Patents: Roll Out of One, Doll Out for Another

The Intellectual Property Rights Appellate Board (IPAB) delivered a landmark judgment on the 21^st of February this year rejecting a petition filed by Bayer Corp. (German pharmaceutical giant) seeking a stay order on a compulsory license granted by the Controller of Patents to Natco Pharma Ltd. (Indian pharmaceutical company) for Nexavar, a drug (sorafenib tosylate) to treat renal and hepato-cellular carcinoma (kidney and liver cancer). The grant of compulsory license by the Controller in March 2012 for the generic production of the anti-cancer drug was a historic decision as it was the first ever compulsory license granted in India. Rejection of Bayer’s petition only reinforces India’s commitment to providing universal health for its citizens. The decision of the IPAB has been received by the pharmaceutical industry with overarching disappointment, whereas thousands of cancer-patients in India have welcomed it, remaining hopeful for many such decisions to follow suit. 

The background behind this decision calls for an in-depth analysis. In the world of intellectual property rights, it is indeed paradoxical that while knowledge to promote health has expanded enormously, so have the attempts to restrict access to such knowledge. The current status of intellectual property rights law allows some corporations to have a monopoly over the production and reproduction of knowledge; even if that knowledge can save lives. People succumb to deadly diseases simply because they cannot pay for their treatment. The tragedy is that treatment doesn’t have to be this expensive; it was till now and in some cases still is simply disallowed from being affordable- by law!

Intellectual property rights by way of patents have an interesting history in India. India had a Patents and Designs Act in place way back in 1911 which is archetypal of the country’s long-held reputation as one of the most progressive in the field. After independence, this law was considered inadequate and was replaced by a comprehensive Patents Act, 1970. Since 1970, the Act has undergone 5 amendments (among which the 1999, 2002 and 2005 amendments are significant). The 1970 law was lucid; it argued that a patent (a monopoly over the production and distribution of a product) would not be allowed in 2 most vital areas of human existence: food and health. This law made a distinction between ‘process patent’ and ‘product patent’; it provided only for a process patent; which meant that anyone could make an already existing product by a different process and supply the same to markets, unhindered. However, in 1995, when India became a member of the WTO (World Trade Organisation) it had to necessarily comply with the Agreement on Trade-Related Aspect of Intellectual Property (TRIPS). The TRIPS requires member-states to grant patent protection to all inventions, whether product or process. Hence in order to bring Indian patent law in line with India’s international obligation under the TRIPS, in 2005 the Patent Act was amended so as to recognise product patents for pharmaceuticals. This meant that from 2005 onwards, no other manufacturer could produce a drug by any process whatsoever if the original inventor of that drug held a patent for the same. Manufacturers could only produce it if they had a license from the inventor expressly allowing the production, sale and distribution of the drug. The obvious result of this was a sharp rise in the prices of drugs post-2005, as inventor companies held a monopoly over the drug in the market.  

India’s insistence on joining the niche club of industrialised nations in 2005 compelled it to sign into law something that was evidently disadvantageous to developing countries which did not have many registered patents at the time. However, there was a window of hope for countries like India in one of the provisions of the TRIPS which allowed the governments of member-states to rein in prices for the benefit of its populous in certain circumstances. Governments retained the right to grant ‘compulsory license’ to companies other than the inventor company on the grounds of public interest, anti-competitive conduct and non-commercial government use. Hence, the TRIPS contemplated a drastic measure which could be resorted to in a situation where the inventor company was working the patent in a manner inimical to public interest: selling the drug at unreasonable prices, inhibiting technological progress and thereby leading to a public health crisis or emergency. Section 84 of the Patent Act reads as follows:

“At any time after the expiration of three years from the date of the sealing of a patent, any person interested may make an application to the Controller alleging that the reasonable requirements of the public with respect to the patented invention have not been satisfied or that the patented invention is not available to the public at a reasonable price and praying for the grant of a compulsory licence to work the patented invention.”

Bayer Corp. was granted a patent for its drug sorafenib tosylate under the name ‘Nexavar’ in 2008. In 2010, Natco approached Bayer for grant of voluntary license for the generic production of the same drug in India. Bayer denied the same. In 2011 it filed an application before the Controller of Patents (Chennai) for grant of compulsory license under s. 84 of the Patents Act. Natco raised three main issues:

Issue 1: The drug did not satisfy the reasonable requirements of the public.

Here Natco argued that in 2008 23,000 people suffered from kidney and liver cancer in India. According to Bayer’s own filings, it imported only 200 bottles of the drug in India during 2008-10. This was way below the requirement of 23,000. Further, Bayer’s sales figures showed that in 2006b when it launched the drug globally, it made a gargantuan profit of $ 2454 million. Thus, Bayer was neglecting the Indian markets altogether.

Bayer on the hand contended that 8,842 people required the drug and not the exaggerated figure of 23,000. It further argued that the public requirement was being met somehow, if not by Bayer alone. Cipla is an Indian pharmaceutical company which has been producing and selling sorafenib tosylate since 2008 without Bayer’s prior permission. Bayer filed a suit for infringement of patent in the Bombay High Court, which is pending as of date. Bayer argued in the case against Natco, that Cipla’s infringing sales were in fact meeting the requirement of 8,842 people suffering from the disease. This argument was rejected by the Controller rather expectantly. This is because Bayer was under an obligation to show that its supply was meeting the requirement of the public, it could not possibly piggyback on the sales of a third party which Bayer had in any case dragged to court for the very same reason.

Further, relying on Bayer’s figure of 8,842, requirements were still not being met with Bayer’s and Cipla’s sales combined.

Issue 2: Patented invention was not being provided at reasonable affordable price.

Nexavar is priced at INR 2,80,428 per month. The treatment focuses on life-extension rather than life-saving, and hence, one would be spending almost 3 lac rupees just to stay alive! In India, less than 2% people can afford spending that much on the health of one member of the family. Natco did all the number crunching it could so as to prove that such a price is not reasonably affordable. Natco’s drug was priced at INR 8,800 per month, well within the Indian pocket.

Bayer argued that such a price was kept due to many factors such as the cost of research and development, cost of failures in other related research projects which are bound to occur considering this drug was produced from the very scratch, the cost of future investment in research and development and so on. It argued further, that sorafenib was an ‘orphan drug’ meaning that it was one which could treat only a specific and rare disease and hence had a very low possibility of becoming profitable. Yet, Bayer failed to substantiate all of this with solid evidence. It did not quote its own research and development expenditure let alone any conclusive figures as to the various costs incurred by it on other fronts. Hence, all that was left of Bayer’s attempts to justify the price was mere conjecture.   

ISSUE 3: Bayer did not ‘work’ the patent in India.

This issue is the most controversial section of the case. Natco argued that since Bayer had not made any attempts to locally manufacture the drug it failed to ‘commercially work’ the patent in India. Natco stated that Bayer had continually relied on the mere supply of the bottles containing the drug rather than make any long-term strategy regarding manufacturing the same here so as to reduce the cost of the drug on the long-run.

Bayer went on to challenge the very definition of the term ‘workable’. It argued that ‘working’ a patent merely meant the supply of the drug and not ‘manufacture’ at all. The Patent Act is silent over what is the meaning of the term. Further, a reading of the Paris Convention and the TRIPS also result in ambiguity over the term.

The Controller ruled even on this issue in favour of the applicant- Natco. The third issue is controversial because the law is silent on this point as to what constitutes ‘working’ of a patent.  

Thus, on the grounds aforesaid, the Controller issued a compulsory license in favour of Natco. This marked a drastic development in patent jurisprudence. Today thanks to this brave step the drug is available at INR 8,800. Also, Cipla against whom an infringement suit is pending brought down its own drug’s price so as to enable to compete with Natco in open market. The only hitch one may spot in the scenario is that Natco remains burdened with the task of convincing the medical fraternity as regards the drug’s quality.

Consequent to the ruling Bayer filed a stay petition with the IPAB. This petition was denied on the 21^st of February only to bolster the stand already adopted by the Controller. On the flipside, it is important to consider the stance taken by pharmaceutical companies generally. India cannot go on a rampant spree of granting compulsory licenses however in certain cases they are imperative. The author strongly believes that India needs to approach the issue by first conducting a thorough study of which drugs or disease treatments need an intervention. The government then ought to use its power of granting compulsory license as a bargaining tool so as to compel some pharmaceutical companies to bring down prices. Thus restricting the matter to the negotiation table rather than moving court. India will not stump incentive in pharmaceutical companies that way nor will it see injustice being meted out to its people.

The battle however in this case is far from over. Bayer is expected to invoke all redressal mechanisms from the Supreme Court to the WTO itself. It is time India has to take a stand such that it does not deferentially treat case after case of such nature.