IPAB’s first CL decision, resounding emphasis on public interest in CL proceedings

The decision of India’s specialized IP tribunal on appeal against India’s first compulsory license granted by the Controller is available on the Board’s official website here. The Board’s chief Prabha Sridevan in an open court on March 4, 2013 dictated the order upholding the Controller’s decision for grant of compulsory license on Bayer’s patented drug, Sorafenib Tosylate. As Prof. Basheer noted earlier, to the delight of patients and generics, the opening sentence of the order states that “‘compulsory license’ is not an unmentionable word.” The significance of the decision, among various other reasons, is the role on ‘public interest’ in compulsory license (CL) proceedings. The Board stated that “we must bear in mind that these proceedings are in public interest; they are neither against the inventor, nor in favour of the compulsory licensee.” The decision reasserted the underlying objective of grant of patents for benefit of public. At first look, the decision appears well-reasoned and references to Ayyangar Committee Report and International instruments added necessary context in perceiving working requirement in Indian patent law. 
To quickly recapitulate, Natco Pharma Ltd. filed an application before the Controller of Patents seeking a compulsory license over Bayer’s patented kidney cancer drug, Nexavar. The Controller on March 9, 2012 granted the license with a finding that (a) the reasonable requirements of patients of the drug is not satisfied (b) the drug is not affordable and (c) the invention is not worked in India. In granting the CL, the Controller set the royalty rate at 6% in accordance with recommendations of the United Nations Development Program (UNDP). Moreover, the Controller disregarded the presence of Cipla Ltd. in manufacturing the generic equivalent of Nexavar for pending infringement suit instituted by Bayer before the Delhi High Court. The IPAB though upheld Controller’s findings, however, increased the royalty rate to 7%. Below is a summary of the order [Long Post
Summary of the order 
Technical grounds raised by Bayer in the appeal: 
(a) Whether the patentee has right to be heard at preliminary stages of the compulsory application? 
Bayer argued that the Controller’s order was vitiated for failure to give notice of Natco’s application at the preliminary stage as per Sec. 87 (procedure for examination of CL applications). The Board rejected the ground stating that “it would be futile to content that for arriving at prima facie satisfaction, the other side should be heard.” Furthermore, it pointed out the issue of hearing the opposite party [as per Sec. 86(4)] arises only after the notice of opposition [as per Sec. 86(2)]. 
(b) Whether Natco made reasonable efforts to obtain a voluntary license from Bayer? 
Natco in its letter (dated December 6, 2010) to Bayer sought a voluntary license for manufacturing and sale of the drug Rs. 10,000. It further stated that the prohibitory high cost of the drug by Bayer entitled a grant of CL for the invention on all three grounds. Bayer contented that the letter was more of a notice or threat rather than a request to seek a voluntary license and hence argued that Natco failed to make ‘reasonable efforts’ to procure a voluntary license. The Board IPAB on perusal of Bayer’s reply rejected the contention and stated that: 

If the appellate thought that less than Rs. 10,000/- was not a bargaining point, all that it should have stated was there was room for negotiation. But, the response did not indicate that, instead it clearly indicated that the appellant did not consider it appropriate to grant voluntary license. Therefore, the offer was made and it was rejected. The 3rd respondent is not required to make another request when its efforts had failed. The law does not require that. 

Before addressing the substantive grounds of challenge against the Controller’s decision, the order identifies overwhelming public interest in examining CL applications and to this effect it takes support from the Ayyangar Report and provisions from TRIPS, Paris Convention and Doha Declaration on Access to Medicines. It noted that the appeal must necessarily be decided in keeping in mind the below general principles for working of inventions in Sec. 83: 
  • that patents are not granted for an import monopoly of the patented article and, 
  • the grant of patent shall not impede protection of public health and, 
  • the grant of patent must balance the rights and obligations and finally, 
  • it must make the benefits of patented invention available at reasonable affordable price to public. 
(1) Whether Cipla’s alleged infringing sale of the drug has any bearing on the grant of the CL? 
Bayer’s counsel advanced an argument that the sale of ‘offending products’ by Cipla must be considered in determining whether ‘reasonable requirement of public’ of the invention has been met by the patentee. It stated that the factum of illegality of sale does not have any bearing on determination of reasonable requirement of public. Furthermore, it was argued that the sale of generic equivalent by Cipla cannot be deemed illegal until a declaration from the Delhi High Court. Therefore, it stated that conditions of reasonable requirement were met taking into account sales of the appellant and third party (i.e. Cipla). In the event Cipla succeeds in its invalidity claim against Nexavar, Bayer argues that the CL would be infructuous. On the other hand, Natco’s response relied on uncertainty of CIPLA’s sales in an adverse finding against invalidity claims by the Delhi High Court. 
Dismissing Bayer’s objection, the IPAB looked into the guiding principles for determination of working of patent in Sec. 83 and it demonstrated that the working of invention needs to be ascertained from sales of patented invention by the patentee and licensee and nothing else. An interpretation contrary to this would mean that “a monopoly is granted to a person who does not make any effort to reach his invention to the public and would rest his case on the labour of a third party whom he would drag to Court with an infringement suit.” The Board further noted that Sec. 86(7)(i) refers to only “refers to measures taken by the patentee or the licensee to make full use of the invention” in determining reasonable requirement of public. 
On the issue of whether the patentee sold the invention on ‘commercial scale’, the Board referred to Form 27s submitted by Bayer wherein it found contradictory claims on satisfaction of public requirement. On perusal of records, it held that that “the appellant had not “worked” the invention on a commercial scale even if “import” alone would satisfy the working condition.” 
(2) Whether the invention has been made available to public at a reasonably affordable price? 
The IPAB dismissed Bayer’s contention that ‘reasonable affordability’ of an invention mean reasonable to both public and the inventor. Bayer noted that its Patient Assistance Program (PAP) and Health Insurance Schemes ameliorate factors against reasonable affordability of invention. Despite several affidavits in support of Bayer’s claims on huge costs and the long drawn process of drug invention, the Board highlighted the absence of view on reasonably affordability from a patient’s perspective. Natco’s counsel sought R&D costs from Bayer and hinted that a reasonable price would not entail recovery of costs from India alone. Furthermore, Natco objected to inclusion of PAP figures in assessing affordability for reason that substantial benefit of patent does not reach the public, a claim which the Controller allowed. 
The Board, however, disagreed with the Controller and held that slashing of prices by manufactures to increase affordability cannot be said to frustrate proceedings and therefore it held that the “words at the end of Sec. 84(6) are not absolute taboo to prevent the inventor from bringing down the price and making his invention available to the public.” Pertinently, it noted that CLs are concerned with public interest rather than the applicant for CL. The Board, however, agreed with the Controller conclusion on affordability and observed that: 

The Controller was right in holding that the sales of the drug by the appellant at the price of about 280,000/- was alone relevant for the determination of public requirement and he was also right in considering the purchasing capacity of the public and the evidence available to conclude that the invention was not reasonably affordable to the public. 

(3) Whether the patentee satisfies the local working requirement? 
On this issue, the Board differed with the Controller’s opinion and held that in absence of a definition for “working” of a patent locally in the TRIPS or Paris Convention, its’ meaning must be determined on a case to case basis (in accordance with Article 31 of the TRIPS providing that use of patent without authorization of the patent holder must be dealt with on a case to case basis.) The definition may range from excluding import from the working requirement on the one hand, and being synonymous to it on the other. Therefore, there may be cases where it is proved by giving evidence, that the patent is worked locally by merely importing the product into the country. It held, “The patentee must show why it could not be locally manufactured. A mere statement to that effect is not sufficient there must be evidence.” In this instance, Bayer failed to give reasons to this effect, and therefore fails the test of Section 84(1). 
Terms and conditions of the grant 
On Bayer’s contention that terms and conditions of the compulsory license were fixed arbitrarily violating the mandatory requirements of Sec. 90. In particular, it raised objections against the 6% royalty rates fixed in accordance with recommendations of the UNDP. It submitted that the retailers and stockists get a margin of 30% which is substantially higher than the 6% margin that the inventor gets as royalties. The Board concurred with the Controller in holding that “royalty shall be paid on the net sale of the drug and not from the margin”, however, in view of the pleadings and evidence before it, increased the royalty fixed by the Controller by one percent to ‘meet the ends of justice’. 
Suppression of facts 
On the issue of suppression of facts by Natco regarding the counter claim and CIPLA’s presence in the market, and false statement that it has applied and obtained a process patent for producing Sorafenib Tosylate, Natco stated that its’ intention was not to deceive, or it wouldn’t have enclosed relevant annexures before the Controller. Further, that it did not feel that CIPLA’s presence in the market was a material fact that needed to be disclosed. The Board, while expressing disapproval regarding NATCO’s conduct, held that owing to the public interest element in the current proceedings, it could not allow the appeal solely on the basis of Natco’s conduct. It observed that, 

A party approaching a judicial forum should place on record all the facts that are known to it and it is for the judicial authority or quasi-judicial authority to decide whether it is material or not material. If the party is going to decide whether it is material or not material, there is no necessity for the applicant to approach the Controller. 

However, the mere presence of a public interest element in grant of the compulsory license does not absolve the party of the duty to make correct statements in the pleadings and affidavits filed before the Court. Therefore, the Court directed Natco to pay reasonable costs of Rs. 50,000 in favour of TATA Memorial Cancer Hospital to be used by the trust for poor patients.

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