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Wednesday, May 30, 2012
Benefits of IP-Holding Company
PATENTS
There are compelling business
reasons for consolidating IP assets. Typical reasons for establishing
intellectual property (IP) holding companies include:-
(i)
Tax planning,
(ii)
Protection in the event of insolvency, and
(iii)
Administrative synergies, such as consolidation
of legal costs.
(iv)
Centralizing of control of IP assets enabling
the business to effectively manage its IP[1].
(v) Centralized management allows the company to
effectively monitor, protect and enforce its IP rights.
TAX BENEFITS
Intellectual property is often
the principal source of value and revenue for pharmaceutical and biotechnology
companies. To lessen the tax burden, companies should consider whether to place
their intellectual property rights in a holding company outside India(country
in which parent company is registered). IP Holding companies can be established
in Switzerland, Netherlands and Cayman Islands[2]
etc.
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The offshore holding company then
grants a license to the parent company or other third parties in exchange for
royalty payments. The goal, of course, is to minimize the parent company’s tax
burden and limit taxation on revenue. Not only should the royalties generated
by this offshore subsidiary be tax-free, but also generally the profits made
abroad aren’t taxable in India until they’ve been repatriated[3].
The problem arises in fair
pricing of taxes. For e.g. the Indian Government would want subsidiaries of
domestic companies to pay very high royalty rates to the domestic companies for
the use of intellectual property; because this would obviously bring cash flow
to the parent company, and, as a result, tax revenue. At the same time,
overseas governments would want royalty rate paid to the Indian parent company
to be minimal; for the same reason that it would reduce the amount of outflows
being paid by the overseas subsidiary in form of royalty rates, hence retaining
more income in their own country and generating furthermore tax revenue for
host country.
OTHER BENEFITS
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Apart from the Tax benefits the
company saves on, the creation of IP Holding Company also increases the
corporate efficiency in the operation of the business, by a strong regime of ownership,
the separate entity provides a centralized and specific management of IP assets
throughout and helps exploitation of IP assets financially, in broader terms we
can say it’s like outsourcing your IP management affairs to a subsidiary
company which will specifically deal with IP management and provide greater
fruitful results. Secondly by assigning the intangible assets to the IP Holding
Company the appointment of its (IP Holding Company) Officers and Directors would
insulate Officers and Directors of the Parent Co. from involvement in the
prosecution of lawsuits involving the IP. Also the Ip Holding is saved from
expenditure due to claims of the parent company’s creditors, and the parent’s
insolvency. It might also protect the IP
from hostile takeovers of the parent company which could mean that in case the
Parent company goes bankrupt the owner still has an opportunity to re-establish
his company through the IP-Holding company.
Placing IP in a separate holding
company may also ease objectifying and determining value of the IP assets, separate
from the operations and goodwill of the parent. This may be of particular
importance for obtaining financing and eventually selling the IP to a third
party.
TRADEMARKS
The Mobility of Trademarks
Some of the trademark rights are mobile
(like use of trademark in other countries, Licensing etc.), and others are less
mobile (based on the laws of the particular country the Parent company exists
in). All of those are more or less based in one or the country at some point of
time, but it will not affect the trademark owner for, the owner can be located
anywhere on the planet, and still exercise effective control. As a result, the
choice of the location of the owner of such rights and location of his IP
holding company becomes driven by other factors, of which the primacy is held
by the taxation policies[4]
under which the owner and any licensee operate, whether there is a
withholding in any royalty payments by the local tax authorities, and whether a
reasonable infrastructure exists to support a trademark holding company. Often
companies prefer countries which do not have very industrialized economy
but should have well- structured laws, like the few nations of European Union,
or developing nations of Africa.
Ballarpur Industries, Crompton
Greaves, NIIT, HCL Technologies, ONGC Videsh, Jubilant Organosys, Infosys,
Wipro, Satyam and iGate? These are some of the Indian companies that have set
up, or are in the process of setting up, operations in the Netherlands. Also we
can take the example of McDonald’s Corporation. It owns a number of famous
trademarks, design rights, copyright and know-how which it utilizes in its own
outlets and licenses to its franchisees. This gives the company at least three
sources of income: by operating as a restaurateur; by supplying products to its
owned and licensed restaurants; and by licensing rights to its franchise
operations.
However, favourable locations
are not open to all; they are the preserve of the actual or putative
multinational, as only Multi-national Companies with huge revenues to incur the
cost of broadening the affairs and managing abroad affairs have legitimate
reason to locate its trademark rights anywhere other than where it carries on
business. For the structuring of trademark rights, this means an operation
which conducts business in at least two countries.
Once that occurs, especially
efficient structuring becomes possible. Though this does not in any way mean
that IP holding does not benefit Mid-sized companies or large companies
involved only in domestic affairs since where only one country is involved,
proper structuring to put all of the trademark rights into one place is good
practice, as it leads to the ability to securitize the resultant royalty
stream which can be created through a specially set up licensing vehicle and
can still come in handy in availing tax-benefits.
The Trademark Rights should be consolidated and structured in one
place.
The rights which affect
trademarks are interlinked, and conflicting ownership creates limitations and
if the companies are working on Arm’s length[5]
basis, sometimes it might create the possibility of mutually overlapping injunctions
that is the seeds of mutually assured destruction.
Related Case Law
Federal Circuit of United States held
that the plaintiff corporation was not entitled to claim damages for the
profits lost by its sister corporation.[6]
In that case, the plaintiff owned the patent, but licensed it on a
non-exclusive basis to its sister corporation, which sold goods that competed
with the infringing goods. The plaintiff argued that it operated with its
sister as a single economic unit for purposes of producing, marketing and
selling the patented products and shared a unity of interest that justified
treating them as a single economic unit for a lost-profits analysis. The
Federal Circuit rejected this argument, pointedly noting that the companies
would have to live with the consequences of their separate corporate status.
Conclusion
We can conclude that the primary
advantages of Intra-group Licensing are Tax evasion, better legal command and
control and royalty but on the other hand there is the disadvantage of less
royalty coming into the company, for example in the German case quoted above
the subsidiary branch did not have to pay any amount for around 6 years after that
also they paid only around 1.5 percent of the sales.
[1] It
provides the companies with the knowledge to evaluate the strength and
weaknesses of its IP portfolio so that it can make well-informed decisions
about whether for e.g., it should be increasing holdings in certain areas or
expanding its market through licensing.
[2]
There are no taxes in the Cayman Islands – government revenue comes from
indirect taxes such as customs duties, stamp duty and annual fees levied on
corporations.
[3]
Though the recent Vodafone taxation case has changed the scenario, but the
governments stand is still to be made clear on this issue.
[4] Government
on Vodafone case: Can’t let India become tax haven. (http://timesofindia.indiatimes.com/business/india-business/Government-on-Vodafone-case-Cant-let-India-become-tax-haven/articleshow/12310019.cms)
[5]
A
transaction in which the buyers and sellers of a product act independently and
have no relationship to each other. The concept of an arm's length transaction
is to ensure that both parties in the deal are acting in their own self
interest and are not subject to any pressure or duress from the other party.
[6] Poly-America,
L.P. v. GSE Lining Technology, Inc., 383 F.3d 1303, 1310-12 (Fed. Cir. 2004)
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Tuesday, May 29, 2012
Section 90(Terms And Conditions Of Compulsory Licenses) Natco Pharma Ltd. Vs. Bayer Corporation
Introduction
"In August 2011, Natco[1],
an Indian generic manufacturer, had applied for a “compulsory licence” in
respect of Bayer’s patent covering an anticancer drug, Sorafenib tosylate, meant
for patients with advanced kidney and liver cancer.
Controller General of Patents P.H.
Kurian found that all the grounds prescribed in Section 84 of the Indian
Patents Act for the issuance of a compulsory licence had been met:
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One, Bayer[2]
supplied the drug to hardly 2 per cent of approximately 88,000 patients who
required the drug. Therefore, the “reasonable
requirements” of the public with respect to the patented drug (Nexavar)
were clearly not met.
Two, Bayer’s pricing of the drug
was excessive and did not constitute a “reasonably
affordable” price. It charged Rs 2.8 lakh for a month’s supply of the drug,
whereas Natco was willing to supply the same quantity at Rs 8,800 a month.
Three, since Bayer did not
manufacture reasonable quantities of the drug in India, it could not be said to
have complied with the “working”
requirement under the Indian Patents Act.
The
objective of this project is to analysis the above mentioned issues alongside
an understanding of “Compulsory licenses” in general, also attempt has been
made to analyze laws relating to other developed and developing countries.
The Patentee
M/s.BayerCorporation,100
Bayer Road, Pittsburg, PA15205·9741, USA ( hereinafter referred to as
'patentee'), an internationally renowned manufacturer of innovative drugs,
invented a drug called 'Sorafenib' (Carboxy Substituted Diphenyl Ureas) useful
in the treatment of advanced stage liver and kidney cancer in the 1990s.
The Applicant
Natco Pharma Ltd.
filed an Application for Compulsory License (hereinafter referred to as the
"Application") on 29.07.2011 under Section 84(1)[3] of
The Patents Act 1970 in respect of the Patent No.215758. The Applicant being a
leading manufacturer and distributor of various drugs in India approached the
Patentee with a request for a voluntary license to manufacture and sell the
drug, which did not materialize.
The
Application and Initial Developments.
The Applicant filed an Application for
Compulsory License[4]
on 29.07.2011 under Section84(1) of The Patents Act 1970[5] r/w
Rule 96 of the Patent Rules 2003 (hereinafter referred to as the "Rules")
in respect of the Patent No. 215758. The Applicant being a leading manufacturer
and distributor of various drugs in India approached the Patentee with a request
for a voluntary license to manufacture and sell the drug, which did not materialize.
The Applicant proposed to sell the drug at a price of Rs.8800/-for one month therapy
as compared to the price of about Rs. 2,SO,428/, which was being charged by the
Patentee at the time of making the Application. Three years had lapsed since the
date of grant of patent when the Application was filed.
Thereafter the Applicant served a copy
of the Application upon Patentee and the Application was published in the official
journal published on 12th August, 2011, the Patentee filed a request
seeking an extension of time by one month to file the notice of opposition and the
same was allowed. The Patentee then filed an ‘Interlocutory Injunction’ with
regard to an infringement suit against the applicant in the high court which
was refused. Here it is Important to state that in US were the US Supreme Court
was praised for giving "judges much-needed flexibility in granting or denying
permanent injunctions."[6]
The evolving doctrine under eBay v.
Merc Exchange places the U.S. closer to legal traditions in Europe and
Japan, where governments and courts have the authority to issue compulsory
licenses in a wide range of cases, including those involving uses of dependent
patents, refusals to license, and to more generally protect the public
interest. The court stated that:-
To get an injunction, a patent owner must show
the court:
1). That it has suffered an irreparable
injury;
2). That other possible legal remedies,
including the payment of royalties, are inadequate to compensate for that
injury;
3). That considering the balance of
hardships between the plaintiff and defendant, a remedy in equity is warranted;
and
4) That the public interest would not be
disserved by a permanent injunction.
Meanwhile Patentee filed a writ
petition challenging the above mentioned order which was refused as well.
Patentee's submissions:
The Patentee made the following submissions.
“Estimated incidence for kidney cancer
in India as per GLOBOCAN 2008 is 8900 patients and mortality is 5733 patients, which
accounts 64.4 % of total patients. Of the 8900 patients of kidney cancer around
90 % account for RCC, which equals to approximately 8010 patients. Around one third
(33.33%) of the initially diagnosed RCC patients are affected with the stage IV
disease (33.33% of 8010 = 2669). This means there are approximately 5341 stageI,
II, 1II patients, and about 2669 stage IV patients. In 25 % of patients having surgical
resection for localized disease (stage I, II and III ) with acurativeintent, recurrence
occurs (25 % of 5341= 1335). These1335 Patients ( from stage I, II and III) eventually
may progress to stage IV RCC. Therefore, the total number of patients falling under
stage IV of R.C.C is approximately 2669 + 1335 = 4004 patients. The total number
of patients with RCC, entitled for treatment with the drug is approximately 4004.
Patentees further argued that the total number of patients of HCC entitled for treatment
with the drug is approximately 4838 .The total number of patients eligible for the
drug are 4004 (R.C.C) and 4838 (H.C.C) i.e. a total of 8842. Alternative treatments
are also available to the patients.”
There were other contentions which
were not accepted by the Controller.
·
It was contended that the requirements
of Sec 84(6) (iv)[7]were
not fulfilled.
·
The Patentee also contended that that
controller ought not to have passed an order under 87(1)[8] of
the Act without giving the patentee an opportunity to be heard in the matter.
The controller found that the patentee had not imported the drug at all and in
2009 and 2010 in small quantities.[9]
·
There last contention was that the
applicant had concealed the fact that Cipla had been supplying the generic drug
earlier and that the application should be refused on this ground.
Applicant's
submissions
The applicant alleged 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 Controller's decision mentioned that failure to manufacture the
drug in India was evidence that Bayer had not "taken adequate steps to . .
. make full use of the invention."[10]
The applicant alleged 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 Controller's
decision mentioned that failure to manufacture the drug in India was evidence
that Bayer had not "taken adequate steps to . . . make full use of the
invention."
On the other Hand Bayer argued that sales
of another Indian generic company, Cipla, should be taken into account in
determining whether the Indian market was being reasonably satisfied.
Bayer also made the patently
correct argument that the cost of drugs supports the pipeline of future drug
development and that Bayer “continued to
invest major sums into further development of Sorafenib” for treating other
cancer types. Bayer emphasized that its investment in new drug
development amounted to 8 billion Euros from 2007 to date, and that it takes
more than 2 million Euros to bring a new drug to market.
Issues Involved.
MEANING OF REASONABLY AFFORDABLE PRICE
Reasonably
Affordable Price
According to Section 84(1)(b) of the India
Patent Act, any person may make an application to the Controller for a
compulsory license on a patent, if “the patented invention is not available to
the public at a reasonably affordable price.”
In
determining whether a price is “reasonably affordable,” one can consider
different standards for different types of goods. For a drug for cancer
treatments, India should be guided by the standards set out in the 2001 World
Trade Organization (WTO) Declaration on the TRIPS agreement and public health,
which I will refer to here simply as the “Doha Declaration.” Paragraph 4 of the Doha Declaration is an agreement
among all of the WTO members, including India.
It
says:
“We
agree that the TRIPS Agreement does not and should not prevent members from
taking measures to protect public health. Accordingly, while reiterating our
commitment to the TRIPS Agreement, we affirm that the Agreement can and should
be interpreted and implemented in a manner supportive of WTO members' right to
protect public health and, in particular, to promote access to medicines for
all. In this connection, we reaffirm the right of WTO members to use, to the
full, the provisions in the TRIPS Agreement, which provide flexibility for this
purpose.”
The
Doha Declaration says “the TRIPS Agreement . . . should be interpreted and
implemented in a manner . . . to promote access to medicines for all,” and WTO
members have the right “to use, to the full, the provisions in the TRIPS
agreement, which provided flexibility for this purpose.” Under the Doha
Declaration, governments have an obligation to grant compulsory licenses, when
the prices are so high that “access to medicine for all” is not possible.
To
determine if Sorafenib is reasonably affordable in India, various issues and
factors were taken into account, including in particular:
·
The incomes of patients,
·
The availability of third party
insurance or reimbursements,
·
and the empirical evidence regarding
access.
IMPORTANCE OF DOHA DECLARATION OF THE TRIPS
AGREEMENT AND PUBLIC HEALTH
The Doha Declaration of the TRIPS
Agreement and Public Health was a major victory for developing countries that
wished to make TRIPS more amenable to "public health" concerns.
Amongst other things, this Declaration reiterated the flexibilities of a member
state to avail of a compulsory license to manufacture cheaper versions of
patented drugs. A compulsory license entails granting permission (without the
consent of the patent owner) to a third party to manufacture cheaper versions
of the drug question.
In other words, Natco can manufacture Roche's drug, without Roche's consent (in most cases, under a royalty rate fixed by a government authority). And since Natco does not bear any R&D cost but only the manufacturing cost, the drug produced under the compulsory license will almost always be cheaper than the patented drug. It is important to note that TRIPS provides great flexibility for a member state to deploy "compulsory licensing" provisions.
In other words, Natco can manufacture Roche's drug, without Roche's consent (in most cases, under a royalty rate fixed by a government authority). And since Natco does not bear any R&D cost but only the manufacturing cost, the drug produced under the compulsory license will almost always be cheaper than the patented drug. It is important to note that TRIPS provides great flexibility for a member state to deploy "compulsory licensing" provisions.
LOCAL WORKING
REQUIREMENTS
The relevance of 'local working
requirements' in the compulsory licensing debate: The relevance of this debate
on the local working requirements, is that most of big Pharmaceutical
manufacturing happens in its home countries, with very few of them having any
local manufacturing capacity in India. Therefore if the Patents Act, 1970 is
interpreted to require local working, all most all pharmaceutical patents
granted to foreign manufacturers are liable for compulsory licensing. The main
issues which need to be examined in this context are threefold and are as
follows:
(i)Whether
a 'local working' requirement is TRIPs compatible?
(ii)Whether
the Indian Patent Act requires patents to be 'locally worked'?
(iii)The
economics of the international trade in pharmaceutical products and whether a
'local working' requirement would result in the lowest possible prices for the
consumers?
(i)
Whether a 'local working' requirement is TRIPs compatible?
At first glance TRIPs seems to
provide a straight forward answer, to the question of 'local working', in
Article 27.1. Although Article 27 is titled 'Patentable Subject Matter' it
concludes by stating that patent rights will be enjoyed without discrimination
as to whether a product is imported or produced locally. It would seem that
this would obviate the need for a debate on the subject but things are seldom
so simple when it comes to real life. An excellent article authored by Paul
Champ & Amir Attaran which is published in the Yale Journal of
International Law (YJIL) provides an in-depth look into the question of TRIPs
compatibility. In the YJIL article the authors go through the entire
negotiating history of the TRIPs agreement and point out how the same is
inconclusive in establishing whether or not the member states actually wanted
the insertion of a 'local working requirement'. The authors then end the paper
by examining the local working requirement from the perspective of Articles 30
& 31 of TRIPs and conclude that Articles 30 & 31 of TRIPs permit
members states to maintain a 'local working' requirement. Articles 30 & 31
of TRIPs are the same provisions used by developing countries to defend the
presence of compulsory licensing provisions in their intellectual property
laws.
In the year 2000 the Dispute
Settlement Body (DSB) of the WTO clarified this question when the U.S.A filed a
complaint against Brazil for having a local working requirement in its patent
law. At that time India had joined the dispute as an interested party.
Unfortunately for the U.S.A. it turned out that one of their legislation had a
similar provision for local working of all federally funded innovations. As a
result the U.S.A. beat a hasty retreat and withdrew from the dispute, reserving
its right to re-start the litigation.
(ii)
Whether the Indian Patent Act requires patents to be 'locally worked'?
Section
84 (c) of the Patent Act states a compulsory license may
be granted if the applicant can prove that the patentee has worked the patent
invention in the territory of India. Although the Act is silent on the
definition of 'working' it does lay down certain other provisions from which it
can be determined as to whether or not local working is required:
The two provisions that touch on
the topic of local working/importation are:
(i)Section 83 (b) [General principles applicable to working of patented
inventions] that they [patents] are not granted merely to enable patentees
to enjoy a monopoly for the importation of the patented article;
(ii)Section 84 (7)(e) [Defining when the Reasonable Requirements of the
public are not met] if the working of the patented invention in the
territory of India on a commercial scale is being prevented or hindered by the
importation from abroad of the patented article.
The first provision
i.e. S. 83 (b) is quite unique for an Indian legislation since it is clearing
not binding and is more in the nature of a guiding principle.
If the provision was meant to be binding Parliament would have drafted the language
of the same to reflect the rigidity of the provision. Such non-binding, merely
guiding principles of law are not entirely alien to Indian law. The
Constitution of India has a set of Directive Principles of State Policy which
lays out the socio-economic goals for the country but which are not binding and
are therefore non-justiciable.
The second provision i.e. S. 84
(7)(e) is a sub-clause to the Section which defines the circumstances in which
the law deems the reasonable requirements of the public to have not been met. According
to this Section the reasonable requirement of the public are deemed to have not
been met when the working of the patented invention in the territory of India
on a commercial scale is being prevented or hindered by the importation from
abroad of the patented article. Reading of this provision suggests that
this provision is applicable in only those circumstances when an applicant can
establish that the sole reason for the
inadequate availability of the patented invention within India is the fact that
it is being imported i.e. to say the process of importation is in itself
leading to the shortage of the patented invention in India. The process of
importation could be impeded by a variety of reasons such as natural disasters,
socio-economic reasons in the exporting country, political reasons such as
sanctions imposed by a foreign country wherein the manufacturing plants of the
patentee are situated. To very briefly summarize this point – Section 84(7)(e)
will not be initiated, in those cases where importation is not hindering the
working of the patented invention in India either in terms of cost or
availability. Instead S. 84(7) (e) will kick in only in those circumstances
when the process of importation is preventing or hindering the working of the
product within India in terms of cost or availability. The test therefore lies
in whether or not, there lies a direct co-relation, between the
cost/availability of the product and the fact that the same is imported.
Therefore a pharmaceutical company which imports the patented product into
India from Europe or the U.S.A. and sells the same in India cannot be held to
have not met the reasonable requirements of the Indian public unless an
applicant can prove that the process of importation is adversely affecting the working of the product in terms of
either cost or availability.
(iii)
The economics of the international trade in pharmaceutical products and whether
a 'local working' requirement would result in the lowest possible prices for
the consumers?
There is one basic economic concept
that is relevant to the discussion on whether a 'local working' requirement is
in the best interests of the consumers and that is the concept of 'economies of
scale'.
Economies of scale:
This concept basically refers to the advantages that accrue to a business and
the consumer if the business were to manufacture a product on a large scale.
Basically a company achieves economies of scale when its per unit cost
decreases for every extra unit manufactured. This usually happens due to the
increase in manufacturing capacity which in turn facilitates the more efficient
use of resources. To give a simple example – if a company were to manufacture
100 units of a product it would have to price each unit at a cost which would
be higher than if it were to manufacture 1000 units in order to make similar profits.
“The Hindu” stated that Economies
of scale apply in particular to the pharmaceutical industry. Take for example
Cipla, which is one of India's largest pharmaceutical companies. With a mere 8
manufacturing plants, located in India, Cipla is able to sell products worth
Rs. 5000 crores (including exports of Rs.2743 crores to over 180 countries
worldwide). It is presumable that foreign pharmaceutical companies which have
already established their manufacturing plants in their home countries will be
able to achieve similar economies of scale with their existing plants. To
establish new plants in India just to meet local working requirement will
disrupt the economies of scale that they are able to achieve through their
present manufacturing plants. If in case these economies of scale were to be
disrupted the cost per unit would escalate. In short a 'local working
requirement' under the Patent Act would in fact lead to an increase in the cost
of patent pharmaceutical products in India.
REASONABLE REQUIREMENTS OF PUBLIC:
According to section 90 of Indian
Patents Act when reasonable requirements of the public deemed not satisfied:
For the purposes of sections 84, 86
and 89, the reasonable requirements of the public shall be deemed not to have
been satisfied -
(a) if, by reason of the default of the
patentee to manufacture in India to an adequate extent and supply on reasonable
terms the patented article or a part of the patented article which is necessary
for its efficient working or if, by reason of the refusal of the patentee to
grant a licence or licences on reasonable terms, -
(i) an existing trade or industry
or the development thereof or the establishment of any new trade or industry in
India or the trade or industry of any person or classes of persons trading or
manufacturing in India is prejudiced; or
(ii) the demand for the patented
article is not being met to an adequate extent or on reasonable terms from
manufacture in India; or
(iii) a market for the export of
the patented article manufactured in India is not being supplied or developed;
or
(iv) the establishment or
development of commercial activities in India is prejudiced; or
(b) if, by reason of conditions imposed by the patentee (whether before
or after the commencement of this Act) upon the grant of licences under the
patent, or upon the purchase, hire or use of the patented article or process,
the manufacture, use or sale of materials not protected by the patent, or the
establishment or development of any trade or industry in India, is prejudiced;
or
(c) if the patented invention is
not being worked in India on a commercial scale to an adequate extent or is not
being so worked to the fullest extent that is reasonably practicable; or
(d) if the demand for the patented
article in India is being met to a substantial extent by importation from
abroad by -
(i) the patentee or persons
claiming under him; or
(ii) persons directly or indirectly
purchasing from him; or
(iii) other persons against whom
the patentee is not taking or has not taken proceedings for infringement; or
(e) if the working of the patented
invention in India on a commercial scale is being prevented or hindered by the
importation from abroad of the patented article by the patentee or the other
persons referred to in the preceding clause.
PROVISIONS
OF REASONABLE REQUIREMENTS OF THE PUBLIC AUSTRALIAN PATENTS ACT 1990 - SECT 135
Reasonable requirements
of the public
Though reasonability has not been
specifically defined in the act Sec 1(1) provides to manufacture the patented
product to an adequate extent, and supply it on reasonable terms.
(ii) to manufacture, to an adequate extent, a part
of the patented product that is necessary for the efficient working of the
product, and supply the part on reasonable terms; or
(iii) to carry on the patented process to a
reasonable extent; or
(iv) to grant licences on reasonable term.
Contentions of NATCO with regard to “Reasonable Requirement
Of Public”:
Natco urged that
as per GLOBOCAN 2008 there were 20,000 patients of liver cancer and 8,900 cases
of kidney cancer in India. Assuming 80% of patients needed the Drug,
approximately 23,000 patients required the treatment. According to the Form 27x
filed by Bayer, they imported 0 units in 2008 and approximately 200 bottles in
2009 and 0 units in 2010. Hence, the reasonable demand was not being met. Bayer
does not manufacture the Drug in India, but imports it. It is exorbitantly
priced, usually out of stock and available only in pharmacies attached to few
hospitals in metro cities. Bayer launched the product worldwide in 2006 and
made thumping sales to the tune of 2,454 million dollars. Thus, the
insignificant number of bottles imported in India showed Bayer’s neglectful
conduct. Cipla’s infringing sales have no bearing as a civil suit is pending
against them and any time they can be injuncted thereby stopping their
manufacture and sale.
Bayer responded
by demonstrating that actual number of patients of kidney and liver cancer
requiring treatment is 8,842 and not 23,000. The Drug was being made available
by Bayer to all cancer treatment centers in India. Exorbitant price has no link
with reasonable requirement of the public. Sec 84 (7) of the Act lays down
several deeming conditions as to what constitutes “reasonable requirement of
the public has not been met”. None of these deeming conditions have anything to
do with price of the patented product. The availability of the Drug has been
considerably increased due to sales by Cipla. Cipla was projected to sell about
4,686 boxes of the Drug in 2012.
The Controller
decided against Bayer.
Observations
of the Controller:
The number of patients needing the Drug will
be much higher than 8,842. As per
Bayer’s own numbers they have been able to supply the Drug to not more than 200
patients which is a mere 2% of the 8,842 patients who according to Bayer’s own
estimate need the Drug. Bayer’s conduct was not justifiable as it was already
marketing the drug worldwide since 2006, it had all drug approvals in place as
well as considerable field force.
The Controller
did not deal with the issue whether expensive price of the Drug has any
connection with it being reasonably unavailable to the public.
What is the “Reasonable requirement
of public?
Section 84 (7) provides deeming
provisions in relation to reasonable requirement of public.[11]
It provides for certain situations when it would be deemed that RRP is not
satisfied. Apart from the demand of patented product not being met, it also
contemplates situations where (i) export market for patented product is not developed;
(ii) Working of patented product on
commercial scale in India is prevented / hindered by importation of such
product.
Thus RRP is intended to mean not only the
demand for product but also development of the trade in India. In the present
matter, Natco relied on one fact of market demand not being met by Bayer’s
sales (Section 84 (7) (a) (ii)).
What is the requirement?
Bayer did not challenge
reliance by Natco on the GLOBOCAN 2008 data but relied on other factors such
as percentage of patients having Stage IV (as opposed to Stages I to III) or
advanced stage cancer to arrive at number of patients needing the Drug to be
8,842. The Controller concluded that the number of patients must he higher than
8,842. It appears that even if the Controller had proceeded on the number
provided by Bayer, the admitted supply by Bayer was not sufficient to meet
the demand. By its own showing, more than 8,000 patients need the Drug,
whereas Bayer has imported 200 bottles in 2009 and 593 bottles in 2011. According
to oncologists, each patient needs from one tablet a day to three tablets a
day. Each pack has 120 tablets. Hence Bayer’s import of 593 bottles in 2011
could have met the needs of a minimum of 200 patients to a maximum of 2,400
patients.”
|
Court’s
Decision
The
Controller's decision, in favor of granting a compulsory license, was based on
his determination that the question of whether a drug was available at a
"reasonably affordable price has to be construed predominantly with
reference to the public" and under the "admitted facts" of this
case these considerations fell in favor of granting the license.
The
Controller also considered the fact that Bayer did not "work" the
invention in India. Here, the law was construed with regard to whether
the invention was worked "to the fullest extent possible" and here it
clearly was not (upon evidence that Bayer had "worked" the patented
invention "extensively" in other countries while having the
industrial capacity to work the patent, i.e., produce Nexavar®,
in india). "Minimal" working is not enough, according to Natco,
while Bayer argued that the extent of working a patented invention depends on
the invention and, for Nexavar® the "small global demand"
justifies the "strategic decision" to make the drug in Germany.
In
making his decision, the Controller noted that the term "worked in the
territory of India" had not been defined in the Indian Patent Act, and so
he needed to construe the term with regard to "various International
Conventions and Agreements in intellectual property," the 1970 Patent Act
and the legislative history. But the Controller seemed more interested in
addressing the "crucial argument" of the patentee that the
applicant's construction of the term was incorrect because the phrase
"default of the patentee to manufacture in India to an adequate extent and
supply on reasonable terms the patented article" was deleted from the
Act. He decided that this was "one face of the coin," but that
the other was that the phrase was deleted from Section 84(1)(a) with regard to
the patented article being "reasonable available to the public" in
favor of Section 84(1)(c) which "was made a separate ground for grant of a
compulsory license."
In
this light, the Controller considered the relevant provisions of the Paris
Convention, the TRIPS agreement and the Indian Patents Act of 1970 and decided
that the combination of Article 27(1) of TRIPS and Article 5(1)(A) of the Paris
Convention supported an interpretation that failure to manufacture Nexavar®
in India supported the grant of a compulsory license to Natco (which it termed
"reasonable fetter" on Bayer's patent rights). Ultimately,
however, the Controller found ample justification for the compulsory license in
Section 83(b) of the Patent Act, which states that "[p]atents are not
granted merely to enable patentees to enjoy a monopoly for importation of the
patented article" and Section 83(c) that "the grant of a patent right
must contribute to the promotion of technological innovation and to the
transfer and dissemination of technology." Coupled with the
provisions of Section 83(f) that a patent should not be abused, the Controller
construed Indian patent law to require that a patentee work a patented
invention in India or license another do to so.
After
refusing to adjourn the proceedings based on Section 86 of the law (finding, inter
alia, that Bayer had not established any justifiable reason for its
"delay" in working the patent in India), the Controller established
the terms of the compulsory license, wherein:
1. The right to make and sell sorafenib
is limited to applicant (no sublicensing).
2. The compulsorily licensed drug
product can be sold only for treatment of liver and renal cancer;
3. The royalty shall be paid at a
rate of 6%.
4. The price is set at Rs.74/- per
tablet, which equals Rs. 8,800/- per month;
5. The applicant commits to provide the
drug for free to at least 600 "needy and deserving" patients per year.
6. The compulsory license is not
assignable and non-exclusive, with no right to import the drug.
7. No right for the licensee to
"represent publicly or privately" that its product is te same as
Bayer's Nexavar.
8. Bayer has no liability for Natco's
drug product, which must be physically distinct from Bayer's dosage form.
Compulsory Licensing
Now
that we have considered all the relevant issues relating to compulsory
Licensing in this present case lets contemplate on Compulsory Licensing and its
relevance with regard to Developing Countries. One of the most important
aspects of Indian Patents Act, 1970, is compulsory licensing of the patent
subject to the fulfillment of certain conditions. At any time after the
expiration of three years from the date of the sealing of a patent, any person
interested may make an application to the Controller of Patents for grant of
compulsory license of the patent, subject to the fulfillment of following
conditions, i.e.
- the reasonable requirements of the public with respect to the patented invention have not been satisfied; or
- that the patented invention is not available to the public at a reasonable price; or
- that the patented invention is not worked in the territory of India.
It
is further important to note that an application for compulsory licensing may
be made by any person notwithstanding that he is already the holder of a
license under the patent.
For
the purpose of compulsory licensing, no person can be stopped from alleging
that the reasonable requirements of the public with respect to the patented
invention are not satisfied or that the patented invention is not available to
the public at a reasonable price by reason of any admission made by him,
whether in such a license or by reason of his having accepted such a license.
The
Controller, if satisfied that the reasonable requirements of the public with respect
to the patented invention have not been satisfied or that the patented
invention is not available to the public at a reasonable price, may order the
patentee to grant a licence upon such terms as he may deem fit. However, before
the grant of a compulsory license, the Controller of Patents shall take into
account following factors:
- The nature of invention;
- The time elapsed, since the sealing of the patent;
- The measures already taken by the patentee or the licensee to make full use of the invention;
- The ability of the applicant to work the invention to the public advantage;
- The capacity of the applicant to undertake the risk in providing capital and working the invention, if the application for compulsory license is granted;
- As to the fact whether the applicant has made efforts to obtain a license from the patentee on reasonable terms and conditions;
- National emergency or other circumstances of extreme urgency;
- Public non commercial use;
- Establishment of a ground of anti competitive practices adopted by the patentee.
The
grant of compulsory license cannot be claimed as a matter of right, as the same
is subject to the fulfillment of above conditions and discretion of the
Controller of Patents. Further judicial recourse is available against any
arbitrary or illegal order of the Controller of Patents for grant of compulsory
license.
Policy with regard to compulsory
licenses in U.S:
2006: Voda v. Cordis
Corporation[12]
In
a 2006 case, Dr. Jan K. Voda alleged that three patents concerning an
angioplasty guide catheter were infringed by Cordis (a Johnson and Johnson
company). A jury found for Dr. Voda on infringement (though it did not find
willfulness), and determined that he was entitled to a reasonable royalty of
7.5% of Cordis’ gross sales of the infringing catheters. Finding that Dr. Voda
failed to demonstrate either irreparable injury or that monetary damages would
be inadequate, the court denied his request for a permanent injunction. The
denial of the injunction was affirmed on appeal (536 F.3d 1311).
2007: Innogenetics,
N.V. v. Abbott Labs[13]
In
2007, Innogenetics brought suit in Wisconsin against Abbott Laboratories
alleging that Abbott had infringed its patent for a method of genotyping the
hepatitis C virus, marketed in the form of diagnostic test kits. The jury found
that the patent had indeed been infringed, and, based on a consideration of a
hypothetical negotiation for a license, it determined that Abbott should pay $7
million, which included a running royalty of 5 to 10 euros per test sold up until
that time. The court evaluated Innogentic’s motion for injunctive relief by
evaluating the eBay factors, finding that the public interest favored the
denial of a permanent injunction, but that all other factors cut in favor of
granting it. The court therefore granted the injunction. On appeal in 2008,
however, the Federal Circuit vacated this injunction. Additionally, it found
that the $7 million verdict was not a royalty limited only to Abbott’s past
infringement, saying: “The reasonable royalties awarded to Innogenetics include
an upfront entry fee that contemplates or is based upon future sales by Abbott
in a long term market. When a patentee requests and receives such compensation,
it cannot be heard to complain that it will be irreparably harmed by future
sales.”
2009: Bard Peripheral
Vascular, Inc. v. W.L. Gore & Associates[14]
In
a 2009 case, patentee Bard Peripheral Vascular, Inc. sued W.L. Gore &
Associates in Arizona for infringement of a patent for a prosthetic vascular
graft. Finding infringement, the jury awarded Bard $185,589,871.02, accounting
for both lost profits and including a 10% reasonable royalty rate. The court
denied Bard’s motion for a permanent injunction, holding that a compulsory
license was appropriate compensation; it wrote: “The Court is satisfied that a
fair and full amount of compensatory money damages, when combined with a
progressive compulsory license, will adequately compensate Plaintiffs'
injuries, such that the harsh and extraordinary remedy of injunction-with its
potentially devastating public health consequences--can be avoided” (emphasis
in original).
2009: Medtronic Somafor
Danek USA, Inc. v. Globus Med., Inc.[15]
The
fourth example was in a 2009 Pennsylvania infringement action between patentee
Medtronic Sofamor Danek USA, Inc. and Globus Medical, Inc. concerning a dispute
over patents pertaining to devices and methods used by spinal surgeons to
stabilize bony structures, manufactured and marketed by Medtronic in a
commercial embodiment called the “Sextant System,” and by Globus as the “Pivot
System.” A jury found the patents infringed. Following unsuccessful settlement
discussions, the parties agreed to a bench trial on the matter of damages and
injunctive relief. The court refused to grant an injunction, and determined
that a royalty rate of 15% of Globus’ sales would be applied to a royalty base
of $13,901,795, resulting in a reasonable royalty of $2,085,269.20, plus
prejudgment interest.
Relevant Cases in Other Developed and
Developing Countries
China
In
2005, China used the threat to a compulsory license to obtain voluntary
licenses to manufacture generic Tamiflu.
Indonesia[16]
On
October 5, 2004, Indonesia issued a government use compulsory license to
manufacture generic versions of two HIV-AIDS drugs, Lamivudine and Nevirapine,
until the end of the patent term in 2011 and 2012 respectively. The license
includes a royalty rate of 0.5% of the net selling value[35]. Production of the
ARVs has started by PT Kimia Farma. In March 2007, Indonesia reportedly issued
a compulsory license for patents on the AIDS drug Efavirenz.
Malaysia[17]
On
September 29, 2004, the Malaysian Minister of Domestic Trade and Consumer
Affairs issued a two-year government use compulsory license to import from
India didanosine (ddI), zidovudine (AZT) and lamivudine+zidovidine (Combivir).
The Ministry of Health proposed a royalty rate of 4% of the value of the
generic product.
Taiwan
On
July 26, 2004, the Taiwan Intellectual Property Office (TIPO) issued a
compulsory license to Gigastorage for 5 patents related to CD-R of Phillips.
The term of the license is through the expiration of the patent terms.
In
November 2005, Taiwan issued a compulsory license for patents needed to
manufacture and sell generic versions of Tamiflu. According to this report by
Deutsche Presse-Agentur dpa:
The
Intellectual Property Office (IPO) granted compulsory licensing to Taiwan
pharmaceutical companies after talks with Roche and Gilead Science - the U.S.
developer of Tamiflu - broke down. 'Roche and Gilead insisted they can supply
enough Tamiflu if bird flu erupts in Taiwan. Our argument was: When there is a
bird flu pandemic, millions of people will be hospitalized or dead, and some
countries might confiscate Tamiflu or ban its export. We cannot gamble our
people's lives on their unreliable promise,' Lai Chin-hsiang, secretary-general
of the Department of Health (DOH), told Deutsche Presse-Agentur dpa. Under the
compulsory license, valid until December 31, 2007, Taiwan drug firms can make
Tamiflu for domestic use and should use it only when there is a shortage of
supply from Roche.
Ghana
In
October 2005, the Minister of Health issued a government use compulsory
licenses for importation into Ghana of Indian generic HIV-AIDS medicines[18].
CONCLUSION:
It
is to be noted that while granting the license the Controller shall take into
account the nature of invention, time elapsed, ability of applicant, his
efforts for obtaining a license on reasonable terms. While granting a
compulsory license reasonable royalty is also paid to the patentee having
regard to nature of Invention, its utility, expenses incurred in maintaining
patent grant in India and other factors.
Normally
request for grant of Compulsory License is published and Patentee and other
interested persons are afforded reasonable opportunity to defend the grant. But
in case of national emergency and other urgent condition in public interest the
Controller may first grant the License and then notify the Patentee and other
interested persons.
Under
special circumstances of medical emergency supported by notification by foreign
country in this regard controller may grant compulsory license to meet the
medical emergency in that country.
Also
The Nexavar test case has indicated that the patent holder of vital drugs will
be subjected to more scrutiny by major stakeholders of the public health system
in the coming months. The patent holder will be forced to act on their patents
to benefit people rather than use the rights to price such products out of the
reach of the thousands of patients who could potentially benefit from such
innovations. The Pharmaceutical industry will have to come up with suitable
mechanisms to avoid more requests of compulsory licensing and avoid a public
relations disaster by seeming to act in a way to reap undue benefits at the
cost of needy patients. In my opinion Indian Judiciary has taken a right step
forward after all what use is an innovative drug, if it can’t help to cure
patients who need it the most, will be the question that will reverberate in
communities around the world after this Indian decision on Nexavar.
Though
concerns are bound to rise regarding the momentum and global image of India’s and
its Judicial system’s focus on innovation
might be at risk, at a time when the Indian government has declared this as the
“Decade of Innovation”.
Bibliography:
Online
text referred:
·
http://www.scribd.com/doc/87351335/3/Application-on-PCT-USOO-000648-in-the-12-01-2000-The-Patentee
http://www.patents4life.com/wpcontent/uploads/2012/03/Natco_vs_Bayer_Decision_of_Controller_of_Patents_Mumbai_9_Mar_2012.pdf
http://www.patents4life.com/wpcontent/uploads/2012/03/Natco_vs_Bayer_Decision_of_Controller_of_Patents_Mumbai_9_Mar_2012.pdf
·
http://corrigan.austlii.edu.au/au/legis/cth/consol_act/pa1990109/s3.html
· http://www.vaishlaw.com/article/indian_intellectual_property_laws/local_working_requirement_of_a_patent_in_india.pdf?articleid=100324
· http://www.vaishlaw.com/article/indian_intellectual_property_laws/local_working_requirement_of_a_patent_in_india.pdf?articleid=100324
·
www.worldtradelaw.net/doha/tripshealth.pdf
[1]
Refer Page-2.
[2] Ibid
[3] At
any time after the expiration of three years from the date of the sealing of a patent,
any person interested may make an application to the Controller alleging that
the reasonable requirements of the public with respect to the patented
invention have not been satisfied or that the patented invention is not
available to the public at a reasonable price and praying for the grant of a
compulsory license to work the patented invention.
[4] (hereinafter
referred to as the "Application")
[5] (hereinafter
referred to as the Act)
[6] eBay
v MercExchange L.L.C., 547 U.S. 388 (2006)
[7] Where
the Controller directs the patentee to grant a licence he may as incidental
thereto exercise the powers set out in section 93.Its wrongly stated in the Decision as 86(4)(iv).
[8]
Notwithstanding anything contained in this Act,-
(a) every
patent in force at the commencement of this Act in respect of inventions
relating to-
(i) substances used or capable of being used as food
or as medicine or drug; shall be deemed to be endorsed with the words
"Licences of right" from the commencement of this Act or from the
expiration of three years from the date of sealing of the patent under the
Indian Patents and Designs Act, 1911, whichever is later
[9] Pg 10 of the Application.
[10] Pg no. 12-15 Compulsory License application
no. 1 of 2011.
[11] (Hereinafter
referred to as ‘RRP’).
[12] Voda
v. Cordis Corp., 2006 U.S. Dist. LEXIS 63623 (W.D. Okla. 2006)
[13] Innogenetics,
N.V. v. Abbott Labs., 578 F. Supp. 2d 1079 (W.D. Wis. 2007)
[14] Bard
Peripheral Vascular, Inc. v. W.L. Gore & Assocs., 2009 U.S. Dist. LEXIS
31328 (D. Ariz. 2009)
[15] Medtronic
Somafor Danek USA, Inc. v. Globus Med., Inc., 637 F. Supp. 2d 290 (E.D. Pa.
2009)
[16] Translated
text of the actual license is available at:
http://lists.essential.org/pipermail/ip-health/2004-December/007233.html
[17] Translated
text of the actual license is available at:
http://www.cptech.org/ip/health/c/malaysia/arv-license.html. For more
information: Chee Yoke Ling, Malaysia’s Experience in Increasing Access to
Antiretroviral Drugs: Exercising the “Government Use” Option (Third World
Network, IPR Series No 9, 2006), available at:
http://www.twnside.org.sg/title2/IPR/IPRS09.pdf
[18] Text
of the actual license is available at:
http://www.cptech.org/ip/health/cl/Ghana.png
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