A study of the Natco v. Bayer case

Introduction

The debate surrounding the compulsory licensing process has gained prominence globally concerning the pharmaceutical industry, where the rise of prices of drugs has limited the scope of accessing rights to health, especially in developing countries. While various pharmaceutical companies argue that the grant of patents is necessary in order to protect the interests of the inventors however, critics suggest that such protection leads to an exorbitant rise in the price of drugs and makes them inaccessible, especially in developing countries.

In order to combat this, many countries resort to the legal recourse of compulsory licensing, which allows the government to authorise the production of patented products without seeking consent of the patent right holder if certain grounds are fulfilled and by paying a predetermined fee for such a license. One such landmark judgement that served as a pathway to compulsory licensing in India is the case of Bayer Corporation v. Natco Pharma Ltd. (2013). The case is a watershed moment in the use of compulsory licensing to lower drug prices.

Background

Bayer Corporation held a patent for Nexvar (Sorafenib Tosylate), which got patented in India in 2008. It was a drug used in the treatment of liver and kidney cancer. The cost of the drug is approximately ?2.8 lakh per month, making it inaccessible for most Indian patients. Citing the exorbitant amount of price of the medicine, Natco Pharmaceuticals filed for compulsory licensing of the drug under Section 84 of the Indian Patents Act, which allows for such licenses if the patented drug:

• Is not available to the public at a reasonable price.
• Fails to meet the reasonable requirements of the public.
• Is not "worked" in India.

The Indian Patent Office granted the compulsory license to Natco Pharma, reducing the price of the drug to ?8,800 per month, making it far more affordable. Natco was instructed to sell the patented drug at this specified price and to pay a standard royalty of 6% based on the net manufacturing price. Natco is permitted to sell the drug only within India and is required to provide it free of charge to at least 600 needy patients annually.

Being aggrieved by the order of the controller, the appellant filed for an interim stay before the IPAB.

Issues Raised

1.???? Procedural Objections: Bayer argued that the Patent Controller failed to give them adequate notice before granting the license, which violated procedural norms.

2.???? Cipla's Market Presence: Bayer contended that Cipla, another company selling a similar drug at a lower price, should have been considered when determining if public demand was being met.

3.???? Reasonable Pricing of Nexavar: Bayer claimed that its price was justified given the significant investment in research and development (R&D).

The Intellectual Property Appellate Board (IPAB) Decision

1.???? Procedural Objection: Bayer argued that the Indian Patent Office violated the principle of audi alteram partem (right to be heard) by not issuing a notice before making a preliminary decision under Section 87 of the Patents Act. The IPAB dismissed this, clarifying that such procedural rights apply only after the Controller deems a hearing necessary.

2.???? Affordable Access Argument: Bayer claimed the compulsory license was unnecessary since Cipla was already offering the drug at a much lower price (?5,400 per month), asserting that this fulfilled the requirement under Section 84(1)(b) for public access. The IPAB rejected this, stating that the patentee alone bears the responsibility to ensure affordable access. Bayer, as the patent holder, could not rely on Cipla's sales while simultaneously challenging Cipla’s presence in the market.

3.???? R&D and Pricing Justification: Bayer justified its high price based on significant R&D investments, arguing that lowering prices would reduce profit margins and hinder future innovation. While recognizing the importance of R&D recovery, the IPAB maintained that public health comes first. Patent holders are obligated to make essential medicines available at reasonable prices, and this cannot be compromised by financial concerns.

4.???? Local Manufacturing: Bayer argued that manufacturing Nexavar locally in India was impractical, citing costs and logistical hurdles. The IPAB dismissed this claim, emphasizing that patentees are generally expected to "work" their patents locally, meaning they should manufacture the product within the country. Bayer failed to provide sufficient evidence to support its claim, reinforcing the requirement for patent holders to actively engage in local production or face compulsory licensing.

The Western Pushback on India's Decision

The case triggered strong reactions from foreign pharmaceutical companies and governments, especially in the developed world. Western pharmaceutical companies, particularly in the U.S. and Europe, expressed concerns that India’s move could undermine global intellectual property rights and discourage innovation. These companies feared that the Natco’s license might set a precedent for other countries to follow, affecting their profits in developing markets. The U.S. government and industry groups, such as the U.S. Chamber of Commerce, criticized India’s decision, arguing that it weakened patent protections and disincentivized pharmaceutical innovation. The U.S. Trade Representative (USTR) placed India on its Priority Watch List, citing concerns over intellectual property enforcement, with the Natco-Bayer case being a key issue. It had also elicited a response from the United States Patent and Trademark Office (USPTO), which stated that “compulsory licenses dissuade pharmaceutical and biotech companies from innovating” and that the grounds for granting a compulsory license in NATCO’s case “did not meet international standards.” The irony in this assertion stems from the fact that Canada has likely granted the highest number of compulsory licenses, which owes its inception form 1969 amendment that permitted automatic licenses for pharmaceuticals. India defended the move as being consistent with the TRIPS Agreement, which permits compulsory licensing in cases of public health emergencies or when patent holders fail to meet public needs. India argued that the decision was aimed at balancing patent rights with public health needs and that it complied with its international obligations.

Conclusion:

The Natco vs. Bayer landmark judgement underscores the potential of compulsory licensing to address high drug prices, particularly in developing nations facing public health crises. By reducing the price of Nexavar by 97%, India demonstrated the immediate significance and impact that compulsory licensing can provide access to life-saving medicines. However, the case also reveals the challenges of navigating the global pharmaceutical industry's resistance and the potential consequences for innovation. Compulsory licensing, while not a complete resolution to high drug prices, serves as a vital tool in the broader strategy for achieving affordable healthcare.