Bayer Corporation v. Union of India & Ors.

Bayer Corporation v. Union of India through the Secretary, Writ Petition No. 1323 of 2013 (Bombay HC, 15 July 2014); AIR 2014 Bombay

Background

The petitioner, Bayer Corporation, is a corporation incorporated under the laws of the State of Indiana, United States of America. As a result of its research and development activities, the petitioner invented Sorafenib Tosylate – a compound sold under the brand name Nexavar – which is used in the treatment of patients suffering from Renal Cell Carcinoma (kidney cancer) RCC and Hepatocellular Carcinoma (liver cancer) HCC. The drug functions primarily as a palliative, relieving patients from pain and slowing the spread of cancer by restricting the speed at which cancer cells grow. The drug is classified as an “Orphan Drug” in the United States because of the relatively small number of patients affected by RCC and HCC in that country, a classification that entitles the petitioner to reimbursement of fifty percent of its research and development costs from the United States Government.

The petitioner invented the drug in 1999 and applied for a patent in the United States. On 12 January 2000, it applied for an international patent under the Patent Cooperation Treaty and on 5 July 2001 applied in India for grant of patent. The Indian patent was granted on 3 March 2008, corresponding to patents already granted in over 45 countries. This patent conferred upon the petitioner the exclusive right to manufacture, use, and sells the patented drug in India for a period of twenty years from the date of its application, to the exclusion of all others.

Respondent No. 3, Natco Pharma Limited, is an Indian drug manufacturer. On 6 December 2010, Natco approached the petitioner seeking a voluntary licence to manufacture and sell the patented drug in India at a price of less than Rs. 10,000 per month of therapy, as against the petitioner’s price of Rs. 2,80,428 per month of therapy. By communication dated 27 December 2010, the petitioner rejected Natco’s request for a voluntary licence, though it added that Natco could approach it within fourteen days if it had anything further to add. When enquired by the Court during hearing, the petitioner’s counsel categorically confirmed that the petitioner was not willing to consider granting a voluntary licence to Natco.

On 29 July 2011, after the expiry of three years from the date of grant of the Indian patent, Natco applied to the Controller of Patents under Section 84(1) of the Patents Act, 1970 for grant of a compulsory licence. In its application Natco stated that it proposed to sell the patented drug at Rs. 8,800 per month of therapy and alleged that all three conditions for grant of compulsory licence under Section 84(1) of the Act were satisfied – that the reasonable requirement of the public was not being met, that the drug was not available at a reasonably affordable price, and that the patented drug was not worked in the territory of India.

Procedural History

The petitioner filed its opposition before the Controller on 18 November 2011. After a personal hearing, the Controller by order dated 9 March 2012 allowed Natco’s application, granted a non-exclusive, non-assignable compulsory licence for the balance term of the patent, and directed Natco to pay the petitioner royalty at six percent of its net sales. The drug was permitted to be sold at Rs. 8,800 for 120 tablets constituting one month of treatment.

The petitioner appealed to the Intellectual Property Appellate Board (IPAB/Tribunal). The Tribunal refused to stay the Controller’s order by order dated 14 September 2012. By the impugned order dated 4 March 2013, the Tribunal upheld the Controller’s order while increasing the royalty payable by Natco to the petitioner from six to seven percent of net sales. On the question of working in India, the Tribunal disagreed with the Controller’s view that working in India under Section 84(1)(c) requires manufacture in India, and held that working by importation could also suffice, subject to the patent holder satisfying the authorities that manufacture in India was not possible – and that this determination was to be made on a case-to-case basis. The Tribunal’s order dated 4 March 2013, into which the Controller’s order dated 9 March 2012 had merged, was challenged by the petitioner before the Bombay High Court under Article 226 of the Constitution of India. The Court noted that this was the first time, since India became a signatory to TRIPS and following the 2003 and 2005 amendments to the Patents Act, that the issue of compulsory licence had arisen for consideration before the authorities under the Act and consequently before a High Court.

Issues for Determination

The following questions arose for the Court’s determination.

Whether the petitioner’s writ petition under Article 226 of the Constitution was maintainable and what was the scope of the Court’s jurisdiction to interfere with the concurrent findings of the Controller and the Tribunal.
Whether Natco had satisfied the condition precedent of making efforts to obtain a voluntary licence from the patent holder before applying to the Controller for a compulsory licence under Section 84(6)(iv) of the Act.
Whether the reasonable requirement of the public with respect to the patented drug had been satisfied under Section 84(1)(a) of the Act, and in that context whether the supplies made by infringers could be taken into account for the purpose of this determination.
Whether the patented drug was available to the public at a reasonably affordable price under Section 84(1)(b) of the Act, and in that context whether the petitioner’s Patient Assistance Programme constituted availability at a reasonably affordable price.
Whether the patented drug had been worked in the territory of India within the meaning of Section 84(1)(c) of the Act, and in that context what “working” means – whether it requires manufacture in India or whether importation suffices.
Whether the Controller ought to have adjourned the application for compulsory licence under Section 86 of the Act.
Whether the terms and conditions of the compulsory licence – particularly the royalty fixed at seven percent of net sales – were in compliance with Section 90(1)(i) of the Act.

Key Holding of the Court

The writ petition was dismissed. The Bombay High Court upheld the order of the IPAB dated 4 March 2013, which in turn had upheld the Controller’s order dated 9 March 2012 granting compulsory licence to Natco. The Court found no merit in any of the seven grounds urged by the petitioner. All three conditions for grant of compulsory licence under Section 84(1) of the Act were held to be satisfied on the facts: the reasonable requirement of the public had not been met; the patented drug was not available to the public at a reasonably affordable price; and the patented drug had not been worked in the territory of India to the required extent. The royalty of seven percent of net sales fixed by the Tribunal was upheld. No order as to costs was made.

Statutory Provisions Involved

The following provisions of the Patents Act, 1970 were engaged. Section 82, which defines “patented article” and “patentee” for the purposes of Chapter XVI. Section 83, which sets out the general principles applicable to the working of patented inventions – including that patents are not granted to enable monopoly for importation; that they should not impede public health; and that the benefit of patented inventions should be available at reasonably affordable prices to the public. Section 84, which is the central provision governing compulsory licences – specifically sub-sections 84(1)(a), (b), and (c) constituting the three grounds for grant; Section 84(6) prescribing the factors the Controller must take into account including the efforts made by the applicant to obtain a voluntary licence; and Section 84(7) which deems the reasonable requirement of the public to not have been satisfied in specified circumstances. Section 86, which empowers the Controller to adjourn applications for compulsory licence in certain circumstances, subject to the patent holder having taken prompt steps to work the invention in India on a commercial scale. Section 87, which governs the procedure for consideration of a compulsory licence application. Section 89, which sets out the general purposes for granting compulsory licences. Section 90, which prescribes the terms and conditions – including a reasonable royalty having regard to the expenditure incurred by the patent holder – upon which a compulsory licence is to be granted. Section 93, which provides that an order granting a compulsory licence operates as a deed between the parties.

The Court also engaged extensively with India’s international obligations. Article 27 of the TRIPS Agreement – which prohibits discrimination in patent rights between imported and locally produced goods – was considered alongside the qualifying exceptions in Articles 30 and 31 of TRIPS. The Doha Declaration on the TRIPS Agreement dated 14 November 2001 – which affirmed that TRIPS does not prevent member countries from taking measures to protect public health and promote access to medicines for all – was treated as a significant interpretive instrument. Article 5(A)(2) of the Paris Convention for the Protection of Industrial Property, 1883 – which allows member States to take legislative measures to grant compulsory licences to prevent abuse of patent rights – was also noted. Article 226 of the Constitution of India governed the jurisdiction of the High Court in the writ proceedings.

Reasoning of the Court

On the Scope of Writ Jurisdiction

At the outset, the Court accepted the submission of Natco’s counsel that the writ petition under Article 226 of the Constitution is not a statutory appeal, and that the scope of the Court’s interference with the impugned orders was accordingly limited. The Court would exercise its extraordinary jurisdiction only if the impugned order was without jurisdiction, suffered from errors apparent on the face of the record, was based on no evidence, or was perverse. The Court applied this limited standard throughout its examination.

On the Condition Precedent: Voluntary Licence Efforts

The Court held that the condition precedent of making efforts to obtain a voluntary licence had been satisfied by Natco. Both the Controller and the Tribunal had, on the basis of the correspondence exchanged between Natco and the petitioner, concurrently found that Natco had made genuine efforts to obtain a voluntary licence by its letter dated 6 December 2010. The petitioner’s response of 27 December 2010 constituted an unequivocal refusal to grant a voluntary licence. The petitioner’s argument that its letter had left a “window” open for Natco to approach again was rejected as illusory, since the window was conditional on Natco having something further to add to its existing application. The Court drew further support from the petitioner’s own categorical statement during the hearing that it was not willing to grant a voluntary licence to Natco under any circumstances. There being concurrent findings of fact on this issue based on evidence, no ground for interference existed.

On Reasonable Requirement of the Public – Section 84(1)(a)

The Court held that the reasonable requirement of the public had not been satisfied. The determination of what constitutes the reasonable requirement of the public cannot be a precise mathematical exercise and must be conducted on a broad basis from the evidence before the authorities. The Controller had proceeded on the basis of the petitioner’s own figures – derived from the affidavit of its Country Medical Director, Dr. Manish Garg – which estimated that approximately 8,842 patients suffering from RCC and HCC would require the patented drug. Against this, the petitioner had supplied the patented drug to only approximately 200 patients in 2011 through 593 boxes. Even adding the supply made by Cipla (an alleged infringer whose 4,686 packets the petitioner sought to have counted), the total supply of approximately 5,279 packets fell significantly short of the requirement established by the petitioner’s own figures. The reasonable requirement of the public was therefore not being met.

On the specific question of whether infringers’ supplies could be counted toward satisfying the reasonable requirement test, the Court answered in the negative as a matter of law. It held that the obligation to meet the reasonable requirement of the public rests exclusively on the patent holder – either by itself or through its licensees. This flows from the scheme of Section 84(6) of the Act, which requires the Controller to consider only the measures taken by the patent holder to make full use of the invention. Supplies by infringers are inherently uncertain, since the patent holder has active infringement proceedings before the Court and an injunction against the infringer could be granted at any time, removing those supplies from the market. It is only where the patent holder has effectively accepted the infringer’s participation in the market – by granting a de facto licence – that the infringer’s supplies could be taken into account. Additionally, the Court noted that the petitioner itself had not included Cipla’s sales in its annual Form 27 statements filed with the Controller, demonstrating its own position that those supplies did not count toward working of the patent.

The Court further held that for medicines, the “adequate extent” standard in Section 84(7) of the Act must be one hundred percent – the medicine must be made available to every patient who requires it. The sacrifice of a patient’s access to medicine at the altar of the patent holder’s rights is impermissible, and this is the mandate of the legislature in providing for compulsory licensing, read in conjunction with the Doha Declaration.

On Reasonably Affordable Price – Section 84(1)(b)

The Court upheld the finding that the patented drug was not available at a reasonably affordable price. The petitioner’s price of approximately Rs. 2,84,000 per month of therapy as against Natco’s proposed price of Rs. 8,800 per month of therapy was itself sufficient to establish that the petitioner’s price was not reasonably affordable. The Court held that the Controller has no independent price-fixing powers under the Act – its function is to adjudicate a lis between the patent holder and the applicant, and the reasonably affordable price must therefore emerge from the evidence placed by the parties. In the present case, the petitioner had refused to produce its audited accounts, balance sheets, or the quantum of US Government reimbursement received as an orphan drug, despite these being the best evidence of the actual costs of research and development. An adverse inference was drawn against the petitioner for this deliberate non-production. The petitioner could not simultaneously resist disclosure of its financial data and contend that its price was reasonably affordable.

On the Patient Assistance Programme, the Court held that the PAP price did not constitute availability of the drug to the public at a reasonably affordable price within the meaning of Section 84(1)(b). The PAP price was conditional – available only to patients who satisfied pre-existing criteria at the combined discretion of the doctor and the petitioner. It was not available to any member of the public who simply tendered the price. The petitioner itself had described PAP as a charitable programme in its opposition before the Controller. A charity cannot be demanded as of right, and a conditional exceptional price is not the price at which the drug is made available to the public. The Court further clarified that the concept of differential pricing under PAP would be more appropriately relevant to the ground under Section 84(1)(a) – satisfaction of the reasonable requirement of the public on reasonable terms – rather than to the distinct ground of reasonably affordable price under Section 84(1)(b).

On Working in the Territory of India – Section 84(1)(c)

The Court upheld the Tribunal’s position – against both the Controller’s narrower view and the Union of India’s narrower submission – that “working in the territory of India” does not, as an absolute rule, require manufacture in India in every case. The Court examined the text and scheme of Section 83 of the Act, which contains the guiding principles for the meaning of working in India. Section 83 states that patents are not granted to enable the patent holder to enjoy a monopoly for importation, and that there must be transfer of technological knowledge to the mutual advantage of producers and users. These legislative principles presuppose that some effort toward manufacture in India is expected, without making it an invariable requirement. The old Section 90 of the Act, which used the words “manufacture in India”, was a different provision dealing with reasonable requirement of the public and was omitted in the 2002 amendment, and its absence from Section 84(7) was a conscious legislative choice. The Court also noted that Form 27 – the prescribed format for reporting working of patents – contemplates two modes of working: manufacture in India and importation from abroad, further indicating that importation can constitute working in appropriate cases.

However, the Court held that where a patent holder seeks to rely on importation as constituting working in India, it bears the burden of establishing before the authorities why it has not manufactured the patent in India. This burden becomes particularly significant where, as in the present case, the patent holder has manufacturing facilities available in India. In the present case, the petitioner had led no evidence before any of the authorities to explain why it had not taken any steps to manufacture the drug in India between 2008 – when the patent was granted – and the date of Natco’s application. In the absence of such evidence, the finding that the patented drug had not been worked in the territory of India was unassailable.

On the Application for Adjournment under Section 86

The Court found no merit in the submission that the Controller ought to have adjourned the application for compulsory licence under Section 86 of the Act. Section 86(2) expressly conditions any such adjournment on the Controller being satisfied that the patent holder has taken steps with promptitude to work the invention in India on a commercial scale. The petitioner had led no evidence before the authorities of any steps taken to work the patent in India after 2008, despite having manufacturing facilities in India. The conditions precedent to an adjournment under Section 86 was therefore not met.

On the Royalty Under Section 90

The Court upheld the Tribunal’s enhancement of royalty from six to seven percent of Natco’s net sales. The petitioner had produced no evidence of the costs it had incurred in inventing and developing the patented drug. The Controller had fixed the royalty of six percent with reference to the United Nations Development Programme’s recommended rate of four percent, adjusted upward in recognition of the nature of the invention. The Tribunal increased it to seven percent. In the absence of any evidence produced by the petitioner to demonstrate that even seven percent was inadequate remuneration having regard to its actual development costs, no fault could be found with the royalty fixed. An adverse inference was again drawn from the petitioner’s deliberate non-disclosure of its financial data on research and development expenditure.

Doctrinal Significance

This judgment is the most important decision in India on compulsory licensing of pharmaceutical patents and makes several doctrinal contributions of enduring significance.

The judgment provides the first authoritative judicial interpretation by an Indian High Court of the three-ground framework under Section 84(1) of the Patents Act, 1970, in the context of a life-saving patented drug. By examining each of the three grounds – public requirement, reasonably affordable price, and working in India – in detail, the Court has established a comprehensive analytical framework that will govern all future compulsory licence proceedings under the Act. The Court’s observation that it was the first occasion since India’s accession to TRIPS and the 2003 and 2005 amendments that this issue had arisen underscores the foundational character of this ruling.
The Court’s holding that the obligation to satisfy the reasonable requirement of the public rests exclusively on the patent holder and its licensees – and that supplies by infringers cannot be counted toward this obligation – is an important clarification that both protects the integrity of the patent system and prevents patent holders from sheltering behind unlicensed third-party supply as a defence against compulsory licensing. The principle that infringers’ goods are too uncertain to be counted – since infringement proceedings could result in an injunction at any time – is grounded in sound legal logic.
The Court is holding that for medicines, the “adequate extent” standard in Section 84(7) must mean one hundred percent – that every patient who requires the medicine must be able to access it – is a significant doctrinal statement. It draws upon the public health rationale underlying the Doha Declaration to interpret the Act purposively and in a manner consistent with India’s international obligations. The Court explicitly states that public interest is and should always be fundamental in deciding a compulsory licence is involving medicines for the treatment of cancer.
The judgment definitively resolves the dispute over whether “working in the territory of India” requires manufacture in India, in favour of a contextual case-by-case approach. The Court’s holding that mere importation without any steps toward manufacture does not ordinarily suffice, and that the patent holder bears the burden of explaining why manufacture in India is not possible, is a significant practical standard. It prevents patent holders from using their exclusive rights solely as import monopolies without contributing to domestic technological capability – which is expressly one of the legislative concerns reflected in Section 83 of the Act.
The judgment’s treatment of the Patient Assistance Programme as not constituting availability at a reasonably affordable price to the public is doctrinally important for pharmaceutical patent jurisprudence. By holding that a conditional, discretionary charity cannot substitute for the statutory obligation to make a patented drug available to the public at a price that any member of the public can access as of right, the Court has prevented patent holders from using PAP-type schemes as a shield against compulsory licensing. This closes a potentially significant loophole in the compulsory licensing framework.
The Court’s approach to the adverse inference drawn from the patent holder’s deliberate withholding of financial data – costs of research and development, reimbursements received as an orphan drug – is a procedurally significant contribution. The Court held that a patent holder who resists disclosure of its financial information cannot simultaneously contend that its drug price is reasonably affordable or that its royalty entitlement has not been met. This principle imposes a degree of financial transparency on patent holders in compulsory licence proceedings and ensures that the adjudicating authority is not left without the best available evidence on questions of pricing and remuneration.
The judgment’s contextualization of India’s patent law within the framework of TRIPS, the Doha Declaration, and the Paris Convention is methodologically significant. The Court treated these international instruments as interpretive aids for construing the domestic provisions of the Patents Act, 1970 – consistent with the principle affirmed by the Supreme Court in Vishaka v. State of Rajasthan that international conventions to which India is a signatory should inform the interpretation of domestic law. This approach grounds India’s compulsory licensing jurisprudence in the global public health framework that India itself helped to shape at the international level.

Leave a Comment Cancel Reply