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Case Analysis and Aftermath of Natco Pharma Ltd. v/s Bayer Corporation

The debate over the pharmaceutical industry and the intellectual property rights have been prevailing for a long time now. It was in the year 1995 that India became a party to the TRIPS Agreement. Being a party to the TRIPS agreement, there was a need for certain amendments in the existing patent laws. The deadline for complying with the obligations of TRIPS agreement was 1st Jan, 2005. In March, 2005 the Patents (amendment) bill, 2005 was introduced in the parliament with an intent to make the patent laws of India compatible to the international obligations.

Compulsory license is a concept allowed under the Trade related aspects of Intellectual property rights agreement, it is an international agreement that establishes the intellectual property rights. The grant of compulsory license is a proof to the exception under TRIPS agreement. In accordance to the patent laws in India, the provisions compulsory licensing are given under sections 84, 86, 89 and 93. This regulation aids the government to improve the access of the invention by the patent holder, it also helps in curbing the misuse of the monopoly attained through patent.

In an anomalous move by the Indian Controller of Patents, compulsory license has been invoked through the Indian Patents Act that allows a generic pharma company (Natco Pharma) to manufacture and sell a generic version of a particular drug which is patent protected by other company (Bayer corporation). Natco pharma was granted compulsory license for Nexavar a.k.a. Sorafenib Tosylate an anti-cancer drug.

This decision has led to the discourse as to whether granting of compulsory license would result into the weakening of the IPR protection in India, while the consumers and the society argues that the grant of Compulsory License to Natco Pharma would lead to benefiting the people, the pharmaceutical companies would price the drugs keeping in mind the affordability of a user and preventing the misuse of monopoly granted through patents.

The issue is how to use the compulsory license effectively? Whether it is okay to grant compulsory license for an invention by a private company for public good? Despite the international laws especially the TRIPS agreement and the laws in developing countries provide provisions for compulsory licensing but the applicability of it is difficult. Natco Pharma vs Bayer Corporation is the first case of compulsory license in India, it has set an example in the field of IPR in India. This case comment analyzes the ground on which compulsory license was granted and the aftermath of this case in India.

Background of the Case:
Bayer Corporation an American subsidiary of, a German multinational chemical and pharmaceutical company, Bayer AG. A drug called ‘Sorafenib Tosylate’ was invented by Bayer Corporation, it was used to treat the advanced stage (stage 4) cancer patients (kidney and liver cancer).

It was marketed in India with the name ‘Nexavar’ (which is a cancer drug used to treat HCC i.e. Hepatic Cell Carcinoma – Liver cancer and RCC i.e. Rental Cell Carcinoma – Kidney cancer). Bayer initially applied for patent in United States and later entered the international market by filling for patent in various countries including India and nations from European Union. The drug “Nexavar” by Bayer got patented in India in accordance to the provisions in the India Patent Act by the Indian patent office on 3rd Mar, 2008. The company got approval to import and market the drug in India.

Natco Pharma Ltd. is an Indian generic pharmaceutical company. Natco Pharma proposed Bayer for a voluntary license of the drug, but Bayer Corporation denied for it. Natco Pharma later approached the controller of patents court for a compulsory license. The applicant i.e. Natco Pharm claimed for compulsory license in accordance to section 84 (1) of the Patent (Amendment) Act, 2005. It argued upon this section and stated that the patentee i.e. Bayer Corporation did not comply to the provisions under section 84 (1).

Timeline of the case:
1990: Bayer Corp. invented a drug named ‘Sofraneib Tosylate’
1999: Bayer had originally applied for the patent in the United States.
2000: Bayer filed a PCT International Application. (Patent Cooperation Treaty)
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).
  • 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.

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.

2012: 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.

The controller granted the license to Natco Pharma on 9th March, 2012 against which Bayer Corporation moved to Intellectual Property Appellate Board (IPAB) with an appeal, this appeal was rejected by IPAB. Intellectual Property Appellate Board looked upon the issues from a societal and health perspective in the context of Article 21 of the Constitution of India. The Controller’s decision was upheld by IPAB and an order was passed to that effect.

Issues and provision discusses:
The decision was based upon the test laid down under the section 84 (1) of the Patent (Amendment) Act, 2005. Section 84 of the act lays down the conditions under which compulsory license can be granted in India.

The section states that:
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, namely:
  1. that the reasonable requirements of the public with respect to the patented invention have not been satisfied, or
  2. that the patented invention is not available to the public at a reasonably affordable price, or
  3. that the patented invention is not worked in the territory of India.

The grounds stated above for granting compulsory license are predominately classified under ‘accessibility’, ‘affordability’ and ‘non-working’ of the patent. If any of these grounds are satisfied compulsory license can be granted.

In accordance to this provision in the Act, the issues of the case were discussed
The issues of the case were as follows:
Issue 1: Whether Bayer Corporation failed to fulfil the reasonable requirements of the public with regard to the drug?
Issue 2: Whether Nexavar (the drug) was not available to the public at a reasonably affordable price?
Issue 3: Whether Bayer had not worked its drug (Nexavar) in the territory of India?

Analysis of the case:
Issue 1: Whether Bayer Corporation failed to fulfil the reasonable requirements of the public with regard to the drug?
Natco argued on the basis of the statistics available that the actual need of the drug ‘Nexavar’ was not fulfilled by Bayer and that the condition of it to fulfill the reasonable requirement of the public is stated under section 84(1)(a) of Patent (Amendment) Act, 2005.

As stated by GLOBOCAN 2008 (World Health Organization, 2008), India had around 20,000 patients with liver cancer (HCC) and 8,900 patients with kidney cancer (RCC). According to the estimation by Bayer, there are only 8,842 people who were eligible for this drug. As the drug Nexavar was required only for the patients in stage IV. The available statistics state that Bayer has sold 593 boxes in 2011 which is really less as compared to the requirement.

In response to this, Bayer denied the claims and in its arguments stated the facts of sales of an alleged infringer. Prior to the said case, Bayer had sued Cipla for infringement of the patent in issue. Bayer argued relying on the sale of Cipla stating that while considering the fact of it meeting the needs of the patients the supply by Cipla should be taken into account. However, the Controller noticed the contrast of claims by Bayer, on one hand it sued Cipla for copyright infringement and on the other hand it was using the supply by Cipla in its favor to get away with the lack of fulfilment of the requirements.

The controller was of the view and estimated that, if on average every eligible cancer patient needs 3 packets (dosage for 3 months). As per the data, Bayer supplied 593 boxes which would fulfill the needs of less than 200 patients, which is only about 2% of the total requirement. The controller also stated that the number of eligible would be more than that estimated by Bayer, but even if that number is considered it is not even close to meeting the requirements. Also, as per the data Bayer imported 200 boxes in 2009, it claimed that the supply by Cipla should be taken into consideration but Cipla started manufacturing in 2010. Bayer had no justification as to why it didn’t manufacture/import the drug during 2008-2010. In light of all the arguments and observations it was clear that it didn’t meet the reasonable requirements of the patients.

Issue 2: Whether Nexavar (the drug) was not available to the public at a reasonably affordable price?
The concept ‘reasonably affordable price’ has not been defined, it is decided as per the facts of any particular case and it would differ on case by case basis. In accordance to this case, there are 2 factors which were taken into account while deciding what ‘reasonably affordable price’ would mean. These factors included the R&D cost by Bayer to develop the drug and the affordability of the drug from the perspective of patient.

Section 84(1)(b) of the Patents Act in India states that for a compulsory license to be granted, the invention that is patented shouldn’t be available for the public at a ‘reasonably affordable price’.

Natco Pharma argued that the price was highly priced and it wasn’t available to the public at an affordable price. Natco Pharma claimed that the prices of a drug should be ‘reasonably affordable’ from the patients perspective. While, Bayer Corporation claimed that the price should be fixed taking into consideration the manufacturing/inventing companies. The huge research and development cost should be taken into account for pricing a drug. The drug was priced at US$ 5,608 per month.

Logically, this wasn’t a reasonably affordable price.
Bayer gave the justification for charging US$ 5,608, it argued that the drug was priced on the basis of huge research and development cost that was incurred during invention of the drug. It claimed that the price of the drug was higher than that of the generic version as these generic companies have to merely replicate the original drug.

Also, it claimed that the failed versions of the drug costed about 75% of the total R&D cost. Bayer argued that the ‘public’ here was all the classes of people i.e. wealthy, middle and poor class, so there was the need to expand the purview of ‘reasonably affordable’ while granting a compulsory license. Also, Bayer has its Patient Assistance Programme (PAP) and also other insurance companies which can aid with accessibility of the drug.

Natco Pharma claimed that the excessively priced drug was a huge barrier for the people to access the drug. Bayer failed to provide the accurate cost for developing the drug and showed merely general facts and figures. Also, the product price shouldn’t be such that the entire R&D cost is to be collected from the Indian market.

The PAP as it claimed was not to be taken into consideration as Bayer Corp. can anytime revoke this, also Natco stated that the fact that PAP existed was in a way a proof that Bayer was accepting the unaffordability of the drug.

The IPAB and the controller of the patents rights in India both were of the view that the price of the drug was to be decided by keeping in mind the patients/consumers perspective. The fact that in India the patent rights were created in the interest of national economy and not that of the inventor was taken into consideration.

Issue 3: Whether Bayer had not worked its drug (Nexavar) in the territory of India?
The patent laws in doesn’t define the term ‘worked in the territory of India’ though it mentions the same under section 84 (1)(c).

Natco claimed that worked here meant to produce within the territory of India, while Bayer denied to the claim and asked for a wider interpretation. Bayer claimed that the R&D cost incurred by the company to produce the drug was already very high and the global demand along with it production was very small. Thus, it decided to manufacture the drug in one unit and the production unit was based in Germany as it had good infrastructure to supply in global markets. As the term ‘worked in the territory of India’ is not defined in the Act, Bayer claimed that the interpretation should be liberal to the extent that it is made available to the Indian market in an adequate quantity.

Natco Pharma claimed that ‘working’ here should not include importing of the drug but it had to be manufactured within the territory of India to fulfill this criteria. To which the controller of patent rights asserted. But, IPAB was of the view that ‘working’ here can be given a flexible interpretation and that it would depend on case-by-case basis.

The flexible definition was taken into consideration despite the fact that Bayer had various manufacturing units within the territory of India for several products. Though, even if the imports made by Bayer for the drug are taken into consideration it was not even close to the requirements of the patients in India. Thus, Bayer was not able to fulfil this condition and its arguments were denied.

Findings and Decision:
While dealing with the issue of the drug being reasonably available to meet the requirement alone with it being priced at a reasonable price the IPAB was in the view of public interest and that the Bayer Corporation failed to fulfil these conditions. While deciding over the drug being ‘worked in the territory of India’, the board took an extended meaning in consideration but despite that Bayer failed to prove the availability or adequate importation of the drug. Hence, compulsory license was granted to Natco Pharma with certain conditions in relation to section 90 of the Patents Act. The conditions were:
  • The right to make and sell “sorafenib tosylate” is limited to applicant (no sublicensing);
  • The compulsorily licensed drug product can be sold only for treatment of liver and renal cancer;
  • The royalty shall be paid at a rate of 6% (Later increased to 7%);
  • The price is set at Rs.74/- per tablet, which equals Rs. 8,800/- per month;
  • The applicant commits to provide the drug for free to at least 600 ‘needy and deserving’ patients per year;
  • The compulsory license is not assignable and non-exclusive, with no right to import the drug;
  • No right for the licensee to ‘represent publicly or privately’ that its product is the same as Bayer’s Nexavar;
  • Bayer has no liability for Natco’s drug product, which must be physically distinct from Bayer’s dosage form.
The license was granted on March 9, 2012.

Aftermath of the decision:
The Indian government would grant more compulsory licenses in accordance to the ruling by Intellectual Property Appellate Board (IPAB). Three more anti-cancer drugs are in line for the grant of compulsory license and the department of industrial policy and promotion is considering them. These drugs are: Hercptin, Sprycel and Ixempra.

With the grant of compulsory licenses there arises a possibility of fall in the prices as more generic versions would now be available. The relationship of Indian companies with that of its international counterparts that are functioning in the Indian market are likely to get rough because of this decision. The image of India as an investment hub may suffer because of this judgement. The companies that invents drugs would feel insecure to invest within India as their innovations as there will be an open door for the grant of compulsory licenses. Possibility of more and more legal disputes coming up leading to conflicts.

The solution could be that the government allows both the generic version and original version be sold in the market. This can possibly reduce the conflicts and the war for pricing issue. To manage this the government can use cross-subsidy method i.e. the rich pays full price and the poor pays for a subsidized price. Government can make provisions for supply of the high priced drugs in a public health care unit where they provide the drugs are a lower rate for the one’s in need. But, by doing this there is a possibility the low-cost generic drugs are delayed and the main intent of granting compulsory license would be possibly deviated.

Conclusion:
Natco Pharma v Bayer Corporation being the first case of compulsory license in India opened doors for many debates. The world health organization acknowledged the decision by the Indian Patent Rights authorities but the pharmaceutical industry and the biotech groups were of the opposite view point as this decision of compulsory licensing would impact the research and development.

This was a big step towards the usage of compulsory license especially in the field of pharmaceutical industry. It is the responsibility of the government to efficiently maintain the balance between the rights of the innovator and that of the public. The Indian Patent laws have been amendment to the terms of its foreign obligations and in the present case the compulsory license was granted in accordance to the given provisions and facts of the case. In the battle between the patients and patents, the patients were favored.

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