Last time, we wrote about "country risk"; i.e., the
risk a company takes by doing business in a different country,
where laws might be different from what you might expect in your
home country.
Since then, a case has been decided in Mumbai, India before the
Controller of Patents that illustrates the need to take country
risk into account when selecting offshore locations.
In the matter of Natco Pharma Limited (Natco) and Bayer
Corporation (Bayer), Natco applied for and was granted a compulsory
license under Section 84(i) of the Patents Act, 1970. Under the
patent law in India, a compulsory license is an involuntary
contract between a willing buyer and an unwilling seller imposed
and enforced by the State – essentially the government
permits someone else to produce the patented product without the
consent of the patent holder.
In this case, Bayer, an American company headquartered in
Pittsburgh, PA, invented a drug useful in the treatment of cancer.
Bayer was importing and selling the drug in India, and presumably
expected protection of their patent rights to be the exclusive
supplier of the drug. The compulsory license applicant was Natco
Pharma Limited, an Indian company headquartered in Hyderabad, and a
manufacturer of generic drugs. Natco approached Bayer with a
request for a voluntary license to manufacture and sell the drug;
however, the parties did not come to terms, so Natco applied for
the compulsory license.
In India, the applicant for a compulsory license must prove that
"reasonable requirements of the public with respect to the
patented invention have not been satisfied." Natco argued that
Bayer did not take adequate steps to manufacture the product in
India; that the drug was priced too high; and, that the drug was
only available in hospitals in major cities. Bayer countered,
first, that price and access should not be linked; and, further,
that because administration of the drug required supervision by
specifically trained doctors, the fact that it is not available in
villages (where such doctors are not normally available) is not
probative.
Bayer presented robust analyses having to do with price, number of
patients, number of drug treatments, and distribution; all in
support of its position that the drug was appropriately available.
In response to the suggestion that the drug was priced too high,
Bayer offered to supply the drug to needy patients based upon an
oncologist's recommendation. The Controller of Patents was
not convinced. Bayer was required to provide its intellectual
property to Natco in exchange for 6% of the net sales of the drug
by the Licensee for the balance of the term on the patent.
Bayer's patent rights to be an exclusive supplier were
effectively invalidated.
Bayer's business judgment, and its argument against the
compulsory license, that it did not, as yet, need to invest in
in-country manufacture of the drug because it could properly supply
the Indian market from factories outside India were overridden. In
deciding, the Controller of Patents was substantially influenced by
the fact that, since the patent had issued, Bayer efforts to
commercially exploit the patent in other countries had included
in-country manufacturing; but since 2008, when the patent issued in
India, Bayer did not have manufacturing facilities for the drugs in
India.
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