By Dr. Kalyan Kankanala
The stated objective of patent law is to promote the progress of science and technology for industrial/economic progress and public benefit. It seeks to achieve this objective by granting exclusive rights over inventions to inventors for a limited period of time, on expiry of which the inventions enter the public domain. It is believed that the grant of exclusive rights generates incentives to invent, invest, disclose and design around the invention, which in turn promotes the progress of science and technology by encouraging inventive activity.
Though the objective of the patent system seems logical on the surface, no empirical study has proved conclusively that the patent system is responsible for the progress of science and technology. On the other hand, no study has also been able to prove conclusively that science and technology would progress if the patent system did not exist. In the absence of any conclusive proof scholarship is divided, though not equally, with respect to the value of having a patent law in place. From the perspective of economics, management, law, technology, culture, etc., circular arguments are often made for and against the value of the patent system.
Business and Competitive Advantage
The exclusivity granted by the patent system provides business and competitive advantage to patent holders. Patents give a business, which invests in research and development, the opportunity to recoup returns from its investments by exclusively exercising its patent rights. By virtue of the value provided by them, patents are considered to be invaluable business and competitive tools for any enterprise.
Patent law allows a business to benefit from the exclusivity granted by the patent as long as the utilisation of the patent by an enterprise is in line with the goals of the patent system, and not abusive or detrimental to the good of public. To ensure that patents are used for public benefit and industrial/economic progress, and are not abused, the patent system has checks and balances at various levels in the patent life cycle, from patentability filters to licensing.
Compulsory licensing is one among several tools used by the patent system to prevent any abuse or misuse of a patent to the detriment of public. It ensures that patented inventions meet reasonable requirements of the public, are available at reasonably affordable prices, and are worked in the country where the patent is granted. The compulsory licensing regime also ensures that patented inventions are available during national emergencies and health crises, are made available to countries which lack adequate manufacturing facilities, do not stop use or growth of related technologies, etc. It is estimated that more than one hundred countries have a compulsory patent licence regime of one kind or another.
Bayer Compulsory Licence in India
In 2012, a compulsory license was granted to NATCO, a generic company, to make and sell Bayer’s patented drug, Sorafenib, used for liver and kidney cancer. The Controller of Patents while granting the compulsory license stated that the drug was being sold at an unaffordable price of approximately Rs. 2, 80, 000/- by Bayer, and was not being made available sufficiently to meet reasonable requirements of the public in India. Under the license, NATCO agreed to make the drug available for Rs. 8, 800/-, at a price some thirty times lower than Bayer’s, and was required to pay a royalty of six percent. The royalty was later hiked by the Appellate Board to seven percent.
The grant of the Sorafenib compulsory license was met by serious criticism from the developed world, led by the United States. Objections were put forth at various levels by different stakeholders – from governments to businesses spoke out on this matter. The objections ranged from non-compliance with international instruments to defeating legitimate business interests of patent holders.
Though three years have passed since the Sorafenib license and no compulsory license has been granted since then, many multi-national corporations are still concerned about compulsory licensing as a tool to defeat their patent and business interests. While some argue for the abolition of the compulsory regime as a whole, others submit that its unfettered use would have a negative impact on innovation. The pressure from US government representatives to change India’s attitude towards compulsory licensing in particular, and the IP system in general, has been intense to say the least.
Strategic Use of Compulsory Licences
Public consciousness in India is today poised against a stringent patent regime, and no government can afford to ignore the same. Partly due to the public involvement in the role of patents in access to medicines, and partly owing to anti-patent activism, it is today close to impossible to convince the Government to narrow down the scope of the compulsory license regime, let alone abolish some of its flexibilities. Furthermore, the only objective study on the impact of compulsory licensing by Scherer concludes that compulsory patent licensing has no appreciable impact on innovation furthered by the patent system.
While patent interest groups exert pressure, and hopefully, ensure that compulsory license is used cautiously, patent holders and businesses are better off adopting strategies to prevent the grant of a compulsory license with respect to their patents, or using the license for commercial benefit, if granted. One straightforward approach is to work the patent in India, and build data to show that the invention meets the requirements of the public, and is affordable. The patent holder can do this directly, or through licensees.
Recently, Gilead, a pharma company, signed license deals with respect to its patented Hepatitis C drug with several Indian companies such as Zydus, Cipla, and Hetero. Through its licenses, Gilead was able to bring the cost of each piece of the drug down from thousand dollars to ten dollars, and was also able to make it widely available. The said strategy not only commercially benefits the company, but also prevents the chances of a compulsory license grant and enables the patent holder to retain control over its patents.
In the Lee Pharma case, Astra Zeneca’s strategic pricing, market data, and data about substitutes enabled Astra Zeneca to avoid a compulsory license on its patented diabetes drug.
Though the law does not insist on the working of a patent (exploiting it in the jurisdiction it covers) when it is not practicable, the law expects patent holders to take steps towards working patents whenever it might be possible. It is important for companies to not only take such steps, but also accumulate data with respect to steps being taken such as further research, integration with technology, perfection of the invention, market research, competitor analytics, viability studies, etc. This data can go a long way in providing bona fide efforts towards working the patent and making it available to the public.
At another level, the Patents Act requires applicants of compulsory licenses to put effort into acquiring a voluntary license before applying for a compulsory license. The efforts to acquire a voluntary license can provide an excellent opportunity for the patent-holding company to learn about the company looking to acquire a compulsory license over the patent. The data acquired during the said interaction can prove to be very useful in countering an application for compulsory license. In the BDR Pharma case, BMS was able to prevent the grant of a compulsory license by simply asking relevant questions about quality controls, manufacturing processes, marketing capabilities, etc., to which the applicant for compulsory license could not respond appropriately.
To conclude, it is important for patent holders, Indian or foreign, to understand that the Indian Patent Law is based on its own philosophy, which is not susceptible to change. It is advisable for companies to work around the objectives of the Indian Patent Law, rather than try to bring it in line with the law in other countries. Like BMS and Astra Zeneca, companies that are able to grasp the import of the Indian Patent Law and handle it strategically can achieve patent and business success.
- Frederic M. Scherer, The Economic Effects of Compulsory Patent Licensing 67-75 (New York University Mono-graph Series in Finance and Economics, 1977).
- Compulsory Licensing, Bayer and Others, Available at: http://www.sinapseblog.com/tag/compulsory-license/
- Working of Patents – A Workable Proposition?, available at: http://www.sinapseblog.com/working-of-patents-a-workable-proposition/
- Pharmaceutical Patents: Gilead, IPA, Natco & The Bells of Harmony, available at http://www.sinapseblog.com/pharmaceutical-patents-gilead-ipa-natco-the-bells-of-harmony/
- IN THE MATTER OF: Lee Pharma Ltd., Applicant VERSUS AstraZeneca AB, Respondent, C.L.A. No. 1 of 2015
- IN THE MATTER OF: M/s. BDR Pharmaceuticals International Pvt. Ltd., Applicant VERSUS M/s. Bristol Myers Squibb Company, C.L.A. No. 1 of 2013
- ONE VIEW OF COMPULSORY LICENSING: COMPARATIVE PERSPECTIVES FROM INDIA AND CANADA, Padmanabha Ramanujam, and Yugank Goyal, Marquette Intellectual Property Law Review, Summer 2014, Page 369.
- Compulsory licensing: the foundations of an institutional innovation, ristiano Antonelli, The WIPO Journal,
Dr. Kalyan C. Kankanala manages the largest new age intellectual property firm, BananaIP Counsels, headquartered at Bangalore, India. In addition to helping clients maximize business value from intellectual assets, Dr. Kalyan also consults for United Nations Industrial Development Organization (UNIDO), and teaches at premier institutions such as National Law School of India University, Bangalore, and Indian Institute of Management, Bangalore (IIMB). Dr. Kalyan is also a renowned author and novelist.
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