COMPULSORY LICENSE: Compromise or Necessity

June 7, 2012

With third rank in terms of volume of production and fourteenth in terms of value, the Indian pharmaceutical sector is recognized as the leading global player in the international market. Despite this India itself has a large unmet domestic demand for critical medicines.

We have affirmed our commitment to the protection of intellectual property rights. But, the global economy, the global community,

cannot afford the complete privatization of research, of knowledge generation, especially in fields like medicine. We need to evolve mechanisms that protect intellectual property and, at the same time, address the needs of the poor,” stated Dr. Manmohan Singh in his remark at the Tenth Fortune Global Forum.

The provision of compulsory license (CL) provided in the Indian Patent Act, in fact, serves to strike balance between these two disparate objectives—rewarding patentees for their invention and making them available to third parties in case of need. It is an intervention mechanism that enables the government to balance the rights of the patent holder with its obligations to ensure working of patents, availability of the products at a reasonable price, promotion and dissemination of technological invention and protection of public health and nutrition.

Though after the Doha Declaration on the TRIPS agreement and  Public  Health,  about  52  countries  have  issued  CLs (including  Brazil,  Thailand,  Malaysia,  South  Africa  and Ecuador)1, India granted its first CL recently in March 2012 to Hyderabad based Natco Pharma Ltd. for producing generic version of Bayer Corporations’s patented medicine Nexavar, used in the treatment of liver and kidney cancer. The article discusses the international debate stirred by the said judgment and the broader ramifications on the Indian and global patent system as well as the apprehensions of the innovating companies.


Natco vs. Bayer for Nexavar

 Last year in July, Natco Pharma had filed application for CL in respect of Nexavar stating that the German company’s drug was unaffordable for the average Indian. It had also claimed to sell the copycat version of the drug for just INR 8,800 for a month’s course. Interestingly the price is about 3

% of what is charged by the multinational giant for the same course. Natco had earlier approached Bayer with a request for a voluntary license to manufacture and sell the drug, which did not materialize. It is worth noting here when the application for CL is considered by the Controller, he also takes into account as to whether the applicant has made efforts to obtain voluntary license from the patentee and if the same has been rejected by the innovator company. The Patent Office held that the conditions specified in the Patent Act, i.e., reasonable requirements of the public, availability to public at a reasonable affordable price and working of the invention in India, have not been met and hence granted the CL. It was settled that 6% of the net sales of the drug would be paid to Bayer by Natco as royalty.


Pharmaceutical Sector in India and Significance of the Case

 With third rank in terms of volume of production and fourteenth in terms of value, the Indian pharmaceutical sector is recognized as a leading global player in   the   international   market.   Despite this,   India   itself   has   a   large   unmet domestic demand for critical medicines. The  prevalence  of  cancer  is  estimated to  be  about  205  million  people,  with about  8,00,000  new  infections  every year   and   5,50,000   deaths   occurring each     year     due     to     cancer2.     The Parliamentary Standing Committee on Health  and  Family  Welfare  had  also raised issues about the availability and accessibility of drugs to the  poor  in  the country in its forty-fifth report on “Issues Relating to the Availability of Generic, Generic Branded and Branded Medicines…” In light of the above facts and also in the wake of takeovers of Indian pharmaceutical companies by multinationals the grant of compulsory license assumes significant importance.

The table below delineates five of the major pharma takeovers in India: (please refer the table below.)

Since most of the above companies are export oriented, their acquisition would further alienate them from the domestic market thereby reducing  the local availability of products manufactured by them which may further affect the drug prices. The CLs thus could possibly be used to promote competition. The CL on Nexavar is not only expected to help cancer patients, it is also is a step towards building domestic manufacturing capacity and knowhow in a new range of drugs.


Analysis of the Case

For   Indian   domestic   companies the   Controller’s   decision    would  set precedence of the legal and administrative procedure adopted and would define modalities of operation of the provision for CL provided in the Patent Act. At the same time, it would open the gate for them to market copycat drugs under CL; the MNCs however would be at the receiving end as it would break their monopoly.

As India joins Thailand as only the second country to grant a compulsory license for a cancer drug, proponents of the CL believe that the recent judgment would ultimately lead to lowering of exorbitantly-priced life- saving cancer and HIV drugs. It would also compel the MNCs to reconsider the pricing of patented drugs, not only in India but also in other developing countries. Reportedly, Roche has announced its decision to sell cheaper variants of breast and blood cancer  drugs in the Indian market soon. At the same time, in order to circumvent CLs, the patent holders may contemplate collaboration with local manufacturing companies in India. This would not only bring down manufacturing cost but the technology transfer would also help the local industries.


The table below delineates five of the major pharma takeovers in India

Indian Company
Year Indian Company taken over Foreign Company which took over Country of Origin Take over amount US$ million
May 2010 Piramal Health Care Abbot Laboratories US 3720
Dec 2009 Orchid Chemicals Hospira US 400
July 2008 Shanta Biotech Sanofi Aventis France 783
June 2008 Ranbaxy Laboratories Daiichi Sankyo Japan 4600
April 2008 Dabur Pharma Fresenius Kabi Singapore 219


It is pertinent to point out that as the fast developing Indian economy integrates and carves its niche internationally, the Patent Office’s decision may have implications beyond the pharmaceutical sector.


Indian Company Brand
Brand name MNC MRP (INR) Disease
Herceptin Injection 50 ML Roche 1.35L Anti-cancer
Erbitux 700 Mg Injection 50 ML Merck 87,920 Anti-cancer
Erbitux 700 Mg Injection 50 ML Bristol Myers 66,430 Anti-cancer
Actemra 400 Mg Injection 1 Roche 40,545 Anti-cancer
Zenapax 25 Mg Injection 5 ML Roche 28,875 Anti-cancer
Eraxis 100 MG Injection 1 Pfizer 9,107 Anti-infectives
Granocyte 34 Injection Sanofi-Aventis 5,720 Anti-cancer
Victoza 6Mg Injection 3 ML Abbott 4,315 Anti-diabetic
Estimated cost of life saving drugs produced by leading MNCs in India4


It is pertinent to point out  that  as  the fast developing Indian economy integrates and carves its niche internationally, the Patent Office’s decision may have implications beyond the pharmaceutical sector. It is already being criticized by innovating R&D companies as well as industrial lobbies such as Organization of Pharmaceutical Producers of India. Bayer, in its arguments before the Patent Office, had defended the higher price of the patented drug stating that although innovation-based products may cost a price over generics, this price pays for the pipeline (i.e. the future innovation) and competition not to mention the failed projects, which is about 75% of the total R &    D cost. It has been argued that any CL will not help unless  issues  such  as healthcare infrastructure, disease diagnosis and medical insurance are tackled as even the generic version of Nexavar (priced at INR 8,800) would be beyond the reach of poor Indians suffering from diseases like cancer.

Keeping in view the cost  incurred  and time spent on the research and development of any new drug (almost 15   years   and   $800   million   to   $2 billion),  rampant  granting  of  CL  may become  a  major  setback  in  research and development. Last year Cipla had applied  for  a  “voluntary  license”  for Merck’s  anti-HIV  drug  Isentress  and Natco  Pharma  had  sought  a  similar voluntary license from Pfizer to make and sell “copies” of the US Company’s HIV   medicine   in   India.   Both   the companies have cited similar reasons— that    the    drugs    were    exorbitantly priced and were inaccessible to Indian patients. This clearly is the first step in the grant of CL as, if denied voluntary license,   both   the   firms   would   have the  option  of  applying  for  CL  with the   Controller   General   of   Patents. Generic   companies   may   exploit   the process as a mean to generate revenue, thus restrictions on granting CL as a commercialized affair and resorting  to it with the sole aim of procuring drugs at a cheaper rate need to be imposed. Thus grant of CL without addressing key issues would be a major setback for the drug discovery and development programmes in India and abroad. It may prove to be a deterrent factor for innovators and MNCs that are contemplating investment in intellectual property in India. This may be quite ironical for a country that has declared the current decade as the “Decade of Innovation”.



 The article intends to provide general information only and should not be taken as legal advice or opinion related to specific situations. Every possible effort has been made to ensure accuracy of the information contained in the article but the author cannot be held responsible for any misrepresentation or inaccuracy.

For more information please contact us at :