that aim to promote innovation. It encourages socialism, let alone competition and a free market, and deters foreign investments due to the visible weak protection of IPR in India. This IP waiver would not only discourage innovation but also make pharmaceutical companies unwilling to respond and cater to the next health crisis.
Conclusion
Innovation takes a lot of research and a considerable amount of investment in terms of money and time and companies that innovate expect protection in the form of patents in return of their risk taking and to hinder that is extremely unfair. These innovations especially in the medical field are not done for personal use, rather for the welfare of the entire community, which is why they need to be rewarded, hence, to term them to not be consumer- friendly is far from correct. Compulsory licensing may see like a quick fix at the moment, but it only has short term effects by increasing access to innovations, whereas in the long term, there will be no innovation. Blaming and Demonizing the Pharmaceutical companies is very easy, but have you ever put thought into who is going to develop the next vaccine for the next pandemic?