Compulsory License Granted by the Indian Patent Office

March 20, 2012

In an unprecedented move, the Controller of Patents in India ("Controller") issued the first compulsory license under the Indian patent regime, since the Patent Act, 1970 ("Act") was amended in 2005 to permit product patents in India[1].

The compulsory license relates to a "life-extending" drug ("Sorafenib") patented (in 2008 in India) by Bayer Corporation ("Bayer") for the treatment of advanced stages of liver and kidney cancer. The drug was developed and marketed in various jurisdictions, including India, under the name Nexavar. An Indian pharmaceutical company, Natco Pharma Limited ("Natco"), applied to the Indian Patent Office for the grant of a compulsory license after Bayer refused to provide Natco with a voluntary license to manufacture and sell the drug in India.

Grounds for Issue of a Compulsory License

The Act deals with the grant of patents in India and the circumstances under which compulsory licenses of such patents may be granted in India. If any one of three requirements specified in Section 84 of the Act is satisfied, the Controller of Patents may issue a compulsory license to the entity applying for such a license. The requirements are: 

(a)     that the reasonable requirements of the public [in India] with respect to the patented invention have not been satisfied;

(b)     that the patented invention is not available to the public [in India] at a reasonably affordable price; or

(c)     that the patented invention is not worked in the territory of India. 

Based on industry statistics and Bayer’s own admission, it was found that Bayer had made the drug available to less than 2% of the patient population (i.e. those suffering from advanced stages of liver and kidney cancer). The Controller found that the drug was not available to the public in India at a reasonably affordable price, as evidenced by the miniscule purchase and consumption of the drug by the relevant patient population in India. In deciding on whether the price was reasonably affordable, the Controller specified that reasonability has to be construed predominantly with reference to the public (and not the patentee and its research and development costs). The Controller also found that even after four years, Bayer had not begun manufacturing the drug in India, despite its manufacturing facilities in India producing oncological drugs generally. To the Controller, these factors justified the grant of the compulsory license to Natco in relation to Sorafenib.

Impact of the Order

The compulsory license enables Natco to manufacture and sell the drug only in India. The price charged for the drug cannot exceed $176 a month (which is about three percent of the price currently charged by Bayer for the drug) making it more affordable to the Indian public.  Pursuant to the order, Natco will have to pay a royalty of six percent of its net sales to Bayer. 

While Bayer may appeal the order of the Controller, the order is likely to encourage Indian pharmaceutical manufacturers to seek compulsory licenses for a variety of drugs that are patented in India but are not affordable to the Indian patient population.  

The order is important for other reasons as well. It provides entities that have been granted product patents in India with some guidance on steps that they should take to avoid the grant of compulsory licenses for their products in India. The patentee should:      

(a)     commercialize and introduce the patented product promptly after the grant of the patent and without unreasonable delay, perhaps not later than its introduction in other markets;

(b)     adopt differential pricing strategies (where lower income groups have access to the patented product at a subsidized price) in order to make the purchase of the patented product more widespread;

(c)     where possible, promptly commence manufacturing of the patented product in India; and

(d)     continuously engage pharmaceutical manufacturers in India to arrive at mutually acceptable commercial arrangements to exploit the patented product in India.   

[1]  Order of the Controller of Patents, Mumbai in Compulsory License Application No. 1 of 2011.

Gibson, Dunn & Crutcher LLP 

Gibson, Dunn & Crutcher lawyers are available to assist in addressing any questions you may have regarding these issues.  For further details, please contact the Gibson Dunn lawyer with whom you work or the following lawyers in the firm’s Singapore office:

Jai S. Pathak (+65 6507 3683, [email protected])
Priya Mehra (+65 6507 3671, [email protected])
Karthik A. Thiagarajan (+65 6507 3636, [email protected])

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