News

India’s assault on patents doesn’t just hurt its trading partners. It also hurts India.

By Holger Krahmer

March 23, 2014 2:53 p.m. ET
http://online.wsj.com/news/articles/SB10001424052702304679404579456672440016300

The European Union is among India’s top trading partners. Commerce between EU nations and India more than doubled between 2003 and 2011 to €79.9 billion, from €28.6 billion; private EU investment flowing into India more than tripled during the same period. Now the European-Indian trade partnership is threatened by a shortsighted crusade against intellectual-property rights launched by Indian officials.

New Delhi has in recent years allowed Indian companies to violate international intellectual-property norms by, among other things, producing generic versions of patented pharmaceuticals developed by European companies. This needs to stop: Violating intellectual-property rights might generate some upfront economic rewards for India but it also corrodes the foundations for long-term prosperity.

After all, intellectual property is the cornerstone of innovation. It creates incentives essential for productive risk-taking. A pop song, a lifesaving drug, an addictive new iPhone game—they’re all expensive and risky to produce. Intellectual-property rules such as patents, trademarks and copyrights grant entrepreneurs a temporary market monopoly. In so doing, they guarantee that there’s a fair shot at reaping the rewards of successful investments.

There’s an obvious temptation for governments to bust patents and trademarks, particularly for developing economies like India’s. Officials can just let someone else do the hard work of innovating, steal the most successful ideas and let local firms produce low-cost knockoffs. And that’s exactly what India has been doing as of late.

Here’s a taste of the abuses. Local officials have unilaterally revoked patents for drugs manufactured by three of the top pharmaceutical companies in the EU—and dozens more for drugs produced in the rest of the Western world. Despite mounting international pressure, New Delhi has refused to pass anti-recording legislation to combat movie piracy. Indian officials continue to deny patent protections to genetically modified crops. And there’s weak enforcement of the few unmarred intellectual-property rules still on India’s books.

The Global Intellectual Property Center Index now ranks India dead last among 25 major economies in terms of intellectual-property protection, behind its fellow emerging-market rivals in Brazil, Russia and China. New Delhi’s anti-intellectual-property maneuvers are brazenly protectionist. The country’s commerce minister, Anand Sharma, recently declared his government “committed” to protecting “Indian generics.”

India’s rampant intellectual-property violations have serious economic effects on the EU. According to a study conducted by the European Patent Office and the Office for Harmonization in the Internal Market, intellectual property-intensive industries support about a third of all EU jobs. They comprise nearly 40% of the EU’s total GDP, or €5 trillion. The industry as a whole invests an estimated €30 billion in research and development projects in Europe.

When a major trading partner snaps intellectual-property protections and allows local competitors to freely produce knockoffs, revenues get siphoned away from the original EU innovators, leaving less money to invest in new jobs and growth.

But India’s anti-intellectual property strategy doesn’t just hurt its trading partners; it also hurts India. Corrupting these protections stifles domestic innovation. Local entrepreneurs are going to shy away from taking new risks. When an Indian innovator’s efforts result in a successful product, the government can just swoop in, steal the idea and deprive him of any profit. Likewise, violating intellectual property scares off foreign investors, who will just relocate their money to legal environments more conducive to returns.

Reversing course and supporting common-sense intellectual-property protections would set India on a path to long-term economic progress. Work from the U.S.-based economic advisory firm Sonecon estimates that if India were to adopt and enforce an intellectual-property rights regime comparable to that of America’s—the most robust framework in the world—foreign investment flowing into the country would jump by 83% a year.

If India were to establish a robust intellectual-property regime, Sonecon predicts, pharmaceutical investment in the country would jump to more than €55.5 billion by 2020, from about €1.4 currently. That would translate into some 44,000 new Indian jobs over the next half-decade.

India needs to quit trying to gin up short-term gains for local firms by weakening intellectual-property protections. It should instead assimilate global intellectual-property norms and protect the financial incentives that prompt entrepreneurs to develop new products in the first place.

Mr. Krahmer is a German member of the European Parliament.