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COMPULSORY LICENSING AND COVID-19: The Good, the Bad and the Ugly

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In our previous article, we talked about the issues surrounding the proposal to waive off IP Rights. The question has the whole world polarised, with opponents asking why waive off IP rights when we have provisions for voluntary and compulsory licensing?

What is compulsory licensing

A patent accords monopoly to the owner to produce and distribute a patented product as they see fit and to keep other parties from doing the same. Compulsory licensing provisions empowers the government to grant such rights to parties other than the patentee, without the consent of the patentee. Alternatively, the government may use the patent itself. All nations that are a party to the TRIPS Agreement are required to provide for compulsory licensing.

The Indian Government can, as per the provisions of the Indian patent Act, revoke patents to meet public interests and even issue compulsory licenses to meet the need of the hour. The Indian Government may also acquire and use patented inventions to address the concerns cited in the proposal.

Keeping in mind the many problems pertaining to production and procurement of vaccines, live-saving COVID-Drugs and medical equipments, proponents argue that the waiver would boost the production of the same.

The apparent GOOD of compulsory licensing

Opponents of the waiver have suggested compulsory licensing as a good measure to solve all problems of manufacturing, procurement and distribution of COVID-19 vaccines, drugs and medical equipment.

It is argued that instead of revoking the rights of the pharmaceutical corporations all together, the rights may be temporarily “shared” to meet the current global requirements. And it does seem to be a win-win situation for all involved – stakeholders’ interests are protected by not depriving them of rights that they have put substantial money and effort into’ whereas the public health is safeguarded by ensuring increased production and supply of the required vaccines, etc., by allowing other parties to take part in the supply and production chain.

While the public health and safety is of utmost concern at the moment, it becomes imperative to safeguard the interests of the pharmaceutical industries. The Covid-19 vaccines and the mutations are being continuously studied presently. Depending on possible future variations, vaccine compositions may have to be altered to increase efficacy. All of this requires substantial investments in terms of R&D. Deprive the ones conducting these R&D from the benefits (namely patent rights) and it definitely affects how they decide to proceed with the on going research.

Why compulsory licensing may be a BAD idea

Compulsory licensing, while seemingly the ideal concept on paper, has its own flaws when executed as a tool.

Issuing compulsory licenses would only be feasible if the government has a generic producer ready to manufacture sufficient quantities of generics. Such a producer must be technologically equipped to quickly make cost-efficient alternatives. If the manufacturer cannot meet the requirements efficiently, the compulsory license stands squandered. Most developing members and the LDCs backing the waiver lack the necessary technology and technological know-how to take up vaccine and other drugs productions.

It is imperative to note that India is not the only country seeking such a waiver. Therefore, the constant arguments that India can resort to acquisition of patent rights or issue compulsory licensing, while logical, aren’t necessarily practical in view of the backing of the waiver by over 120 nations, many of which lack the facilities to set up production units if compulsory licensing plays out.

Another setback of compulsory licensing is protection of trade secrets. As per Article 39 of the TRIPS agreements, members are required to protect trade secrets “against unfair commercial use.” Even if compulsory licenses were to be issued, trade secrets would still have to be protected. Often, trade secrets include data which are crucial for quickly reverse engineering and producing the emergency health and medicinal products that are presently required.

Further, the proponents argue that the process of compulsory licensing is complicated.

The UGLY Truth

The developed countries, most of which initially opposed the waiver, look down on compulsory licensing.

In fact, many countries who were staunch opponents of compulsory licensing have changed their stance and have resorted to compulsory licensing to address the current needs. Other domestic legislative measures have been taken for the same. One wonders why.

In all essence, it boils down to voluntary/compulsory licensing vs total waiver of IP rights (albeit temporarily). Those opposing the waiver suggest that the already-present provisions of licensing are the right alternative. However, those backing the waiver have their reservations about licensing and presently, these reservations seem to be very sensible. Firstly, not all nations have the capacity to enter production to meet the needs, should licenses be issued. Further, in-license restrictions and drawbacks such as high royalties, limitations on the number of products/doses, etc. will continue to thwart the principal objective of the waiver, which is rapid production of large number of vaccine doses and other life-saving drugs within a short span to meet the global requirement.

It is still not clear how the members are going to arrive at an agreement, if they arrive at an agreement at all.

WTO decisions are almost always made unanimously. A TRIPS waiver would require the 3/4th consensus.

Further, while the reasoning behind the coalition’s move to waive off IP rights is understood and appreciated, the question still remains of the effectiveness of such a decision.

A waiver of IP rights would allow generic producers to obtain patented tech and know-how to create cheaper vaccines and drugs to meet the surging needs as soon as possible. However, it would definitely set back big pharmaceutical corporations from investing in future R&Ds, fearing similar outcomes. Alternatively, the corporations may try and set back such “losses” through pricing changes in other non-covid drugs and equipments.

Setting aside the move for waiver would save interests of small number of big corporations but affect the public at large adversely. In any event, either decision would be a double-edged sword.

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Compulsory licensing – a panacea for controlling covid-19?

License

The on-going Covid-19 pandemic has taken a massive toll on the healthcare sector. The situation is dire in India with has led the Supreme Court of India to declare the second wave as a national emergency. In addition to the rampant increase in COVID cases, the non-availability of medicines such as Remdesivir, Tocilizumab and Favipiravir at sufficient quantities has exacerbated the situation. One of the reasons for lack of affordability and availability of these drugs is that such drugs are patent protected, which provides monopoly rights to the patent owner. In such scenarios, compulsory licensing can play a pivotal role in increasing the availability of the patented drugs.

What is Compulsory licensing?

Compulsory licensing refers to licensing of a patented invention by the government to a third party without the authorization or consent of a patent holder.

PROS

CONS

The patented drug is easily made available to the public.

The royalty paid to the innovative company may be lesser than the expense incurred in the research and development of the drug.

The patented drug will be available to the public at cheaper price.

Deterrent to innovation as the monopoly of the patentee over the patent is suspended.

Compulsory licensing is not a new concept, it is widely recognized in both international and national domains. Paragraph 5 of the Doha declaration and Article 31 of the TRIPS Agreement sets forth a number of conditions for the granting of compulsory licences.

The Indian Patents Act vests special power on the central government u/s 92, under which the central government can invoke compulsory licensing under certain circumstances such as a) national emergency or b) extreme urgency c) public non-commercial use. Section 100 of the Indian Patent Act also empowers the Central Government and any person authorised in writing may use the patented invention for the purpose of the government. The Patent Act also empowers the government to acquire the invention for which an application for patent has been filed or a patent has been granted for public purpose (u/s102). The intention behind vesting such powers on the government is to safeguard public life.

On 20th April 2021, the Supreme Court of India has declared the crisis triggered by the second wave of the Coronavirus as “national emergency”. The Supreme Court has also asked the Central government to consider invoking powers vested under section 92, to hoist the availability of COVID -19 related drugs. Even the Delhi High court has directed the Central government amidst of national emergency to utilise the power vested on the government under section 92 of the Indian Patent Act. Then, why is the government not invoking compulsory license? Considering the on-going pandemic, the need of the hour is to invoke compulsory licensing to combat the deadliest effect of the virus. Every minute, hundreds of people are losing their lives, due to non-availability of the drugs that are useful to treat the infection. It is not the first time that the India is enacting the provision of compulsory licensing. Previously, a compulsory license was granted to NATCO (here) to produce and market Nexavar, an anticancer drug on which Bayer’s holds a patent. The grant of the compulsory license to NATCO clarifies that India is not a new player in this field.

Moreover, the inclusion of compulsory licensing in the Indian patent regime clearly states that when such a pandemic situation arises and the government has to decide whether to preserve the rights of the patentee or give priority to public life, the government has to prioritise public life over the rights of the patentee. The inclusion of such provision in the Patent act is not to exploit the patent rights of a patentee, but to safeguard the public interest and life, as the sole aim of the issuance of compulsory licensee is to address the public health problems. Even the Doha declaration (Paragraphs 4 – 6) on TRIPS agreement and Public health affirmed the flexibility of TRIPS member states in circumventing patent rights for easy access of the medicines or drugs to the public, by invoking compulsory license. Further, compulsory license invoked under such circumstances is provided only for certain periods that is to say -till the national urgency or extreme urgency ceases to occur. The government also pays royalty to the patent holder on usage of the technology invented by the patentee.

Compulsory licensing may not be the panacea for the ongoing crisis. Compulsory licensing of the drugs used to treat COVID may aid in increasing the production of the drugs by third party entities. It shall be noted that a company from Bangladesh produced the world’s first generic Remdesivir without obtaining a license from the patentee Gilead sciences. On the other hand, compulsory licensing may not be effective in the case of vaccines. Typically, pharmaceutical companies protect vaccines using a combination of trade secrets and patents. Therefore, obtaining a compulsory license is not enough for a third-party entity to produce vaccines as some of the crucial information related to the production of vaccines may be protected as trade secrets. Compulsory license is a good step but is not the only step. The government should bring together the stakeholders and device a strategy to address the hindrances to the production of vaccines by third party entities without drastically affecting the interests of the patentee.

We hope this article was a useful read. 

Please feel free check our services page to find out if we can cater to your requirements. You can also contact us to explore the option of working together. 

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This work is licensed under a Creative Commons Attribution-Non Commercial 3.0 Unported License

Two angles to compulsory licensing of patents and a disaster waiting to happen

One of the core objectives of a patent system is to make the patented technology available to the public at reasonably affordable price, meet the reasonable requirements of the public and should be worked in the territory of India. A compulsory license will be granted on a patent only if the patent holder uses his patent in a manner that contravenes the aforesaid objective.

Relevant Governing statute:

Section 84(1) of the Indian Patent Act corresponding to the grounds for granting a compulsory license on a patent is reproduced below;

 (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:—

  1. that the reasonable requirements of the public with respect to the patented invention have not been satisfied, or
  2.  that the patented invention is not available to the public at a reasonably affordable price, or
  3.    that the patented invention is not worked in the territory of India.

PROCEDURE TO APPLY FOR COMPULSORY LICENSE:

To obtain a compulsory license, an application has to be made to the Controller at any time after the expiry of three years from the date of grant of patent. It shall be noted that, a compulsory license can be acquired by any interested person. As per the Indian Patent Act, interested person includes a person engaged in, or in promoting, research in the same field to which the invention relates.

Relevant Governing statute:

(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:—

LANDMARK DECISION:

Natco Vs Bayer was the first case in which compulsory license was granted in India. Natco obtained a compulsory license to produce and market Nexavar, an anticancer drug on which Bayer’s holds a patent.

On the other hand, a compulsory license was rejected when a Mumbai-based company, BDR Pharmaceuticals filed an application for a compulsory licence to make a generic version of anti-cancer drug Dasatinib, on which US drug maker Bristol-Myers Squibb holds a patent.

Interestingly, in both the cases, Section 84(1) of the Indian Patent Act, i.e. grounds for granting a compulsory license were satisfied. Evidence provided by both Natco and BDR pharmaceuticals for fulfilment of the aforementioned section is listed below.

Natco Pharma vs. Bayer(Nexavar)

BDR pharmaceuticals vs. Bristol-Myers Squibb's(Dasatinib)

Bayer's anticancer drug priced INR 2,80,000 a month.

Bristol-Myers Squibb's anticancer drug priced INR 1,65,680 for 60 tablets per month

Not manufactured within the territory of India.

Not manufactured within the territory of India.

Did not meet public requirement.

Did not meet public requirement.

COMPARISON:

A comparative study is provided below analyzing the scenario that lead to the grant of Compulsory license to NATCO, while rejecting compulsory license to BDR pharmaceuticals.

Section 84(6)(iv)of Indian Patent Act states that, in order to apply for a compulsory license, the applicant (compulsory licence seeker) has to make efforts to obtain a voluntary license for the patented drug from the patentee within a reasonable time.

Reasonable time period shall be construed as a period not ordinarily exceeding a period of six months. It shall be noted that, such restrictions however are not applicable in case of national emergency or other circumstances of extreme urgency in case of public non-commercial use or on establishment of a ground of anti-competitive practice adopted by the patentee.

Relevant Governing statute:

(6) In considering the application field under this section, the Controller shall take into account,—

  (iv)   as to whether the applicant has made efforts to obtain a licence from the patentee on reasonable terms and conditions and such efforts have not been successful within a reasonable period as the Controller may deem fit:

Natco Pharma VS Bayer:

Hyderabad based Natco Pharma Limited was granted a compulsory license for Sorafenib Tosylate (Brand Name: Nexavar) on   4th March 2013. Nexavar is an anti cancer drug used for first-line treatment for liver and kidney cancer.

IPAB decision:

57. In view of the significance of the order of the compulsory licence made in India for the first time, we have dealt with each of the issues in detail, though we have broadly confirmed the impunged order. In the result, for the reasons stated above , the grant of compulsory license is confirmed and the impunged order is modified only to the extent of rate of royalty to be paid to the patentee as indicated above and in other respects, the appeal is dismissed. No costs.

Natco Pharma had requested Bayer (patentee) for voluntary license for manufacturing and selling the drug Nexavar. It proposed to sell the drug at a price of INR 8800 for one month therapy as compared to the price of about INR 2,80,428 being charged by patentee at the time of making the application.

COMMUNICATION BETWEEN NATCO AND BAYER FOR VOLUNTARY LICENCE

In order to obtain a voluntary license from Bayer, Natco had communicated their intension to acquire the license. IPAB in its decision has summarized the communication from Natco to Bayer, and is reproduced below:

‘we understand that the cost of therapy per month for the said drug as sold by you works out to about Rs.2,80,000/- and ……… most of the patients are from the low and middle income groups that can seldom afford such expensive drug’. The letter stated that the access to the treatment of cancer is denied ‘particularly due to the high pricing of the product’. The 3rd respondent wrote that they would be in a position to make the product available to the public in India at a cost of less than Rs.10,000/- for one month and that at such price, even the Government Agencies would come forward to offer financial assistance to the patients and in this context, they applied for licence for the manufacture and marketing of Nexavar so that protection of public health is not impeded due to the present high price. They finally requested for the “grant of a voluntary licence to us to manufacture and market the product on such reasonable terms and conditions which would not prevent us from making the drug available to the public at the affordable price as projected above”.

Bayer’s reply to the aforementioned letter:

Your company is not able to make out a case for the grant of voluntary licence to manufacture and market the product Nexavar. Therefore, our client does not consider it appropriate to grant voluntary licence to manufacture and market the product Nexavar to NATCO’

It can be construed from the aforementioned statement that, Bayer had rejected the request of Natco for voluntary license. Further, it can also be interpreted that Natco had made reasonable efforts to get voluntary license from the patentee and hence, the prima facie case has been made out according to sec 84(6)(iv).

BDR VS Bristol-Myers Squibb's (BMS):

BDR Pharmaceuticals had filed for a compulsory license on 4th March 2013 for BMS patent on Dasatinib, used by patients with Chronic Myleoid leukemia(CML).

Prior to filing a compulsory license, BDR had applied for voluntary license to BMS for Dasatinib on Feb 2nd 2012.

Following are the terms and conditions submitted by the applicant while requesting for voluntary license:

  • Would make the drug available at a price of Rs.135 per tablet i.e. Rs.8100 per month.
  • Product under license shall be manufactured with indication for CML
  • Royalty to be paid as fixed by the controller
  • Availability of the patented product to the economically weaker sections of people…
  • Offering free drug to certain percentage of patients suffering from CML as determined by the cancer specialists.

Upon the request set forth by BDR for voluntary license, BMS (patentee), in a letter dated 13th March 2012, had raised certain queries which are as follows:

"facts which demonstrate an ability to consistently supply high volume of the API, DASATINIB, to the market",facts showing your litigation history or any other factors which may jeopardize Bristol-Meyers Squibb's market position", "quality related facts and in particular compliance with local regulatory standards and basic GMP requirements", "quality assurance systems due diligence", "commercial supply teams", "safety and environmental profile", "risk of local corruption".

Seeking voluntary license from the patentee is a sine qua non to be exercised by the applicant before filing an application for compulsory license.

In the current case, BDR pharmaceutical considered the reply of BMS as rejection to their request for voluntary license. In addition to that, it didn’t make further efforts for settlement with the patentee within the reasonable time (6 months generally).

Moreover, it filed a compulsory license application on 4th March 2013, almost a year after the reply from the patentee.

Controller’s decision:

The applicant did not follow the scheme of the law as well as the procedure mandated by the law. I am therefore of the considered opinion that the applicant has failed to make out a prima facie for the making of an order under sec 87 of the Act. The application for compulsory licence, along with all the petitions for condonation of delay/irregularity, is hereby rejected.

The Controller has the right to reject the application for compulsory license, if the applicant for compulsory license has not made efforts to obtain a voluntary license from the patentee. It shall be noted that, efforts made by the applicant to seek a voluntary license from the patentee is a mandatory requirement. It is one of the grounds for consideration of the application filed for compulsory license.

In light of the above decision, it can be construed that, BDR pharmaceutical didn’t make reasonable efforts to convince the patentee (BMS) for grant of voluntary license on the drug DASATINIB. Hence, the prima facie case has not been met and the application for compulsory license had been rejected.

To obtain a compulsory license, the applicant should follow the patent law accordingly. Fulfilment of the Sec 84(1) solely does not mean that an applicant will obtain a compulsory license. There are other requirements as well, in addition to Sec 84(1), which have to be fulfilled.

So far we have been discussing the grounds for granting or rejecting compulsory licence. Now we shall analyze the law corresponding to how patents are treated once a compulsory licence is granted.

On grant of a compulsory license to an applicant, the applicant has a two years time period to work the patented invention in the territory of India. However, if the applicant doesn’t manufacture the patented invention in the territory of India, and hence the public requirement is not met at reasonable price, any person interested can apply to the controller for revocation of the patent. The relevant section sec 85(1) from the patent act is reproduced below:                                                                                                                    

  1. Where, in respect of a patent, a compulsory licence has been granted, the Central Government or any person interested may, after the expiration of two years from the date of the order granting the first compulsory licence, apply to the Controller for an order revoking the patent on the ground that the patented invention has not been worked in the territory of India or that reasonable requirements of the public with respect to the patented invention has not been satisfied or that the patented invention is not available to the public at a reasonably affordable price.

 

Further, if the controller is satisfied by the application filed by any interested person to revoke the patent, on the aforementioned ground, the Controller may revoke the patent according to section 85(3).

(3)The Controller, if satisfied that the reasonable requirements of the public with respect to the patented invention have not been satisfied or that patented invention has not been worked in the territory of India or that the patented invention is not available to the public at a reasonably affordable price, may make an order revoking the patent.

Should a patent be revoked under Section 85

According to Section 85 of Indian Patent Act, a patent can be revoked, if the applicant to whom the compulsory license is granted does not work the patented invention in the territory of India within two years from the grant of the compulsory license and further, the public requirements has not been met at affordable price.

The licensee is solely responsible for non working of the patented invention in the territory of India after obtaining the license but not the patentee. It would be injustice to the patentee, if a patent is revoked on the basis that, the licensee has not worked the patented invention in the territory of India even after expiration of two years on grant of the compulsory license. It shall be noted that, India is now witnessing grant of compulsory license, and hence, no one has invoked the provisions under Section 85. However, there is a high probability that provisions under Section 85 will be invoked in future. Now would be a good time to look at Section 85 in more detail, and amend it accordingly, before such scenario arises. It would be more justified to revoke the compulsory license, rather than revoking the patent!

Conclusion:

There are certain types of patented invention that play an important role in health and well being of the community, in such scenarios, compulsory licensing can play a pivotal role. Compulsory license is granted on fulfilment of certain terms and conditions as mentioned in the Indian Patent Act. The applicant filing for compulsory license therefore has to accordingly proceed to obtain the license. Further, the Indian Patent Act also provides provision for revocation of patent, if not being worked in the territory of India by the compulsory license holder, after a reasonable time period. In our opinion, consequences of non working of the patented invention by the licensee should not result in revocation of a patent.

We hope you found this article useful. You may be interested in reading our article "An Indian perspective on licensing or sale of patents"    

 

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