Delhi High Court Restrains NATCO from Exporting Generic Version of Bayer’s Nexavar under the Compulsory Licence

In a Writ Petition (W.P(C) 1971/2014) filed by Bayer Corporation in the Delhi High Court, NATCO has been restrained, by order dated March 26, 2014, from exporting generic versions of Bayer’s patented drug Nexavar (IN215758) on which a Compulsory Licence was issued by the Controller of Patents on March 9, 2012 and upheld by the IPAB on March 9, 2013.

In its petition, Bayer sought the Court’s intervention to direct the Customs authorities to seize and confiscate NATCO’s generic version of Nexavar, “Sorafenat” since the Compulsory License granted to NATCO allowed it to sell the drug only within the territory of India. In this regard, it would help to refer to Section 90 of the Patents Act, 1970 which spells out the terms and conditions under which a Compulsory Licence is granted. Section 90(1)(vii) and (ix) read as follows:

“(vii) that the licence is granted with a predominant purpose of supply in the Indian market and that the licensee may also export the patented product if need be in accordance with the provisions of sub-clause (iii) of clause (a) of sub-section (7) of section 84;

(ix) that in case the licence is granted to remedy a practice determined after judicial or administrative process to be anti-competitive, the licensee shall be permitted to export the patented product, if need be.”

Under Section 90(1)(vii), it appears that a compulsory license is granted for the “predominant”, and not for the “sole” purpose of supply of the patented article in the Indian market. In other words, the Controller may grant a compulsory license to develop an export market as well. However, such a right of export must be expressly provided for in the licence.  Similarly, under Section 90(1)(ix), it appears that permission must be expressly granted to export the patented product if the licence is granted to remedy an anti-competitive practice, subject to there being a need for export.

In the facts of the case, Clause (g) of the Terms and Conditions of the licence clearly stipulate that the grant of the licence is limited to the territory of India. NATCO denied that it had violated this stipulation and submitted that the availability of the drug outside the country was to be attributed to individual buyers and retailers abroad. After hearing the parties, the Court directed NATCO to ensure that no consignment containing the drug covered by the Compulsory License was exported.

NATCO also sought permission to send samples of active ingredients of the drug for generation of clinical data for submission to the Drug Controller General of India. To this request by NATCO, strangely, the Court granted it the liberty to apply to the Court “for permission to export the drug as and when it obtains permission from the DCGI for clinical purposes”. I am not sure if NATCO’s request was understood correctly because NATCO was making a valid request under Section 107A(a), the Bolar Exemption, which permits use of the drug for generation of clinical data.

In fact, I don’t think NATCO needs the Court’s permission to exercise a statutory right under Section 107A(a). Although Section 107A(a) does not expressly recognize the right of export, the right to “use” may be interpreted broadly to cover export, particularly since the provision recognizes the right to use a patented article for submission of regulatory information even outside India.

We will keep our readers posted on the developments in this case.

Summary Procedure for Grant of a Compulsory License under Section 92 in Special Circumstances

Section 92 of the Patents Act provides a summary/accelerated mechanism under which Compulsory Licences (CL) may be issued by the Controller of patents pursuant to a notification by the Central/Union Government. Here’s the provision:

Section 92. Special provision for compulsory licences on notifications by Central Government

(1) If the Central Government is satisfied, in respect of any patent in force in circumstances of national emergency or in circumstances of extreme urgency or in case of public non-commercial use, that it is necessary that compulsory licenses should be granted at any time after the sealing thereof to work the invention, it may make a declaration to that effect, by notification in the Official Gazette, and thereupon the following provisions shall have effect, that is to say—

(i) the Controller shall, on application made at any time after the notification by any person interested, grant to the applicant a licence under the patent on such terms and conditions as he thinks fit;

(ii) in settling the terms and conditions of a licence granted under this section, the Controller shall endeavour to secure that the articles manufactured under the patent shall be available to the public at the lowest prices consistent with the patentees deriving a reasonable advantage from their patent rights.

(2) The provisions of sections 83, 87, 88, 89 and 90 shall apply in relation to the grant of licences under this section as they apply in relation to the grant of licences under sec. 84.

(3) Notwithstanding anything contained in sub-section (2), where the Controller is satisfied on consideration of the application referred to in clause (i) of sub-section (1) that it is necessary in—

(i) a circumstance of national emergency; or

(ii) a circumstance of extreme urgency; or

(iii) a case of public non-commercial use,

which may arise or is required, as the case may be, including public health crises, relating to Acquired Immuno Deficiency Syndrome, human immune deficiency virus, tuberculosis, malaria or other epidemics, he shall not apply any procedure specified in section 87 in relation to that application for grant of licence under this section:

PROVIDED that the Controller shall, as soon as may be practicable, inform the patentee of the patent relating to the application for such non-application of section 87.

Based on a reading of the provision, it is clear that the provision is to be invoked in extra-ordinary circumstances involving “national emergency” or “extreme urgency” or “public non-commercial use”. The mechanism under this provision is set in motion by and when the Central Government notifies in the Official Gazette that such extra-ordinary circumstances have necessitated the grant of compulsory licences in relation to patents which help to address the exigency.

However, Section 92(2) still requires a person interested to apply to the Controller for grant of a compulsory licence. That said, the primary differences between CL under Sections 84 and 92 are as follows: 

1.       Under Section 84, an application for a CL may be made only after expiration of 3 years from the date of grant of the patent, whereas under Section 92 the Central Government may notify for issuance of a CL anytime after the sealing of the patent.

2.       The grounds for grant of a CL under Section 84 are different from the exigencies dealt with by Section 92.

3.       Under Section 92(3), the procedure for opposition by the patentee and hearing prescribed in Section 87 may be given a go by if the Controller is satisfied that the situation demands it.

The question that could arise is what is the distinction between “national emergency and extreme urgency”? National emergency clearly refers to a nation-wide crisis or at least a public crisis, whereas “extreme urgency” could refer to an individual crisis where the condition is extremely rare and restricted to an individual or a few individuals, both of which requiring immediate action.

The point that emerges is that a sense of immediacy appears necessary for Section 92 to be invoked by the Central Government citing national emergency or extreme urgency. Consequently, if a health condition is rare but is not immediately fatal or there is no outbreak of an epidemic (in other words there is no “national emergency” or “extreme urgency”), but the drug is exorbitantly priced or is not adequately available, Section 92 may not be the appropriate remedy. One would think Section 84 may be the apt provision for such a situation if the primary grievance is with respect to the pricing of the drug or its availability.

The third ground for grant of a CL under Section 92 is a case of “public non-commercial use”. This provision, on the face of it, does not have other restrictions which help us understand the nature of the situation when Section 92 may be invoked for public non-commercial use of patented inventions. In the absence of such indicators, the provision is capable of capricious use. To avoid this, it may be necessary to apply the spirit of the first two grounds under Section 92 to public non-commercial use. Simply put, the situation must be serious enough to warrant the grant of a CL for non-commercial use of a patented invention at a public scale.

If such a cautious approach is not adopted, Section 92 could become the option of first resort rendering Section 84 secondary, more so since Section 92 envisages waiver of the opposition and hearing procedure prescribed in Section 87.

I look forward to comments and corrections from readers. 

Patents and Competition Law- II

In my last post I had shared the first of the 2 posts I had written on the PatLit blog on competition law and patent litigation. Here’s the second post for the benefit of our readers:

“In my previous post, I discussed certain situations under Indian law which could attract both the Patents Act and the Competition Act. Continuing in the same vein, this post discusses the interaction between the two sets of legislation in instances of abuse of dominance. 

Section 4 of the Competition Act recognizes abuse of dominance by an “enterprise” or a “group”. Section 2(h) of the same Act exhaustively defines an “enterprise”, which includes a person, natural or juristic. As for the definition of a “group”, this is provided for in the Explanation to Section 5. 

In order to establish abuse of dominance by a patentee, the first ingredient to be established is that the patentee enjoys a position of dominance in the relevant market. As to what constitutes “relevant market”, Section 19(5) states that the Competition Commission of India (CCI) could have regard to either the “relevant geographic market” or the “relevant product market”. 

In assessing whether a patentee enjoys a dominant position in the relevant market, Section 19(4) of the Competition Act lists a host of factors which the CCI must have due regard to. Some of the factors include the market share of the enterprise and the economic power of the enterprise including commercial advantages over competitors. Critically, Section 19(4)(g) also recognizes the following factor to establish the patentee’s dominant position:  

“monopoly or dominant position whether acquired as a result of any statute or by virtue of being a Government company or a public sector undertaking or otherwise” 

The above-underscored portion is wide enough to include a patent grant which could bestow a monopoly or a dominant position in the relevant market. Therefore, if an aggrieved party is able to establish that the existence of a patent on a particular technology has resulted in the patentee acquiring a position of dominance, that alone is sufficient to satisfy the first and basic ingredient of Section 4 i.e. position of dominance of the patentee. 

The second ingredient of abuse of dominant position is dealt with by Section 4(2) of the Competition Act, which lists a host of situations that could amount to abuse of dominance. For instance, imposition of an unfair or discriminatory price in purchase or sale (including predatory price) of goods or services amounts to abuse of dominance. What is important is that the Act recognizes and distinguishes between “unfair price”, “discriminatory price” and “predatory price”. Each of these clearly is capable of having distinct meanings. 

Since the interface between the Patents Act and Competition Act is being discussed, it is important to understand the position of these legislations on similar or identical or related issues. For instance, while the Competition Act refers to “unfair price”, Section 84(1)(b) of the Patents Act (Section 84 being the compulsory licence provision) refers to a “reasonably affordable price”. How does one harmonize the interpretations of “unfair price” under the Competition Act and “reasonably affordable price” under the Patents Act?

Is harmonization necessary since, as stated in my previous post, Section 60 of the Competition Act states that the Competition Act shall prevail over all other legislations or provisions in other legislations which are “inconsistent” with it? Although the Patents Act may be treated as the “parent legislation” which governs patents and patentees, Section 60 of the Competition Act ensures that the latter prevails over the Patents Act. 

An exercise in harmonization is necessary because the overriding effect of Section 60 of the Competition Act can take effect only when it is established that two provisions are “inconsistent” i.e. they are in conflict with each other. If, however, harmonization is possible without distortion of the objects or language of either legislation, Section 60 must be the option of last resort. So how does one harmonize “unfair price” with “reasonably affordable price”? 

It must be borne in mind that both “unfair price” and “reasonably affordable price” judge the cost of the transaction through the prism of the effect of the price on the licensee, as opposed to the proportionality between the price demanded and the value of the technology being licensed. In other words, “fairness” of a price may be the same as its “reasonable affordability”, but it is distinct from “reasonable price”. 

Therefore, it could be said that both the Patents Act and the Competition Act are in harmony with each other when they require the cost of a licence to be fair/reasonably affordable. In fact, so long as there is no conflict between the two requirements, it could be said that what is “reasonably affordable” under the Patents Act would be “fair” under the Competition Act. 

Having said this, it would be banal to state that to decide what is unfair or not reasonably affordable, it may be necessary to first determine what is fair or reasonably affordable, which probably calls for use of econometrics, and not just wordplay. In situations like these, the CCI has the power to farm out certain issues, such as licence fees, for the consideration of and determination by the Controller General of Patents.

Under Section 21A of the Competition Act, the CCI could refer the issue of determination of licence fees to the Controller General of Patents before taking a final call on the issue of unfair pricing. In the alternative, in certain situations, the CCI may first record a finding of unfair pricing and then refer the matter to the Controller General of Patents for determination of a fair price. 

The situation discussed in this post is but one possible scenario. However, the larger point being made here is that there exists a plethora of options outside of the Patents Act in patent-related matters, and it would help to consider them in bringing about the desired outcome, instead of restricting oneself to only the Patents Act.” 

The Overlap between Patents and Competition Law- I

Last month, I had written a two-part series on the intersection between competition law and patent litigation on Prof.Jeremy Phillips’s patent litigation blog PatLit. For the benefit of the readers of this blog, reproduced below is the first post in the series:

“Patent litigation all over the world has gradually moved beyond its standard template which typically involves suits for infringement, counterclaims for patent invalidation or contractual disputes. Since the conduct of warring parties has a bearing on competition and consumers, competition law is gradually beginning to make its presence felt, even in India. In this post, I shall deal with some of the situations where there is interplay between the Indian Patents Act 1970 and the Indian Competition Act 2002. 

Although the Patents Act is typically associated with patent grant and enforcement, Section 140 of the Act lists those restrictive covenants whose presence in patent-related contracts is forbidden for being unfair or discriminatory. The Section, among other things, expressly proscribes any contractual provision that envisages exclusive grant-back or prevents challenges by a licensee to the validity of a licensed patent or enables coercive package licensing by the patentee/licensor. Such contractual clauses may also attract Section 4 of the Competition Act, which deals with abuse of dominant position, provided the ingredients of the Section are satisfied. 

In other words, in limited situations, the manner of patent exploitation and enforcement and its effect on the market is capable of attracting both the Patents Act and the Competition Act. For instance, a patentee may be in a position to dictate licence terms, including exorbitant licence fees, to others players in the market who seek access to his proprietary technology. Subject to certain conditions being satisfied, it is possible to invoke the compulsory licensing (CL) mechanism provided for under Section 84 of the Patents Act to moderate the terms of the licence. Here too, it is also possible to assess the fairness of the patentee’s terms through the prism of Section 4 of the Competition Act. 

 The difference between the two mechanisms is that Section 84 requires the applicant for a CL to wait for three years from the date of patent grant to move a CL application, whereas one need not wait for three years under the Competition Act to complain against abuse of dominance. Also, under the Patents Act, one needs to satisfy the requirement of being a “person interested” within the meaning of Section 2(1)(t) to move a CL application (I have written elsewhere in detail on the interpretation of the definition of a “person interested”), whereas anyone can file an information for abuse of dominance under the Competition Act. 

A question that may arise is whether the same relief may be granted by both the Controller General of Patents and the Competition Commission of India (CCI). Under Section 84(4) of the Patents Act, the Controller General has the power to determine the terms of a compulsory licence. Under Section 27 of the Competition Act, the CCI has the power, among other things to modify the terms of the hitherto abusive agreement, besides imposing a penalty. 

Further, Section 28 of the Competition Act empowers the CCI to divide the abusive enterprise to ensure that it is never in a position to abuse its dominance. Pertinently, Section 28(2) of the Competition Act envisages “transfer or vesting of property, rights, liabilities or obligations”. In other words, Sections 27 and 28 together allow the CCI to create an interest by way of a licence in favour of a third party on terms that the CCI deems fit. Clearly, the CCI has broader and much more lethal powers than the Controller General. 

What is critical to note is that Section 60 of the Competition Act states that the Act “shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force”. In other words, this Act has an overriding effect over all other laws, including the Patents Act. Critically, once the ball is set rolling under the Competition Act, the informant or complainant does not have the option of pulling back since if the CCI sees merit in the information or complaint, it takes over. The informant then merely assists the CCI. Therefore, the choice of the legal option to be employed depends entirely on the outcome desired by an aggrieved party.”

What is “Working” under the Patents Act, 1970?

In my last post on the IPAB’s decision in the Bayer -NATCO Compulsory licensing case, I had written that the IPAB’s analysis of working requirements under the Patents Act, 1970 was far from satisfactory. In several earlier posts on this blog and elsewhere, I have written on the issue of local working. Extracted below is the post I wrote after the CL order was delivered last March by the Controller:

“In 2 earlier posts elsewhere, I had wondered if a patentee may cite un-workable circumstances to express his inability to domestically manufacture a patented invention. Also, what would happen if the Controller of patents has to choose between access to a life-saving drug by turning a blind eye to large scale importation of the drug to make it both affordable and available to people in India, and fulfillment of domestic working requirements under the Act? This issue too was broached briefly by several speakers in the Roundtable at NLU Jodhpur.

On the issue of “local manufacture” to satisfy working requirements under the Act, I am inclined to state that, TRIPS-compliance aside, the Patents Act exhorts domestic manufacture to prevent reliance on imports and to promote transfer of technical skills to the local population. After all, the idea is reduce the yawning technological deficit between India and the developed world.

The celebrated Ayyangar Committee report, which is the travaux preparatoires to the 1970 legislation, sheds great light on the wording of Section 83 of the Act with respect to working of a patented invention.

In particular, under Part II of the report titled “The Patent System in India”, Paragraphs 37 and 38 are of importance to the issue of working and compulsory licensing. A few lines from these paragraphs are educative and go a long way in understanding and clarifying the Act’s position on local manufacture:

“37. In the present decade under the impact of the national plans that have been formulated for the economic uplift of the country and the raising of the standard of living of its people, the conservation of foreign exchange is a matter of prime importance. In the context of this need, it would be seen that any increase in the price of the patented products imported into the country must, to that extent, be a disadvantage to the country’s economy..........

38. I have already set out the considerations which are said to constitute the quid pro quo for the grant of the patent monopoly, namely (1) the working of the invention within the country so as to result in the establishment in the country of a new industry or an improvement of an existing industry which would profitably employ the labour and capital of the country and thus increase national wealth, and (2) disclosure to the public of the invention and the manner of its working so that on the expiry of the life of the patent, the public are enabled to work the invention themselves and in competition with each other. 

Where the patentee has no intention of working the invention in this country either because he considers this is not profitable or because he prefers to expand the production in his home country so as to achieve there greater efficiency or more production, or is otherwise not interested in working the invention in India, the grant of the patent might tend to improve the patentee’s home country, but offers little advantage to us. Unless therefore the law provides for measures to compel the patentees to work the invention within the country, and these measures are effective to achieve their purpose, the social cost involved in the grant of the patent is not offset by any benefit to the community....”

Considering the unequivocal crystallisation of objectives sought to be achieved by and using the Patents Act, it could be said that local manufacture is an essential and mandatory requirement under the Act. However, should we make an exception when it comes to life-saving drugs? If yes, does the Act in its current form allow for such an exception?”

Given that in Bayer CL Order, the IPAB categorically states that the Ayyangar Committee report remains relevant and immensely educative on the objectives sought to be achieved by the Patents Act, one is surprised that the Committee’s observations with respect to local working and the reasons for its mandatory requirement under the Act have not been given their due in the IPAB’s decision.

The Committee’s position, in fact, leaves very little room for the following unrestrained view of the IPAB:

“In any event, we are not furnished with any evidence regarding this aspect viz., whether the appellant in its facility in India, which admittedly the appellant does not deny, could not have manufactured this drug.  So, with regard to Section 84(1)(c), we find that the word ‘worked’  must be decided on a case to case basis and it may be proved in a given case, that ‘working’ can be done only by way of import, but that cannot apply to all other cases. The patentee must show why it could not be locally manufactured. A mere statement to that effect is not sufficient there must be evidence.    Therefore, while we are of the opinion that the word ‘worked’ has a flexible meaning, and to that extent we differ from The Controller. The appellant has not proved working and so his conclusion is right. Working cannot mean that the requirement of working would be satisfied by having import monopoly for all patented inventions.  We also look at Section 84(7)(iii) which says that the reasonable requirements of public shall be deemed not to have been satisfied if a market for export of the patented article manufactured in India is not being supplied or developed.  Therefore, ‘working’ could mean local manufacture entirely and ‘working’ in some cases could mean only importation. It would depend on the facts and evidence of each case.”

The Ayyangar Report makes it evident that the kind of flexibility the IPAB has read into the Act with respect to local manufacturing requirements is simply not based on the statute or the history of the legislation. Importation may, at best, supplement a patentee’s efforts in fulfilling his working requirements under the Act, but under no circumstances can import alone constitute working.

Comments and corrections are welcome!

Drug Affordability and the IPAB's CL Order: A Lost Opportunity?

In the last 2 posts, I had discussed the IPAB’s Bayer-NATCO CL decision. Below is a discussion on the remaining issues discussed in the Order.

Ground 4: Nexavar was reasonably priced and had been supplied in adequate quantities in India

On the issue of pricing, the IPAB took the view that reasonableness of the price under the Act must be assessed only from the point of view of affordability for the purchasing public, and not whether the price charged by a patentee is justified by the RnD expenditure incurred by it. The IPAB seems to have relied on “reasonably affordable price” in Section 84(1)(b) to conclude thus.

In the facts of the case, before concluding that Bayer’s price of INR 2,80,000 was not reasonably affordable, it would have helped if the Board had  deliberated on metrics/indices for arriving at “reasonably affordable price” for a patented invention. Simply put, the decision lacks in discussion on the dialectics of “affordability”, and instead takes a crude approach to the issue.

Such a discussion is necessary, not to create a hallowed precedent to whet the appetites of lovers of case law, but in order for patentees to understand the legal definition of “reasonably affordable” under the Patents Act and accordingly calibrate their prices. There is no reference to any literature which addresses the issue of “drug affordability”, although there appears to be some degree of scholarship publicly available on it.

In the very month when the NATCO CL was granted last year, an article was published on the official website of the World Health Organization (WHO) titled “Practical Measurement of Affordability: An Application to Medicines”. The stated objective of this paper was “to develop two practical methods for measuring the affordability of medicines in developing countries”. Two methods were proposed in this paper for evaluating affordability of medicines in developing countries, namely the catastrophic method and the impoverishment method.  

Yet another publication by the WHO on the very same issue titled “Measuring Medicine Prices, Availability, Affordability and Price Components” was published in 2008.

There is also the 2011 publication of the National Bureau of Economics Research of the United States titled “The Importance of the Meaning and Measurement of “Affordable” in the Affordable Care Act”.

These and many such documents, in this day and age, can be accessed by most internet-savvy people without much of an effort, and yet no such document seems to have been remotely alluded to by the IPAB. The IPAB could have also sought assistance from qualified experts in this field to understand the practically applicable contours of “affordability”. I am not sure if this option was even considered.

I have no pretensions of being a student of economics, therefore I will refrain from parroting what I am obviously not qualified to discuss with conviction. That said, the point that I am trying to make is that an attempt ought to have been made, at least by the IPAB, to propose a few ways of scientifically or at least systematically demystifying a seemingly fluid and subjective term such as “reasonably affordable”.

It is indeed surprising that wordplay, casuistry and a convenient set of facts seem to have substituted rigorous and diligent analysis. What was in fact an opportunity to lay down practical guidelines for affordability appears to have been lost.

Moving on to other grounds, on the issue of adequacy of supplies of the patented drug by the patentee, the facts spoke for themselves. Consequently, nothing much needed to be said on this by the IPAB.

What is "Working" under the Act?

The other issue of consequence is the IPAB’s take on the meaning of “working” under the Act. The IPAB appears to have chosen the safe path here by saying that “working” needs to be interpreted on a case to case basis, and that the requirement of “local manufacture” need not be applied to all cases. Following is the take of the IPAB on “working”:

“In any event, we are not furnished with any evidence regarding this aspect viz., whether the appellant in its facility in India, which admittedly the appellant does not deny, could not have manufactured this drug.  So, with regard to Section 84(1)(c), we find that the word ‘worked’  must be decided on a case to case basis and it may be proved in a given case, that ‘working’ can be done only by way of import, but that cannot apply to all other cases. The patentee must show why it could not be locally manufactured. A mere statement to that effect is not sufficient there must be evidence.    Therefore, while we are of the opinion that the word ‘worked’ has a flexible meaning, and to that extent we differ from The Controller. The appellant has not proved working and so his conclusion is right. Working cannot mean that the requirement of working would be satisfied by having import monopoly for all patented inventions.  We also look at Section 84(7)(iii) which says that the reasonable requirements of public shall be deemed not to have been satisfied if a market for export of the patented article manufactured in India is not being supplied or developed.  Therefore, ‘working’ could mean local manufacture entirely and ‘working’ in some cases could mean only importation. It would depend on the facts and evidence of each case.”

I am truly not sure what this means and how can such an approach be adopted with respect to a statutory requirement. The Legislature surely could not have intended to apply local manufacture in a few cases, and exempt such a requirement in few others. Either the Act requires local manufacture or it does not. The question is if it does not, what would amount to working under the Act? This has not been addressed satisfactorily by the Board, again because the facts of the case made it clear that the patentee did not satisfy any reasonable standard or definition of working.

Although the right conclusion may have been arrived at in the facts of the case, the approach to issues and the quality of reasoning leave much to be desired.

Comments and corrections are welcome.

Bayer-NATCO Compulsory License Order of the IPAB- II

In the last post, I had discussed the first ground of appeal in the IPAB’s Bayer-NATCO CL decision. Below is a discussion on the rest of the ground.

Ground 2: NATCO did not invest adequate efforts to secure a voluntary license from Bayer

According to Bayer, NATCO did not satisfy the requirement of Section 84(6)(iv) of the Patents Act which requires a CL applicant to make efforts to obtain a license from the patentee on reasonable terms and conditions, and show to the Controller that such efforts had not been successful within a reasonable period as the Controller may deem fit.

The issue involves testing the efforts of an application for CL to secure a voluntary license from the patentee on the anvils of genuineness and reasonableness. In other words, the applicant for a CL must have made a genuine effort to secure a license on terms which are reasonable to both the applicant and the patentee.

This issue essentially called for applying these tests to the correspondence exchanged between the parties in 2010. In NATCO’s letter dated December 6, 2010, it had pointed to Bayer that NATCO was capable of supplying Sorafenib Tosylate at less than INR 10,000 compared to Bayer’s INR 2,80,000. Pointing out that patients from middle and low income group families cannot afford Bayer’s version of the drug, NATCO sought a voluntary license “on reasonable terms and conditions” in order to manufacture the drug at less than INR 10,000.

To this letter of NATCO, Bayer responded saying it had satisfied all requirements under the Patents Act and that its research and development costs accounted for the difference between the prices of both parties. Besides hinting at potential legal action against NATCO for infringement, the letter said thus:

“Your company is not able to make out a case for the grant of voluntary licence to manufacture and market the product Nexavar.  Therefore, our client does not consider it appropriate to grant voluntary licence to manufacture and market the product Nexavar to NATCO”

Applying Section 84)(6)(iv) to the correspondence, the IPAB held thus:

“16. If the appellant thought that less than Rs.10,000/- was not a bargaining point, all that it should have stated was that there was some room for negotiation.  But, the response did not indicate that, instead it clearly indicated that the appellant did not consider it appropriate to grant voluntary licence.  Therefore, the offer was made and it was rejected. The 3^rdrespondent(NATCO) is not required to make another request when its efforts had failed. The law does not require that. On a consideration of these two documents, the Controller was of the view that the 3^rd respondent had made an effort but it could have been “more humble in writing and not hurting the sensibility” of the patented persons. They are after all rivals in business and we do not think there would be room for such sensibilities.  The requirement of law was fully met and we reject this ground.”

Ground 3: The Controller failed to appreciate the effect of CIPLA’s allegedly infringing sales

The IPAB took a similar position as the Controller by holding that Cipla’s allegedly infringing sales of Bayer's patented drug (against which a suit is pending before the High Court of Delhi), even if true, did not lessen the patentee’s obligation to comply with the requirements under the Act. 

Nowhere in the discussion on this issue has the IPAB deemed it important to refer to Section 84(7)(e) of the Act which I had discussed in the aftermath of the grant of the CL to NATCO last year.

In that post, I had written thus:

“The primary defense on the issue of working that Bayer relied upon was that the manufacture of Nexavar by Cipla (against whom Bayer has filed a suit for infringement of its patent) had to be treated as working of the patented invention by Bayer. 

On the face of it, this argument may not find favour with most people. But what exactly are the layers in this argument? Can a patentee rely on an alleged infringer’s activities to establish fulfilment of working requirements that the Act expects of a patentee?

To understand the position of the Act on this question, one must look at Section 84(7)(e). The provision reads thus:

84.(7)(e) For the purposes of this chapter, the reasonable requirements of the public shall be deemed not to have been satisfied, .....if the working of the patented invention in the territory of India on a commercial scale is being prevented or hindered by the importation from abroad of the patented article by-

(i) the patentee or persons claiming under him; or

(ii) persons directly or indirectly purchasing from him; or

(iii) other persons against whom the patentee is not taking or has not taken proceedings for infringement.

The presence of Section 84(7)(e) makes one thing very clear- alleged infringement of a patentee’s invention, and the steps taken by a patentee to restrain such infringement is a relevant fact to be taken into account in the grant of a compulsory license.

The Act, in fact, draws an adverse inference against the patentee if he has not taken reasonable steps to prevent hindrance to the working of the invention by “importation of those directly or indirectly purchasing under him”

This means if the patentee has taken reasonable efforts to prevent infringement, and his efforts have not met with the kind of success that he would ideally expect, should the fact that continued infringement hinders working of the invention by patentee, not be a relevant argument? After all, the patentee’s argument is-

“How am I expected to sell my patented invention if an infringer sells it at less than half the price and I have not been successful in securing an interim injunction against him? Why should I be penalized if my best efforts to enforce my statutory rights have not been successful?”

The fact that infringement of a patentee right hinders working of the invention is something the Act clearly recognizes in Section 86(7)(e). Therefore, I am surprised at the Controller’s take that the issue of infringement of the patentee’s right has no bearing on relevance on the patentee’s ability to fulfil the reasonable requirements of the public.”

I am surprised that the issue has not been considered in the appeal either. Section 84(7)(e) being a point of law, it was possible for Bayer to raise this in the appeal even if it did not invoke the Section before the Controller. Based on my reading of the decision, even Bayer seems to have not referred to the provision.

In the next post, I will address the remaining grounds of appeal.

Order of the IPAB in the Bayer-NATCO Compulsory License Dispute- I

First things first, I thank a whole bunch of friends and well-wishers who were kind enough to share a copy of the Bayer-NATCO Appeal Order of the IPAB , which has been made available on the IPAB’s website. Also, I thank Amshula for sharing with me the salient observations of the IPAB in the order.

By this 48-page order of March 4, 2013, the IPAB had affirmed the Controller’s order (of March 2012) of grant of compulsory license to NATCO on Bayer’s patented drug ‘Sorafenib Tosylate’ which goes by the name, Nexavar. The drug is used as a palliative to treat advanced stages of kidney and liver cancer. While Bayer’s drug was priced at INR 2,80,428, NATCO’s version is priced at INR 8,800.  

In this post, I will cover the first ground of Bayer's appeal addressed by the IPAB.

Ground 1: No Opportunity for Hearing Provided to Bayer before forming a prima facie opinion on need for CL

This ground deals with Section 87(1) of the Patents Act, which states that “where the Controller is satisfied, upon consideration of an application under Section 84, or Section 85, that a prima facie case has been made out for the making of an order, he shall direct the applicant to serve copies of the application upon the patentee and any other person appearing from the register to be interested in the patent in respect of which the application is made, and shall publish the application in the official journal.”

A reading of the subsequent sub-sections of Section 87 clarifies that there is no duty cast on the Controller to notify the patentee before a prima facie opinion is formed. This could be because firstly, the opinion itself is prima facie, meaning thereby only an arguable case had been established by the applicant for the CL. Secondly, except for notifying the patentee of the application for CL, there is no prejudice that is caused to the patentee by mere formulation of a prima facie opinion by the Controller since the patentee is subsequently given an opportunity to rebut the prima facie opinion.

If the formation of a prima facie opinion led to suspension of the patentee’s rights until rebuttal of the prima facie opinion, considering such an adverse consequence, it would have made sense to provide for an opportunity to the patentee to be heard. But since the formulation of a prima facie opinion leads to no such adverse consequence, the Legislature appears to have deemed it fit to not provide for a hearing.

For instance, under Section 14, the Act requires the Controller to hear the patent applicant if the report of the examiner is adverse to the patent application. Clearly, the legislature has provided for a hearing wherever an adverse consequence is in the offing for a patent applicant/patentee. This is expressly reflected in Rule 129 of the Act.

Since no adverse consequence, such as abridgment of the patentee’s rights, follows in the immediate aftermath of the prima facie opinion being formed under Section 87(1), there is no express right of hearing provided for under the Section, nor would the Controller be wrong in choosing to not exercise his discretionary power under Rule 129.

This is the sum and substance of the IPAB’s opinion on this ground, which is extracted below:

“9. At the stage of Section 87(1), the Controller has two options.  Even on the face of it, he may decide that the compulsory licence cannot be granted.  This may be for various obvious reasons like, the application having been made before the lapse of the three years mandated by law.  The Controller has another option.  On the face of it, he may decide that this is a matter where the parties have to be heard before a decision is arrived at.  It does not mean that the Controller has decided one way or the other. It means only that on going through the application and considering the facts alleged, he is of the opinion that the other side should be heard. 

Therefore, he directs the applicant to serve copies on the other side. It is clear from S.87(1) that prima facie satisfaction precedes the direction to issue notice to the patentee or other persons.  Therefore, it is futile to contend that for arriving at prima facie satisfaction, the other side should be heard.  The hearing of the other side arises only after notice of opposition is filed and Section 87(4) stage is reached.  After hearing both the parties, the Controller again has two options.  He may reject the application for licence or he may grant the licence.  At the stage of 87(1) no such determination of rights is contemplated and all that is contemplated at that stage is whether this application deserves to be granted a hearing.  Therefore, this ground is rejected.”

I will deal with the rest of the grounds in the posts to follow shortly.

Breaking News: Bayer CL Order Upheld by the IPAB

According to the Economic Times, the IPAB has upheld the Compulsory License granted to NATCO by the Indian Patent Office last March to manufacture Bayer's patent anti-cancer drug Nexavar. Apparently, the rate of royalty has been upped from 6% to 7%.

The pronouncement reportedly lasted for 6 hours in which Justice Prabha Sridevan is reported to have observed that in 3 years, Bayer had not revised its marketing strategy nor had it taken steps to slash prices.

We will discuss more after we read the order first hand.

Update on Bayer-NATCO IPAB Hearings on KEI Online

A well-wisher of the blog, Ms.Apurba Kundu, was kind enough to bring to my attention the update on the IPAB appeal by Bayer against the Compulsory License granted to NATCO last March to manufacture Sorafenib Tosylate, which is Bayer’s patented anti-cancer drug Nexavar.

Jamie Love’s blog, KEI Online, has posted an update on the hearings in the appeal held between January 16 and 18, 2013. It appears that Bayer’s arguments on the said dates primarily revolved around the issue of the effect of the CL order on Bayer’s ability to recover its RnD costs in developing Nexavar.

According to Bayer, approximately USD2.5 billion was invested in identifying and developing anti-cancer drugs, including Nexavar, between 1999 and 2005. Instead of providing support to this figure using the company’s records, it appears that reliance was placed on a study conducted by the Office of Health Economics. I haven’t read this study, so I am not in a position to comment on it, or its use in the appeal proceedings.

I request readers to share any updates that they might have on the hearings.

Extracts from IPAB's Order in Bayer's Stay Application on CL Order

In its 17-page order, the IPAB has dismissed Bayer’s application for stay of the CL Order passed on March 9, 2012 by the Controller General of Patents to NATCO in connection with Bayer’s patented drug  Sorafenib Tosylate sold as ‘Nexavar’. I thank a "Frequently Anonymous" friend for sharing the order with me for the benefit of the blog's readers.

Bayer’s Arguments

1. Para 5- According to Bayer, its drug was available with 334 Medical institutions in 102 hospitals. Bayer argued that the Controller ought to have granted adjournment as provided in S.86(1) to afford Bayer time to work the invention and that the Controller’s refusal to grant the adjournment was contrary to law.

2. Bayer also argued that “work” in S.84(1)(c) includes import and not necessarily local manufacture as evidenced from Form 25. Bayer further claimed that it had provided enough evidence of “working” and that “even import of small quantity and a de minimis proof of working” is sufficient proof of working under the Act. Article 27 of TRIPS was cited to support this argument.

3. The Controller General had failed to fix a reasonable price in accordance with Section 90 of the Patents Act which requires the Controller to take into account the expenditure incurred by the Patentee.

4. Para 5, Internal Page 4- Importantly, according to Bayer, Cipla’s sale of  Sorafenib Tosylate is legal. Bayer has even argued that since the drug was being made available by CIPLA at INR 5400, there was no need for grant of a CL to NATCO. Following is an excerpt from the order which captures Bayer’s contention:

“The public interest, public requirement and supply at reasonably affordable price have all been met by CIPLA, so there was no justification for this order.”

5. In breach of the terms of the CL, NATCO was exporting the drug to Pakistan and China.

NATCO’s Arguments

1. Para 9- “It was submitted that S.84 must be seen through the prism of S.83. The argument that CIPLA meets the requirement of the public at a reasonably affordable price is a tacit admission of the Bayer’s default. If Bayer wanted CIPLA’s presence to be factored in while considering the public interest angle, then it should have included the sales of CIPLA in Form 27 for “working”

2. “It was submitted that the words “reasonably affordable” should be understood leaning towards the ordinary man to whom Rs.2.84,000 is clearly not affordable. The learned counsel referred to documents to show that even a country like UK had found the price of Nexavar too high.”

IPAB

1. Para 18- Importation is included in the definition of working, but importation alone cannot be equated with working. True scope of working would need to be decided at the final hearing.

2. Para 20- “The Act does not indicate how long the compulsory license applicant must “woo‟ the patentee to get the license, it only states that Controller shall take into account whether the applicant has made efforts to obtain a license from the patentee on reasonable terms and whether the efforts have failed within a reasonable period as “the Controller may deem fit”.

The applicant asked, the patentee replied that it was fully compliant with the fundamental objectives of patent law and therefore it does not consider it appropriate to grant license to the applicant. Clearly “Barkis was not willin’”

3. Para 22- “The words, “reasonably affordable” must be only seen from the eyes of those who need Nexavar. The learned Senior Counsel for the appellant said that even Rs 8000/- per month will be out of reach to many Indians in view of the per capita income. True, but that cannot mean that the price shall be raised higher, for then it will go out of reach to more number of Indians.

At Rs 8000 per month, more number of HCC/RCC stricken Indians will find it reasonably affordable, than if it is fixed at Rs 30,000 per month, and of course at Rs 2,80,000 it is beyond reach. So prima facie there is no error in the Controller fixing the price at Rs, 8880/- per month.”

4. Para 27- “We are unable to understand whether, according to the appellant, CIPLA rides with them or CIPLA is its rival, whether CIPLA is a friend or foe. When the grounds of section 84(1)(a) and 84(1)(b) are raised, the appellant wants us to take into the reckoning CIPLA’s presence.

CIPLA is satisfying the reasonable requirement of the public and therefore, the Board should not look at the ground under sub-section (1)(a) and CIPLA‟s product  is available to the public at a reasonably affordable price and so, the Board should not look at the ground under sub-section (1)(b).

Therefore, for these two grounds of attack, the appellant takes the presence of CIPLA along with it, but for the ground of attack under section 84(1)(c), the appellant takes a stand that CIPLA is its enemy which prevented the appellant from entering the market. We cannot accept this mutually inconsistent stand.”

5. Para 28- “CIPLA’s presence in the first place may loosely be called a “litigious” presence. If injunction had been granted by the Hon’ble Delhi High Court, CIPLA will not be in the market. Though the appellant is fighting CIPLA tooth and nail before the Hon’ble Delhi High Court, it took great pains to urge before us that CIPLA‟s presence was a legal presence....

...Further, CIPLA is not bound by any condition that is prescribed for the 3^rd respondent NATCO by the Controller general under section 90. Tomorrow, CIPLA may withdraw its product, Soranib for commercial reasons of its own.

The Controller General who has weighed the public interest in his mind rightly refused to reckon CIPLA’s presence in arriving at his decision. It is for the appellant/patentee to show that it has fulfilled the obligation under the grant of patent and therefore, its right should be protected.”

6. Para 29- “The powers of the Controller conferred by this Chapter must be viewed with the lens of section 83. Almost every sub-section in section 83 begins with the words, “patents are granted” which means that it should be viewed only from patentee’s angle”

7. Para 30- “Therefore, when we look at section 84 of the Act, having regard to section 83, as we are directed by that section, it is clear that it is the duty of patentee to show that the patentee by its own supply has satisfied the reasonable requirement of the public and by its supply, the drug is made available at a reasonably affordable price.

The appellant cannot ride piggyback on CIPLA’s sale, particularly when the appellant is fighting CIPLA before another forum regarding the same invention and the same drug”

8. Para 34- “The appellant has not made out a prima facie case for the grant of stay, since even its own admission is that it is CIPLA which is supplying the drug to satisfy the needs of the public. It is not the case of the appellant that its supply is at a reasonably affordable price and satisfies the reasonable requirement of the public.  

As regards public interest, we have already concluded in the earlier paragraphs that CIPLA’s presence is subject to litigation and CIPLA’s supply cannot be taken note of.   If stay is granted, it will definitely jeopardise the interest of the public who need the drug at the later stage of the disease, since it is admitted that this drug improves the quality of life.

Therefore, the right of access to affordable medicine is as much a matter of right to dignity of the patients and to grant stay at this juncture would really affect them and further, it would in effect amount to deciding the main petition itself. Though this is not a reason why we are not granting stay, yet this is an additional factor.”

Breaking News: IPAB Dismisses Bayer’s Prayer for Stay on CL Order

The Economic Times has reported that the Intellectual Property Appellate Board (IPAB) has dismissed Bayer’s prayer for stay on the Compulsory Licensing Order Issued this March by the Controller General of Patents to NATCO on Bayer’s patented drug Nexavar.

According to The Hindu, the following were the IPAB’s observations:

“If [a] stay is granted, it will jeopardise the interests of the public who are in need of the drug. The appellant has not made out any case…”

“The appellant cannot ride piggy-back on, or take shelter under, the sale by Cipla. It is the duty of patentee that its own supply be made available at [a] reasonable price to the requirement of the public.”

Further, the Board seems to have dismissed Bayer’s allegations that NATCO was exporting Nexavar to Pakistan and China. I will post more on this once I get to see the copy of the order. The hearing in Bayer’s appeal was concluded on September 6, 2012. To the best of my knowledge, the decision on the merits of the appeal has not been pronounced yet.

I thank a friend and well-wisher of the blog for bringing this development to my attention.

Snippet: Bayer Challenges Controller’s CL Order

In an expected move, Bayer has filed an appeal before the Intellectual Property Appellate Board (IPAB) challenging the decision of the Controller of Patents granting compulsory license to NATCO in respect of its anti-cancer drug “Nexavar”.

Reportedly, the spokesperson of Bayer has expressed the following sentiments on the CL order:

"We strongly disagree with the conclusions of the Patent Controller of India and have appealed his order on May 4, 2012 with the Intellectual Property Appellate Board," 

He added:

"We will rigorously continue to defend our intellectual property rights which are a prerequisite for bringing innovative medicines to patients,"

According to the company:

“the order of the Patent Controller of India damages the international patent system and endangers pharmaceutical research,"

We eagerly await more details on this issue, which we shall share with our readers as and when we are informed of them.

Bayer Compulsory Licensing Order: Are There Any Lessons to Learn?

As expected, the Bayer Compulsory Licensing Order has generated a lot of discussion in the relevant circles. In the last post, the issue of local manufacture was discussed. In this post, I intend to discuss a few other issues which interest me.

The primary defense on the issue of working that Bayer relied upon was that the manufacture of Nexavar by Cipla (against who Bayer has filed a suit for infringement of its patent) had to be treated as working of the patented invention by Bayer. 

On the face of it, this argument may not find favour with most people. But what exactly are the layers in this argument? Can a patentee rely on an alleged infringer’s activities to establish fulfilment of working requirements that the Act expects of a patentee?

To understand the position of the Act on this question, one must look at Section 84(7)(e). The provision reads thus:

84.(7)(e) For the purposes of this chapter, the reasonable requirements of the public shall be deemed not to have been satisfied, .....if the working of the patented invention in the territory of India on a commercial scale is being prevented or hindered by the importation from abroad of the patented article by-

(i) the patentee or persons claiming under him; or

(ii) persons directly or indirectly purchasing from him; or

(iii) other persons against whom the patentee is not taking or has not taken proceedings for infringement.

The presence of Section 84(7)(e) makes one thing very clear- alleged infringement of a patentee’s invention, and the steps taken by a patentee to restrain such infringement is a relevant fact to be taken into account in the grant of a compulsory license.

The Act, in fact, draws an adverse inference against the patentee if he has not taken reasonable steps to prevent hindrance to the working of the invention by “importation of those directly or indirectly purchasing under him” (Could this be an additional point to support my interpretation of Section 107A(b)?)

This means if the patentee has taken reasonable efforts to prevent infringement, and his efforts have not met the kind of success that he would ideally expect, should the fact that continued infringement hinders working of the invention by patentee, not be a relevant argument? After all, the patentee’s argument is-

“How am I expected to sell my patented invention if an infringer sells it at less than half the price and I have not been successful in securing an interim injunction against him? Why should I be penalized if my best efforts to enforce my statutory rights have not been successful?”

The fact that infringement of a patentee right hinders working of the invention is something the Act clearly recognizes in Section 84(7)(e). Therefore, I am surprised at the Controller’s take that the issue of infringement of the patentee’s right has no bearing on relevance on the patentee’s ability to fulfill the reasonable requirements of the public.

This actually raises the larger question of failure to grant interim injunctions and the adverse consequences it has on the ability of a patentee to fulfill critical obligations under the Act.

Also, without commenting on the facts of the Bayer case, I think it must be understood that commercial working of the patented invention is linked to several factors, most importantly to the demand for the patented invention in the market. A combination of circumstances could prevent a patentee from getting the best out of the market for his patented invention.

In such a situation, what do equity and fairness demand? Either that a compulsory license be not granted if the patentee has put his best foot forward, or if the patented invention actually addresses critical issues such as public health, a compulsory license may certainly be granted, but the terms of such license must be fair to the patentee and must adequately compensate him. Critically, any such order granting a compulsory license in the second situation must refrain from making unqualified adverse comments against the patentee.

In the facts of the Nexavar case, what does come as a surprise is the statistic on working of the invention. The patent was applied for in India in 2001 (National Phase Application), and was granted in 2008. Since Section 11A(7) grants “like and privileges” once an application for a patent is published, it is not incorrect to say that the patentee’s efforts to commercialize the patent assume importance after the publication of the application.

In other words, it is not just efforts after grant of the patent that are relevant, but also steps taken prior to grant but after publication of the application. Simply put, the Controller could have asked Bayer to show reasons for insufficient working of the patent since the publication of the Nexavar patent application.

These and other such issues could and ought to have been discussed in the Bayer Order to set out the first principles of compulsory licensing jurisprudence. It is not enough to arrive at conclusions, even if correct, since it is not conclusions, but the reasons of an order that are applied in the future. In the absence of reasons, the scope of an order’s applicability is restricted to the facts of the case in which it was delivered, with no long term value or utility.

Vision and thoroughness must not be sacrificed at the altar of speed, particularly where public interest is at stake.