The Trade-Related Intellectual Property Rights (TRIPs) Agreement of the "Dunkel Draft" -- now the Uruguay Round agreement -- has been the source of innumerable controversies in India.  Recently, a challenge to a neem-based patent held by W.R Grace & Co. has returned many of these controversies to center-stage.  Backed by the signatures of more than 100,000 Indians and 225 agricultural, scientific and trade groups in 45 countries, Mr. Jeremy Rifkin, president, Foundation on Economic Trends, has filed a petition to the United States Patent and Trademark Office to review Grace's patent, issued in 1992, for "storage-stable azadirachtin formulations".  Azadirachtin is a natural substance extracted from neem.

Rows Abound

             The first controversy, in its extreme form, has centered around the possibility that TRIPs will lead to the patenting of the entire neem tree and that Indian citizens might lose free access to even neem branches used as toothbrush.  In the less extreme form, the controversy has manifest itself in claims that foreign companies could and, indeed, have patented natural substances obtainable from neem. 

            Any claims that natural substances such as azadirachtin can be patented are utterly false; only products made from natural substances (e.g., a neem cream or an azadirachtin-based pesticide) can be patented.  As Grace notes in its response to the Rifkin petition, its patent is "narrowly focuses on a formula which extends the shelf life and effectiveness of the neem-based pesticide."  At present, according to Grace, there are 40 different patents on products or processes related to azadirachtin.  These are owned by 22 different companies or groups of which three are Indian.

            The second controversy, not altogether without merit, rests on the argument that Grace has essentially acquired exclusive rights to the use of a process and product that Indian farmers have been using for decades.  This is the main thrust of the petition filed by Mr. Rifkin and his allies.  They argue that the patent gives Grace exclusive rights to formulations, which have been developed and used by Indian farmers for centuries.   Typically, the farmers break the seeds and soak them overnight in water, alcohol or other solvents.  The emulsions float to the surface and can be placed directly on crops as a pesticide and insect repellant.  According to Mr. Rifkin, Grace modified this process in minor technical ways that are not truly innovative.  Under patent laws prevailing around the world and those envisaged in the TRIPs agreement, an invention is not patentable if the difference between it and the prior art is obvious.

            Grace argues, however, that its process and product represent a substantial innovation over the traditional practice; in particular, its formulations extend the shelf life of the pesticide from a few days or weeks to two years.  Traditional methods used by Indian farmers yield pesticidal emulsions, which deteriorate within a matter of days.  Mr. Rifkin's petition counters, "several Indian scientists had developed stabilization techniques prior to W.R. Grace's patent application.  Stabilization research occurred within India in the 1960s and 1970s."

            From the available information, it is difficult to judge whether Grace's formulations were the outcome of non-obvious advances over the existing knowledge at the time it applied for the patent.  Conversely, Mr. Rifkin's petition does not pinpoint which existing processes yielded stable azadirachtin-based formulations and for how long were they stable.  This is the central issue U.S. Patent and Trademark Office will have to resolve in the next few months.  If it rules in Grace's favor, the patent can still be challenged in the U.S. courts.

Thorny Issues

            The third controversy raises a much more fundamental but thorny issue:  how should the benefits deriving from the world's biological resources be shared?  This issue was on the agenda of the United Nations' 1992 Earth Summit.  The Biodiversity Convention adopted at the summit declared that countries have a sovereign right to their resources and that benefits resulting from them should be shared fairly.  Though the Bush administration refused to sign the Convention, the Clinton administration has done so.  The Convention now awaits ratification by the US Congress.  It is not clear what immediate impact the convention will have on the division of benefits deriving from biological resources.  But because such resources are located predominantly in developing countries, it is in their interest to keep pressuring the international community to devise mechanisms for ensuring them a fair share in the benefits.

            A final set of controversies relates to the impact of the Grace patent on India.  To the extent that Mr. Rifkin and their allies are pushing for a larger share of benefits from biological resources for developing countries, they are to be commended.  But in the process, they also seem to contend that the patent has been harmful to India.  This, in my view, is incorrect.  The main argument offered to support this contention is that the purchases of neem seeds by Grace have made the seeds more expensive to Indian farmers.

            Grace has been quick to point out that their purchases amount to only 3% of the seeds collected which are themselves 16% of total seeds grown.  The reliability of such figures notwithstanding, this defense is admittedly flawed:  if the elasticity of supply of neem seeds is low, even small purchases can have a large effect on the price.  More importantly, Neemix sales and hence the demand for neem seeds could grow substantially in the future.

Price Rise

            The difficulty with Mr. Rifkin's argument is not that Grace's purchases cannot raise neem-seed prices perceptibly but it is that these price increases are good, not bad, for India as a whole.  When oil prices rose, countries exporting oil profited from them.  Or, closer to home, though tea exports hurt India tea-drinkers by raising tea prices, such exports are beneficial overall:  the losses of the tea drinkers are more than offset by profits earned on tea exports.  As net sellers of neem seeds, Indian farmers will benefit from a rise in their prices even though they are adversely affected as their users.  Indeed, our fears ought to be reverse:  that foreign companies might buy seeds at throwaway prices and, thus, reap virtually all benefits from them.  Fortunately, even here, the GATT permits export taxes which can be used to favorably change the distribution of the benefits from neem seeds.

            It has also been suggested that Indian farmers will now have to pay a royalty on products based on processes they themselves helped devise.  As noted above, the issue of whether Grace's and other similar inventions were non-obvious is as yet unresolved.  But even if we agree for the moment that it was non-obvious, for the existing patents, Indian farmers will not have to pay any royalty.  Because agricultural products are, as yet, not patentable in India, none of the neem-based products is patented in India.  Thus, it is perfectly legal for an Indian farmer to market a product identical to Grace's in India.  What he cannot do is to call it Neemix—a registered trademark of Grace—or sell it in the United States where Grace holds a patent on the product.

Times of India, January 16 1996