Compulsory licensing in patent law – All you need to know. – Nyayasphere - Welcome to Nyayasphere - Your All-in-one Legal Research Hub for Articles publication, Impactful courses, internships & Jobs opportunities and Daily Legal News.

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INTRODUCTION

A patent is an exclusive legal right granted to an inventor by a government for a new invention or process, preventing others from making, using, or selling it for a limited time (typically 20 years).The right which the patent holder (patentee) acquires is considered exclusive as it excludes others from making, selling, using or importing the invention without permission. This exclusivity is granted so that the inventors are encouraged to create new inventions, additionally patents provide recognition and economic benefit to inventors, motivating individuals and companies to engage in research and development (R&D).Though the patentee has been given an exclusive right over his/her invention or process by the provisions of the Patent Law in India, there is an exception to this right known as compulsory licensing.

In Indian Patent Law, compulsory licensing is a legal mechanism which gives the government the power to allow a third party to produce or sell an invention for which patent has already been granted, without the consent of the patent holder. This power of the government curbs the absoluteness of the exclusive right that has been granted to the patent holder over his/her invention.

Compulsory licensing within the context of Patent laws is granted by countries to affect monopolies acquired in intellectual property rights. It prevents the abuse of patent for commercial exploitation by the patent holder.

Patents grant exclusive rights to pharmaceutical companies to set high prices due to a monopoly, which frequently makes essential medicines unaffordable. These essential medicines and other life-saving drugs should be made available to the public at a reasonable and affordable rate.

On the other hand, if such exclusive rights are not granted to the patentees, then it will discourage them from innovating new inventions as these inventions require huge R&D Investments.

Thus to strike a balance between access to medicines and innovative incentives the Indian Patent Law has come up with certain tools such as compulsory licensing which can be used under certain specified conditions. Sections 84 to 92 of the Patents Act, 1970, deals with compulsory licensing. Article 31 of TRIPS allows compulsory licensing but with safeguards. The Doha Declaration reaffirmed that compulsory licensing is a legitimate right.

COMPULSORY LICENSING

Compulsory Licensing is a legal authorization granted by the government to a third party, permitting them to make, use, sell or distribute a patented invention without the consent of the patentee, under certain specified conditions.

Compulsory licensing is at variance with voluntary licensing as voluntary licensing is a contractual agreement between a patentee and a third party where the patentee grants the third party the right to use their patented invention in exchange for royalty or other terms. Unlike compulsory licensing where the government grants the right without the consent of the patentee.

The principle of compulsory licensing is utilized predominantly in the pharmaceutical industry for the production of life-saving drugs, diagnostics and to produce affordable essential medicines.

LEGAL FRAMEWORK

The principle of compulsory licensing is governed by both domestic laws and international laws. In the domestic domain it is governed by the Patents Act, 1970 and in the international domain it is governed by TRIPS and Doha Declaration.

India: Patents Act, 1970

The Patents Act, 1970 governs the principle of compulsory licensing in India. There are certain provisions in the said Act.

Section 84

This section provides the requirements (such as 3-year post grant) and the grounds for the granting of compulsory license to a third party by the government.

Section 91

If two patented inventions depend on each other, this section allows for cross-licensing of related patents. The Controller can order for exchanging of licenses of these patents so that both of them can be used, avoiding obstruction and furthering industrial growth.

Section 92

This section is a special provision which allows for granting of compulsory licenses on notifications by Central Government. The Government can issue such notification in circumstances of national emergency or in circumstances of extreme urgency or in case of public non-commercial use.

Sections 100 and 102

While Section 100 provides the Government with the power to use patented inventions for the purpose of the Government, Section 102 empowers the Central Government to acquire a patented invention for public purpose by notification.

These two sections are different from compulsory licensing as compulsory license is granted to private party for public interest by the Government, while, under Sections 100 and 102 the Government itself acquires the patented invention for public interest.

Role of Controller of Patents

The Controller of Patents plays an essential role in overseeing compulsory licensing under the Patents Act, 1970. His role is to:

Receive and Examine Applications (Sec.84);
Conduct Proceedings (ensure both the parties are heard);
Grant or Reject License;
Fix Terms and Conditions (Sec.90);
Grant Compulsory Licensing in Special Circumstances (Sec. 92, 92A)
Revoke for Non-Working (Sec.85);
Resolve Dispute (determine fair terms)

Royalty/Remuneration Principles

Section 90 of the Patents Act, 1970, provides for the reasonable royalty that has to be paid to the patentee. Under this section it is the responsibility of the Controller to ascertain that the patentee receives a reasonable amount of royalty/remuneration.

The nature of the invention, the investment of the patentee, the public interest as well as the time since the patent was granted, all of these factors are taken into consideration before deciding of the reasonable remuneration.

International: TRIPS and Doha Declaration

In the international domain, TRIPS (Trade-Related Aspects of Intellectual Property Rights Agreement, 1995) and the Doha Declaration both address the principle of compulsory licensing.

TRIPS

The term ‘Compulsory Licensing’ does not surface in the TRIPS Agreement, rather it has used the phrase ‘other use without authorisation of the right holder’ which appears in the title of Article 31 of the agreement.

Article 31: This Article provides for compulsory licensing with certain conditions attached to it. The provisions are:

Article 31(a): This provision states that authorization of compulsory license shall be based case-by-case, i.e, shall be considered on its individual merits.

Article 31(b): This provision states that before the granting of compulsory licence to the proposed user, the proposed user shall make efforts to procure authorization from the patentee through voluntary licensing, if unsuccessful within a reasonable period of time is when compulsory licensing is permitted. This prerequisite can be waived by a member in case of national emergency, circumstances of urgency or in cases of public non-commercial use.

Article 31(c)-(e): The scope and duration of such use shall be limited to purpose for which it was authorized. Such use should be non-exclusive and non-assignable.

Article 31(f): This provision states that any such use shall be authorized predominantly for the supply of the domestic market of the member.

Article 31(h): This provision states that the patentee shall be paid adequate remuneration taking in the circumstances of each case in pursuance of the economic value of the authorization.

Article 31(i)-(j): These provisions provide for judicial or independent review regarding decisions made for authorization and remuneration.

Article 31bis: Article 31(f) of the TRIPS Agreement states that compulsory license must be predominantly for domestic market, which forbade the countries that had no manufacturing capacity to benefit from compulsory licensing.

Hence, the Doha Declaration on TRIPS and Public Health (2001) acknowledged this obstacle and the WTO Members later adopted a waiver in 2003, later formulated as Article 31bis (2005 Amendment, effective 2017).

This Article authorizes the WTO members to issue compulsory licenses for the production and export of patented pharmaceutical products to countries that were deficient in manufacturing the pharmaceutical products.

Article 31bis was used in the Rwanda-Canada Case (2007-2008), where Canada allowed its company (Apotex) to produce and export generic HIV/AIDS drugs to Rwanda.

Doha Declaration

The Doha Declaration (2001) reaffirmed:

WTO members’ right to protect public health. It stated that TRIPS should not prevent members from protecting public health.
Freedom to issue compulsory licenses and determine grounds.
Right to define national emergencies (like epidemics).
Flexibility for parallel imports.
Basis for Article 31bis (export under compulsory licenses to countries that are deficient in manufacturing the pharmaceutical products).

It represents the balancing point between patent rights (innovation incentives) and public health (access to medicines).

GROUNDS FOR GRANTING COMPULSORY LICENSING

There are various grounds and requirements for granting of compulsory license in India. These grounds are mentioned in the Patents Act, 1970.

Section 84(1) specifies the reasons for which compulsory license can be granted:

The reasonable requirements of the public with respect to the patented invention are not being satisfied.
The patented invention is not available to the public at a reasonably affordable price.
The patented invention is not being worked in the territory of India (i.e., not manufactured in India to a reasonable extent).

Section 92 states the situations under which the Central Government can grant compulsory license by the way of notification:

In circumstances of National Emergency;
In circumstances of Extreme Urgency;
In circumstances of Public Non-Commercial use (in case of supply of life-saving drugs).

PROCEDURE AND STANDARDS

There are certain procedures and standards that are to be followed by a person who wants to obtain a compulsory license in India. They are as follows:

Who can apply and when to apply

At any time after the expiration of three years from the date of the grant of a patent, any person interested may make an application to the Controller for grant of compulsory licence on patent. (Sec. 84(1))

Prior Efforts

The Controller has to determine whether the applicant has made prior efforts to obtain a licence from the patentee on reasonable terms and conditions. (Sec. 84)

Filing before Controller

The applicant is required to file an application which shall contain a statement setting out the nature of the applicant’s interest together with such particulars as may be prescribed and the facts upon which the application is based and if the Controller is satisfied with the application, he may grant a licence upon terms he may deem fit. (Sec. 84)

Conduct of Proceedings

The Controller must give, both, the patentee as well as the applicant a chance to be heard. He should also make sure that the evidence is examined (pricing, supply, working of patent).

Fixing Terms and Conditions

The Controller has the authority to decide the scope, duration, and terms of the licence. (Sec. 90)

To ensure that the licence is non-exclusive and non-assignable;
To ensure that the license is primarily for Indian market.
To ensure that the patentee receives reasonable remuneration.

Revocation

If, after a compulsory license is granted, the conditions of public requirement/affordability/non-working are still not met, the Controller may revoke the licence.

scope, limits and safeguards of compulsory licensing

Though patent is considered as an exclusive right, compulsory licensing is an exception to it. Which is not intended to signify that it invalidates the patent, rather it regulates its use. The principle of compulsory licensing is used only to promote public health and to make essential medicines affordable.

The provisions of the Patents Act, 1970, and the TRIPS Agreement clearly enunciates that the use of compulsory licensing must be primarily for domestic market. But it is subject to Article 31bis of the TRIPS Agreement which states that export of pharmaceutical products to countries that are deficient in manufacturing the pharmaceutical products is valid.

Even though compulsory licensing is granted without the consent of the patentee, the patentee retains the right to remuneration. The remuneration is determined on the basis of the nature of the patented invention, the investment for R&D and the time that has lapsed since the grant of the patent.

The issuance of compulsory licence does not overlook the regulatory approval process and the quality standards, it has to go through tests to prove that it matches the original patented drug in quality.

Licensees under compulsory licensing must adhere to post-marketing surveillance obligations (pharmacovigilance). India has the Pharmacovigilance Programme of India (PvPI), which extends to all marketed drugs, including those produced under compulsory licence.

Landmakr Cases regarding compulsory licensing

1. Bayer Corporation v. Natco Pharma (2012)

Bayer Corporation v. Natco Pharma was the first case in India where compulsory license was granted to Natco Pharma for a drug named ‘Naxavar’, for kidney cancer. The case dealt with whether Natco Pharma should be granted with compulsory license under Section 84 of the Patents Act, 1970 or not.

Before Natco Pharma applied for compulsory licensing, they had reached out to the petitioner for grant of voluntary license, proposing to sell the said drug at Rs.10,000 (the petitioner used to sell it for Rs.2,80,428). The petitioner declined the offer.

Following which at a later stage (i.e., 3 years after) the Natco applied for compulsory license under Section 84 of the Patents Act, 1970.

The Controller decided the case in favour of Natco Pharma, stating that the petitioner do not meet any requirements under Section 84. The Intellectual Property Appellate Board (IPAB) granted the license at the rate of 7%.

2. BDR Pharmaceutical International Pvt. Ltd. v. Bristol-Myers Squibb Co. (2013)

BDR had applied for compulsory license under Section 84 of Patents Act, 1970 for anti-cancer drug ‘Dasatinib’, which was a patented drug owned by Bristol-Myers (BMS).

BDR contented that the said drug was outrageously priced, was not readily accessible and that they did attempt do get a voluntary license from BMS on February 2012, but the negotiations failed as the patentee delayed.

The Controller of Patents rejected the application asserting that even though the BDR cited concerns regarding affordability and availability of the drug, it failed to prove a prima facie case under Section 84 of the Act.

The Controller placed reliance upon the fact that BDR failed at carry out negotiations under reasonable terms with BMS for voluntary license. Additionally, there was quite a delay on the part of BDR before applying for compulsory license.

This case stresses upon the procedural strictness in compulsory licensing in India.

3. Lee Pharma v. AstraZeneca AB (2015)

The applicant (Lee Pharma) was a Hyderabad based Indian generic pharmaceutical company, which applied for compulsory license in June 2015 for the drug named ‘Saxagliptin’, a DPP-4 inhibiter, which was patented by the defendant (AstraZeneca AB) which was a multinational company based in Sweden.

The petitioner contended that the defendant did not meet any requirements under Section 84 of the Patents Act, 1970, as it public requirement was not met, was unaffordable and the patent did not work in India.

The Controller did not grant compulsory license to the petitioner as they failed to, (i) provide enough data to prove that the demand and supply of the drug did not meet the public requirement;

(ii) show how the prices of the drug were unreasonably high compared to other related drugs, additionally presence of therapeutic substitutes weakened their claim; and

(iii) prove how the patent is not working in India, Since AstraZeneca imported the drug to India in sufficient amount.

This case raised the substantive evidentiary standards and stated that compulsory licensing is not for ordinary price regulation, primarily when substitutes exists.

Canada-Rwanda (2007)

In 2007, Rwanda was facing a severe HIV/AIDS crisis and did not have the ability to produce a drug through domestic manufacturing capacity.

Hence, it communicated to the WTO about its intention to import generic antiretroviral drugs (ARVs).

Later, the Canadian generic company Apotex Inc. applied for a compulsory license under Canada’s “Access to Medicines Regime” (CAMR).

The company was granted with compulsory license to manufacture and export a triple-combination HIV/AIDS medicine called Apo-TriAvir.

This was done through the provisions of the TRIPS Agreement (Article 31bis). This case is considered as the first and the only use of the TRIPS Article 31bis system worldwide.

Examples of various countries regarding compulosry licensing.

Thailand

In the mid-2000s, Thailand faced a severe HIV/AIDS epidemic and issued compulsory licenses for several patented antiretroviral drugs, including Efavirenz and Lopinavir/Ritonavir, to ensure public access.

The government justified the licenses under a national public health emergency and the unaffordability of life-saving medicines. By exercising this TRIPS flexibility, Thailand significantly reduced the cost of treatment by 50–70%—enabling tens of thousands of patients to access therapy.

Despite criticism from multinational pharmaceutical companies and the U.S., Thailand’s actions were supported by the Doha Declaration (2001), which affirmed the right of WTO members to protect public health.

Brazil

During the 1990s and early 2000s, Brazil implemented a strategy to provide universal access to HIV/AIDS treatment, combining negotiation with the threat of compulsory licensing to reduce the prices of antiretroviral drugs like Efavirenz. By leveraging TRIPS flexibilities, Brazil succeeded in lowering drug costs by up to 90%, allowing hundreds of thousands of patients to receive treatment under its public health program.

The country demonstrated how compulsory licensing can be used effectively as both a policy tool and bargaining mechanism, balancing the protection of public health with compliance under international patent law.

CONCLUSION

Compulsory licensing curbs the absoluteness of the exclusive right that the patent grants to a patentee. However, it may not be interpreted as an anti-patent measure but more akin to be a lawful safety valve built into both the domestic law and the international agreements to protect the public health as well as interest. Though granting of patent promotes innovation, monopoly rights cannot override the fundamental need to have access to life- saving as well as essential medicines.

However, it requires predictable criteria so applicants as well as patentee can envisage outcomes, there must be timely decision-making so that pressing health needs are not frustrated by procedural delays, and robust post-grant monitoring to assure that licensees maintain quality, affordability, and compliance with pharmacovigilance obligations. Such reforms would safeguard the integrity of the patent system while intensifying its responsiveness to public health demands.

Effective access to essential medicines and sustained pharmaceutical innovation are not mutually opposed, they can co-exist through a soundly constructed compulsory licensing policy that ensures public health in exceptional circumstances while ensuring reasonable remuneration to patentees, thereby maintaining incentives for continued research and development.

FAQs

Q1. What is a patent?

Q2. What is Compulsory Licensing?

Q3. What are the legal provisions/agreements that govern compulsory licensing both domestically and internationally?

The principle of compulsory licensing is governed by both domestic laws and international laws. In the domestic domain it is governed by the Patents Act, 1970 (Section 84 to 92), and in the international domain it is governed by TRIPS (Article 31 and 31bis), and Doha Declaration (2001).

Q4. How can a balance be created between public health and private rights?

Balance can be created by providing Effective access to essential medicines and sustained pharmaceutical innovation, they can co-exist through a soundly constructed compulsory licensing policy that ensures public health in exceptional circumstances while ensuring reasonable remuneration to patentees, thereby maintaining incentives for continued research and development.

About Author

Anushree Vijay Tawani is a law student at BMS College of Law, Bangalore, with a focused interest in Intellectual Property Rights and Corporate Law. She is committed to developing her expertise through rigorous research and writing, aiming to contribute to the evolving discourse in these fields.

REFERENCES

https://blog.ipleaders.in/concept-compulsory-license-patents-act-1970/

https://articles.manupatra.com/article-details/Compulsory-License-The-Exception-to-the-Patent-Rights

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Compulsory licensing in patent law – All you need to know.