India's Path to the Future -- Why Intellectual Property Rights Are a Key Component for Economic Success

I'm very pleased to be here with you today. Let me thank the Confederation of Indian Industry (CII) for organizing this event. We are here today to discuss what I believe, and I'm sure all of you agree, is a very important issue for India's future and for the future of the developing world. The issue I refer to is intellectual property rights and how protection of those rights can foster economic growth, provide incentives for innovation and attract investment that will create new jobs and opportunities for India.

I'm sure you join me in looking forward to the day when India fully realizes its incredible potential and takes it rightful place in the global economy. India's own self-interest and the welfare of the Indian people are at stake. Responding to the challenges of development will not only benefit India but also will provide an example of leadership for other developing economies throughout the world. Working together, all of us -- the Indian and U.S. governments and the private sectors of both countries, we can help India to take the steps it needs to move forward, realize its full economic potential.

As in any dynamic social process, there are those who stand to benefit from change and those who believe that they stand to lose from changes to the status quo. It is the second group that would rather see a country turn its back on the future than risk having their interests affected. But these groups should not determine the future for everyone. Rather than resist change, they should instead explore how they can make change work to their advantage –-and I believe they can.

In a democratic society, all sectors must make their voices heard. It is especially important that those forward-leaning sectors of society, those with a vision for the future, work to make that vision a reality. Those of you here today comprise that forward-looking sector of India's society, and I am certain that working together, we can make the vision of a strong, dynamic and innovative Indian economy a reality. And intellectual property protection is key to that vision.

But it will take work. And we must start now. More than any other developing country, India has the building blocks in place to create a vibrant, knowledge-based economy. But action is needed to create a legal system, infrastructure and enforcement mechanisms to bind those building blocks together so they may be used to their greatest advantage.

The Indian Parliament took a positive step toward greater IP protection this past spring when it amended, for the second time, the 1970 patent law. But this was only one step, and more are needed. I would like to share with you today the steps we believe India must take in order to raise its intellectual property protection to world class level, and in doing so, lay the foundation for further economic growth across all sectors of the knowledge-based economy.

Background

Let me start with an example of how a strong IPR regime can affect economic development. A few years ago, the Hashemite Kingdom of Jordan had a pharmaceutical sector that employed reverse engineering to create generic drugs at low prices. But Jordan's generic companies had to compete with numerous generics from all over the developing world, not to mention those in the developed world. Facing severe economic difficulties, the Jordanian government came up with an economic development plan that included implementation of strong intellectual property rights to foster research and development and expansion of the knowledge-based economy.

With assistance from the U.S., the government created a world-class patent system through legislation, infrastructure development and enforcement. The result is a dramatic increase in foreign investment from major pharmaceutical firms, most of which have now opened offices or expanded their commercial and research activities in Jordan. Jordanian exports of pharmaceuticals increased from $150 million in 1999 to $200 million in 2001, a significant increase for a country with a population of 5 million. The most encouraging news, however, is that the concerns of the nay-sayers, concerns that strong patent protection would increase drug prices, have proven unfounded. In fact, prices for new, patent-protected medicines have not exceeded pre-patent prices, and prices have actually fallen for medicines on the market before patent protection. The generic industry has also benefited from introduction of patents, as the increase in foreign investment has generated work for these companies.

Jordan is only one example of how strengthened IPR laws can foster growth. Both Japan and Mexico saw a tripling of U.S. pharmaceutical investment and R&D after they improved patent laws. In contrast, many countries of the developing world that do not have strong IPR regimes remain mired in economic stagnation and worse yet, have suffered the negative effects of the "brain drain." Talented scientists, engineers, artist and inventors leave their home countries where their work is unprotected and migrate to those countries where it is. While this is certainly a boon for those countries -- like the United States -- that receive these immigrants, this process does little to help the developing world.

India itself provides an excellent example to share with the world of how the negative effects of lax IPR regimes can be reversed. Just a few years ago, India was losing a battle to retain the best and brightest of its engineers and computer scientists. The lack of an effective copyright law forced those scientists and technicians to emigrate to countries where their hard work could be protected and kept safe from unfair exploitation by competitors seeking easy advantages. The Indian parliament finally passed a copyright law to protect the hard work and creativity of its computer scientists. The result: a burgeoning high tech industry producing some of the world's most advanced software and employing thousands of workers who might otherwise have left India for greener pastures in other parts of the world. The National Association of Software and Service Companies estimates that software piracy in India has declined from a high of 89 percent in 1993 to 60 percent now, an impressive improvement. I know that our colleagues here from the Mumbai-based film and music industries have seen benefits from improved copyright protection as well. As a leader among the developing economies of the world, India can and should provide more examples of success for others to follow by taking the appropriate steps to repeat the success seen in the copyright industry. I refer specifically to the pharmaceutical sector and the benefits that would accrue to that sector from proper patent protection. Considering India's enormous resources in the pharmaceutical sector, the results it could see from proper patent protection could far surpass the examples we have seen in other countries. It is impressive that India is the fourth leading supplier of bulk pharmaceutical products and active ingredients globally. With some $2 billion in exports, India's pharmaceutical industry is recognized as a global player. India has the world's third largest pool of scientifically and technically trained personnel. Despite the lack of pharmaceutical patent protection, a small research and development sector is emerging.

Indian pharmaceutical firms are beginning to benefit from IP protection for their own products. Stronger product patent protection will encourage this development. I have heard about the work of several Indian companies, such as Ranbaxy, which has developed a new drug delivery system for ciprofloxacin that it licensed to Bayer for $65 million plus royalties. Other Indian research-based companies have earned about $70 million from R&D milestone payments.

Three steps are needed for India to achieve its potential as an R&D pharmacy powerhouse: 1. Earlier implementation of strong patent legislation; 2. Data exclusivity; and 3. Improved IPR infrastructure and enforcement.

Step One: Legislation

Imagine how much stronger the pharmaceutical industry could be with product patent protection. India's highly trained scientists have found it difficult to employ their skills here in India due to lack of patent protection, which has drastically reduced the incentive for India's best scientific minds to remain in their own country. It is estimated that more than 15 percent of the scientists engaged in pharmaceutical R&D in the U.S. are of Indian origin. We are glad to have them, but these scientists would have less incentive to emigrate if their creative work was adequately protected in India. This in turn would contribute to a more innovative pharmaceutical sector, creating more jobs and more products for export. The much-delayed second amendment to India's 1970 patent law was passed by parliament in May 2002. We welcome the bill's extension of pharmaceutical patent protection from 7 years to 20 years. With this change, India fulfilled part of its commitment to the international community on protecting intellectual property. However, we are concerned that: transition to a product patent regime has been left until 2005, the bill makes broad, ambiguous allowance for compulsory licensing, and it is unclear about patent protection for imports. India will be better off if product patent legislation could be enacted well before the 2005 deadline.

Commerce Minister Maran, while introducing the Patent Bill in Parliament said, and I quote "the Indian pharmacy industry is emerging as the new leader of the knowledge based drug industry in the world, following software and IT. Now is the time for the rest of the industry to come out of its 'reverse engineering mode' and move forward into the era of innovative 'R&D' mode, clinching the opportunities. I have no doubt that our industry has the necessary strength to take advantage of the new era." End quote. I applaud the Minister's remarks and urge both the industry and the Indian Parliament to take them seriously and do what is needed.

Step Two: Data Exclusivity

Data exclusivity is key to protection of public health and the pharmaceutical sector's hard work. And it is crucial to foreign investment in the pharma sector. Protection of test data is key to company decisions on location of clinical trials. According to the U.S. National Institutes of Health (NIH), lack of data exclusivity in India is the primary reason why India only ranks 9th (compared to China which ranks 2nd), in funding given by the NIH outside of the U.S. U.S. pharmaceutical companies spent $30 billion on R&D last year. If only a fraction of that amount was destined for India, it would broaden U.S.-Indian scientific ties, increase the demand for Indian scientists, and ultimately benefit the health and lives of millions of people. Indian pharmaceutical companies and researchers, especially in the biotechnological sector, would benefit from the increased diffusion of knowledge that results from international partnerships and increased integration.

Data exclusivity is an administrative protection that can be implemented without passage of legislation. Requiring the government to treat test data as the exclusive property of the firm that generated it for a fixed period of time is an effective method of providing protection for the creative work of scientists while legislators draft laws to complete the legal IP framework. In practice, data exclusivity requires each company to fully test its products. Reverse engineered drugs are not always the same as the original, as different manufacturing processes can alter the drug in ways that could impact public health. Simply relying on another company's data is not only unfair business practice, but it discourages R&D investments and is a potential public health danger.

Critics of both strong patent legislation and data exclusivity raise the specter of price increases and cutting off the poor from access to essential medicines. But as Commerce Minister Maran pointed out while introducing the Patent Bill, not a single drug in the Indian essential drug list is patented and prices of these drugs will be unaffected by strong patent protection. Product patent protection will apply only to new drugs introduced after the law is enacted; this is a small percentage of the total market – estimated to peak at 20-25 percent of the total market, 10 years from now.

Step Three: Improving IPR Infrastructure and Enforcement

Knowledge-based industries have the potential to create thousands of jobs for Indian workers, tremendous revenues for the government and substantial increases in India's exports. But to realize these benefits, IPR must be taken seriously by all those involved. This means political will from the top and dedicated resources to improve the institutions and train the personnel needed to carry out IPR protection. The government must make this a priority. Industry must also cooperate with government and law enforcement officials, but above all, industry must make its needs known. This will be a strong impetus for change.

The Indian Patent Office is faced with a growing backlog of approximately 40,000 unexamined patent applications. Enforcement of IP protection is seriously lacking. Judicial delays mean that cases can take up to 10 years to see resolution and payment of damages on IPR violations. Familiarity with new IPR laws is also an issue – for lawyers, the courts and the police.

The Indian government is responding to the need for development of IPR infrastructure. A major modernization program is underway for patent office operations. This includes computerization, networking of the 4 offices, new buildings, improved facilities including online search capabilities and training of IP personnel. This is very encouraging and the government should be applauded for its efforts

There are also examples of regions in India that have effectively increased IPR protection. In Chennai, where there is a separate Deputy Police Commissioner who deals with copyright infringement, industry reports a steep decline in film and music piracy in that city. This success could be repeated in other regions throughout India provided government and industry cooperate in dedicating sufficient resources and to making IPR enforcement work. There are also some impressive private sector initiatives. Reports from the music industry indicate that piracy levels in India have decreased from over 80% in the 1980s to approximately 30% today. But this figure is still too high, and India is the world's third largest pirate market in volume and sixth in value. It is encouraging that two music industry associations have been working actively with law enforcement authorities to identify manufacturers who deal in pirated music. They have also assisted the police in conducting raids and helping identify pirated cassettes and CDs. I applaud these efforts and encourage industry to speak out more forcefully against piracy, urging government colleagues to dedicate the necessary resources to combat this problem. The film industry also faces piracy threats on several fronts, from small cable T.V. operators who show unauthorized versions of Indian and foreign films to imported pirated videos and DVDs. Indian films are often shown on cable on the same day as their theatrical release. Foreign films are available on cable within a few days of release overseas. In the absence of such cable piracy, the film industry estimates revenues would be three to four times higher. There is also a danger that India is vulnerable to pirate VCD and DVD manufacturers who may move their operations to India as neighboring countries take measures to clamp down on the pirates. Optical disc legislation, requiring mandatory registration of optical disc manufacturers, would prevent this. It is encouraging that Indian film producers have moved to cooperate in battling piracy, as U.S. producers did several years ago. It is especially heartening that the film industry is establishing a fund that will be used to fight piracy. Other industries have reported some successes battling piracy as well. Nasscom and the Business Software Alliance (BSA) have launched several initiatives to deter and discourage piracy over the past few years, including media campaigns against piracy, designed to increase public awareness of the problem and training programs to help police officers identify pirated goods.

Results and Benefits

India has begun to see some positive results as awareness of the need for greater IP protection has increased. But these results are only the first steps on the path to full development of India's knowledge based economy. The next steps are up to you. India must continue to improve its IPR protection, or risk being left behind as other countries in the developing world implement protections and build their own knowledge based economies. When examining potential investment sites, investors in the knowledge industries will look at the IPR regimes of various countries and choose those countries that offer the greatest protection for their investments.

Early implementation of a strong pharmaceutical patent regime would strengthen India's research and development sector, attract more foreign investment, and provide a basis for Indian firms to begin tackling diseases that have a serious effect on the country. Local companies have the advantage of being close to disease patterns for indigenous communicable diseases and can develop drugs through local R&D. Diseases such as tuberculosis, malaria, leprosy, plague and dengue fever continue to pose serious problems in India and take millions of lives each year. Talented Indian scientists, attracted by adequate patent laws, are desperately needed in India to conquer these endemic diseases.

As India's knowledge based economy grows, it will benefit not only India, but the rest of the world as well, especially the developing world it leads. This is India's challenge, and one in which the U.S. would like to cooperate. Many aspects of the Indo-U.S. relationship are held back by "old think". It is "old think" to be working at cross-purposes on an issue so vital to Indian development as IP protection. With Indo-U.S. relations at an all-time high and India business becoming increasingly global, it is time for "new think" to prevail in the IPR debate. I look forward to working together in partnership to improve IP protection in India. I look forward to seeing the fruits of this collaboration – a globally important Indian pharma industry, protection for Indian films and music, a healthier IT sector, and the further blossoming of India's already impressive creative energies. I am confident you will rise to the challenge, and I look forward to supporting you as you do.