On March 4, 2013, India’s Intellectual Property Appellate Board (IPAB) upheld the country’s first compulsory license to a pharmaceutical product.  Specifically, the decision upheld a compulsory license issued to Natco Pharma Ltd., an Indian generic drug manufacturer, to sell Bayer’s patented chemotherapy drug Nexavar® (sorafenib tosylate).  Given the economic consequences of this compulsory license, Bayer is expected to further appeal this decision.  It is important for companies procuring patents and doing business in India in all industries to understand the country’s compulsory licensing laws.

A compulsory license is a statutorily created license that allows certain parties to use or manufacture a product encompassed by the claims of a patent without the permission of the patent owner (patentee) in exchange for a specified royalty.  The Indian Patent Act (Act) contains very broad compulsory licensing provisions.  The two provisions of the Act that allow for compulsory licenses are Sections 84 and 92.

Section 84

Under Section 84, the Controller of Patents can issue a compulsory license three (3) years after the issuance of a patent if one of the following conditions is met:

1.  The reasonable requirements of the public with respect to the patented invention have not been satisfied; or

2.  The patented invention is not available to the public at a reasonable price; or

3.  The patented invention is not worked in India.

Public Accommodation: The Act contains a list of circumstances in which the “reasonable requirements of the public” will be considered not met.  These are:

1.  The patentee does not grant a license on “reasonable terms” thereby causing: (a) a disadvantage to a trade or industry or the development or establishment of an industry in India; (b) demand for the patented product not to be sufficiently met or available on reasonable terms; (c) insufficient supply or development of a market in India for the exportation of the patented article; or (d) a disadvantage in the establishment or development of commercial activities in India.

2.  The patentee imposes conditions with respect to the grant of license, sale or use of a patented product or process, the manufacture, use or sale of non-patented materials or the establishment or development of any trade or industry in India, which is prejudiced.

3.  The patentee includes one or more of the following conditions in a license:  (a) an exclusive grant-back clause for any improvements developed by the licensee on the patented product or process; (b) a clause prohibiting the licensee from challenging the validity of the licensed patent(s); or (c) a clause that is essentially a “coercive” package license (namely, requires the licensee to purchase non-patented items from the patentee as a condition of the license).

4.  The patentee does not work the patented invention in India to the fullest extent possible or on a commercial scale to an adequate extent.

5.  The working of the patented invention on a commercial scale in India is being prevented or hindered as a result of the importation of the patented invention by:  (a) the patentee or a person authorized by him; (b) persons purchasing from the patentee, either directly or indirectly; or (c) the infringement of the patent by a third party against whom the patentee is not taking or has not taken any action to eliminate said infringement.

Reasonable Price: With respect to the patented invention not being available to the public at a reasonable price, a compulsory license will be granted if a patented invention is not being made available to the public at an affordable price.  For example, Bayer was selling Nexavar® for about Rupees 280,000 (around US $5,160) per month compared to Natco selling the drug for about Rupees 8,800 (around US $162) per month.

Worked in India: With respect to a patented invention being worked in India, a compulsory license will be granted if the patented invention is not worked in India.  An invention is considered to be “commercially worked” in India if the patented invention is: (a) manufactured in India; (b) imported into India; (c) licensed and forms a part of a product that is sold in India; or (d) commercialized in India in any other manner.

Interested Person: Any person interested may file an application for a compulsory license in the Indian Patent Office three (3) years after the grant date of a patent.  A “person interested” is interpreted broadly under the Act and includes a licensee of patent for which a compulsory license is sought.  The application must include the nature of the interest of the party filing for the license, the facts supporting the application and license conditions (royalty rates, etc.) the applicant is willing to accept.

Controller Review: The Controller will review the application and if satisfied that a prima facie case has been made will direct the applicant met the requirements to grant the license, will send a copy of the application to the patentee or any other person having an interest in the patent.  The application for the compulsory license will be published in the official journal of patents.

Within two (2) months of publication in the official journal, the patentee (or any other person) may file a notice of opposition opposing the application.  The notice of opposition must state the grounds of the opposition, the terms and conditions of a license that would be acceptable to the opponent and any evidence necessary to support the opposition.  A copy of the notice of opposition is provided to the applicant for the compulsory license.  A hearing is conducted during which both parties will have the right to be heard.  After each party is heard, the Controller will make his/her decision on the compulsory license.

If after the Controller’s review of the application he/she is not satisfied that aprima facie case has been made, he/she will notify the applicant.  The applicant may then request a hearing within one (1) month from the date of such notification.  If the applicant does not request a hearing, the application for a compulsory license will be refused.  If the applicant files a request for a hearing, a hearing will be conducted and after hearing, the Controller will make a decision on whether or not to allow or refuse the compulsory license.  If the Controller decides to allow the compulsory license, the patentee or other person having an interest in the patent will be notified and the procedure described above will be followed.

After deciding to grant a compulsory license, the Controller will determine the terms and conditions of the license.  For example, in the case involving Nexavar®, a non-exclusive, non-assignable license was given Natco.  In addition, the Controller initially awarded Bayer a royalty of 6% for sales of Nexavar® by Natco.  The IPAB increased this royalty to 7%.

To read Part 2 of this blog, click here.

Thanks to the Chadha & Chadha firm for providing their insights to the BRIC Wall on compulsory licensing.