Bayer Corporation vs Union of India: 2014 SCC Online Bom (963)

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Introduction:

There has been an emergence of Intellectual Property rights as an imperative field due to it guaranteeing an individual’s right to their own creation and invention. Since the advent of the general Indian industry, it has contributed massively to the production of drugs on an international scale. And as a result of this, there has been a question of debate with regards to the patent linkage policy associated with these products. The connection between the patency awarded to the respective creator of a product and the corresponding approval for the commerciality of that product is termed to be a “patent linkage.” The present case carries significant value in this regard as it was the first case that provided for a more extensive and flexible interpretation of the patent linkage policy in an Indian context in accordance with its necessary license regime and the application of the Bolar provision. Additionally, Bayer Corporation v Union of India was the first case where the concept of compulsory license was provided under Section 84 of the Patents Act, 1970, and it also dicusses the important concept of Bolar exemption.

Facts:

The petitioner of the present case is Bayer Corporation, a US-based company, with the purpose of researching and developing a drug which would ultimately aid patients who are suffering from kidney and liver cancer related illnesses. Bayer Corporation had, in 2008, acquired a patent for the right to manufacture drugs under the moniker, “Sorafenib Tosylate.” The petitioners sold this drug to the general public under the name, “Nexavar.” 

Natco Pharma Ltd., the respondents in the dispute, is an Indian-based pharmaceutical company who sought a grant of voluntary license from the petitioner so as to sell the patented drug to the general public at a reasonable price. This was because Bayer Corporation was selling the Nexavar drugs for amounts reaching up to Rs. 2,84,000 per month of therapy and Natco Pharma wanted the drugs to be more accessible to patients by selling it at a substantially lower price. Bayer Corporation, however, rejected the respondent’s application and did not grant them the voluntary license that they were seeking.

After the 3-year period was exhausted, pursuant to Section 84 (1) of the Indian Patents Act, 1970, Natco then proceeded to file another application, this time for a grant of compulsory license to the Controller. As Natco fulfilled all the requirements provided for in the grant of compulsory license, the application was approved by the Controller. Pursuant to this approval, the respondent was allowed to start manufacturing and selling the Nexavar drug which was still under Bayer Corporation’s patent. Natco was also under an obligation to make a 6% payment of the profits that they made through the sale of the drugs to Bayer Corporation as royalty. In addition to this, the Controller also made it clear that the respondents were not in a position to re-assign the patent rights given to them by the Controller to any of the company’s heirs, due to the non-transferability of these rights.

  1. Whether the provision of Patent Acts were followed while granting of Compulsory license by the controlller?
  2. Did the respondent make efforts to procure voluntary license from the applicant?

Issues Raised:

In the present case, two main questions of law were tackled namely:

Contentions raised in the case:

The primary contention made in Bayer Corporation v/s Union of India & Ors. is related to the granting of the voluntary and compulsory license to the respondents by the Controller, in addition to, the application of the Bolar exemption which is concerned with the patent linkage policy in an Indian context. The court was of the opinion that the respondents had, in fact, met all the requirements provided under Section 84 (1) (a), (b) and (c) of the Indian Patents Act, 1970. Thus, the Controller was justified in his action to grant compulsory license to the respondents.

The court, furthermore, observed that the application submitted by the respondents wherein they highlighted issues that Bayer Corporation were found to be lacking in. The court, subsequently, held that the petitioners did not fulfil the requirements to test the usage of the drug by the general public. Additionally, the court found that the petitioners also did not put up satisfactory evidence to substantiate their claim that the Nexavar drug was not suitable for the territory of India. The court then set out a reminder that the purpose of Section 83 (f) of the Indian Patents Act is to forbid the owner of the patent rights from abusing the powers assigned to them as a result of the provision in international trade.

Another point of contention was the compulsory licensing system and the Bolar exemption being considered as hurdles to the enjoyment of rights that are granted to individuals holding the patent rights. Although these provisions are granted by law exclusively, there are several instances wherein state governments or other third parties utilise the concerned product which has been patented without obtaining due permission from the individual who holds the patent rights for said product. However, these instances are justified only in the situation when the person capitalising on the patented product made prior efforts to obtain the required patency rights from the person holding it so as to be eligible for protection envisioned under Section 84 of the Indian Patents Act.

Other than the national provision on patency rights, there are other international provisions that highlight the importance of the granting of a compulsory license such as the Doha declaration under the TRIPS and Paris convention on Protection of Industrial property, 1883. One of the important characteristics of this case is that, after the judgment, it managed to establish a bridge between the grant of a compulsory license and the bolar exemption.

The respondents, in their defence, responded to the allegations made by Bayer Corporation by highlighting the fact that Natco Pharma Ltd. exported the Nexavar drug to other foreign countries as a way of conducting medical trials that would help in the research and development of the drug. The respondents, additionally, had also been granted a compulsory license to distribute the patented Nexavar drug. Bayer Corporation, to this, responded that Natco Pharma Ltd. sought the license purely to redistribute the drugs for commercial gains and that this would constitute a violation of Bayer’s patent rights provided under Section 107 (A) of the Indian Patents Act.

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The court, after reviewing and assessing the contentions made by both parties to the dispute, concluded that Natco Pharma Ltd.’s action of exporting the Nexavar drug for clinical trials constitutes as one of the exemptions under Section 107 (A) and, as a result of which, rejected the petitioner’s claim. The court further added that the respondent’s activities were more inclined to their efforts of obtaining the permission from the Controller rather than falling under the purview of a commercial activity. The court highlighted that even though the challenges experienced by other nations while trying to solidify the future of curative study have been recognized, it was unfair to preside over the legal requirements of other foreign nations by restricting a research exception exclusively within the territory of India.

The final contention raised in the case was the applicability of the Bolar Exemption in the case of a compulsory license. The court, while reviewing this contention, was of the view that the Bolar exemption and the granting of a compulsory license were exclusive from each other and that compulsory licensing constitutes as an exemption to Section 48 of the Indian Patents Act, whereas the Bolar exemption does not. The court further emphasised that the purpose of granting a compulsory license and the actual applicability of that license is different from each other. The court agreed that, in most situations, the grant of a compulsory license can be rendered ineffective if it is not accompanied by the technical knowledge on how to apply it. For a developing country like India, which is relatively slower in their advancement in technology, the cooperation between Bayer Corporation and Natco Pharma Ltd. is imperative to ensure the smooth functioning of the compulsory license.

The mere fact that Bayer Corporation., in this context, is an important cog in the compulsory licensing regime makes it problematic for Natco Pharma Ltd. to obtain permission to produce and sell the Nexavar drug at the same quantity and quality as Bayer Corporation did. Another hurdle to the applicability of a compulsory license is that Bayer Corporation needs to specify all the technical know-how regarding the usage of the Nexavar drug which is essentially impossible to do if the drug has not actually been tested in the market. As a result of this, it is not easy for the respondents seeking the license to have the technical ability and knowledge on how to properly utilise the Nexavar drug until and unless Bayer Corporation offers their voluntary help in obtaining the required knowledge. For this purpose, the Ayyanger Committee was arranged for providing an answer to the issue, which then suggested that Natco Pharma Ltd. will only be in a position to properly utilise the Nexavar drug to its full capacity if Bayer Corporation imparts the technical know-how to them. The benefits for Bayer Corporation in doing this amount to them receiving royalty fees from Natco Pharma Ltd.

If we take the above issue and read it along with the Bolar exemption, it is safe to conclude that compulsory licensing is on the same level of priority as that of the Bolar exemption. Similarly to the Bolar exemption, companies such as Natco Pharma Ltd. require the patent for the submission of information, thus, expressing their desire to gain access to that information in order to fully utilize the patented product to its optimum capacity. The court referred to Section 92 (A) of the Indian Patents Act, 1970 to provide some clarification on the exceptional circumstances which allows the granting of a compulsory license when exporting patented pharmaceutical products. For the purpose of assessing Natco Pharma Ltd.’s competence to export the petitioner’s drugs to a foreign country, the court observed that if Natco is more than able to handle the manufacturing of the drugs, then such a foreign export will be deemed legal under the law.

Summary of the Judgment:

With regards to the question of the Bolar exemption, the court clarified that the word “selling,” pursuant to Section 107 (A) of the Indian Patents Act, is not restricted to sale in a particular geographical territory and further provided that the provision was in consonance with the fundamental right envisioned under Article 19 (1) (g) of the Indian Constitution. The court also observed that rights provided by this provision do not get negated by the granting of a compulsory license. The court also held that for such export of products to be considered lawful, it needs to be done so within reasonable limits. The court substantiated this requirement by providing that such exports must be done for the purpose of developing and submitting relevant information.  As a result of this, the court denied Bayer Corporation’s claim of barring Natco Pharma Ltd. from exporting the Nexavar drug to foreign countries. This highlighted the case-to-case assessment requirement when presiding on matters of possible abuse of the rights of patency.

With regards to the first issue, the petitioner contended that there were two essential requirements that need to be met before applying for a grant of compulsory license;

The petitioner was of the opinion that Natco Pharma Ltd. did not satisfy the second requirement envisioned under Section 84 (6) of the Indian Patents Act.

The court, while presiding over this issue, reached the conclusion that, pursuant to the review done by the Controller and taking into consideration the evidence presented before the court, the respondents clearly started a dialogue with the petitioner (as evident from the letters exchanged between the two parties) to seek a grant of a voluntary license.

With regards to the second issue, the Controller and Intellectual Appellate Board (IPAB) came to the conclusion that Bayer Corporation did not satisfy the public interest requirement due to the following reasons:

With regards to the third issue, the petitioner contended that a determining factor the court must take into consideration, while presiding over the issue of the reasonable public interest requirement, is the fact that the manufacturing of Nexavar drug was done by the infringers (Cipla). The court, however, rejected this contention due to the court already having been intimated about Bayer Corporation’s injunction suit filed against the suppliers. This factual anecdote was, in the court’s opinion, in contradiction to their own claim. Furthermore, the court observed that, pursuant to Section 84 (7) of the Indian Patents Act, the only requirement to be fulfilled while discussing the reasonable public interest requirement is the assurance that the Nexavar drug was made available to the general public for purchase at a reasonable price.

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With regards to the fourth issue, the court held that it was the Controller’s responsibility to ensure that the Nexavar drug was made available to the general public at a reasonable price, pursuant to Section 90 of the Indian Patents Act. The court held that the Controller has satisfactorily fulfilled this obligation by granting the compulsory license to Natco Pharma Ltd. in this regard. Furthermore, the “litmus test” to determine whether the patented drug was being sold at a reasonable price is to compare the price at which it was being sold by Bayer Corporation and by Natco Pharma Ltd. To substantiate this, Bayer Corporation was selling the Nexavar drug at a price of Rs. 2,84,000 per month of therapy whereas Natco Pharma Ltd. was selling it at a price of Rs. 8,800 per month of therapy. This clearly left no doubt in the court’s collective minds that the price at which the respondents were selling the Nexavar drug was at a reasonable level.

Bayer Corporation’s justification of why they sold the Nexavar drug at their price was that the price included the costs that the company incurred when the R&D of the patented drug was being acquired along with the costs incurred during the R&D process for other drugs in the past which ultimately failed. The Controller, however, rejected this justification as Bayer Corporation failed to present an extensive report which had the details surrounding the costs incurred by them during the earlier mentioned R&D activities of the Nexavar drug.

With regards to the fifth and final issue, the court while assessing the contention brought up by Bayer Corporation, referred to Section 83 of the Indian Patents Act which stated that it is on the petitioner’s part to show proof that the Nexavar drug has been worked inside India’s territory. The court observed that this provision was enacted with the purpose of ensuring that the people holding the patent rights over a product do not impose a sort of monopoly over their product in market and trade, both on a national and international scale. In their response to this contention, the respondents submitted that, pursuant to Section 83, for the working of the drug in India to be proved, it must first be established whether the product was manufactured in India. Ultimately, the court held that the arguments brought up by Natco Pharma Ltd. were reasonable and reiterated that it is up to the individual holding the patent rights to prove that efforts were put in to ensure that the Nexavar drug was produced in India which would, subsequently, prove that it works in India.

Analysis:

The main question of law, in the present case, is concerned with the grant of a compulsory license. As already mentioned in the case’s judgment, the Controller rightfully granted the license to Natco Pharma Ltd. as the requirements provided for under the Indian Patents Act were fulfilled by the respondents, specifically Section 84 (1) (a), (b) and (c). The application filed by the respondents also highlighted the issues on which Bayer Corporation was found to be lacking in, further strengthening their argument. This lack from the petitioner’s end was the non-fulfilment of the reasonable price of the drugs they were selling to the general public, and that the petitioner failed to show that the drug was not working in the territory of India. To substantiate the phrase, “working in the territory of India,” the court referred to Section 83 (f) of the Indian Patents Act.

The present case carries significant value as it was the first case wherein the concept of the grant of compulsory licenses was dealt with for the first time inside Indian territory. It can be argued that the judgment passed by the court is appropriate in most aspects due to it being in consonance with the provisions provided under the Indian Patents Act, 1970. As already stated, Natco Pharma Ltd. acquired the compulsory license for the Nexavar drug from the Controller which was contested by Bayer Corporation as they were not satisfied by the Controller’s decision. The petitioners, then, approached two forums to seek reprisal for their dissatisfaction which both rejected their claim as the evidence clearly showed that Bayer Corporation were selling the patented drugs for an exorbitantly high price to the general public. 

With regards to the Bolar exemption, the Indian judicial system needs to expand their jurisprudence by considering the following two points:

Conclusion:

The court, in the present case, was right in denying the petitioner’s application against the granting of the compulsory license to the respondents by the Controller. The judgment passed by the court was very clear in their decision on the matter of public interest superseding all other factors in Intellectual Property Rights.

The court, furthermore, provided some clarifications on the main objectives and purpose of the Indian Patents Act, 1970 by stating that it is centred on the promotion and enhancement of the innovation and creativity that goes into inventing a product. An additional purpose of the Indian Patents Act is to ensure that any kind of damages that can be potentially incurred by the inventor of any product is completely avoided.

The judgment passed in the present case by the Delhi High court is an indication that the Indian Judiciary system is now in a position (and willing) to expand the applicability of theBolar exemptionby providing a detailed explanation on the word, “sale.” In addition to this, the judgment of the present case also aided in balancing out the discrepancies present between issues concerned with the preservation of public interest with that of the rights granted to the inventor of a patented product.

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