India's global commitments towards intellectual property rights are dictated largely by the contentious Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) – an agreement between 125 countries, reached in 1994. On account of its status as a developing country, India was entitled to a transitional period until 1 January 2005 to bring its intellectual property regime into compliance with the minimum requirements imposed by TRIPS. Following the promulgation of the Patents (Amendment) Ordinance in late December 2004, India concluded the process of amending its domestic laws so as to meet its TRIPS obligations. The country's pharmaceutical industry has been among the first to acutely feel the ramifications of this new paradigm.
Before the TRIPS agreement came into effect, patents in the pharmaceutical sector represented perhaps the starkest contrast between the policy approaches of the global South and North. Developing countries have long preferred 'process patent' approaches, where only the process of manufacture of the pharmaceutical drug – and not the product itself – can be the subject of a patent. This approach allowed pharmaceutical firms in the developing world to specialise in the manufacture of cheap, generic versions of patented drugs (by reverse-engineering products developed in the North) for supply to their domestic markets, as well as for export to other countries with similar regimes. As a result, drug prices were kept relatively affordable for the largely impoverished populations of the developing world.
Developed countries, on the other hand, typically followed the 'product patent' approach, which entitled patent-holding companies to a legal monopoly over the drugs they created. This then enabled them to price their products well above 'marginal cost', the cost required to continue producing the product. As such, drug companies can more easily recover the large, fixed, research and development costs incurred in developing new drugs.
The superior negotiating strength and economic resources of the North, however, resulted in the minimum obligatory standards under TRIPS more closely approximating those existing in developed countries. Furthermore, patent protection is stipulated to last for at least 20 years from the date of filing the application. For Indian drug makers, TRIPS implied a shift from a patent approach that had previously granted only 'process patents' that lasted for seven years, to one that now provides 'product patents' for 20 years.