India’s IP Appellate Board endorses compulsory license of patented cancer drug

Friday 18th January 2013
Article written by: Harriet Tregonning

In March 2012 the Indian Patent Office (IPO) granted its first compulsory license to Natco Pharma, an Indian generic manufacturer, revoking the exclusive rights held by Bayer to market Nexavar (sorafenib tosylate).

Nexavar is used predominantly for kidney and liver cancer treatment. In May Bayer appealed the case, however their petition was dismissed in September. This article discusses some of the issues raised by both the patent controller’s decision and Bayer’s argument.

Grant of compulsory license

Compulsory licensing occurs when a government authorises an organisation other than the patent owner to produce a patented product or process without the patent owner’s consent. The patent owner is remunerated for the license but does not have the option to refuse the license, select the licensee, or determine royalty rates. The Indian Patents Act (2005) provides for compulsory licenses three years following patent grant. Compulsory licenses can be granted on the grounds of the invention not being available at a reasonably affordable price, the reasonable requirements of the public with respect to the patented invention not being met, or the patent not being worked. This has recently been changed from ‘reasonably priced’ to ‘reasonably affordably priced’, which is seen to lower the threshold for compulsory licensing.

The IPO found that the price charged by Bayer contravened the Patents Act (2005) as it was not available to the public at a reasonably affordable price with respect to the purchasing power of the public or in sufficient quantities, and that the patent was not being ‘worked’ in India as the drug was not being manufactured in India. The decision took into account the finding that Bayer and Natco had not come to an agreement regarding a voluntary license – although this is disputed by Bayer who claims Natco’s ‘request for a license’ lacked the requisite form and detail to be construed as such.

Bayer unsuccessfully argued that a ‘reasonably affordable price’ should take into consideration the costs of both successful and unsuccessful research and development efforts required to bring a drug to market as well as the ability to fund future research for the next generation of innovative drugs. Bayer also argued that a generic version of the drug manufactured by Indian generic manufacturer Cipla Ltd which was already on the market should be considered with respect to ‘meeting public need’.

By way of background, in 2011 Bayer bought patent infringement action against Cipla, Ltd., for manufacturing an unlicensed generic version of Nexavar under a marketing authorisation from the Drug Controller of India since mid-2010. In India marketing authorisations are granted independent of any intellectual property considerations. This patent infringement litigation is still underway. Cipla cut the prices of its version of the drug following the grant of compulsory license to Natco – prompting Bayer to bring a second patent infringement action against Cipla.

Under the compulsory licensing arrangement Natco must:

  • Pay a 6% royalty to Bayer
  • Manufacture the drug themselves, production may not be outsourced
  • Only sell the drug in India, only for treatment of kidney and liver cancer, and at the price set by the Patent Controller – approximately $US175 for a month’s treatment compared to US$5,000 for Bayer’s drug
  • Supply the drug to at least 600 needy patients each year free of charge
  • Not represent that their product is the same as Bayer’s or that Bayer is associated with their product

Bayer is able to grant other licenses and compete with Natco, who has been granted the compulsory license to 2020. Bayer has no liability for Natco’s product.

The Organisation of Pharmaceutical Producers of India (OPPI), representing multinational biopharmaceutical companies in India, believe the decision will be damaging to the industry in the long term and that compulsory licenses should only be used in “exceptional circumstances such as times of a national health crisis” (OPPI President Ranjit Shahani).

Bayer’s challenge to the ruling

Bayer appealed the order on grounds that a ‘reasonably affordable price to the public’ should consider the costs incurred in developing a patented product, as the ‘public’ comprises both the patients and the patentee. They cited the cost of development of the drug, and that the generic manufacturers incur no such expense. They also argued that they should have been provided the opportunity to reconsider pricing prior to a compulsory licensing being granted and that Cipla’s manufacture and sale of a generic version of the drug at a lower price should have been taken into account in considering availability of treatment. Furthermore they argued that Cipla’s subsequent lowering of their price defeats the objective of the grant of the compulsory license. Bayer’s appeal was rejected in September 2012 on the basis that the patentee must work the patent at a reasonably affordable price.

In November 2012 Bayer again attempted to terminate the compulsory license, on the basis that Natco exported it’s generic version of the drug to China and Pakistan, in violation of the terms of the license. Natco argued that the evidentiary products obtained by Bayer were “suspect and orchestrated” and that they have no distributors in China or Pakistan, suggesting that online pharmacies and India-based on-sellers are a possible source of the products. Several commentators are of the opinion that Natco is obligated to control the entire supply chain in order to fulfil the terms of the compulsory license, and the IP Appellate Board has yet to rule on this matter.

TRIPS and compulsory licensing

The Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) is an international agreement that establishes minimum standards for IP regulation administered by the World Trade Organisation. TRIPS allows members the right to grant compulsory licenses and determine the grounds for such grant. This is usually used in cases of ‘extreme urgency’ or ‘national emergency’, and in such cases may be granted without first trying for a voluntary licenses.

Declarations on the TRIPS Agreement specifically state that the agreement is not intended to prevent member governments from acting in the interests of public health in accordance with the Doha Declaration, “Each member has the right to grant compulsory licenses and the freedom to determine the grounds upon which such license are granted”.

The TRIPS Agreement states that patentability should not be discriminated on the basis of “the place of invention, the field of technology and whether goods are imported or locally produced”. In the UK this was interpreted to mean that lack of local manufacture was not grounds for grant of a compulsory license, however the Indian Patents Act (2005) states that “patents are not granted merely to enable patentees to enjoy a monopoly for importation of a patented article” and as such lack of local manufacture was interpreted as one of the grounds for grant of a compulsory license in case of Bayer and Natco.

USPTO commentary

In June 2012 Teresa Stanek Rea, Deputy Director of the USPTO, has stated that “compulsory licenses dissuade pharmaceutical and biotech companies from innovating” and that the grounds for granting a compulsory license in the case of Natco “did not meet international standards”. She also stated that the USPTO is taking all available steps to encourage other nations to find solutions to public health issues that do not undermine the incentives provided by intellectual property rights.

The next possible step for Bayer is to appeal the decision to India’s Supreme Court. On-going activity in this case will be closely watched by the pharmaceutical and biotechology industries, as well as by intellectual property offices and practitioners internationally, as it will likely have implications for how these firms do business in India and in other countries.

New Zealand and Australia

Both New Zealand and Australia have general compulsory licensing provisions, and both are members of TRIPs.

In Australia courts may order compulsory licenses after a period of three years following grant of patent where the ‘reasonable requirements of the public’ have not been satisfied, the patent holder has failed to provide a satisfactory reason for these requirements not being met, and the applicant applying for the license has unsuccessfully attempted to obtain a license on reasonable terms. The New Zealand legislation is similar, allowing grant of compulsory license after a period of three years following sealing, or four years from the date of the patent.  

Despite these provisions, concerns have recently been raised about access to patents covering medical technologies both in Australia and New Zealand.

Compulsory licensing in Australia was the subject of a public enquiry completed in 2013; see for further details and the completed report recommending changes to Australia’s law on compulsory licensing.  In New Zealand, a bill amending the Patents Act 1953 passed its second reading in late 2012 (see article  The bill provides for the granting of compulsory licences for manufacture and export of medicines to address a serious public health problem in an overseas country (in accordance with the DOHA Declaration on the TRIPS Agreement and Public Health). 

If you have any questions regarding compulsory licensing provisions in New Zealand, Australia or other countries, please contact Shelley Rowland.

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