compulsory license: natco vs bayer case

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Presented by:
Alak Roy (CSP12001)
Helal Uddin Mullah (ELP15103)
Airy Sanjeev (MBP15104)
Happy Borgohain (PHP15105)
Mrigyanka Chakravarty (MBP15101)
Intellectual Property Rights Cell, Tezpur University
November, 2015
Compulsory Licensing:
A case study of Natco vs. Bayer

IPR Cell, Tezpur University
2 OUTLINE
Introduction
Compulsory License : Introduction
Voluntary vs. Compulsory License
Legal Provisions of Compulsory License
Compulsory licensing under Indian National Legislation
 Case of NATCO Vs BAYER
NATCO v/s BAYER: Case Introduction
Timeline of the Case
Considerations for granting the compulsory license
Verdict of the case
 Effects and consequences
 Solutions for the future
 References

Compulsory License : Introduction
 Protection of intellectual property rights using IPR tools does not allow the complete
privatization of research works, knowledge generation, and inventions.
 We need mechanisms that protect intellectual property and, at the same time, address
the needs of the poor.
 The provision of compulsory license (CL) enables the government to balance the rights of
the patent holder with its obligations to ensure
 working of patents,
 availability of the products at a reasonable price,
 promotion and dissemination of technological invention and
 protection of public health and nutrition.
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Voluntary vs. Compulsory License
 Voluntary License:
 Granted by innovator company to multiple generic companies.
 Helps innovator reach newer markets and focus on their core R&D.
 Helps generics to generate revenue.
 Facilitates affordable priced drugs supply to public.
 Compulsory License:
 Granted to remedy non-affordable drug prices, national emergency, health crisis
of public or for govt. use.
 A royalty is paid by the compulsory licensee to the patent holder
 Respective govt. has the right to determine the grounds for granting compulsory
license.

Legal Provisions of Compulsory License
Under the Paris Convention (1883):
• envisaged provisions for each contracting State to take legislative measures for granting
compulsory licenses .
• According to Article 5A (2) of the Paris Convention –
“Each country of the Union shall have the right to take legislative measures providing for the
grant of compulsory license to prevent the abuses that might result from the exercise of the
exclusive rights conferred by the patent.”
Under TRIPS (1995):
• Compulsory licensing is covered in the TRIPS Agreement by:
1. Article 30, which provides limited exceptions to the rights conferred under patents,
provided they do not unreasonably prejudice the legitimate interests of the patent owner,
taking into account the legitimate interests of third parties. This article provides the
basis for issuing compulsory licenses;
2. Article 31, which refers to compulsory licensing as other use without authorization of the
rights holder, but allows countries to do so only under certain conditions .
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Under Indian National Legislation:
Chapter XVI (Section 82-98) of the Indian Patent Act, 1970 (amended in 2005)
Section 84(1):
At any time after the expiration of three years from the date of the grant of a patent, any
person interested may make an application to the controller for grant of compulsory license
on patent on any of the following grounds:
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.
6 Legal Provisions of Compulsory License

Under Indian National Legislation:
 Sections 92 — Special provision for compulsory Licenses on notifications
by central government.
 Sections 92 (3) —Circumstances of national emergency or extreme urgency, a
case of public non-commercial use
 Section 92 A—For exports of patented pharmaceutical products in certain
exceptional circumstances.
eg: to foreign countries with public health problems.
7 Legal Provisions of Compulsory License

Section 84 (6):- In considering the application field for CL, the
Controller takes account of the followings-
 the nature of the invention, the time which has elapsed since the sealing of the patent
and the measures already taken by the patentee or any licensee to make full use of
the invention;
 the ability of the applicant to work the invention to the public advantage;
 the capacity of the applicant to undertake the risk in providing capital and working
the invention, if the application were granted;
 as to whether the applicant has made efforts to obtain a license from the patentee on
reasonable terms and conditions.
8 Provisions of Compulsory License

NATCO v/s BAYER: Case Introduction
• First case of compulsory licensing being obtained in India
• in pharmaceutical field of discipline in 2012.
• The players of this case are:
Patentee: Bayer Corp. Applicant: NATCO Drug: NEXAVAR
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• Bayer Corporations:
 an innovative drug multinational giant based at Germany.
 1990: Invented a drug named `SORAFENIB’
 For cancer patients
 Scientific name: Carboxy substituted diphenyl ureas
 It’s not a life saving drug but only an extending one (stage IV);
 It extends life
 by 4-5 years among kidney cancer patients and
 by 6-8 months among liver cancer patients.
• NATCO Pharma Ltd:
 Hyderabad-based leading manufacturer and distributor of drugs in India.
 Applied for CL to produce
 a generic version of Bayer’s patented medicine Nexavar in 2011.
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NATCO v/s BAYER: Case Introduction10

Timeline of the Case
• 1990: Bayer Corp. Invented a drug named `SORAFENIB’
• 1999: Bayer had originally applied for the patent in the United States
• 2000: Bayer filed a PCT International Application.
• 2005: Bayer launched the drug, with brand name Nexavar.
• 2008 (March): For Bayer, patent was granted in india for the drug
• Started importing and selling Nexavar in India.
• A month’s dosage of the drug = US$ 5,608.4 (approx. Rs. 2.80 Lakh).
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• Natco had approached Bayer for a voluntary license
• to produce and sell the drug (in accordance with the Indian Patent Act, 1970)
• Citing the high rates being charged by Bayer,
• Natco proposed to sell the drug at a price lower than US$ 200 (appx Rs.8,800)
• Request was denied by Bayer
• 2010: M/S Cipla, another drug manufacturer, starts selling a generic version of
Nexavar.
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• 2011 (July): Natco applied for a compulsory license to the Controller of Patents
• to manufacture and sell a generic version of Nexavar.
• under Section 84(1) of the Indian Patent Act, 1970 (amended in 2005) .
• 2012 (March): First compulsory license granted in india
• permitting Natco to produce and sell a generic version of Nexavar.
• Bayer appealed against the Controller’s decision
• to the Intellectual Property Appellate Board (IPAB)
• in the Bombay High court with the contention that
• the order weakens the international patent system and endangers research.
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 2013 (March): The Controller’s decision was upheld by IPAB and an order was passed to
that effect.
 Compulsory license had been granted on the following grounds:
(a) Bayer had failed to fulfill reasonable requirements of the public with regard to the patented
invention;
(b) Nexavar was not available to the general public at a reasonably affordable price; and
(c) Bayer had not worked the patented invention in the territory of India.
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Considerations for granting the compulsory license
Issue (a): Bayer failed to fulfill the reasonable requirements of the public with regard to the
drug.
 According to GLOBOCAN 2008(World Health Organization, 2008):
 India has some 20,000 liver cancer patients and 8,900 kidney cancer patients.
 Bayer estimated: only about 8,900 people were eligible for a stage IV drug such as
Nexavar.
 Bayer sold only 593 boxes in 2011.
 The Controller estimated that:
 if, on average, each cancer patient required three packets (three months’ dosage)
of medicines,
 Bayer’s 593 boxes would have supplied the needs of less than 200 patients.
 With Bayer’s modest estimation of 8,900 patients: able to cater to only about 2%
of the patients
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Issue (a): Bayer failed to fulfill the reasonable requirements of the public with regard to the
drug.
 Possibility that Bayer did not have sufficient time to make the drug available
was also rejected.
 Bayer, a well-known brand name in India, had been marketing the drug globally
since 2006, but
 Bayer, made little effort to sell the drug in India since its introduction in the
country in 2008.
 Evident from Bayer’s figures for sales of the drug in India:
 India’s sales of the drug accounted for not more than 1.6% of the drug’s total
sales worldwide in the previous three years (prior 2011), as estimated by Natco.
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Issue (b): Nexavar was not available to the public at a reasonably affordable price.
 Drug price of US$ 5,608 per month: Not reasonably affordable price
 Large chunk of the population have access to only private health care systems
 Annual per capita income was only about US$ 1,489 in 2012 (World Bank 2013)
 Bayer justification:
 Charging US$ 5,608 for the drug on the basis of the huge R&D costs involved in
development.
 Requires approx. US $2 billion to bring any new molecule to the market.
 Submitted evidence: comparable drugs were priced similarly to Nexavar.
 Failed versions prepared before actual drug invented: accounted 75% of total
R&D costs
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Issue (b): Nexavar was not available to the public at a reasonably affordable price.
 Natco countered Bayer’s claim that R&D costs should be used as a criterion for
fixing the price of the drug;
 Patent Controller was also of the view that
 Reasonably affordable price should be seen from the public’s perspective rather
than the patentee’s .
 Natco also argued that
 Price of product should not be fixed on the grounds that the entire R&D costs for
the drug had to be collected from the Indian market.
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Considerations for granting the
compulsory license

Issue (c): Bayer had not worked its drug, Nexavar in the territory of India .
 The concern arose from the fact that the term “worked in the territory of India” had not been
explicitly defined in the Indian Patent Act.
 Though India amended its Patent act, didn’t go accordingly with the TRIPS in this case.
 Bayer defended its claim to the patent by interpreting the phrase to mean ensuring an adequate
supply to the Indian market.
 Both Natco and the Patent Controller were of the view that
 working precluded importation of the drug, and that
 the drug had to be locally manufactured for it to fulfill this criterion. IPR Cell, Tezpur University
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compulsory license
TRIPS Indian Patent Act
According to article-27(1), there is no compulsion
on patentee for local working to enjoy its right in
the territory.
There is non-discrimination between importation
and local production.
India amended its sec-83(a) and (b) stating that,
“the patentee shall be working in India and patent
can not be granted for merely importing the
product.

Issue (c): Bayer had not worked its drug, Nexavar in the territory of India .
 IPAB ruled that Bayer had not proved working its patent in Indian territory as
 it had not provided any evidence as to why Nexavar could not be locally
manufactured, and
 why it had to rely solely on imports of the drug for supplying the Indian market.
 Bayer already had manufacturing facilities in India for several products, including
oncology medications, as pointed out by Natco.
 Moreover, the fact remained that even if Bayer’s imports were taken into account,
they were nowhere near the commercial scale required to satisfy the
requirements of the public in India.
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compulsory license

VERDICT OF THE
CASE
 Bayer had disputed the Government's decision to grant a CL by
ordering Natco
to sell the cancer drug at Rs.8,800 for a month's therapy and
pay 6% royalty to Bayer on total sales.
 In 3 years (2008-2011): No steps taken by Bayer to revise the marketing
strategy and cut the price of the product.
 IPAB directed Natco to increase the royalty to 7%.
 Natco has very limited rights to manufacture and commercially sell the drug .
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VERDICT OF THE
CASE
 Natco cannot sublicense to another party.
 It is a non-assignable and non-exclusive license with no right to import the
drug.
 The CL drug can be sold only for the treatment of liver and renal cancer.
Natco cannot use this license for alternate or subsequent use of the drug.
 Natco, as committed before, has to provide the drug free of cost to at least
600 “needy and deserving” patients per year.
 Natco cannot or it has no right to “represent privately or publicly” that the
product manufactured by it is the same as Bayer’s Nexavar.
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EFFECTS /CONSEQUENCES
 In light of the IPAB ruling, the Government will grant more CLs.
 The Department of Industrial Policy and Promotion is already considering the grant of CLs for
three more anti-cancer drugs. (Herceptin, Ixempra and Sprycel)
 Price will fall as more generic version become available.
 Analysts say that the rulings are likely to strain the relationship between Indian firms and their
global counterparts operating in the Rs.72,000 crore Indian drug market.
 India's image as an investment hub could, however, suffer in the aftermath of the
rulings.
 Innovator companies will not feel secure investing in a country where their
extensively researched products could be subject to CLs.
 Bayer says the cost of inventing and developing a new medical entity like Nexavar is about
Rs.11,775 crore .
 More legal battle will come up.
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SOLUTIONS FOR THE
FUTURE
 The way out for the Government is to evolve a price mechanism wherein
 drugs made by MNCs are sold alongside those made by Indian companies at different
prices.
 Can possibly put an end to the price war.
 The solution is either a cross-subsidy model where
 Rich pay the full price and the poor pay a subsidised price or
 Government buys for the poor and supplies through government hospitals,
 But such a policy will distract from the grant of CLs and, in turn, delay the entry
of low-cost generic versions.
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References
1. Gautam, Savita, and Meghna Dasgupta. Compulsory licensing: India's maiden experience. No. 137.
ARTNeT Working Paper Series, 2013.
2. Chaudhuri, S.(2012). ―Multinationals and monopolies: Pharmaceutical industry in India after
TRIPS‖, Economic and Political Weekly,vol.47, No. 12.
3. Department of Industrial Policy and Promotion (2010). ―Compulsory licensing, Discussion Paper.
Ministry of Commerce and Industry, New Delhi. Available at dipp.nic.in (accessed 2 August 2013).
4. Abbott, F. M. and R. V. Puymbroeck (2005). Compulsory Licensing for Public Health. World Bank,
Washington D.C
5. Banerji, S., and A. Sengupta (2011). ―The effect of the Indian Patents (2005) amendment on the
pharmaceutical industry and access to medicines in India. INJIIPLaw 7; 4 Indian Journal of
Intellectual Property Law, vol.103.
6. http://legal-dictionary.thefreedictionary.com/estoppel
7. http://www.wto.org/english/tratop_e/trips_e/healthdeclexpln_e.htm
8. http://www.wto.org/english/tratop_e/trips_e/t_agm2_e.htm
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