I. Introduction

India granted its first compulsory license to an Indian generics manufacturer, Natco, in March 2012. Recently, the Indian patent appellate body upheld the grant of the compulsory license on Bayer’s anti-cancer drug, Nexavar. The issuance of the compulsory license has intensified debate among developing and developed nations over the proper role of intellectual property rights in increasing access to medicines. Developed countries argue that India’s grant violates TRIPS and will lead to less incentive for research on pharmaceuticals. This is because markets in developing countries are a key source of growth for pharmaceutical manufacturers in developed countries. On the other hand, developing countries argues that the TRIPS compulsory licensing provisions serve as a balancing mechanism, allowing strong intellectual property rights while acknowledging the need to increase access to medicines for the poor. India’s grant appears TRIPS compliant, and is an attempt to work around abuses of the patent system, similar to approaches taken in the US.

II. Background

TRIPS authorizes Member States to issue compulsory licenses in three circumstances. Art. 31 of TRIPS provides that compulsory licenses may be issued if “the proposed user made efforts to obtain authorization from the right holder on reasonable commercial terms and conditions and that such efforts have not been successful within a reasonable period of time”; in cases of “national emergency or other circumstances of extreme urgency”; or “in cases of public non-commercial use.” Further, in order to grant a compulsory license, other procedural, and easily met, requirements must be fulfilled. The Doha Declaration provides that “the TRIPS Agreement does not and should not prevent Members from taking measures to protect public health” and that TRIPS “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.” Natco, an Indian generics manufacturer sought to negotiate a compulsory license with Bayer on its patented anti-cancer drug, Nexavar. Despite the lack of any terms or conditions that Natco was willing to accept in its initial letter, the Controller of Patents argued that Bayer’s refusal to negotiate constituted circumstances which would have fallen under the TRIPS exception.

III. Analysis

After determining that reasonable commercial negotiations had failed, the Controller of Patents decision upheld the grant of compulsory license based on three provisions of Indian Patent Law. First, the Controller determined that the “reasonable requirements of the public” had not been met. Second, the Controller determined that the Nexavar was not available to the public at a reasonably affordable price. Finally, the Controller determined that the patented product had not been worked in the territory of India. Although Natco failed to identify any commercial terms or conditions it would accept, the categorical refusal to license should be deemed to fall under TRIPS’ “reasonable commercial terms and conditions” compulsory licensing exception. This language has never been interpreted the Dispute Settlement Body, the World Trade Organization body charged with resolving disputed under TRIPS. However, given TRIPS’ strong commitment to increasing access to medicines in developing countries, as evidenced by the Doha Declaration, the circumstances of the Natco case should be deemed to fall within the scope of the TRIPS provision. Further, even in the U.S. compulsory licenses may be granted even in a wide variety of cases when valid commercial negotiations do exist. For example, under Ebay v. MercExchange, courts are required to apply the traditional equitable four factor test to determine whether an injunction is appropriate in a certain case. This ruling has resulted in a “market competition” requirement for obtaining an injunction. Thus, even when a patent holder is willing to negotiate a court may award a compulsory license – allowing the infringer to practice the invention by paying the patentee a reasonable royalty. Further, in Apple v. Samsung, the Federal Circuit further required a causal nexus test to determine whether the patentees injury was caused by the sale of the infringing product, tightening the requirements for an injunction. The eBay decision enabled a check on non-practicing entities by reducing their incentive to hold market producers hostage through patents. While the Samsung decision reduced the ability of a patentee having a miniscule feature of a product from blocking the product.

IV. Conclusion

India’s grant of a compulsory license based on TRIPS reasonable commercial negotiation exception mirrors efforts in the US to curb abuses of the patent system. In India, the exception has been used to provide needed access to medicine for the poor. In the US, the doctrines announced in eBay and Samsung have been used to solve various problems caused by the patent system in the US. Further, the grant of compulsory license should fall within a broad reading of the TRIPS provision given the commitment to increasing access to medicines announced in the Doha Declaration.