NATCO PHARMA LTD. vs BAYER CORPORATION
– COMPULSORY LICENCE GRANTED
Natco Pharma Ltd. [hereinafter referred to as Natco/ the Applicant] filed an application for a compulsory licence for ‘Nexavar’, bearing patent number 215758, before the IPO under Section 84 of the Act. In a judgment delivered on March 9, 2012, the Controller granted the licence to Natco, against which Bayer filed an appeal before the IPAB.
Natco being a leading manufacturer and distributor of various drugs in India approached Bayer [hereinafter referred to as the Patentee] requesting a voluntary licence to manufacture and sell the drug, however, the same did not materialize. The price for sale of the drug proposed by the Applicant was of a fraction [approx. 3%] of the price that the Patentee was selling the drug for at the time of making the Application. The Controller held that all the three grounds mentioned under Section 84 of the Act were met, i.e. the reasonable requirements of the public with respect to Bayer’s drug were unsatisfied, it was not available to the public at a reasonably affordable price, and the patented invention was not being worked in the territory of India.
In the interim, Bayer sought a stay on the Controller’s decision, however, the same was denied by the IPAB. The IPAB upheld the Controller’s decision to grant a compulsory licence to Natco. The below is a brief discussion of the technical and substantial issues adjudicated by the IPAB.
Technical issues –
Audi alteram partem
The IPAB while adjudicating the Patentee’s argument with respect to the IPO’s failure to issue a notice before arriving at a prima facie determination under Section 87 of the Act. The IPAB clarified that the principles of audi alterem partem would only come into play after determination by the Controller on his prima facie satisfaction that the case needed to be heard, and thus the Patentee’s objection in this regard was rejected.
The Applicant’s attempt at obtaining a voluntary licence
Another issue adjudicated by the IPAB was with respect to the Patentee’s contention regarding the failure of the Applicant to make reasonable efforts to negotiate the terms of a potential licence. For reference, it is to be noted that the Applicant had sent a letter to the Patentee seeking a voluntary licence. The Patentee’s objection to said letter was that the Applicant failed to mention any terms and conditions that he was willing to accept. The Patentee had further given the Applicant 14 days to respond to the Patentee’s response to the above-mentioned letter, which the Applicant had failed to avail. The IPAB held that the Applicant’s efforts were reasonable and there was no obligation on the Applicant to make any further attempts.
It is pertinent to mention that the IPAB’s decision on the issue has its pros and cons. Critics state that the decision sets a low bar of obligation for the Applicants of compulsory licence and the same has a significant impact on the nature of communication that could be construed as an ‘attempt’. Further, critics state that it would allow Applicants to successfully employ the threat of a potential compulsory licence as a bargaining chip for obtaining a voluntary licence on favourable terms. However, the flip side of the decision is that Patentees will be encouraged to engage in negotiations with voluntary licence seekers rather than summarily rejecting such requests without seriously considering the same.
Substantive issues -
CIPLA’s role in the dispute
The Patentee had filed infringement proceedings against CIPLA in 2010 for selling a generic version of the patented drug [Nexavar] for the price of INR 30,000. In light of the same, the Applicant contended that the Patentee must not be permitted to include the sales of CIPLA in the total sales of the subject drug in India as the Patentee was responsible for satisfying the reasonable requirements of the public with respect to the subject drug, as provided under Section 84(1)(a) of the Act.
With respect to the above objection, the Patentee submitted that since CIPLA was selling the same drug, purchase of CIPLA’s drug by consumers would consequently affect/ reduce the requirement of the consumers to buy the Patentee’s drug. The Patentee pointed out that on account of the significantly lower pricing of CIPLA, the Patentee’s market was notably affected and the same would consequently result in the inability of the Patentee to satisfy the provisions of Section 84 (1) (a) of the Act. Thus, the Patentee submitted that its interests would be prejudiced on account of the actions of CIPLA.
The IPAB concluded that the requirement had to be met by the Patentee alone and that it could not rely on CIPLA’s sales especially since it was contesting CIPLA’s market presence in a separate litigation. Further, the IPAB noted that the objective of granting a patent is to increase public access to the patented product. Consequently, the quid pro quo for patent protection is the Patentee’s obligation to make the patented product available to the public at affordable prices. The IPAB opined that since the Patentee alone was getting the benefit of the patent, the burden of ensuring reasonable access also had to be met solely by the beneficiary i.e., the Patentee and/or his Licencee(s). Therefore, it held that CIPLA’s presence was irrelevant for the purpose of determining the extent of the Patentee’s compliance with the law.
The adjudication of this issue has been criticised on the grounds that CIPLA’s sale of the patented drug in violation of the Patentee’s exclusive rights with respect to said drug would have had a noticeable impact on the Patentee’s sale on account of the severely low prices allocated by CIPLA. However, it is pertinent to note that the decision on this issue is sound in law as CIPLA was not a party to the matter before the IPAB. Further, the IPAB considered the issue in view of the public’s interest. It opined that the sole consideration in granting compulsory licences was whether the patented product was available to the public at a price that was reasonably affordable for them. Bayer argued that it had instituted an effective Patient Assistance Program subsequent to the filing of the application which should be taken into account. However, this was overruled by the IPAB on the ground the same would not count for the purposes of satisfying the requirements of Section 84 of the Act. However, it is pertinent to note that the IPAB emphasized that there was no absolute bar on considering occurrences subsequent to the application. Thus, if said programme of the Patentee had met the reasonable requirements of the public, it could have been considered. Since that was not the case, the IPAB held that it would not count.
An important take away from this observation of the IPAB is the overall outlook taken by the IPAB while adjudicating such matters. Even without stipulating it in such terms, the emphasis on the public perspective is heartening. It illustrates yet again that the focal point of Indian pharmaceutical patent law seems to be on ensuring affordable access to the largest numbers and that the judiciary’s primary consideration is that of public interest. The IPAB has sent out a clear message that it will not allow drug companies to wriggle out of compulsory licences without actually working their patent to the advantage of the public. Indian patents are based on a quid pro quo and the IPAB seems unwilling to compromise on this aspect.
Working of the drug
The Patentee submitted that it was not feasible to manufacture the drug in India and thus, the Patentee’s only option was to import. However, the IPAB refused to accept the Patentee’s plea in this regard. Differing slightly from the opinion of the Controller, the IPAB held that the word ‘worked’ could have a flexible meaning based on the specific facts. However, it pointed out that any contentions regarding the non-feasibility of local ‘working’ had to be proven, not merely stated. In the instant case, they agreed with the Controller that Bayer had failed to demonstrate why it could not ‘work’ the drug locally.
The IPAB increased the royalty rate fixed by the Controller payable by the Applicant to the Patentee in respect of the licence to 7% from 6%. While acknowledging the United Nations Development Programme’s specific recommendation that the rate of royalty be set at 4% and adjusted upwards as much as 2% for products of particular therapeutic value, the IPAB also took note of the disparate profit margins of the Patentee (roughly 14%) and distributors of Nexavar (about 30%). Therefore, the IPAB increased the royalty rate to 7% so as to allow the Patentee to derive a reasonable advantage from its patent.
Since the grant of a compulsory licence in favor of Natco Pharma Ltd. to manufacture Bayer’s patented cancer drug, Nexavar, the provisions related to compulsory licence in India have been debated intensely.
While analyzing applications for compulsory licence, the Indian Patent Office ensures that the relevant provisions are not misemployed to diminish the rights of the Patentee and that the basic jurisprudence governing the subject of compulsory licence lies in striving to achieve a balance in the conflicting interest of the Patentee's exclusive rights and making the invention available at an affordable price to third parties in case of need.
 C.L.A. No.1 of 2011
 C.S. No. 523 of 2010
PHARMACEUTICAL PATENTING IN INDIA - BREAKING MYTHS