Author Name:   rakhishekhawat

Compulsory licensing is a major intellectual property issue effecting international business today, and will continue to do so for the foreseeable future. Escalating pressure emanating from the entertainment, pharmaceutical, and “high-tech” industries ultimately helped with the push towards a new international trade policy, culminating in the adoption of the TRIPS regime...

Compulsory Licensing To Generic Drugs: A Lifeline To A Patient

1.1. Status of India’s Pharmaceutical Industry
The world has witnessed a sharp increase in the demand for cost-effective generic drugs in a decade. In such a scenario, India’s rise as a generic destination is the blessing for people in under developed countries or patients looking for cheap medicines. Size of India’s pharmaceutical market is $ 4.9 billion (2003). This constitutes about 1% of the global pharmaceutical sales and about 10% of total generic market in the world. In value terms, India is the 14th largest market in the world. In volume terms, India’s share is around 8% and is the 4th largest after USA, Japan and China. India is among the top five bulk drugs manufacturers of the world. India has the largest number of US FDA approved manufacturing facilities outside USA. India exported drugs worth $ 3.2 billion to more than 65 countries. India is the 14th largest exporter of drugs in the world.

In 1970, India eliminated patents on drug products. This move enabled India, a country with a relatively large domestic market, to develop a strong generic drug industry. In 1994 the World Trade Organization negotiated the controversial Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS)..

1.2.Grant of Patent and Compulsory Licensing in India
‘Patent’ is a grant made by the government to an inventor, conveying and securing him the exclusive right to make, use and sell his invention for a term of 20 years.3 The object of the patent law has been explained by the Supreme Court in M/s. Bishwanath Parsad Radhey Shyam v. Hindustan Metal Industries as follows: The object of patent law is to encourage scientific research, new technology and industrial progress. The grant of exclusive privilege to own, use or sell the method or product patented for a limited period, stimulates new inventions of commercial utility. The price of the grant of the monopoly is the disclosure of the invention at the patent office, which after the expiry of the period of monopoly, passes into public domain. A patent is granted only for an invention which must be new and useful. It must have novelty and utility.

The patents are granted to encourage inventions and to secure that the inventions are worked in India on a commercial scale and to the fullest extent that is reasonable practicable without undue delay. A system of patents serves many useful purposes. If the invention is commercially utilized, the patent ensures just reward in terms of money and recognition for the inventor, for all the time and effort, knowledge and skills, money and other resources invested to come up with the invention. For the society, commercial exploitation of an invention means new and better products, higher productivity, and more efficient means of production.

A patent confers on the patentee, his agent or assignee the exclusive right to the patented invention for a limited period to the exclusion of all others. The patentee not only gets a monopoly right over the said invention for a limited period to make or use the invention or to market it, but also the right to prevent others from making, using or marketing such invention during the period of protection.The justification for the granting patent right is discussed in detail in Chiron corporation v. Organon Teknika Ltd.(No.10). It has been pointed out that “it is generally accepted that the opportunity of acquiring monopoly rights in an invention stimulates technical progress in at least four ways: First, it encourages research and invention; secondly, it induces an inventor to disclose his discoveries instead of keeping them a secret; thirdly, it offers a reward for the expense of developing inventions to the state at which they are commercially practical and fourthly, it provides an inducement to invest capital in new lines of production which might not appear profitable if many competing producers embarked on them simultaneously…”

Encouragement, inducement and reward are the main factors underlying the patent system. The public interest although apparently jeopardized by the grant of monopoly, is secured by increased industrial activity, developing new technologies and disclosure of new and useful invention. Furthermore, patent law contains a number of safeguards, such as compulsory licensing and crown use, to curb any significant abuse of the patent monopoly.

Compulsory Licensing:
The concept of compulsory licensing dates back to the 1600s and the use was provided for in the Paris Convention on Industrial Property 1883. It has been a common and integrated feature of most patent systems since then, even if it is not often put into practice. By the early

1990s, about one hundred countries’ patent laws had some form of CL provision. This includes most developed countries. The US and UK, for instance, have wide provisions for government use, or “crown use” which allows their governments to use patents for virtually any public purpose.

If another party wishes to have access to a patent but cannot come to an agreement with the patent holder, there is a possibility of seeking a compulsory licence (CL). It is an extraordinary legal instrument where an administrative or a judicial body authorises a licensee to exploit the patent without the consent of the patent holder. The purpose of the CL is to provide a safeguard against lack of use of a patent or misuse of the patent holder’s monopoly rights in order to protect the public interest. It can thus alter the balance between the competing interests in the patent system.

The CL does not revoke the patent as such but it revokes the exclusive right of the patent holder that allows him to control how the patent may be used. A CL that is granted to the government, instead of a private entity, is known as “public, non-commercial use” of the
patent or “government use”.

The following are examples in national laws that specify when CLs can be issued:
a) Refusal to enter into a voluntary licensing agreement on reasonable commercial terms (e.g. in the German and Chinese patent laws);
b) Public interest (e.g. in the Swedish law12);
c) Public health and nutrition (e.g. provisions in the French law where ex-officio licences may be granted by the responsible Minister “in the event of medicines being made available in insufficient quantity or quality or at abnormally high prices”);
d) National emergency or situation of extreme urgency;
e) Anti-competitive practices on the part of patent holders;
f) Dependent patents;
g) No or insufficient working of the invention in the national territory. This is the most common ground.

2. Scope Of Generic Drugs
In today’s era, the scope of generic drugs is increasing day by day specially in several ill health conditions such as diabetes, cardiovascular and in microbial diseases etc. When any patent expires, new generics are introduced into the market. Generic drug is a substitute or a copy of branded drug that satisfies the pharmacokinetic and pharmacodynamic standards. Generic drugs are equivalent in terms of safety, dosage, strength, quality and performance. They are produced and distributed without any patent protection. According to US FDA, generic drugs are identical or bioequivalent to the brand name counterpart with respect to pharmacokinetic and pharmacodynamic properties. The therapeutic activity of a generic product is similar to that of innovators brand, for that they must be pharmaceutically equivalent as well as bioequivalent . The generic drugs are cost effective as no large amount is invested in research, development, marketing and promotion like in branded drugs.

Generic medicines play a key role in ensuring the affordability and sustainability of healthcare systems. Encouraging competition in the pharmaceutical market through increasing the use of generic medicines both promotes cost containment and stimulates the innovation needed to provide added value products. The Indian generic medicines industry’s major contribution to healthcare involves the provision of high quality, cost-effective treatment for many of today’s most common chronic illnesses and conditions, such as cancer, diabetes, depression and high blood pressure. The rapidly ageing population, the increase in the prevalence of certain diseases and the rise in prices for originator pharmaceuticals are creating a critical need for higher volumes of more affordable generic medicines.

Social Aspect
In the third world countries, a large number of people are living below poverty line. They are not able to afford branded drugs because many a times these drugs are too much expensive. Therefore, generic drugs become the preferred alternatives. Generic drugs are as effective and safe as branded drugs, so physicians may also prefer generic drugs. Due to an increase in competition between domestic companies and multinational companies, the cost of generic drug gets reduced. Indian pharmaceutical companies are primarily generic based; they spend time and money on generic research. Generic market has now also increased due to expiry and shortcoming of patents.

3. Right To Health – As A Human Right And Constitutional Right
International Standards
Article 25 of the UDHR emphasizes recognition of the right of all persons to an adequate standard of living, including guarantees for health and well-being. It acknowledges the relationship between health and well-being and its link with other rights, such as the right to food and the right to housing, as well as medical and social services. It adopts a broad view of the right to health as a human right, even though health is but one component of an adequate standard of living.

In article 12 of the ICESCR, states parties recognize "the right of everyone to the enjoyment of the highest attainable standard of physical and mental health." That article identifies some of the measures the state should take "to achieve the full realization of this right."

Articles 23 and 24 of the CRC recognize the right to health for all children and identify several steps for its realization. Similarly, CEDAW establishes the obligation to adopt adequate measures to guarantee women access to health and medical care, with no discrimination whatsoever, including access to family planning services. It also establishes the commitment to guarantee adequate maternal and child health care (art. 12[2]).

Constitutional Right
The Constitution directs the state to take measures to improve the condition of health care of the people. Thus the preamble to the Constitution of India, inter alia, seeks to secure for all its citizens justice-social and economic. Article 38 of Indian Constitution imposes liability on State that states will secure a social order for the promotion of welfare of the people but without public health we cannot achieve it. It means without public health welfare of people is impossible. Article 39(e)related with workers to protect their health. Article 41 imposed duty on State to public assistance basically for those who are sick and disable. Article 42 makes provision to protect the health of infant and mother by maternity benefit. Further under Article 47 it is the primary duty of the state to improve public health, securing of justice, human condition of works, extension of sickness, old age, disablement and maternity benefits and also contemplated.

In Consumer Education and Research Center v. UOI, the Court explicitly held that the right to health was an integral factor of a meaningful right to life. The court held that the right to health and medical care is a fundamental right under Article 21. The Supreme Court, while examining the issue of the constitutional right to health care under arts 21, 41 and 47 of the Constitution of India in State of Punjab v Ram Lubhaya Bagga, observed that the right of one person correlates to a duty upon another, individual, employer, government or authority. Hence, the right of a citizen to live under art 21 casts and obligation on the state. This obligation is further reinforced under art 47; it is for the state to secure health to its citizens as its primary duty.

After contemplating at above mentioned International and National standards, it can be said that the right to access of generic drugs is a human right and a constitutional right, and not granting compulsory licensing to such drugs would lead to restricting their production and access, violating this human right as well as constitutional right.

4. Compulsory Licesing Under Paris Convention And Trips
India is a party to several international agreements for the protection of intellectual property that have provisions regulating compulsory licensing. The earliest of these agreements is the Paris of 1883 which has envisaged provision for each contracting state to take legislative measures for the grant of compulsory licences. Article 5A (2) of the Paris Convention reads:

“Each country of the Union shall have the right to take legislative measures providing for the grant of compulsory licenses to prevent the abuses which might result from the exercise of the exclusive rights conferred by the patent, for example, failure to work”.

Therefore, the Paris Convention provided for grants of compulsory licenses by the member countries at least in cases of the non-working of a granted patent in a country of union. This implies that the concept of compulsory license is very much a pre-TRIPS phenomenon

The (TRIPS) agreement allows compulsory licensing as part of the agreement’s overall attempt to strike a balance between promoting access to existing drugs and promoting research and development into new drugs.

TRIPS set out to establish a common global standard for the protection of intellectual property rights, including patents . The emergence of common levels of patent protection among nations necessitated a common approach to CLs. The CL safeguard is a common feature of domestic intellectual property law and is relevant to a variety of industries. But the term “compulsory licensing” does not appear in the TRIPS Agreement. Instead, the phrase “other use without authorization of the right holder” appears in the title of Article 31. Compulsory licensing is only part of this since “other use” includes use by governments for their own purposes.

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. In Article 31, the TRIPS Agreement does prescribe a number of conditions which ought to have been fulfilled before issuing compulsory licences. In particular, such conditions require that:

(1) authorization must be considered on the individual merits;
(2) the applicant has attempted to obtain a licence from the patentee;
(3) the use is nonexclusive and non assignable;
(4) the use is primarily for the domestic market; and
(5) the patentee receives adequate remuneration

TRIPS agreement allows the government to impose compulsory licences as a remedy for “anti-competitive practices.”

5. Compulsory Licensing Under National Legislation
India did not issue drug patents until 2005. India began extending patent protection to drugs in 2005 in an effort to adhere to the World Trade Organization’s (WTO) multilateral agreements on intellectual property, including the Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement.

TRIPS requires that WTO members make patents available for “any invention, whether products or processes, in all fields of invention.” TRIPS also allows member countries to enact laws to prevent abuse of patent rights and specifically contemplates the use of compulsory licensing as a means of preventing any abuse of patent rights. India patent law has allowed the grant of compulsory licenses since 1970.

In a momentous development, the Indian patent office issued the ever-compulsory licence in a highly contentious pharmaceutical patent case. The decision is a thumping victory for several patients and health activists who have been fighting what can only be labelled as highly inequitable pricing strategies by multinational drug firms for the past several decades.

Natco Phrama Ltd. v. Bayer
This order marks a watershed in the development of jurisprudence of compulsory licensing, not only in India, but also in the international legal framework. There has not been significant interpretation of Arts. 7, 8, 30, 31 of the TRIPs agreement, nor how it interplays with Art 27 (1) of TRIPs and Art 5 of the Paris Convention.

On Monday, March 13, 2012, India’s government authorized Indian generic drug manufacturer Natco Pharma to make and sell a generic copy of a patented Bayer cancer drug. The drug is Nexavar (sorafenib), which is used to treat advanced kidney and liver cancer. Nexavar has been shown to extend the lives of patients by a median of about three months.

In order to appreciate the order in present case, it is important to understand section 84 of the Indian Patents Act, which reads as below:
“(1) At any time after the expiration of three years from the date of the 1[grant] of a patent, any person interested may make an application to the Controller for grant of compulsory licence on patent on any of the following grounds, namely:— (a) that the reasonable requirements of the public with respect to the patented invention have not been satisfied, or (b) that the patented invention is not available to the public at a reasonably affordable price, or (c) that the patented invention is not worked in the territory of India.”

The Controller found that all the 3 criteria above were satisfied in this case, namely:
1. that since Bayer supplied the drug to only 2% of the patient population, the reasonable requirements of the public with respect to the patented drug (Nexavar) were not met.
2. that Bayers pricing of the drug (2.8 lakhs for a months' supply of the drug) was excessive and did not constitute a "reasonably affordable" price.
3. that Bayer did not sufficiently "work" the patent in India.

Each of abovementioned grounds are explicated below:
1. Reasonable Requirements of the Public not being met:
From the facts of the case it was found that only 2% of the total number of kidney and liver cancer patients were able to access the drug. Further it was found that the number of patients eligible for Sorafenib is 8842 per year. Hence, the Patentee has made available the drug only to a little above 2% of the eligible patients. Accordingly it is quite obvious that the reasonable requirements of the public with respect to the patented invention have not been satisfied in this case and thus, it was valid to issue a compulsory license to the Applicant under section 84 of the Act.

2. Excessive Pricing:
The drug is "exorbitantly priced" and out or reach of most of the people. The price of the patented drug was quoted in the decision as being Rs. 2,80,248/- per month and Rs.33,65,136/- per year, as opposed to the price of Rs.8800/- per month from Natco. It stands to common logic that a patented article like the drug in this case was not brought by the public due to only one reason, i.e. its price was not reasonably affordable to them. In addition, the drug might be available in metropolitan areas (such as Mumbai, Delhi, Chennai and Kolkata) it was not available throughout the country. Even the drug was frequently in short supply even in cities and that this was significant because it is a "life saving drug" and not a "luxury item."

3. Non-working of the patent:
The mere importation of Bayer's drug into India did not amount to "working" and the term “'worked in the territory of India" means manufactured to a reasonable extent in India.
Since almost 90% of all pharmaceutical patents are only imported into India, therefore, all of these drugs are now susceptible to compulsory licenses in India.

The Indian patents act endorses a "local" working provision and that such a provision is compatible with TRIPS and the Paris Convention

"Section 83 of the Act makes clear that patents are not granted only for the purpose of “importation” of the patented product. In fact, the Act uses the terms "working" and "importation" quite distinctly throughout the Act, making it evident that "working" as used in the Act cannot include "importation".

Further, from the facts of the case it was found that there were ~20,000 liver cancer patients and ~9,000 kidney cancer patients (the populations that benefit from the drug), and that assuming 80% demand there would be a need for about 23,000 bottles of the drug per month to satisfy the demand. The facts (albeit disputed by Bayer) presented showed no bottles imported into India in 2008, ~200 bottles in 2009 and that there was no evidence for import in 2010. The significance of these dates and amounts are that the Indian government granted Bayer a patent on the active pharmaceutical ingredient in Nexavar® in 2008, and the Controller assessed Bayer's behavior in fulfilling the "reasonable requirements of the public" during that time. It was also significant that Bayer did not produce the drug in India, explaining the focus on bottles of imported drug. The failure to manufacture the drug in India was evidence that Bayer had not "taken adequate steps to make full use of the invention.

6. Conclusion
After analysing the status of India’s pharmaceutical Industry and scope of generic drugs in India as well as outside India and different rights under various laws regarding health, it is clear that compulsory licensing has an important in a patent system. It has an important role to play in the exploitation of patent rights in balancing the rights of parties against one another. A carefully crafted extension of compulsory licensing would enhance the public interest while still maintaining the incentive to develop new inventions. It is important that compulsory licensing be allowed only where truly necessary to promote the public interest, while not significantly reducing the incentive to develop new technology.

India has one of the widest compulsory licensing provisions in the world, and it is comforting to see that what was on paper is finally translating into reality. One expects that this bold move by Natco will spur other generic manufacturers to resort to compulsory licences, particularly in instances where originator drugs are prohibitively priced.

The order marks a watershed in the history of Indian patent law and in many ways represents a “middle path” in the debates surrounding pharmaceutical patents and access to affordable drugs. Patents may now be more palatable to critics, if their worst monopoly effects can be successfully moderated through instruments such as compulsory licensing. To this extent, compulsory licences serve as important tools to balance out the competing interests of various IP and public-health stakeholders. It rewards innovators while at the same time ensuring that the innovator does not abuse her monopoly power in the market by pricing the drug out of the reach of the average consumer. It ensures that Indian generics are able to copy the latest drugs, hone their technological skills and make a reasonable profit. It allows Indian consumers to access much more affordable versions of drugs and improve health outcomes.

And at last it is concluded with a suggestion that government must step in and take proactive measures to ensure accessible healthcare for all. It should facilitate robust insurance schemes, where health coverage extends to the poorest of the poor. Only then will our right to good health translate from paper to practice.
~~~~~~~~~~~~
# Perlitz U.,“India's pharmaceutical industry on course for globalisation”, Frankfurt. 2008.
# Chaudhuri S, “The WTO and India’s pharmaceuticals industry: patent protection TRIPS and developing countries”, Oxford University Press, 2005.
# ‘T Hoen EFM, “The global politics of pharmaceutical monopoly power, drug patents, access, innovation and the application of the WTO Doha declaration on TRIPS and public health”, AMB Publishers, 2009.
# Park C, Menghaney L, “TRIPS flexibilities: the scope of patentability and oppositions to patents in India”, 2010.
# AIR 1982 SC 1444.
# David Bainbridge, “Intellectual Property Rights” , Pearson Education Limited, Delhi, 5th edn., 2002, p. 88.
# See, Patents Act, 1970, sec 89(a).
# Id., Sec 83(a).
# Elizabeth Verkey, “Law of Patents”, Eastern Books Agency, Kolkatta, 2005, p. 321.
# P. Narayanan,” Intellectual Property Law”, Eastern Books Agency, Kolkatta 3rd edn., 2001, p. 45.
# (1995) FSR 325.
# Supra, note 6, p. 36.
# Reichman, Jerome H, “Procuring essential medicins under the amended TRIPS provisions: the prospects for regional pharmaceutical supply centres”. Paper prepared for the Seminar on Intellectual Property Arrangements: Implications for Developing Country Productive Capabilities in the Supply of Essential Medicines. UNCTAD, Geneva, Switzerland, 18-20 October 2006, p. 12.
# http://www.law.fsu.edu/gpc2007/materials/PROCURINGESSENTIALMEDICINES.pdf
# Musungu, Sisule F & Graham Dutfield, “Multilateral agreement and a TRIPS-plus world: The World Intellectual Property Organisation (WIPO)”, 2006, p. 36-37.
# Supra, note 6.
# Listed by Musungu & Oh 2006, p 28-31.
# Sherer, F.M. & Jayashree Watal, “Post-Trips Options for Access to Patented Medicines in Developing Countries”, 2002, p. 15.
# Chawla J., Generic Drugs v. Branded Drugs, available at : http://www.buzzle.com/articles/generic drugs (accessed on 4th June, 2012).
# Bakthavathsalm G., “Generic Drugs: Cost Effective Alternative to Branded Drug”, Health Adminstrator, 2006, vol. 19, no. 1., p. 16-19.
# Generic Drug, Available at: http://www.en.wikipedia.org/wiki/generic_drug, accessed on 4th June, 2012).
# Chawla G., Bansal A. K., “Making improved generic products”, 2006. Available at: http://www.pharmabiz.com, (accessed on 4th June, 2012).
# Supra, note 20.
# Article 25, UDHR, 1948.
# See International Covenant on Economic, Social and Cultural Rights, adopted 16 December 1966; CA Res, 2200 (XXL), UNGAOR, 21st Session Supp. No. 16, UN Doc. A 16316 1966; 993 UNTS 3.
# See Convention on the Rights of the Child, adopted 20 Nov. 1989, GA Res. 44/25, 44 UN GAOR Supp. (No. 49) at 165, UN Doc. A/44/736 (1989), reprinted in 28 ILM 1448 (1989) (hereafter cited as Child Convention).
# See Convention on the Elimination of All Forms of Discrimination against Women, article 12, adopted 18 Dec. 1979, GA Res. 34/180, 34 UN GAOR Supp. (No. 46), UN Doc. A/34/46 (1980), 1249 UNTS 13, entered into force 3 Sept. 1981, reprinted in 19 ILM 33 (1980).
# Article 39(e) provides that "the health and strength of workers, men and women, and the tender age of children are not abused and that citizens are not forced by economic necessity to enter avocations unsuited to their age or strength."
# Article 42 provides that "the State shall make provision for securing just and humane conditions of work and for maternity relief."
# Article 47 provides that "The State shall regard the raising of the level of nutrition and the standard of living of its people and the improvement of public health as among its primary duties and, in particular, the State shall endeavour to bring about prohibition of the consumption except for medicinal purposes of intoxicating drinks and of drugs which are injurious to health."
# AIR 1995 SC 636.
# AIR 1998 SC 1703.
# Article 5A (2) of the Paris Convention.
# World Trade Organization (2011) Intellectual property: protection and enforcement. Available: http://www.wto.org/english/thewto_e/what​is_e/tif_e/agrm7_e.htm. (accessed on 5th June, 2012).
# World Health Organization (2008 February) Briefing note: “access to medicines—country experiences in using TRIPS safeguards”. Available at:
# http://www.searo.who.int/LinkFiles/IPT_B​riefing_note_4_country_experiences.pdf (accessed on 5th June, 2012).
# “Obligations and exceptions Under TRIPS, what are member governments’ obligations on pharmaceutical patents?”Available at http://www.wto.org/english/tratop_e/trips_e/factsheet_pharm02_e.htm (accessed on 6th June, 2012).
# Accordingly and in the light of paragraph 4 above, while maintaining our commitments in the TRIPS Agreement, we recognise that these flexibilities include: …
(b) Each Member has the right to grant compulsory licences and the freedom to determine the grounds upon which such licences are granted.
(c) Each Member has the right to determine what constitutes a national emergency or other circumstances of extreme urgency, it being understood that public health crises, including those relating to HIV/AIDS, tuberculosis, malaria and other epidemics, can represent a national emergency or other circumstances of extreme urgency.
(d) The effect of the provisions in the TRIPS Agreement that are relevant to the exhaustion of intellectual property rights is to leave each Member free to establish its own regime for such exhaustion without challenge, subject to the MFN and national treatment provisions of Articles 3 and 4.
# Available at: http://www.wto.org/english/tratop_e/trips_e/factsheet_pharm02_e.htm (accessed on 7th June, 2012).
# Art. 31 of Agreement on Trade-Related Aspects of Intellectual Property Rights, Dec. 15, 1993, 33 I.L.M. 81.
# Ibid, art. 31(k).
# Natco Pharma Ltd. v. Bayer Corp.- Compulsory Licence Application No 1 of 2011.

The  author can be reached at: rakhishekhawat@legalserviceindia.com

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