Compulsory licensing: law, challenges and strategies

The compulsory licensing provision is one of the most widely debated provisions of the Patents Act 1970 – both domestically and internationally – as it concerns the grant of a compulsory (manufacturing) licence for a patented drug based on its lack of availability or affordability to the general public. India is not the only country which has compulsory licensing provisions: countries such as Malaysia, Thailand and Ghana also have them. The Indian Constitution also provides assurance regarding the right to health as a part of the right to life under Article 21. Further, Article 47 affirms the state obligation to improve public health. As well as issuing a patent (after meeting the strict novelty, inventive step and industrial application criteria), the context of compulsory licensing can significantly alter the patentee’s exclusive rights. It is believed that ultimately, the responsibility to develop and sustain public needs and demands, including public health and safety, lies with the government. The idea behind compulsory licensing is to impose limitations on the exploitation of a patent, and this was supported in the Ayyangar Committee’s recommendations. The compulsory licensing provisions under Section 84 of the Patents Act have existed since the act was implemented. However, the relevant provision was amended in 2005 by introducing a time bar on a third party seeking compulsory licensing.

Statutory provisions
Sections 82 to 95 of the act contain various provisions related to compulsory licensing, but Sections 84, 92 and 92A are of particular significance:

  • Section 84 states that an interested party can apply for a compulsory licence at any time after three years from the date of grant of the patent based on:
    • a failure to meet reasonable public requirements;
    • the inaccessibility of the patented invention at a reasonably affordable price to the public; or
    • the non-working of the patented invention in India.
  • Section 92 authorises the central government through a gazette notification to issue a compulsory licence at any time after the grant of the patent in the case of:
    • a national emergency;
    • circumstances of extreme urgency; or
    • public non-commercial use.
  • The compulsory licensing provisions under Section 92A(1) are unique as they authorise the central government to issue a compulsory licence for the manufacture and export of patented pharmaceutical products to any country with an inadequate or non-existent manufacturing capacity to meet public demand.

The Nexavar case was the first in India wherein the controller general of patents granted a compulsory licence to Natco Pharma to manufacture and sell Bayer AG’s patented anti-cancer drug sorafenib tosylate (Nexavar), which is crucial for kidney and liver cancer patients, in India. Nexavar not only was sold at a higher and unaffordable price in India, but also was not reasonably available to patients at large. Further, the drug was not being manufactured in India. Bayer was unsuccessful in its challenge to the controller general's decision before both the Intellectual Property Appellate Board (IPAB) and the Bombay High Court. Thereafter, the Supreme Court’s dismissal of Bayer’s special leave petition against the Bombay High Court’s decision settled the case on the first-ever Indian compulsory licence.

The three grounds set out in Section 84 of the act were upheld in the decision – namely:

  • an inadequate supply of the patented drug;
  • a high price; and
  • non-working of the patented drug in India.

In Roche’s Herceptin case, the Ministry of Health was denied a compulsory licence. In yet another compulsory licensing matter concerning Dasatinib, a compulsory licence application filed by BDR Pharma was rejected. BDR Pharma had filed a compulsory licence application without completing due process as required under Section 84(6) with patentee Bristol Myers Squibb. The controller general rejected the application and held that the terms 'effort' and 'reasonable', as mentioned in Section 84(6), must be appreciated by the applicant by way of mutual deliberations. Similarly, in LEE Pharma a compulsory licence application for the drug Saxagliptin, owned by Bristol Myers Squibb (later assigned to AstraZeneca), was rejected as LEE Pharma had failed to provide evidence and satisfy the grounds set out in Section 84(1) of the act.

Tests for compulsory licensing
The key takeaways on granting compulsory licences from the recent decisions are as follows:

  • The courts will examine the genuineness, proactive conduct and efforts of the applicant towards the patentee for the grant of a voluntary licence (Section 84(6) (iv)).
  • Three tests apply to the meeting of reasonable requirements:
    • whether, in addition to the patented drug, there are any alternative drugs available for the same disease which could be made available to the public at a reasonable cost;
    • if no alternative drug is available, whether the patented drug is available to the public through manufacture or import by the patentee (commercial working in India) at a reasonable cost; and
    • a comparison of the cost of proposed drug, the patentee’s drug and any alternative drugs.
  • As the act mandates the filing of a statement of working every year, irrespective of the existing status of working in India, the requisite form should be filed with due diligence. If a patent has not yet been worked, the owner should mention what will be done in the near future.
  • The patentee may consider licensing, which must be exercised simultaneously if local manufacturing is not possible. Similarly, the patentee must address licensing queries raised by generic companies.
  • The pricing of essential life-saving drugs should be considered by the patentee by strategically monitoring public need and economic status in India.
  • The mandatory legal requirements for obtaining a compulsory licence (eg, efforts to obtain a licence from the patentee and a reasonable timeframe for negotiations in view of public requirements) should be carefully considered.

Although the limitation of exclusive rights through compulsory licensing can weaken economic incentives and the motivation to invent and invest in R&D, invention must be encouraged for the long-term benefit of the public. While the consideration of royalties in Nexavar appeared beneficiary for the patentee, it is pertinent to strike a balance between the patent holder's rights and obligations. Aside from the hurdles raised by the economic consequences of compulsory licensing, it has become important for multinational pharmaceutical companies procuring patents and doing business in India to understand the country’s compulsory licensing laws and reevaluate their business strategies, while domestic companies pursue alternate options to access patented life-saving medicines within the legal system. Accordingly, a coherent and practical health policy, supported by the right structural framework, is required.

The Indian pharmaceutical market is primarily a generic-intensive industry, which exists alongside innovator pharmaceutical companies. However, there have been increasing instances of conflicting interests between generic and innovator companies, with the various court decisions having implications for the pharmaceutical sector. In this context, patent owners should take appropriate precautions when negotiating voluntary licences with interested parties. It may be desirable to enter into licensing arrangements to ensure the more effective distribution of drugs and meet public demand. Similarly, it is also important for generic manufacturers to examine all the facets of compulsory licensing before filing an application.

The unanswered question is perhaps whether compulsory licensing is the most rational means of making patented drugs available in sufficient quantity, at the right time and at an affordable price to patients. At the same time, the industry should work towards an optimal pricing model and its execution in developing countries. Drug price control can also be achieved under the Essential Commodities Act 1955, wherein the government of India already has a legal mechanism for drug price control, which fixes the price of certain active pharmaceutical ingredients and formulations.

Therefore, it is necessary to strike a balance, promoting R&D and pricing models in order to reach a novel, inventive and industrially applicable outcome that meets public demand within the relevant timeframe.

This is an Insight article, written by a selected partner as part of IAM's co-published content. Read more on Insight

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