How Bayer Lost Its Monopoly: The Story Behind India’s First Compulsory License

The legal dispute between Bayer Corporation and the Union of India, along with other parties, centered on India’s first compulsory license for the anticancer drug Sorafenib (marketed as Nexavar). The Intellectual Property Appellate Board (IPAB) thus upheld the license and concluded Bayer had failed to ensure public access to the drug at an affordable price. The court in its ruling noted that “the holder of a patent has to see that the public reasonably obtains the benefits of the innovation covered by the patent monopoly right health need must prevail over monopoly rights.” This was later agreed to by the Bombay High Court, and above all this was Indian Supreme Court rejection of Bayer’s appeal that made compulsory licensing emerge as a crucial instrument in preserving lifesaing drug access.

Facts

Bayer Corporation, Germany, held the Indian patent (No. IN 215758) for Sorafenib, an active pharmaceutical compound used to treat liver and kidney cancer, marketed globally under the brand name Nexavar. In 2008, the Indian generic manufacturer Cipla began producing and selling a generic version called Soranib, labeled as Sorafenib Tablets 200mg. Bayer subsequently filed an infringement lawsuit against Cipla in Indian courts, though this particular case does not focus on that litigation.

At the time of the lawsuit, Bayer priced Nexavar at approximately 280,438 INR (around 5,280) permonth,whileCipla’sgenericalternativewassoldat27,960INR(about5,280)permonth,whileCipla’sgenericalternativewassoldat27,960INR(about525) for the same quantity. While Bayer was still at war with Cipla in Court, yet another Indian pharmaceutical company, Natco Pharma Limited, applied for a compulsory license against Bayer’s patent under Section 84(1) of the Indian Patents Act, 1970 (amended in 2005).

Section 84(1) allows a compulsory license to be granted after three years from the date of the grant of patent if:

The reasonable needs of the public regarding the patented invention are not met,
The invention is not accessible at an affordable price, or

The invention is not being made in India.

In a significant ruling, the Controller of Patents decided to side with Natco, holding Bayer insufficient to discharge the obligations cast upon it by Section 84 of the Patents Act. Accordingly, the Controller granted compulsory license with terms that included a 6% royalty on the sales made by Natco to Bayer. Bayer was aggrieved by this order and chose to prefer an appeal against it before the Intellectual Property Appellate Board (IPAB).

Legal Issues

Whether Bayer sufficiently met the public’s need for the patented cancer drug Sorafenib under Indian patent law requirements.
Whether Nexavar’s market price of approximately $5,280 per month could be considered reasonably affordable for Indian patients.
Whether Bayer had fulfilled its obligation to commercially work the patent within India’s territory as mandated by law.
Whether the Patent Controller properly followed legal procedures when granting the compulsory license to Natco Pharma.
Whether the evidence presented adequately satisfied all three grounds required for issuing a compulsory license under Section 84(1).

Significant Points

Failure to Meet Public Necessities The IPAB supported the Controller’s finding that Bayer had not satisfied the “reasonable requirements of the public” under s. 84(1)(a). The IPAB identified three significant failings:

Non-working of the patent: Sorafenib was not locally manufactured or sold in India.
Huge price: The price of the drug (₹280,438/month) meant that it was not accessible to most patients.
No adequate commercial supply: The “limited” supply available only made the affordability of the product worse. In the combined finding about this section, the IPAB made it clear that no unmet condition about s. 84(1)(b) and (c) (affordability and local working respectively) could possibly be the case without violating s. 84(1)(a).

Affordability is Lead Determinant the IPAB ruled that “reasonable affordability” had to be made based on the ability of the public to afford it. The IPAB supported the finding of the Controller that the price for Nexavar was 10× the price of a generic or (Nexavar) was not “reasonably affordable,” whether or not the medicine had efficacy or even if there were other generic medicines that had efficacy and also had the medicine being regulated under patent.
Concept of Working the Patent While the IPAB attempted to avoid the strict concept of “working” the patent as local manufacture, the IPAB found Bayer’s actions insufficient because:

No commercial activity: There was no local manufacture or import to meet the demand.
Insufficient imports: Even if imports were allowed, the volume supplied by Bayer was insufficient and price unreasonable.
Non-commercial activities are irrelevant: Bayer’s Patient Assistance Program was only found to be charitable and was not considered commercial.

Public Interest Concern the IPAB supported that:

Activities after the application are irrelevant: Bayer’s related activities of improved access (i.e., price reductions) post-filing could not be used to remedy the non-compliance regardless of the patient access claimed.
Patents are for public’s benefit: Patents Act places public benefit first.

Compulsory Licensing System in India

Authorizations for compulsory licensing are for use in India under Indian patent law. Compulsory licensing is a system whereby authorities permit third parties to manufacture and sell a patented invention regardless of the patent holder’s consent. The system of compulsory licensing in India is found in Chapter XVI of the Patents Act, 2005, which seeks to balance the rights of intellectual property with the principle of public welfare. Patent holders may receive compensation in the form of a royalty payment, but they must not veto the license, determine who will receive the license, or unilaterally set the royalty amount.

The main features of the compulsory licensing system include:

Scope: The behavior of compulsory licensing includes not only patented products, but also the processes of manufacture.
Eligibility requirements (Section 84):

An application can only be made by a third party after the patent has been granted for three years
The applicant must demonstrate that prior attempts to negotiate a voluntary licensing agreement has been attempted at a fair market rate and commercial terms

Grounds for granting a license: The applicant must demonstrate that at least one of the three requirements are being demonstrated:

The patented invention has not met the public demand o The price of the patented product is not affordable to the public
The patented subject matter is not being used for commercial purpose in India

Approval of the license:

The Patent Controller must have a prima facie case that the license will be approved.
Approved licenses shall include the terms and conditions required in Section 90 of the Act.

The purpose and goals of the compulsory licensing system achieve the goal of providing the patent holder an opportunity to provide compensation for patent use as needed, while not allowing the price or availability of essential medicines from hindering access for public health needs. The requirement in the system for an essential patent holder to require to commercialize the patent and provide a reasonable royalty suits the purpose.

Arguments from the Parties: Bayer Corporation Bayer Corporation

Arguments of Bayer Corporation Bayer Corporation argued that Sorafenib Tosylate was already widely available and was reasonably priced, so that Section 84(1)(b) of the Patents Act, 1970 had nothing to do with this case. They stated that there was a significant costs (investment) in research and development for the drug thus it was expensive. Bayer Corporation further stated that the Patent Controller did not consider expenses related to the invention when calculating royalties violating Section 90(1)(vii) of the Patents Act, 1970. Bayer Corporation argued that the word “sell” in the Act does not mean “export”, because those are two different concepts. The Act clearly refers to “export” in both Section 84 and Section 92A so therefore the interpretation to equate sale to export should be rejected by the court.

Ip Licensing — [Image Sources: Shutterstock]

Natco Pharma’s Arguments

Natco Pharma contended that Bayer Corporation’s price for the drug was unreasonable and not affordable for a typical person, and therefore not satisfying the public demand market, violating the Patent Act. They further stated that Bayer Corporation’s Patient Assistance Program (PAP) was limited and voluntary, therefore did not provide adequate access to the medication to the public, Natco Pharma argued. Natco Pharma also defended the Intellectual Property Appellate Board (IPAB)’s decision to increase the royalties from 6% to 7%, as the IPAB was compliant with Section 90 of the Patents Act, 1970.

IPAB Ruling[1]

Bayer contested the Controller’s ruling, stating a compulsory license would not be necessary because the drug sold for less than the price set by the Controller (using Cipla’s price of ₹5,400/month as an example). They claimed that if the market offered the drug affordably—even through a third-party Section 84(1)(b) of the Patents Act should not apply.

However, the IPAB dismissed this argument, noting that Bayer itself was not providing the drug at an accessible price, especially while simultaneously pursuing legal action against Cipla for selling the same product.

The IPAB provided an interpretation of the term “patented invention” in connection with Section 84 and explained that it imposes three duties on the patentee:

to make the invention available to the public,
to satisfy reasonable public demand for the invention, and

to “work” the invention in India. Regarding the third issue, Bayer argued that “working” could be interpreted to include importation of the invention, rather than domestic manufacture. The IPAB determined that the meaning of the term is contextual and fluid.

Ultimately, the IPAB ruled against Bayer, stating that granting a stay order would be contrary to public interest by depriving the public of a necessary medication.

High Court Ruling[2]

The High Court dismissed Bayer’s appeal with respect to the compulsory license regarding a significant legal issue: “Should supplies from patent infringers (like Cipla and Natco) be considered when assessing whether public demand for the drug is met?”

The Court held that, even considering the supplies of Cipla, public needs were not satisfied. The Court made note of who had the legal obligation to satisfy the public health need— the patent holder was responsible to provide the drug availability either through their own production or a licensed producer (not third-party infringers).

On the issue of whether a “working” of the patent is a requirement in India however the Court made it clear that the patent holder is not required to manufacture locally, although the patentee must account for the reasoning why production is not happening inside the country (pursuant to Section 83). The Court found that while in effect — importation might be conducive to meet the public need;

the patent holder needs to equally show efforts to meet the public demand. Bayer’s Patient Assistance Program (PAP) – a “buy 3, get the rest free” program, was found to be insufficient in under Section 84(1)(b) which requires the same affordability for all patients and not differentials based on a selective subsidization of a single set or pool of patients.

The Court also interpreted Section 84(7) strictly: for medicines, “adequate extent” means 100% public demand must be met. It asserted, “Patients’ access to medicine cannot be compromised for patent holders’ rights.”

Supreme Court’s Decision

The Supreme Court dismissed Bayer’s Special Leave Petition with a brief observation: “In the present case’s facts, we see no reason to intervene. The SLP is dismissed, leaving all legal questions open.”

This open-ended ruling preserve ambiguity. By not settling the legal interpretations, the Court allows future challenges to reshape compulsory licensing standards reintroducing uncertainty into India’s patent regime.

Criticism

Compulsory licensing challenges the exclusivity of patent rights, making it a long-debated issue with no global agreement on its application[3]. Some critics believe that such licenses pose a hazard to industries long-term – arguing National health emergencies are warranted, as implied by the Organization for Pharmaceutical Producers of India as a baseline in IDS bilateral free trade agreement talks, but that is very extreme. The ruling with the

NATCO compulsory license was condemned by the U.S. Patent and Trademark Office (USPTO), as evidence that these licenses are hand to innovation in both the pharma and biotech industry, and that it does not meet the global standard for experimentation[4]. Ironically, the US and Canada have historically issued numerous compulsory licenses Canada under its 1969 pharmaceutical license policy and the US via antitrust laws.[5]

Under TRIPS, countries can issue compulsory licenses during national emergencies without prior attempts for voluntary agreements. The Doha Declaration further reinforces this autonomy, allowing nations to define their own grounds for granting such licenses without restrictions.

India faced backlash for its so-called “anti-IP” stance after the NATCO case, but its cautious approach in later rulings (e.g., rejecting compulsory licenses for Dasatinib and Trastuzumab due to unmet legal conditions like voluntary license negotiations under Section 84) shows a balanced patent regime. Judicial review in cases like Bayer confirms India’s commitment to legal solutions instead of undermining patent rights.

Analysis

The Bayer v. Natco Pharma case was a turning point in India’s approach to patent rights and healthcare access. The IPAB’s decision to approve a compulsory license for Sorafenib, a critical cancer drug, highlighted the tension between corporate patent protections and public welfare.

In a country where expensive medications remain out of reach for many, the ruling prioritized affordability and availability over monopolistic pricing. A key takeaway was the IPAB’s strict reading of Section 84 of India’s Patent Act, which mandates that patent holders must ensure their inventions are both accessible and reasonably priced. By siding with Natco, the tribunal sent a clear message: patents are not absolute rights but come with societal obligations. This precedent could empower more generic manufacturers to challenge unaffordable drugs in the future.

The case also exposed the delicate balance between IP protections and public health emergencies. The ruling acknowledged that rigid patent enforcement can worsen health inequities, especially in developing nations. It reflected a global shift toward flexible IP frameworks during crises, aligning with TRIPS safeguards for compulsory licensing.

The Bayer-Natco verdict reshaped India’s patent landscape by affirming that public health needs can override corporate exclusivity. By permitting a generic Sorafenib version, the IPAB demonstrated how patent systems can adapt to save lives without dismantling innovation incentives.

Moving forward, the case serves as a warning to patent holders: failure to price products fairly or license them voluntarily may invite compulsory measures. It also reinforces India’s commitment to TRIPS flexibilities, proving that legal mechanisms exist to reconcile IP rights with humanitarian imperatives. Ultimately, the judgment underscores that patents must serve people not just profits.

Author: Abhishek Gakare, in case of any queries please contact/write back to us via email to [email protected] or at Khurana & Khurana, Advocates and IP Attorney.

[1] “Order (No. 45 of 2013)”

[2] “Bayer Corporation v. Union of India & Ors., Writ Petition No.1323 of 2013”

[4] “Rowland, Shelley, “India’s IP Appellate Board endorses compulsory license of patented cancer drug to generic manufacturer” Available at: http://baldwins.com/india-s-ip-appellate-board-endorses-compulsory-license-of-patented-cancer-drug-to-generic-manufacturer/”

[5] “Integrating Public Health Concerns Into Patent Legislation In Developing Countries”, Available at http://apps.who.int/medicinedocs/pdf/h2963e/h2963e.pdf”