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.