Understanding Compulsory Licence : Written by Anand Agarwal

Compulsory Licencing

Compulsory licensing is when a government allows someone else to produce the patented product or process without the consent of the patent owner. It is one of the flexibilities on patent protection included in the WTO’s agreement on intellectual property — the TRIPS (Trade-Related Aspects of Intellectual Property Rights) Agreement.

The compulsory licensing provision arms the government with the power to ensure that medicines are available to patients at affordable rates and has so far been used in Brazil, Thailand and South Africa.
It gives the government the right to allow a generic drugmaker to sell copycat versions of patented drugs under certain conditions, without the consent of the patent owner. 

The TRIPS Agreement does not specifically list the reasons that might be used to justify compulsory licensing. However, the Doha Declaration on TRIPS and Public Health confirms that countries are free to determine the grounds for granting compulsory licences.

Article 31 of the TRIPS Agreement lists a number of conditions for issuing compulsory licences:

1.      Normally the person or company applying for a licence has to have tried to negotiate a voluntary licence with the patent holder on reasonable commercial terms. Only if that fails can a compulsory licence be issued

2.    Even when a compulsory licence has been issued, the patent owner has to receive payment;

3.    The right holder shall be paid adequate remuneration in the circumstances of each case, taking into account the economic value of the authorization

4.    Compulsory licensing must meet certain additional requirements: it cannot be given exclusively to licensees (e.g. the patent-holder can continue to produce)

5.     The compulsory license should be subject to legal review in the country

However, in case of national emergencies, other circumstances of extreme urgency, public non-commercial use, government use and anti-competitive practices, there is no need to try first for a voluntary licence. But the patent owner still has to be paid.

Indian Patents Act 2005

Section 84 of the Indian Patents Act 2005 deals with compulsory licensing. As per the provisions of this Act, any person may make an application to the Controller of Patents for grant of compulsory licence on any of the following grounds, three years after grant of patent:

1.      Reasonable requirements of the public with respect to the patented invention have not been satisfied

2.    The patented invention is not available to the public at a reasonably affordable price

3.    The patented invention is not worked in the territory of India.

Compulsory Licence to Natco

On March 9, the Controller General of Patents, Designs and Trademark, Mumbai (CGPDTM) granted India’s first compulsory licence to Hyderabad-based Natco Pharma, permitting it to manufacture and market a generic version of Nexavar, a medicine used for treating liver and kidney cancer, in India for just 3% of the patented drug’s price in return for paying 6% royalty on sales to Bayer. 

Natco had sought voluntary licence in December 2010 for Nexavar from Bayer. The German company rejected Natco’s proposal, saying it needed to reinvest its earnings from such patented products for future R&D. Subsequently, in August last year, the Hyderabad based drugmaker applied for a compulsory licence. 

The Hyderabad-based firm will have to make the kidney and liver cancer drug at its own manufacturing plant and send quarterly updates about sales to Bayer and the patent office. Natco has also committed to donate free supplies of the medicines to 600 needy patients each year. 

Key points of the order

1.      In his order, the CGPDTM stated that the number of patients eligible for Sorafenib is 8842 per year and the drug had been made available to only a little above 2% of the eligible patients.On this basis, the CGPDTM ruled that the reasonable requirements of the public with respect to the patented invention have not been satisfied and issuance of a compulsory license was justified.

2.    Bayer requested for some more time to work the patent. It offered to amend its existing patient assistance programme (where a patient would have to buy 1 month’s drug supply at the regular price (Rs 2.8 lakhs) and would get it free for the remaining 3 months). However, the CGPDTM found that this proposed philanthropy, and it did not allow Bayer to escape the issuance of a compulsory license. He noted that such actions cannot be construed as steps to work the invention on a commercial scale to an adequate extent.

3.    The Controller found that the price of the drug was not reasonably affordable to the public. The price of Rs 2.8 lakhs (for a therapy of one month) was found to be imposing a very high barrier and the patients could not afford to buy such expensive drugs. Thus the second condition for grant of compulsory licence was also met. 

4.    The CGPDTM also found that the mere import of Bayer's drug into India did not amount to working the patent and ruled that for a patent to be worked in the territory of India means the patented product would have to be manufactured to a reasonable extent in India. This part of the decision is likely to prove controversial, since almost 90% of all pharmaceutical patents are only imported into India. Therefore, under the terms of this order, all of these drugs are now susceptible to compulsory licenses in India.

Impact of the order

The grant of compulsory licence would allow Natco to make and sell the patented cancer drug at a fraction of the price charged by Germany’s Bayer AG. As against the Rs 2.8 lakh charged by Bayer for 120 tablets, Natco would sell the same number for Rs 8,800, and pay 6% royalty to Bayer.

This order could encourage more such efforts by Indian firms and heightening the global pharmaceutical industry’s anxiety over the use of the controversial compulsory licensing provision.

Healthcare activists have welcomed the order and said it would discourage innovator companies from selling medicines at exorbitant prices.

Multinational pharma companies have said such orders discourage innovation and fail to take into account the high R&D costs borne by the industry in developing such drugs. Bayer is expected to legally challenge the decision.

The order may encourage other Indian drugmakers to file for compulsory licences, setting the stage for a spate of regulatory disputes between Indian and foreign drug companies over pricing and patent issues. The patent controller has ruled that if a product is not manufactured in India after three years of receiving a patent, it will be a candidate for compulsory licensing. This can have huge consequences as most patented products sold in India are imported.

There are at least two potential compulsory licensing applications on the anvil in the country in the near term. Cipla has sought a voluntary licence from US-based Merck & Co for its HIV drug Isentress. Natco has sought a similar licence from Viiv Healthcare, a joint venture between GSK and Pfizer, for their HIV drug Maraviroc. If the foreign companies refuse to give these licences, both these firms may ask the government to grant them compulsory licences.

Source: 

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