Government test fires compulsory licensing, triggering patent dispute war with overseas pharma MNCs

The patent office of the country has granted the first compulsory license to a domestic drug maker against the patent of cancer drug Nexavar held by German MNC -Bayer. Patent office has given compulsory license to Hyderabad based Natco to produce Bayer’s Nexavar, which is the lead drug for kidney cancer. Natco will supply the product at a price of Rs 8880 for 120 tablets instead of the original patent holder’s (Bayer) price of Rs 2.8 lakh.

                Countries especially developing countries like to issue compulsory license to check the practice of charging exorbitant price on newly patented product by pharma MNCs. But the use of compulsory license is rare because it may attract continuous legal battle with the original patent holder.

                Compulsory licensing refers to a situation where a government allows another producer/ agent to produce a patented product without the consent of the original patent holder.  Here the alternative producer should produce the drug in more quantities as well as supply it in reduced price. The need for compulsory license arises when the original patent holder say Bayer supplies the product at an insufficient quantity and also at a high price. Compulsory license is rarely adopted by governments because it may attract legal battle with the original patent holder. Besides, in many small developing countries, where the pharmaceutical industry is underdeveloped, even if the government issues a compulsory license to a local producer, he may not have the capability to produce the new drug. Whereas in countries like India, where there is a competitive pharmaceutical industry, many firms are capable of producing the new drugs introduced by MNCs with same quality.

                The move by the patent office is historic, because of the newly introduced patent Act 2005. As per the WTO regime, member countries have to adopt the TRIPs provisions in their domestic patent Acts. Regarding medicines, the relevant regime is the patent Act. India had he patent Act of 1970, and it was completely amended and the new Patent Act was enacted in 2005, by incorporating the TRIPs provisions. Under the 1970 Patent Act India enjoyed high power to issue compulsory licenses. But as per the TRIPs provisions, compulsory licensing power for the member countries is limited. Besides, the original patent holder is to be heard before the patent office issues compulsory license. Under the new Patent Act of 2005, the government has incorporated more power regarding compulsory working superseding the TRIPs provisions. The validity of such a degree of power will be tested in the WTO only if some aggrieved entity like Bayer approaches the WTO’s Dispute Settlement Body against the Indian patent office’s compulsory licensing decision. In this respect, the present verdict is a notable one. Bayer has already responded that it will defend the patent right of Nexavar in India.

                The implications of the Nexavar issue are not confined to India. Many poor countries have complaints against the high prices charged by pharma MNCs on life saving new drugs. But they are not in a position to implement compulsory license. India on the other hand, has the market might to challenge the pharma MNCs. She also has the competent domestic producers to support the government decision.

                Legal experts during the time of the passing of the patent amendment Act 2005 have warned that the higher power given on compulsory license may invite disputes.  But the government stood firmly on the sovereignty issue after considering the health security aspects. Hence, the future course of action on the present verdict is very important for the defence of the country’s Patent Act 2005,  as well as the interest of the developing countries.

                On the other hand, a successful challenge of the verdict at the WTO’s Dispute Settlement Body is very important for the strategy of pharma MNCs. India is a big market for them. Simultaneously, letting an Indian firm (Natco) to reap the benefits of a drug invented by Bayer will be unbearable for it. There is every chance that big foreign drug MNCs may consolidate behind Bayer on the issue to protect their collective interest.

                The existing WTO provision on compulsory licensing is the well known Doha declaration. The Doha declaration in 2001, on health matters reiterated that the member countries can interpret the TRIPs provisions in a flexible manner during health emergencies.  Of course, the provision indicates that members resort to compulsory licensing during emergency situations. But, this concession may not come for the defence of the government on the present issue because kidney cancer is not a health emergency situation. Perhaps the major argument of the patent office that Bayer has demonstrated ‘neglectful conduct’ as it ‘not worked the patent to meet the reasonable requirement of the public’ may come as the core of the issue. The government should procure sufficient date to prove that the patentee has undersupplied the product at a higher price; and this would be a sufficient explanation at the DSB.

                As of Bayer, it has overstepped on the pricing front. In the post TRIPs regime, the big Pharma MNCs should not have adopted such careless pricing strategies especially in powerful emerging markets. The attitude of Bayer lacks ‘quality in thinking’. The company should be blamed for dragging the government into an unnecessary legal battle in the early stages of the TRIPs regime.