Preferring engagement to extreme censure, the U.S. Trade Representative (USTR) hopes to work with officials in China and India this year to create a more even playing field for U.S. medical products in those markets.

By its own admission, the USTR will have its hands full with a litany of issues involving trade barriers and patent protection in both countries. For instance, India maintains the highest tariffs on drugs, active pharmaceutical ingredients and medical devices among the World Trade Organization members identified in a recent WTO report.

The tariffs, along with price controls and other government policies that favor domestic products, hinder efforts to promote increased access to health care in India and make it challenging for foreign drugmakers and device makers to compete in the Indian market, the USTR said in its 2014 Special 301 Report released last week.

Although several industries had urged the USTR to label India as a Priority Watch Country – the strongest censure the U.S. can give a trading partner in the annual Special 301 Report – the office declined to downgrade the country from its position on the Priority Watch List, opting instead to give India's incoming government a chance to resolve some of the trade issues. China is also on this year's Priority Watch List. (See BioWorld Today, May 2, 2014.)

Many of the problems foreign drug and device makers face in India center around that country's patent process. India's patent system allows third parties, at a minimal cost, to challenge a patent in pre- and post-grant proceedings on 11 different grounds. By citing the same grounds in both pre- and post-grant challenges, a party can tie up a patent application for years, "all the while running the potential term of the patent, which begins from the application filing date, thus impeding an applicant's ability to make investments and conduct business," the USTR said.

Drugmakers have an additional burden, thanks to last year's Supreme Court ruling in India that set a higher patent bar for new forms of a known pharmaceutical substance. While a new form may offer benefits, the only properties that qualify it for a patent are those that directly relate to efficacy, according to the court, which rejected a patent application for Novartis AG's leukemia drug Glivec (imatinib), saying it wasn't innovative enough. (See BioWorld Today, Aug. 7, 2013.)

Meanwhile, Indian agencies are lax in enforcing the patents that are granted, the USTR said, noting the challenges patent holders face in getting injunctions against infringers. Added to the problem is the fact that state authorities, which approve manufacturing, don't have a mechanism to confirm whether the item being manufactured is under patent.

Data protection and trade secrets are other at-risk areas for U.S. companies wanting to market drugs and devices in India. Currently, Indian companies "reportedly are able to copy certain pharmaceutical products and seek immediate government approval for marketing based on the original developer's data," the USTR said.

India's Ministry of Health and Family Welfare is considering drafting legislation to protect drug data. However, a similar bill for agricultural chemicals limits data protection to five years, beginning with the product's first marketing approval anywhere in the world.

As for trade secret protection, India relies primarily on contract law. Thus, prosecuting the theft of trade secrets is difficult if it involves a competitor that has no contractual relationship with the injured party. Trade secrets also may be disclosed in India's court system, which reportedly lacks safeguards to protect confidential information divulged through discovery in civil or criminal cases.

Throughout its regulatory system, India may give preferential treatment to drugs and devices manufactured domestically. A recent interpretation of India's Patents Act, for example, "suggests that a patent could be subject to a compulsory license if it is not manufactured in India," according to the 301 Report.

The same preference was seen in last year's Drug Price Control Order that imposed pricing restrictions on nearly 350 drugs but allowed higher prices for some drugs that were manufactured in India and developed using indigenous R&D.

CHALLENGES IN CHINA

Like India, China has adopted policies to hasten development of an economy built on innovation, but those advances often come at the expense of foreign companies. Central, provincial and local officials may "deny or delay market access or otherwise condition government procurement, permissions, subsidies, tax treatment and other actions on [intellectual property rights] being owned or developed in China or licensed to a Chinese entity," according to the USTR. In other instances, Chinese officials dissuade foreign companies from pursuing legal avenues to enforce their patent rights.

While China is taking several steps to improve its intellectual property climate, the theft of trade secrets and disclosure of confidential regulatory information are still significant concerns. Trade secret theft is occurring inside and outside of China "for the competitive advantage of Chinese state-owned and private companies," the USTR said. As long as the thieves are allowed to benefit and continue to operate with little consequence, the problem will continue.

Revisions were made to China's Anti-Unfair Competition Law to address some of the problems. But the revisions, which will go into effect in a few months, don't impose liability on individuals and stipulate that a trade secret must have "practical applicability," which could limit the protection for early stage research, according to the report.

Drugmakers face unique problems in China. Under current Chinese law and international commitments, new drugs are supposed to have at least six years of data exclusivity. But the China Food and Drug Administration reportedly has approved copies before the exclusivity ends and, in some cases, even before the innovator has been approved.

In 2012, China pledged to address the problem by defining "new chemical entity" consistent with international practice. And it agreed to treat and protect foreign intellectual property rights the same as domestic rights. Those changes have yet to be fully implemented. China also has not implemented revisions to its High and New Technology Enterprise tax incentive, which currently requires beneficiaries to license their core intellectual property exclusively to a party in China and make 60 percent of their global R&D expenditures in China.

Indonesia and Thailand are the only other Asian countries on this year's Priority Watch List. Both countries need to protect against unfair commercial use and unauthorized disclosure of confidential data, the USTR said. The report also noted problems with counterfeit drugs and compulsory licensing in Indonesia.