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Big Pharma was dealt a heavy blow in the battle over compulsory licensing Monday, when India’s patent appeals board ruled that a domestic generic drug maker could continue to make and sell a low-priced copy of Nexavar, a cancer medication patented by Bayer AG. It was the first time the Indian patent authority confirmed that the use of compulsory licensing in India was legal.

Bayer immediately issued a statement saying it would appeal the ruling.

“We strongly disagree with the conclusions of the Intellectual Property Appellate Board,” the company said. “Bayer is committed to protecting its patent for Nexavar and will rigorously continue to defend our intellectual property rights within the Indian legal system.”

Under an international trade agreement known as Trade-Related Aspects of Intellectual Property Rights (TRIPS), countries can issue compulsory licenses on certain drugs that are deemed unaffordable to a large section of their populations. Such licenses have in recent years been issued in Ecuador, Indonesia, Brazil, and Thailand. Last year, the government of India issued a compulsory license for the first time, giving Natco Pharma Ltd. permission to produce and sell copies of Nexavar for a fraction of the cost Bayer charged for the medication.

Bayer challenged the decision to grant a compulsory license to Natco, but on Monday the board ruled that the cancer drug, which fights kidney and liver cancer, should be available at an affordable price to everybody.

In its ruling, the patent appeals board did concede something to Bayer: It ordered Natco to pay Bayer a royalty of 7 percent on sales of generic Nexavar—an increase from the 6 percent royalty that had been set earlier.

This did not assuage the Germany-based company, however. The ruling will not only affect Bayer, but also will have an impact on other brand-name drug manufacturers, who see great market potential in India and other parts of the developing world but are concerned that protection of their intellectual property there is limited.

Monday’s order "weakens the international patent system and endangers pharmaceutical research," Bayer said, noting that patents give it a limited period of marketing exclusivity that help it recover costs associated with the research and development needed to discover new medicines.

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