In a landmark move, the Indian Patent Office announced on Monday that it has issued its first compulsory license to a domestic generic drug-maker. The decision effectively ends German pharmaceutical company Bayer AG’s monopoly over an anti-cancer drug and authorises the production of a low-cost version for the Indian market.
New Delhi’s decision may pave the way for other Indian generic producers to ask for compulsory licenses on patent-protected medicines if the right-holders fail to supply the products at affordable prices and in sufficient quantities. It could also potentially encourage other developing countries to use compulsory licensing for drugs for non-communicable diseases, which has until now mostly been limited to HIV drugs in these countries, experts say.
India is the world’s third-largest pharmaceutical drug producer by volume; in 2011 the domestic pharmaceutical market reached a record of US$12.2 billion in sales. Patents on pharmaceutical products in India have been underthespotlight recently as Swiss drug manufacturer Novartis fights the rejection of a patent on another cancer drug on the grounds that it is not sufficiently innovative.
India only began issuing patents for drugs in 2005 in order to comply with the WTO’s Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement).
Bayer acquired an importing license for Nexavar – the company’s brand name for the drug sorafenib tosylate – in 2007; the patent on the drug was granted one year later. The company has claimed that Nexavar’s sales in India were undermined by the marketing of a similar drug by another domestic generic producer, CIPLA, which it had sued for infringement.
According to the Indian Patent Office’s decision, Bayer launched the drug in 2006. It received a licence to import and market the drug in India on 1 August 2007. The Patent Office found that Bayer did not import the drug at all in 2008 and only started importing in small quantities in 2009 and 2010. Seeing that Bayer was not making the drug accessible to more people, Natco applied for a compulsory licence.
In its CL application NATCO is proposing to market the same drug at Rs. 8,800 per patient per month if the patent office grants it a compulsory license. The price is likely to come down to 3% of what Bayer is charging. Bayer currently markets the drug at a high price of approximately Rs. 2,80,000 per patient per month. This case is also important as it will test Section 84 of the Indian Patent Act, under which the CL mechanism kicks in when generic competitors request a CL.
The Indian Patent Office also said that Natco must pay royalties to Bayer on a quarterly basis at the rate of 6 percent of the net sales of the medicine, in accordance with remuneration guidelines set forth by the United Nations Development Programme.
B. The Flexibilities on Patent Protection under the World Trade Organization Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS)
Compulsory licensing is when a government authorises a party other than the patent owner to produce the patented product or process, without the patent owner’s consent.
India only began issuing patents for drugs in 2005 in order to comply with the WTO’s Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement). The TRIPS Agreement explicitly allows compulsory licensing as long as procedures and conditions set out in Article 31 ofTRIPSare fulfilled.
It was clearly stated in Article 31 ofTRIPS that, “Where the law of a Member allows for other use of the subject matter of a patent without the authorization of the right holder, including use by the government or third parties authorized by the government,………”.
Further, Article 31 (f) of TRIPS emphasized that, “any such use shall be authorized predominantly for the supply of the domestic market of the Member authorizing such use”.
Under Section 84 (1) of the IndianPatentAct, any person may request a compulsory license if, after three years from the date of the grant of a patent, the needs of the public to be covered by the invention have not been satisfied; the invention is not available to the public at an affordable price; or the patented invention is not “worked in,” or manufactured in the country, to the fullest extent possible.
According to the decision, Natco must pay a quarterly royalty at 6 per cent of the net sales of the drug. This was lower than Bayer’s asking royalty of 15 per cent of net sales. This decision is quite satisfying that anything lesser than 6% would not just be just and reasonable given the facts and circumstances of this case. 
This decision made by The Controller of Patents in Mumbai is really reflected the rule which stated in Article 31 (h) TRIPS Agreement that, “the right holder shall be paid adequate remuneration in the circumstances of each case, taking into account the economic value of the authorization”.
The drug is exorbitantly priced and out of reach of most of the people,” the patent authority wrote in its 62-page decision. “The product in question is not a luxury item but a lifesaving drug and it is highly important that a substantial part of the demand be met strictly. In the present case, even 1 percent of the public doesn’t derive benefit of the patented drug.
A royalty of 6 per cent is also aligned with the United Nations Development Programme recommendation of a 4 per cent royalty, which can be adjusted upwards as much as 2 per cent for products of particular therapeutic value or reduced as much as 2 per cent if development of the drug made use of public funds.
Under the terms of the compulsory licence, Natco shall provide the drug for free to at least 600 needy and deserving patients pear year; sell the drug at no more than 8,880 Indian rupees (about US$178) for a pack of 120 tablets; and is prohibited from outsourcing the manufacturing of the drug.
Compulsory licensing is when a government allows someone else to produce a patented product or process without the consent of the patent owner, but under strict terms. It is one of the flexibilities on patent protection under the World Trade Organization Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).
The decision made by Controller of Patents in Mumbai marks a precedent that offers hope and it shows that new drugs under patent can also be produced by generic makers at a fraction of the price, while royalties are paid to the patent holder. This compensates patent holders while at the same time ensuring that competition can bring down prices.
D. List of References.
Protocol Amending the TRIPS Agreement
ICTSD, India Grants First Compulsory License to Generic Drug Producer, http://ictsd.org/i/news/bridgesweekly/128236/
Maricel Estavillo, India Grants First Compulsory Licence, For Bayer Cancer Drug, http://www.ip-watch.org/, 12nd March 2012
 ICTSD, India Grants First Compulsory License to Generic Drug Producer, http://ictsd.org/i/news/bridgesweekly/128236/, 26th March 2012, 00:41 AM
 Maricel Estavillo, India Grants First Compulsory Licence, For Bayer Cancer Drug, http://www.ip-watch.org/, 12nd March 2012
 Maricel Estavillo, Op. Cit.
 Maricel Estavillo, Loc. Cit.