Explained - USTR's Special 301 Report & Priority Status Country

7/29/2014 Explained: USTR' s Special 301 Report & Priority Status Country
http://mrunal.org/2014/05/economy-special-301-report-priority-list-implication-india-nexvar-case-compulsory-license-patent-evergreening-ipr-protection-u 1/11
[Economy] Special 301 Report, Priority List, Implication on India, Nexvar case, Compulsory
License, Patent Evergreening, IPR protection, USTR explained
CSAT

1. What is Special 301 report?
2. Priority List countries for 2014s
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
2. Priority watch list (India, China, Russa etc.)
10
3. Watch list
27

days
26

hrs
22

mi ns
56

sec.
345
What's New? ?
4. not in watch list
44
Total countries reviewed in 2014 (1+2+3) 82*
*82 because its a time consumer exercise, USTR doesnt 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 2014s 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
Priority Watchlist
countries
Priority 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 25
th
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 doesnt 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 doesnt 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 Pharmas 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 argument Bayers argument
Bayers drug too expensive. Indian We dont want to setup mfg.
public cannot afford. They could
sell it cheap by setting up
manufacturing plant @ India.
plants in India, because itd
be loss making from
business point of view.
Indias 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 Indias 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 doesnt 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, doesnt 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
Country
Priority 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 wont 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, well 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 Companys patent expires, Chinas 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 producers 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
USAs 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 USAs
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 Pharmaceuticals 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. Indias 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 USTRs 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 owners 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
pharmas 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.
http://mrunal.org/2014/05/economy-special-301-report-priority-list-implication-india-nexvar-case-compulsory-license-patent-evergreening-ipr-protection- 10/11
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 Indias
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 countries Priority 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. Doesnt have separate Anti-Camcording law to combat video piracy.
2. Doesnt 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
Pharmas patented drug Nexvar. USTR interprets such Compulsory licensing as an obstacle
to IPR of MNCs.
5. Indias 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, Indias IPR regime is not conductive for innovation by foreigners- at least in USTRs
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.
http://mrunal.org/2014/05/economy-special-301-report-priority-list-implication-india-nexvar-case-compulsory-license-patent-evergreening-ipr-protection- 11/11
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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