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Compulsory Licensing: An Overview

Dr. Rc Godbol

Ever since March 2012, when the Controller General of the Indian Patent Of ce issued the rst ever Compulsory Licence (CL) order allowing the Indian pharmaceutical concern,

Natco, to manufacture and sell a generic version of Nexavar (Bayer), this has been a

keenly debated topic. A legal expert, through this article shares valuable insights on Scopeand nature of Compulsory Licencing, conditions when CL can be evoked, implications of CL and other such pertinent concerns on CL.

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Background

In March 2012, the Controller General of the Indian PatentOf ce issued an order allowing

the Indian pharmaceutical concern Natco to manufacture and sell a genericversion of Nexavar. This is the rstever Compulsory Licence (CL) issuedin this country. Grant of a compulsorylicence was under the provisions of

Section 84 of the Indian Patents Act,1970 for Sorafenib Tosylate (Brand

Name: Nexavar). In his order, the patentcontroller said Natcos applicationmet three key conditions for grantingcompulsory licences:

1. The German rm was able to supplyits drugs to only 2% of the countrys

patient population and did not meetthe reasonable public criteriarequirement

2. Its price was not reasonablyaffordable, and

3. It was imported and not manufacturedin the country.

Natco will have to pay a 6% royaltyon the net sales to Bayer everyquarter. Further, it can only chargeRs. 8,800 for a monthly dose of thedrug as committed in its compulsorylicensing application regarding thisdrug.

The following text hopes to put thisdevelopment into its proper context.

Understanding Compulsorylicensing

Compulsory licensing is referredto when a government allowssomeone else to produce the

patented product or process withoutthe consent of the patent owner. It

is one of the exibilities on patent protection included in the WTOs

agreement on intellectual property- the TRIPS (Trade-Related Aspects

of Intellectual Property Rights)Agreement. The key purpose of CL isto rectify any type of market failureand to discourage abuse of a patentin any form by the patent holder.

Conditions for issuing Compulsorylicensing

Though the TRIPS Agreement doesnot speci cally list the reasons thatmight be used to justify compulsorylicensing, in Article 3, the TRIPSAgreement does list a number of conditions for issuing compulsorylicences. However, the DohaDeclaration on TRIPS and PublicHealth con rms that countries are

free to determine the grounds for granting compulsory licences.

Normally the person or companyapplying for a licence has to havetried to negotiate a voluntary licencewith the patent holder on reasonablecommercial terms. Only if that failscan a compulsory licence be issued,and even when a compulsory licencehas been issued, the patent owner has to receive payment; the TRIPSAgreement says the right holder shall be paid adequate remunerationin the circumstances of each case,taking into account the economicvalue of the authorization, but it doesnot de ne adequate remuneration

or economic value.

Theres more. Compulsory licensingmust meet certain additionalrequirements: it cannot be givenexclusively to licensees (e.g. the

patent-holder can continue to produce), and it should be subjectto legal review in the country. For

national emergencies, other circumstances of extreme urgency

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or public non-commercial use(or government use) or anti-

competitive practices, there is noneed to try rst for a voluntarylicence. Its the only instance whenthe TRIPS Agreement speci callylinks emergencies to compulsorylicensing: the purpose is to saythat the rst step of negotiating avoluntary licence can be bypassedin order to save time. But the patentowner still has to be paid.

Implications of Compulsorylicensing

Compulsory licensing hasimplications beyond speci c national

borders. The fear often expressed isthat a liberal CL allowance would

de-incentivize research and spread of new drugs in the world. To evaluatethis possibility, researchers at theJosef Korbel School of InternationalStudies at the University of Denver identi ed 24 veri ed compulsorylicensing episodes in 17 nations thatoccurred between January 1995 andJune 2011. Half of these episodes

ended with an announcement of acompulsory license, and the majorityended in a price reduction for aspeci c pharmaceutical product for the potential issuing nation througha compulsory license, a voluntarylicense, or a negotiated discount.These 24 episodes collectivelyinvolved 40 drug patents for 22unique pharmaceutical products.Interestingly, one of these was in theUnited States when, in the aftermathof 9/11 over fears of a potentialanthrax attack, the Americangovernment suggested it would

pursue a compulsory license in order to address the potential shortage of

the relevant drugs to combat thateventuality. The US government

subsequently secured a signi cantdiscount on these drugs.

The overall conclusion reached inthis study is that thus far countrieshave carefully weighed the bene tsand risks of compulsory licensesand erred on the side of maintaining

protections for issued patents.

Compulsory licensing: Indianscenario

Coming to the Indian patentscenario, the Indian patent regime

places signi cant importance onthe working of a patent. Indeed,section 84 goes to the extent of stipulating that any patent that hasnot been worked for 3 years in Indiaafter the date of grant of a patent can

be subject to a compulsory license(CL) or the Section 83, whichexplicitly states that a patent cannot

be obtained for the mere purpose of importing. It is clear that a patenteddrug that is not being manufacturedin India, but is only being importedinto India can be subject to a CL.

Section 146 states that informationrelating to the working of aregistered patent is to be periodicallysubmitted to the Controller in a form

prescribed by the rules.

This speci c compliance however,was not observed in the interveningyears of the new Patents regimecoming into force (2005) till 2010.In early 2010, all the Pharma patentholders in India were required

by the Controller General of theIndian Patent Of ce to submit thisinformation in Form 27. Under anRTI application pertaining to these

lings in case of selected drugs(1.Nexavar(Bayer) 2.Dasatinib

(BMS), 3.Tarceva (P zer & OSI,licensed to Roche), Sutent (Sugen

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& Pharmacia Upjohn Inc.,licensedto P zer), Pegasus (Roche),

Viraferonpeg (Schering), Entecavir (BMS) , it was made public thatnone of the pharmaceutical rmsthat the RTI seekers studied had

provided full and complete Form 27information. In some cases, Form27 has not been led at all, and inothers, the information provided waswoefully inadequate.

In light of the Natco case, the patentof ce acted on the grounds that thelife-saving drug was not availableat a reasonably affordable priceeven three years after the Nexavar

patent had been granted to Bayer.The important point here is thatexcessive vs reasonable pricingmay be complex and time consuming

to determine for the courts. It is thusrelevant to mention that all the drugs,for which Form 27 information has

been provided, make more than Rsten crores a year (USD 2.2 million).In case of Nexavar the informationsubmitted by Bayer reads as follows:

Patent No. 215758 Bayer Corporation

PRODUCT NAME: Nexavar

PATENT EXPIRY: 2021.

08-09 Not Worked

09-10 Worked 4,665 packs wereimported but only 1,679 packs soldRs. 16.5 crores in sales.

Till the patent expiry in 8-10 years,

the product is expected to make Rs.165 Rs. 180 crores = US $ 40-45million.

Compulsory licensing in China

Chinas recent announcementallowing of cials to issuecompulsory licenses (CL) to local

rms in cases of state emergencies,unusual circumstances or in theinterests of the public comes on theheels of a compulsory license issued

by the Indian government for Bayer.In addition, Beijing is moving tochange the prices the government

pays on about 100 drugs that haddifferential (or what the industrycalls preferential) pricing, whichwere all manufactured by Westernand European multinationals. Thedrugs covered under this preferential

pricing scheme were protected by the

Chinese government almost 20years ago in an attempt to addressconcerns pharmaceutical companieshad about intellectual property (IP)theft. In many cases, the patentson these drugs have run out, butthe Chinese government has stood

by its commitment to protect these products from domestic competition.China did not make these changes toits IP regimen carelessly. This wasa deliberate adjustment that morethan likely had a speci c portfolioof drugs in mind. In the short term,Beijing is likely to nd it has gainedthe upper hand in negotiations withits pharmaceutical suppliers becauseof this move just as US did.

Dr. R c Godbol is a patent strategy expert. She has completed her doctoral work at the University of Freiburg in Germany and has worked for Syngenta in research and in regulatory affairs, before her Post Doc stints with theUniversities of Heidelberg and Munich. Dr. c has completed a specialized patent drafting

course offered by the EPO and FICPI. Currently she advises law rms and corporate clients inmatters of patent strategy.