Samenvatting Strategic IP
management Class 6:
Case Bayer in India: Intellectual property
expropriation
Introduction In 2012, the Indian Intellectual Property Appellate Board
(IPAB) made a landmark decision to grant a Compulsory Licence (CL) to
the Indian generic drug manufacturer Natco Pharma Limited (Natco). This
license authorized Natco to manufacture and sell a generic version of
Bayer AG’s blockbuster cancer drug, Nexavar, at a fraction of the original
price. This decision was viewed as a significant blow to the research-and-
development (R&D) business model of multinational pharmaceutical
corporations, raising concerns about the future of patent protection in
emerging markets.
Background and the Indian Patent Regime Historically, India only
allowed patents on manufacturing processes, which enabled local firms to
reverse-engineer drugs. However, after joining the WTO and complying
with the TRIPS Agreement in 2005, India began guaranteeing 20-year
product patents. Nexavar, used to treat kidney and liver cancer, was
patented by Bayer in India in 2008. Bayer sold the drug for approximately
$5,500 (INR 300,000) for a one-month supply—a price equivalent to
what was charged in the U.S. but considered "astronomical" for the Indian
population, where a large majority lived on less than $2.50 a day.
The Legal Basis for the Compulsory License After being denied a
voluntary license by Bayer, Natco applied for a CL under Section 84(1) of
the Indian Patent Act. The Controller General granted the license based on
three violations by Bayer:
1. Reasonable Requirements of the Public (Section 84(1)(a)): It
was determined that Bayer underestimated the actual demand for
the drug in India and failed to make it readily available across the
country.
2. Reasonably Affordable Price (Section 84(1)(b)): The price of
$5,500 per month was deemed "unreasonably priced," as it was 41
times India’s per capita GDP.
3. Local Working Requirement (Section 84(1)(c)): The authorities
ruled that "working" a patent required local manufacturing or
technology transfer. Because Bayer only imported the drug and did
not produce it in India or license it to local firms, it failed this
requirement.
, Terms of the License and Impact Under the CL, Natco was allowed to
sell its generic version for approximately $160 (INR 8,800) per month, a
97% discount. Natco was required to pay Bayer a 7% royalty on net
sales. The license included strict conditions: the drug could only be sold in
India (no exports), and its packaging had to be distinct from Bayer’s
Nexavar.
Stakeholder Perspectives
Pharmaceutical Industry ("Big Pharma"): CEOs from firms like
Bayer and Novartis argued that such rulings demonstrate a lack of
value for patent rights in India, potentially stifling the incentive to
innovate for diseases endemic to the developing world.
Bayer's Defense: Bayer argued they provided the drug at a 90%
discount to 73% of eligible patients through assistance programs
and that India's lack of medical infrastructure was a bigger barrier to
access than price.
Public Health Organizations: The WHO and Médecins Sans
Frontières (MSF) welcomed the decision, viewing it as a victory for
public health over commercial interests and a model for other
developing nations.
Future Implications The case set a precedent that encouraged other
Indian generic manufacturers to seek CLs for high-priced patented drugs
from companies like Roche and Bristol-Myers Squibb. It forced
multinational corporations to reassess their strategic IP management and
long-term profitability in emerging markets with weak IP protection.
Preparation questi ons
Pharmaceutical firms are often accused of charging exorbitant prices for their drugs,
especially in developing countries. How does the concept of “fair pricing” differs from
the perspective of a drug manufacturer versus a social welfare view?
o Manufacturer Perspective: For companies like Bayer, "fair" or "reasonable"
pricing must mirror the immense Research & Development (R&D) efforts and
costs associated with inventing a drug. In 2012, developing a single drug cost
over $1.3 billion and took 10 to 15 years. Manufacturers argue that without
the ability to charge prices that recoup these costs and provide a profit, there
is no incentive for firms to innovate or tackle major diseases.
o Social Welfare Perspective: From a social welfare or public health view (held
by the Indian government and organizations like the WHO), a price is only
"fair" if it is reasonably affordable to the general public. In this case, Bayer’s
price for Nexavar ($5,500/month) was 41 times the per capita GDP of India.
management Class 6:
Case Bayer in India: Intellectual property
expropriation
Introduction In 2012, the Indian Intellectual Property Appellate Board
(IPAB) made a landmark decision to grant a Compulsory Licence (CL) to
the Indian generic drug manufacturer Natco Pharma Limited (Natco). This
license authorized Natco to manufacture and sell a generic version of
Bayer AG’s blockbuster cancer drug, Nexavar, at a fraction of the original
price. This decision was viewed as a significant blow to the research-and-
development (R&D) business model of multinational pharmaceutical
corporations, raising concerns about the future of patent protection in
emerging markets.
Background and the Indian Patent Regime Historically, India only
allowed patents on manufacturing processes, which enabled local firms to
reverse-engineer drugs. However, after joining the WTO and complying
with the TRIPS Agreement in 2005, India began guaranteeing 20-year
product patents. Nexavar, used to treat kidney and liver cancer, was
patented by Bayer in India in 2008. Bayer sold the drug for approximately
$5,500 (INR 300,000) for a one-month supply—a price equivalent to
what was charged in the U.S. but considered "astronomical" for the Indian
population, where a large majority lived on less than $2.50 a day.
The Legal Basis for the Compulsory License After being denied a
voluntary license by Bayer, Natco applied for a CL under Section 84(1) of
the Indian Patent Act. The Controller General granted the license based on
three violations by Bayer:
1. Reasonable Requirements of the Public (Section 84(1)(a)): It
was determined that Bayer underestimated the actual demand for
the drug in India and failed to make it readily available across the
country.
2. Reasonably Affordable Price (Section 84(1)(b)): The price of
$5,500 per month was deemed "unreasonably priced," as it was 41
times India’s per capita GDP.
3. Local Working Requirement (Section 84(1)(c)): The authorities
ruled that "working" a patent required local manufacturing or
technology transfer. Because Bayer only imported the drug and did
not produce it in India or license it to local firms, it failed this
requirement.
, Terms of the License and Impact Under the CL, Natco was allowed to
sell its generic version for approximately $160 (INR 8,800) per month, a
97% discount. Natco was required to pay Bayer a 7% royalty on net
sales. The license included strict conditions: the drug could only be sold in
India (no exports), and its packaging had to be distinct from Bayer’s
Nexavar.
Stakeholder Perspectives
Pharmaceutical Industry ("Big Pharma"): CEOs from firms like
Bayer and Novartis argued that such rulings demonstrate a lack of
value for patent rights in India, potentially stifling the incentive to
innovate for diseases endemic to the developing world.
Bayer's Defense: Bayer argued they provided the drug at a 90%
discount to 73% of eligible patients through assistance programs
and that India's lack of medical infrastructure was a bigger barrier to
access than price.
Public Health Organizations: The WHO and Médecins Sans
Frontières (MSF) welcomed the decision, viewing it as a victory for
public health over commercial interests and a model for other
developing nations.
Future Implications The case set a precedent that encouraged other
Indian generic manufacturers to seek CLs for high-priced patented drugs
from companies like Roche and Bristol-Myers Squibb. It forced
multinational corporations to reassess their strategic IP management and
long-term profitability in emerging markets with weak IP protection.
Preparation questi ons
Pharmaceutical firms are often accused of charging exorbitant prices for their drugs,
especially in developing countries. How does the concept of “fair pricing” differs from
the perspective of a drug manufacturer versus a social welfare view?
o Manufacturer Perspective: For companies like Bayer, "fair" or "reasonable"
pricing must mirror the immense Research & Development (R&D) efforts and
costs associated with inventing a drug. In 2012, developing a single drug cost
over $1.3 billion and took 10 to 15 years. Manufacturers argue that without
the ability to charge prices that recoup these costs and provide a profit, there
is no incentive for firms to innovate or tackle major diseases.
o Social Welfare Perspective: From a social welfare or public health view (held
by the Indian government and organizations like the WHO), a price is only
"fair" if it is reasonably affordable to the general public. In this case, Bayer’s
price for Nexavar ($5,500/month) was 41 times the per capita GDP of India.
