The Indian Pharmaceutical Industry has been in a state of dynamic restructuring since the time India became one of the founder members of the WTO. Reactions to the TRIPS agreement has been variable, with some viewing it as an opportunity to play the competitive game in the international markets as per the evolving rules of the game, many charting their businesses along uncertain trajectories not fully appreciating the implications of the new regime, leaving most of the industry reeling in fear of the unknown. The first major transition in the patents scenario in India took place with the Indian Patents Act 1970 which came into force on 20th April 1972 replacing the Indian patents and Designs Act of 1911. In recent years this Act has undergone major changes in the form of two amendments, namely the First Patents Amendment in April 1999 and the Second Patents Amendment in May 2002.As a developing nation, India is obligated to comply with the provisions of the TRIPS agreement as per the agreed timeline of actions (figure 1) It ought to be appreciated that the Indian Patents and Designs Act 1911 in force until 20th April 1972, was fairly liberal as patenting of products related to foods, pharmaceutical, chemicals, etc. was available with a full term of 16 years in India. The Indian Patents of 1970 brought in significant changes with a number of restrictions related to patenting of inventions (special provisions in sections 2, 3, 4 and 5), especially in the area of chemicals, pharmaceuticals, agrochemicals, foods, in which product patents had been discontinued and patenting of processes with a restricted term of seven years from the date of filing of the complete specification or five years from the date of sealing the patent, whichever is shorter was introduced. Several other domestically protective practices in the form of " licences of right", compulsory licences", burden of proof in the case of infringement of a process patent lying with the plaintiff", etc., became significant parts in the Indian Patents Act 1970. Such a protected patent regime provided a safe platform on which pharmaceutical and chemical industries could strike roots and grow in India and also meet the need for increased production rather than relying on imports, which was then critical for the infant Indian national economy. Expertise in institutions, R&D capabilities, S&T infrastructure and industry during the last five decades has selectively developed to extraordinary levels as compared to that in most developing nations.However the Indian pharmaceutical industry has built its structure along traditional lines of manufacturing molecules that have been invented in other countries and not having patent protection in India as per the Indian Patent Act 1970, developing cost effective processes, formulations, and drug delivery systems. In contrast during the last decade, the global pharmaceutical industry has made targeted strides in biotechnology and has integrated into their business processes modern methods of drug discovery, bio informatics, biotechnology, development of high speciality materials, fine chemicals, new molecules with multiple applications, drug delivery systems, products obtained from microbiological and biotechnological processes, etc. Intellectual Property Rights has gradually become an inseparable part of corporate strategy and much of the knowledge transactions in this industry is now IPR led. The restrictions outlined in sections 3, 4 and 5 of the Indian Patents Act 1970 are in direct conflict to the Articles 27(1), 27(2) and 27(3) of the TRIPS agreement. As mentioned earlier India decided to class itself as a developing nation and take advantage of the full term of 10 years that would be available to it to introduce the product patent regime before January 1st, 2005. It is pertinent to critically examine the 1st and the 2nd Patent Amendments to the Indian Patent Act 1970 introduced in 1999 and 2002 and its possible impact on the pharmaceutical Industry in India. In the interim period India also became a signatory to the Paris Convention and joined the Patent Cooperation Treaty in December 1998. One of the major reasons for the widening phase lag between the Indian Pharmaceutical and the Global Pharmaceutical Industry has been the hyper-protective canopy provided by the Indian Patens Act 1970 since 1972. There has been little or no pressure on the Indian Pharmaceutical Industry to venture and encompass the emerging areas of R&D and innovation processes into their businesses leaving them fairly unprepared to face the new IPR regime. The Indian Pharmaceutical Industry with a few exceptions finds itself lagging behind in competitive strategy, expertise and critical mass in R&D and investments in the development of technology and know-how related to development of new molecules and value added products. The patenting trends in India during the last 50 years has been extraordinarily low in the filed of drugs, foods and pharmaceuticals clearly demonstrating that IPR has not been in the priority list of these industries in India. The first amendment in 1999 introduced the filing of patent applications for pharmaceutical or agricultural chemical products (as required by subparagraph (a) of Article 70.8 of the TRIPS Agreement) in a "black box" and for the grant of exclusive marketing rights as a pipeline protection for 5 years with respect to the products that are the subject matter of such patent applications on or after 01.01.1995 (as required by Article 70.9 of the Agreement) on fulfilment of certain conditions set by the amendment to the Patent Act.No organisation has so far been granted EMR in India for any of their products. However there are several thousand product patent applications that have been filed in the "Black Box" It should be appreciated that these applications now have the priority of the date of their filing in India. As and when the patent law in India changes to grant product patents, these applications will be examined as per the then prevailing law and if granted will have the priority of the date of their filing in India. The pharmaceutical industry is well advised to be aware of the implications of these aspects as they may find themselves embroiled in unexpected IPR infringements. Other significant aspects of the 1st amendment were": ? Deletion of Section 39 of the Indian Patents Act 1970. With this it is possible for inventors in India to "first file" their patent applications in any part of the world. Before the amendment it was mandatory for inventions made in India to be first filed in India and then file them any where else after a waiting period of 6 weeks after the filing in India. ? Selling and distribution of the article in India would be considered as working of the invention. The interpretation of working of a patent in the Patent Act before the 1st Amendment was " Manufacturing ". Clause (d) and (c) under section 90 dealing with importation and working of patent were deleted.This implied that importation would be considered as working of the invention in India. Prior to the first Amendment importation was not considered as working a patent in India. ? In the public interest the Government has reserves the right to intervene while granting Exclusive Marketing Rights and issuing of Compulsory Licenses. The Government also reserves the right to decide on the pricing of articles covered under the Exclusive Marketing Rights. The Second Amendment in continuation of the 1st Amendment addresses TRIPS compliance to ? Harmonisation of patent term to 20 years irrespective of the filed of technology. ? Publication of the patent application after 18 months of filing ? Deletion of sections 86, 87, 88 of the Indian Patent Act 1970 dealing with the practice of "licenses of right'' ? Faster prosecution of patent application and transparency in the whole process ? Reversal of the burden of proof of process when there is an infringement of process patents. The alleged infringer will now have to prove that he is not infringing the process patent. ? Build up of a more effective framework for enforcement (though much remains to be done in this area) A new feature introduced in the Act is a type of "Bolar Provision" Controversial issues related to granting of product patents, "working of patents", "compulsory licensing", "opposition" and "revocation" continue to plague the Indian Patents Act 1970 even after the two amendments. This amendment has made a few significant additions and deletions from the list of inventions that are not patentable in India. The amendment has brought in exclusion in the items not patentable by stating "other than microorganisms" suggesting that micro-organisms in principle have not been excluded from patentability, which is very important and significant. The text of the amendment also clarifies that for the purposes of this section 5 of the Act, products formed from "chemical process" including biochemical, biotechnological and microbiological process would not qualify for patents but the processes would be patentable. The amended Section 3 dealing with inventions that are not patentable now include in addition to the existing items, ? any process for the medicinal , surgical, curative, prophylactic, diagnostic, therapeutic or other treatment of human beings or process for a similar treatment of animals to render them free of disease or to increase their economic value or that of their products. ? plants and animals in whole or any part thereof other than micro- organisms but including seeds, varieties and species and essentially biological processes for production or propagation of plants and animals; ? an invention which, in effect, is traditional knowledge or which is an aggregation or duplication of known properties of traditionally known component or components. Explicit disclosure in patent specifications of the source and geographical origin of biological materials used in the invention, deposition of the biological material to an authorized depository institution become mandatory and any non compliance to this may be taken up as a ground for the opposition and revocation of the patent. Similarly claim anticipated with regard to the knowledge, oral or otherwise, available within any local or indigenous community in India or elsewhere could also be a ground for revocation of the patent.; These additional grounds have been brought in to correct for any wrongful use of indigenous biological resources and traditional knowledge and brings the Patent Act in line with the Protection of Plant Varieties and Farmers Rights Act, 2001 and the Biodiversity Act 2000. The most controversial sections of the amended Act relate to "Working of Patents" and "Compulsory Licensing". These are summarized below: ? Section 83 dealing with the general principles applicable to the working of patented inventions has been expanded to include several conditions without explicitly and clearly defining the concept of" working of patents". This brings the 2nd amendment inconsistent with respect tothe changes made in the first amendment which clearly stated that importation would be considered as working of a patent in the context of EMR. However the section 83 after the second amendment has chosen to cloud the issue by introducing broad qualifiers in section 83 of the amended Act. ? Along similar lines Section 84 of the Amended Act strengthens the earlier grounds for compulsory licences in that at any time after the expiration of three years form the date of the sealing of a patent, any person interested may make an application to the Controller for grant of compulsory licence on patent on any of the grounds especially if the Controller, is satisfied that the reasonable requirements of the public with respect to the patented invention have not been satisfied or that the patented invention is not worked in the territory of India or that the patented invention is not available to the public at a reasonably affordable price, may grant a licence to the applicant of a compulsory licence upon such terms as he may deem fit. . ? Though on one side the conditions under which the compulsory licences to be granted have been eased, the terms for "fair returns" to the patentee in the case of compulsory licences granted have not been to clearly defined in the Amended Act as it states in Section 90"The royalty and other remuneration, if any, reserved to the patentee or other person beneficially entitled to the patent, is reasonable, having regard to the nature of the invention, the expenditure incurred by the patentee in making the invention or in developing it and keeping in force and other relevant factors". ? Similarly as per the special provisions (national emergency) in Section 92 (1)(ii) of the Bill states " in setting the terms and conditions of a licence granted under this section, the Controller shall endeavour to secure the articles manufactured under the patent shall be available to the public at the lowest price consistent with the patentee deriving reasonable advantage from their patent rights. ? In the case of governmental use of a patented invention, the modified Section 100 sets some guidelines for the compensation to the patentee by stating " provided that in the case of any such use of any patent, the patentee shall be paid not more than adequate remuneration in the circumstance of each case taking into account the economic value of the use of the patent. The ''economic value'' of the patented drug will be fixed by the government by its own judgment." ? In contrast, Section 90(1)(ii) sets the terms and conditions for Compulsory Licensee the stated objective is to ensure that the patented invention is worked to the fullest extent by the person to whom the licence is granted and with reasonable profit to him. The sections related to compulsory licencing including the term for "fair compensation to the patentee" in the even of compulsory licences being issued is contentious and debatable. The amendment in these respects is tilted much in favour of the licensee of a compulsory licence rather that adequately protecting the interest of the "innovator" It may also be noted that India has yet to introduce an effective system for Data Protection that is compliant with Article 39.3 of TRIPS. The provisions under the existing National Official Secrets Act that bind the public servants from disclosing or using confidential information in an unauthorised manner that may affect the security, sovereignty and integrity of the country does not satisfy the requirements of the data protection needed in the pharmaceutical industry and therefore much needs to be done to get the aspect of data protection to TRIPS compliance. The Second Amendment has not yet come into force as the subsidiary legislations by way of Rules are yet to be approved. The delay in setting the rules and getting them passed is another drawback in India as most of recent IPR the Acts have not come into force due to the non-issuance of the associated of the rules. Indian should have taken bolder steps in by introducing the product patents regime without any delay and waiting till 2005. In my opinion the second Patent Amendment to the Indian Patents Act 1970 appears to be "one step forward and two steps back" when the "Innovative Indian Knowledge Worker" is set to achieve new heights in the global market place. The pharmaceutical industry in India should have taken a lead to positively influence the legislation in favour of the development of an enabling innovative and competitive climate in which science, technology, business would nucleate, nurture and grow making India a meaningful competitive player in the world markets. --- The author is Advisor, VISION-IPR, Mumbai and Adjunct Professor, Sailesh J Mehta School of Management, IIT Bombay