On the 15th of July 2014, quietly and without much fanfare, the Bombay High Court passed judgment on the writ petition filed by Bayer Corporation in the celebrated compulsory license case between them and Natco. The compulsory license saga started in December 2010 when Natco initiated the process by approaching Bayer for the grant of a voluntary license to manufacture Nexavar, a drug patented by Bayer for treating patients suffering from Renal Cell Carcinoma (RCC), Liver Cell Carcinoma and Hepata Cellular Carcinoma. This request by Natco was turned down by Bayer.

The next salvo was fired by Natco in July 2011 when it applied to the Controller for the grant of a compulsory license in respect of Bayer’s patent on the grounds that:

i) Reasonable requirement of the public with regard to the patented invention was not being satisfied, or

ii) That the patented invention was not available to the public at the reasonably affordable price; or

iii) That the patented invention was not worked in the territory of India.

Natco in its application also pointed out that it was prepared to sell the drug commercially in the market at a cost almost 1/30th times the cost which Bayer was charging patients in India. Bayer opposed this grant in March 2012. The Controller granted the compulsory license to Natco to manufacture and sell the patented truck and pay Bayer a royalty of at the rate of 6% of its net sales.

Bayer appealed to the Appellate Board in September 2012. In March 2013, the Appellate Board uphelp the Controller’s order but increased the royalty payable to Natco from 6 to 7%. An interesting side issue that arose in both orders was the issue of working a patent in “India”. The Controller had taken the view that working in India could only be satisfied if the drug was manufactured in India. Not agreeing with the Controller, the Appellate Board took a contrary view that the requirement of working of a patent could be satisfied by importing the patented product if the patentee could satisfy that the patented product could not be manufactured in India. Therefore, manufacture in India was not an absolute necessity to satisfy the working requirements.

Bayer challenged the order of Appellate Board by filing a writ petition before the Bombay High Court which eventually resulted in the order of 5th July, 2014. The constitutional bench of the Bombay High Court considered the submissions of both parties and concluded as follows:

i) By turning down the request of Natco in 2010, Bayer had made itself vulnerable to the subsequent compulsory license attack of Natco.

ii) The initial burden to satisfy that the reasonable requirement of the public for the patented product has not been met rests with the applicant for the compulsory license. Only after the applicant satisfies the Controller of this fact, the patent holder is require to establish that this is not the case and that reasonable requirements of the public are met. The High Court held that the question of reasonable requirement of the public must be determined on the basis of evidence led by the parties before the Controller. For this purpose the High Court went on to opine that the supplies made by an infringer of the patent could not be considered whilst taking into account determination of satisfaction of the reasonable requirement test.

iii) The High Court defined the term “adequate extent” in the compulsory licensing provisions to mean 100%, that is to the full extent.

iv) The compulsory licensing provisions also require the authorities to adjudicate that the patented product is not available at a reasonably affordable price. In the present case the disproportionate difference in the final price to the customer clearly showed that Bayer’s price was certainly not reasonable. Bayer did not choose to produce evidence before the authorities of the expenditure it had incurred for research and development. Bayer also submitted that it had introduced a Patient Assistance Program (PAP) giving a patent 27 days of free medicine if the patient purchased medicines for 3 days. The Court considered the PAP to be a charity and this could be discontinued by Bayer anytime or any particular patient could be refused participation in the PAP program at the sole prerogative of Bayer.

v) A significant deliberation by the High Court was on the point of working a patent in the territory of India. Bayer had contended that importation of the patented product must be considered to be worked in India. On the contrary, the Union of India, which was also a party to the proceedings, contended that for the purposes of working in India, a patented product has to be manufactured in India. The High Court agreed with the Appellate Board. The fact ‘of working in India’ has to be decided on a case to case basis. Manufacture in all cases is not necessary to establish working in India if a patent holder can establish that it was impossible or prohibitively expensive to manufacture the product in India. The mere importation of a product can be considered as an invention worked in India.

vi) A royalty of 6% was fixed by the Controller. Bayer had not led any evidence to show the expenses incurred by it to invent the patented drug. Under those circumstances, the 6% royalties which was increased to 7% by the Appellate Board was found to be reasonable by the High Court. Lastly, the Court held that in the case of medicines/drugs, public interest is fundamental in deciding the issue of a compulsory license between a patent holder and an applicant for a compulsory license.

The “take home” from this judgment as I understand it are as follows:

i) An application for a compulsory license cannot be made within the first 3 years after the grant of a patent.

ii) A patent holder should not summarily reject a person making an application to it for a voluntary license. The patent holder must engage such a person in a prolonged dialogue to establish the credentials of the potential licensee particularly to show that the patented product must be manufactured of the same quality as the product being sold by the patentee. I believe that it is also in the public interest that the product, especially if it is a medicine/drug, must be of impeccable quality and safe for the public. Therefore, the patent holder cannot be faulted in asking the licensee to ensure that these conditions are met to the fullest extent.

iii) In the process of determining price, the patentee must be completely open with the authorities on the expenses it has incurred in arriving at the invention for the patented product. An applicant for the compulsory license who has not spent a penny on research and development cannot be equated with the patentee but at the same time refusing to provide details of expenses incurred will also not be taken kindly by the authorities.