Natco Pharma Ltd.

Vs Bayer Corporation - A Landmark Case Of

Compulsory License

Introduction
The issue of pharmaceutical compulsory licensing has raged on for a long time.
So it was a watershed moment in Indian pharmaceutical patent history when the
Intellectual Property Appellate Board (IPAB) dismissed Bayer Corporation's
appeal and confirmed Natco Pharma Ltd.'s compulsory license to manufacture
Bayer's patented kidney cancer drug Nexavar. In this context, the judgment in
Bayer Corporation vs Natco Pharma Ltd. (Natco vs Bayer) provides new light
on concerns raised by this discussion, providing a glimpse of what compulsory
licensing in India might look like in the future.

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 the brand name Nexavar.
2008 (9th March): For Bayer, the patent was granted in India for the drug.
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 (9th 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.

Background Case: Drug Giant vs the Third Party

The inevitable squabble between profit-driven pharmaceutical companies and

welfare-oriented governments aiming to provide affordable access to essential
medicines has dominated the headlines on numerous occasions. According
to World Health Organization statistics, the average availability of necessary
medicines in public sector health facilities worldwide is an appalling 51.8
percent.
Bayer Corporation, an American subsidiary of a German multinational
chemical and pharmaceutical company, Bayer AG. patented "Sorafenib," an
active pharmaceutical ingredient used to treat liver and kidney cancer, in India
(Patent No. IN 215758). Nexavar is the brand name for sorafenib, which is sold
all over the world.

Entry of infringer (The Third Party)

In 2008, the Indian generic company CIPLA began producing and marketing
Sorafenib tablets with the brand name ‘Soranib' and the description ‘Sorafenib
Tablets 200mg.' Bayer launched an infringement lawsuit against CIPLA in
Indian courts.
Bayer was charging 280,438 INR (US $ 5280) a month at the time of the
lawsuit, while CIPLA's generic version was selling for 27,960 INR (US $ 525)
for the same number of tablets.

Natco’s arrival

During the ongoing litigation between CIPLA and Bayer, Natco Pharma
Limited, a Hyderabad-based generic producer, filed a compulsory licensing
request against Bayer's patent on Sorafenib with the Controller of Patents. The
compulsory license was requested by Natco under Section 84 (1) of the Indian
Patent Act of 1970, as revised in 2005.
Controller’s prima facie decision
The Controller analyzed that Bayer had not met the conditions of Section 84 of
the Patents Act, 1970, and Natco Pharma deserved a compulsory license. The
terms and conditions of the license were created by the Controller, who awarded
Bayer initially a 6% royalty on profits. Bayer appealed the Controller’s decision
before the Indian Intellectual Property Appellate Board (IPAB).

Legal Events & Provisions

The decision was based upon the test laid down under 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.
Section 84 (1), Indian Patents Act, 1970
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::
a) that the reasonable requirements of the public concerning 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.
1. Whether the reasonable requirements of the public concerning the
patented invention have not been satisfied?
2. Whether the patented invention is not available to the public at a
reasonably affordable price?
3. Whether the patented invention has not worked in the territory of India?

Arguments cultivated

1. Reasonable requirements of the public

Section 84(1)(a) of the Indian Patents Act stipulated that the "reasonable
requirements of the public concerning the patented invention" must not have
been met, for a compulsory license to be granted, etc. Natco supplied statistical
data showing that Bayer did not make the drug readily available to the public
and that excessive pricing of the drug partially contributed to a lack of demand
by the public.
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 insignificant 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 (CIPLA). Bayer has previously sued Cipla for
infringement of the patent. Bayer stated that the sale of Cipla should be taken
into account when determining whether it meets the needs of patients.
The Controller, however, did not accept this argument, stating that Bayer's
conduct and that of any licensee were of importance. He found the basis for this
reasoning in Section 84(6)(i) of the Act, which stated that the measures taken by
the patentee and licensee must be taken into account.
On the facts, the Controller found that Bayer did not discharge its obligation in
satisfying the reasonable requirements of the public as an insignificant quantum
of the drug had been made available to the public in the three years since the
grant of the patent. Thus, the Controller held that Section 84(7)(a)(ii) had been
invoked by the Patentee.
Section 84(6)(i)
6. In considering the application filed under this section, the Controller shall
take into account,—
(i) the nature of the invention, the time which has elapsed since the sealing of
the patent, and the measures are already taken by the patentee or any licensee
to make full use of the invention.
Section 84(7)(a)(ii)
7. For this Chapter, the reasonable requirements of the public shall be deemed
not to have been satisfied—
(a) if, by reason of the refusal of the patentee to grant a license or licenses on
reasonable terms,—
(ii) the demand for the patented article has not been met to an adequate extent
or on reasonable terms.
The controller also 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 reported that the
number of eligible patients 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, Bayer
had no justification as to why it didn’t manufacture/import the drug
during 2008-2010.
Interpretation:
In light of all the arguments and observations, it was clear that it didn’t meet
the reasonable requirements of the patients.
2. Reasonably affordable price
The term "reasonably affordable pricing" has not been defined; it is determined
based on the facts of each case, and it will vary from case to case. In this
scenario, two things were taken into consideration while determining what a
relatively inexpensive price would entail. These criteria included:
(I) Bayer's R&D costs for developing the medicine,
(II) The drug's affordability of the patients.
Acc. to Section 84(1)(b) of the Patents Act, 1970, i.e. for a compulsory license
to be granted, the patented innovation must not be offered to the public at a
reasonable cost.
Natco Pharma contended that the price was exorbitant and that it was not
available to the general public at a reasonable cost. It also claimed that Bayer
was eligible for a drug tax credit, which would have reduced Bayer's net cost of
research investment; nevertheless, Bayer did not take advantage of this
opportunity to cut the drug's price, demonstrating misuse of its monopolistic
powers. Bayer stated that:

 innovation-based products are more expensive, and that the

Controller needed to consider the whole cost of R&D as well as the
long-term viability of future research. It also stated that the public
and the patentee should both be able to afford a "reasonably
affordable price."

 Bayer also has a Patient Assistance Program (PAP) and other

insurance firms that can help with drug accessibility.
Access to Natco, the PAP, it contended, should not be taken into account
because Bayer Corp. can cancel it at any time. Additionally, it claimed that the
existence of the PAP was proof that Bayer was admitting the drug's
unaffordability. 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 patient's/consumers perspective. The fact that in India the patent rights were
created in the interest of the national economy and not that of the inventor was
taken into consideration.
Interpretation:
Based on the circumstances of the case, the Controller again found that the
patented invention was not available to the public at a reasonably affordable
price.
3. Patented invention not worked in the territory of India
Section 84(1)(c) of the Indian Patents Act allows for a compulsory license if the
patented invention is not worked in the territory of India, but the patent laws
don’t define the term “worked in the territory of India” with a wider scope.

 Natco Pharma asserted that “working” here should not include

“importing the drug”; instead, it must be created within India's
borders, whereas Bayer refuted the allegation and pushed for a
broader interpretation of the law.

 Bayer said that the company's R&D costs for producing the drug
were already quite high and that global demand for the treatment,
along with its manufacturing, was very tiny. As a result, it
was decided to produce the medicine in a single unit, with the
production unit headquartered in Germany because of its superior
infrastructure for supplying global markets. Because the words
"worked in the territory of India" are not defined under the Act,
Bayer argues that the interpretation should be permissive to the
degree that it is made available in sufficient quantities to the Indian
market.

 The patent rights controller too asserted Natco pharma statement.

However, IPAB believes that “working” here can be interpreted in
a variety of ways and that it will be determined on a case-by-case
basis. Despite the fact that Bayer has multiple manufacturing
facilities in India for a variety of goods, the flexible definition was
taken into consideration. Even taking into account Bayer's medicine
imports, the drug did not come close to meeting the needs of Indian
patients.
Interpretation: As a result, Bayer's arguments were rejected since it was
unable to meet the criteria of working in the territory of India.
Final Judgement
Under Section 84 of the Patent Act of 1970, as revised in 2005, the Controller
of Patents opted to award a Compulsory License to Natco Pharma Ltd. The
Controller, however, imposed certain restrictions and conditions on the License
in light of Section 90 of the Act. Also using Article 5(A)(2) of the Paris
Convention to fortify his reasoning, the Controller also said that a reasonable
fetter in the form of a compulsory license was within the purview of
the TRIPS and the Paris Convention. The following are some of the most
important terms and conditions set forth by the Controller:-

 The cost of a pack of 120 pills of the medicine "Sorafenib Tosylate"

for a month's treatment shall not exceed Rs. 8880.

 This is a non-exclusive and non-assignable license.

 The licensee must pay a royalty of 7% of the medicine's net sales.

 The right to license is limited to creating, using, and proposing to

sell the drug for the treatment of Renal cell carcinoma (HCC) &
Hepatocellular carcinoma (RCC) in India.

 The licensee shall maintain accounts of sale etc. in a proper name

and report it to the Controller and the Licensor.

Conclusion
The grant of India's only and first compulsory license in the pharmaceutical
sector has become a breakthrough in eyes of public welfare seekers and
developing countries and at the same time has undoubtedly raised many
eyebrows. The Natco vs Bayer decision has already resulted in an adverse
perception of the Indian pharmaceutical industry and may adversely impact
foreign investment in this sector.
There may be both type implications in the pharma world in the future-
Pros-

 Increase in competition and eventual growth of a healthier

environment.

 Perfect guidance for pharmaceutical companies to step further in the

market.
Cons-

 Saturation of the market and patent ‘thickets’- a converse, negative

effect of an increase in compulsory licensing could emerge from a
parallel increase in the number of patents filed. patent ‘thickets’ are
clusters of patents with overlapping claims.

 The ‘local working’ requirement and international ramifications.

 The recession of foreign direct investment.

The Natco vs Bayer decision sets the precedent for making expensive patented
drugs available for compulsory licensing and makes India today stands at an
important crossroads in determining its future, not just in the narrow context of
IPR but also in terms of the place that India will occupy in the new world order.

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