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Monday's news that the Indian supreme court has effectively denied Swiss multinational Novartis the patent protection for its 'new' blood cancer drug Glivec (Gleevec in North America) has prompted some controversial discussions in the media.

On the one hand, commentators sympathetic to the industry have pointed out that a publicly owned company loses its incentive to develop new drugs without patent protection. Pharmaceutical innovation, so the argument goes, is driven by the hope of future returns. Since development of new drugs is costly, time consuming and competitive, companies can hardly justify investments when rulings like Monday's kill their hopes of recouping the costs through future sales. In short, the Indian ruling "will hinder medical progress" ( Novartis press release) and therefore stifles innovation.

On the other hand, activists and other voices critical of the industry argue that this is a win for all those looking out for the interests of the poor and access to affordable drugs. After all, a year's supply for Glivec for a leukemia patient currently costs a whopping $70,000, while Indian generics can do the same job for about $2,500. For India, which has the biggest generics industry in the world, this ruling of course also has a very national commercial interest.

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Most commentators, however, are missing a small detail with huge ethical implications. The crucial point here is whether the version of Glivec for which Novartis was claiming patent protection is actually a ' new ' drug. What the Indian supreme court in fact ruled was not that Novartis should not enjoy patent protection on their new drugs; it mainly concluded that the new edition of Glivec, for which the company applied for protection, was in fact not sufficiently 'new' – not different enough from the old version of Glivec, for which the patent had expired.

This points to a well know strategy of the pharmaceutical industry. Rather than fighting generic companies, 'originator' companies such as Novartis just marginally change the chemical formula of an existing drug whose patent is about to expire and then pretend to having come up with an entirely new one, for which of course they should enjoy full patent protection.

This, however, is just one trick pharmaceutical companies use in fighting generic companies. The EU Commission on Competition has had an eye on the practices of the industry in circumventing patent law for a long time. Its 2009 report was an interesting read that shone an interesting light on the claim that it is the generics companies that stifle innovation (as rehearsed Monday on BBC, CNN and the likes).

Basically, companies such as Novartis and other 'originators' are using a whole host of 'defensive patenting strategies,' and the use of 'second generation products' ruled on in India on Monday is just one of them. Others include the filing of numerous patent applications for the same medicine (forming so called 'patent clusters' or 'patent thickets'). This is an important advance tool to prevent competitors from developing new medicine, as the potential new drug would already be covered by the patent right filed in advance by another competitor.

All in all, the EU Commission identified a host of industry strategies all of which resulted in numerous "situations where innovation was effectively blocked" (p. 19). So, in reality, what Novartis has been stopped from doing – at least in India – is not so much about innovating for new drugs, but rather one element of a rich toolbox of strategies to stifle and prevent innovation while protecting patents and thus the profits of the company.

Monday ruling may end up creating more real innovation. Rather than focusing their R&D teams on insignificant changes in existing drugs which may satisfy the legal team of the company to file a new patent application, Novartis and other pharmaceuticals might take this event as an incentive to actually develop new drugs that address hitherto unaddressed and untreatable diseases. One of the reasons the Bill and Melinda Gates foundation is so active in developing new drugs for the diseases of the poor (such as malaria) has to do with the fact that pharmaceutical innovation is too much driven by potential econ omic benefits of future drugs. And of course the diseases of the poor are bad for the business case of a drug.

This problem now hits a company whose outgoing CEO just had to turn down a $78-million severance package – reacting to public outrage in Switzerland. After all, a company that can afford such golden handshakes for their CEO in the first place can't be suffering too much loss from all those third-world generics producers.

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Dirk Matten is professor of strategy, Hewlett-Packard chair in corporate social responsibility and co-director, Centre of Excellence in Responsible Business at Schulich School of Business, York University

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