An examination of compulsory licensing granted in India in connection with Bayer v. Natco case.

This Article is Written by Arihant Chatterjee, a 3^rd Year law student of Sister Nivedita University, BBA.LLB[H], during his internship in LeDroit India

Scope of Article:

1. Abstract and Keywords
2. Introduction
3. Facts of the case
4. Issues Involved
5. Legal Provisions Involved in this case
6. Judgement
7. Conclusion

Abstract

The topic of patent compulsory licensing is of utmost significance at the crossroads of intellectual property rights and public interests, especially in the Indian context. The most prominent cases of patent compulsory licensing in India were seen in the year 2012, when the Indian Patent Office granted a compulsory license to the pharmaceutical firm Natco Pharma for the production of the cancer drug Nexavar, which was originally patented by the firm Bayer. This historic step was taken on the assumption that the drug was not available to the public at a reasonably affordable price, thus underlining the importance of the provision in facilitating easy access to essential drugs.

Additionally, in the year 2016, the Indian government granted a compulsory license to the anti-cancer drug Imatinib. Through this article it deals with the issue of compulsory licensing of patent in reference to the case of The Bayer vs. Natco Case, highlighting its significance in the field of patent law as well as in the Indian judicial system, covering its origin, background, issues and the final outcome.

Keywords: Nacto Pharma, Indian Patents Act 1970, Deputy Controller of Patents (DCP), Intellectual Property Appellate Board, Section 84 of the Indian Patents Act 1970, Compulsory Licensing. 

Introduction

The following case had a profound impact on how Section 84 (Compulsory Licensing) works under the Indian Patents Act, 1970, particularly regarding where patent law intersects with public health in India. The challenge from Bayer was due to the right to use its patent drug NEXAVAR (a medication used for treating both liver and kidney) as part of a compulsory licence by the

Deputy Controller of Patents (DCP) to a company called Natco Pharmaceuticals, Inc.

The granting of the compulsory licence for the use of NEXAVAR by Natco Pharmaceuticals Inc., was opposed by Bayer, through an appeal to the Intellectual Property Appellate Board (IPAB), and ultimately resulted in Bayer filing an action in the Bombay High Court in an attempt to overturn the IPAB’s decision. The Bombay High Court upheld Natco’s right to have a compulsory licence to use NEXAVAR.

Facts of the Case

In the following case, Bayer Corporation, a German MNC, had a patent for the anti-cancer drug Nexavar (Sorafenib Tosylate) in India since 2008. The treatment cost of the drug was ₹2.8 lakh (approximately $3,600) per month, which was unaffordable for the majority. Natco Pharma, an Indian generic drug manufacturer, sought a compulsory license to produce a generic version of Nexavar, as the drug was too pricey and not accessible. Natco Pharmaceuticals sought a compulsory license for the drug under Section 84 of the Indian Patents Act, as the drug was too pricey, and the following conditions were satisfied for the patented drug:

1. The drug is not accessible to the public at an affordable price. 
2. The drug does not satisfy the reasonable demands of the public. 
3. The drug is not “worked” in India.

The Indian Patent Office awarded the compulsory license to Natco Pharma, and the price of the drug was reduced to ₹8,800 per month, making it much more affordable. Natco was ordered to sell the patented drug at the fixed price of ₹8,800 per month and pay a standard royalty of 6% on the net manufacturing price. Natco is allowed to sell the drug only in India, and they are required to provide the drug free of cost to at least 600 needy patients every year. Being aggrieved by the order of the controller, the appellant filed for an interim stay before the IPAB.

The Intellectual Property Appellate Board (IPAB) therefore upheld the license and held that Bayer had failed to ensure public access to the drug at an affordable price. The Court said in its decision that “the patentee has an obligation to provide to the public a benefit of a patented invention; health is greater than that of a monopoly.” This decision was later confirmed by the Bombay High Court and, most significantly, represents what the Indian Supreme Court stated in relation to Bayer’s appeal with regard to the importance of compulsory licensing as a means of obtaining low-cost, life-saving drugs.

Issues Involved

The key issues involved in this case are listed as follows:

1. Was Nacto contacted at all about acquiring voluntary licenses? 
2. Did the request for reasons given by the law conform to the requirements of Section 84(1)(a) of the 1970 Act? 
3. Is the patented drug available for purchase at a reasonable price?

Legal Provisions Involved in this case

1. Section 84(1) (3) of Patent Act, 1970 : This section states that after the expiry of three years from the date of grant of patent, any person can make an application for grant of compulsory license on three grounds – the reasonable requirements of the public have not been satisfied or the patented invention is not available to the public at an affordable price or the patented invention is not worked in the territory of India.

2. Section 90(1) [7] of the Patent’s Act, 1970 : The license is granted with a predominant purpose of supply in the Indian market and that the licensee may also export the patented product, if need to be in accordance with the provisions of sub-clause (iii) of clause (a) of sub-section (7) of section 84.

3. Section 84 of the Patent’s Act,1970 : An application under this section may be made by any person notwithstanding that he is already the holder of a license under the patent and no person shall be estopped from alleging that the reasonable requirements of the public with respect to the patented invention are not satisfied or that the patented invention is not worked in the territory of India.

4. Section 92A of the Patent’s Act, 1970 : The compulsory license for manufacturing and export of the patented pharmaceutical products to any country with inadequate or no manufacturing facilities in the pharmaceutical industry for the said product shall be available if the compulsory license has been granted by that country or if that country has, by notification or otherwise, allowed importation of the patented pharmaceutical products from India.

Arguments/Contentions of the Parties

1. Contention from the side of Bayer Corporation: The Bayer Corporation alleged that they did not take into account the costs of the invention in determining the amount of royalties payable. An example of this is Section 90(1)(v)(vii) of the Patents Ordinance, 1970, which states the basis of determining the amount of royalties payable. Since they did not take into account the R&D costs in determining the amount of royalties payable for Sorafenib Tosylate or at any time they gave a definition of reasonableness for either of the market or patent controllers, the Bayer Corporation is in violation of Section 90(1)(v)(vii) of the Patents Ordinance, 1970.

Lastly, the Bayer Corporation alleged that the definition of the word “sell” in both Section 84 of and Section 92A of the Patents Ordinance would also include the definition of the word “export” in both sections (within Section 84). Hence, the Bayer Corporation alleged that the Patents Ordinance defines the word “sell” as the word “export”, and thus, any construction or interpretation of the Patents Ordinance that the word “sell” is equivalent to the word “export” would be repugnant to the clear and express language of the Patents Ordinance.

2. Contention from the side of Nacto Pharma: Natco Pharma held that the price at which Bayer Corporation priced the drug was unreasonably high and could not be afforded by a common man, and thus did not satisfy the criteria of the public demand market, as mandated by the Patent Act. Natco Pharma also held that the Patient Assistance Program (PAP) offered by Bayer Corporation was limited and voluntary, and thus did not provide sufficient access to the drug to the public, as held by Natco Pharma. Natco Pharma also supported the Intellectual Property Appellate Board’s (IPAB) decision to increase the royalties from 6% to 7%, as the IPAB was in compliance with Section 90 of the Patents Act, 1970.

Judgement 

1. Ruling by the Controller of Patents : On the 9th March 2012, the Controller approved the Natco patent application & imposed on Natco an obligation to pay the Petitioner as royalty for using their Intellectual Property (the patented drug) based on the Net Sale of the patented product had to be paid as a Royalty of 6% of Net Sale of the patented product where the Patented Drug is to be sold at Rs. 8800/- for 120 tablets for a period of 1 month of treatment. The Compulsory License granted to Natco by the Controller will be an Exclusive Compulsory License and Non-Transferable and will last for the unexpired term of the patent.

2. Ruling by the Intellectual Property Appellate Board : The Tribunal has considered and rejected the Petitioner’s application for a stay of the Controller’s Judgment of Patents. The Tribunal approved the Controller’s Decision and increased the Petitioner’s royalty from 6% to 7% on the sale of Patented Products manufactured by Natco and sold under Brand Name by Natco. The Tribunal has confirmed that the patent holder can meet the requirement to work the patent in India, by importing the patented drug provided the patent holder has established to the Authorities under the Patent Act 1970 that there in no means to manufacture the patented product in India.

3. Ruling by the Bombay High Court : Following Bayer’s appeal of its compulsory license rejection, the High Court ruled against Bayer with regard to a large part of the legal issue at stake as to whether the products manufactured by other companies that infringe on Bayer’s patent (like Cipla and Natco) will be counted when determining whether public demand has been met for the drug. In reaching this decision, the Court stated that even when taking into account the amounts of medicines provided to the public by Cipla, there was not yet adequate supply of medicines in the country to meet the needs of the public. The Court also noted that while it is the patentees’ legal responsibility to make the medicines available to the public (through the patentee’s production, or production of a licensed producer), it is not the patentee’s responsibility to provide medicines produced by any companies that are infringing on the patentee’s patent rights. The Court did clarify that while the patentee is not obligated to manufacture in India, the patentee must provide legal reasons for why it cannot manufacture in India (as required by Section 83) because importing products into India may be one way that can satisfy the public health issue. The Court also interpreted Section 84(7) narrowly to require that “adequate extent” means that 100% of the public demand for medicines must be satisfied. The Court further held that, “Patents and the patent holder’s rights do not supersede patient access to medicines.”

4. Ruling by the Supreme Court : The Supreme Court has dismissed Bayer’s Special Leave Petition with a brief observation: “In the present case’s facts, we see no reason to intervene. The SLP is dismissed, leaving all legal questions open.” This open-ended decision maintains ambiguity. By not resolving the legal interpretations, the Court permits future cases to redefine the standards of compulsory licensing, thereby reintroducing ambiguity into India’s patent system.

Conclusion

This landmark case has highlighted how compulsory licensing can be used to reduce the price of medicines and hence improve access to essential medicines in developing countries facing public health crises. The example of India’s use of compulsory licensing to reduce the price of Nexavar by 97% demonstrates the immediate relevance and impact compulsory licensing can have in providing access to life-saving drugs. However, the case also illustrates the difficulty of navigating the global pharmaceutical industry’s opposition and the potential effects of such opposition on innovation in drug development. Thus, while compulsory licensing is not a complete solution for high prescription drug prices, it is a critical component of the overall effort to provide affordable healthcare.