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Bayer Corp Versus Union of India
This writ petition was filed by Bayer Corporation and Bayer Polychem (hereinafter referred to as ‘Bayer’) to restrain the Drug Controller General of India (DCGI) from granting license to Cipla Ltd. (Cipla) to manufacture, sell and distribute its drug “sorafenib tosylate", prescribed for treatment of advanced renal cell carcinoma.
Bayer filed a patent application on 5th July, 2001, which was granted to them by the Patent Office on 3rd March, 2008 for a period of twenty years from 12th January 2000 in accordance with Section 53 of the Patents Act, 1970. They were also granted licence to import “sorafenib tosylate" on 1st August 2007 in terms of Rule 122A of the Drug and Cosmetics Rules 1945 (DCR).
According to Bayer, it learned in July 2008 that Cipla had announced the introduction of a drug “Soranib" which was a substitute of Bayer’s patented drug. On 31st July, 2008, Bayer wrote to DCGI requesting that marketing rights should not be given to Cipla as it alone had the right to sell the same in India. It also asked the DCGI to acknowledge their patent rights and not grant Cipla the marketing approval for launch of generic drug. It was submitted that DCGI ought “to reject the representation of Cipla for grant of marketing approval for spurious adaptation of its patented drug sorafenib tosylate, as the same would be in contravention of the DCA.
On 25th September, 2008 Bayer wrote to Cipla asking it to confirm whether it had filed an application before DCGI for grant of marketing approval for a drug covering “sorafenib tosylate". No reply was received from Cipla. In the circumstances, on 31st October 2008 Bayer filed the above mentioned writ petition praying inter alia for a writ restraining the DCGI from granting licence to Cipla “to manufacture and market, to imitate/ substitute sorafenib tosylate protected under subject patent number 215758". A further prayer was for a direction to Cipla to furnish an undertaking that the drug for which it has made an application before Respondent No. 2 was not an imitation of or substitute for Bayer’s patented drug “sorafenib tosylate" and consequently would not result in an infringement of the subject patent. Bayer claimed that Soranib was an imitation of, or a substitute for its patented drug and that by granting such licence, the DCGI would have permitted the marketing of a „spurious drug‟ as defined under Section 17 B DCA. It was contended that since it was known at the time of Cipla’s
application for marketing approval that Bayer held the patent for sorafenib tosylate, the DCGI was under an obligation, flowing from a collective reading of Section 2 DCA and Sections 48 and 156 of the Patents Act, to decline Cipla’s application for marketing approval for Soranib.
An interim ex-parte order was passed by a learned Single Judge restraining the DCGI from passing a final order on the application made by Cipla. Cipla applied for the vacation of the said order. The order was vacated by a learned Single Judge, on objections raised by Cipla and DCGI. The present petition was in the form of an appeal to the aforementioned order.
Main Contention of the Appellant
The main contention of the appellant in this case was that Section 2 of the Drug and Cosmetics Act, 1940  read along with Section 48 of the Patents Act  provides for patent linkage. The appellant took the stand that Form 44 (relatable to Rule 122B DCR) which is required to be filled for acquiring marketing rights for a “new drug" also requires the applicant to indicate the ‘patent status’ of the drug. The appellant contended that this was done consciously to bring patent linkage in India.
On the other hand, it was argued by the respondent that there is no concept of patent linkage in India. There has never been an attempt to import patent linkage into India by the Parliament. It was pointed out by ‘The Cancer Patient Aid Association’, which impleaded itself in the case, that the Patents Act in India does provide for the Bolar Exception(which we will discuss later) under Section 107A of the Act, and thus marketing approval can be sought even before the expiry of the patent. It contended that similar protection is also given by the TRIPS agreement under Article 30  of the agreement. Bolar exception has been used by many countries to grant marketing rights to the generic versions of the drug, so that the drugs can be marketed as soon as the patent expires.
The Court however held that the argument of the appellant is based on misreading of Section 48 of Patents Act, and Section 2 of the Drug and Cosmetics Act. The right as given under Section 48 is essentially a private right and a negative right and does not confer a right to market the product on the patentee. Further, Section 2 of the DCA is read on the misconception that the DCGI is required to account for the provisions of the Patents Act. Thus, any overlapping between the obligations under the DCA and Patents Act was prevented. Further, it was held that the DCGI is not required to enforce the patent granted under the Patents Act.
It would be pertinent to discuss the concept of patent linkage in detail. Patent Linkage is shorthand for the communication that takes place between the Health Ministry and the Patent Office to prevent patent infringement, i.e., to provide marketing approval of generic drugs only upon the expiration of patents covering the drug product or approved use.  Thus, it ensures that no marketing rights are given, generally to generic drugs, which might be infringing to the patented drug. This phenomenon is developed to safeguard the rights of the patentee.
However, the problem with patent linkage is that it blocks the entry of generics into the market. World Health Organization defines generic drugs as “A generic drug is a pharmaceutical product, usually intended to be interchangeable with an innovator product, which is manufactured without a licence from the innovator company and marketed after the expiry date of the patent or other exclusive rights."  Due to patent linkage in a country, the manufacturers of generics are generally denied permission to market their drugs if there is a patent for that drug in force. This hurts especially poor countries as patented drugs are generally much more expensive to buy than the generic drugs. To take an example of this case, a standard monthly dose of the Bayer drug (sorafenib tosylate) costs about Rs. 2.85 lakhs(120 tablets), whereas the generic version of the same manufactured by Cipla (Soranib) costs about a tenth of that price. 
Patent linkage is provided for in the United States in the Hatch-Waxman Act (hereinafter HWA) of 1984.  It was enacted in the US to balance the interests of the brand-name pharmaceutical industries and generic drug manufacturers. Two main concerns in US were (1) reduced effective patent life caused by the Food and Drug Administration ("FDA") approval process, and (2) de facto extension of effective patent life at the end of the patent term resulting from FDA premarket approval requirements for competitors to enter the market.  Because generic pharmaceutical companies could not begin the FDA approval process to bring a generic version of a patented product to market until expiration of the original patent, "patent owners enjoyed a de facto patent term extension while competitors spent time . . . obtaining FDA premarket approval necessary for market entry."  This was effectively eliminated by the HWA as it simplified the procedure for obtaining marketing approval and approval could be given even before the expiry of the patent.
One could ask as question as to why and how such an approval can be given to the generic manufacturers when the patent for the same is in force. This is in pursuance of the ‘Bolar Exception", which was recognized by the HWA, following the ruling in the case of Roche vs. Bolar Pharmaceuticals  . Bolar argued that its use of the patented product was not infringement under the experimental use exception to the patent law. The Court however rejected the argument and held that such an exception cannot apply as Bolar intend to sell its generic products in the market after the expiration of the patent and thus it has a business purpose. However, this exception was later recognized by Congress when it passed the HWA.
The Bolar exception is important especially for developing countries with high level of diseases because it allows the entry of generics right after the expiry of the patent. This eliminates the period between the expiry of the patent and grant of marketing rights to the generic manufacturers, thus effectively eliminating the excess patent term being granted silently to the patentee. It also means that generics can enter the market early on.
Now let’s consider this problem with another angle. Patent linkage means a linkage between the Controller of Patents and DCGI, and that DCGI should not grant marketing rights on any drug for which patent is already in force. How is DCGI to ascertain the validity of a patent? Section 13(4) of the Patents Act, 1970  provides that the examination and investigations required under section 12 and 13 shall not be deemed in any way to warrant the validity of any patent. Thus, a patent is not valid till it is held to be valid by the Appellate Board, High Court or the Supreme Court  . The DCGI does not have the required expertise, legislative mandate or even sufficient manpower to ascertain the validity of the patent. What if the Controller declines marketing rights repeatedly to a generic version of a drug, the patent on which is held to be invalid later?
It has to be understood that (and this was also argued in the case) that the administration of DCA and DCR and that of Patents Act are under different departments, the former under Ministry of Health and family Welfare and latter under the Department of Industry Promotion. The functioning of these departments should not overlap with each other. Further, DCA is concerned with standards to be followed in manufacturing, marketing and selling of drugs and chemicals whereas the Patents Act is concerned with the grant of patents for invention. No linkage can be, and should be established between them without sufficient guidelines.
Various other issues as framed by the Court are as follows:
(a) Whether the DCGI can grant marketing approvals under the DCA to generic versions of patented drugs?
(b) Whether the grant of such marketing approvals to generic versions of a patented drug is in derogation of the Patents Act?
(c) Whether generic drugs are spurious drugs in terms of the DCA?
It was argued by the appellant that DCGI cannot grant any approval to the generic versions of the drugs already patented. It was argued Section 156 of the Patents Act binds the Government against the patent as it binds any other person.
The Court however held that the application of Section 156 does not mean that the DCGI has to enforce and protect the patent. It only implies that the Government cannot infringe a patent. It is just a negative obligation on the part of the Government, and creates no positive duty on the Government.
(b) Another contention of the appellant was that since Form 44 requires the applicant to indicate the patent status of the drug, the applicant will have to rely on the data generated by the patent holder. Thus, but granting marketing approval to Cipla, even the DCGI will be abetting the infringement of patent. Further, Section 156 read with Section 48 of the Patents Act obliges the DCGI to ensure that the patent granted in favour of Bayer is not infringed. The appellant also cited the case of Hoechst Pharmaceuticals v. CVS Mani  , in which the Court interpreted Section 2 DCA and DCR as requiring the DCGI to adhere to the requirements of the Trade and Merchandise Marks Act.
The Court however held that in granting marketing approval to a patented drug, the DCGI is by no means itself abetting the infringement of any patent by any applicant in favour of whom the marketing rights are granted. The numerous amendments made in the DCA did not require the DCGI to himself enforce a patent under the Patents Act and deny marketing approval to the generic version of any drug which is already patented.
The last contention of the appellant was that Cipla’s version of Bayer’s patented drug would be a spurious drug as defined under Section 17B DCA  and that the DCGI would be permitting the marketing of a spurious drug by granting marketing rights.
The Court however held that it is difficult to appreciate how it can be called a spurious drug when the generic manufacturer merely applies for the marketing rights. Such a drug cannot be called a spurious drug even before the drug is manufactured or marketed. All that DCGI should ensure at this stage is that the proposed brand name of the drug is not similar to brand name of any other drug. It was also pointed out that since Cipla has rightly stated that it will use its own brand and label, no question arises of using a brand name which belongs to some other drug.
Recommendation for the “Royalty Model": An Indianised approach to the problem
It can thus be seen that if a generic drug is not allowed marketing rights in favour of the patented drug, the generic drug industry will be forced to get their drugs patented before (only if they fulfil all the essentials of granting a patent) they can be granted marketing rights. However, getting a patent granted involves paying legal costs, official translations costs and application fees, in each individual country. Furthermore, countries require that patent holder pay a maintenance fee so that the patent does not lapse. Finally, the patent holder must assume that he or she will need to pay legal fees to defend his or her patent against infringement. All of these costs mount up dramatically. 
Thus, while patents remain strong in industrialized countries (where R&D into pharmaceuticals takes place), developing countries like India (which is primarily consumers, not developers of medicines) should be allowed to make generics of them effectively, as these generics are assumed to be cheaper than the original products. Also, making generics helps to develop drug production technology in developing countries and thus economic advancement supporters of this theory point to the growth of pharmaceutical industries in Switzerland, Japan and India as a proof that making generics is a vital step towards creating national capacity in the pharmaceuticals sector. 
Now, let us take a case if patent linkage is introduced in India, somewhat on the lines of that existing in the United States. Thus, while any generic drug industry in its application for marketing approval will gave to certify that:
1) That the drug has not been patented;
2) That the patent has already expired;
3) The date on which the patent will expire, and the generic drug will not go on the market until that date passes; or
4) That the patent is not infringed or is invalid. 
Thus, these restrictions have a capability of drastically reducing the amount of generics produced in India. Further, if a lawsuit for infringement of patent is filed by the patentee, the FDA approval for marketing rights is automatically stayed for a period of 30 months.  This might be a huge setback for the generic drug industry in a country like India which is currently the largest exporter of generic drugs in the world. 
Thus, a more Indianised approach would be adopting the model of “reasonable royalty". This would oblige the generic manufacturers of patented drugs to pay a flat percentage of gross sales to the patentees. This would imply that a substantial amount of losses which the patentees might be facing because of advent of generics in the market will be recouped, while the public is not deprived of low-cost generics. A similar model was adopted by China prior to 1992, when it imposed standard four percent royalty on the right to manufacture and sell the patented product.  The percentage of royalty to be given to the patentee should be decided on case to case basis, as imposing a flat percentage of royalty might be unfair in some situations.
Patents were traditionally brought into place to encourage innovation and enable the big businesses to meet the business needs of companies. However, the same should not jeopardize the public interest. If patent linkage in its traditional sense in introduced in India, this might hurt the Indian generics industry, which now ranks third worldwide in terms of volume and fourteenth in value. 
Thus, the reasonable royalty model as proposed will ensure that the thriving generic industry is not deprived of marketing rights, while the innovators are reasonably compensated for the same. This will help the innovators to recover the losses due to the advent of generic drugs in the market, whereas the public will be benefitted because of the availability of low cost generics in the market.