Bayer vs. Natco: India's First Compulsory Drug License Case

Bayer vs. Natco
First Case of Compulsory Licensing
in India
Presented by:
Anand Sivakumar J (12PGP007)
Gagandeep Singh (12PGP015)
Manu Dhunna (12PGP027)
Pousali Chakrabarti (12PGP032)
Shweta Mallick (12PGP041)

Indian Institute of Management Raipur 1 12/7/2012

*The Intellectual Property Rights across the
world abide by a common agreement named
Trade Related Aspects of Intellectual Property
or TRIP which is a part of the WTO agreement
*TRIP covers Compulsory License in detail.
Compulsory License or CL is referred to as non-
voluntary license, which is pertinent to various
intricacies of IPR.

*

*The concept of CL originated in the UK in 1623
with the purpose of making the local
application possible for a patented invention.
*Later, in 19th century France, a law was passed
to forfeit a patent in case it is not used for a
stipulated time frame. In 1883, the UK law
included three important provisions regarding
when to grant a CL under Patent Act:

1. If the patent was not being utilized in the UK
2. If the basic necessities of the public were
hindered
3. If a person was prevented from using or
working on an invention.


*TRIP requires that CL be used primarily for the
benefit of local markets, a requirement that
puts restriction on Governments for importing
drugs manufactured overseas.


* Chapter XVI (Section 82-98) of the amended Indian Patent
Act, 1970 is devoted to Compulsory Licensing. Section 84 of
Indian Patent Act provides for grant of CL. The grounds on
which a compulsory licence can be granted under the Act
can be sub‐divided into the following categories:
* (i) Abuse of patent rights (dealt with broadly under Section
84);
* (ii) ‗Public Interest‘ (dealt with broadly under Section 92).

*

*Following is the brief mention of the provisions of
section 84 and 92 of the Act.
*Section 84 of Compulsory licenses:
*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
with respect to 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.


* Under Section 84(1) a person has to make an application to
the Controller of Patents for grant of CL. This application
for CL can be made only after 3 years of grant of patents.
Thus, even in case of CL a rightful patent holder has clear
three years period to exploit the invention. Section 84(1)
(a) further provides three grounds on which CL can be
issued the patented invention has failed to satisfy
reasonable requirements of public. This means that:
* If patented invention is unable to meet the needs of public
for which it is invented then the Controller of patents may
grant CL for the patented invention
* The Second ground for grant of CL is that the patented
invention is not available to public at a reasonably
affordable price


*This sub-section Section 84 (1) (b) is at the crux of
grant of patent for Nexavar in Bayer v/s Natco case.
*Section 84 (2) provides that a person even if he already
having license from the rightful patent holder still
s/he/it can make an application under Section 84 (1) to
the controller for grant of CL if the three exigencies
mentioned in Section 84 (1) arises.
*Further Section 84 (2) provides that while opposing CL
the patent holder has right to plea that the three
mentioned exigencies and that the patent is not
working in India.


* Section 84(4) gives huge discretionary powers to the
Controller to grant CL if he is satisfied that any of the three
exigencies mention in Section 84(1) are met i.e. interests of
public is not satisfied vis-à-vis patented invention or that
the patented invention is not working in India and it is not
available at affordable price.
* Section 84(7) provides various circumstances under which it
shall be deemed that the ‗reasonable requirements of the
public‘ are not met. It provides that if the rightful patent
holder has refused to grant license and such refusal is
detrimental to trading or manufacturing in India then the
reasonable requirements of the public are not met. Hence
it opens up case for CL


* Sections 92 (1) and 92 (3)—Circumstances of national
emergency or extreme urgency
* Section 92 A—For exports of pharmaceutical products to
foreign countries with public health problems


*Natco v/s Bayer was the first case of compulsory
licensing being obtained in India in pharmaceutical
field of discipline
*International drug manufacturing firm Bayer
Corporation and Indian pharmaceutical company
Natco Pharma Limited
*Bayer obtained a patent on Nexavar
*A pack of 120 cost Rs. 2.8 lakh INR

*

*The players of this case are:
Bayer Corp – The Patentee
NATCO - The Applicant
NEXAVAR

*

*Ms Bayer Corp is an innovative drug
multinational giant based at Germany.
*Invented a drug named ‗SORAFENIB' - Carboxyl
Substituted Diphenyl Urea
*Life extending drug to be used in liver and
kidney cancer treatment
*Brand name 'NEXAVAR'

*

*Indian generic pharmaceutical company
*Natco filed an application with the Bayer Corporation
for the Voluntary license of the drug Nexavar
(Sorafenib) with reasonable commercial terms and
conditions.
*Received a license from the Drug Controller General of
India for manufacturing the drug in bulk and marketing
in form of tablets in April 2011.

*

*The drug Nexavar (Sorafenib) is the
patented product of M/s Bayer
Corporation
*R&D cost incurred was exorbitant and
hence there should be no Compulsory
Licensing.

*

*Bayer did not disclose the cost of R&D involved in the
invention of this drug.
*Bayer has time and again tried to conceal the R&D
Expenditure for development of Nexavar, the relevant
data has been mined from Annual reports of Onyx
Pharmaceuticals.
*As per Onyx SEC fillings from 1994-1999 Bayer
provided Onyx with $26.1 million

*

*October 8, 2004- Bayer received an orphan drug
designation for Nexavar which makes the drug eligible
for a 50 % orphan drug tax credit thus, lowering the
net cost of the investments to both Bayer and Onyx.
*SEC filings reported a combined Bayer/Onyx outlay of
$275 million.
*Total R&D for development of Nexavar was
$ 275 million.
*Deduction of Orphan Tax credit from the same further
lowers the R&D cost.


*2006- $165 million.
*2007- $371.7 million.
*2008- $678 million.
*Total- $1.2 billion within three years of
approval as an ―orphan‖ drug.

*

*

*When the world sales were $934 million
in 2010 the Indian Sales was almost
negligible. It is important to remember
that India is one of the most populous
countries.

*

Preface:
*Huge patient base for drugs and pharma
companies
*India‘s per capita income-considerably lower
compared to other developed and emerging
market economies
*India‘s spending on healthcare (as % of GDP)-
considerably low

*

*Nexavar cost - The cost of cancer drug Sorafenib
in 200mg tablet varies vastly in branded and
generic category.
*Branded Category- Rs 280,428 per patient per
month.
*The generic drug:
1) Sorafenib was available from Cipla for Rs 27,960
2) Natco is providing the same at Rs 8,880/-. After
the judgment for grant of compulsory license
Cipla has slashed its price further and now it is
available for Rs 6,600/- per patient per month.


*Per Capita Income of India (PCY) in 2011 -
$1575/-
*Cost of Bayer‘s Nexavar PP/Year in 2011 -
$69,000/-
*Cost of Natco‘s Sorafenib PP/Year in 2011 -
$2,120/-
*Bayer was charging almost 45 times the Per
Capita Income of India of India.


*Natco, a generic drug manufacturing company
requested Bayer for giving it a voluntary license.
*The request was denied and so Natco filed an
application in the Controller of Patents Court for grant
of a compulsory license.
*In accordance with the provision of Indian Law‘s
Section 84 of the Patent Act, the Indian Controller of
Patents started with competing claims of both the
patentee (Bayer) and the compulsory license
applicant (Natco).

*

*Requirement of about 23,000 bottles per month.
*No bottles of Nexavar were imported in India in the
year 2008 and 200 bottles were imported in 2009. In
the year 2010 there were no imports of Nexavar.
*The importance of the time period lies in the fact that
the Government of India granted Bayer a patent on the
drug Nexavar in the year 2008 after assessing that
Bayer would fulfil the ―Reasonable requirements of
the Public‖ during that period. Also, Bayer did not
manufacture the drug in India as it focused on imports
of its bottles.

*

* The Controller cited that the drug was ―Exorbitantly priced‖
and thus was out of reach of majority of the population.
* The price of the drug was at the time of decision Rs.
2,80,248/- per month compared to the generic drug‘s price of
Rs. 8,800/- per month from Natco.
* The Controller also added that the drug was not available
throughout the country was only available in major
metropolitan cities like Chennai, Delhi, Kolkata and Mumbai.
* The Controller also cited that the supply of Nexavar was short
even in the previously mentioned cities and this was highly
significant to the case as the drug was a ―Life saving drug‖
and not a ―Luxury Item‖.

*

* Finally the Controller noted that in the year 2010, Bayer‘s
sales across the world had increase to 934 million dollars from
165 million dollars in 2006. He wrote, ―These figures clearly
demonstrate the neglectful conduct of the Patentee (Bayer)
as far as India in concerned‖.
* The Controller illustrated that it would take a common man
in India while 3.5 years of his/her wage to afford just one
month‘s supply of the drug the drug Nexavar extends life for
a kidney cancer patient by only about four to six years.
* The Controller also cited from WHO‘s bulletin, a research
article titled ―Impoverishing effects‖ related to the
affordability of medicines in the developing nations, along
with an affidavit from James Packard Love, Director of
Knowledge Ecology International and co-chairman of the
Trans-Atlantic Consumer Dialog Policy Committee on
Intellectual Property Rights.


*Bayer argued that the high cost of the drug
Nexavar was to support the further research and
development of Sorafenib, for curing other
types of cancer, in public interest. And
thus, granting Natco a compulsory license would
harm the public interest.
*Bayer also argued that the reduced cost as a
result of compulsory license should not be of
benefit to the rich and the middle class who
could afford Bayer‘s price of Nexavar.


* The Controller also cited that the invention (Nexavar) was
not ―worked‖ in India. Natco argued that even though
Bayer had manufacturing facilities in India, it did not
manufacture the drug in India.
* Bayer said it did not do so because of economic reasons
and argued that ―worked in the territory‖ could not mean
―manufactured in India‖.
* Bayer added that the ―strategic decision‖ of manufacturing
the drug in Germany was valid as had the drug had ―small
global demand‖.

*

* On 9th March, 2012, The Controller of Patents in his judgment
awarded the first compulsory license in the pharmaceutical
industry in India under new WTO rules. The Bayer has
delayed to work on the patent in India and the drug is
exorbitantly priced in India. The Compulsory License for the
drug Sorafenib/ Nexavar is granted by the controller on the
basis of the following terms:
* The applicant Natco has very limited rights to manufacture
and commercially sell the drug.
* Natco cannot sublicense to another party. It is a non-
assignable and non-exclusive license with no right to import
the drug.

*

* The compulsory licensed drug can be sold only for the
treatment of liver and renal cancer. Natco cannot use this
license for alternate or subsequent use of the drug.
* Natco has to pay the royalty for the drug at a rate of 6% of
net sales to the patent owner Bayer. This is in consonance
with Article 31(h) of TRIPS Agreement read with Section
90(1) of the Act.
* The rate of royalty has been decided based on the royalty
practices and guidelines recommended by United Nations
Development Program (UNDP) depending upon the value of
the product. For one month treatment, the controller has
set the price of the Natco‘s drug at Rs.8800/-.


* Natco, as committed before, has to provide the drug free of
cost to at least 600 ―needy and deserving‖ patients per year.
* Natco cannot or it has no right to ―represent privately or
publicly‖ that the product manufactured by it is the same as
Bayer‘s Nexavar.
* Bayer has no liability for the drug to be manufactured by
Natco, which must be physically distinct from Nexavar
dosage form.


* Following the grant of the CL to Natco, Bayer has filed a
petition with the Intellectual Property Appellate Board (IPAB)
to order a stay on the compulsory license.
* On Friday, 14 September 2012, IPAB issued Order (No. 223 of
2012) in the case between Bayer versus the Union of
India, The Controller of Patents, and Natco dismissing Bayer's
request for a stay on the compulsory license granted to
Natco.
* Bayer, in its petition said that Indian Drug manufacturer Cipla
was selling its product Soranib, at a maximum retail price of
Rs.6,840 in India for one month‘s treatment, lesser than
Natco‘s price.
* Bayer also argued that, its drug Nexavar was made available
at Rs. 30,000 to patients on the recommendation of the
oncologist.


* Bayer argued that as the drug is already available in the market at a
reasonably affordable price and the patentee is not necessarily the
supplier, then Section 84(1)(b ) of the Patents Act will not arise.
* As also some other company is supplying the drug and as the public
requirement is met, even then Section 84(1)(a) will not arise.
* Additionally, there was no burden for Cipla in doing research and
development, Cipla can sell the drug at any price.
Therefore, Section 84(1)(c) could not arise either.
* The decision noted that "The patentee, Bayer has to prove that, the
patentee by its own supply has satisfied the requirements of the
public. The appellant cannot ride piggyback on Cipla‘s sale, as
Bayer has already filed a case against Cipla to stop the sale of
Cipla‘s drug soranib‖. The decision also mentioned that ―It is not
the case of the appellant that the drug is available in the market in
a reasonably affordable price and meets the demand of the
public‖.


* Online Sources:
1. http://legal-dictionary.thefreedictionary.com/estoppel
2. http://www.wto.org/english/tratop_e/trips_e/healthdeclexpln_e.htm
3. http://www.wto.org/english/tratop_e/trips_e/t_agm2_e.htm
4. http://www.elsevierbi.com/~/media/Supporting%20Documents/Pharma
sia%20News/2012/September/IPAB%20Order%20Bayer%20Natco%20Sept%
20%202012.pdf
5. http://www.ip-watch.org/2012/05/20/india%E2%80%99s-generics-big-
pharma-battle-drops-drug-prices-raises-legal-debate/
6. http://articles.economictimes.indiatimes.com/2012-05-
19/news/31778153_1_compulsory-licence-natco-pharma-compulsory-
licensing

*

Thank You


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