[Economy] Special 301 Report, Priority List, Implication on India, Nexvar case, Compulsory License, Patent Evergreening, IPR protection, USTR explained

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  1. What is Special 301 report?
  2. Priority List countries for 2014’s Report
  3. Why India in Priority watch list of Special 301 report?
    1. #1: Movie piracy
    2. #2: Internet piracy
    3. #3: Ever Greening: Novartis Judgement
    4. #4: Compulsory license: Nexvar Judgement
    5. #5: Drug price control
    6. #6: Trademarks and Counterfeiting
  4. Negative Implications for India?
  5. Why China in Priority Watch list of Special 301 report?
  6. Why Russia in Priority Watch list of Special 301 report?
  7. Mock Questions for CSAT
  8. Mock question for Mains
  9. Correct Answers for MCQs

What is Special 301 report?

  • Under US Trade Act 1974, Section 301
  • Office of US Trade representative (USTR) has to prepare a list of countries, whose IPR regime has negative impact on American products.
  • Section 306: US government can put sanctions on such countries listed under Section 301 report.
  • Therefore, USTR office prepares an annual report, after conducting public hearings, where private sector lobbyists and foreign government representatives can participate.
  • Result= Special 301 report. It contains list of countries with weak IPR regimes (Intellectual property rights).
  • In Special 301 report, countries classified into following groups:
  1. Priority foreign country (only Ukraine)
1
  1. Priority watch list (India, China, Russa etc.)
10
  1. Watch list
27
  1. not in watch list
44
Total countries reviewed in 2014 (1+2+3)82*

*82 because it’s a time consumer exercise, USTR doesn’t have the time and mood to review all countries of the world, every year. They only focus on important trading partner. Same reason N.Korea or Iran not any list.

Priority countries for 2014’s Report

If a country is put under “Priority”, US administration will focus all its attention- both carrot and stick approach to make that culprit country fix its IPR regime

India in Special 301 Report

Priority Watchlist countriesPriority foreign countries
Total ten: Algeria, Argentina, Chile, China, India, Indonesia, Pakistan, Russia, Thailand, and Venezuela.only one: Ukraine
USA will use “Carrot” approach to reform their IPR regime.Sticks approach. (punishment)
  • for example, Gives grants, donations, training, and gadgets to officials in legal, police, customs, patent departments of that country.
  • Invites judges, bureaucrats and businessmen for a paid-trip to USA and observe its IPR regime.
  • Free distance learning modules in multiple languages- for patent laws, WTO-TRIPS agreement etc.
  • facilitating raids for internet piracy, movie piracy across continents
  • conferences and desi liquor parties
  • trade sanctions under Section 306 of US Trade Act
  • even WTO dispute resolution mechanism
  • India is in this list since the beginning of Special 301 reports in 1989.
  • 2014 marks 25th year silver jubilee of our awesomeness, thus automatically important for UPSC.
India was only once in this list- during 1994
At present only Ukraine on the list but USA has postponed the sanctions, due to Crimea-Russia crisis.
American MNC lobbyists were demanding – put India on this list and impose sanctions. But USTR did not do so, hoping Modi will fix it.

Why India in Priority watch list of Special 301 report?

USTR gave following “Official” reasons:

#1: Movie piracy

  • India doesn’t have separate Anti-Camcording law. i.e. if a person is found with a video camera in cinema hall, he must be arrested for attempted piracy. US, Canada, Philippines etc. have type of laws.
  • 2013: Andhra Film industry developed i-moviecop App for mobiles, to help citizens directly report video piracy to concerned authorities. Model needs to be replicated at national level.

#2: Internet piracy

  • 2015: India will have second largest Internet users in the world. (McKinney projections)
  • Yet, Indian government doesn’t have special “takedown procedures” against pirate website.
  • Internet pirates not given severe punishment. Cases go on for years.

#3: Ever Greening: Novartis Judgement

  • In Novartis/ Glivec case, we saw that Novartis’ attempt to get renew its patent by making superficial changes in the drug molecule structure.
  • Supreme court prohibited this “evergreening” patent scam.
  • But Pharma MNC-lobbyists portrayed this case in a different tone to USTR as if Indian judiciary & laws biased against Foreigners.
  • Therefore USTR mentioned in Special 301 report- Indian Patent Act prevents “innovation.” If Pharma-MNC are not allowed to re-register patents (on the accusations of “ever greening”) then they can never design new drug molecules with less side effects, less toxicity, longer expiry date etc.
  • Therefore, USA wants Indian government to amend its Patent Act. Especially Section 3/d dealing with evergreening.

#4: Compulsory license: NEXVAR judgement

  • Nexvar =German Company Bayer Pharma’s Patented drug for liver & kidney cancers.
  • 2008: Bayer got patent in India. Its 120 tablet pack costs more than 2.5 lakh rupees.
  • 2012: NATCO Pharma (Hyderabad) sought permission to produce generic version of the same drug “‘Sorofenib Tosylate“, to sell at cheap price.
NATCO argumentBayer’s argument
Bayer’s drug too expensive. Indian public cannot afford. They could sell it cheap by setting up manufacturing plant @ India.We don’t want to setup mfg. plants in India, because it’d be loss making from business point of view.

India’s Controller-General of Patents ordered following:

  • Give “Compulsory license” to NATCO Hyderabad to produce the said patented drug. Because he has powers to do so under India’s patent act Section 84.
  • He ordered NATCO to pay 6% royalty to Bayer.
  • NATCO will have to sell it at ~9000 rupees / Per 120 tablets.
  • Bayer later appealed to Intellectual Property Appellate Board (IPAB) but defeated.
  • Again MNC-Pharma lobbyists portrayed this case in a different tone to USTR as if Indian patent office is biased against Foreigners.
  • Therefore Special 301 report criticized that Indian patent act & compulsory license provision hurt foreign companies in Pharma and Green energy sector.

#5: Drug price control

  • Drug Price Control Order (DPCO) 2013
  • It imposes MRP restriction 348 essential drugs.
  • But some drugs can be sold at higher price, IF they are manufactured in India using Indian technology.
  • But Foreign companies have to sell the same drug at a price fixed by National Pharmaceutical Pricing Authority (“NPPA”)
  • Again hurts the IPR of Pharma MNCs.

#6: Trademarks and Counterfeiting

  • India has backlog of 1.5 lakh+ cases related to trademark misuse.
  • Even FICCI report says trademark owner lose nearly 12 billion dollars per year because of counterfeit products in Indian market.
  • Most vulnerable industries: automobile spare parts, liquor, computer hardware, personal goods, packaged foods, mobile phones, and tobacco products.
  • US Customs dept. report says India is the top supplier of counterfeit pharmaceuticals to USA.
  • India doesn’t have separate law to punish trade secret violations. It relies on an outdated “Contracts Act”.

To sum up,

  • Indian IPR regime is not stable, not predictable, doesn’t nurture incentivize innovation.
  • Indian laws appears to favor local companies. Thus preventing a free competition by Innovative foreign companies.
  • Therefore, India has to be put under “Priority watchlist”

Negative Implications for India?

No negative implications for the time being. Because

Priority Watch List CountryPriority Foreign Country
India is here since the beginning of Special 301 report. There is nothing new.Foreign MNC wanted USTR to put India in this category. But USTR maintained status quo (by keeping India in Priority watch list.)
If a country is here, USA only uses “Carrot” bilateral talks, training, funding, and consultation.If country is here, USA will impose sanctions and or WTO dispute resolution.
  • USA did not move India to the priority foreign country (Danger zone), because they hope new government will address the issues. Even they knew Congis won’t come in power again.
  • As such, USTR reviews the trading partners on annual basis. But for India, USTR has planned an Out-of-Cycle Review (OCR) of India, in fall 2014 (i.e. Late September 2014).
  • So, if Modi takes strong initiatives to enforce IPR in MNCs’ favor, we’ll be removed even from the priority watch list- just like South Korea, Philippines etc.
  • Worst case scenario: Modi continues status quo, Obama puts India on “priority foreign country status” =puts sanctions under US trade law. Then India can retaliate by dragging them to WTO, after all, our patent regime is compliant with TRIPS (Trade related intellectual property rights). Besides India can also adopt tit-for-tat, sanctions for sanction then USA industries will be hurt more. Hence Worst case scenario unlikely.

Critiques even say

  1. Special 301 report violates WTO principles. Because it permits US government to take unilateral actions against any country. Despite the fact that USA, India, China – all have agreed to sort disputes through WTO dispute resolution mechanism.
  2. Americans have just kept the carrot dangling, by keeping India in the ‘Priority Watch List’, so that the threat remains. And, OCRs are nothing but keeping the pressure on, so US will continue to play their games with Modi or whoever else comes in power. Americans only concerned with maximizing their profit. (Hardeep Singh Puri, Ex-UN representative.)

Anyways, we must not feel guilty for in being in the “priority watch list” because China-Russia also in the same list. So this #tag should be brandished with pride and patriotism, we are no less awesome than their economies. But out of curiosity….

Why China in Priority Watch list of Special 301 report?

  1. Value wise, 93% of counterfeit products coming to USA, are made in China. (US customs Department report.)
  2. Even before America Company’s patent expires, China’s FDA will grant permission to Chinese pharma companies to begin generic drug manufacturing for local sales.
  3. Chinese government takes no input from foreign stakeholders while amending patent laws or copyright laws. Their law making process is very opaque.
  4. Chinese competitors steal trade secrets US Company offices located in China yet they go scot free in the Chinese courts.
  5. Genuine American goods see very low sales in China, even compared to other countries that have less Purchasing power than Chinese public.
  6. Chinese E-commerce sites sell counterfeit DVDs, books, journals, electronics. Yet Chinese authorities take no action. At most, warning given to e-commerce website to remove such listing. But then it re-appears within few hours.
  7. In USA, Hollywood producer’s 25% income comes from box office and 75% from (genuine) home-DVD sales. But from China, his 90% income comes from box office and only 10% from genuine DVD sales. It proves China is the mother of all video piracy activities in the world.

Why Russia in Priority Watch list of Special 301 report?

  1. Russia is home to many piracy websites that distribute video, mp3, software and games throughout the world illegally.
  2. Russia also produces counterfeit medicine, car parts and electronics. Even exports to Eastern Europe. (Not much to Asia because China already “captured” the market here!)
  3. Russian e-commerce sites sell counterfeit products.
  4. So far, only two cases resulted in conviction. But In both cases, accused went to higher court and their sentence was suspended. In other words, Russian courts = Taarikh pe Taarikh. And Russian pirates = as awesome as Indian politicians.
  5. Hardly any raids conducted on pirates. Government agencies seem apathetic to protect IPR of foreign companies.

Pakistan also in Priority Watch List in 2014- Mainly for video piracy.

Mock Questions for CSAT

Q1. Apart from India, which of the following countries have been put under “Priority watch list” under USA’s Special 301 report for the year 2014?

  1. China
  2. Pakistan
  3. Russia

Correct choice

  1. Only 1 and 2
  2. Only 2 and 3
  3. Only 1 and 3
  4. All of them

Q2. Which of the following countries have been put under “Priority Foreign country list” under USA’s Special 301 report for the year 2014?

  1. Syria
  2. North Korea
  3. Iran

Correct choice

  1. Only 1 and 2
  2. Only 2 and 3
  3. Only 1 and 3
  4. None of them

Q3. One of the reasons why USTR included India under the “priority watchlist” in its Special 301 report:

  1. Indian laws permit ever greening of patents by domestic companies but deny the same to Foreign companies.
  2. India is the biggest supplier of counterfeit medicines to USA.
  3. Sun Pharmaceutical’s plant in Punjab was violating quality guidelines set by US-FDA.
  4. None of above

Q4. One of the reasons why USTR included India under the “priority watchlist” in its Special 301 report:

  1. India did not support USA sponsored resolutions to condemn Syria and South Sudan in United Nations general assembly.
  2. India imposed anti-dumping duty on American solar panels.
  3. India’s drug price control order gives exemption to certain domestically manufactured medicines.
  4. None of above

Q5. Which of the following statements are correct?

  1. US Trade Act permits their government to impose sanctions on “Priority foreign countries” listed under USTR’s special 301 report.
  2. Apart from India, Ukraine is also in “priority foreign country” list
  3. Despite Ukraine being a “Priority foreign country” under Special 301 report, USA has deferred sanctions on Ukraine, given the ongoing Crimean crisis.

Correct choice

  1. Only 1 and 2
  2. Only 2 and 3
  3. Only 1 and 3
  4. All of them

Q6.Correct statements about “Compulsory License” in Patent law?

  1. It is an Authorization given to a third party to manufacture a patented invention at cheaper price, without original patent owner’s willful consent.
  2. As such, Compulsory License is not permitted under Indian Patents Act, but SC has permitted it in Nexvar case for larger public interest.
  3. Both A and B
  4. Neither A nor B

Q7. Incorrect statements about “Ever Greening” in Patent law?

  1. It is a practice of extending patents on pharmaceutical products by making slight changes to a drug molecule.
  2. Indian Patent Act prohibits ever greening but permits compulsory licensing.
  3. Both A and B
  4. Neither A nor B

Q8. Indian Patent Controller General gave compulsory license to NATCO to manufacture Bayer pharma’s anti-cancer drug “Nexvar”, because _____.

  1. Bayer pharma was “evergreening” the patent of the drug molecule.
  2. Bayer pharma had forged clinical trial records to obtain the patent.
  3. Bayer pharma had obtained patent only for Germany and not for India.
  4. Bayer pharma was selling patented drug at an unaffordable price to Indian patients.

Q9. Novartis lost patent right over its anti-cancer drug Glivec in India, because ____.

  1. Novartis was selling imported drug at an unaffordable price to Indian patients.
  2. Novartis had forged clinical trial records to obtain the patent.
  3. Novartis had obtained patent only for Switzerland and not for India.
  4. Novartis was “evergreening” the patent of the drug molecule.

Mock question for Mains

General Studies Paper II: Syllabus topic “Effect of policies of developing countries on India’s interests.”

Q.What is special 301 report? Why is India kept in the Priority Watch list, in this report? (200 words)
Ans.

Under Section 301 of US Trade Act, the office of US Trade representative (USTR) prepares a list of countries whose Intellectual property right regime (IPR) has negative impact on American products. Among such countries, special attention given to two groups:

Priority watch list countriesPriority foreign countries
USA uses “carrot” policy to incentivize IPR reforms e.g. funding, training, capacity building, bilateral exchanges and conferences.“sticks” policy to force IPR reforms e.g. putting trade sanctions, approaching WTO dispute resolution.

For 2014, India is kept in Priority watchlist because:

  1. Doesn’t have separate Anti-Camcording law to combat video piracy.
  2. Doesn’t have special takedown procedures against piracy websites
  3. Indian Patents Act prohibits “Ever greening” of patents. As a result, Novartis lost patent of anti-cancer drug “Glivec”. USTR interprets it as an obstacle to IPR of MNCs.
  4. India permitted a domestic company NATCO to produce cheaper generic version of Bayer Pharma’s patented drug Nexvar. USTR interprets such “Compulsory licensing” as an obstacle to IPR of MNCs.
  5. India’s Drug Price Control Order 2013, permits certain Indian manufactured drugs to be sold at higher price. Same relaxation not given to foreign companies.
  6. India is the top supplier of counterfeit pharmaceuticals to USA. Patent holder lose billions of dollar each year due to counterfeit / pirated products.

Thus, India’s IPR regime is not conductive for innovation by foreigners- at least in USTR’s interpretation, hence put under “Priority watch list” of Special 301 report. ~230 words

Correct Answers for MCQs

  1. D- All of them as awesome as India as far as IPR regime goes.
  2. D none of them even have enough “skilled human resources” to manufacture counterfeit goods or do online piracy. Only Ukraine in priority foreign country list.
  3. USTR official reason is B. biggest supplier of fake medicine
  4. USTR official reason is C. drug price control.
  5. C only 1 and 3 right.
  6. Only A correct. B is wrong because Indian Patent Act provides for Compulsory licensing under Section 84
  7. D Neither A nor B is incorrect.
  8. D compulsory license was given because Bayer was not selling its invention to public at reasonable and affordable price.
  9. D Novartis ever greening

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106 Comments on “[Economy] Special 301 Report, Priority List, Implication on India, Nexvar case, Compulsory License, Patent Evergreening, IPR protection, USTR explained”

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