COMMENTARY

The Compulsory Licence
for Nexavar

sorafenib is not patentable, the Natco
CL Order will be a bit superfluous but
nevertheless a landmark event and a
portent of things to come.

A Landmark Order
S Srinivasan

The compulsory licence issued
to Natco for manufacture of the
anti-cancer drug Nexavar is a
landmark decision on many
grounds – the first one in India
since the 2005 amendment to
the 1970 Patents Act and the first
in the world issued to a private
party. There are some ambiguities
in the order, but the door is now
open for issue of CLs for a number
of patented drugs that are not
being worked.

The author is grateful for the comments of
K M Gopa Kumar on an earlier draft, but
omissions are the author’s.
S Srinivasan (sahajbrc@gmail.com) is
associated with LOCOST, Vadodara and
All-India Drug Action Network.

10

T

he order awarding a compulsory
licence (CL)1 to Natco, a Hyderabad-based pharmaceuticals company, by India’s patents controller office
is a landmark one. This order comes
almost exactly seven years after amendments to the Patents Act 1970 were
passed in April 2005 in Parliament.
The Issue and the Order
Before the CL grant was awarded, the
tosylate ester of sorafenib was sold
under the brand name Nexavar by its
innovating company, Bayer, and medically used for extending the life of
certain kinds of kidney and liver cancer
patients by about four to five years
and six to eight months, respectively.
If one uses Bayer’s branded version
Nexavar of sorafenib, it costs the patient
Rs 2.80 lakh per month for 120 tablets
(or Rs 33.65 lakh per year) whereas the
generic version of the same was being
offered by Natco for Rs 8,880 for a
month’s dosage; and has been marketed
in India for Rs 30,000 for a month’s
dosage by Cipla. Independently, Bayer’s
case against Cipla and also Natco, for
alleged infringement of the patent on
sorafenib is a matter under dispute
before the Delhi High Court, the run-up
to which itself was eventful because
it led to the clarification by the courts
that you cannot link licensing by the
drugs controller for manufacture and
marketing of a medicine to its patent
status. Bayer tried all kinds of legitimate, if a bit creative, tactics in the
matter so that the CL application was
derailed in its early stages, well before
the patents controller would give a final
order. But that was not to be. In the
event the Delhi High Court declares, in
the Cipla vs Bayer case, that Bayer’s
april 7, 2012

A First Time
Issuing a CL is a means of promoting
generic competition and deterring squatting on (intellectual) property by the
patent holder without benefit to society
at large. India’s Patents Act provides
for it under Section 84 (if initiated by
a private party), 92 (notification by
government that a CL needs to be issued
for public non-commercial use, national
emergency or extreme urgency), 92A
(CL for generic exports) and 100 (for
government use).
Till 12 March 2012 nothing much
had been done in the post-2005 era of
product patents, in terms of using these
provisions; but this order is a precedent
and more CLs are likely to follow. Most
other countries which had issued CLs on
medicines – like Thailand, Malaysia,
Indonesia, Cameroon, Eritrea, Zambia,
Brazil, et al – had issued them only for
government use. The Natco CL is the first
time a patent has been issued to a private party, and for an anti-cancer drug
at that. India is one of the few countries
where issuing CLs for local manufacture
is meaningful, because Indian industry
has the capacity to back it up by actually
manufacturing the medicines so licensed.
The Logic in the Order
The 12 March 2012 order of the patents
controller relies primarily on the interpretation of Section 84 (1) (a, b and c) of
the Patents Act in the light of facts presented in the case by both parties:
(1) At any time after the expiration of three
years from the date of the [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 availability of Nexavar was
shown to be sufficient for only 2% of
vol xlviI no 14

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Economic & Political Weekly

COMMENTARY

those getting these specific cancers and
therefore reasonable requirements of the
public were not satisfied. The high price
ruled out affordability.2 And Nexavar
was shown not to be “worked” in India.
Therefore Natco was eligible for the CL,
especially after Natco’s earlier request for
a voluntary licence was rejected by Bayer.
Bayer’s attempts to add to their arguments, aspects of Cipla’s generic version
of sorafenib, both in terms of its lower cost
(Rs 30,000 per month to show affordability) and that the quantities produced
by Cipla were many times more than Bayer
(quoted by the company to show sufficiency) were firmly rejected as “twofaced” by the patents controller, as its
suit against Cipla for patent infringement
on sorafenib was still pending in the
Delhi High Court, and was being actively
pursued by Bayer. However, Bayer would
be entirely at liberty to appeal against
the order all the way up to the Supreme
Court and it is quite possible that one of
these higher juridical platforms of India
may give Bayer an interim stay on the
order and also reverse the grant of the
CL. But for the moment, one may celebrate the order as a people’s victory or
cavil about the weak protection to intellectual property in India and how drug
companies in India are “free loading”
on innovations in the west.
At least two of the many issues raised
by the order will be discussed for some
time: the interpretation of the terms
“affordability” and “working of the
patent within India” – both terms not
defined by the Act.
Affordability
“Affordability” is a term that is defined
neither in the Patents Act nor in standard economics textbooks. It is usual to
compare cost of consumption of the drug
regimen to income levels of the patient
– which is a bit inadequate because rarely
do patients with complex diseases get
prescribed a single medicine, nor are
such medicines the only reasons for
expenses for the patient. In the current
case it is easily deduced that the cost
Rs 2.8 lakh per month for the drug is an
unaffordable figure for most people in a
country with low per capita income figures. Indeed, the lower monthly costs of
Economic & Political Weekly

EPW

april 7, 2012

Rs 30,000 of Cipla and Rs 8,880 of Natco
will also be considered unaffordable.3
This of course calls for (a) some mechanism over time to determine the real
cost of replicating a so-called innovator
medicine under CL; and (b) what indeed
is the cost of an innovator medicine? It is
also clear that most innovator medicines
under patent will be priced high especially if the innovators and/or CL applicants are private parties. Therefore it
does not make sense to give CLs to a single applicant, at least for extended periods. Other eligible parties, with ability
to “work the CL”, must be granted CLs
with relative ease, say within the period
of a year.4 In that way some competition
among local CL licensees will be generated. It may even make Bayer think
twice before issuing relatively lenient
voluntary licences, even if only for export, so as to ambush Natco, which of
course is a right confirmed by the order
(read para 15m) that Bayer can give
licences to other licensees to compete
with Natco if need be. Ideally, it should
also not be held against future eligible
applicants for CL (for say sorafenib) for
not having sought a voluntary licence or
having refused one from Bayer. One also
hopes that no injunctions will be given
that stays the CL while Bayer goes on
appeal against this order, which it is
most likely to.
Section 90 (vii) of the Patents Act
under “Terms and conditions of compulsory licences” says that
...In settling the terms and conditions of a
licence under section 84, the Controller shall
endeavour to secure ....that the licence is
granted with a predominant purpose of supply
in the Indian market and that the licensee
may also export the patented product, if
need be in accordance with the provisions of
sub-clause (iii) of clause (a) of sub-section (7)
of section 84.

The latter sub-clause is one of the
markers for reasonable requirements of
the public not being satisfied and reads:
“a market for export of the patented
article manufactured in India is not being supplied or developed”. It is not clear
therefore why Section 90 (vii) was not
invoked nor suo motu spelled out in the
order (para 15g), even if Natco voluntarily agreed to be satisfied with a CL only
for the domestic market. Surely one of

vol xlviI no 14

the reasons why such CLs are desirable
is that India-made medicines find their
way to needy persons abroad also as
they are (and in this case is) less priced
than the patentee’s version. Sure there
is a separate CL for export provision
(Section 92A) but why cannot when
every time a CL is granted in India under
Section 84, it becomes a cause for hope
in other underserved countries too by
invoking Section 90 (vii)? Why go
through more legal legwork and time as
well as further burden the already overburdened patents controller’s office when
a CL licensee wants to export?
It is not clear why the patents controller had to specify (see order, para 15k)
that Natco’s product had to be visibly different from Bayer’s in shape, colour,
trade name and packaging, a condition
sought by Bayer to be imposed on Natco.
Or why the licensor (Bayer) “shall provide no legal, regulatory, medical, technical, manufacturing, sales, marketing
or any other support to the Licensee
(Natco)”. This condition is neither specified nor suggested anywhere in Section
90 of the Patents Act.
More importantly, the order (on how
the product should look) is the preserve
of the office of the drugs controller. If
the latter cannot link patent status of a
medicine to licensing for manufacture
and marketing, para 15k would imply
linking of a kind from the other side as it
were, from the patents controller’s office,
even intruding into the drugs controller’s
sphere; and surely this might also imply
a repeat of clinical trials of the product
to generate safety data if the drugs controller were to take it literally. (However
the latter may not happen in this case as
Natco, according to para 4 of the order,
has received a licence for manufacture and
marketing of both the active pharmaceutical ingredient (API) and the formulation of sorafenib in April 2011.)
A related condition imposed by the
order, in para 15 (c), is the one that says
this CL is for “working the licence at only
his own manufacturing facility” and shall
not outsource, etc. This again is unnecessary – and again maybe an intrusion
into the drugs controller’s domain. How
does it matter as long as the licensee,
that is Natco, makes sorafenib any which
11

COMMENTARY

way in India as per terms specified by the
drugs controller and the product is sold
at not more than Rs 8,800?
A related issue is whether medicines
manufactured under CL should be under
price regulation. To us it is clear that it
has ought to be, for the CL was granted
with non-affordability of the original
innovator’s medicine as one of the criteria.
If Cipla loses the infringement case in
the Delhi High Court and decides not to
appeal, it ought to be eligible for a CL
and most likely would get one. Would
the ceiling price of Rs 8,800 in the current order apply automatically to Cipla?
Yes, we think it should, in the spirit of
the CL being granted to Natco because of
overpricing of the innovator medicine
and resulting lack of accessibility and
affordability. So Cipla would have to
reduce its price from Rs 30,000 to
Rs 8,880; and in case the Delhi High
Court declares that Bayer is ineligible
for its patent on sorafenib, the ceiling
price would automatically apply to Bayer
too. Or rather ought to. But that would
take a special effort by the National
Pharmaceutical Pricing Authority under
the Department of Pharmaceuticals.
One may as well point out to another
gratuitous provision in the order – namely
para 15h – specifying that Natco provide
free of cost medicine to 600 needy
patients. At the risk of looking at a gift
horse in the mouth, these kinds of administrative detailing and micromanagement
sanctioning largesse (yes we understand
it was first offered by Natco) are a waste
of precious time and resources of the office
of the patents controller apart from being
a possible distorting factor in future rulings affecting such cases, apart from the
patents controller contradicting himself
(para 13 of the order) where he says he
is not concerned with philanthropy (of
Bayer), “no doubt appreciable”.
The patents controller may have well
spent some of his admirable intellectual
resources wondering about the generous commissions being given to the
trade (see page 56 of the order) and the
fact that on paper Natco seems to be
making less margins than those involved
in distribution and retail; or even have
spent his time worrying how the provisions of the CL can be stretched to
12

generate more competition and better
access to all patients.
Working of the Patent
The order discusses at length the meaning of the term “working of the patent”,
something not defined in the Patents Act,
and has settled, for the time being at
least, that importing a medicine patented
in India cannot be considered the same
as working the patent in India. The
medicine has to be manufactured in
India “to some reasonable extent.” And
“working the patent” does not mean only
working on a commercial scale. Unfortunately for Bayer its arguments were not
accepted that the scale of local production was not commercially viable. It is a
moot point whether it would have been
viable for Bayer if it had reduced its price
and therefore increased its sales or to
support its arguments, if Bayer had come
clean on research and development costs
to show how exactly it was unviable.
Looking at the arguments of the patents controller leading up to the order, it
is not clear what is meant by the phrase
that the medicine has to be manufactured in India “to some reasonable
extent”. Does this mean sales as a percentage of the potential demand? If so
what percentage will be reasonable?
And manufacture means manufacture
of the formulations only, or formulations
and the related API? Can the related API
be imported and only its formulations
n

ies i

unit

ort
Opp

made in India? If API is to be manufactured here in India and sold/used only
locally, it may not be viable for an Indian
company that is the recipient of the CL
and hence such CL grants need to have
an inbuilt provision for export of the formulation as well as the API. Again, even
if the API were to be manufactured in
India, what constitutes manufacture?
Would a mere conversion from an intermediate that is one step before the final
API, akin to import of semi-knocked
down kits of cars that are then assembled in India, constitute manufacture?
These questions are not theoretical as
the API of sorafenib and its intermediates are manufactured by several Chinese
companies who are willing to export.
There appears to be even a manufacturer
of sorafenib API in India.
While these questions need to be
clarified in due course, it is generally
accepted that opening up the market
for manufacture by many local players
in India – which this order does not
grant because it gives a licence only
to the applicant5 – does eventually
increase the manufacturing capability
of the country; and India with its record
of API manufacture, considerable backward integration can be expected to
take place. It is therefore hoped that
other CL applicants for sorafenib (and
other such products in the future) will
be granted CLs with relative ease, now
that a case law is in place.

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april 7, 2012

vol xlviI no 14

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COMMENTARY

Over the last 20 years, multinational
corporations (MNCs) in India have become
mere traders and have closed most of
their API and formulation manufacturing facilities in India. Some of India’s
top-selling MNC-owned medicine brands
are made under contract manufacture.
The interpretation of working the patent
in the order is therefore likely to be seen
as a well-deserved comeuppance.
A related move that is overdue from
the patents controller’s office is to see
how many other patentees holding patents on overpriced vital medicines are
not complying with the requirement for
not working the patent locally (Form 27
of the Act even requires periodic reporting) and take suo motu cognisance by
asking them why their patents should
not be revoked and/or appropriate CLs
awarded. At least the following medicine
patents, among many, are likely to be under
the scanner if such an action were to
be taken: dasatinib, nilotinib, erlotinib,
sunitinib, pegylated interferon, entecavir,

and possibly other medicines like raltegravir, etravirine, rilpivirine, maraviroc
– all useful in new types of resistant
strains of HIV, hepatitis B and/or C, and
various types of cancers.6
Ideally, of course if the Government of
India could file for government use
patents under Section 100 which applies
to situations where “the government needs
to manufacture, procure, distribute and
sell the patented medicine on a noncommercial basis”. But for that the Government of India will require supreme
political will, apart from having to put in
place a free or subsidised programme to
supply such medicines.
Notes
1

2

Available at http://www.ipindia.nic.in/ipoNew
/compulsory_License_12032012.pdf, last accessed
on 18 March 2012. The order hereafter.
As an aside, in November 2009, the UK’s
National Institute of Clinical Excellence
(NICE) refused to approve sorafenib for use
within the National Health Service in England because it felt increasing survival in liver
cancer by six months did not justify its high
price – around £2,500-3,000 per patient per

Uttar Pradesh Elections
and Samajwadi Party’s Victory
Radhika Ramaseshan

The Samajwadi Party’s victory in
Uttar Pradesh was possible due
to a combination of factors: the
loss in support for the incumbent
Bahujan Samaj Party from the
upper castes who had hitherto
supported that party, the
grass-roots mobilisation made
possible by SP’s Akhilesh Yadav,
amongst others. A report
based on a tracking of the trends
over months.

Radhika Ramaseshan (ramaseshan.radhika@
gmail.com) is political editor of The Telegraph.
Economic & Political Weekly

EPW

april 7, 2012

G

etting on an election trail over a
month before the first vote was
to be cast was sufficiently daunting. Divining trends was audacious, to
say the least. Particularly so in a state
like Uttar Pradesh that has a knack of
pulling off a surprise in virtually every
election, assembly and general, and belying the projections and assumptions of
seasoned psephologists. History testifies
to Uttar Pradesh’s electoral quirks and
mood swings.
Barring notable exceptions, nobody
foretold that Mayawati and her Bahujan
Samaj Party (BSP) would cruise to a
spectacular victory in the 2007 assembly
polls. Or that the Congress would stage
a comeback of sorts in the Lok Sabha
election that followed just two years
later in a state where it was put out to
pasture in 1989.
vol xlviI no 14

month. For the gut-wrenching questions this
move produces, see http://news.bbc.co.uk/2/
hi/health/8367614.stm.
3 For issues in measurement of affordability,
catastrophic spending and impoverishment,
see Niëns, L M, et al, “Practical Measurement of
Affordability: An Application to Medicines”,
Bull World Health Organ, 2012; 90: 219-27. See
also the affidavit filed by KEI in the current case
at http://keionline.org/sites/default/files/affjameslove_13Feb2012_as_Filed.pdf. See also
“Access to Medicines, Vaccines and Technology”, Chapter 3 of the High Level Expert Group
Report on Universal Health Coverage for India,
Planning Commission, New Delhi, November
2011. And see also for unaffordability of a range
of medicines in India, Chapter 5 of Impoverishing the Poor: Pharmaceuticals and Drug Pricing
in India, LOCOST/JSS, Vadodara/Bilaspur,
December 2004. Also available online at:
http://www.scribd.com/my_document_collections/2879052
4 The order (in 15d) says that the licence is nonexclusive, meaning CLs may be given to other
applicants in the future.
5 There is also no provision in the Patents Act to
throw open the CL to all other competent manufacturers in India with a single order like the
current one.
6 Some of the medicines mentioned are courtesy the
reporting on an RTI sought by Shamnad Basheer
et al, reported at http://spicyipindia.blogspot.in/
2011/04/non-working-of-patent-working-norms.
html). See also Table 7 in Sudip Chaudhuri,
“Multinationals and Monopolies: Pharmaceutical
Industry in India after TRIPS”, Economic &
Political Weekly, 24 March 2012, Vol XLVII.

When 2012 began, the Uttar Pradesh
pre-poll picture was hazy like the winter
fog that had enveloped large parts of it
with not a beam of sunshine in sight:
there were audible murmurs of resentment over former chief minister Mayawati’s “profligacy” in putting up statues
of herself, her mentor, the late Kanshi
Ram and other dalit icons in public spaces in Delhi’s satellite town, Noida and in
Lucknow. However, her desperate endeavour to enshrine a place in history
dominated by the Nehru-Gandhis – that
she justifiably feared might not be hers
and that of her political forebears if she
was voted out of power – had not snowballed into a make-or-mar issue.
Conventional political wisdom had it
that with a largely substantive dalit vote
bank – accounting for between 15% and
20% in every assembly constituency –
the BSP had a head start over its rivals.
All that was required of the party was to
cobble together the votes of the “add-ons”:
from the other castes and communities,
notably the Muslims, to get past the
winning post. Tactically astute, Mayawati
had fielded several brahmin, Muslim
and back ward caste candidates, her
13