Patent

Breaking News: India’s First Compulsory License Granted!


The much awaited Bayer vs Natco compulsory licensing (CL) order in relation to Bayer’s patented anti cancer drug (Nexavar) is finally out. Controller General Kurian issued the order on 9th March 2012, but it was uploaded on the IPO website only today, minutes prior to his leaving office.
Apart from the issuance of what will rate as India’s first compulsory licensing decision (patents) in the post TRIPS era, today also counts as a significant day for another reason. It marks the end of bullet Kurian’s illustrious stint at the Indian Patent Office, an era marked by some of the boldest moves to convert the Indian Patent Office (IPO) to a more efficient, accountable and transparent office. This morning, bullet Kurian handed over charge of his coveted office to his successor, Chaitanya Prasad.

The CL Order

The order is a thoroughly well researched and logically reasoned one. After a 3 day hearing, the Controller General (CG) found in favour of Natco on all counts and issued a license in their favour.

Natco is now free to manufacture and sell a generic version of Nexavar (a kidney/liver cancer drug that goes by the generic name of Sorafenib Tosylate), but will have to pay a 6% royalty on the net sales (every quarter) to Bayer. Further, it can only charge Rs 8800 for a monthly dose (120 tablets) of the drug (in its compulsory licensing application, Natco committed to sell at this price). In its written submission, Natco also committed to donating free supplies of the medicines to 600 needy patients each year and this commitment has also been recorded in the compulsory licence (CL) order.

Section 84:

In order to appreciate the order, one must begin with section 84 of the Indian Patents Act, which reads as below:

“(1) At any time after the expiration of three years from the date of the 1[grant] of a patent, any person interested may make an application to the Controller for grant of compulsory licence on patent on any of the following grounds, namely:— (a) that the reasonable requirements of the public with respect to the patented invention have not been satisfied, or (b) that the patented invention is not available to the public at a reasonably affordable price, or (c) that the patented invention is not worked in the territory of India.”

The Controller found that all the 3 criteria above were satisfied in this case, namely:

1. that since Bayer supplied the drug to only 2% of the patient population, the reasonable requirements of the public with respect to the patented drug (Nexavar) were not met.

2. that Bayers pricing of the drug (2.8 lakhs for a months’ supply of the drug) was excessive and did not constitute a “reasonably affordable” price.

3. that Bayer did not sufficiently “work” the patent in India.

Each of these grounds are explicated below:

1. Reasonable Requirements of the Public not being met:

Based on Bayers’ own admission, the Controller found that only 2% of the total number of kidney and liver cancer patients were able to access the drug:

“By his own admission, the Patentee has submitted the number of patients eligible for Sorafenib is 8842 per year. Hence, the Patentee has made available the drug only to a little above 2% of the eligible patients. ….

Accordingly I hold that the reasonable requirements of the public with respect to the patented invention have not been satisfied in this case and consequently a compulsory license be issued to the Applicant under section 84 of the Act.”

In order to make its drug more accessible to the general public, Bayer argued that it must be given some more time to work the patent. Bayer offered to amend its existing patient assistance programme (where a patient would have to buy 1 months drug supply at the regular price (Rs 2.8 lakhs) and would get it free for the remaining 3 months) such that a patient would only have to pay Rs 30,000 per month for the drug. In this way, it hoped to match Cipla’s pricing and thereby thwart a compulsory licensing order.

However, the Controller rightly found that this proposed philanthropy, while noteworthy did not enable Bayer to escape the issuance of a compulsory license. He noted:

“the proposal of the patentee appears to be philanthropic in nature, as per the submission of the patentee. In the present proceedings, we are not concerned with philanthropy, which no doubt is appreciable. Such actions cannot be construed as steps to work the invention on a commercial scale to an adequate extent.”

2. Excessive Pricing:

The Controller found that the price of the drug was not “reasonably affordable” to the public:

“During the last four years, the sales of the drug by the Patentee at a price of about Rs 2.8 lakhs (for a therapy of one month) constitute a fraction of the requirement of the public. It stands to common logic that a patented article like the drug in this case was not brought by the public due to only one reason, i.e. its price was not reasonably affordable to them.”

He further countered Bayer’s argument that “reasonably affordable” price had to be construed with reference to the public and the patentee (in other words, the patentee’s R&D costs must be considered):

“I am of the view that reasonably affordable price has to be construed predominantly with reference to the public.”

The order also castigates Bayer for adopting a “two faced” stand before the tribunal. Bayer argued that since Cipla sells cheaper generic versions in the market (at Rs 30,000 per monthly dose of Sorefanib), there was no need for a compulsory license. The controller rightly dismissed this argument, since Bayer had challenged Cipla’s right to sell the generic version in the market through a patent infringement law suit, and was now relying on this alleged illegality to ward off a compulsory licensing order.

“The Patentee appears to be indulging in two-facedness by adopting one stand before this tribunal and another stance before the Hon’ble High Court of Delhi, in order to defend the indefensible. M/s Cipla is an alleged infringer, as per the patentee’s own submissions, and accordingly cannot discharge the obligations of Patentee under the Act. The Patentee appears to have treated M/s Cipla, in this case, as if they are their licensee.”

3. Non Working of the Patent:

The Controller found that mere importation of Bayer’s drug into India did not amount to “working” and held in pertinent part that:

“I am therefore convinced that ‘worked in the territory of India” means manufactured to a reasonable extent in India.”

This part of the decision is likely to prove controversial, since almost 90% of all pharmaceutical patents are only imported into India. Therefore, under the terms of this order, all of these drugs are now susceptible to compulsory licenses in India.

The Controller convincingly argues that the Indian patents act endorses a “local” working provision and that such a provision is compatible with TRIPS and the Paris Convention.

I’ve taken a similar line of argument in the past, in this compulsory licensing report commissioned by the JPO (co-authored with Mrinalini Kochupillai).

Further, in an earlier post on SpicyIP, I noted:

“Section 83 of the Act makes clear that patents are not granted only for the purpose of “importation” of the patented product. In fact, the Act uses the terms “working” and “importation” quite distinctly throughout the Act, making it evident that “working” as used in the Act cannot include “importation”.

And yet another post noted:

“Some argue that a local working provision contravenes the mandate under Article 27 to not “discriminate” between locally produced and imported patented products. Given the fact that in the WTO Canada case, the panel stated that discrimination meant “unjustified differentiation”, one could argue that “local working” is a “justified” differentiation. For one, the Paris Convention clearly stated that “importation” would not amount to working of a patent, and that if a patent wasn’t worked, this could be treated as an “abuse”. Secondly, TRIPS is premised on the promise of technology transfer to developing countries. And a local working provision is geared towards encouraging such technology transfer. By forcing patentees to “work” their patents in India, the regime encourages local use/transfer of the said technology. A similar provision on “local working” in Brazil’s regime was challenged by the US—however, the case was later withdrawn and there was no ruling.”

Royalty Rates

Perhaps the only part of the order that was not as elaborately reasoned out as the rest of the order was the portion relating to a determination of royalty rates. But this could stem from the fact that the Controller himself had very less material to go by. After discussing the not so complete figures submitted by the patentee, he endorsed the UNDP proposal for 6% royalty rate in cases of good therapeutic value. He notes:

“I have also carefully analysed the royalty practices/guidelines generally adopted globally. United Nations Development Program (UNDP) specifically recommended that rates normally be set at 4% and adjusted upwards as much as 2% for products of particular therapeutic value….In the present case, I am satisfied that anything lesser than 6% would not be just and reasonable given the facts and circumstances of this case as discussed above. Hence I hereby settle that the royalty be paid to the patentee in this case shall be 6% of the net sales of the drug by the licensee.

Referencing Reports and Academic Submissions

Lastly, this is one of the very few government orders to attribute and acknowledge academic contributions and reference material. The order states:

“Present case is the first of its kind in the history of Patents Act, 1970….As such, there is no precedent to guide this tribunal. Relevant persuasive material has been submitted by both parties. In order to appreciate all the issues involved…, the hearings went on for three days for a total of eighteen hours. Reasonable research has also been conducted by the tribunal to study, inter alia, the provisions of the International Agreements and Conventions on Intellectual Property Rights as well as laws of other TRIPS member countries to arrive at this order. This includes the articles published by WHO, UNDP, Mr Carlos M Correa, University of Buenos Aires and Professor Shamnad Basheer. The West Bengal National University of Juridical Sciences, Kolkata).”

Conclusion

This is effectively India’s first patent compulsory licensing order in the post TRIPS era (there have been compulsory licenses issued under the Patents Act, 1970, but these were all prior to the 2005 amendments).

In many ways, it sets the tone for future cases and will spur many other generics to resort to this route. To this extent, it will certainly be music to the ears of several patient groups and NGO’s that have been battling pharmaceutical patents and excessive prices for many years now. Many have been puzzled by the lack of initiative shown by generic companies in availing of the extremely wide compulsory licensing grounds articulated in India’s patent regime.

Perhaps Natcos’ baby step in this regard may pave the way for a giant leap of sorts, where many more drug patents are subjected to this “stick” so as to help bring down what are by most standards, highly excessive prices for a country like India. In fact, given that more than 90% of MNC drugs are imported into India, this order may pave the way for wholesale compulsory licenses to be issued against a wide spectrum of drugs in the near future. This interpretation of “working” to mean “local working” (local manufacture within India) may in fact prove the most controversial part of the order and may perhaps attract a TRIPS challenge as well.

This order may also prompt other countries, particularly developing countries to adopt similar provisions and issue similar orders. Lastly, one hopes that it prompts innovator drug companies to engage in more significant differential pricing schemes and introduce drugs at much cheaper prices in countries with a significant number of extremely poor patients such as India.

However, this may not be the end of the story for Bayer. It is likely to appeal the order and will no doubt adopt creative legal strategies to block the Controller’s order from being implemented, as it has done in the past.

Further, it must be noted that both Cipla and Natco have challenged the validity of Bayer’s patent in a separate proceeding before the Delhi High Court (and the IPAB). If this challenge is successful, then the compulsory license by Natco becomes infructuous. All generics are then free to manufacture this drug without paying any royalty to Bayer.

Shamnad Basheer

Shamnad Basheer

Prof (Dr) Shamnad Basheer founded SpicyIP in 2005. He is currently the Honorary Research Chair of IP Law at Nirma University and a visiting professor of law at the National Law School (NLS), Bangalore. He is also the Founder of IDIA, a project to train underprivileged students for admissions to the leading law schools. He served for two years as an expert on the IP global advisory council (GAC) of the World Economic Forum (WEF). In 2015, he received the Infosys Prize in Humanities in 2015 for his work on legal education and on democratising the discourse around intellectual property law and policy. The jury was headed by Nobel laureate, Prof Amartya Sen. Professional History: After graduating from the NLS, Bangalore Professor Basheer joinedAnand and Anand, one of India’s leading IP firms. He went on to head their telecommunication and technology practice and was rated by the IFLR as a leading technology lawyer. He left for the University of Oxford to pursue post-graduate studies, completing the BCL, MPhil and DPhil as a Wellcome Trust scholar. His first academic appointment was at the George Washington University Law School, where he served as the Frank H Marks Visiting Associate Professor of IP Law. He then relocated to India in 2008 to take up the MHRD Chaired Professorship in IP Law at WB NUJS, a leading Indian law school. Prof Basheer has published widely and his articles have won awards, including those instituted by ATRIP and the Stanford Technology Law Review. He is consulted widely by the government, industry, international organisations and civil society on a variety of IP issues. He also serves on several government committees.

30 comments.

  1. Avatarbasit

    Now that’s called a Bullet!But at the same ‘Farewell to the arms’ which displaced such a courage among other unprecedented reforms at the IPO.

    Reply
  2. AvatarAnonymous

    Very good reporting Dr. Basheer. You wrote this great thought provoking piece in minutes, rather in the minutes after the decision was made online. Or, did you have an idea before hand which way the dice was going to roll.
    Either way great work.

    R.K.Jain
    Patent Agent

    Reply
  3. AvatarSwaroopa Chavan

    Hi…I wanted to know if CL to Natco shall have any effect on Cipla’s generic copies of Nexawar in the market prior to CL?
    Cipla challenged the validity of Nexawar and it is still sub judice.
    Also, initially when Natco and Cipla jointly challenged the validity of Nexawar patent, after being sued by Bayer for infringement, was Natco eligible for seeking CL? if yes, then doesn’t it mean that Natco was convinced of Nexawar’s validity?

    tks,
    Swaroopa

    Reply
  4. AvatarAnshuman Sakle

    An excellent and progressive order! Though I’m sure Bayer will appeal against this order, it will go a long way in setting the rationale for compulsory licensing in the future.

    And a very informative and crisp post! Well done Shamnad!

    Reply
  5. AvatarAnonymous

    A big setback for innovation and Rsearch.:(

    Indian Pharma companies now would instead of creating something breakthrough drug would rely on CLs.

    Reply
  6. AvatarAnonymous

    Indeed a landmark order and yet another proof that Indian policy makers are quite sensitive about careful adoption of patent law. First, we have seen unique application of Section 3(d) – I call it a gatekeeper provision- and now (hopefully) start of a CL era. I hope generic companies will keep on applying for such licenses based on individual merits of cases and the Patent Office will not be reluctant merely for the reason that someone is watching.

    Reply
  7. AvatarHersh Sewak

    It is heartening to know that legislative intent (combined with ‘information’ campaign) has yielded fruits in interpretation of s. 84 especially related to the term ‘working’ of patents. Though I have my doubts that the meaning of this term has reached a conclusive understanding. It is bound to open up another plethora of litigation, as, sir, you yourself have pointed out.

    I would also like to question the near-optimism of this decision. But to do this, I would like to first state difference between ‘pro-generic consequences’ and ‘pro-consumer consequences’.
    By pro-generic consequences of this decision, I mean, that legal doctrine has been created (if consolidated in the existing direction) to help the existing manufacturers manufacture drugs and compete with MNCs in India.
    By pro-consumer consequences, I mean, availability of drugs at cheaper cost as well as increased opportunities for indians to innovate in pharmaceutical sector. Now, for the drugs like Nexavar (or other high-profile drugs) for which the CL maybe obtained it becomes clear that beneficial consequences for generics overlap to large extent with that of consumers. But what about those drugs which are not being manufactured (or planned to be manufactured) by existing pharma companies? These drugs would remain in the hands of MNCs without any benefit for the consumers.

    Our patent regime must not only answer to the concerns of indian generics but must take over the larger responsibilities pertaining to innovation and fostering a climate of indigenous entrepreneurship and vigorous competition. As the protective measures are doled out to generics, the patent regime is coming significantly under the sway of one bloc (which is fine and good till the interests of larger society overlaps) but what about when it doesn’t?
    The policy must take a more affirmative outlook by actively encouraging innovation/research in different drugs while also creating/fostering setting up of more enterprises in pharmaceutical sector.

    In conclusion, it is heartening to hear about this decision (and it would sad for the poor law students who would give patent course in coming decades given that its high court & maybe supreme court decisions would become compulsory readings).

    Reply
  8. AvatarShamnad Basheer

    Thanks for all your comments and kind words on the post. I’ll respond individually to some of the thoughtful queries that you raise.

    @RK Jain. Thanks sir. the decision was out at around 1.00. So it took me a good 2-3 hours to read and write the blog.

    @Swaroopa: an invalidity challenge does not preclude Natco from applying for a CL. For, the invalidity challenge could always fail. Its free to pursue both routes under the law as it stands now.

    Reply
  9. AvatarShamnad Basheer

    Dear Hersh:

    Thanks for the insightful comments. Yes, we need to also work out a favourable eco system for innovation. But we need to also question whether such licenses would destroy incentives to innovate. There are very few papers on this. I recall one by Colleen Chien demonstrating no particularly significant impact on the incentives to innovate.

    Reply
  10. Avatarrajeev

    Dr Basheer
    Away from the discussion on the judgment, I am imagining what the situation would be at the Bayer’s Head quarters. My limited understanding tells me that al entrepreneurs visualize any situation in terms of their top line and bottom-line. While the managers of Bayer would have already received instructions to prepare their legal response to retrieve from this setback, the top bosses would be thinking hard on various options. I try to visualize a few of these scenarios.
    1. What does this judgment cost Bayer?
    With 8842 constituting 2%, the total patient pool is = 4.4 lakhs say 4.5 lakhs
    NATCO now makes Rs. 8800 *4.5 lakh = Rs. 396 crore say Rs. 400 cr
    Share of Bayer @6% = 24 crore ; Natco keeps Rs. 396 crore

    Amount made by BAYER (Pre-judgment) = Rs. 2.8lakh * 8842 = Rs. 247.5 crore
    The judgment has caused loss of 90% of revenue from Nexavar. This would be a significant % of their sales turnover. A situation totally un-expectable and worth fighting for from Bayers perspective.
    Now What? Various envisaged scenarios.
    a) Continued litigation. Try to get injunction against the CL, and maintain status quo. Keep on maintaining the façade of being philanthropic. It will be costing a lot less.
    b) Shift from skimming the market strategy by catering only to very high end customers affording Rs 2.2 lakh/month medicine. Become major producer by initiating “local” manufacturing catering to 4.5 lakh patients. Simultaneously request for revocation of CL after statutory six months arguing that the reasonableness conditions are now satisfied. The sale price envisaged for such a strategy could be Rs. 30000/month as proposed in the litigation. In such a scenario Bayer can keep Rs. 400 crore to themselves
    c) Bayer engage in negotiations with NATCO and also Cipla to withdraw patent validity challenge and become their legal licence by surrendering CL and sell @ Rs.30000 for a month dose.
    Potential revenue = Rs. 30000 * 4.5 lakh = Rs. 1350 crore. A very heartening scenario for everybody.
    This judgment has been good for everybody:
    • Mr Kurien established his legacy
    • Dr. Basheer pioneering work in IP was referred and taken note of
    • Patients have got new lease of hope of affordability
    • IPR lawyers especially Bayers must be laughing inside while outwardly maintaining a stoic face.
    • IPR students and academia gets something to discuss upon
    • Bayers management now has a reason to explore further options.
    • NATCO has DIWALI on this HOLI
    • And For me as always sipping away tea pondering what to do
    R.K.jain
    Patent Agent
    Dr. Basheer : In your comments I noticed someone with my name writing something. Those were not my comments. Perhaps there is somebody else with my name.

    Reply
  11. AvatarRAHUL JAIN

    Shamnad, could you please let me know the WHAT mark under which this compulsory licensed drug will be put on the market/counter by Natco who won this matter ?

    Will the mark Nexavar bearing trademark application number 925814in the name of Bayer in TMR records will also be licensed to Natco from Bayer ? or It will be sold under different name ?

    Reply
  12. Avatarkanav

    I agree with author of context of agreement having technology transfer clause. But, according to Vienna convention Art 31 for interpretation of laws, first we must look at text (ordinary meaning) and then context (preamble, annexes etc.). Art 27.1 of TRIPS clearly states ‘patents shall be available and patent rights enjoyable without discrimination as to the place of invention, the field of technology and whether products are imported or locally produced‘. Patentee is loosing right to patent on grounds of third requirement for compulsory license in India which is differentiating locally produced or imported. European States might move in at DSU against this action.

    Reply
  13. AvatarKathashree Patil

    Can anyone tell me , what was the first compulsory license that granted in India before we became TRIPS compliant????

    & Please provide link or some proof to support your answer.

    Reply
  14. AvatarAmruta

    thank u very much for such an valuble information.as i know very little about patent laws please anybody tell me what action will be taken against cipla’s patent infringement?

    Reply
  15. AvatarAnonymous

    I read in the neewszpaper today, that this order of granting compulsory licenss is going to be challenged. Let us see what happens next.

    Reply
  16. AvatarNish

    Shamnad, I am a bit perplexed by the Controller’s comment that working does not include “import”. Whether such is the case really? As you would see Form 27 on which the statement of working is to be submitted requires details of the working in terms of patented product imported in India from other countries under the column 3(i) (b) (ii).

    So there’s no way it can be interpreted that import would not mean working. As far as the inability of import to meet the reasonable requirement is concerned, that is all together a different issue in which the quantity and costs available to the public need be seen.

    Reply
  17. AvatarAnonymous

    The top domestic drug firms seek change in compulsory license grant model [Financial Express 14th March 2012]
    The Indian pharma industry had been and will be a copy cat industry forever….the top pharma companies have suggested the health ministry towards having a framework where it can make and release a list of patented drugs which are either inaccessible or unaffordable for which compulsory license clause could be invoked.
    One can only say….Whither Patent protection for drugs in India…..

    Reply
  18. AvatarShamnad Basheer

    Hi Nish,

    Form 27 is a mere form, formulated under the rules. Statutory sections take predominance over rules. and our statutory provisions make clear that you cannot merely “import” (section 83)…

    Reply
  19. AvatarChaitali

    Dear Dr. Basheer,

    I have been following your blogs for quite some time now and the present blog, indeed was and the subsequent discussions very insightful.

    I try to put myself in Novartis’ shoe and imagine the herculean efforts it must now undertake in order to recuperate/ curb the incumbent losses. On the other hand, I put myself in the patient’s shoes and imagine what this decision would mean to those who are spending an entire year’s salary on a single month’s medication.

    What would be interesting to follow are the repercussions of this decision on the Indian Patent scenario.

    Reply
  20. AvatarShamnad Basheer

    Thanks all for your comments:

    Dear Mr Jain: sorry to hear that somebody has masqueraded as you…i now realise it–since you always write from this ID. we’ll block it next time, if we see it as an impostor. sorry about that.

    a smal factual correction. 8000-9000 is the total number of patients requiring the drug. so it is only 2% of that number that Bayer was supplying. so the revenues are even lower than what you project…..

    as to how a CL will impact the market of the patentee, i;m not so sure. i guess we’ll have to study the data to find out. it may well be possible that the generics cater to the middle and low end consumers and the originators’ customer base (very high income consumers) remain unscathed, since the big doctors and hospital continue prescribing the originator drug.

    Reply
  21. AvatarShamnad Basheer

    Thanks all for your comments:

    Dear Mr Jain: sorry to hear that somebody has masqueraded as you…i now realise it–since you always write from this ID. we’ll block it next time, if we see it as an impostor. sorry about that.

    a smal factual correction. 8000-9000 is the total number of patients requiring the drug. so it is only 2% of that number that Bayer was supplying. so the revenues are even lower than what you project…..

    as to how a CL will impact the market of the patentee, i;m not so sure. i guess we’ll have to study the data to find out. it may well be possible that the generics cater to the middle and low end consumers and the originators’ customer base (very high income consumers) remain unscathed, since the big doctors and hospital continue prescribing the originator drug.

    Reply
  22. AvatarShamnad Basheer

    Kanav. the text itself uses “discrimination” and not “differentiation”. WTO canada case clearly states that only “unjustified differentiation” amounts to discrimination. in this case, india argues that the justification is to encourage tech transfer etc…and i think thats a very plausible argument..so i dont see much of a TRIPS issue here…particularly since the development agenda etc is high on the table now and panels will read these things a bit more flexibly…and give more space to nations to craft the kind of regime they want…

    Reply
  23. AvatarKen

    Shamnad — Your point (@9:48 AM) regarding how the Development Agenda may affect a WTO panel’s ruling interpreting Art. 27 and “local working” is very insightful.

    Reply
  24. Avatarpatent litigation

    The U.S. can — and should — learn from India’s example in this case. Too often, the patent system gives the appearance of favoring private profit over the public interest. Certainly, innovators have a right to benefit financially from their intellectual property; but in some life-and-death cases it seems to me that basic human rights should trump considerations of revenue maximization.

    Reply
  25. Avatareb

    Definitely a positive breakthrough in some lights – but is there any cause for concern here? People say that CL’s can hinder innovation but this is only if it gets out of control. I think this CL is a positive one because yes, basic human rights and life should trump certain business decisions.

    http://www.verifip.com/

    Reply

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