By Kevin E. Noonan —

In response to an earlier post on Novartis' challenge to the Indian Patent Office's decision not to grant a patent on its anticancer drug Gleevec® (see "Indian Supreme Court to Rule on Gleevec Patent"), a reader opined that we should appreciate the erudition and wisdom of the patent official in Mumbai responsible for the denial.  He helpfully sent along the decision granting a compulsory license to Natco for Bayer's anticancer drug, sorafenib tosylate (sold as Nexavar®).  A review of the decision indeed provides insights into how officials in India interpret the provisions of its law regarding compulsory licenses.  Such a review also suggests that what may appear to produce a "Catch 22" for Western drug companies can reasonably be considered to be a straightforward application of sound principles in the best interests of the Indian citizenry.

The provision of Indian law at issue is Section 84 of the Patent Act:

84. Compulsory licenses. – 

(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 a 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 . . .

. . .

        (ii) the demand for the patented article has not been met to an adequate extent or on reasonable terms . . .

    (b) that the patented invention is not available to the public at a reasonably affordable price . . .

    (c) that the patented invention is not worked in the territory of India.

With regard to this requirement, the Indian Controller of Patents set out the competing claims of the compulsory license applicant and the patentee.  The applicant alleged that there were ~20,000 liver cancer patients and ~9,000 kidney cancer patients (the populations that benefit from the drug), and that assuming 80% demand there would be a need for about 23,000 bottles of the drug per month to satisfy the demand.  The facts (albeit disputed by Bayer) presented showed no bottles imported into India in 2008, ~200 bottles in 2009 and that there was no evidence for import in 2010.  The significance of these dates and amounts are that the Indian government granted Bayer a patent on the active pharmaceutical ingredient in Nexavar® in 2008, and the Controller assessed Bayer's behavior in fulfilling the "reasonable requirements of the public" during that time.  It was also significant that Bayer did not produce the drug in India, explaining the focus on bottles of imported drug.  The Controller's decision mentioned that failure to manufacture the drug in India was evidence that Bayer had not "taken adequate steps to . . . make full use of the invention."

In addition, and in what is the crux of the matter, the Controller stated that the drug is "exorbitantly priced" and out or reach of most of the people.  The price of the patented drug was quoted in the decision as being Rs.2,80,248/- per month and Rs.33,65,136/- per year, as opposed to the price of Rs.8800/- per month from Natco.  In addition, the Controller stated that while the drug might be available in metropolitan areas (such as Mumbai, Delhi, Chennai and Kolkata) it was not available throughout the country.  Even then the Controller said that the drug was frequently in short supply even in cities and that this was significant because it is a "life saving drug" and not a "luxury item."  Finally, the Controller noted that Bayer's worldwide sales increased from $165M in 2006 to $934M in 2010.  "These figures clearly demonstrate the neglectful conduct of the Patentee as far as India is concerned," he wrote.

The Controller also disregarded Bayer's argument that sales of another Indian generic company, Cipla, should be taken into account in determining whether the Indian market was being reasonably satisfied, noting that Bayer had sued Cipla in Delhi and asked for an injunction to stop these infringing sales.  (In this regard, later in the decision the Controller characterizes this argument as "indulging in two-facedness" and "defend[ing] the indefensible.")  In so doing, the Controller also enunciated an Indian-centric philosophy, stating that "the mandate of law is not just to supply the drug in the market but to make it available in a manner such that substantial portion of the public is able to reap the benefits of the invention" and that "[i]f the terms are unreasonable such as high cost of nRS.2,80,000/-, availability is meaningless."  (This aspect of the decision was illustrated by the Controller's calculation that, at Bayer's prices it would take the "common man" (the lowest-paid government worker) 3.5 years' wages to afford one month's supply of the drug, but Nexavar extends life for the kidney cancer patient by only 4-6 years and the liver cancer patient by only 6-8 months.)  In coming to these determinations, the Controller cited a Bulletin from the World Health Organization; a research article on the "impoverishing effects" of the affordability of medicines in the developing world from PLoS; and an affidavit from James Packard Love, Director of Knowledge Ecology International and co-chair of the Trans-Atlantic Consumer Dialog Policy Committee on Intellectual Property Rights.  (Perhaps) needless to say, these sources did not support Bayer's petition that the Indian government deny a compulsory license to Natco.

For its part, Bayer made the patently correct argument that the cost of drugs supports the pipeline of future drug development and that Bayer "continued to invest major sums into further development of Sorafenib" for treating other cancer types.  Bayer also noted that its investment in new drug development amounted to 8 billion Euros from 2007 to date, and that it takes more than 2 million Euros to bring a new drug to market.  Further research is in the public interest, Bayer argued, and granting Natco a compulsory license would harm the pubic interest in this regard.  In what appears to be an effort to avoid a complete defeat, Bayer also argued that a compulsory license should not benefit those in India ("the Rich class" and "the middle class") who could afford the drug at Bayer's price in an attempt to provide the drug to the "common man" who could not (supporting this argument with affidavits from representatives of the Indian medical and insurance industries).  (The Controller did not reject this argument but questions why Bayer had not instituted such a graduated pricing regime itself.)  But this varying level of the ability to pay, with the varying effects on the question of whether the price was "reasonably affordable" should be sufficient, Bayer argued, to preclude grant of a compulsory license to Natco, since it is a "sine qua non" (or "condition precedent") for a compulsory license that a drug not be available at a "reasonably avoidable price" (although this argument suffered from the fact that the availability of Nexavar® at a "reasonably affordable price" was dependent on sales by Cipla).

The Controller's decision, in favor of granting a compulsory license, was based on his determination that the question of whether a drug was available at a "reasonably affordable price has to be construed predominantly with reference to the public" and under the "admitted facts" of this case these considerations fell in favor of granting the license.

The Controller also considered the fact that Bayer did not "work" the invention in India.  Here, the law was construed with regard to whether the invention was worked "to the fullest extent possible" and here it clearly was not (upon evidence that Bayer had "worked" the patented invention "extensively" in other countries while having the industrial capacity to work the patent, i.e., produce Nexavar®, in india).  "Minimal" working is not enough, according to Natco, while Bayer argued that the extent of working a patented invention depends on the invention and, for Nexavar® the "small global demand" justifies the "strategic decision" to make the drug in Germany.

In making his decision, the Controller noted that the term "worked in the territory of India" had not been defined in the Indian Patent Act, and so he needed to construe the term with regard to "various International Conventions and Agreements in intellectual property," the 1970 Patent Act and the legislative history.  But the Controller seemed more interested in addressing the "crucial argument" of the patentee that the applicant's construction of the term was incorrect because the phrase "default of the patentee to manufacture in India to an adequate extent and supply on reasonable terms the patented article" was deleted from the Act.  He decided that this was "one face of the coin," but that the other was that the phrase was deleted from Section 84(1)(a) with regard to the patented article being "reasonable available to the public" in favor of Section 84(1)(c) which "was made a separate ground for grant of a compulsory license."

In this light, the Controller considered the relevant provisions of the Paris Convention, the TRIPS agreement and the Indian Patents Act of 1970 and decided that the combination of Article 27(1) of TRIPS and Article 5(1)(A) of the Paris Convention supported an interpretation that failure to manufacture Nexavar® in India supported the grant of a compulsory license to Natco (which it termed "reasonable fetter" on Bayer's patent rights).  Ultimately, however, the Controller found ample justification for the compulsory license in Section 83(b) of the Patent Act, which states that "[p]atents are not granted merely to enable patentees to enjoy a monopoly for importation of the patented article" and Section 83(c) that "the grant of a patent right must contribute to the promotion of technological innovation and to the transfer and dissemination of technology."  Coupled with the provisions of Section 83(f) that a patent should not be abused, the Controller construed Indian patent law to require that a patentee work a patented invention in India or license another do to so.

After refusing to adjourn the proceedings based on Section 86 of the law (finding, inter alia, that Bayer had not established any justifiable reason for its "delay" in working the patent in India), the Controller established the terms of the compulsory license, wherein:

i.    the right to make and sell sorafenib is limited to applicant (no sublicensing)
ii.    the compulsorily licensed drug product can be sold only for treatment of liver and renal cancer;
iii.    the royalty shall be paid at a rate of 6%
iv.    the price is set at Rs.74/- per tablet, which equals Rs. 8,800/- per month;
v.    the applicant commits to provide the drug for free to at least 600 "needy and deserving" patients per year
vi.    the compulsory license is not assignable and non-exclusive, with no right to import the drug
vii.    No right for the licensee to "represent publicly or privately" that its product is te same as Bayer's Nexavar®
viii.    Bayer has no liability for Natco's drug product, which must be physically distinct from Bayer's dosage form

The license was granted on March 9, 2012.

What lessons can be learned from Bayer's experience?  Some seem self-evident:  patents granted in India come encumbered with a responsibility to produce the patented article in India, either by the patentee itself or by licensing a local Indian company.  Second, political realities and economics, particularly for drugs, require some mechanism for providing drugs to those who genuinely cannot afford them.  Third, these efforts must be both effective and public; token efforts, specifically efforts that supply much less than the actual demand, will be deemed insufficient.  Finally, by licensing rather than being forced to license, patentees can negotiate (perhaps with more than one local company) rather than having the Patent Controller decide the terms (and those terms can be kept confidential).  While the Controller here was careful to craft the license to prevent the licensee from exporting the drug, not all compulsory licensees will necessarily be so limited, an important consideration in view of the risks attendant on a licensed competitor being able to supply the global market.  The lesson is again learned that foreign drug companies are no match for local drug manufacturers who promise to provide drugs at affordable prices to citizens of India who could not otherwise afford them.  In view of the near certainty that licenses under these circumstances will be granted, it behooves Western drug companies to take the initiative to avoid the outcome Bayer suffered last week.

By Kevin E. Noonan —

One of the signal achievements of late 20th Century trade diplomacy was the ratification of the Uruguay Round of the General Agreement on Tariffs and Trade (GATT), and specifically the Trade-related Aspects on Intellectual Property Rights (TRIPS).  These international agreements created the World Trade Organization and changed national practices regarding intellectual property rights protection, which was a quasi quid pro quo for membership.  Part of the GATT/TRIPS related changes mandated that intellectual property rights be expanded and protected without discrimination against non-native patent holders, and that certain national practices (like banning outright intellectual property rights for entire categories of inventions) would cease.

The most economically significant and high-profile of such practices relate to the pharmaceutical industry and specifically to patents on drugs; countries like India frankly refused to patent drugs or to permit actions against Indian companies making generic versions of drugs patented elsewhere.  This all changed, or was supposed to change, with India's ratification of GATT.  However, change comes slowly if at all and the years since Indian ratification of the new system have seen many drugs in many contexts run into national legislation, government agency action, or litigation-related court orders that have thwarted attempts by Indian patent holders, predominantly Western drug companies, from enforcing their patents to prevent generic competition.

This is part of a larger trend, exemplified by passage of the Doha Declaration of 2001 and compulsory licensing provisions in national TRIPS implementing laws.  This has created a crisis for Western pharmaceutical companies, who have seen the trend for compulsory licensing, or the threat of such licenses, expand from anti-AIDS drugs to other drugs less relevant to "national medical emergencies," to where the levels of protection may be lower in the post-TRIPS world than they were before the GATT treaty was signed (see "The Law of Unintended Consequences Arises in Applying TRIPS to Patented Drug Protection in Developing Countries").

While other countries have been more vigorous in using these provisions to reduce their levels of compliance with the spirit if not the letter of TRIPS, including Thailand, Brazil, and Venezuela, India has perhaps created the biggest problem for Western drug companies.  This is because India has a large, educated middle class and a democratically elected government, meaning that India's middle class has the clout to influence the government to act in their (and India's) best interests.  Coupled with its large generic pharmaceutical industry, the outcome is not surprising:  Western pharmaceutical companies have been embroiled in several disputes regarding compulsory licensing and an outright refusal to patent several important drugs, while seeing India provide generic drugs for the rest of the world (ROW) (and, in some instances, including Western countries as well).

The latest patent imbroglio (Novartis v. Union of India) involves imatinib mesylate, sold by Novartis as Gleevec® (in the U.S.) and Glivec® (in the ROW) for the treatment of chronic myelogenous leukemia and certain gastrointestinal cancer.  As reported today in The New York Times ("India's Supreme Court to Hear Dispute on Drug Patents" by Vikas Bajaj and Andrew Pollack), the case has moved through the Indian legal system for six years.  At issue is the application of Section 3(d) of the Indian patent statute:

Section 3(d): the mere discovery of a new form of a known substance which does not result in the enhancement of the known efficacy of that substance or the mere discovery of any new property or new use for a known substance or of the mere new use of a known process, machine or apparatus unless such known process results in a new product or employs at least one new reactant.

Initially, the Indian Patent Office refused to grant a patent to the drug maker, Novartis.  Novartis appealed, and it has taken until now for the case to arrive at the Indian Supreme Court, which will hear argument later this month.  A great deal is at stake:  while a year's treatment of Gleevec can cost $70,000 in the U.S., Novartis has made attempts to provide it for greatly reduced cost (and, in some cases for free) in an effort to blunt the political pressure to uphold the government's refusal to grant the patent.  Generic Gleevec is available for about $2,500 a year, and various non-governmental organizations, like Doctors without Borders, are afraid this drug (and others like it) will become unavailable if Novartis is granted an Indian patent.

For its part, the Obama administration is reportedly exerting pressure on the Indian government to grant the patent.  NGOs are exerting political pressure of their own, including protesting at a Novartis shareholder meeting in Basel, Switzerland and at several Novartis company locations in he U.S.  The article also reports that the U.S. has demanded that a new treaty for the Pacific region, the Trans-Pacific Partnership, contain provisions requiring member countries to grant patents for drugs like Gleevec, according to what are called "a leaked text of the government's position."  The article also speculates that the case could influence Western drug manufacturers' appetite for investment in India.

As described in the article, the dispute concerns a provision of the law that precludes patent protection for drugs known or developed before 1995 unless it is in a new form that "significantly improves the medicine's 'efficacy,' or effectiveness."  Because the ability to protect new forms of old drugs is common (termed "evergreening"), it is not limited to Gleevec, and this, according to the article, is another source of concern for some groups.  Brook K. Baker, a professor of law at Northeastern University in Boston and a policy analyst for the Health Global Access Project, is quoted as posing the question "Do you get one patent monopoly for the basic ingredient or do you keep tweaking it to get more patents?"  (While not a bad question it ignores the reality that the "old" form of the drug, once off patent, can be made, used and sold free of the patent "monopoly," as illustrated nicely for omeprazole, sold first as Prilosec® and, in altered form, as Nexium®.  No one needs to take Nexium, and omeprazole has been available in the U.S. as a genetic for almost 10 years.)  Ironically, the "earlier" version of Novartis' Gleevec, although patented in the early 1990s, was never marketed as a drug, and the "newer" version was approved at least in part because it is "30 percent easier for the body to absorb" than the older drug.  And of course the earlier version of the drug was not patented in India because India did not grant pharmaceutical patents at that time.  Paul Herrling was quoted as explaining that it is frequently the case that the first embodiment of a drug compound is not what ultimately becomes the approved drug product.  Under these circumstances, India's position would prevent patenting of the actual drug, which frequently has important beneficial properties (compared with the first patented compound, which "might not be absorbed into the bloodstream well enough, or it might be chemically unstable, or unsafe").

The implications of the case extend to other cancer drugs (such as erlotinib, sold by Roche as Tarcera®, and numerous anti HIV drugs, including tenofovir, sold by Gilead Sciences as Viread®).

The positions taken by Professor Baker and Shamnad Basheer, a law professor at West Bengal National University of Juridical Sciences in Kolkata who has filed an amicus brief, provide an interesting perspective.  Professor Baker takes the traditional legal academic view, that Western drug companies "want India shut down as a place that can make early versions of generic medicines that can compete with them" while conceding that "a victory for Novartis would not shut off the production of generic Gleevec or of other existing generics."  Professor Basheer, on the other hand, said that "[i]t is important that the court take on the matter and interpret the law in a way that balances the need for innovation against public health concerns."  His amicus brief argued that the improved "effectiveness" standard needed clarification and that "[i]t would be impractical for drug companies to seek patents only after they have conducted years of clinical trials that could provide definitive proof that updated drugs work better than their older version."  On the other hand, evergreening is an important concern, however, and the Indian government has a legitimate interest in protecting its generic drug industry.

The Indian Supreme Court will make its decision, and thereafter it is possible we will see whether and to what extent either of these positions is correct.