The emergence of global business systems, and along with it the need for protection of Intellectual Property Rights (IPR) are now almost foregone conclusions. But what caused them? There are at least two obvious factors that contributed to this changed global political economy and the concomitant introduction of IPR. By the early 1970s, the high labor costs in the OECD (Organization for Economic Cooperation and Development) countries had led to the relocation of labor intensive industries to third world countries, which saw the beginning of transition from a manufacturing based economy to a service based economy dominated by knowledge-intensive industries.
          On the other hand, the condition of indebtedness of the Third World of the 1970s (because of the twin oil crises of 1973-74 and 1979) created an increased demand for foreign investments. Both these factors fed on each other, resulting in an increased prominence of transnational companies (TNCs) in the global trade. For the latter, it was clear that while this situation could lead to higher revenues, the strategic route lay in enforcing a strict IPR regime.
          In the eighth round of GATT talks (1986-1993), initial attempts by the United States to introduce a Trade Related Intellectual Property Rights (TRIPS) regime brought forth strong objections from the third world countries like India and Brazil. Their apprehension was that the technology they needed from the west for development would become more expensive under an active TRIPS regime. However, in 1988 a compromise was arrived at with certain trade concessions made by first world countries.
          For a country like India, the sector that is likely to be affected strongly by an IPR regime, (more particularly with respect to product patenting), is the pharmaceutical industry. The impact may be felt either through direct competition or via patenting of Indian tropical bio-diversity by transnational companies. Therefore, an urgent need for policies and strategies to combat the situation.
          India has made significant strides in terms of self-reliance in pharmaceutical products. From being an importer of medicines in the first few decades after independence, today we are able to meet a good part of our essential requirement through indigenous production. Prices of indigenously manufactured drugs, once among the highest, are among the lowest in the world today. A net foreign exchange earner, with the annual turnover of Rs. 15,000 crores, the Indian pharmaceutical industry today ranks among the most developed in the third world, in terms of technology, quality and range of pharmaceuticals manufactured. The annual increase in the drug production is about 15% , while the average pre-tax profits for the industry is 8% of the annual sales. Nevertheless, the share of Indian pharmaceutical business in the present world market is only 1%, which suggests considerable opportunities for growth.
           The reason for the low price of Indian drugs is twofold. First, as a result of a government intervention through the Drug Price Control Order (DPCO), the prices of all bulk drugs and thousands of formulations have been controlled so as to make them affordable to the common man. Secondly, and perhaps more significantly, many Indian companies – particularly, during the early period of the industry’s growth - have engaged in reverse engineering, a process that has allowed quick replication of new drugs at a low cost.
           But today with an impending strong IPR regime, the major issue facing the domestic industry is that of investing in R&D so as to better compete with international corporations in creating new drugs. The industry’s R & D expenditure is currently about 2% of its annual turnover - considerably less than the 6-8% spent by many corporations in the western world. The cost of pharmaceutical R&D in the developed world is a steep one - around $250-300 million per annum. In India, however, the expenditure might be only one third to one fourth of the last figure, primarily because of the low manpower costs.           

Few Indian companies can afford to spend in excess of Rs.100 crores in R&D and wait for a decade for pay back. Essentially, a basic research program demands a high “entry fee”, which only companies with very deep pockets,

large business volumes, and an extensive global operation are positioned to accept!
         According to the U.S industry, it loses nearly $1.4 billion annually from the sale of copied drugs in just four third world countries including India —which has a $0.92 billion share of the copying. It is difficult to eschew entirely the truth of this criticism. The moot point, however, is whether the high R&D costs borne by TNCs alone can legitimize the imposition of a strong IPR regime. For, amongst other things, historically most first world countries have introduced product patents only after their own pharmaceutical industries became strong enough to challenge international competition.
           It would thus appear that the imposition of a strong IPR regime is more an attempt by western countries and their pharmaceutical corporations to consolidate the gains they have made in the last several decades. Just when Indian pharmaceutical companies are beginning to acquire strength under the process patent regime they are being forced to concede the gains to transnationals. Of course, this need not imply that the Indian sector should be provided a completely protectionist environment indefinitely; rather there should be a time frame arrived after due consultations with the industry. Presently our timeframes are dictated by the external environment and therefore does not do justice to our internal concerns.Some of the adverse changes that could affect the Indian pharmaceutical industry under the IPR regime are: increased R&D expenditure and hence higher Indian drug prices, and lower export of drugs because of the inability to use process patents. Overall, however, the use of IPR will not be an unmitigated disaster if the industry invests well in basic research, new product launches, a thrust into global generics market and licensing-in of products from companies that do not have a presence in India. There needs to be rapid development of innovative, non-infringing processes for products going off-patent internationally and a leveraging of the low cost domestic manufacturing. In an ironic sense, India has already benefited from an impending IPR regime. For, with the recent attempts by western players at patenting age-old Indian botanicals such as neem, turmeric, jar amla and several others, Indian policy makers have suddenly woken up to the advantages of patenting our bio-diversity!
          There is no doubt that bio-diversity will increasingly gain importance in drug development. Developing countries, like India and Brazil, are the source of an estimated 90% of the world’s store of biological resources. More than half of the world’s most frequently prescribed drugs are derived from plants or synthetic copies of plant chemicals — and this trend is growing. It has been estimated that even if just a 2% royalty were charged on genetic resources developed by local innovators in the tropical countries of the South, the North would owe around $5 billion / year in unpaid royalties for medicinal plants.
           To conclude, the use of IPR in the Indian pharmaceutical industry must be perceived judiciously in light of its strengths and weaknesses. The role of the government must be more bold and imaginative in dealing with the industry’s problems and opportunities.