Compulsory Licensing of Patents in India: The Bayer–Natco Decision Explained

In 2012 the Controller of Patents granted India's first compulsory licence under Section 84 of the Patents Act, 1970. The patent was held by Bayer on the cancer drug sorafenib tosylate, marketed as Nexavar at roughly ₹2.8 lakh per month. The licensee was Natco Pharma, which proposed to manufacture and sell a generic version at ₹8,800 per month — a 97% reduction. The order was upheld by the Intellectual Property Appellate Board (IPAB) in 2013 and by the Bombay High Court in 2014. The Supreme Court declined to interfere. Natco Pharma v. Bayer Corporation, C.L.A. No. 1 of 2011.

The decision is one of the most consequential applications of Indian patent law to public-health pricing. It also re-mapped what every patent holder operating in India should expect — and prepare for — when patented goods are priced beyond local reach.

The text of Section 84

Section 84(1) of the Patents Act lets any "person interested" apply for a compulsory licence three years after a patent is granted, if any of three conditions is satisfied:

• (a) The reasonable requirements of the public with respect to the patented invention have not been satisfied
• (b) The patented invention is not available to the public at a reasonably affordable price
• (c) The patented invention is not worked in the territory of India

Section 90 sets the terms of any granted licence — royalty, scope, duration, quality control, royalty review. Section 92 provides for compulsory licensing in cases of national emergency. Section 92A allows compulsory licensing for export of pharmaceutical products to countries that lack manufacturing capacity. The Section 84 route is the principal one for ordinary access matters.

A patent in India is a right to exclude. It is not a right to price beyond reach.

What the Controller decided in Bayer–Natco

The Controller held that all three Section 84(1) grounds were satisfied:

• Reasonable requirements not satisfied — Bayer's Indian sales of Nexavar covered only a small fraction of the patient population reasonably expected to need the drug
• Not reasonably affordable — the price of ₹2.8 lakh per month placed the drug out of reach of the vast majority of Indian patients with the relevant indications
• Not worked in India — the patented drug was imported into India rather than manufactured locally, and Bayer's Form 27 working filings did not show manufacture at scale within India

Natco was granted a licence to manufacture and sell sorafenib tosylate in India on payment of a 6% royalty (later revised to 7% by the IPAB) on net sales. The licence was non-exclusive and non-assignable, with quality-control conditions to maintain therapeutic standards. The order was upheld through every appellate stage.

Form 27 and the working requirement

The "not worked in India" prong of Section 84 connects directly to Section 146(2) and Rule 131, which require every patentee and exclusive licensee to file an annual statement in Form 27 setting out the extent to which the patented invention has been worked commercially in India. Bayer's Form 27 filings were a major piece of evidence in the Natco proceedings — the Controller used them to conclude that the drug was imported, not domestically worked, in the relevant years.

What "reasonably affordable" means after Bayer

The decision did not set a fixed price ceiling. The Controller looked at the price relative to the income of the population likely to need the drug, the volume of actual Indian sales versus the disease prevalence, and the patentee's pricing flexibility in similar matters. The framework can be applied to any patent that satisfies the three-year-from-grant precondition. Cancer drugs are the obvious continuing category; antiretrovirals, hepatitis treatments and rare-disease therapeutics have been discussed for similar applications.

What patent holders should learn from Bayer

For any company holding a patent in India on a high-value product, three things changed after Bayer–Natco:

• Indian manufacturing matters. Pure-import strategies are vulnerable on the "not worked in India" ground. A real Indian manufacturing or formal voluntary-licence arrangement neutralises the prong.
• Pricing strategy is also IP strategy. A two-track pricing approach — private market price plus a defined access programme — reduces the "not reasonably affordable" exposure significantly.
• Voluntary licensing is the buffer. Bayer's record in the case did not show pre-application efforts to license Natco on commercial terms. The Controller weighed that absence. Visible voluntary-licensing offers, even unsuccessful ones, change the optics.

Limits of the compulsory-licence framework

India has granted only a small number of compulsory licences in the years since 2012, despite the Bayer precedent being available. The reasons are practical:

• The three-year wait from grant is absolute
• The applicant must show genuine attempts to obtain a voluntary licence on reasonable terms first
• Royalty rates have settled at 6-7%, lower than patentees might prefer but enough to keep the framework controversial in trade-policy terms
• Most multinational patentees adjust pricing or licensing strategies pre-emptively when an application appears credible

The framework is rarely invoked, but its presence shapes Indian pharma pricing. IPForte's patent portfolio practice handles both sides — drafting Form 27 strategies for patentees and building Section 84 applications for generic manufacturers. The litigation team takes the matters through the appellate routes.

The takeaway

Section 84 is not a quirk of Indian patent law. It is the deliberate balance the statute strikes between innovation incentives and access. The Bayer decision did not invent the doctrine; it applied a thirty-five-year-old provision to a high-profile patent in the right factual setting. Every Indian patent on a high-value good lives within the framework. The wise move for both patentees and generics is to plan around it, not against it.