Patent holders on alert over compulsory licence decision

Author: | Published: 1 Aug 2012
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On March 9 2012, the Controller General of Patents Chaitanya Prasad ruled against German pharmaceutical company Bayer Corporation by granting a compulsory licence to Hyderabad-based Natco Pharma. This licence is to produce Bayer's patented drug 'Sorafenib tosylate', which is sold by Bayer under the name Nexavar and is used for the treatment of kidney and liver cancer.

Under the terms of the compulsory licence, Natco will pay royalties to Bayer at a rate of 6% of net sales on a quarterly basis, sell the drug at no more than Rs 8,880 (US$172), and supply the drug free of cost to at least 600 needy patients annually.

The right of local producers to a compulsory licence is stated under Section 84 of the 1970 Indian Patents Act. The Act states that a party that is capable of producing an invention can approach the Controller of Patents to apply for such a licence should the patent holder refuse to grant the licence to the party. However, this is the first time that the relevant section of the Patents Act has been tested.

Profitability versus public sentiment

A compulsory licence can be granted if, after a period of three years from grant of the patent, the patentee has not been able to: (1) meet the reasonable requirements of the public with respect to the patented invention; (2) make the patented invention available to the public at a reasonably affordable price; or (3) work the patented invention in the territory of India.

Lall Lahiri & Salhotra partner Rahul Chadhury says the application by Natco was filed invoking all three grounds stated above. Bayer was granted a licence to import and market the drug in India on August 1 2007, but it did not import the drug in 2008 and only imported a minimal amount in 2009 and 2010.

However, Bayer argued that it could not expand its distribution of the drug in India because another pharmaceutical company, Cipla, sold a similar drug [Bayer is suing Cipla for infringement].

A one year course of Nexaver costs approximately Rs 3.4 million (US$69,000). Such a figure equates to 41 times the projected average per capita income for India in 2012. Natco, however, said that it could sell the same course of the drug for Rs 106,800 (US$2,160).

The decision by the Patents Office is expected to encourage similar actions from other domestic pharmaceutical companies. At the moment, there are at least two other pending voluntary licence applications: between Natco and a GSK-Pfizer joint venture; and between Cipla and US-based Merck & Co.

Michele Childs, director of policy and advocacy for the MSF Access Campaign, says: "This decision serves as a warning that when drug companies are price gouging and limiting availability there is a consequence. The Patent Office can and will end monopoly powers to ensure access to important medicines."

The compulsory licence provision is not specific to India. It has been legitimised under the WTO's agreement on intellectual property – the Trade-Related Aspects of Intellectual Property Rights Agreement (or TRIPs) – and has been granted in jurisdictions such as Thailand, Brazil and South Africa.

Many legal commentators say they do not see domestic bias in the regulator's decision. Remfry & Sagar patent partner Ranjina Mehta-Dutt says: "It is clear in this case that Bayer has invoked all of the three grounds stated in the long existed Patents Act for granting a compulsory licence. Bayer has been given sufficient time to comply with the standards of the Patent Office, yet there has been minimal effort spent to increase accessibility and availability of its drug before the compulsory licence is granted. It is very doubtful that Bayer would have taken any sincere action in the near future. Therefore, to a certain extent, the Patent Office's decision is legitimate and comprehensive."

The decision of the Patent Office means that patent holders will need to balance profitability with ensuring sufficient accessibility to their life-saving products. Multinational patent holders with a long-term interest in the Indian market are advised to accommodate such public sentiment in their decision-making.

Making an impression
In its annual review of the 50 most influential people in intellectual property, Managing IP magazine has this year included IPAB chairman Prabha Sridevan

Every year, Managing IP lists what it considers to be the most influential people in the world of intellectual property, and every year there are surprises. This year, new entries include Kim Dotcom, The Pirate Party and Michael Jordan, plus several from China – demonstrating that country's rising importance to the future of IP.

Managing IP also ranked the top 10 in order for the first time. This adds an extra dimension to the list, comparing the different roles of companies, politicians and IP offices, and the hope is that it will stimulate some debate. If you want to take part in that discussion, please comment on the stories online at or join the magazine on LinkedIn or Twitter (#MIP50). There is no nomination or voting process for the Top 50, which is compiled by Managing IP journalists in London, New York and Hong Kong. But Managing IP will certainly bear suggestions in mind for next year.

Prabha Sridevan, Intellectual Property Appellate Board of India

Prabha Sridevan was appointed chairman of the Intellectual Property Appellate Board on September 5 2011 after serving as a judge on the Madras High Court for 10 years. She has quickly made her imprint on IP practice in India.

In the past year, she has ruled on a number of noteworthy cases, such as Yahoo v Controller and Rediff, holding that business methods are not patentable in India, and Tata v Unilever, invalidating Unilever's water-filter patent for failure to file Section 8 disclosures. She was also the sitting judge on Financial Times v Times Publishing House, where she invalidated the British newspaper's trade mark.

Sridevan is also expected to speed up and clear the backlog at IPAB, which is very welcome among IP owners. A number of attorneys have commented on her hesitance to grant unwarranted time extensions, as well as her willingness to speed up hearings when both sides work quickly and act in good faith. She has also aggressively lobbied for additional resources for IPAB.

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