Decommercializing Public Health

Decommercializing
Public Health
Developing Worlds
Access to Medicine
Ruben George Rock, BA. LLB (Hons) student,
National University Of Advanced Legal Studies, Kochi.

2012
Decommercializing Public Health Developing Worlds Access to Medicine

2012 2

CONTENT
Introduction
Patent system and Medicines
Compulsory Licensing
Parallel Import
Doha Declaration and Access to Medicine
TRIPS flexibilities and Public Health
Bayer v. NATCO- A Turning Point?
Working of Patent -Compatibility of Sec 84 of Patent Act with TRIPS
Future: Compulsory Licensing and Parallel Import in Public Health Sector- Striking the
Balance
Role of the State


2012 3

Everyone has the right to a standard of living adequate for the health and well-being of
himself and of his family, including food, clothing, housing and medical care..
Art 25, Universal Declaration of Human Rights


2012 4
We, the masses of the 21
st
century, enjoy pretty much an easy life. Flip a switch and there
turns a fan, press a key and you have the worldwide web on your fingertips, take a tablet and
there vanishes the terrible headache! The human life have undergone a drastic change from those
prehistoric ages where the only concern of every individual was to survive each day, to the
current age where our concerns ranges from getting a ticket for the latest movie to extending a
few more years of ones life. Scientific and technological advancements have revolutionized
human life since last few centuries. And the driving force behind this is the creativity and
inventive urge of the human brain which knows no horizon. But the labour input alone does not
find solutions to the ever increasing needs and wants of the current world where almost every
transaction talks in terms of money. Only with monetary investments in research and
development does the advancement of technology takes place. These genius brains and the
investors behind advancement of technology completely deserve to be appreciated and rewarded
for their works which makes the world a better place to live. There comes the need of Patent
system which provides legal protection to the intellectual element put in to the invention of a
product, and monopoly over the subject matter of patent for encouraging further innovations so
as to develop the industry and to provide security to return on investments for the funds pooled
in.
However, it does not provide absolute monopoly to the patent holder, but a temporary
one for a limited period of time, on expiration of which the subject matter of patented product or
process falls to the public domain. As we all know, monopoly over something tends the producer
to exploit or to abuse the market. It is not alone in the interest of the patent holder that patent is
granted, but ultimately for the benefit of public. Hence it is essential that the inventions should
be available to the public at affordable prices.

2012 5

Patent System and Medicines
Patent means temporary monopoly and ancillary rights given to the inventor of a novel
product or process, for a limited period of time, on expiration of which the subject matter of
patented product or process falls to the public domain. It is given as a reward for the intellectual
labour and monetary investments put in by the patentee. Like any other industry,
pharmaceuticals also require huge investments and persevering research so as to develop novel
and effective medicines. Therefore patents are invoked almost every time an invention is made in
medicines by the manufacturers. Infact, pharmaceutical patents are the most sought after patents
around the globe. The monopoly given to such manufacturers of medicines often result in high
prices of medicines. By virtue of Art 27 of Agreement on Trade-Related Aspects of Intellectual
Property Rights TRIPS), every member nation to the agreement is bound to grant patent without
any discrimination as to the place of invention, the field of technology and whether products are
imported or locally produced. As we all know, monopoly over something tends the producer to
exploit or to abuse the market. It is not alone in the interest of the patent holder that patent is
granted, but ultimately for the benefit of public. Hence it is essential that the inventions should
be available to the public at affordable prices. Compulsory licensing for domestic production as
well as for export and exhaustion of patents are two major TRIPS flexibilities which can be
employed to meet the needs of the ailing population of the developing and under developed
world.

Compulsory Licensing

2012 6
Compulsory licenses are licenses granted by government to applicants to produce or/and
sell patented products in case the patent holder does not meet certain requisite conditions aimed
at the welfare of public. The history of compulsory license starts with the Paris Convention for
the Protection of Industrial Property, 1883 which accepted the concept of working obligation.
The Convention provided that Each country of the Union shall have the right to take legislative
measures providing for the grant of compulsory licenses to prevent the abuses which might result
from the exercise of the exclusive rights conferred by the patent, for example, failure to work.
1

Provision for compulsory licensing is also given in Article 30 and 31 of The Agreement on
Trade Related Aspects of Intellectual Property Rights (TRIPS). The Article
2
allows the member
nations of the agreement to make laws for compulsory licensing in such a manner so as to strike
a balance between the public interests and the legitimate interests of the patent owner. India,
being a member of the agreement, made provisions for compulsory licensing in tune with TRIPS
in Indian Patent Act, 1970, by the amendment of 2002. The amendment
3
(c) The patented invention is not worked in the territory of India.
introduced Chapter
XVI (Section 84 to 98) in the Indian Patent act to deal with compulsory licensing procedures.
Section 84(1) of the Patent Act, 1970 says that compulsory license can be applied by any person
after three years of grant of patent on the grounds that:
(a) The reasonable requirements of the public with respect to the patented invention
have not been satisfied, or
(b) The patented invention is not available to the public at a reasonably affordable price,
or

1
Art 5(A)(2), Paris Convention for the Protection of Industrial Property,1883
2
Art 31, TRIPS
3
Patents (Amendment) Act 2002

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Parallel importation means import of patented products in domestic market from foreign markets
by persons other than the patent holder without the permission of the patent holder. It is also
known as grey market. The validity of parallel importation depends on the importing nations
treatment on exhaustion of intellectual property rights. If the country adopts international
exhaustion principle, the intellectual property rights of the patentee over his product is
considered to be exhausted when the product is first brought by him to any market, anywhere in
the world. A third person is not prohibited from importing those products to the domestic market
of that country. However, if the country adopts national exhaustion principle, the rights to the
patentee are exhausted only when he brings the product to the domestic market, therefore,
parallel import by a third person is prohibited. Section 48 of the Indian Patent Act provides
that a patent granted allows the patentee to prevent other persons from importing those products
to India without his consent. However Sec 107A provides that importation of patented products
by any person from a person duly authorized by law to produce and sell or distribute it will not
amount to infringement. This gives rise to a sort of confusion when read against Sec. 48. A
circular
Parallel Import
4

4
F. No. 528/21039/08-Cus/ICD, Circular No. 13/2012-Customs
issued by Central Board of Customs and Excise Department on 8
th
May 2012 has stated
that Sec 107A (b) provides for parallel import and therefore it is not infringement. Therefore,
even if there prevails certain ambiguity regarding the co existence of Sec 48 and 107A(b),
currently the position in India is in favor of parallel importation. Also, by virtue of Sec 47, the
State is empowered to import patented medicines and drugs.

2012 8

As we all know, the objective of patent rights is to protect the private interest of the
patent holder in consideration of the effort and labour put in by him. However, realizing that
protection of the private interest should not be at the detriment of the health status and medical
accessibility of the member nations, especially the developing and the least developed countries,
World Trade Organization in its ministerial conference held in Doha on 14
th
Nov 2001 adopted
the Declaration on the TRIPS agreement and public health. The Declaration states that
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.
Doha Declaration and Access to Medicine
5
It also recognized that countries with insufficient or no manufacturing
capacities in the pharmaceutical sector could face difficulties in making effective use of
compulsory licensing under the TRIPS Agreement.
6
In pursuant to this, the 5
th
Ministerial
Conference held at Cancum in 2003 provided for interim waiver of Art 31(f) of TRIPS
7
so as to
cater to the needs of the developing and under- developed countries. Hence, restriction on
compulsory licensing was taken away so as to export generic versions of patented medicines to
those countries, mainly the Least Developed Countries, who do not have the capacity to
manufacture it on their own. The reflection of this provision can be found in Sec 92A
8

5
Para 4, Doha Declaration on TRIPS
6
Para 6, Doha Declaration
7
Art 31(f) TRIPS- use of subject matter of patent by third party shall be authorized predominantly for the supply of
the domestic market of the Member authorizing such use
8
Inserted by Patent(Amendment) Act, 2005
of Indian

2012 9
Patent Act which states that Compulsory license shall be available for manufacture and export
of patented pharmaceutical product to any country having insufficient or no manufacturing
capacity in the pharmaceutical sector for the concerned product to address public health
problems, provided compulsory license has been granted by such country or such country has,
by notification or otherwise, allowed importation of the patented pharmaceutical products from
India.
The provisions relating to compulsory licensing for export was first used by Canadian
company Apotex for exporting medicines to Rwanda. The Indian pharmaceutical company
NATCO also sought for a similar license for exporting medicines to Nepal in 2008. However
the application was later withdrawn by NATCO as there was no valid license issued to them by
Nepal government. Sec 92A has made sure that the importing country to amend its laws so as to
provide license for import of medicines from India. It is worthwhile to note that back in February
2001, ie before the adoption of Doha Declaration and much before provisions of compulsory
license for export were incorporated in Indian Patent Act, the Indian generic medicine
pharmaceutical called Cipla had exported AIDS medicines to Africa and was under threat of
being sued by big pharmaceuticals like Merck for violation of patent rights. However the
lawsuits were dropped in the wake of worldwide pressure.
Para 5(d) of the Declaration provides that member States are free to establish the regime
of exhaustion principle that is to be followed by them.

TRIPS Flexibility and Public Health

2012 10
By The Doha Declaration on the TRIPS Agreement and Public Health 2001, WTO
stated that TRIPS Agreement does not and should not prevent Members from taking measures to
protect public health. It was held that the TRIPS agreement should be interpreted in such a way
as to support the WTO members right to protect public health and, in particular, to promote
access to medicines for all. The Declaration provides for Each Member has the right to grant
compulsory licenses and the freedom to determine the grounds upon which such licenses are
granted.
9
Section 83 of the Indian Patent Act provides general principles applicable for working of
patents. It says patent granted should not impede protection of health. It further lays down that
patents are granted not merely to enable patent holders to have monopoly over importation of
patented articles, but to make benefit of the patented invention by making it available at
reasonably affordable prices to the public. Now that the concept of compulsory licensing is well
established in the legal framework, the question arising is what will be the consequences of
resorting to this method. Whether it helps in restraining the abuse of monopoly, or does it
discourage new innovations. The judgment on the case of Bayer v. NATCO

10

9
Para 5(b), Doha Declaration on TRIPS
10
CLA No. 1 of 2011
has been welcomed
by accolades as well as criticism from various sections of the society. When the supporters of the
judgment hail it as an exemplary one catering to the protection of public health, the critics says
that the judgment is shortsighted, halting new innovations in the pharmaceutical industry.
Compulsory licensing certainly does not address the underlying issues of access to medicines
and healthcare, says Ranjit Sahani, the President of Organization of Pharmaceutical Producers
of India, Such licenses issued in the absence of a public health emergency will serve to
dramatically discourage investment in new medicines for patients and halt medical progress for

2012 11
the millions worldwide suffering from diseases without adequate or without any effective
treatments. They in fact serve to erode intellectual property rights that are at the heart of
innovation and will actually serve to stifle innovation to the long-term detriment of the Indian
patient.
Parallel import provisions can also raise controversial situations in future in case of
import of pharmaceuticals. With 2005 Doha Declaration, it is made clear that Member Nations of
TRIPS can adopt any exhaustion policy in case of pharmaceutical products. The African AIDS
crisis depicted how controversial the exercise of parallel import can be.

Hailed as a watershed move by many, the ripples set by the judgment of this case have
not settled yet. Since it was the first instance of granting of compulsory license in India, the case
is surely going to be inscribed in the history as a precedent setting judgment. An analysis of the
case helps in comprehending the statutory provisions related to compulsory licensing in India.
Bayer v. NATCO- A Turning Point?
Bayer, the German pharmaceutical giant had obtained patent over the product
Nexavar, a life extending liver/kidney cancer drug in India in 2008. NATCO, a Hyderabad
based pharmaceutical sought for compulsory licensing over Nexavar in 2011 on the grounds that:
1. The patentee did not made the product sufficiently available in the Indian market,
2. The price set by the patentee was exorbitantly high that it was not affordable for the
patients and
3. The patentee did not work the patented product in the territory of India.

2012 12

The sales figure of Nexavar in India by Bayer was nil for the year 2006 and 2007,
whereas the international sales figures were $165 million and $371 million respectively. Even
after obtaining patent in India in 2008, the sales figure showed a meager amount of 16 crores for
the year. The neglectful conduct from Bayer is evident from the fact that while the total number
of kidney and liver cancer patients in India is approx 20,000 and 9,000 respectively
AVAILABILITY
Section 84(1)(a) of the Patent Act provides for granting of compulsory license if the
reasonable requirements of the public with respect to the patented invention have not been
satisfied.
11
, the bottles
imported by Bayer in 2008 is nil and in 2009 is just 200, which does not even cater to 1% of
the total number of patients. The patentee blatantly did not supply the product to the demand.

The patented product is priced at approx Rs. 2, 80,000 for a months course, which is
close to Rs. 33, 00,000 for a year. Such exorbitant price is far away from the reach of majority of
the patients. It was at such a situation that the applicant offered to sell the product at Rs 8, 900 if
provided with compulsory license. The offered amount is approx just 1/25
th
of the price at which
Bayer sells Nexavar. The patentee may argue that the amount includes price for innovation, fund
invested for Research and Development, cost incurred in trial and error test, capital for further
research etc. It is true that before the formation of every single invention, hundreds of wrong
experiments might have happened. Still, a selling price more than 25 multiples of real price is
way too much. Also, for the research of Nexavar considerable incentives were given by America
AFFORDABILITY

11
As per the records of GLOBOCAN, the World Health Organization based database on issues related to cancer

2012 13
in 2006 as the drug was categorized as an Orphan Drug. Orphan drugs are those whose
potential target is less than 2, 00, 000 patients. Therefore in order to encourage production in
such small markets considerable incentives and subsidies are provided for orphan drugs. Nearly
50% tax deduction was provided for research of Nexavar which is equal to the amount spent by
Bayer for its research from 1994 to 2004. It is supposed that Bayer has recovered the amount
spent in research of Nexavar within 3 years of its sale.

Section 84(1)(c) of the Patent Act provides for granting of compulsory license if the
patented invention is not worked in the territory of India.
WORKING OF PATENT
In spite of having manufacturing units in India, Bayer did not manufacture Nexavar in the
country but imported it. Considerable thought was given by the Patent Controller General over
the interpretation of the phrase working within India. Article 27 of the TRIPS agreement states
that patent shall be available and patent rights shall be enjoyable without discrimination of place
of invention and whether the products are imported or locally produced. The Patent Controller
General held that granting of compulsory license on the ground of not manufacturing the
product within India does not prejudice the title of patentee and hence not in violation of Art 27.
It is evident that the patentee did not work the patent to the fullest extent that is reasonably
practical as it was not manufactured domestically.

On these considerations compulsory license was issued to NATCO so as to domestically
produce NEXAVAR sufficient for the demand, at affordable prices. Also NATCO is obligated to
pay 6% of net sales to BAYER as royalty.

2012 14
There may be contrasting opinion on granting of compulsory licensing. However, the
Government is legally empowered to do so and there are no international agreements which
forbid the State from doing so. In the case of Nexavar, there is no doubt that the situation called
for grant of license as the patentee had a very neglectful conduct towards Indian market. Patents
are granted so that the patentee makes products available in the market, not for restraining the
product to reach market as per whims and fancies of the patentee so as to abuse his monopoly.
The grant of patents should not impede protection of public health and nutrition. It should be
used as instruments to promote public interests, especially in areas of vital importance for socio-
economic and technological development of the country.

The working of patent condition provided in Sec 84(1)(c) is viewed by many as
inconsistent with Art 27 of the TRIPS. Though the title of Article 27 reads as PATENTABLE
SUBJ ECT MATTER, the concluding pat of Clause (1) of the Article says .patents shall be
available and patent rights enjoyable without discrimination as to the place of invention, the
field of technology and whether products are imported or locally produced. One may argue that
non- discrimination as to whether the products are imported or locally produced as envisaged by
this article is not only in regard to grant of patent, but also covers patent rights which
includes exclusive manufacture and sale.
Working of Patent -Compatibility of Sec 84 of Patent Act with TRIPS

However Art 2.1 of the TRIPS agreement provides that In respect of Parts II, III and IV
of this Agreement, Members shall comply with Articles 1 through 12, and Article 19, of the Paris

2012 15
Convention (1967). Art 27 of TRIPS comes within Part II and therefore it should be in
compliance with Articles 1 to 12 and Article 19 of Paris Convention.

Paris Convention, in Art 5(2) states Each country of the Union shall have the right to
take legislative measures providing for the grant of compulsory licenses to prevent the abuses
which might result from the exercise of the exclusive rights conferred by the patent, for
example, failure to work.

From this we can safely conclude that with regard to compulsory licensing, the express
and specific provision stated in Art 5(2) of Paris Convention prevails. Therefore the working
condition imposed in Section 84 the Indian Patent Act is in accord with TRIPS agreement.

Furthermore, with Para 5(b) of the Doha Declaration on TRIPS, which specifically
points to the flexibility in the form of compulsory licensing, we can infer that the working
condition is not in derogation with TRIPS in case of patents related to medicines and public
health.

The issuance of license to NATCO can trigger a chain of such events in future as the 3
year barrier set by Sec 84 of the Patent Act ends to lot of such patented medicines very soon. The
granting of licenses, however, should be done only after having considerable thoughts over each
case. If it appears that it is easy for anyone to get compulsory license, people may tend to avoid
Future: Compulsory Licensing and Parallel Import In Public Health Sector-
Striking The Balance

2012 16
bringing new technologies and innovations to Indian market. The growth and development of the
country, especially in the field of technology may be seriously prejudiced and also it may impede
investments in India. While upholding public interest, State must not be myopic so that the very
same public interest will be prejudiced in the long run because of non- participation from
manufacturers and investors.
Though parallel import is now seen as a relief for least developed countries and
developing nations as it allows importing quality goods at lower price, one cannot rule out the
possibility of patent holders stopping the price differentiation policies which facilitates parallel
import. Price differentiation is the practice of selling the patented product at higher rates in rich
markets so that it can make up for the lower margin of profit when the product is sold at lower
prices in economically backward countries. If the patentee decides to bridge the gap of prices by
decreasing the price in rich countries and increasing the price in poor countries and thus making
the prices more or less the same, it can discourage the practice of parallel import as the exporting
party cannot make benefit of the price difference.
Compulsory licensing and parallel importation should be employed only as the last resort
in case of non accessibility and non- affordability of medicines. State can initially resort to
methods like:
1. statutory price control of essential goods,
2. Identify the diseases which require utmost care and the medicines for its
cure and then negotiate with the producers of those medicines to bring down the prices
using compulsory licensing as a bargaining tool.

2012 17
Fixing the price of patented products, especially those which are in public interest should
not be let alone to the manufacturers sweet will, though they have a monopoly over it. Suitable
mechanisms should be devised to find a suitable price which is in tune with the public demand as
well as with the private interest of the patentee. Such a mechanism should be implemented
internationally.
In cases of issuance of compulsory licenses the patentee should not be completely let
down. The royalty which should be provided to them should not just be nominal peanuts, but an
amount taking into consideration of the intellectual and experimental labour they put into the
innovation. In case of patented products, especially those related to public health, acts from the
part of government to compensate or reward the patentee will be appreciable.

The State should build its public health sector infrastructure so as to develop medicines
required for its citizens through Indian public sector medical industries. The Open Source Drug
Discovery venture initiated by Council of Scientific and Industrial Research has done
commendable work in this regard. OSDD provides a platform for union of brilliant minds so as
to research and develop novel solutions to tackle healthcare issues. The platform, with public
funding, is undertaking researches for making affordable drugs to fight neglected diseases like
tuberculosis, malaria, schistosomiasis, etc. Neglected diseases mean those diseases which are
endemic in lower income countries alone. Big pharmaceutical giants concentrate only on
research and development of drugs catering to the need of high- income countries. The health
sector of the country can be benefited by right blend of traditional knowledge, available
Role of the State

2012 18
resources and modern research institutions. Pricing policies aimed at controlling the price of
essential medicines and making it available to vulnerable section should be done effectively.

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