Natco Pharma Limited vs.

Bayer Corporation

Introduction
India joined TRIPs and the deadline for complying with TRIPs obligation was 1 st
January, 2005. The Patents (Amendment) Bill, 2005, introduced in the Parliament in March,
2005 with the objective of making the Patents Act compatible with India's international
obligations, particularly under the Agreement on Trade Related Aspects of Intellectual
Property Rights (TRIPS Agreement). Article 27.1 of the TRIPs Agreement requires WTO
members to make patents available for any inventions, whether product or process, in all
fields of technology w, which includes patents for pharmaceutical products or processes. At
the same time, TRIPs provides a reasonable fetter on the rights of the Patentee in Article 30
and 31 allowing member countries to enact provisions for granting compulsory license to
prevent the abuse of patent right. Hence, under the present amendment, the need for access of
affordable medicines to Indian people at large, encouraging innovation by Indian industry, its
current capabilities in R&D, and balancing of India's obligations under international
agreements with the wider public interest was given primary importance. Further, every effort
was made to prevent the grant of frivolous patents and 'ever-greening' of patents. In March
2012, India's controller of patents granted the country's first compulsory licence in the case of
Natco Pharma Limited vs Bayer Corporation.

Background of the Case

M/s Bayer Corporation which is an internationally renowned manufacturer of
innovative drugs held the rights to a patent for a cancer drug, “Sorafenib Tosylate”,
otherwise marketed as “Nexavar”. The Patentee (Bayer) first applied for Patent in United
States and later entered into international filing on 12th January, 2000. A Patent was granted
to Bayer on the drug “Nexavar” by the Indian Patent Office on 3rd March, 2008.
Natco, a reputed Indian generic drug manufacturer, approached Bayer for a voluntary
license, which was denied, before bringing an application before the Controller of Patents
Court, for a compulsory license. Natco developed the process to manufacture the patented
drug and received a license from the Drug Controller General of India for manufacturing the
drug in bulk and marketing it in the form of tablets in April 2011.

Issues:-
The Controller had three substantive issues to consider which were all based on Section
84(1)(a), (b) and (c). The issues are:-

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 Natco Pharma Limited vs. Bayer Corporation

1. Whether the reasonable requirements of the public with respect to the patented
invention have not been satisfied?
2. Whether the patented invention is not available to the public at a reasonably
affordable price? and
3. Whether the patented invention has not worked in the territory of India?

Arguments Advanced:-
1. Reasonable Requirements of the Public

Section 84(1)(a) of the Indian Patents Act required that the "reasonable requirements of the
public with respect to the patented invention" must not have been satisfied, in order for a
compulsory licence to be granted. Natco supplied statistical data showing that Bayer did not
make the drug readily available to the public, and that excessive pricing of the drug partially
contributed to lack of demand by the public. Bayer denied this, and interestingly, used sales
figures of an alleged infringer in its argument. Bayer had prior to this case, brought
infringement proceedings against Cipla, another generic manufacturer, for infringement of
the same patent. These proceedings were still pending. However, Bayer argued that sales by
Cipla contributed to the reasonable requirements of the public being met. The Controller
however, did not accept this argument, stating that Bayer's conduct and that of any licensee
was of importance. He found basis for this reasoning in Section 86(6)(i) of the Act, which
stated that the measures taken by the patentee and licensee must be taken into account. On the
facts, the Controller found that Bayer did not discharge its obligation in satisfying the
reasonable requirements of the public as an insignificant quantum of the drug had been made
available to the public in the three years since grant of the patent. Thus, the Controller held
that Section 84(7)(a)(ii) had been invoked by the Patentee. Section 84(7)(a)(ii) provides that
“the reasonable requirements of the public shall be deemed not to be satisfied if by reason of
the refusal of the patentee to grant a license or licenses on reasonable terms the demand for
the patented article has not been met to an adequate extent or on reasonable terms”.
Accordingly, the Controller held that the reasonable requirement of the public with respect to
the patented invention has not been satisfied by the Patentee.

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 Natco Pharma Limited vs. Bayer Corporation

2. Reasonably Affordable Price

Section 84(1)(b) of the Indian Patents Act requires that in order for a compulsory licence to
be granted, the patented invention must not have been made available to the public at a
"reasonably affordable price". Natco contended that the drug was excessively priced and
unaffordable to the ordinary public. It also contended that Bayer was eligible for a drug tax
credit which would have lowered the net cost of investment on research to Bayer, however,
Bayer did not take this opportunity to lower the price of the drug, which proved abuse of its
monopolistic rights. Bayer argued that innovation based products cost more, and that the
Controller had to take into account the total cost of R&D and sustainability of future research.
Bayer argued that a "reasonably affordable price" should be reasonable to both the public and
the patentee. The Controller did not agree with this proposition, stating that the reasonable
price had to be construed with reference to the public. On the facts of the case, the Controller
again found that the patented invention was not available to the public at a reasonably
affordable price.

3. Patented Invention not worked out in India

Section 84(1)(c) of the Indian Patents Act allows for a compulsory license if the patented
invention is not worked in the territory of India. Natco argued that "worked in the territory"
meant "manufactured in India". They argued that since Bayer already had manufacturing
facilities in India, there was no hurdle preventing them from manufacturing in the country,
and as it did not manufacture the drug in India, it did not discharge its obligation. Bayer
stated that it did not manufacture the drug in India due to economic reasons and also that he
got license from the Directorate General of Health Services to import and market the drug on
22.01.2008. Bayer argued that "worked in the territory" could not mean "manufactured in
India" and that treating the un-equals as equal is discriminatory and is not permissible under
law. Bayer also argued that placing the rich and the poor class in one category at the expense
of the patentee is unreasonable and cannot be the intention of the legislature. Rejecting the
averments of the patentee, Controller held the view that the Patentee had four years from the
date of grant of patent to apply different pricing for different sections of the public in India.
The Patentee did not fulfilled the conditions laid down in Section 86 of the Act, i.e., neither
the patent worked on a commercial scale to an adequate extent since the time of sealing of
patent nor the patentee has taken steps to start the working of the patent in the territory of
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India on a commercial scale and to an adequate extent. The Patentee did not import the drug
at all in 2008 and imported in small qualities in 2009 and 2010. Further no prompt action was
taken by the Patentee to start the working of the invention in the territory of India on a
commercial scale and to an adequate extent. Based on these considerations, the Controller
rejected the request of the Patentee for adjournment.

Decision:
Controller of Patent decided to grant Compulsory License under Section 84 of the Patent Act,
1970 as amended in the year 2005. However, certain terms and conditions of the License in
light of the provision contained in Section 90 of the said Act were laid down by the
Controller. A few important terms and conditions laid by the Controller are as follows:-
 The price of the drug “Sorafenib Tosylate” shall not exceed Rs. 8880 for a pack of
120 tablets required for one month’s treatment.
 The license is a non-exclusive and non-assignable license.
 The licensee shall pay royalty at a rate of 6% of the net sale of drug.
 Right to license is only for making, using, offering to sell for the purpose of treating
HCC and RCC within the territory of India.
 The licensee shall maintain accounts of sale etc.in a proper name and report it to the
Controller and the Licensor.

Conclusion

At a time where global pharmaceutical mergers are subject to intense scrutiny by the Indian
Government and the marketing policies of the pharmaceutical industry are being debated by
the Indian bureaucracy, the grant of India’s first compulsory licence in this sector has
certainly raised eyebrows. The Natco v Bayer decision has already resulted in an adverse
perception of the Indian pharmaceutical industry and may adversely impact foreign
investment in this sector.

The Natco v Bayer decision sets the precedent for making expensive patented drugs available
for compulsory licensing under the Patents Act.

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 Natco Pharma Limited vs. Bayer Corporation

Note:-

 WORKING of Patent

Annual reports as to the extent of working, by every patentee and licensee, are a
statutory requirement and must be submitted by March, 31 each year for the previous
year ending December, 31.

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