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Legal Implications of Compulsory Licensing on Pharmaceutical Sector in


India in Light of Natco v. Bayer

Book · November 2013

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Munnazzar Ahmed
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Acknowledgement

Though it is ceremonious to write an acknowledgement, this is not merely to


formalize the custom but to express my cordial gratitude to all those who have
directly or indirectly helped me in through the course of this work.

My first and foremost thanks are to my Parents and Friends who are my well wishers.
It would not have been possible for me to complete this thesis if they had not
unconditionally extended their support. I express my honest thanks to Dr.
Shashikala Gurpur, Director, Symbiosis Law School Pune, who gave me an
opportunity to be a part of this prestigious institute.

I would like to express my heartfelt gratefulness to Dr. Rupal Rautdesai, Faculty,


Symbiosis Law School, Pune, who motivated me to take above-mentioned topic for
dissertation. She will always remain a source of inspiration for me.

I would also like to express my special thanks to the Faculty Members, Library Staff
and Computer Lab staff, Symbiosis Law School for their vital support and making
me accessible to all the primary, secondary and electronic sources for the fruition of
this dissertation.

Date: 30/03/2013 Munnazzar Ahmed


Place: Pune
Abbreviations

AIDS Acquired Immuno Deficiency Syndrome.

CL Compulsory Licensing.

FDA Food & Drug Authority.

FDI Foreign Direct Investment.

HIV Human Immuno Deficiency Virus.

IPAB Intellectual Property Board of Appeal

IPR Intellectual Property Rights.

MNC Multi National Corporation.

LTD Limited

R&D Research and Development.

RTI Right to Information

TRIPS Agreement on Trade Related Aspects of Intellectual Property Rights.

UK United Kingdom.

US United States of America

WTO Word Trade Organization.


Contents

Chapter I: Scheme of the Study……………………………………. 7----17

• Introduction…………………………………………………... 7----8
• Objective of the Study………………………………………... 8----9
• Research Questions…………………………………………... 9
• Methodology of Research……………………………………. 9----10

o Doctrinal Research……………………………. 9--- 10


o Non-Doctrinal Research……………………… 10

• Tools of Data Collection…………………………………….. 10


• Scope of research……………………………………………. 10
• Significance of Research……………………………………. 10----11
• Limitations of the Research………………………………… 11
• Scope of Further Research………………………………….. 11
• Literature Review…………………………………………… 12--- 17

Chapter II: Introduction of Compulsory Licensing…………….. 18---25

i) Introduction……………………………………………… 18
ii) Concepts & History of Compulsory Licensing………… 19


a) Compulsory Licensing Generally………………... 20
b) Jurisprudential Analysis of Compulsory Licensing…. 21---23

iii) Issues on Access to Medicine………………………………. 23---24


iv) Drug Development…………………………………………… 24---25

Chapter III: Natco Pharma Limited v Bayer Corporation: Case Study… 26---33

i) Introduction……………………………………………………… 26
ii) Facts Leading to Appeal………………………………………… 27
iii) Issues…………………………………………………………….. 27---30

 Reasonable Requirements of the Public not being met………. 27---28

 Excessive Pricing………………………………………………...28---29

 Non-Working of the Patent……………………………………. 29---30

iv) Arguments………………………………………………………. 30
v) Decision of IPAB…………………………………………………. 30---- 31
vi) Recent Developments……………………………………………31---32
a) Appeal to High Court……………………………………………32
vii) Conclusion………………………………………………………..32---33

Chapter IV: Legal Implications of Compulsory Licensing on Pharmaceutical


Sector in India…………………………………………………………34--- 43


i) Introduction……………………………………………………. 34---35
ii) Factors Influencing Compulsory Licensing on
Pharmaceutical Sector…………………………………………………. 35---39
iii) The Potential Implications Arising from Compulsory Licensing… 39---41

A. Immediate Impact………………………………………………… 40

a) Generic v MNC…………………………………………. 40
b) Price Reduction………………………………………… 40---41
c) Market Reputation…………………………………….. 41

B. Future Implications……………………………………………… 42

a) Illustration……………………………………………………. 43
b) Health Implications………………………………………….. 43---46

Chapter V: Suggestions & Recommendations………………………….. 47---53

i) Introduction…………………………………………………….. 47---49
ii) Possible Outcome of Compulsory License in India………….. 49-- 50
iii) Suggestions & Recommendations……………………………..50---52

a) Government Role…………………………………………… 50---51


b) Insurance Sector Participation…………………………….. 51
c) Maintenance of Record…………………………………….. 51---52


iv) Conclusion………………………………………………………...52----53

Bibliography…………………………………………………………………. 54
Webliography………………………………………………………………... 54---57


Legal Implications of compulsory licensing in India in light of Natco v/s Bayer
Case on Pharmaceutical Sector.

Introduction
Comparison of developing countries to the least developing countries in respect to the
affordable healthcare, more particularly to patented drugs under the TRIPs regime.
TRIPs embodies a system of monopoly, even it is for the limited time period for the
inventor (patent holder), balancing the interest of both the inventor as well as those of
poor people which in actual in not a easy task. The role of DOHA declaration on
TRIPs & public health attempts to do so. Declaration put an emphasis that there
should be no prevention to the members to act according to then in protection of their
national health. Affirmation to practice flexibilities by the government provided by
the TRIPS is provided by the Doha declaration in the form of compulsory licenses,
parallel imports and even the control over the price of the drug by the intervention of
the national legislations for the same purpose. Special provisions for implementation
of the compulsory licensing with regard to the several negotiations with TRIPs
council even by the members who have no technological capability to implement
them by associating with other members, have now ben approved by associating with
other. The procedure to produce and supply drugs using compulsory licenses is much
too cumbersome and bureaucratic to offer a practical and meaningful solution to the
problem; so much so during the last five years only one case has been successfully
handled under these provisions to make patented drugs available through
manufacture and supply under compulsory licenses to some of the least developed
countries.

However, the practice of compulsory licensing comes with a price: the temporary or
permanent deprivation of some part of a patent owner’s right to exclude disrupts the

investment-backed expectation of the property right. In the future, pharmaceutical


companies and other industries dependent upon intellectual property rights may
mistrust licensing nations’ promises to protect and enforce patent rights, not to
mention copyrights, and trademarks. As a result, industries that find the security of
property rights lacking in a given nation may avoid engaging in foreign direct
investment with that nation. Because foreign direct investment (“FDI”) is a major
potential source of economic growth for recipient nations, the loss of such investment
resources arising from compulsory licensing practices could force developing nations
to pay a particularly heavy cost for providing needed medicines for its citizens.

The first ever-compulsory license was granted to the Natco under the section 84 of
the Patent Act, 1970 that read as follow:

(1) 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.”
Therefore a critical analysis of the case would be necessary to lay down the future
implications of the case as it is still not enforced permanently & several oppositions
were also made by the Bayer.

Objective

Considering India to be a developing country and a large market for the


pharmaceutical industry therefore a proper check is very necessary on the practices of
such pharmaceuticals in the country. CL as a mode of maintaining balance between


the interest of the private entity & people at large, therefore if such balance is
disturbed even to little extent then there could be spoiling interest of either parties.

The researcher here has an objective of critically analyze the case of Natco Pharma
ltd v Bayer Corp and lay down the various impacts on the various people associated
to it. Further researcher will also lay down some future implication of the outcome of
the case in Indian Pharmaceuticals.

Research Questions

 Are Circumstances appropriate under which the order is relevant in light of


existing law dealing with compulsory licensing in India?
 What kind if impacts would be there on the pharmaceutical sector from this
decision?
 Whether the compulsory license is precisely for poor people in light of Doha
declaration, which focuses on poor people?
 Whether government role can be extended to grant access of medicine to needy
people?
 Whether the decision can be considered as benchmark for other courts to
follow?

Methodology of Research

Doctrinal Research
Researcher mainly concentrating on the non-doctrinal methodology of the research as
it has created a heated debate in the society. Mainly the concentration would be done


on the books available, articles, blogs, online interviews, journals, newspaper,
Internet sources, published papers and other possible mode.

Non-Doctrinal Research
Researcher will also wish to do a limited non-doctrinal research to get a practical
experience of the various people associated with the decision on compulsory
licensing. Interviews of patients & doctors will survive the purpose of my research.
Implications from such a data can be easily drawn, as it would be direct mode of data
collection.

Tools of data collection


Internet and Libraries would be the most important tools as for as this research is
concerned. Opinions of experts (Scientist), Preparation of Questionnaire, Journals,
case study, governmental data, experiments, observations, various books, statute,
committee reports, news from news papers etc.
No data is available to draw conclusions unless you take up survey to study people’s
opinion regarding research topic.

Scope of Research
This research is confined to the compulsory licensing under Indian Paten Act, 1970. .
Further narrowing down, this research is only confined to compulsory licensing in
pharmaceutical industry. The study will provide a drastic impact on the
pharmaceutical sector of India.

Significance of the Research


Provision of the compulsory licensing was inserted with an objective of having a
proper check of access and availibility of the medicine to the people. India been a
large market for pharmaceuticals has a very great impact on the interest of the people


as well as the interest of the stake holders. A proper balance needed to be maintained
among the both to survivie the intention behind the framers of the legislations.
Significance of my research would be as follows:

 Awaken the other generic drug committee in India regarding the same
provision & its practical implication.
 Provide the criteria under which the compulsory licensing can be granted on
other various grounds.
 Highlight the economic factors associated with such a grant.

Limitations
India considered being a very vast in geographical area therefore which limits my
research to certain geographical area only. Further there are lots of drugs are life
saving & are being patented but it would not be feasible to look into every drugs and
it would be limited to case to case. My research would limit to cancer & HIV relating
drugs only which are patented.

Scope for further research


As my research limited to only cancer & HIV drugs there is a large scope of further
research in other life saving drugs, which are there in the market. Even most of the
patents for life saving drugs going to be expired in year 2015 then there would be
rush to the license for the same drugs therefore which further enlarge the scope of my
research. Even this is the first case of compulsory licensing and whether it could be
treated as a precedent for the other similar cases or may be some other grounds would
be interpreted in future for the grant of such compulsory license.


Literature Review

BOOKS:
Joseph Strauss, Patents and Technological Progress In a Globalized World,
SpringerPublishing.
Legal, Economic & Policy perspectives are given on the challenges raised by the
“Patents & Technological Progress in a globalized economy out of which
compulsory licensing is also considered to be one of them. Recent development in
the national intellectual property law also considered being one of the major heated
debates especially in developing countries. Granting compulsory licensing by the
developing countries under different circumstances is one of the major areas
needed to look upon.

Sudip Chaudhuri, The WTO and India’s Pharmaceuticals Industry: Patent


Protection TRIPS, and Developing Countries, Oxford University Press.

Contents of the book specially the chapter naming Globalization of patent laws:
Flexibilities under TRIPS and changes in Pharmaceutical Patent in India which
will provide with the better understanding of the concept of compulsory licensing
and how the changes were made in the Patent Act, 1970 to include the provision of
the compulsory licensing for the pharmaceuticals. There could be more exposure to
the affordability & accessibility of Pharmaceutical products in India and
comparison with TRIPS. Drug price control is more prospects to understand with
reference to the CL.

Nuno Pires De Carvalho, The TRIPS Regime of Patent rights, Wolters Kluwer
Law & Business Publishers.


A separate topic on the compulsory license has been explained under the Article
31, which gives an elaborate explanation of the whole concept. It further lays down
the essential circumstances under which the license to patent can be given by the
Government of a particular country under the different circumstances. The main
stress is given to the developing countries & least developed countries.

Philip W. Grubb, Patents for Chemicals, Pharmaceuticals and Biotechnology,


Oxford University Press.

Historical background of patents has been explained in a very elaborative manner.


The content of the first few chapters is more importance to my research as prior to
go into the subject matter it is very necessary to give an elaborative idea of the
historical background of patents not only in a single nation but in different nations.
The concerned nations include US, European Union, England. The book is relevant
to my research topic as it talks about the legal developments from the year 1999 to
2004, during which phase India did compliance with the TRIPS and amendment
was done in 2003. During this phase only patents were introduced for the drugs
which is core subject matter of my research topic and it also talks about to access
to medicine which was accepted during this phase in Doha Round and certain more
grounds were laid down for the grant of compulsory license which India has
practiced to grant it to Natco in the case of my research.


Recent Judgments
Natco Pharma limited v Bayer Corporation1 Application no 1(2011)

It is the official judgment decided by the Mr. P.H. Kurian, controller of Patents in
year 2011. First compulsory license granted by India to a India generic company.
All the issues & facts discussed and also the ratio decidendi for the decision also
provided in the following judgment. It will provide me with a clear view of the
reasons behind the grant of the compulsory license against the German
pharmaceutical company. Since the appeal was dismissed by the intellectual
property appellate board (IPAB) therefore still appeal to high court is available. To
understand the final decision it is necessary for the reference of the above said
document.

Articles
Martin Khor, Patents, Compulsory License and Access to Medicines: Some
Recent Experiences
http://www.policyinnovations.org/ideas/policy_library/data/patents_compulsory_
license 08/09/2012

Article talks about the whilst in recent years & the goal for access to medicines
had been significantly fought at the international level, action is now equally or
even more important at the national level, where policy makers should focus on
policy and practical measures to get medicines to poor patients.

Reed Beall &Randall KuhnTrends in Compulsory Licensing of Pharmaceuticals


Since the Doha Declaration: A Database Analysis.2

1
http://ipindia.nic.in/ipoNew/compulsory_License_12032012.pdf

2
Reed Beall & Randall Kuhn, Trends in Compulsory Licensing of Pharmaceuticals Since the Doha Declaration:
A Data Base Analysis,PLos Med 9(1): e1001154 available at
http://www.plosmedicine.org/article/info%3Adoi%2F10.1371%2Fjournal.pmed.1001154

Given skepticism about the Doha Declaration's likely impact, the article note the
relatively high occurrence of Compulsory licenses, yet Compulsory licensing activity
has diminished markedly since 2006. While UMICs have high Compulsory Licensing
activity and strong incentives to use Compulsory Licenses compared to other
countries, it can be visible considerable countervailing pressures against Compulsory
License use even in UMICs. Article concludes that there is a low probability of
continued Compulsory License activity. Article highlights the need for further
systematic evaluation of global health governance actions.

WHO Publication,

The Doha Declaration On The Trips Agreement And Public HealthThe TRIPS
Agreement allows the use of compulsory licenses.3 Compulsory licensing enables a
competent government authority to license the use of a patented invention to a third
party or government agency without the consent of the patent-holder. Article 31 of
the Agreement sets forth a number of conditions for the granting of compulsory
licenses. These include a case-by-case determination of compulsory license
applications, the need to demonstrate prior (unsuccessful) negotiations with the
patent owner for a voluntary license and the payment of adequate remuneration to the
patent holder. Where compulsory licenses are granted to address a national
emergency or other circumstances of extreme urgency, certain requirements are
waived in order to hasten the process, such as that for the need to have had prior
negotiations obtain a voluntary license from the patent holder. Although the
Agreement refers to some of the possible grounds (such as emergency and
anticompetitive practices) for issuing compulsory licenses, it leaves Members full
freedom to stipulate other grounds, such as those related to non-working of patents,
public health or public interest. The Doha Declaration states that each Member has

3
Doha Declaration on TRIPS Agreement and Public Heath available at
http://www.who.int/medicines/areas/policy/doha_declaration/en/index.html

the right to grant compulsory licenses and the freedom to determine the grounds upon
which such licenses are granted.

Hans V Hogerzeil, Melanie Samson, Jaume Vidal Casanovas, Ladan Rahmani-


Ocora, Is access to essential medicines as part of the fulfillment of the right to health
enforceable through the courts?

Most countries in the world have become States parties to one or more international
human rights treaties, thus creating an obligation by the State to its people towards
the realization of the right to health, which includes access to essential medicines.
But whether such access is enforceable in practice is unknown.A systematic search in
the article shows the completed court cases in low-income and middle-income
countries in which individuals or groups had claimed access to essential medicines
with reference to the right to health in general, or to specific human rights treaties
ratified by the government. Data was analyzed of 71 court cases from 12 countries in
which access to essential medicines was claimed with reference to the right to health.

In 59 cases, access to essential medicines as part of the fulfillment of the right to


health could indeed be enforced through the courts, with most coming from Central
and Latin America. Success was mainly linked to constitutional provisions on the
right to health, supported by the human rights treaties. Other success factors were a
link between the right to health and the right to life, and support by public-interest
non-government organizations. Individual cases have generated entitlements across a
population group, the right to health was not restricted by limitations in social
security coverage, and government policies have successfully been challenged in
court.

Article will help me to understand that how skillful litigation can help to ensure that
governments fulfill their constitutional and international treaty obligations. Such
assurances are especially valuable in countries in which social security systems are

still being developed. However, redress mechanisms through the courts should be
used as a last resort. Rather, policymakers should ensure that human rights standards
guide their health policies and programmed from the outset.

Divya Murthy, The Future of Compulsory Licensing: Deciphering the Doha


Declaration on the TRIPs Agreement and Public Health4

The Declaration on Public Health and TRIPs issued in Doha, Qatar, created, rather
than definitively solved, issues related to compulsory licensing. In the round of trade
talks, WTO Members cleared the understanding on the issues of public health and
compulsory licensing for export. Developing countries accepted limits on what
constitutes a "public health" concern, while developed countries accepted a more
expansive definition of "third party

4
Murthy, Divya, "The Future of Compulsory Licensing: Deciphering the Doha Declaration on the TRIPs Agreement
and Public Health." American University International Law Review 17, no. 6 (2002): 1299-1346.

Chapter II

Introduction of Compulsory Licensing

“We need to evolve mechanisms that protect intellectual property and at the same
time, address the needs of the poor”.5

-Prime Minister Manmohan Singh

i) Introduction

Limited access to patented pharmaceuticals is a serious issue confronting developing


countries. Since the ratification of the Agreement on Trade Related Aspects of
Intellectual Property Rights (TRIPS) by the World Trade Organization (WTO), this
issue has acquired an even greater degree of urgency since local pharmaceutical
industries in countries such as Brazil and India can no longer reverse-engineer
patented foreign medicines and sell them at low prices in developing country
markets. Post TRIPS, government across the developing world has tried to improve
consumer access to medicines sold by foreign pharmaceutical companies by
imposing price controls on them. Indeed, such controls exist even in rich countries
where the public sector plays an integral role in health care. However, a problem with
using price controls to improve consumer access is that pharmaceutical companies
with patented medicines may simply refuse to sell in markets where they find such
controls to be too strict. When faced with no or limited access to a patented foreign
product, a country may choose to engage in compulsory licensing, i.e., an
authorization granted by a government to someone other than the patent-holder to
produce the product without the patent-holder’s consent6.

5
The Prime Minister, Dr Manmohan Singh in his remarks at the Fortune Global Forum in New Delhi in October 2007
6
Eric Bondy and Kamal Saggiz, Department of Economics Vanderbilt University Compulsory licensing, price controls,
and access to patented foreign products, April 2012. (Last updated on Mar. 11, 2013) avaiable at

ii) Concepts and History of Compulsory License:

Before debating the issues of compulsory licensing, we researcher would like to put
some stress on the conceptual clarification and its origin to understand the
background. The current debate over compulsory licensing is nothing new. As a
stipulation, compulsory licensing can be traced back to the UK Statute of Monopolies
in 1624, which ruled out monopolies associated with patent, and stated that grants
should not be ‘mischievous to the state’ or hurt trade. It is not now but in 1790,
1851 and 1853 the policy makers in United States, Britain and Germany respectively
had discussed compulsory licensing to eliminate the evils of the patent system while
preserving the benefits. Compulsory licensing was accepted as a strategic
compromise in 1873 at the Patent Congress in Vienna by the patent critics and
advocates. With the subsequent adoption of compulsory licensing by the 1883 Paris
Convention, the world’s foremost international patent agreement, compulsory
licensing became a fixture in almost all patent systems.7
The practice of compulsory licensing is addressed in the World Trade Organization’s
agreement on Trade Related Aspects of Intellectual Property Rights.8Article 31 of the
TRIPS Agreement does authorize any WTO Member to issue a compulsory license
after several ambiguous procedures are met. Further to this step, it was the Doha
Declaration, which paid detailed attention to patented drugs that could cure
widespread fatal diseases. While many countries have included compulsory licensing
clauses in their patent laws the researcher’s examination of legislation in 193
countries finds that more than 90 per cent of them include the relevant stipulations, it
nevertheless seems difficult to implement a compulsory license.

http://www.wipo.int/edocs/mdocs/mdocs/en/wipo_ip_econ_ge_4_12/wipo_ip_econ_ge_4_12_ref_saggi.pdf
7
Fritz Machlup& Edith Penrose, The Patent Controversy in the Nineteenth Century, 10 J. ECON. HIST. 1, 4 (1950).
8
Ibid

a) Compulsory Licensing Generally

One benefit available to a patent holder is the ability to voluntarily issue a license for
some or all of the rights of a product to another party.9 In contrast, a compulsory
license is a license for a patented product issued by the government to a third party
without the patent holder's permission.10 In return, the government grants the patent
holder what it believes to be reasonable compensation.11

The basic reasons here researcher found for issuing compulsory licensing is of
decreasing a country’s dependence on imports, thus increasing the number of
competitors in the market and in the last but not the least protecting and developing
the local industry. It has been also contented and the fore most reason for the above
that contented by the most developing countries and the activists that compulsory
licenses result in the increased access to critical life saving drugs.

Now if we see the same provisions in US patent laws then we can say that they exist
but we look into the working of the same then it is very clear that the same provisions
are used or work under a very narrow or specific situations.But in the case of
developing countries the provisions of compulsory licensing and parallel imports are
freely practices as the legislations are still under a fresh practice. In the view of the
pharmaceutical sector it is called to be a bad practice as in developing countries it can
be consider to be a supportive mechanism to the patent infringement rather that it
gives exception from developed countries.

9
Colleen Chien, Cheap Drugs at What Price to Innovation: Does Compulsory Licensing of Pharmaceutical Hurt
Innovation?, Berkeley Technology Law Journal, 5-13 (2003)
10
Seven Developing Nations Urge TRIPs Review to Ensure Compulsory Licensing for Drugs, 16 INT'L TRADE REP.
(BNA), No. 23, at D7 (June 9, 1999) (discussing the differing interpretations of compulsory licensing within the
framework of TRIPs).
11
ADELMAN ET AL., supra note 11, § 19.2 (stating that the patent owner is compelled to license at a rate thought to
be reasonable by the government).


c) Jurisprudential Analysis of Compulsory Licensing

Compulsory licensing is a procedure by which the State permits a third-party to


engage in production of a patented good without taking the permission from the
patent owner. The party to such license is granted treat it like as if it is granted to it
under the license by the patent holder. This is clearly a limitation placed on the rights
of patent holders in interest of the society at large and is mostly accompanied by a
guarantee of compensation for the patent holder12. Compulsory licensing is certainly
an interference with intellectual property rights. Whether it is justified or not depends
on the facts of each case and the shade of the looking glass. However, to understand
such interference in its legal context, we need to understand the exact nature of the
rights interfered with. This is where a jurisprudential understanding of intellectual
property rights and limitations thereon assume significance. The first question to be
answered is, whether a patent right is a right conferred by the State or it is an inherent
right merely recognized by the State. If the former is the case, State’s interference
will amount only to a limited withdrawal by the State of a right, which is its own
creation. On the other hand, if the latter holds true, the action of the State will be as
justified or otherwise as that of a parent stealing medicines to save his or her child. In
the former case, the usurpation is completely legal and justified. In the latter case,
though there may be moral justifications and mitigating circumstances, the legality of
the action is, to say the least, questionable.13

Supporters of patent right bringing it under the purview of the natural law theory
claims an inventor has an inherent right of exclusivity in his intellectual creation
12
. Agreement on Trade Related aspects of Intellectual Property Rights, January 1, 1995, Article 31 (h), 33I.L.M. 1125
(1994); See also, Table II in Appendix I, II & III.
13
Munnazzar Ahmed & Pariksha Parmar, Dichotomy between Compulsory Licensing & Patent Monopoly, Social
Science Research Network available at
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2224532 (Last updated: April. 23, 2013)

which is merely recognized and protected by the State but if taken into real life
scenario then it is totally have another face as patents are time bound. Critics argue
that it is absurd to attribute the status of a natural right to something, which expires
after a statutorily defined period of time. Utilitarian justification to patent regimes
focuses on the benefit allocation under the regime and supports patent protection
when the net benefit weighs in favor of the society at large. Supporters of the
contractual rationale states that there is a contract between the patent holder &
society where society accords a limited monopoly to the inventor in return for the
benefits of the invention being made available to the society at large and the possible
replication of the invention after the expiry of the patent. While natural lawyers view
patent rights as inherent rights merely recognized and protected by the State,
Contractarians and Utilitarian’s view it as rights arising out of State’s conferment.
Therefore, State interference with patent rights, including issuance of compulsory
licenses, is more likely to find favor with the latter two schools than with the natural
lawyers. Though there are more theories on the nature of patent rights, including the
prominent ones like incentives theory and prospects theory, all these more or less
adhere to the position that patent rights are State-conferred. Therefore, the
interference of the state is a likely to be very common practice in granting
compulsory license as mentioned in various jurisprudential schools14.

If we see the theory proposed by the Roscoe Pound in the jurisprudence then it is
clearly analyzed that the provision of the compulsory licensing is also introduced to
maintain the balance between the stakeholders and the common people. The character
of compulsory licensing can be easily framed under the same theory from where its
existence can be derived.

Having clarified the nature of the rights being interfered with and the acceptability of
interferences under major doctrinal positions, the nature of interference and the
nature of power exercised by the State in such interferences are to be analyzed.

14
ibid

“Compulsory licensing is often called the “eminent domain of intellectual
property 15 ”. This position presupposes the State as the giver and protector of
intellectual property rights and therefore attributes to the State an inherent power to
interfere with these rights where a public purpose requires to be fulfilled. The
requirements of the society at large are weighed against the rights of the patent holder
and where there are pressing public requirements, a compulsory license is issued to
meet such requirements. Hence, most patent legislations recognize some form or the
other of compulsory licensing. In the multilateral framework of TRIPS, compulsory
licensing is recognized as flexibility available to the Members for attaining purposes
such as those relating to public health goals16.

iii) Issues on Access to Medicines:

The average life expectancy across the globe has increased from around 30 years a
century ago to over 65 years today. This has been made possible in large part by
modern medicine. Prof. Robert Bird sympathizes that, more than one person out of
three on Earth i.e. more than 1.7 billion people today have little or no access to
essential medicines. 17 One basic reason is of course poverty- many developing
country consumers do not have enough purchasing power. For e.g. the impact of
HIV/AIDS18 epidemic in Africa. In 2001, the annual cost of treating one HIV/AIDS
patient was $ 10,000 such that African countries would have had to spend more than
half their gross domestic product to procure these medicines.19
Other important factors are inadequate national health infrastructures and financing
systems. Prices of medicines also play an important role, because many people in
developing countries have to pay for their own medicines, as there are no general

15
ibid
16
ibid
17
World Health Organization, The World Medicines Situations at 61 (2004)
18
Human Immunodeficiency Virus & Acquired Immune Deficiency Syndrome
19
Frontline- May 4, 2012, pg 6

health insurance systems. 20 The current IPR regime seeks to exercise monopoly
control for the medicine by way of patent and these medicines are selling at
exorbitant prices.
The case for human rights to health clearly stands out when the intellectual property
rights for medicines are sought. However, intellectual property rights have not clearly
emphasized the notion of human rights though they mention ... the socio economic
dimensions. While there have been many instances of the developed countries like
the US and Canada utilizing the option of Compulsory Licensing (CL), yet,
controversies arose when the developing countries tried utilizing these options. The
Doha declaration on public health cleared a few of the controversies that developing
countries encounter in the process of implementing the Agreement on Trade Related
Aspects of Intellectual Property Rights (TRIPS) and in a way exposed the gaps
between the multilateral agreements and the concerns on human rights to health.21

The crux of this situations lead to Doha declaration concerning the use of
Compulsory License in accessing medicines and the issues. First part of this paper
discusses the concept, history and origin of compulsory licenses, Compulsory
licensing of drug and its issues which present in second part as follows, Third part
discusses the Recent instances of Compulsory Licensing in developing, and least
developing countries following the background information of India’s first
compulsory license and its economic impact which conclude this paper with some
suggestions.

iv) Drug Development

Patent laws, like other branches of intellectual property law, are designed to

20
http://www.kommers.se/upload/Analysarkiv/Arbetsomr%C3%A5den/WTO/Handel%20och%20skydd%20f%C3%B6
r%20immateriella%20r%C3%A4ttigheter%20%20TRIPS/Rapport%20The_WTO_decision_on_compulsory_licensing.
pdf last visited on 30th September 2012.
21
Doha Declaration and Compulsory License for Access to Medicines, Lalitha.N, Working paper no. 184 of Gujarat
Institute of Development Research- 2008, Pg. 1

encourage innovation by providing incentives to inventors 22 . Creation of a new
innovate product cost lots of investment in it which is thrown back to the inventor in
the form of incentives for that product and in case of pharmaceuticals these incuse the
money spent on the research, clinical trails and obtaining the government regulatory
approval which are about millions of dollar in an average. In spite of the spending
lots of money in the R&D of a new medicine, it may be not in a position to sell in the
market or not marketable and opposite to it the giant pharma companies are only
dependent on few drugs only for their revenue. Therefore, pharmaceutical companies
seek the protection of patent laws as a means of ensuring their investments23?

Pharmaceutical companies have the twin goals of making revenue and evolving new
drug entities that improve health and save lives. While many critics point to the
dangerous intersection of profits and improving health and saving lives, the evidence
overwhelmingly indicates it is a successful marriage of goals."

22
Gerald J. Mossinghoff, Progress in the Pharmaceutical Industry, INTRO TO INTELL. PROP. RTS. (on file with
author) ("Strong patent protection for pharmaceuticals drives medical progress by providing economic incentives for
innovation. Without international respect for pharmaceutical patents, medical innovation would suffer."), at
http://usinfo.state.gov/products/pubs/intelprp/progress.htm (last visited Mar. 11, 2013). The author supports this
assertion by referring to a 1988 study of twelve industries, in which Dr. Edwin Mansfield of the University of
Pennsylvania concluded that "65 percent of pharmaceutical products would not have been introduced without adequate
patent protection." Id. John M. Wechkin, Comment, Drug Price Regulation and Compulsory Licensing for
Pharmaceutical Patents: The New Zealand Connection, 5 PAC. RIM L. & POL'Y J. 237, 238-239 (1995) (stating that
patents are designed to foster human creativity and innovation).
23
Michael Montagne, Drug Advertising & Promotion: An Introduction 22 J. DRUG ISSUES 195, 202 (1992)
(discussing the role of health care as a business).(last updated on :Mar. 11, 2013)


Chapter III

Natco Pharma LimitedVBayer Corporation: Case Study

Introduction

The day of the nation-wide trade union strike, few people are on the roads and in
offices in Mumbai. But on the second floor of the Patent Controller's office, a handful
of people sit around a horse-shoe-shaped table, in a post-lunch session. They are
listening to final arguments on pharmaceutical company Natco's application, seeking
a compulsory license on Bayer's Nexavar, an advanced kidney cancer medicine. It is
also the last hearing of Mr. P. H. Kurian, as Patent Controller General24. The direct
consequence of which was easily available and burning down the cyber network that
that India grants its very first compulsory license to pharmaceutical company Natco.
The Hyderabad-based company Natco is now allowed to make and sell its similar or
generic version of the drug named Nexavar to patients suffering from cancer in India.
The most surprising fact of the whole scenario is that the price of the drug is reduced
to 97% of the price, which was offered by Bayer. The compulsory licensing (CL)
judgment also pegs royalty that Natco will pay Bayer at six per cent of net sales25.
Bayer was selling the same medicine for 2.8 lakh for a month’s medicine of about
120 tablets, in comparison to which the same medicine would be provided by the
Hyderabad based company Natco at a price of Rs8, 800 for the same amount of
tablets. Cipla has also a minor involvement in the following case as it is also selling
the same drug at a much cheaper price form Natco but also facing a patent
infringement trial at the Delhi High Court fled by Bayer.

24
P.T. Jyothi Datta, Natco ruling is a watershed, Business Lines, The Hindu, February 28, 2013, at
http://www.thehindubusinessline.com/opinion/article2995239.ece last accessed on 07, February 2013.

25
Ibid.

Facts Leading to Appeal

Sorafenib Tosylate is the patented drug at issue and is sold under the trade name of
Nexavar. Bayer got a patent in India on Nexavar in 2008. At the time when Natco
filed the compulsory license application, Bayer was selling the drug at Rs 2,80,000/-
per month. However, CIPLA who was not a party to the compulsory license
application sold Bayer's patented drug in the Indian market as Soranib at Rs. 30000/-
per month; and presently at Rs.5400/- per month.

Bayer's suit against CIPLA is pending before the Delhi High Court and no injunction
have been granted and Cipla continues to sell the patented product. And in the suit
before the IPAB, Cipla has sought for revocation of the patent. Understandably,
Natco also is seeking revocation of the patent covering the drug.

In the CL order issued by the then Controller General of Patent, a price of Rs.8800/-
was fixed at which Natco was supposed to sell the patented drug, and in turn pay a
standard royalty rate of six percent calculated the net price /manufacture.

Bayer appealed against the Controller's order before the IPAB and pointed that
because the drug was available at a much lower price (reasonable price) than the one
directed by the Controller (sale by Cipla @ 5400/- month), the compulsory license
was rendered unnecessary.

Issues
1. Reasonable Requirements of the Public not being met:

Bayer only brought in to the notice of the controller that only 2% of the total number
of kidney & liver patients are able to access the drug, which was provided by Bayer


in the market. It was also bring into light that a total of around 8,842 patients per year
are eligible for the treatment by the same drug. Therefore concluding form the both
the findings it was clear that the drug was only available to the 2% of the total
eligible patients. Keeping in mind the above two factors the controller held that for
requirement among the public with respect to the patented invention was not satisfied
and therefore accepted the application of the compulsory license and granted the
same to the Natco under Section 84 of The Patent Act, 1970.
Bayer also contented that in order to make drug accessible to public more time should
be allotted to it for making some amendments in the existing pricing of the drug. A
proposal was laid down to cut off the pricing of the drug that to assist the patient who
cant afford such an expensive drug Bayer would give it free for 3 months on the
condition that patient has to buy the drug at regular price of Rs 2.8 lakh for a month,
cutting down the average price of the drug to 30,000 per month which was similar to
the price at which Cipla was selling their generic version in the market and intended
to thwart the compulsory licensing decision.
However, the Controller rightly found that this proposed philanthropy, while
noteworthy did not enable Bayer to escape the issuance of a compulsory license
making the statement that, "the proposal of the patentee appears to be philanthropic in
nature, as per the submission of the patentee. In the present proceedings, we are not
concerned with philanthropy, which no doubt is appreciable. Such actions cannot be
construed as steps to work the invention on a commercial scale to an adequate
extent."

2. Excessive Pricing:

The Controller found that the price of the drug was not "reasonably affordable" to the
public: "During the last four years, the sales of the drug by the Patentee at a price of
about Rs 2.8 lakhs (for a therapy of one month) constitute a fraction of the


requirement of the public. It stands to common logic that a patented article like the
drug in this case was not brought by the public due to only one reason, i.e. its price
was not reasonably affordable to them."
He further countered Bayer's argument that "reasonably affordable" price had to be
construed with reference to the public and the patentee (in other words, the patentee's
R&D costs must be considered):
"I am of the view that reasonably affordable price has to be construed predominantly
with reference to the public."26
The order also castigates Bayer for adopting a "two faced" stand before the tribunal.
Bayer argued that since Cipla sells cheaper generic versions in the market (at Rs
30,000 per monthly dose of Sorefanib), there was no need for a compulsory license.
The controller rightly dismissed this argument, since Bayer had challenged Cipla's
right to sell the generic version in the market through a patent infringement lawsuit,
and was now relying on this alleged illegality to ward off a compulsory licensing
order.
"The Patentee appears to be indulging in two-facedness by adopting one stand before
this tribunal and another stance before the Hon'ble High Court of Delhi, in order to
defend the indefensible. M/s Cipla is an alleged infringer, as per the patentee's own
submissions, and accordingly cannot discharge the obligations of Patentee under the
Act. The Patentee appears to have treated M/s Cipla, in this case, as if they are their
licensee."27

3. Non-Working of the Patent:

The Controller found that mere importation of Bayer's drug into India did not amount
26
UdayShetty, Should India Modify the Compulsory Licensing Provision of the Patent Law, Drug Regulations, available
at
http://www.drugregulations.org/2012/03/should-india-modify-compulsory.html(Last Updated on 23rdApril, 2013.
27
Natco Pharma Limited v Bayer Corporation, (status: Pending), Available at
http://ipindia.nic.in/ipoNew/compulsory_License_12032012.pdf (Last updated on 23rd April, 2013).

to "working" and held in pertinent part that:

"I am therefore convinced that 'worked in the territory of India" means manufactured
to a reasonable extent in India."

This part of the decision is likely to prove controversial, since almost 90% of all
pharmaceutical patents are only imported into India. Therefore, under the terms of
this order, all of these drugs are now susceptible to compulsory licenses in India.

The Controller convincingly argues that the Indian patents act endorses a "local"
working provision and that such a provision is compatible with TRIPS and the Paris
Convention.

Arguments

Whether the necessary time period was given to Bayer to sell the drug on a
reasonable price.
Whether the provision of the compulsory can be used for life saving drugs only or
life extending drugs.
Whether still the poor people can afford the drug.

Decision

Rejecting the contention of Bayer, the IPAB held that if Bayer was granted a stay, it
will jeopardize the interests of the public who are in need of the drug; and that Bayer
had not adequately met its burden of proving its case.

Bayer essentially argued that if the patentee makes the drug available in the market at


reasonably affordable price and not necessarily, then S.84 (1)(b) of the Patents Act
would not arise. And if even someone other than the patentee meets public
requirement, even then S.84 (1)(a) will not arise. Additionally, because Cipla did not
have the burden of conducting research and development, Cipla could choose to sell
the drug at any price. Therefore, section 84(1) (c) could not arise either.

Rejecting Bayer's contentions, the IPAB held that Bayer had not made out a prima
facie case for the grant of stay, since even its own admission is that it is CIPLA
which is supplying the drug to satisfy the needs of the public. It is not the case of the
appellant that its supply is at a reasonably affordable price and satisfies the
reasonable requirement of the public.
In particular, the IPAB pointed out: "Therefore, when we look at section 84 of the
Act, having regard to section 83, as we are directed by that section, it is clear that it is
the duty of patentee to show that the patentee by its own supply has satisfied the
reasonable requirement of the public and by its supply, the drug is made available at a
reasonably affordable price. The appellant cannot ride piggyback on CIPLA 
particularly when the appellant is fighting CIPLA before another forum regarding the
same invention and the same drug."

Recent Developments
Intellectual Property Appellate BoardRejects Bayer's Plea on Nexavar

The Indian Controller General of Patents, Designs and Trademarks allowed Natco to
make copies of the liver- and kidney-cancer drug on the grounds that Nexavar was


too expensive for most people in India. The license allowed Natco to sell a generic
version at less than one-30th of Bayer's price28.
The appellate board, which is based in the southern city of Chennai, said the patent
authority was right in allowing a compulsory license for Nexavar, as Bayer hadn't
priced the drug at "reasonably affordable" rates29.

The appellate board Monday ordered Natco to pay 7% of its net sales from the drug
to Bayer30.

Appeal to High Court

Recently Natco filed an appeal and challenging the order of the IPAB before the
Bombay High Court. Ravi Kadam, Senior Counsel on behalf of Bayer Corporation
contended in his statement that, “We introduce the product after years of research and
investment, while companies like Natco merely copy and manufacture the product,"
He further contended that, "they (domestic companies) are making money while
Bayer gets 7%, as royalty from the Indian pharma company." 31 Analyzing the
statement of the representative of Bayer it is a very clear that Bayer, the
pharmaceutical MNC is only interested in economic factor as contented 7% as the
amount for royalty but failed to examine the health of masses which are on stake due
such a monopolistic practice.

Conclusion
Researcher here would like the conclude that no doubt it is such a landmark judgment
in the India patent history but it is going to create too many issues in the future.

28
Rumman Ahmed, India Appeals Body Rejects Bayer's Plea on Nexavar, The Wall Street Journal (Indian Edition),
March 04, 2013, at
http://online.wsj.com/article/SB10001424127887324178904578340013954624212.html
Last accessed on March 11th, 2013.
29
Ibid.
30
Ibid.
  

http://articles.economictimes.indiatimes.com/2013-10-12/news/42968576_1_natco-pharma-
nexavar-compulsory-licenceaccessed on (17 October 2013).

Bayer’s argument of putting the patent infringement done by the Cipla has no
relevancy in the above case but still to gain sympathy from the judiciary it had also
made reference to the same in the this case. We can also analyze that such an
enjoyment is only for a temporary period of time but if we look into the future then it
is going to create negative impact on the pharmaceutical sector. Now the companies
employed in R&D would be looking forward to take compulsory license on the
various drugs, which are patented and are of great commercial importance. Even
there would be impact on the R&D and FDI by the MNC in India due to fear of such
a precedent. Even the drug was only life extending but not life saving so not most of
the people will be interested in even spending the money on buying this drug as they
know that it is not going to save their life. Still Bayer has an option of going to the
either Bombay High court or Chennai High court but the possible outcome here to be
seemed that both higher courts will upheld the decision of the controller and set a
precedent in Indian Patent history which will help the other similar cases in future to
settle at much faster rate. In all,researcherwould like to conclude that it is a good
precedent set by the controller but other issues are needed to be addressed, as they are
very sensitive as of social point of view.


Chapter IV

Impact: Compulsory License on Pharmaceutical Sector.

Introduction

India's patent appeals body rejected Bayer AG's plea to stop a local company from
manufacturing and selling a generic version of its cancer drug Nexavar, a ruling that
has wider implications for multinational drug makers operating in the South Asian
nation 32 . The German company last year approached the Intellectual Property
Appellate Board after the local patent authority granted a "compulsory license" to
Natco Pharma Ltd. to manufacture a generic version of the drug. 33 The Indian
Controller General of Patents, Designs and Trademarks allowed Natco to make
copies of the liver- and kidney-cancer drug on the grounds that Nexavar was too
expensive for most people in India. The license allowed Natco to sell a generic
version at less than one-30th of Bayer's price.34India's patent law allows authorities
to order holders of drug patents to license their products for local manufacturing if
they are priced beyond the reach of patients. The patent authority's March 2012
order on Nexavar represented the first instance of a compulsory license being
granted in the country.35

India says there is a need to balance intellectual property rights with the rights of
people to get access to new and expensive medicines. Foreign producers argue India
is discouraging innovation by weakening patents, reducing the incentive for big

32
Ibid
33
Ibid.
34
Ibid.
35
Ibid.

companies to invest time and money to discover drugs.36

Factors Influencing Compulsory Licensing on Pharmaceutical Sector

There are mainly two factors, which can determine that whether there would be any
impact on the pharmaceutical, or not. The probability of the license and the benefit of
the affected market are the two factors, which will set the implication of the
compulsory licensing of the drugs on the developing countries. The type of the drug
in the developing countries is considered to be taken into account, which will
determine whether there would be any impact on the innovation in that developing
country.

Two sets of drugs are generally caring by the developing countries, which has their
own type of the incentive. Global drugs are of the first type, which are for generally
made for richer markets but are also useful in the developing countries for e.g. drugs
for the treatment of AIDS. The second type of drugs isthose, which are specifically
made for sale in developing countries for e.g. drugs made for the treatment for the
malaria, or tuberculosis.If we the history then it can be easily analyzed that such
drugs were never the priority of the pharmaceutical companies. For example in 2001,
Harvard School of public health survey found that 8 out of 20 large pharmaceuticals
did no research on the drug for cure of tuberculosis, malaria, African sleeping
leishmaniasis, or Chagas disease; and seven spent less than 1% of their research and
development budget on any of these disorders.

Around one tenth of specific country’s public or other philanthropic resources such as
Centers for Disease Control or public-private partnerships, are responsible for the
funds required for research in diseases The Medicines for Malaria Venture, for
instance, matches academic researchers with private firms to generate collaborations

36
Ibid.

in malaria medicines, an area that has largely been overlooked by industry. 37 The
Global Alliance for Tuberculosis Drug Development, partly sponsored by the
Rockefeller Foundation, similarly tries to shift product development risk away from
drug companies by conducting costly clinical trials for promising drug
candidates.38There has been always a collaborative effort to develop AIDS vaccine
for countries like Africa.

Research to date suggests that if compulsory licenses are taken in less significant
markets, their impact on innovation should be marginal. For global drugs such as
AIDS therapy, this would imply that compulsory licenses that are limited to
developing countries (i.e. ancillary markets) and do not impact the target markets for
the drugs (i.e., rich countries) might not be detrimental to research efforts in the rich
developed countries. This is in accord with common sense. For global drugs,
companies are responsive to the incentives provided by wealthy markets and
consumers. As long as these incentives stay intact, selective compulsory licensing for
developing nations should have little impact on overall R&D investment. The major
caveat to this conclusion is that it assumes that the affected market is limited to
developing countries and not enlarged to include rich nations as well, for instance
through parallel trade.

The implication is somewhat different for drugs developed to treat diseases endemic
to developing countries, such as malaria. As discussed above, much of the research
on these diseases is carried out or facilitated by public or philanthropic institutions,
for who patent protection and the promise of a patent monopoly are less, if at all,
important. In addition, the potential for monopoly abuse which compulsory licenses
are designed to counter could also be less likely. If pharmaceutical companies, on the
other hand, begin investing significantly in such disease areas due to the introduction

37
Martin Enserink, Malaria Researchers Wait for Industry to Join the Fight, 287 SCI. 1956, 1958 (2000).

38
Exotic Pursuits, ECONOMIST, Jan. 30, 2003, available at 2003 WL 6244875.


of patent protection, as is hoped, a compulsory license covering all developing
country markets might well usurp the primary target markets. Threatening or
implementing licenses on a regular, predictable fashion may deter pharmaceuticals
from initiating and carrying out R&D investments.

Based on these observations, and focusing exclusively on innovation concerns, one


can make a preliminary case for employing different approaches to compulsory
licensing depending on whether global or developing country-specific drugs are
licensed. Because the relative importance of developing country markets is small
when it comes to global drugs, the incentive to develop these drugs, which comes
from the developed world, is not substantially impacted. This means that allowing
developing countries to take compulsory licenses to AIDS therapy drugs should not
produce a negative impact on AIDS therapy research and development. It should be
underscored that this policy implication springs from purely innovation concerns, and
does not resolve the political considerations surrounding the potential re-importation
of these drugs into rich markets.

The picture is different when it comes to drugs being developed specifically to treat
developing country diseases, such as AIDS strains endemic to Africa. Compulsory
licenses for developing countries could cover the entire target market of local and
international pharmaceuticals. The threat of systematic compulsory licensing of these
drugs is likely to make a difference and could cause some companies to avoid these
markets altogether. To date, the patent incentive has arguably not successfully
prompted R&D in these medicines. Therefore, the importance of preserving the
current patent incentive should not be overstated. This is particularly true because of
the strong role played in this area by public and philanthropic institutions, which
presumably are not motivated by monopoly profits.

Compulsory licensing is far from an easy solution; exploiting it fully requires

political will. Based on the past record of licensing, countries that elect to take
licenses must demonstrate a willingness to endure lawsuits, pressure, and threats of
trade sanctions from the United States. 39 There are only few countries that are
capable of technical advancement, which is required to produce the drugs, which are
licensed under compulsory licensing. The provision of CL can also sometimes
produce unintended negative downstream impacts on the society rather than
innovation due to over reliability on it. It has been also argued that incapability of
importing by some nations will not help in any kind in-spite of the granting CL. But
it rather helps in reducing the price at very instant rate as compare to other voluntary
options.

High prices of the drug only compromise with the life threatening diseases like AIDS
or cancer which give rise to the realization that increasing access to drugs must be a
part of any solution, whether through compulsory licensing resulting from improved
public relations or genuine initiative of drug makers.This is partly due to a number of
factors that have shifted attention towards affordable treatment and vaccination rather
40
than prevention alone. The initial push for prevention was based on the
conventional wisdom that prevention (through education, the empowerment of
women, and distribution of condoms) is the best cure for the AIDS problem, and that
AIDS therapy regimes were too expensive and complicated to be suitable for
developing countries. However, in the past two years, experience has shown that
people in developing countries can and will comply with drug regimes at levels equal
to or greater than their Western counterparts. There is a need of a drastic exploration
in behavioral transformation as it is very hard to change the attitudes & culture
simultaneously. There are also difficulties found to not only to treat the infected

39
Sarah Boseley, How the U.S. Wields a Big Stick for Big Pharm, THE GUARDIAN, Feb 18, 2003.

40
Michael Specter, Hope for the Best. Prepare for the Worst—the Future of Aids., ECONOMIST, July 11, 2002
(describing the growing intensity in AIDS vaccine research in light of the limitations of prevention and treatment),
available at 2002 WL 7246756; Michael Specter, The Vaccine, NEW YORKER, Feb. 3, 2003, at 54.(Last Accessed on
11th March, 2013).


patients but also the people who are infected but don’t know that they are infected as
it will lead to spread it more in masses. Here the availability of drugs turn out to be
crucial for treating all. All of these factors have made access to AIDS and
cancerdrugs a more pressing and realistic objective.

Still, the focus on cheap drugs for therapy today should not draw attention away from
the hope of an AIDS vaccine tomorrow. How compulsory licensing programs are
designed and implemented matter in this regard, and the possibility of widespread yet
careful implementation of licensing deserves serious consideration and study.

The Potential Implications Arising From Compulsory Licenses

There are four main dangers likely to arise from the ambiguous language of Article
31 of the TRIPS Agreement. More stringent laws must be in place in order to avoid
these dangers. The first of these problems is based on the utilitarian theory.41 It is
well understood that “patents provide incentives to individuals by offering them
recognition for their creativity and material award for their marketable inventions.”42
Compulsory licenses, nevertheless, diminish the incentive to undertake research and
development in the pharmaceutical industry because the issuance of a compulsory
license causes the patent holder to lose his expected earnings. Human life is
continuously advanced because innovation is encouraged by incentives. 43 Without
incentive, advances in the pharmaceutical industry will quickly subside.

41
Robert P. Merges Et Al., INTELLECTUAL PROPERTY IN THE NEW TECHNOLOGICAL AGE 118 (4th ed. 2007).
(Last Accessed on 11th March 2013).

42
Jenna Greve, Healthcare In Developing Countries And The Role Of Business: A Global Governance Framework To
Enhance The Accountability Of Pharmaceutical Companies, CORP. GOVERNANCE, September 7, 2008, available at
2008 WLNR 16938575. Pharmaceutical companies are able to patent vital medicines along with lifestyle drugs.(Last
Accessed on 11th March, 2013)

43
Id

Immediate Impact

Generic v MNC

The immediate implication of the decision has started showing colors on the both the
sides of the pharmaceutical sector i.e. generic drug industry and the big pharma
giants. As now the Indian courts has opened the gates for the compulsory license then
the first most step taken by the big pharma companies would be to save the other
patented drugs from falling into as a pray of compulsory license seek by the generic
drug companies. Now this has effect also on the generic companies as in if a fortnight
Natco has been in the limelight of the media and now known to all most every person
concerned with the drug industry, so now the other generic companies would be
looking into the opportunities for the getting famous by the tool of the compulsory
license, this can be easily visible when BDR Pharmaceutical International has filed
an application for the compulsory license in the Mumbai Patent Office. This
application is considered to be the second application for the compulsory license,
which is a immediate consequence of the compulsory license granted by to the Natco.

Now the Big Giants also have a keen interest to protect their patented drugs and are
taking the every possible step to achieve the same. Filing of RTI for the information
on research in generic companies is one of the tools, which came into the limelight
via which the big pharma companies are have a intention to sue the generic
companies even before they get approval of marketing of the generic version of the
patented drugs. Interim injunction is the one of the major tool used against the
generic companies to stop them entering into the 60,000 Crore market of domestic
drug.

Price Reduction by MNC

The other immediate implication from this decision can be drawn that many big
pharma’s has reduced the price of the patented drugs, which were expensive in the
market as either or can give a healthy competition to the generic company or get a

royalty from the same for the license. It clearly signifies that it has created fear
among the big pharma giants that if they still practice the monopoly over patented
drugs and keep selling at a much higher price then that monopoly can be extinguished
by the implementation above precedent. The price of the drug will not take into the
account of the investment done to innovate such drug.

Cost of Unsuccessful Experiments

There is no doubt that cost of an innovation is not certain. There is lot many factors
involved in making out a successful drug. The rate of a successful drug is almost 1%
and the failure is around 99%. Therefore the cost of a successful innovation cost too
much as it also contains the cost of failure experiments. This was also argued by the
big pharma giants that if the monopoly right is taken from the companies like this
then there would be looses in millions as it require lot of hard work and time to come
up with a single successful result. Therefore the above precedent would be imposing
fear to loose patent at any stage by such big pharma giants, which could also result in
heavy losses.

Market Reputation

In terms of medicine market reputation plays a very crucial role as common people
buy medicine of the companies to whom they trust. If such kind of decision is
implemented on any such big pharma then market reputation of such company can
also hinder and it may lead to falling of company’s shares in the market. As it is
known that it takes years to make reputation but only a day to loose it all. Therefore
the company might not alone suffer from such an loss but also the shareholders of the
company can be in trouble.


Future Implications

Implications of this decision would not be only for some little time but it will show
its true colors in the coming future also. Hoax has been generated by the big
pharma’s that now they will look into the investment in the R&D in the medicine in
India. But still they are interested in the Indian pharmaceutical market which amounts
to worlds 3rd largest to come and patent their drugs. It means that they have plans of
moving their R&D pants to other nations, which will also effect in the foreign direct
investment and transfer of the technology to India, which at present India, is in a
great need. They also argue that this decision will have a long lasting effect on the
innovation by such companies as if the prime motive of patented the drugs is not
achieved and if there is fall in innovation then copy of such drug would not be
possible if the drug is not been developed by the MNC’s. It was argued by giving an
equation that innovation is directly proportional to the development of any particular
nation. They also argue that it is a weak patented system under which India has
granted the compulsory license under section 84 of The Patent Act, 1970. But in view
of researcher it was a message to the whole world or developed nations that
developing countries are not meant for exploitation and have full right to exercise
their rights and even showed a strong regime of the patent legislation by not
entertaining the big MNC’s in a fear to have an international opinion over this
decision.

One more implication can also be seen in long term basis is that if the compulsory
license is granted for a patented drug where an investment is already done and can’t
be taken back, causing a halt to the economic gain from such a drug which in future
will cause lack of investment in the further R&D for more drugs as company needs to
manage its accounts also. Only royalty from such a license would not survive the
purpose.


Illustration

Egypt is a quintessential illustration of the danger of losing foreign direct investment


based on weak intellectual property protection. Egypt is suffering from decline in
foreign direct investment in spite of the fact that is considered to be a middle-income
country with great potential in economic growth since last 20 years. The main reason
to hinder the ability to expand trade and entertain the foreign direct investment is the
poor protection of the intellectual property rights in the country. Pfizer entered the
Egyptian market in 2002 with the drug named Viagra, but only in two months of its
introduction the Egyptian Health Ministry gave the authorization to the produce its
generic version, which reduces its cost by 1/20th of the original cost. The direct
consequence of this decision was that the company cancelled plans to construct a
state of the art production facility in Egypt, further it was deterred from investing
$300 million into the pharmaceutical sector in the Egypt as the intellectual property
regime of Egypt was considered to be too weak. Therefore Egypt lost the foreign
direct investment, which it was in a need to boost their sad economy due to grant of
the compulsory license on Viagra.

Health Implications

The health concerns associated with compulsory licensing are not only that
pharmaceutical companies will stop manufacturing drugs directed at illnesses
plaguing developing nations, but also that the generic drugs that will either be
domestically manufactured or imported into developing countries will be of lower
quality than the drugs created by the transnational pharmaceutical companies.44 Both

44
NAT’L BOARD OF TRADE, THE WTO DECISION ON COMPULSORY LICENSING 7 (2008), available at
http://www.kommers.se/upload/Analysarkiv/Arbetsomr%C3%A5den/WTO/Handel%20och%20sky
dd%20f%C3%B6r%20immateriella%20r%C3%A4ttigheter%20-
%20TRIPS/Rapport%20The_WTO_decision_on_compulsory_licensing.pdf [hereinafter WTO DECISION].


India and China have become major international suppliers of generic drugs.45 As the
manufacturing is allocated to these countries, “the risk to human health is growing
exponentially.”46 The concern about low quality drugs arises from the fact that the
Food and Drug Administration in India or China rarely conduct quality-control
inspections. 47 In 2005 alone, the FDA conducted 1,222 quality inspections in the
United States, but within the past 7 years the FDA only conducted only 200
inspections in China and in India combined.48 Of the 200 inspections conducted, few
of them measure up to the thorough inspections carried out in the United States.49
Unlike the surprise visits routinely practiced in the United States, the inspections in
India and China were scheduled in advance, which gave the manufacturing plants
time to prepare.50

Private investigations have been conducted to uncover the poor conditions in foreign
operated plants. 51 These investigations have exposed that some plants have open
walls, which invite pests and dust into the production drugs is driven by the Western
market where people are willing to pay high prices to improve their image and mental
agility) facility, other plants had different chemical equipment so congested that
cross- contamination is inevitable, and one study even discovered a hornet’s nest on
top of a drug making vat.52 Based on the increase in importation from developing
nations, combined with the low levels of quality inspections in exporting nations, the
chance that consumers will receive impure or ineffective generic drugs has greatly
multiplied. Unfortunately, it is virtually impossible to determine whether the low
45
Id. (stating “the problem is that, despite the lower costs for developing the medicines, the new producer generally
cannot achieve equally effective production as the patent holder.”).
46
Id. (quoting Brant Zell, the past chairman of the Bulk Pharmaceuticals Task Force).
47
Id. (explaining that the plants are lightly regulated due to very limited government regulation).
48
Id.
49
Id.
50
Id.
51
Id.

52
Id. (explaining these private investigators were hired by U.S. companies

quality drugs imported from these lightly regulated plants have caused patients to get
more ill or remain ill because the medicines are not effective.53

The Doha Declaration clarifies that developing nations unable to domestically


manufacture drugs are authorized to import generic drugs from nations with
manufacturing capabilities. 54 Thus, developing countries suffering from the most
severe epidemics are likely to be importing drugs from these lightly regulated Asian
plants. These generic drugs have the potential to be both unsafe and ineffective. This
is a very serious danger because once a contaminated or ineffective drug hits the
market; injuries and deaths are likely to occur before the source of the problem is
tracked down.55 Therefore, the overall health of theses importing nations is at risk if
the rules that govern compulsory licensing are not amended.

Thus if we see the current status of the world wide between the developed countries
and developing countries then it is glass visible that economy of a developed country
is very much dependent on the intellectual property of that nation. If we take the
example of the US then tactics show that 40% o the economy is dependent upon the
income generated from the intellectual property. Therefore the one of the most
implication of the decision is also on the economy of the country as there are less
chances of the foreign direct investment but if we see the market share point of view

53
Id. (explaining that it is unlikely that doctors suspect poorly manufactured drugs are the causation of the problem).

54
Agreement on Trade-Related Aspects of Intellectual Property Rights, art.27.1, Apr. 15, 1994, Marrakesh Agreement
Establishing the World Trade Organization, Annex 1C, 1869 U.N.T.S. 299, available at
http://www.wto.org/english/tratop_e/trips_e/t_agm0_e.htm [hereinafter TRIPS Agreement].See also World Trade
Organization, Understanding the WTO: The Agreements,
http://www.wto.org/english/thewto_e/whatis_e/tif_e/utw_chap2_e.pdf (last visited March 20, 2009).

55
Marc Kaufman, FDA Scrutiny Scant In India, China as Drugs Pour Into U.S., WASHINGTON POST, June 17, 2007,
at A01, available at http://www.washingtonpost.com/wp- dyn/content/article/2007 (explaining over the past seven years
imports from China and India has grown drastically). (Last Accessed on 11th March, 2013)


then we can see that India is on the 3rd number in the pharmaceutical sector world
wide, further providing a large platform for big pharma’s to invest in. Now it depends
upon the decision of the pharma companies to take and decide that how to move
ahead but Indian legislation had made it clear that monopoly should not be
entertained anymore in India.


Chapter IV

Suggestions & Recommendations

i) Introduction

Implementation of the policy is not a big deal for the policy makers but the problem
arises when there is a very little room left for raising the issues in the policy. The
same can be implemented in the case of compulsory licensing where the provisions
are like that it is very difficult to balance the interest of all stakeholder’s interests. If
we take the in terms of long term effects then the task is to maintain balance between
the authorizer (government) and the compulsory licensee which can be government,
organization or firm on the one side and IP owner on the other side. The future
predictability of the sales or production of the patented product is not known which is
one of the major problems in terms of compulsory licensing. If we take an example of
compulsory licensing in Thailand for HIV drug which the government and other
Non-Governmental Organizations argue that the purpose of the same was to bring
down the market price by allowing the sufferers to get easy access to the drugs as the
drugs which were provided by the company were too expensive and was not
accessible to the common man. If we to compare this scenario with the Indian grant
of the first compulsory licensing then we could lay down some of similarity between
both like the high price of the drug but there are other different grounds also on
which the license was granted.
On the other hand if we look into the same situation in the developed countries then
the multinationals in these countries having invested in high R&D feel insecure when


such type of provisions are used in developing countries for e.g. Abbot Laboratories
had an opinion that after grant of compulsory license in Thailand they have no further
interest in giving license for sale of any other drug in Thailand. Statement was also
given by them that before granting the compulsory license they were not consulted
even for once. Companies like Merck contented that they were not aware of such a
provision and were came to know only two days before when the decision was
announced. If we compare the same situation in the case of compulsory license in
India then the Bayer contented of infringement of their patented product by Cipla. It
clearly emphasis that no matter what the situation is the MNC in Pharmaceuticals are
always ready with the defenses no matter its valid or not. They clearly put the
emphasis on their R&D expenditure and various modes to exploit their monopoly
right. It should also be noted that all the research doesn’t come successful and it
requires a lot to come with even a single successful drug, which can be patented.
Therefore the expenditure spent in an unsuccessful outcome also plays a significant
role in process of granting of the license of a patented drug. Due the grant of
compulsory license in India now there is a heated among the developed nations &
developing nations. Now the MNC having a fear among themselves to invest in R&D
in the developing countries thinking that might in future by the use of compulsory
licensing their monopoly right might be exhausted. It also further adds to the tension
growing between the developed and developing co

Health advocates and cancer patients are happy that the fight between the big brand-
name pharmaceutical producers and local generic drug makers is making cancer
drugs cheaper. The vast majority of Indians don’t have any form of health insurance
and out of pocket payments continue to be among the highest in the world. Cancer
has also become one of the ten leading causes of death in India today. It is estimated
that there are nearly 2 – 2.5 million-cancer cases at any given point in time in the
country.56 Even such a bold step against the pharma giant will not make the drug

56
Patralekha Chatterjee, India’s Generic –Pharma Battle Drops Drug Prices, Raises Legal Debate, Intellectual
Property Watch, May 20, 2012. Last accessed on March 31, 2013, available at

easily available to the patients. The prior motive of the compulsory licensing is the
access to medicine which was laid under the Doha declaration but if we see the
current situation in India then even the price of the drug has been lowered to a great
extent of about 97% downfall of the price but seeing the condition of the Indian
people even it would be not possible for the majority of the people to buy the
medicine. Then the term access to medicine is not been fulfilled. It is rather
impractical to envisage that routine grant of compulsory licenses by the Indian Patent
Office will be able to resolve the critical issue of improving access to patented
medicines on a long term basis.57

ii) Possible Outcome of India’s Compulsory License.

“We make a living by what we get; we make a life by what we give.”

Winston Churchill (1874-1965)

As the appeal before the Intellectual Property Appellate Board has rejected the appeal
is the recent developments in the Indian case of granting of compulsory licensing so
the mere pathway left with the Bayer is to go for an appeal in High Court. Even the
legal representatives on the behalf of Bayer Pharmaceutical have expressed their
contention to go in the appeal either to the Bombay high court or Chennai High court.
No matter how long the battle will continue but the possible outcome seemed that the
decision of the Controller would be upheld by both High court & Supreme court but
might there are some changes like the IPAB increased the royalty rate from 6% to

New%20Material/India’s%20Generics-
Big%20Pharma%20Battle%20Drops%20Drug%20Prices,%20Raises%20Legal%20Debate%20%7C%20Intellectual%2
0Property%20Wa.webarchive
57
Patralekha Chatterjee, India Battles For Right To Use Compulsory Licenses To Make Medicines Affordable,
Intellectual Property Watch, January 23, 2013. Last accessed on March 31, 2013, available at
http://www.ip-watch.org/2013/01/22/2013-india-battles-for-right-to-use-compulsory-licences-to-make-medicines-
affordable/

7%. Hope the upper jurisdictions come up with more innovative interpretation to the
applied provisions and come with more accepting decision.

Suggestions & Recommendation

Now still there has been grant of the compulsory license and the price of the drugs
has been reduced to almost 97% but still we study the Indian market scenario then it
is clearly visible that the masses who are actually in the need of such drugs are not
economically sound to buy the drugs. Even a middle class man in the Indian society
would not be able to afford the medicine even at this price where the drug is not life
saving but only life extending. So the major intention of applying the Provision of
Doha Declaration as it clearly put emphasis on the access of medicine to poor and if a
huge number of the population is under the poverty line then whole motive is a
failure. So below are some of the suggestion and recommendation to implement the
provision under the legislation more effectively due to which there are no lacunas left
in between and the interest of both the parties are saved.

a) Government Role
Government can play a very vital role in implementing the said provision as the
interest of the masses are not entertained by just passing the order if we see then even
Bayer is utilizing the monopoly of the license and earning money from the poor who
cant afford then what is the difference left behind. So here comes role of the
government to play where it can put some efforts to provide access of such medicine
to poor people without any cost or negligible cost. Government can intervene
between the company and common man who can’t afford the medicine even for such
a low cost. For example a list of essential drugs was prepared by the Government in
which certain drugs were mentioned which were too expensive and can’t be afforded
by the patients, therefore providing them at a very much cheaper prices at the
government medicine shops. Even steps were taken to set up such kind of outlets all
over the country but the number was limited to a very less number. Therefore more


number of such drugs should be put under essential drugs and more number of such
outlets needed to be opened all over the country specially in villages and remote
areas.

b) Insurance Sector

The other suggestion I would recommend would raise the eyebrows of the insurance
companies but if thought logically then can be applicable without much problem to a
lesser class of people. But again the applicability part to the lesser class of people will
violate Article 14 of the constitution, therefore need to be made applicable to the
whole population but certain subsidies or help can be initiated to poor people. The
insurance companies covering health insurance covers the treatment of the patient
like operation but does not covers the drugs expenses & other miscellaneous
expenses which the patient has to bear from his own pocket. And even majority of the
people pay from their own pockets the annual installment of the insurance and the
poor people therefore don’t go for any type of insurance as they hardly earn to
survive. Therefore Government can on behalf of such people can pay the annual
installment to the insurance companies and Government itself can take the post
insurance benefits. This insurance should only be against life threatening diseases and
not all the diseases. Even the government can provide such medicine for life
threatening by buying those medicines from the companies and distributing to those
who are in need and cant afford from their pocket. A separate budget can also be laid
down to deal such kind of problems every year.

c) Maintenance of Records
Researcher here suggest that via notification by the Indian Patent office directions
can be issued to all the pharma companies who had patented the drugs in India to

keep a proper record of the detailed information about the working of the patented
drugs so that if in future if there is any such doubt of the on the working of that
patented drug in India then a warning can be given by the Government of India to the
company to accomplish it in a reasonable time so that the interest of the company
over that drug can be saved. In the present case the there was a informal kind of
warning in the form of voluntary license application which the Bayer didn’t took into
consideration and ignored it, which resulted into the grant of compulsory license of
the same. Later the company defended in saying that it is not a proper decision given
by the controller and violates their monopoly right.
Researcher also recommend to make it mandatory for the pharmaceutical companies
or other companies claiming patent in any technology to provide with the cost of the
invention incurred in coming up with the final invention. It will help in future to keep
a check on the monopoly rights exercised by the company and also hinders it to act in
ultra vires in claiming the investment which they had done for the research purpose
for e.g. in the above case the research expenses claimed by the Bayer are too much
but they are unable to provide with a single evidence or bills regarding the same.
Indirectly it creates doubts in the mind of the judiciary while interpreting the
provisions of the patent law, as it has to maintain the interest of the inventor also. It
can create a hurdle in the investment in future in the country.

iv) Conclusion
It is not known that what would be the outcome of the case but the possible
implications have been discussed in above. It has been assumed by many experts that
the possible outcome of the case would be in the favor of the Natco, which means
that the compulsory license would last with the Natco only. No way what is the
outcome but the objective of the legislation should prevail. The intention of the
legislator behind the framing of legislation should be kept in mind. Here in the
following case the intention of the legislator is of keeping the interest of the poor


who can’t afford to have expensive medicine provided by the big MNC’s at
anunreasonable price, which is kept to reimburse the expenses spent for the research.
To support the above contention there is a legal maximum “Salus Populi Suprema
Est Lex” which is explained by a famous jurist Cicero (106 BC-43BC) which says
that “the welfare of the people is the ultimate law”. So, researcher here wants to
conclude that the interest of both the stakeholders and the masses should be balanced
properly. If there is any disturbance in the balance between both then the preference
to the masses should be taken into the consideration otherwise the direct
consequences of such disturbance would be in the form of such cases. It can also be
concluded that the Indian courts have opened the gates to interpret the provisions of
the patent law also to the optimum level possible. Now the other generic companies
are looking to come forward and play their vital role against the big players in the
pharmaceuticals in India, not only India but also it is going to impact globally as
India ranks among the 3rd in terms of the market of pharmaceutical.The decision
itself is a message to the big players in pharmaceuticals that the health is the primary
concern for the country rather than entertaining the MNC’s under the law.

Bibliography


• Sudip Chaudhuri, The WTO and India’s Pharmaceuticals Industry: Patent
Protection TRIPS, and Developing Countries, Oxford University Press.
• Joseph Strauss, Patents and Technological Progress In a Globalized World,
Springer Publishing.
• Nuno Pires De Carvalho, The TRIPS Regime of Patent rights, Wolters Kluwer
Law & Business Publishers.
• Philip W. GrubbPatents for Chemicals, Pharmaceuticals and Biotechnology,
Oxford University Press.
• Reed Beall & Randall KuhnTrends in Compulsory Licensing of
Pharmaceuticals Since the Doha Declaration: A Database Analysis.
• Martin Khor, Patents, Compulsory License and Access to Medicines: Some
Recent Experiences.
• Hans V Hogerzeil, Melanie Samson, Jaume Vidal Casanovas, Ladan
Rahmani-Ocora, Is access to essential medicines as part of the fulfillment of
the right to health enforceable through the courts?
• Divya Murthy, The Future of Compulsory Licensing: Deciphering the Doha
Declaration on the TRIPs Agreement and Public Health.

Webliography

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• Murthy, Divya, "The Future of Compulsory Licensing: Deciphering the
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• http://www.ip-watch.org/2013/01/22/2013-india-battles-for-right-to-use-
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