Patents, Compulsory Licensing and Business Strategy

The stated objective of patent law is to promote the progress of science and technology for industrial/economic progress and public benefit. It  seeks to achieve this objective by granting exclusive rights over inventions to inventors for a limited period of time, on expiry of which the inventions enter the public domain. It is believed that the grant of exclusive rights generate incentives to invent, invest, disclose and design around, which in turn promote the progress of science and technology by encouraging inventive activity.

Though the objective of the patent system seems logical on its face, no empirical studies have proved conclusively that the patent system is responsible for the progress of science and technology. To the contrary, no study has also been able to prove conclusively that science and technology would progress if the patent system does not exist. In the absence of any conclusive proof, scholarship is divided, though not equally, with respect to the value of having a patent law in place. From the perspective of economics, management, law, technology, culture, etc, circular arguments are often made for and against the value of the patent system.

Business and Competitive Advantage

The exclusivity granted by the patent system provides business and competitive advantage to   patent holders. Patents give a business enterprise investing in research and development, the opportunity   to recoup returns from their investments by exclusively exercising their patent rights. By virtue of the value provided by them, patents are today considered by companies as invaluable business and competitive tools.

Patent Law allows a business to benefit from the exclusivity granted by a patent as long as the utilization of the patent by an enterprise is in line with the goals of the patent system, and not abusive or detrimental to the good of public. To ensure that patents are used for public benefit and industrial/economic progress and are not abused, the patent system has checks and balances at various levels in the patent life cycle from patentability filters to licensing.

Compulsory licensing

Compulsory Licensing is one among several tools used by the patent system to prevent any abuse or misuse of a patent to the detriment of public. It ensures that patented inventions meet reasonable requirements of the public, are available at reasonably affordable prices, and are worked in the country where the patent is granted. The compulsory licensing regime also ensures that patented inventions are available during national emergencies and health crises, are made available to countries, which lack adequate manufacturing facilities, do not stop use or growth of related technologies, etc. It is estimated that more than hundred countries have compulsory patent license regime of one kind or another.

Bayer Compulsory License in India

In 2012, a compulsory license was granted to NATCO, a generic company, to make and sell Bayer’s patented drug, Sorafenib, used for liver and kidney cancer. The Controller of Patents while granting the compulsory license stated that the drug was being sold at an unaffordable price of around Rs. 2, 80, 000/- by Bayer, and was not being made available sufficiently to meet reasonable requirements of the public in India. Under the license, NATCO agreed to make the drug available for Rs. 8, 800/-, at approximately thirty times lower price when compared to Bayer, and was required to pay a royalty of six (6) percent. The royalty was later hiked by the Appellate Board to seven (7) percent.

The grant of Sorafenib compulsory license was met by serious criticism from the developed world, led by the United States. Objections were put forth at various levels by different stake holders from governments to businesses. The objections ranged from non-compliance of international instruments to defeating legitimate business interests of patent holders.

Though three years have passed since the Sorafenib license, and no compulsory license has been granted since then, many Multi-National Corporations are still concerned about the availability of compulsory licensing as a tool to defeat their patent and business interests. While some argue for the abolition of the compulsory regime as a whole, others submit that its unfettered use would have a negative impact on innovation. The pressure from US government representatives to change India’s attitude towards compulsory licensing in particular, and the IP system in general, has been intense to say the least.

Strategic Use of Compulsory Licenses

Public consciousness in India is today poised against a stringent patent regime, and no government can afford to ignore the same. Partly due to the public involvement in the role of patents in access to medicines, and partly owing to anti-patent activism, among others, it is today close to impossible to convince the Government to narrow down the scope of the compulsory license regime, let alone abolish some of its flexibilities. Furthermore, the only objective study on the impact of compulsory licensing by Scherer concludes that compulsory patent licensing has no appreciable impact on innovation furthered by the patent system.

While patent interest groups exert pressure, and hopefully, ensure that compulsory license is used cautiously, patent holders and businesses are better off adopting strategies to prevent the grant of a compulsory license with respect to their patents or  use the license for commercial benefit, if granted. One straight forward approach is to work the patent in India, and build data to show that the invention meets the requirements of the public, and is affordable. This can be done by the patent holder directly, or through licensees.

Recently, Gilead, a pharmaceutical company, signed license deals with respect to its patented Hepatitis C drug with several Indian companies such as Zydus, Cipla, Hetero, etc. Through its licenses, Gilead was able to bring the cost of each piece of the drug from thousand dollars to ten dollars, and also, make it widely available. The said strategy not only commercially benefits the company, but also prevents the chances of a compulsory license grant, and enables the patent holder to retain control over its patents. In the Lee Pharma case, Astra Zeneca’s strategic pricing, market data, and data about substitutes enabled Astra Zeneca to avoid a compulsory license on its patented diabetes drug.

Though the law does not insist on working of a patent when it is not practicable, the law expects patent holders to take steps towards working patents whenever it might be possible. It is important for companies to not only take such steps, but also accumulate data with respect to steps being taken such as further research, integration with technology, perfection of the invention, market research, competitor analytics, viability studies, etc. The said data can go a long way in proving bona fide efforts towards working the patent, and making it available to the public.

It may not be possible to work some patents due to various reasons, and patent holders need not worry about such patents because no one will be interested in a compulsory license of non-workable patents. If a license is granted, and a patent of the said nature is somehow worked, it is any way beneficial to the patent holder. Indian Patent Law takes any abuse of patent rights to defeat the objective of the patent system seriously, and strategies used in other countries such as blocking new technologies, trolling, submarining, etc, will surely be treated unfavourably.

At another level, the Patents Act requires applicants of compulsory licenses to put efforts towards acquiring a voluntary license before applying for a compulsory license. The efforts to acquire voluntary license can provide an excellent opportunity for the patent holding company to learn about the company looking to acquire a compulsory license over the patent. The data acquired during the said interaction can prove to be very useful in countering an application for compulsory license. In the BDR Pharma case, BMS was able to prevent the grant of a compulsory license by simply asking relevant questions about quality controls, manufacturing processes, marketing capabilities, etc., to which the applicant for compulsory license could not respond appropriately.

To conclude, it is important for patent holders, Indian or foreign, to understand that the Indian patent law is based on its own philosophy, which is not susceptible to change irrespective of the extent of pressure. It is advisable for companies to work around the objectives of the Indian Patent Law, rather than try to bring it in line with the law in another country. Like BMS and Astra Zeneca, companies that are able to grasp the import of the Indian patent law, and handle it strategically can achieve patent and business success.

Authored by –

Dr. Kalyan C. Kankanala,

Managing Partner, BananaIP;

Visiting Faculty, NLSIU; and

Guest Lecturer, IIMB.

(E-mail: [email protected])

About Dr. Kalyan C. Kankanala

Dr. Kalyan C. Kankanala manages the largest new age Intellectual Property Firm, BananaIP Counsels, headquartered at Bangalore, India. In addition to helping clients maximize business value from intellectual assets, Dr. Kalyan also consults for United Nations Industrial Development Organization (UNIDO), and teaches at premier institutions such as National Law School of India University, Bangalore, and Indian Institute of Management, Bangalore (IIMB).

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  • Frederic M. Scherer, The Economic Effects of Compulsory Patent Licensing 67-75 (New York University Mono-graph Series in Finance and Economics, 1977).
  • Compulsory Licensing, Bayer and Others
  • Working of Patents – A Workable Proposition?
  • Pharmaceutical Patents: Gilead, IPA, Natco & The Bells of Harmony
  • Lee Pharma Ltd. vs. AstraZeneca AB, C.L.A. No. 1 of 2015
  • M/s. BDR Pharmaceuticals International Pvt. Ltd. vs. M/s. Bristol Myers Squibb Company, C.L.A. No. 1 of 2013
  • One View of Compulsory Licensing: Comparative Perspectives From India and Canada, Padmanabha Ramanujam, and Yugank Goyal, Marquette Intellectual Property Law Review, Summer 2014, Page 369.
  • Compulsory Licensing: The Foundations of an Institutional   Innovation, Ristiano Antonelli, The WIPO Journal, 2013.

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