Compulsory Licensing is Not a Bad Word!

And with this telling statement, Justice Prabha Sridevan, Chariman of the Intellectual Property Appellate Board (IPAB) began a marathon seven hour dictation in open court, upholding India/s first compulsory license order (in the post TRIPS era) in favour of Natco, a leading generic manufacturer.

Given that “compulsory licensing” has acquired rather malignant overtones in several circles (pun intended), it was only appropriate that the judge set the tone by beginning with this sentiment that will no doubt reverberate in the hallowed halls of patent jurisprudence for several years to come.

The ruling marked an important milestone in Indian patent history and represented a clear victory for patients and generic manufacturers. The case essentially revolved around the excessive pricing of an anti cancer drug Nexavar, patented by Bayer, a leading German pharmaceutical company. For more background on this case, you can see our posts here, here and here.

Reports on the Ruling:
Yesterdays’ ruling by the IPAB was reported first by Rumman Ahmed of the Wall Street Journal, where he notes:

“The appellate board, which is based in the southern city of Chennai, said the patent authority was right in allowing a compulsory license for Nexavar as Bayer hadn’t priced the drug at “reasonably affordable rates”.

Bayer said it “strongly disagrees” with the conclusions of the appellate board and will pursue the case at the high court in Mumbai. The order “weakens the international patent system and endangers pharmaceutical research,” the company said in a statement.

Natco welcomed the order. “This is a reasoned and detailed order that can be sustained in any court of law,” said M. Adinarayana, Natco’s company secretary.
The ruling was also captured by Jamie Love in a KEI briefing note and by Patralekha Chatterjee of the IPWatch.
SpicyIP Summary of the Ruling:

Our summary of the IPAB decision is as below. I am very grateful to Saranya Murugaiyan, a bright IP attorney from Chennai who filled me in on most aspects; she’s promised to offer us a more extensive note on the proceedings soon.

Readers must note that this is only an oral pronouncement by the IPAB. The final version of the order (which will be based significantly on this pronouncement, but with minor changes in structuring, paragraphing, quotations etc) will be available on the IPAB website within the next week or so.
Justice Sridevan began by outlining the key issues at stake, went on to consider the rather lengthy arguments traversed by each set of counsels and then proceeded to issue her ruling on each issue. I’d already outlined 3 of the issues yesterday in my email to all SpicyIP subscribers. I reproduce it below in slightly better form (given that I’d shot off the email hurriedly whilst boarding a flight).
First set of Issues:

1. The CG (Controller General) need not hear the patentee prior to making a prima facie evaluation that a case for CL exists. It is only after the said prima facie evaluation that the patentee need be heard on whether the CL should be granted or not. This ruling responds to Bayers’ argument that the CG had made a “prima facie” evaluation based solely on Natco’s CL application and then proceeded to issue notice to Bayer.

2. Natco’s offer for voluntary licence was valid in law and once it received a refusal from Bayer, it was not bound to go back to Bayer and plead again. As the judge quipped during the interim order phase, when she rejected Bayer’s application to stay the CL order of the Controller General: Clearly Barkis was not willing!

3. Cipla’s sale does not aid Bayers’ case in any way, particularly since Bayer sued Cipla for infringement. Such allegedly “illicit” sales cannot be counted towards Bayer’s “working” of  the patent.
As for the other issues, here is what the judge ruled.

Excessive Pricing:
1. Bayer sold the drug at an “excessive” price (Rs 2,80,000 a month) and was able to meet the requirements of only 2% of the patient population. Therefore, two of the grounds under section 84 had been satisfied, namely that: (i) that the reasonable requirements of the public with respect to the patented invention have not been satisfied, and that (ii) that the patented invention is not available to the public at a reasonably affordable price.
The “Working” Controversy:

2. The third ground for compulsory licensing under section 84 is that “that the patented invention is not worked in the territory of India.” The judge differed slightly with the Controller of Patents, who held that “working” under section 84 cannot include mere imports; given that Bayer was merely importing Nexavar capsules into the country, it could not be said to have “worked the patent”. The IPAB took a different stand, holding that “working” is a flexible term and can also admit of “imports” in some instances. This would depend on circumstances such as the technology in issue, whether the invention could be feasibly manufactured in India etc. However, it is not clear if “imports” in the present case had satisfied the working requirement, given that the patentee (Bayer) did not furnish any credible reasons for not manufacturing in India. I’ll write a detailed review after the main judgment is out and we have a clearer idea of the judges’ mind on this issue.

3. Bayer’s patient assistance program did not necessarily mean that it “worked” the patent adequately.

Apart from the “working” requirement, the judge also differed with the Controller in setting the royalty rates and hiked it from 6% to 7%. The judge appears to have based this hike on the fact that Bayer deserved more, given that Natco was offering its retailers a 30% margin on the sales.
Natco Lies to the Court: Yet Again!

Interestingly enough, the IPAB fined Natco for lying to the court that it possessed a process patent (covering a method of making a generic version for Nexavar), when its patent application was still pending and had not been granted as yet.

Natco attempted to brush off this misrepresentation, stating that it was an “irrelevant” fact (since the Controller of Patents never relied on this fact while issuing his order). The judges however were not amused and fined Natco 50,000 for this blatant lie and ordered that the money be donated to the Tata cancer research center. If only more judges were willing to castigate unethical litigants who stooped to win at any cost, we’d work up a wonderful budget for healthcare in this country.

Readers may recall another instance where I’d highlighted Natco’s misdeeds in the controversial Dasatinib patent infringement case. In the immediate aftermath of my articles highlighting Natco’s blatant misrepresentation, it filed a defamation case against me (as any corporate bully would), hoping to shut me up. Sadly, it could not have been more mistaken; owing to the wonderful support of several friends and well wishers (in the legal fraternity and outside), I’ve been able to put together a spirited defence and resist these cowardly attempts to quell free speech.

Although Natco pushed for a restraining order against me on at least 3 separate occasions, the judge refused to grant it. For those interested, here is my written submission to Natco’s baseless allegations. I have linked to this submission in this post here (see the last few paragraphs of the post).

Ps: The 7 hour open dictation session at the IPAB was not without its fair share of drama. My email to SpicyIP subscribers (during the lunch break yesterday) that the judge had already decided 3 issues and was likely to rule in favour of Natco did not go down well with Bayer’s counsels who objected to this pubic announcement. I was a little aghast, given that this was an open dictation in open court.

Incidentally, some of you have written, asking me to subscribe you for regular SpicyIP email updates. Please note that you can subscribe by simply clicking on the tab “Subscribe’. Please visit our homepage, and once there, do scroll down a bit and you will see the tab “Subscribe to SpicyIP” on the left side. Enter your email ID in the box below and you will receive regular SpicyIP updates in your inbox, including all blog articles without you having to visit our blog each time.

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