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Case analysis of Bayer Corporation v. Union of India

Introduction:
Intellectual Property Rights has emerged as an important field as it guarantees individuals right for their creation and innovation. Ever since Indian generic industry has started contributing in drug industry globally, its patent linkage policy has been a point of contention. The relationship shared between the patent status granted to its innovator and the approval for the marketing for the patented product is considered as patent linkage. The very first case that happens to give a liberal and more flexible interpretation of Indian patent linkage in accordance with its compulsory license regime and application of bolar provision was the case of Bayer Corporation v. Union of India and Ors.

Background:
Bayer Corporation, the petitioner in the present case, a company based in USA, researched and developed a drug for treatment of patients suffering from diseases related to kidney cancer and liver cancer. The petitioner acquired the patent for the manufactures drug under the name of “Sorafenib Tosylate” with market name ‘Nexavar’, in the year 2008 in India.

The respondent in the present case is Natco Pharma Ltd. which is a drug manufacturing pharmaceutical company based in India. They approached the petitioner for procurement of grant of voluntary license. Natco said that the objective behind their obtaining voluntary license was to provide the patented drug to public at a reasonable and affordable price as the petitioner was selling the patented drug at a price of Rs. 10,000/ month of therapy rather than at Rs. 2.80, 428/ month of therapy as charged by the petitioner i.e., Bayer Corporation. But Bayer denied the application and didn’t provide grant of voluntary license to Natco.

Later, after expiration of 3-year period, as per Section 84(1) of the Indian Patents Act,1970, Natco filed an application for grant of compulsory license to the Controller. According to the Controller, as Natco complied with the necessary requirements for granting of compulsory license, their application was granted. Natco was allowed to manufacture and sell the drug patented by Bayer and the former was also asked to pay 6% of the net sale of drugs to Bayer as part of royalty. Besides, Controller also mentioned that the compulsory license granted to Natco was general in nature and for the balance term of the patent. The controller also mentioned that Natco cannot assign the patent rights granted to any of their heir as it is non-assignable or non- transferable right.

Issues:
  1. Application of bolar exemption:
    1. Is it valid to export a product to foreign country other than India for purpose of submission of any information?
    2. Can rights granted under provisions of compulsory license read along with rights mentioned under S.107A?
  2. Compulsory license:
    1. Whether Natco made enough efforts to procure voluntary license from the Bayer
    2. Were the reasonable requirements in accordance to public were met?
    3. Did court take into consideration the supply made by infringers while determining the reasonable requirement test?
    4. Availability of patented drug at reasonable and affordable price.
    5. Working of the patented drug within the territory of India.
 
Analysis:
Perusal of bolar provision:
The court while applying the bolar provision, explained the word “selling” in relation to export as per S.107A of the Indian Patents Act. The court said that section doesn’t restrict selling to a particular geographical boundary and also mentioned that the given right is in accordance to fundamental right under Article 19 (1)(g)4 of the Indian Constitution.

The court also was of the view that the rights granted under S.107A doesn’t get curtail because of grant of compulsory license. The court also mentioned that such an export needs to be done in a reasonable manner i.e., for the objective of development and submission of information. Therefore, claim of Bayer of prohibiting Natco from exporting drug to foreign country was rejected by the court. Therefore, in order to ensure that right granted in regards to patent is not misused, proper measures need to made on case-to-case basis.

Perusal of compulsory license:
Issue 1:
It was contended by the petitioner that there are essentially two conditions for applying for compulsory license. The first condition is expiration of three -year period granted to patent holder for the patented drug and the second condition is that the applicant i.e., Natco in the present case, should have made efforts to obtain voluntary license from Bayer. According to Bayer, Natco failed to meet the second condition which also mentioned under Section 84(6) of the Act.

The court, taking into consideration the examination done by the Controller of patent and relying upon the evidence found, stated that the letters that were exchanged between Bayer and Natco exhibited that Natco did make efforts to obtain voluntary license for the patented drug. The court also said that it found no relevant reason to look into the investigation carried out by the appropriate authorities.

Issue 2:
The Controller and Intellectual Property Appellate Board (IPAB), found that the patent holder that is Bayer failed to meet reasonable requirement for the public. The appellate board listed down the reasonable requirements had not been and which are as follows:
  • Absence of working of the patented invention
  • Selling of patented drug at very high price which is not reasonable and affordable,
  • Working of the patented invention not done as per commercial scale.
  • IPAB stated that the conditions relating to reasonable requirements for public listed down under S. 84(1)(a) has to be fulfilled along with those mentioned under S. 84 (1) (b)(c). The appellate board held that the facts that the patented drug was too costly and the supply was also very less implied that reasonable requirements in relation to general public were not fulfilled.
 
Issue 3:
Bayer contended that the supply made by the infringers i.e., Cipla in present case, is determining factor while discussing the issue of reasonable requirement of the public for the drug patented. But the authorities were of the view that such supply of patented drug made by Cipla could not be taken into account as the court already was aware of injunction suit filed by Bayer against Cipla. This act of Bayer according to Court represented that Bayer didn’t accepted the participation of infringer in relation to supplying of its patented drug in the market.

Court was of the view that according to Section 84(7) of the Act, the only criteria to look upon while deciding the reasonable requirement condition is to make sure that the patented drug is made available to general public at adequate level i.e., to those people who are in need of the patented drug.

Issue 4:
As per Section 90 of the Indian Patents Act, it is the duty of the controller to make sure that the patented drug which is being made available to public is at a reasonably affordable price. The yardstick to measure the ‘reasonable and affordable price’ is the relative price that is being put forward by the patent holder and the applicant for the grant of the patent. In accordance with the present case, the patent holder i.e., Bayer was selling the drug at price of Rs. 2,84,000/ month of the therapy whereas the applicant i.e., Natco intended to sell the same at price of Rs. 8,800/ month of the therapy. According to the test, the price offered by Natco is to be considered reasonable and affordable for the general public for selling of the patented drug.

The petitioner’s argument of deciding to sell the patented drug at the mentioned price was that, it was inclusive of the cost that the company incurred during the R&D of the drug patented and also included to cost incurred R&D activities for failed drugs. Controller rejected the contention made by the petitioner as they were unable to present the detailed report which is showed the cost incurred by petitioner for R&D of the patented drug.

Issue 5:
The court while looking into the contention made by the petitioner, referred to Section 83 of the Act. The section provides that it for the petitioner to prove that the patented drug has been worked in the territory of India. The section is formed to ensure that the patent holder doesn’t acquire monopoly over the market of the patented drug locally and internationally. The respondent i.e., Union of India presented that as per section for proving the working of patented drug in India, it should be shown that it was manufactured in India. The petitioner claimed the contrary. Finally, the court supported the view presented by the respondent.

The Court stated that it is for patent holder to make sure that some efforts were made by them for manufacturing of the patented drug in India to prove its working in the territory for the same.
 
Findings and decisions:
The main contention of the present case is in relation to grant of voluntary and compulsory license to Natco by Bayer along with the application of bolar provision in regards to patent linkage in Indian scenario. The court stated that the Natco had fulfilled all the requirements mentioned under Section 84(1) clause (a), (b) and (c) of the Act and therefore, the Controller general of Patent was right in granting compulsory license to Natco.

The Court also found that the application filed by Natco showing the points where petitioner lacked were correct. Court was of the view that Bayer being the patent holder failed to meet the reasonable requirement test of public use of drug and also failed to prove that the drug patented is not ‘worked in the territory of India’. Court also stated that purpose of Section 83(f) of the Act is to prohibit the patent holder from misusing its patent rights in relation to international trade.

Compulsory licensing and bolar exemption:
The compulsory licensing system and bolar exemption are considered as an obstacle to enjoyment of rights granted to patentee exclusively by law although it is mentioned by several states that it allows the government or any third party to use the subject matter of the patent without taking due permission for the one who holds patent rights over the same. But this is applicable only if the one who is exploiting the patented substance, did make some efforts to acquire patent rights from the patent holder so as to ask for protection under Section 84 of Indian Patents Act.

Other than Indian Patents Act, the importance of system of compulsory license is also mentioned under international agreement such Doha declaration on TRIPS and Paris Convention on Protection of industrial property, 1883. The present case of Bayer v. Union of India emerged to form a nexus between the above mentioned two exceptions i.e., compulsory licensing and bolar exemption.

The present case deals with the writ petitions that were filed by Bayer Corporation against Natco and Alembic Chemicals asking for court to pass an injunction order in furtherance to prohibit them from manufacturing, selling, distributing, advertising, exporting and offering for sale any product that infringed Bayer’s patents with regard to the drugs ‘Sorafenib’ and ‘Rivaroxaban’ respectively.

Natco in its defense stated that it was with Bayer’s permission that they exported the patented product to other country for the purpose of clinical trial under the purpose of research and development of the drug for regulatory purpose. Natco also had obtain compulsory license for the patented drug from Bayer. Bayer contended that Natco’s attempt to export drug for research and development purpose is an activity that falls under the purview of commercial activity and that the said activity infringes Bayer’s patent rights as per S.107A of patent acts.

The court taking into consideration the contentions made by both the parties was of the view that Natco’s activity of exporting drug for clinical trial falls under the exception of S.107A and therefore, rejected Bayer’s plea. The court said that the activity of Natco was in relation to its effort to obtain the regulatory approval and doesn’t fall under the category of commercial activity. The court, while recognizing the challenges faced by nations to ensure a strengthened future of curative study, stated that it was unfair to dictate the behavioural and legal requirements of other nations by confining a research exception within the territory of India.

Criticism:
When the court was questioned about the application of bolar exemption in case of compulsory license, the court said that bolar exemption and the provision of compulsory license are different from each other. The Court stated that compulsory licensing is to be considered as an exception to S.48 of the Act whereas bolar exemption is not. Also, the objective behind granting of patent and its usage also differs. But there is certain lacuna in the explanation given by the court which are as follows:
  1. Technical know how
    Compulsory licenses can most of the times be rendered ineffective, if they are devoid of the technical know- how. For a country like India which is not well advanced in technology, the cooperation of the patent holder or the patentee is very crucial for the effective working of compulsory license regime.

    The fact that patentee is key player in this regime makes it difficult for the licensee or the applicant to obtain license for production and selling of the same product at same quantity and quality.

    Another challenge to application of compulsory license regime is that condition of patent holder to specify all the details regarding the working of patented drug is impossible until it has actually been worked upon in the market.

    Therefore, it is quite difficult for the licensee to have clear vision of technical know-how of the patented drug or material unless the patent holder himself helps him in acquiring of the knowledge. It was Ayyanger Committee that happen to provide a solution for the given problem suggesting the only if the patent holder willingly provides the knowledge of the patented drug will the licensee be aware of the entire working of the same. The incentive for the patent holders for helping out with above problem would be the applicant or licensee giving royalty to patent holder for granting of the patent rights.

    Now, if this issue is read along on the lines of bolar exemption, then compulsory licensing will not be on a different stature from that of bolar exemption. As in bolar exemption, the generic companies need the patent for submission of information, and thus desire for access of the same in order to work on their generic version. Thus, both the generic producer and licensee needs to know the technical know- how and requires assistance of the patentee for the same. Even after the purpose of the exceptions being different, they cannot work effectively without the technical know- how.
     
  2. S.92 A and Bolar exemption:
    S. 92 A of The Patents Act 1970 says Compulsory license for export of patented pharmaceutical products in certain exceptional circumstances. -
    “Compulsory license shall be available for manufacture and export of patented pharmaceutical products to any country having insufficient or no manufacturing capacity in the pharmaceutical sector for the concerned product to address public health problems, provided compulsory license has been granted by such country or such country has, by notification or otherwise, allowed importation of the patented pharmaceutical products from India.

The court, in reference to Natco’s activity of exporting the drug patented by Bayer to foreign country for research and development purpose, observed that if the country to whom the drug is exported is capable to manufacture the drug, then such an export is allowed under the law.

The application of bolar exemption as per Section 107A has been more existent in countries such as Mexico, Poland, etc., unlike India. It was only in the present case that Indian courts recognized the relevancy of bolar exemption in regards to patent linkage. But still the legal mind of court was limited to them interpreting the words- sale and export in relation to application of Bolar exemption resulting into them missing out on some very essential points.

For effective implementation and application of provisions of bolar exemption, the jurisprudence of India needs to look upon following points:
  • Unlike U.S. Indian courts need to make provisions of Bolar exemption applicable to any product. As India’s stand on bolar provision is very similar to that of Canada’s approach towards bolar provision, India taking a liberal approach, needs to apply the bolar exemption to products manufactured by pharmaceutical industries. The reason for India failing to do so is because it has to follow the same provision for several other products such as aircrafts, motor vehicle, etc. If India is in favor of strengthening its hold on bolar exemption, then it has to make amendment in relation to same in the Indian Patent Act.
     
  • While addressing the issue of supply of patented drug being made by third parties or  infringers i.e., Cipla in the present case, Indian judiciary failed to address as to who qualifies to manufacture, use, sell and import the invention patented by the patentee for sole purpose of research and development of invention. There are two possible stances that Indian judiciary would have opted out for i.e., first being the fact it acknowledges act of supply by infringers as a part of serving the purpose of development and research, as recognized by German court of law. The second possible stance could be that adopted by courts of Mexico and Poland of refusing to include the supply done by third parties or infringers within the ambit of bolar exemption.

Conclusion:

The court in present case was right in dismissing the petition filed by Bayer Corporation. The judgement very well clarified that when there the subject matter of the issue in contention is in relation to public at large then the top most priority is of public interest as it is in the present case.

The court also throwed some light on the purpose of enacting and the legislative intent behind the incorporation of Indian Patent Act. It said that the sole purpose of the Act is promote and enhance the innovation and creativity and also to make sure that such work of is prevented from any sort of damage by providing the inventor of the work with the patent rights.

The Delhi Hight Court’s decision in regards to present case of Bayer Corporation v. Union of India and Ors., happened to widen the scope of application of bolar exemption by providing a wider and liberal general interpretation to the word ‘sale’. This judgment happened to strike a balance between the issues pertaining to public interest and also those made in regards to patentee’s right.

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