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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