A step into the unknown: India's first compulsory license

The licence was granted to Natco Pharma, a generic drug company, for sorafenib tosylate, a life-extending drug developed, patented and launched by Bayer Corporation. This drug is sold under the trade name of Nexavar and is used for the treatment of advanced-stage kidney and liver cancer.

The Controller General of Patents has set a benchmark in this landmark decision by invoking Section 84(1), a crucial provision of the Indian Patents Act which allows any person interested to file an application for grant of compulsory licence on a patent at any time from three years after grant on various grounds mentioned in the Indian Patents Act.

Grounds for compulsory licence

Compulsory licences can be granted on the mutually exclusive grounds that (i) the reasonable requirements of the public are not met; (ii) the drug isn’t available to the public at a reasonably affordable price; or (iii) the invention has not been worked in India.

Even prior to invocation of these grounds, Bayer was not given the opportunity to be heard in the matter for establishing a prima facie case for consideration of the compulsory licence application filed by Natco before the final disposal of the application for compulsory licence which resulted in the curtailment of the rights of the patentee.

The main ground which formed the basis for grant of compulsory licence was that the reasonable requirements of the public were not met. The cost of therapy of Nexavar is Rs280,428 ($5,064) per month. The controller general held that a prima facie case had been made for grant of the licence as the quantities of Nexavar imported by Bayer in 2009 and 2010 appeared to be grossly inadequate.

On looking at the market statistics as laid down by Bayer, the controller held that there is a demand for sorafenib in at least 8,828 patients and despite the product being launched in other parts of the world from 2006 onwards, the delay in launching the product in India is not justifiable. The annual requirement for the drug is 27,000 packs; current sales are nowhere near adequate to meet the demand.

The question arises as to what is the yardstick for determining whether the reasonable requirements of the public have been met? Can the reasonable requirements be met only by the patentee, or can any other party, such as in the present case, pharmaceutical manufacturer Cipla (which sells generic sorafenib), also contribute?

In the absence of an injunction operating against Cipla in an infringement proceeding before the Delhi High Court, the patentee could not have been expected to import or manufacture the product in India with no sales. The expectation of supplying the entire market where cheaper/substitutes (whether infringing or not) are available, even when such substitutes reduce the patentee’s market share and reduce the capacity to supply the entire market, seems to be unreasonable.

The other ground which calls for grant of a compulsory licence is when the drug is not available to the public at a reasonably affordable price. The controller general concluded that a reasonably affordable price has to be predominantly construed with reference to the public and, in view of the fact that the price of the drug is high, it is logical that the patented drug was not available to the public because it was not reasonably affordable.

‘Affordable to the public’ is a concept that the patentee failed to execute by offering differential pricing for different classes/sections of the public.

“‘AFFORDABLE TO THE PUBLIC’ IS A CONCEPT THAT THE PATENTEE FAILED TO EXECUTE BY OFFERING DIFFERENTIAL PRICING FOR DIFFERENT CLASSES/SECTIONS OF THE PUBLIC.”

On a fair perusal of the controller general’s order, it is difficult to understand whether the patentee is required to sell the drug at a ‘reasonably affordable’ price or at the ‘lowest affordable’ price, given that millions are spent on research and development for the development of a new drug and given the expenditure incurred by the patentee in keeping the patent in force.

On the ground of the patented invention not being worked in India, the controller general held that the different clauses of Section 84 have to be harmoniously interpreted and, therefore, the removal of the concept of local manufacturing in India from Section 90(a) in the amended act cannot be seen in isolation.

The controller went further to state that even under the Paris Convention, importation of patented articles does not entail forfeiture of the patent and therefore, suggests that importation could entail something less than forfeiture, such as compulsory licence.

It was held that a combined reading of all the provisions relating to compulsory licences clearly indicates that the patentee’s invention has to contribute towards transfer and dissemination of technology which can only be achieved by manufacturing the product in India or by granting a licence to any other person for manufacturing in India. Therefore, what follows is that ‘worked in the territory of India’ implies ‘manufactured in India to a reasonable extent’.

The controller also held that if the licensee cannot import the patented product under Section 90(2) for working the invention under the terms of the licence, then it clearly implies that importing cannot amount to ‘working’ for the licensee. In other words, if the licensee cannot import the product to work the invention in India neither can the patentee. The same standards have to apply to both the patentee and the applicant, which in our view is an erroneous finding,

With the above grounds set out, the controller general granted this compulsory licence to Natco at a 6 percent royalty of the net sales, with a condition that the licensee will supply the drug free of cost to at least 600 needy and deserving patients per year.

The price of the generic version of Nexavar was fixed by Natco at Rs8,800 ($160) per month. Surprisingly, what seems to have been overlooked was whether Natco will be in a position to manufacture and supply the product for the remaining life of the patent at a nominal cost, while paying a 6 percent royalty and providing the drug free of charge to 600 needy patients.

Beyond the order, it has yet to be seen how after the grant of the compulsory licence Natco is able to meet the reasonable requirements of the public and at the same time sell the drug at a reasonably affordable price.

This order of the controller general has been received with great appreciation by the generic industry, but it seems to discourage investment in research and development, which is vital to public health care in developing innovative drugs and compositions.

Bayer has filed an appeal against the order of the controller general before the Intellectual Property Appellate Board (IPAB); it is expected that the IPAB will hear this matter on August 21, 2012.

Researchers and innovators across the world will be closely watching the outcome of the appeal, as it will decide the future strategies for investing in patent protection and enforcement in India for new drugs and molecules.