"'Compulsory license' is not an unmentionable word": this is how the Intellectual Property Appellate Board (IPAB) started the landmark judgment in which it upheld the controller’s decision to grant the first-ever compulsory licence under the Indian patent regime.

Background
In 2012 Natco Pharma Ltd obtained a compulsory licence on Bayer’s patented anti-cancer drug on various grounds. Bayer challenged the order at the IPAB.

IPAB decision
No hearing for prima facie admissibility
Rejecting the first ground of appeal, the IPAB held that “it would be futile to contend that for arriving at prima facie satisfaction, the other side should be heard”.

Voluntary licence offer may have been negotiated
Bayer argued that Natco’s letter was more of a threat than a request for a voluntary licence, which indicated that Natco had not made reasonable efforts to obtain a voluntary licence. The IPAB rejected Bayer’s argument and stated that Bayer should have stated that there was room for negotiation – even though the amount stated by Natco was not considered to be a bargaining point by Bayer – instead of stating that it found the granting of a voluntary licence to be inappropriate.

Evidence can be filed subsequently
The IPAB examined the facts to decide whether the compulsory licence was supported by evidence. In its letter of 6th December 2010 Natco had sought a voluntary licence from Bayer for the manufacture and sale of the drug at less than Rs10,000. The IPAB observed that the compulsory licence application does not mandate the need to file evidence alongside the application and may be filed subsequently. Accordingly, the IPAB ruled that the controller’s decision was fully supported by evidence, and any lapse was purely procedural and insufficient to set aside the order.

Infringing sales will be disregarded
In regard to the sale of "potentially infringing products" by CIPLA, Bayer argued that whether the sale was illegal had no bearing on whether it would otherwise cater to the reasonable requirements of the public. Ironically, Bayer argued that in the absence of an order from the High Court, CIPLA's sales could not be considered illegal. Natco counter-argued that CIPLA’s sales were subject to uncertainty from the litigation and that Bayer could not have it both ways – that is, claiming damages for infringement while simultaneously using CIPLA’s product to prove that the reasonable requirements of the public were met.

The IPAB agreed with Natco and observed that the statute mandates ascertaining the working of the invention from the sales of the patented invention by the patentee and licensee only. The IPAB also stated that any contrary interpretation of the statute would provide the patentee with the monopoly of the invention, without making any effort to provide the invention to the public. Further, such interpretation would also provide the patentee with the opportunity to base its case on the sales of a third party whom the patentee could sue for infringement at will.

Reasonable affordability is from public’s viewpoint
The IPAB stated that "reasonable affordability" of an invention means reasonable to the public, as opposed to Bayer’s contention that the patent should be affordable to both the public and the inventor. Natco also argued that a reasonable price would not mean recovery of costs from India alone. However, the IPAB upheld the controller’s conclusion on affordability and observed that only sales of the drug by the appellant at the price of Rs280,000 were relevant for the determination of public requirement. The IPAB also upheld the approach of the controller in accounting for the purchasing capacity of the public, while determining that the invention was not reasonably affordable to the public.

Safeguards for patentees
Bayer had brought its patient assistance programmes to the notice of the controller. The controller considered them but did not take such programmes into account, as the Patent Act does not require him to take into account matters subsequent to the making of the compulsory licensing application. The controller felt that the legislative intent seemed to be that subsequent measures by the patentee to frustrate the proceedings should not be considered. The IPAB disagreed with the controller, stating that if, hypothetically, the appellant had brought down the market price permanently to a reasonably affordable cost from the public point of view, that could not be said to be a measure frustrating the proceedings. The IPAB stated that the compulsory licence proceedings are only in the public interest. Therefore, a manufacturer who makes a product available to the public by reducing the price to the extent that the public can reasonably afford the product cannot be said to frustrate the proceedings.

However, based on the facts of the case, these safeguards were held to be inapplicable to Bayer. As per the Form 27s, Bayer had imported only samples and not commercial packs. Given the evidence on record as to the potential demand, the IPAB held that no steps were taken to start working the invention in India on a commercial scale.

“Working” can also cover imports
The IPAB differed from the controller in interpreting the “working” of a patent locally. In the absence of a definition in the Agreement on Trade-Related Aspects of IP Rights or the Paris Convention, the IPAB stated that "working" should be interpreted on a case-by-case basis. This interpretation may range from excluding imports from the working requirement on the one hand, to being synonymous with it on the other. However, the IPAB stated that the patentee must show why the invention could not be manufactured locally. A mere statement to that effect, unless backed by evidence, was not sufficient. In this case, Bayer failed to give reasons to this effect.

The IPAB held that in any case, even if imports alone were considered to fulfil the requirement of "working", based on the evidence on record it could be concluded that Bayer had not worked the invention on a commercial scale.

Royalty rate
Bayer also contended that the terms and conditions of the compulsory licence were fixed arbitrarily. In particular, Bayer objected to the royalty rates fixed in accordance with recommendations of the United Nations Development Programme. The IPAB concurred with the controller in holding that "royalty shall be paid on the net sale of the drug and not from the margin". However, the IPAB increased the royalty fixed by the controller by 1% to make it fairer.

Comment
While the facts may have swayed the board to rule against the patentee in this case, the well-reasoned interpretation given by the IPAB provides sufficient safeguards to patentees.

This article first appeared in IAM magazine. For further information please visit www.iam-magazine.com.