http://ijopaar.org/ijopams.php/; 2017 Vol. 1(1); pp.

01-07, ISSN: 2456-4516

Impact of Trade Related Aspects of Intellectual Property Rights

on Indian Pharmaceutical Industry

Dr. Syed Ali Reza

M.A (Economics), Ph.D. (Economics), MBA (Finance& Marketing)
Branch Manager-ICICI Bank - Budhana, Muzaffar Nagar, UP, India
E-mail ID:syedalireza1@gmail.com

Abstract

In 1995, India which was one of the original member of WTO, signed the TRIPS agreement. TRIPS
provided basic framework for all laws on intellectual property, which established minimum standards
of protection by member countries. While developed countries were to achieve these standards in one
year time, i.e. 1996, developing countries were allowed a delay of five years i.e. up to 2000. However,
developing countries were to provide transitory provisions during the interim period. Another
relaxation allowed to developing countries was the delay of another five years, to cover those areas of
technology where they currently did not offer product patent protection. For India this relaxation
applied to medicines and agro chemicals.

With the introduction of the WTO TRIPS in India, the entire Indian pharmaceutical and biotechnology
sector is open to stiff competition from the multinational pharmaceutical companies. These
multinational pharmaceutical giants fare extremely well internationally in their operations and hence
become global conglomerate dominating the sector worldwide, especially in the developed countries
and regions. The major reason of it is because they rely heavily on the research and development of
new molecules, which is given due protection because of the strong IPR regime in these countries and
hence acts as a big incentive for their effort.

Therefore, our hypothesis of the present study relates with the following points. The hypothesis was
studied before and after the introduction of WTO TRIPS in India and its impact on the Indian
Pharmaceutical Industry.

Keywords: TRIPS, Pharmaceutical, Patent, WTO, IPR, GATT

1. Introduction

The principal objective of WTO is to liberalize trade so that the world can be integrated into a single
economy. WTO is not a simple extension of GATT; on the contrary it completely replaces its

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predecessor and has a very different character. WTO has certain underlying principles Principle of
non-discrimination, Freer Trade, predictability, promotion of fair trade and competition, concern for
developing countries particularly least developed one's as was evident from giving them more time to
adjust, greater flexibility and special privileges.

The industrialized countries felt that their pharmaceutical, chemical firm and computer software
sectors were prone to piracy of their intellectual property rights, which were causing huge losses of
sales in the world market. Hence, they wanted to bring protection in the market. As a result of TRIPS
agreement of WTO, all countries are required to make the provisions for the mailbox for patent seeker
and also to give exclusive marketing rights (EMRs) to the individuals and the organizations that have
been granted patent. The objective of intellectual property rights are the creations of human mind, the
human intellect. The Uruguay round, agreement on TRIPS covers seven intellectual properties, viz.
,copyright and related rights, trademark, geographical indication, industrial design, layout designs,
undisclosed information, including trade secrets and patents.

TRIPS along with TRIMS and services were called the new issues negotiated in the Uruguay round.
Intellectual Property Rights is defined as information with commercial value. IPRs have been
characterized as a composite of ideas, inventions and creative expression plus public willingness to
bestow the status of property, on them and give their owners the right to exclude others from access to
or use of protected subject matter.

Some critics are of the view that TRIPS, will have disastrous consequences on the Indian Economy,
more especially in two vital sectors i.e., pharmaceuticals and agriculture. Both these areas will affect
the well being of the economy. As per the Indian Patent Act, 1970 only process patents in the field of
food, drugs and chemical substances was there. No product patent was applicable in these cases.
Further, patent expiry was 5 to 7 years in case of food, drugs and chemical substances and 14 years in
case of other patents.

In 1995, India which was one of the original members of WTO signed the TRIPS agreement. TRIPS
provided a basic framework for all laws on intellectual property, which established minimum
standards of protection by member countries. TRIPS required India to overhaul its patent laws to
bring it in line with the TRIPS model. Hence, India became TRIPS compliant from January 1;
2005.With the introduction of TRIPS regime India witnessed a transition from process patent to
product patent.

2. Nature and Scope of Study

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This study was done at national level and an analysis to the evolution of World Trade Organization
(WTO) and its impact on the Indian Pharmaceutical Industry was conducted. For measuring the
impact of TRIPS on the Indian Pharmaceutical Industry the sample pharmaceutical companies were
selected. The position of Indian Pharmaceutical Industry was studied at two points, i.e., before and
after the advent of WTO TRIPS.

Questionnaires were framed and cost analysis of the Indian and a multinational pharmaceutical
company was done. On the basis of responses from the companies data was analyzed. Some
hypotheses were made and their validity was studied in this regard. Attempts were also made to study
the problems faced as a result of IPR by the Indian Pharmaceutical Industry. Lastly, on the basis of
conclusions drawn suggestions regarding the way the Indian Pharmaceutical Industry should move
forward to face the challenges and exploit the opportunities thrown open by the introduction of new
product patent regime in India, were made.

The sample of two respondents was studied for the purpose of analysis of cost structure. It included
one respondent from multi-national company (MNC) and the other respondent an Indian
Pharmaceutical company. The survey was conducted at all India level. The companies were Pfizer
Inc. and Ranbaxy Laboratories Limited.

3. Estimated growth in profit

Design of questionnaire: In order to have an insight on the 'Cost Structure of an Indian and a
multinational pharmaceutical company, a questionnaire was drafted. The questionnaire was designed
in such a manner that the information contained both quantitative and qualitative part of the study.

Some 10-15 open and closed ended, structured and unstructured questionnaires were asked to obtain
information on:

What percentage of operating income account for the material cost in your organization?
What percentage of operating income account for the marketing and selling expenses in your
organization?
What percentage of operating income account for the Employee cost in your organization?
What percentage of operating income account for the general and administration costs in your
organization?
What percentage of operating income account for the interest cost in your organization?
What percentage of operating income account for the depreciation in your organization?

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What percentage of operating income account for the manufacturing cost in your
organization?
What percentage of operating income account for the research and development expenses in
your organization?
What percentage of operating income account for the other expenses in your organization?

4. Predictor variable

Predictor variable can be defined as a variable which is used to estimate some characteristic or
response. A regression analysis which involves only one predictor is called Simple Linear Regression
Analysis. Even though a single predictor may oversimplify the estimation in real systems, the results
that are obtained can be easily extended to real systems. We can examine the growth in profits and
material costs, in order to make any prediction as to how well a growth in profits will depend on the
basis of cost of material.

We have seen in above example that the values of y will not occur on the regression line. The general
regression equation can be written as y1 = a + b x. In order to predict a Variable, we need to find the
mean, variance, deviation and standard deviation of the values of x and y.

The mean, variance, deviation and standard deviation have been explained as follows in table-1
below:

Table-1 Estimated Growth in Profit

Material cost Growth in Deviation from Square of Regression Deviation from

(x) Profit(y) mean y - mean deviation (y - Line yl Regression line
2
(YOY) of y mean of y) (y'=a+bx) y - yl

10.80 -24.76 65.932 4347.03 31.62 -56.38

11.00 109.02 -67.848 4603.35 31.75 77.27
11.60 17.18 23.992 575.62 32.13 -14.95
11.80 -57.16 98.332 9669.18 32.26 -89.42
12.60 190.56 -149.388 22316.77 32.77 157.79
12.20 -28.84 70.012 4901.68 32.51 -61.35
48.10 -7.33 48.502 2352.44 55.39 -62.72
46.10 38.10 3.072 9.44 54.11 -16.01
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50.50 147.49 -106.318 11303.52 56.92 90.57

43.20 27.46 13.712 188.02 52.26 -24.80
Average = Average = Average = 0 Average = Average = Average = 0
1200 41.172 Mean 6026.75 41.172

The constants a and b in the regression equation are called the regression co-efficient.

The value of the constants a and b in the regression equation can be found out from the following two
equations:

When the values of a and b are found, the regression equation can be written using these values. The
regression line is the equation of the line of best fit for the data available to us. In other words, the
error, which is the vertical distance of each of the points from the regression line, is the smallest using
this line.

5. Conclusion

There are few studies covering the role of WTO in enhancing world trade, impact of WTO on Indian
agriculture and textiles, etc. But there is no study on the impact of WTO TRIPS on such important
sectors of the economy as pharmaceuticals. WTO of which TRIPS is only one part provides a
framework for public policy decisions among numerous constituents of unequal power and size,
having different short-term and long-term objectives.

TRIPS should not just be viewed as trade related measure but needs to be viewed in the context of the
emerging global politico-economic order. IPR seeks to establish a standardized and agreed world
order, facilitate progress towards the world' economic unification and order in the long run. In certain
areas like biotechnology, genetic engineering, etc., it may have far reaching consequences. IPR is
likely to foster easier development and flow of new technologies with greater potential for fostering
economic development.

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The pharma industry exemplifies the notion of Research and Development for profits. Profitability
governs the scale and scope of R&D expenditure and patent protection is required to recoup the large
and growing costs and uncertainties of drug development. The R&D value chain also throws up
significant potential for focusing on certain segments of the chain. Developing countries like India
have some problems of its own which obstructs its growth. Hence, it is desirable for researchers to
undertake such studies and make recommendations to facilitate growth.

The present study is an attempt to make an assessment of the contribution of the newly introduced
WTO TRIPS, comparative study of an Indian and a multinational pharmaceutical company and also
an attempt to put forward suggestions/recommendations for the growth and development of the Indian
Pharmaceutical Industry.

The present study will therefore, in my humble submission, serve a genuine need. The research
undertaken has been extremely fruitful in respect of the results obtained, but it had few limitations
too, viz.: Despite these limitations, the companies/respondents took keen interest in filling the
questionnaire and gave their valuable time and provided answers to all the queries. Therefore, the
results fairly represent the universe.

Only two companies could be contacted for the purpose of the survey for studying the cost
structure of the pharmaceutical companies.
It is presumed that the two companies included in the survey, one a multinational which is
the world's largest pharmaceutical company and the other an Indian pharmaceutical company
which is the largest in India; represent the multinational and Indian pharmaceutical
companies respectively.

6. Directions for future Research

1. Biotech collaboration can play a key role in development of the pharmaceutical sector.
2. IPR and pricing of pharmaceutical products the magnitude of disparity between India and
developed countries.
3. Increasing drug costs and government policies trend towards generics in the developed
countries.
4. Foreign trade, investments and technology from developed countries are pre-requisites to
mitigate problems of poverty and social welfare in India.
5. IPR is not just a trade issue but involves major political and economic considerations.
6. Impact of IPR will be different for different industries An Indian perspective.
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The above given topics are the few suggested one's on which research can be conducted in future.

References

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