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Compulsory licensing developments in BRIC states following Natco v Bayer


19th Jul 2013

Compulsory licensing became a hot topic last year when India granted its first compulsory license for a patented pharmaceutical product. The case between Natco, an Indian generics manufacturer, and Bayer, an innovative drug producer found its way into newspapers around the world (http://www.guardian.co.uk/global-development/poverty-matters/2012/jul/26/pharmaceutical-companies-health-worlds-poor-risk, http://www.nytimes.com/2012/03/13/business/global/india-overrules-bayer-allowing-generic-drug.html?_r=0).

Since the decision was announced there have been further developments in this case, including Bayer’s appeal. We have also seen a series of further compulsory licensing applications. It is therefore a fine time to revisit compulsory licensing in India and compare the Indian situation with the other BRIC states.

India

The Paris Convention allows each country of the union to grant compulsory licenses of a patent to prevent abuses which might result from the exercise of the exclusive rights conferred by the patent, such as by failure to work. The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs), to which WTO member states have signed up, sets out the requirements of such licenses and certain conditions by which they may be granted.

In addition to compulsory licenses, TRIPS also requires WTO member states to provide patent protection for inventions, whether products or processes, in all fields of technology, including pharmaceutical products. Therefore, after 35 years of denying patents for pharmaceutical products, India was obliged under TRIPS to begin issuing patents for pharmaceutical products in 2005. In the previous 35 years, India had developed a large and powerful generics industry, which was not used to being prevented from manufacturing the medicines of others. In such an environment it was no surprise that a generic filed an application for a compulsory license.

At first instance before the Patent Controller, Natco were granted a compulsory license on the grounds that i) Bayer’s prices were so high that it was neither available to the public nor affordable and ii) Bayer had imported the drug into India rather than manufactured the drug in India, and that this did not constitute “working” the patent in India. The decision attracted criticism from a number of quarters, including the US government, which complained:

“the decision could potentially compel innovators outside India – including those in sectors well beyond pharmaceuticals, such as green technology and information and communications technology to manufacture in India in order to avoid being forced to license an invention to third parties”.

The grant of the compulsory license was very popular in India and there is a strong will for more of the same. Bayer appealed against the grant of the compulsory license and lost. The saving grace for observers is that the appeal court pulled back from local working requirements, acknowledging that it is not always appropriate for all products to be manufactured locally and that importing might be able to satisfy it. However, in the Bayer case they ruled that Bayer had not imported enough to meet the requirements.

Other generics manufacturers have since filed further applications for compulsory licenses, and the Indian government has identified several patented medicines against which it wishes a compulsory license application to be filed. We could therefore see many more applications in the next few years

One possible light on the horizon that might at least remove the unpredictability of the compulsory licensing process is the potential move to price controls: the Indian government has begun implementing price controls, where once a medicine is under price control it can be assumed to meet the affordability requirements and prevent a compulsory license on that ground (http://social.eyeforpharma.com/market-access/india-considers-ending-compulsory-licensing-tactics, http://online.wsj.com/article/SB10001424127887323582904578488623303557476.html).

Brazil

Brazil is one of the states that started the post-TRIPS compulsory licensing trend when it made a series of threats to pharmaceutical companies to issue compulsory licenses between 2001 and 2006. These threats resulted in large discounts on the prices for HIV/AIDS drugs. These threats and negotiations continued until 2007 when Brazil demanded a further reduction to a medicine on which discounts had previously given, to which the manufacturer refused. A compulsory license was granted.

Following this, last year Brazil annulled a patent, against which the government had previously threatened compulsory licensing and received discounts, on the grounds that it had been granted under the transitional “pipeline” provisions as TRIPS was implemented. The judge held these provisions to be unconstitutional (http://www.pharmatimes.com/article/12-03-23/Brazilian_judge_annuls_Abbott_s_Kaletra_patent.aspx). As over 1000 other patents were granted under the pipeline procedure, this has potentially annulled a large number of other patents.

Russia

Since Russia has only last year become a WTO member state, (http://www.wto.org/english/thewto_e/acc_e/a1_russie_e.htm) the provisions of TRIPS, such as compulsory licenses, have only now become applicable in Russia. Despite this, Russia has had its own compulsory licensing provisions for some time. A brief search online did not reveal details of any compulsory licensing cases in Russia. They are rarely granted in Russia according to an article on the World IP Review (http://www.worldipreview.com/article/a-changing-landscape-life-sciences-in-russia).

In the last few years there have been a few potentially relevant law changes that might affect the compulsory license situation in Russia. Firstly, since 2010 Russia has been implementing price controls for medicines (http://www.thepharmaletter.com/file/101544/russia-may-implement-state-control-over-pricing-in-domestic-pharmaceutical-market-fs-reviews-market.html). In addition, a 2012 law change in Russia is set to make it easier and cheaper to file applications for compulsory licenses (http://www.lexology.com/library/detail.aspx?g=28a0bc91-980f-494d-8d1c-468f9cff8ba9).

China

In China, the price of medicines is controlled by the state. China introduced compulsory licensing laws for the first time last year (http://www.pharmatimes.com/news/china_amends_patent_laws_to_enable_compulsory_licensing_977179). We are not aware of any compulsory licenses granted so far.

Conclusions

One thing that stands out from this brief survey, is the link between price controls and compulsory licensing in the BRIC states. In Brazil, controlled prices of medicines are well established, and it is accepted that patentees may need to negotiate prices with the Brazilian government. China and Russia are both in a similar situation, both having price controls for medicines, both having to negotiate with patentees on prices, and both signalling an interest in compulsory licenses at the same time. The situation in India is volatile with large numbers of applications for compulsory licenses filed in the last year. The situation may still settle down and price controls might be the way to achieve that, although Brazil has shown that price controls do not automatically bring predictability, as we have seen with the possible revocation of 1000 pipeline patents.

Looking to the future in India, we wait with keen interest the results of compulsory licensing decisions. In particular we are keen to see how the Indian patent office will apply the appeal board’s apparent relaxation of the local working requirement. With luck, we may see the end of the Indian patent office’s annual requirement for details of how a patent is worked in India. Either way, we will watch this space with interest.

This article is for general information only. Its content is not a statement of the law on any subject and does not constitute advice. Please contact Reddie & Grose LLP for advice before taking before any action in reliance on it.

Author
Christopher Smith
Senior Associate
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Would you like to know more? You can talk to Christopher Smith who will be able to help. Call +44 (0)20 7242 0901

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