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On regulating campaign finance

Discussion about campaign finance has gained momentum with the general elections around the corner. Jhalak Kakkar, an analyst with PRS Legislative Research, spoke with us about the regulation of campaign finance in India and other countries.

The edited transcript of Ms. Kakkar’s talk is below.

During an election campaign, political parties and candidates require funding. An increase in funding could significantly enhance their electoral outcome and facilitate greater access to voters. Candidates therefore, have an incentive to collect higher levels of funding but this behaviour may have negative implications for good governance. Good candidates, unable to raise sufficient funds, may get blocked out of campaigning and the electoral process. Funds from private sources often come with strings attached and this may result in elected politicians taking decisions that benefit special interests rather than the larger public interest. Politicians in power may in turn exert pressure on potential sponsors to contribute to the electoral campaign. Now, to restrict these adverse possibilities, most democracies regulate the financing of election campaigns.

Campaign finance is regulated around two aspects — (1) individual and group contributions to the electoral campaign funds of both candidates and political parties, and (2) expenditure by candidates and political parties. Both expenditure and contributions are kept in check is by disclosure requirements placed on candidates and political parties. There are civil and criminal penalties for the contravention of these regulations. The framework for regulating campaign finance in India is contained in the Representation of Peoples Act, 1951 and the Conduct of Election Rules, 1961.

Regulating campaign contributions — individuals, groups, and direct public funding

Contributions can come from three broad sources — direct public contributions, individual contributions, and group contributions including those from companies, societies, and trusts. Indian regulations focus largely on contributions by individuals and companies.

Individual contributions: There is no limit on the individual contributions that can be made. This is similar to the position in the U.K. It is interesting to note that in the U.S. and in Canada, there is a limit on individual contributions.

Group contributions: Group contributions and contributions made by companies are regulated under the Companies Act, 1956. Corporate contributions have to be capped at five per cent of the company’s average net profits during the three immediately preceding financial years. Incidentally, in the U.S., there is a ban on direct campaign financing by corporates, banks, and unions.

Foreign contributions: There is also a complete ban on foreign contributions to candidates and parties under the Foreign Contribution Regulation Act, 2010.

Disclosure requirements: Political parties have to disclose all contributions received by them and file them in their income tax returns. A donor, who has contributed more than Rs. 20,000/- has to be disclosed, and these disclosure requirements are largely in line with international practice.

Direct public funding: There is no direct public funding of campaigns in India. There is indirect funding for parties through the allocation of time on television and radio networks for campaigning. The time allocated is proportional to their performance in past elections. In addition, pre-electoral rolls and other documents are distributed to political parties.

Countries like Canada, U.K., and France have varying levels of direct public funding for elections. In India, the question of whether we should move towards a system of direct public funding for electoral campaigns has been debated time and again — for instance, by the Santhanam Committee in 1964 and the Wanchoo Committee in 1971 — especially given the concern that there is a significant flow of black money into campaign financing. The Law Commission in 1991, and the Administrative Reforms Commission in 2007 agreed that there should be partial state funding of campaign finance. On the other hand, the National Commission to Review the Working of the Constitution cautioned that state funding should be deferred until there is a fool proof regulatory system that will check violations by political parties of the financial limits that have been set and that this should be broadly subject to the effective functioning of political parties themselves.

Regulation of campaign expenditure

There are limits to the campaign expenditure that can be made by a candidate. At the Parliamentary constituency level, the limits vary from ten lakh to twenty-five lakh rupees from state to state and at the State Assembly constituency level, it varies from five to ten lakh rupees. Incidentally, there is no limit on expenditure for propagating the party. Any other expenditure by the party however, is deemed to have been made by the candidate.

Different countries have addressed this question differently. The U.S. does not have any restriction on campaign expenditure. The U.K. has placed restrictions on campaign expenditure by a political party but not on campaign restrictions by a candidate. There are certain disclosure requirements though, at the campaign contribution level and at the campaign expenditure level.

The Election Commission of India maintains a check on campaign expenditure. Candidates have to lodge expenditure accounts with the District Election Commissioner within thirty days of incurring the expenditure. Secondly, candidates to disclose their income and assets to the Election Commission of India, which puts those details up on its website.

Penalties

There are civil and criminal penalties for non-compliance with both contribution and expenditure regulations. If a candidate has failed to lodge election expenses or has spent more than the permitted amount, he will be disqualified. If a company has made contributions in excess of the specified limit, they will be fined up to three times the amount contributed. A person who accepts foreign funding even though it has specifically been banned can be imprisoned up to five years, or fined or both.

 

(Aju John is part of the faculty at myLaw.net)

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Why we need pre-legislative scrutiny

Last month, a Working Group of the National Advisory Council (“NAC”) recommended a pre-legislative process for all Central government draft legislation. The recommendation announced that it would try to “move in the direction of creating institutionalised space for people’s participation in the formulation of legislations in a systematic manner”. Mandira Kala of New Delhi-based PRS Legislative Research spoke with us about these recommendations.

The edited transcript of Ms. Kala’s talk is below.

Pre-legislative scrutiny involves the examination of bills and legislation before they arrive in Parliament. Mandira Kala said that the questions discussed by the NAC included what kind of information should be made public when a ministry is drafting a Bill, the kind of consultative process that should accompany a draft law, and who should be involved in such a process. The note discussed the importance of pre-legislative scrutiny, especially by citizens and highlighted the fact that citizens of India were rarely able to access information on the legislative proposals from different ministries.

“Typically, this happens within the ministry and the bureaucracy and is not a very consultative process in terms of engaging with different stakeholders and different constituents. As a result, if the government is thinking about bringing in law on land acquisition, we would only know about what kind of law the government is thinking of, when it made it to Parliament.” Another peg in the NAC report is Section 8 of the Right to Information Act, 2005, which talks about pro-active disclosure by the government. Laws and rules made under different legislations is one aspect of it. Some of these issues were also addressed by the Financial Sector Legislative Reforms Commission, which looked at the overhaul of financial sector regulation.

Referring to the current debate on disruptions in Parliament, she said that legislation tends to pass quickly and without effective examination. In the U.K. Parliament, Ms. Kala noted, the government brings out a calendar of the important legislative matters that they propose to enact. “We only get to know this when a Parliament session is starting up. In this session for instance, land acquisition and food security were big bills. If there was a Parliamentary calendar, or a calendar of pre-legislative ideas, then it would be useful for citizens to start thinking about the legislative priorities of the government and how they can engage with it.” That kind of an exercise goes into strengthening the ultimate bill, she said.

There was a consultative process before the current food security bill was brought into Parliament. “The ministry had circulated a draft of the bill for comment and several people had given their comments but when the bill was produced in Parliament, there was no clarity on what kind of comments the government considered, what was the substance of the responses, and what issues were being addressed.” Ms. Kala said that the government could state the problem they were seeking to address with a particular law, their opinion about the most effective way to solve the problem, and the issues up for debate in an explanatory memorandum for bills brought in after pre-legislative scrutiny.

Had there been such an explanatory memorandum to the National Food Security Bill, 2013, Ms. Kala argued, it would have mentioned the existence of the Public Distribution System, discussed whether it had worked, and discussed the best way to allocate food resources to those who need it. Such cost-benefit analysis is an important part of strengthening the pre-legislative process. Currently, none of that happens.

Pre-legislative scrutiny could also reduce the likelihood of subsequent amendments to legislation. The government would have thought through the draft law with more care and more consultation with stakeholders and political parties. “It would be more of a consensus building process from the very beginning rather than a controversial and at times hostile process that happens when Parliament considers passing the law.” Ms. Kala added that this would not be entirely new for the government. Some laws require that draft rules under those laws should be placed before the Parliament before they are enacted. The important part of the pre-legislative process is the documentation of the costs and benefits of the proposed legislation and how the proposed intervention in a policy problem is expected to work out. If these guidelines are published ahead of the legislation coming in to Parliament, citizens and stakeholders will be able to engage more fruitfully in the law-making process.

 

(Aju John is part of the faculty at myLaw.net)

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“Nothing wrong with setting high standards of patentability”

On April 1, 2013, the Supreme Court of India upheld the decision of the Intellectual Property Appellate Board to deny patent protection to the beta crystalline form of imatinib, the compound marketed by pharmaceutical giant Novartis as Glivec, a popular drug for fighting certain forms of cancer. In the Supreme Court’s judgment, the modification made to imatinib did not satisfy the standard of inventiveness required under Indian patent law. Srividhya Ragavan, a Professor of Law at the University of Oklahoma College of Law, spoke with us in this context about the standards of inventiveness required under various patent regimes.

Scroll below to read the edited transcript of Ms. Ragavan’s talk.

Imatinib was patented in the United States in 1993. In 1998, when India had the mailbox facility in its patent law because the Agreement on Trade Related Aspects of Intellectual Property Rights (“TRIPS”) required developing countries to institute a mailbox facility during the transition to the TRIPS standards, an application was made to patent the mesylate form, which is the form of imatinib treated with methane sulphonic acid. When India eventually transitioned to the new patent regime in 2005, the Indian Patent Office looked at the patent application for imatinib mesylate. At that time, the generic drug makers opposed the patent application as lacking the “efficacy” requirement, which is necessary under Section 3(d) of the Patents Act, 1970 after it was amended in 2005.

The inventive step

Section 3 of the Indian patent statute outlines exclusion from patentability. Anything that falls within Section 3 cannot be patented. “In the U.S., it would probably have been something called a threshold requirement. This basically means that you would look at the requirements of Section 3 first and then look at all other aspects of patentability, that is, novelty, utility, and non-obviousness. In India, we look at Section 3 almost always after looking at the non-obviousness step. We call it the ‘inventive step’ here and we look at it after we determine that the invention is useful, novel, and non-obvious.” Section 3(d) states that the discovery of a new form of a known substance cannot be patented unless it shows “increased efficacy”. A new form of a known substance could be anything from a salt form to an ester form or from a pure form to a metabolised form or a mixture of isomers, all of which are examples given in the statute itself. None of these can be patented unless it also results in increased efficacy. Now courts have basically said that the term “increased efficacy” means “increased therapeutic efficacy”. It is not enough that there is non-therapeutic efficacy, for instance, if the compound is more bio-solube. “The only exception is if it differs significantly in properties.”

In the Novartis application, after looking at the “inventive step” criteria, the court looked at whether imatinib mesylate exhibited increased therapeutic efficiency compared to imatinib itself. “That is the one point that most people miss. You don’t look at imatinib mesylate independently. You look at along with Novartis’ earlier invention, the free base of imatinib.” Ms. Ragavan highlighted two points made by the court — firstly, that proof as to whether there is increased therapeutic efficacy will be sought on strict and narrow standards, and secondly, that properties inherent to that form would not qualify for enhanced therapeutic efficacy. “So basically, if the new form is a salt form, you cannot say that it is more soluble in water. That won’t help. You have to show that the more soluble form has more curing or therapeutic properties compared to the earlier patent.” Considering this, the court said that it was not patentable, and with that, Novartis hit the wall. They tried arguing that Section 3 itself was not TRIPS compliant and the court did not agree to that.

Secondary patents — Pfizer and Schering

Finally, Ms. Ragavan said, we can say that India will not allow patents for what are known as “secondary patents” in the United States. In the United States, “secondary patents” are allowed under some circumstances, that is, if you can prove “enhanced utility” from the base compound. When “secondary patents” are questioned, the question, almost always, is whether it exhibits enhanced utility. In Pfizer v. Apotex, Pfizer, an originator company, sued Apotex for infringing a patent on the besylate form of amlodipine, which was used to treat hypertension and forms of angina. Apotex alleged that Pfizer’s own earlier patent on amlodipine anticipated the latter patent on the besylate form. The Federal Circuit agreed with the generic drug company and said that the besylate form lacked enhanced utility.

Schering v. Geneva is another case where the court held that the later patent was not patentable in view of Schering’s own earlier patent on its drug, claritin. These are some cases where the court has not allowed “secondary patenting”. In Schering however, the court said that if you can claim appropriately, then the United States is not per se opposed to patenting secondary material. As a jurisdiction therefore, the United States is not opposed to patenting secondary material. “India however, because of Section 3, is clearly opposed to the patenting of all kinds of secondary material. How does it make a difference? Secondary patents are usually obtained when there is a primary patent on a free base. In Novartis’ case, it was imatinib. Much later, after continuing research, a second patent is taken on another form of the free base. It is usually a mesylate form, a besylate form, a salt form — a variation of the free base. Because it is a variation, it takes some new properties that are particular to that form. If it is treated with methane sulphonic acid, it takes some properties from that acid, or if it is treated to get a salt form, it takes some salt properties. Nevertheless, the basic properties remain the same time. Now how does it help these companies to pack patents one above the other? When the patent on the free base expires, it allows the company to continue to hold the market using the secondary patent for much longer than the original intended form, a concept that we call “evergreening”.

The Schering case is interesting. The original patent was for a compound called loratidine. The second patent was for the metabolite created in the patient’s body when the drug reacts with the acids in the patient’s body. Once the original patent on loratidine expired, Geneva, which is the generic drug company, wanted to create a generic form. Schering argued that while Geneva can create a generic form of loratidine, because of the patent for the metabolite form, every time a patient ingests loratidine, an infringing compound would be produced inside the patient’s body, and therefore, Geneva would be contributing to an infringement. Geneva sued Schering and argued that the second patent was invalid in light of the earlier patent. The Federal Circuit Court agreed with the generic drug company and held that the later patent was invalid. This is the situation in the U.S., which allows secondary patents. The concept of ‘evergreening’ is an increasing concern because of the length of time that the patents are held by the originator companies. To some extent, I would say that in the U.S., it has caused what is called “reverse payment settlement”, where the originator company pays the generic drug company to not introduce the generic drug for five years after the payment has expired. This is an attempt to use the law of contract to extend their monopoly for longer than intended by the patent law. It is yet to be determined whether these agreements are valid.

Come to India. Get your gold standard biotech patent.

There have been two types of responses to the Supreme Court’s decision. One has been that the judgment and Section 3(d) are fantastic. India, known as the “pharmacist of the world” because of their generic drug capability, has taken the lead in looking at the Doha Declaration and ensuring its dominance in the generic drug field. “I look at it as, it is hard to get a biotech patent in India but if you do get one in India, it is gold standard. This means that you have crossed pretty much every threshold.” India is not the only country to have done this. Only fourteen per cent of the patents granted in the U.S. would be granted in Japan. There is nothing wrong with a country having a higher standard. Further, other developing countries can follow this, establish a higher threshold, and have provisions like Section 3(d). The biggest benefit of this is that you allow competition. Since imatinib besylate is not patented, generic drug companies can create different versions of the same drug and put that in the market, which means that you will get the drugs at a competitive price. That is one line of thinking.

Come to China. Get many patents.

The other line of thinking is that what India is doing is absolutely unacceptable. By keeping a higher threshold, they are not allowing companies that invest a lot in research and development to stack these patents. Companies that stack these patents are typically those that are ready to invest in research and development and therefore the Indian patent regime is not conducive to innovation. This theory basically equates the number of patents with innovation — the more patents there are, the more innovation there is. So if there are fewer patents, there is lesser innovation, which leads to less money spent on research and development, which leads to lesser foreign direct investment. The United States subscribes to this view and it is home to a lot of innovator companies. This is part of the reason why the Special 301 Report is so critical of India in general and the Novartis case in particular. “The people who criticise India’s stand on intellectual property tend to think that China is doing a better job, partly because China is the leader in the number of patent applications.” China has a subsidy for patent applications, which encourages people to apply for more and more patents. The number of patents granted is also much higher. Innovator drug companies are trying to shift at least a part of their operations to China because they feel that they can get enough patents and prevent copying. However, when you stack minor patents, for instance, a patent on imatinib, another patent on the besylate form, another patent on the mesylate form, and another on the salt form, it diminishes the value of each individual patent. “The wriggle room you get is very less. Once there is a separate patent on the besylate form, the original patent holder has rights only over the original imatinib because the besylate form is covered by another patent. It shrinks the area of each patent. By doing that, it improves competition.” The beautiful part about China and India now is that they are taking exactly the opposite roads to reach the same end goal, which is to improve competition. China too has a lot of competition in the pharmaceutical market. Obviously, this increases the price of basic research because the more you do research, the more you stumble upon patents that slow your research down, which increases costs for the consumer. Ms. Ragavan said that a lot of scholars now believe that the U.S. system should look at India instead of diluting itself by allowing many, many, minor patents.

 

(Aju John is part of the faculty at myLaw.net)

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Recruiter’s dilemma

By Sabareesh Gopala Pillai

Vice-President Hamid Ansari with the Indian Administrative Service probationers for 2010. Image above is from the website of the Press Information Bureau.

Vice-President Hamid Ansari with the Indian Administrative Service probationers for 2010.
Image above is from the website of the Press Information Bureau.

There was opposition from various quarters to some of the major changes to the Civil Services Examination (“CSE”) announced in a recent Union Public Service Commission (“UPSC”) notification. Protests in Parliament were vocal and the Centre acted quickly to place the notification in abeyance.

The CSE comprises the preliminary — objective-type — examination for the selection of candidates for the main examination, and the main — written and interview — examination for the selection of candidates for the various services and posts under the UPSC. The first, known as the Civil Services Aptitude Test (“CSAT”), consists of two papers of multiple choice questions for a maximum of four hundred marks. This examination is meant to serve as a screening test since the marks obtained in the CSAT by candidates who qualify for the main examination, are not counted for determining their final order of merit.

The main examination consists of a written examination and an interview test. Until the notification came about, the written examination consisted of nine papers of conventional essay-type questions that could be attempted in any language listed in the Eighth Schedule of the Constitution of India. These included two General Studies papers common to all candidates, two papers based on two subjects each that had to be chosen from a list of subjects provided by the UPSC, a general essay paper, and two qualifying papers of English and a language to be chosen from the list that consists of thirty Indian and other languages. Apart from the compulsory language papers that would not matter to the final rank of the candidates as they merely served the purpose of qualification, the seven other papers were worth three hundred marks each.

Candidates, who obtain a certain minimum mark in the written examination, are called by the UPSC for an interview, which also carries three hundred marks. Marks obtained by the candidates in the main examination (written and interview parts) would determine their final ranking. Candidates will then be allotted to the various services keeping in view their ranks in the examination and the preferences expressed by them.

One of the most significant changes in the recent notification was the introduction of English as a compulsory paper worth one hundred marks. Previously, English had merely been a qualifying paper without any weightage in terms of marks. The move has been seen as an acceptance of the fact that basic proficiency in English was an essential skill to govern in a modern day bureaucracy. In Parliament however, emotionally charged slogans such as “Angrezi me kaam na hoga, Phir se desh ghulaam na hoga” (“There will be no work in English; the country will not be a slave again”) were raised.

Secondly, the notification introduced a new condition for candidates who wanted to choose a regional language other than Hindi as their language of taking the examination and for candidates who wanted to choose a regional literature subject among their optional papers. The condition was that the candidate must have graduated in the study of that language. As part of these proposals, the number of optional papers was also reduced to one. They also introduced a new condition that for a candidate to be able to choose a subject of regional literature as an optional subject, at least twenty-five people should have made the same choice. This provision appears bizarre since it decides a candidate’s fate on the basis of how other people choose their language of examination.

The UPSC seems to have been motivated by the desire to create a level playing field and to respond to a tendency among candidates to flock together on regional literature papers because of the perception that the evaluation of those papers would be more liberal since the evaluator would be a person from the same state as the candidate. An overwhelmingly large percentage of students choosing regional literature as their optional paper come out successful every year. Further evidence that the UPSC was motivated by similar reasons can also be observed in the removal of Pali from the list of optional subjects in light of the proliferation of coaching institutes that have “manufactured” successful candidates after offering month-long courses in the optional language subject of Pali. Further, subject experts such as a professor of psychology may not be comfortable evaluating papers in some regional languages and this would set different standards even among candidates who have chosen the same optional subjects.

The academic fraternity and rights organisations have argued that the new pattern “systematically discriminates against candidates who use Indian languages either as medium of examination or as a subject” and that “this decision is not just unjust and unfair, it goes against the spirit of democracy and swaraj that inform our republic.” On the other hand, some senior civil servants wholeheartedly welcomed the UPSC’s reforms, stating that it was necessary to recruit people who can structurally fit into a bureaucracy that has constant interaction with not only different parts of India but also the rest of the world. English is a great unifying force among people from different parts of the country and even overseas. The Common Aptitude Test conducted for admissions to the IIMs, where English is given about one-third weightage, was a commonly cited example. The Bank Probationary Officers Examination, which recruits people to public sector banks, also gives English prominence. English would be a very vital skill for future bureaucrats in many Central services.

It needs to be noted however, that the CSE not only includes the Indian Administrative Service, the Indian Police Service, and the Indian Foreign Service, but about twenty other Central services from Revenue to Railways. Some of them, like the Indian Foreign Service, would definitely require people who are good at English, but in others like the Indian Police Service, that would not be a necessary criterion. Separate examinations would probably be an innovative solution in the current context.

As the premier recruiting agency of the Government, the UPSC faces the fundamental dilemma of choosing between two direct beneficiaries of its policy decisions. On the one hand, the Commission should consider the changing needs of an old bureaucratic apparatus that is under pressure to change and perform differently in a globalising world. On the other hand, it is much more than a corporate manpower consultant. It is a constitutional body working under a democratic government. The genuine aspirations of the young adult population, speaking different languages and belonging to a wide and varied spectrum of society should also be considered. In the long run, even though one compulsion here would ultimately feed the other, justice would not be done to a large section. There is also the risk of alignment of the social profile of future bureaucrats in favour of the current elite. Perhaps we can hope that when our democracy becomes more advanced and the majority of our young adult population and not just the urban middle class, become equally proficient in the qualities acceptable to ideas of modern day global governance, the demand that such changes are essential for the Indian civil services, would have a wider appeal.

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The Clockwork Cases: Episode 2

Part of our Exhibit ‘A‘ series, The Clockwork Cases is a comic inspired by the notorious serial murders of 1976-77 in Pune, where a gang of four college students went on a killing spree that claimed ten lives.

The story continues in pages three to six, the second installment of our serialised presentation of the comic. To see the cover and the first two pages of the comic, click here.

 

Written by Ajith James, and illustrated by Siddharth Kumar.

clockworkcasespage3clockworkcasespage4clockworkcasespage5clockworkcasespage6

Like the comic? Don’t? Have a suggestion? Give the writer and artist your feedback and kudos in the comments below!