Guest Post: Bayer-Natco decision TRIPS Compliant?

The Bayer-Natco decision broke ground as the first compulsory license earlier this year, and last month Bayer's appeal was dismissed by the IPAB. Dr Enrico Bonadio sent us a commentary he published in the current issue of the European Intellectual Property Review, questioning the TRIPs compliancy of the ruling. Dr Bonadio is a lecturer of IP and EU law at The City Law School University, London and was practicing as an IP attorney in top tier international firms for several years. His paper is available here. We asked him to put forth a brief guest post regarding the same: 

Compulsory Licensing of Patents: the Bayer-Natco Case 

On 9th March 2012 the Indian Controller of Patents granted the first compulsory licence in India. With this decision Indian generics producer Natco Pharma Ltd. has been granted the right to produce and sell in the Indian territory Bayer’s patented medicine “Sorafenib”, which is useful for treating advanced stage liver and kidney cancer. Natco will pay Bayer a quarterly royalty at 6% of the net sales of the drug. 

One of the most relevant issues dealt with in the decision regards the so-called “local working” requirement. Indeed the Controller held that the mere importation of goods incorporating the patented invention does not prevent the issuance of a compulsory licence (in the case at hand Bayer imported in India small quantities of its patented drug). Just the local production of the relevant goods by the patent owner or with its consent could prevent it. Yet, this did not occur in Natco/Bayer as Bayer did not produce any pills of Nexavar in India (even though it could have done so). As noted by the Controller, the patentee claimed to have manufacturing facilities in India for several products, including oncology-related drugs, so that there was no obstacle preventing Bayer from locally manufacturing the medicine or in any case from granting a voluntary licence on reasonable conditions to anyone including Natco. The Controller also rejected the argument put forward by Bayer according to which the low quantities required in India would not have justified setting up a manufacturing facility by Bayer in that country. 

In reaching its decision, the Controller also relied on a provision of the Indian Patent Act, ie Sec. 83(b). It states that patents are not granted merely to allow patent owners to enjoy monopolistic rights for the importation of the patented goods. 

Having said that, it seems that the above findings do not take in due consideration the TRIPS debate surrounding the working requirement and might be in violation of TRIPS itself. It is indeed believed that the above provisions of the Paris Convention as well as Article 31 TRIPS have to be read and interpreted together with Article 27(1) TRIPS, according to which “patents shall be available and patent rights enjoyable without discrimination as to […] whether the products are imported or locally produced”. In other words, this provision clarifies that where national legislations impose a local working requirement (as the Indian Patent Act does), patentees should have the possibility of satisfying such requirement by showing to have imported locally the patented product. There is no doubt therefore that the concept of working under TRIPS includes both the local production of the patented goods and their importation. Article 27(1) has therefore an impact on compulsory licences. This has been confirmed by the WTO Panel’s decision in Canada - Patent Protection of Pharmaceutical Products: it was held that the non-discrimination principle under Article 27(1) also applies to Article 31. 

Therefore, Article 27(1) TRIPS should be interpreted as not allowing any limitation of patent owner’s rights, including the issuance of a compulsory licence, merely because the patentee does not produce locally the relevant goods: what the Controller refused to accept in Natco/Bayer. It is also believed that Paragraph 5(b) of the Doha Declaration on TRIPS Agreement and Public Health (according to which countries have the freedom to determine the grounds upon which such licences are granted) could not be invoked to justify the need of a local production requirement (the Doha Declaration was adopted on 14 November 2001 by the WTO Ministerial Conference and strongly reaffirmed the rights of WTO Member States to use the flexibilities envisaged by TRIPS with a view to guaranteeing better access to essential medicines). Indeed, said Paragraph 5(b) should be read in the broader context of TRIPS and in particular in light of Article 27(1) which mandates states not to discriminate as to whether the patented products are imported or locally produced. 

It should be further noted that the local production requirement is also rejected under EU law. In Case C-235/89 the Court of Justice of the European Union (at that time it was called European Court of Justice) released a decision with reference to the old Italian provisions on compulsory licences, according to which said licences were granted in case the patentee did not manufacture locally the products incorporating the invention. The Court held that this provision basically had the effect of encouraging patent owners to locally produce the patented products rather than to import them from other Member States. They therefore amounted to, stressed the Court, measures having an equivalent effect to quantitative restrictions on imports under (what is now) Article 34 of the Treaty for the Functioning of the European Union.