India: Compulsory License Granted To NATCO

Last Updated: 15 May 2012
Article by Abhai Pandey

The viewpoint of being able to provide cheap drugs to a population which cannot afford it has started yet another debate in the pharma sector about how drug companies should price the life saving drugs in the developing world. On March 9, 2012, the Indian generic pharmaceutical industry got a shot in the arm when Indian Patent Office, by invoking the compulsory license (CL) provisions of the Patents Act, allowed NATCO PHARMA LTD, an Indian generic drug manufacturer to manufacture and sell generic version of the blockbuster cancer drug Sorafenib Tosylate (sold as Nexavar) patented by the German health care giant, BAYER CORP. The crux of the controversy hinges on an aspect of the Indian Patents Act, where under Section 84 of the Act, any interested person can make an application to the Controller for a compulsory licence after the expiry of three years from the date of grant of the patent if reasonable requirements of the public with respect to the patented invention have not been satisfied; the patented invention is not available to the public at a reasonably affordable price or if the patented invention has not worked in the Indian territory.

The Controller dwelled upon the competing claims of Natco (the CL applicant) and Bayer (the patentee) to draw a conclusion that the annual requirement, on the probable number of patients requiring the drug, could lie between 27000 and 70000 bottles per annum and that Bayer has made available the drug to only a little above 2% of the eligible patients (Bayer estimated the number of patients eligible for Sorafenib Tosylate as 8842 per year). The Controller also assessed Bayer's behaviour in fulfilling the "reasonable requirements of the public" from the working statement (Form 27) filed by Bayer to deduce that figures showed no logical information about sales in 2009 and import of only 680 units (60 table pack) in 2010. He noted that Bayer's conduct of not making the drug available since grant of patent in 2008, as per the requirement of the public in India since the grant of the patent, is not justifiable considering that Bayer was marketing the drug worldwide since 2006 and held that Bayer imported and made available only an insignificant proportion of the reasonable requirement of the patented drug in India, hence the reasonable requirement of the public with respect to the patented invention have not been satisfied. The Controller disregarded Bayer's argument that sales of another Indian generic company, Cipla, should be taken into account in determining whether the Indian market was being reasonably satisfied, noting that Bayer had sued Cipla in Delhi and asked for an injunction to stop these infringing sales. In this regard, the Controller characterizes this argument as "indulging in two-facedness" and "defend[ing] the indefensible."

In addition, and in what is the crux of the matter, the Controller stated that the sales of the drug, exorbitantly priced at about Rs. 2,80,000/- per month, constitute a fraction of the requirement of the public and therefore, logically deducting, the drug was not bought by the public due to only one reason i.e. its price was not reasonably affordable to them. For its part, Bayer argued that the cost of drugs supports the pipeline of future drug development and therefore it is not reasonable to look at past R & D expenditure for a launched product to decide whether its current price is reasonable, rather an account of the total R & D spending and the need and desire to finance such R & D sustainably to ensure ongoing innovation, has to be taken.

In what seems to avoid a complete washout, Bayer also argued that a blanket compulsory license providing the patented drug to all sections of "public" at the same "reasonably affordable price" is not warranted at all. The compulsory license should not benefit those in India ("the Rich class" and "the middle class") who could afford the drug at Bayer's price in an attempt to provide the drug to the "common man" who could not i.e. affordable to public is required to be considered as affordable to different classes / sections of public in India. Interestingly the Controller here is in agreement and wonders why Bayer did not execute the concept of differential pricing for different sections/classes of public in India. But the Controller's determination of whether a drug was available at a "reasonably affordable price" was construed predominantly with reference to the "public" and under the admitted facts of this case these considerations fell in favor of granting the license.

Finally, the Controller looked at the fact that Bayer did not "work" the invention in India. The Controller noted that the term "worked in the territory of India" had not been defined in the Patent Act, and therefore the term was construed with regard to "various International Conventions and Agreements in intellectual property," the Patents Act, 1970 and the legislative history. The Controller's emphasis on imposition of local working requirements (in the sense of local manufacturing) on patents granted in India was to put in right perspective the deletion of the phrase "default of the patentee to manufacture in India to an adequate extent and supply on reasonable terms the patented article" from the Act.  The Controller oberved that this was "one face of the coin," but that the other was that the phrase was deleted from Section 84(7)(a)(ii) with regard to the patented article being "reasonable available to the public" in favor of Section 84(1)(c) which "was made a separate ground for grant of a compulsory license."

In this light, the Controller decided that failure to manufacture Nexavar in India supported the grant of a compulsory license to Natco (which it termed "reasonable fetter" on Bayer's patent rights).  Ultimately, however, the Controller construed Indian patent law to require that a patentee work a patented invention in India or license another do to so in Section 83(b), which states that "[p]atents are not granted merely to enable patentees to enjoy a monopoly for importation of the patented article" and Section 83(c) that "the grant of a patent right must contribute to the promotion of technological innovation and to the transfer and dissemination of technology" coupled with the provisions of Section 83(f) that a patent should not be abused.

After refusing to adjourn the proceedings based on Section 86, finding, inter alia, that Bayer had not established any justifiable reason for its "delay" in working the patent in India, the Controller established the terms of the compulsory license, wherein:

  1. the right to make and sell sorafenib limited to applicant (no sublicensing)
  2. the compulsorily licensed drug can be sold only for treatment of liver and renal cancer;
  3. the royalty shall be paid at a rate of 6%
  4. the price set at Rs. 8,800/- for one month treatment;
  5. the applicant commits to provide the drug for free to at least 600 "needy and deserving" patients per year
  6. Compulsory license not assignable and non-exclusive, with no right to import the drug
  7. No right for the licensee to "represent publicly or privately" that its product is the same as Bayer's Nexavar
  8. Bayer has no liability for Natco's drug product, which must be physically distinct from Bayer's dosage form

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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