Compulsory licensing is a government granted license given under the chapter XVI of the Indian patents act,1970 that allows the government to authorize a third party to produce, use or sell a patented invention or process without the patent owner’s consent. Here patent is an exclusive right granted for an invention, which can be a product or a process which is new i.e. it has never been published earlier or offers a new technical solution to a problem. The concept of compulsory license is recognized at both international as well as national levels and is allowed under the TRIPS (Trade Related Aspects of Intellectual Property Rights) agreement, which has been in effect since 1995.Patent holders are generally compensated with royalties which is usually a percentage of the revenue generated from the sale of the licensed product. This license is typically granted to address:
A) PUBLIC HEALTH ISSUES: Addressing issues like epidemics or global pandemic like COVID-19.
B) NATIONAL EMERGENCY: In situations requiring immediate actions like during a war or for public safety.
C) PUBLIC SERVICE: issuing licenses for research or public service purposes.
D) FAILURE TO COMMERCIALIZE: If the patent owner fails to commercialize the patented product within a reasonable time.
Compulsory licensing plays a very important role in India as it allows the Indian companies to manufacture and sell patented products that are unaffordable or unavailable to the public and is necessary for economic development or for public health. This has a huge application in the pharmaceutical sector in the country and owing to this India became one of the world’s largest supplier of low cost generics and vaccines.
Origin
The idea of compulsory license traces back to industrial revolution when monopolistic practices of patent holders were seen as a barrier to public access and industrial development. For instance, the statute of monopolies,1624 in the united kingdom, which prevented monopolies in patent. This concept gained popularity during the anti patent movement which reduced the impact of patents because of which people in need were not be able to access and reap the benefits of patent products and inventions.
The giant companies would seek the patent protection making it difficult for the small-scale industries and manufacturers to sustain in the market. So the patent act,1883 was brought into action to form and mention certain rules to prevent the non-working of patents. The term compulsory licensing in its modern international codification can be dated back to article 5A(2) of The Paris Convention on Intellectual Property Rights (Paris, 1883), stating: “Each country of the Union shall have the right to take legislative measures providing for the grant of compulsory licenses to prevent the abuses which might result from the exercise of the exclusive rights conferred by the patent, for example, failure to work”.
The most significant international legal framework for compulsory licensing is the TRIPS Agreement (1995) (Trade-Related Aspects of Intellectual Property Rights), a protocol to the founding document of the World Trade Organization (WTO). The agreement outlines the requirements for granting compulsory licenses and defines the rights of patent holders during the process. It mandates that compulsory licensing must be notified to the TRIPS Council, with parties having the right to appeal to the WTO Dispute Settlement Body.
Article 31 of TRIPS, titled “Other Use Without Authorization of the Right Holder,” provides the legal basis for compulsory licensing. While it mimics Article 5A(2) of the Paris Convention, Article 31 (a-l) establishes specific provisions for such licensing. However, it does not explicitly list justifications for granting compulsory licenses nor require a “national emergency” as a condition. More recently, the debate has expanded to include anti-competitive abuses of intellectual property rights as grounds for issuing compulsory licenses.
The enactment of the TRIPS Agreement in 1994, alongside the harmonization of global intellectual property protection, intensified discussions around compulsory licensing. This coincided with the HIV/AIDS crisis and growing concerns in the developing world about increased pharmaceutical spending due to stricter patent protections.
The compulsory licence in India is regulated by the Indian Patents Act 1970.
Grounds of compulsory licensing under patents act,1970
Grant of compulsory licensing is given by the controller under section 84 and by the government of India under section 92.
Any time after the expiration of three years from the time of the patent being granted, anyone can make an application to the controller for taking permission to grant a compulsory license on patent on the following grounds:
- Regarding the patented invention, the public’s reasonable expectations have not been met.
- The public cannot purchase the patented invention at a reasonable cost.
- In India, the patented invention has not been put into use.
The application would also contain the interests of the applicant and other particulars.
In addition, the controller may award a license on terms that he thinks appropriate if he is convinced that any of the previously listed grounds are met.
When evaluating an application for the issuance of a compulsory license, the Controller must take into account the following factors:
- the nature of the invention
- the amount of time that has passed since the patent was sealed
- the steps the patentee has taken to fully utilize the invention, the applicant’s capacity to use the invention for the benefit of the public, whether a license has been obtained from the patentee on reasonable terms and conditions
- the steps the applicant has taken to secure a license from the patent holder.
Terms and conditions for granting compulsory license:
After the license had been granted, the following conditions must exist:
- A reasonable royalty must be paid to the patentee.
- The invention must be worked in to the fullest extent practicable and reasonable profit must be given to licenser.
- There must be availability of patented articles at affordable prices
- The license granted to the licenser must be non-exclusive
- The license granted to the licenser must be non-assignable.
- The license is granted with the predominant purpose of supplying in Indian market.
However, the license grant is not absolute and it can be revoked by the central government through the controller on the ground of non-working of the patent in India.
Power of central government to grant compulsory license:
Special provisions for mandatory permits as announced by the central government are provided in Section 92 of the act. It states that in the following situations, the central government may declare by a notification that any patent would be granted a compulsory license:
- National emergency
- Extreme emergency
- Non-commercial use by the public
That it is necessary that compulsory license should be granted, then the controller shall on the application made at any time, grant to the applicant a license under a patent and the controller shall endeavour to secure that the articles made under the patent shall be available at the lowest price.
Section 92A also addresses the compulsory license required for the export of patented medicinal items. It states that, in order to address public health issues in countries with no or insufficient manufacturing capacity for pharmaceutical products, the controller will grant a compulsory license for the export and manufacture of such products to such countries upon receipt of an application. In this case, a pharmaceutical product refers to any patented product or products developed using a patented procedure in order to address the public health concern.
Termination of compulsory licences
Sector 94 of the act deals with termination of compulsory licences, which can be carried out upon an application in this respect and if the controller is satisfied that the conditions that led to the obligatory license are no longer present. The section provides that such an application for termination can be made by:
- The patentee or
- Any person deriving title or interest in the patent for which compulsory license was granted
However, the license holder has the right to oppose if such an application is submitted by someone else. The controller must decide whether or not the license holder’s interests are impacted when approving the application.
Revocation of patents
Section 85 of the act addresses the controller’s revocation of patents for non-operation. After two years have passed after the initial obligatory license was given, any interested party or the central government may apply to the controller to have the patent revoked for the following reasons:
- The patented invention is not worked on or used in the country.
- Requirements of the public are not satisfied with respect to the patented invention.
- It is not available to the public at a reasonable and affordable price.
If the application is submitted by someone other than the central government, it must also include the applicants’ type of interest and any further information as required. The controller may issue an order to revoke the patent if he is satisfied with the previously listed grounds. Additionally, the section stipulates that all applications in this area must be considered within a year of the day they are submitted to the controller.
Impact of compulsory licensing
Competition
The number of businesses manufacturing generic medications will rise as a result of mandatory licensing. In order to remain competitive, the innovator countries will have to implement differential pricing for their patent modules as a result of the increased supply, which will result in lower product costs. On the other hand, it will make manufacturers and suppliers more competitive.
Access to patented invention
Without the owner’s or patentee’s approval, a patented innovation can be readily accessed with the aid of a compulsory license. Additionally, this makes patented products and techniques accessible to a wider audience.
Transfer of patented product
Compulsory licensing has made it possible to transfer a patented product to any foreign nation that lacks the necessary resources or manufacturing capacity. For instance, patented pharmaceutical items may be exported to nations in need that lack the manufacturing capability under section 92A of the Patent Act of 1970.
Public interest
Compulsory licensing serves the public interest by allowing a patented product to be made reasonably priced for the general population. It also aids in striking a balance between public objectives like development and public health and intellectual property rights. This also creates conflict between granting access to patented goods and protecting patentees’ exclusive rights over intellectual property.
Innovation
The majority of developing nations favoured obtaining a generic drug’s mandatory license over locating research and development independently, which is frequently quite expensive. Additionally, because there is always a chance of losing the patent and research funding, pharmaceutical corporations do not introduce patent modules in underdeveloped nations.
Industries under compulsory licensing in India
Industries in India Subject to Mandatory Licensing. In India, only six industries are subject to mandatory licensing.
- Distillation and brewing of alcoholic drinks.
- Cigars and Cigarettes of tobacco and manufactured tobacco substitutes.
- Electronic Aerospace and Defence equipment: all types.
- Industrial explosives including detonating fuses, safety fuses, gun powder, nitrocellulose and matches.
- Hazardous chemicals.
- Drugs and Pharmaceuticals (As per the modified Drug Policy issued in September 1994).
Case laws
The first case in India about compulsory licensing was Bayer Corporation v Natco Pharma (2013). In this case, the compulsory license was granted to Natco Pharma for the kidney cancer drug named Nexavar. Natco filed an application for the compulsory license before the Controller General of Patents in 2011 for “Nexavar” under Section 84(1) of the Indian Patents Act, 1970.
Sorafenib tosylate (Gleevac) was invented by Bayer Corporation in 1990, and Bayer Corporation made an application for a patent in the United States. Bayer sold the drug in India under the name Nexavar. The patent in India was granted to Bayer. Natco then applied for the compulsory license to manufacture and sell Nexavar in accordance with Section 84(1) before the Controller of Patents. Then, on the basis of the three grounds under Section 84(1), the compulsory licensing was granted to Natco.
The Controller of Patents decided to provide Natco Pharma a compulsory license to use the medication “Nexavar.” Since Bayer was unable to comply with any of the section’s requirements, the controller rendered his decision in accordance with Section 84 of the Patents Act of 1970.
The Indian Patent Office’s 2012 ruling in the Natco Pharma v. Bayer case was a turning point in international intellectual property law, especially when it came to public health and mandatory licensing. It concerned a disagreement over Bayer AG’s patented cancer medication Nexavar (sorafenib tosylate).
Background of the Case
1.The medication (Nexavar):
- Goal: Advanced liver and kidney cancer is treated with Nexavar.
- Patented by Bayer: In 2008, Bayer AG was given a patent for Nexavar in India.
2. Cost and Accessibility:
- Bayer charged about ₹2.8 lakh (₹280,000) a month (about $5,000 USD at the time), which was too expensive for the majority of Indian patients.
Because of the drug’s exorbitant price, less than 2% of India’s eligible population had access to it.
3. The Application of Natco Pharma:
- In accordance with Section 84 of the Indian Patents Act, 1970, the Indian pharmaceutical business Natco Pharma submitted an application for a compulsory license. The application’s grounds were that Bayer had not made Nexavar reasonably priced. Bayer had failed to meet the public demand. The patented invention was not being “worked” in India (it was imported rather than manufactured locally).
Key Legal Provisions Involved
In accordance with Section 84 of the Indian Patents Act, 1970, a compulsory license may be issued three years following the patent’s issuance if:
1. The public’s reasonable requirements are not met.
2. The cost of the patented product is prohibitively high.
3. The invention has not been implemented in India.
The Decision by the Indian Patent Office
1.Grant of compulsory license:
The Controller General of Patents, Designs, and Trademarks issued a mandatory license to Natco Pharma so that the company could produce and market a generic form of Nexavar.
It was necessary for Natco to:
Sell the medicine for ₹8,800 a month, which is more than 95% less than what Bayer is asking.
Reimburse Bayer with a 6% royalty on net sales.
2. Discoveries:
A tiny amount of Nexavar was imported by Bayer into India, but not enough to meet demand, resulting in the patent not operating.
Under Indian law, it was considered that the absence of local production did not meet the “working” criteria.
o Unaffordable Pricing:
The great majority of Indian patients deemed Bayer’s prices to be extravagant and out of their price range.
o Inability to satisfy public demand:
Only about 200 patients were receiving Nexavar, while thousands needed the drug.
Significance of the Ruling
1. Public Health Precedence:
o The decision stressed that the entitlement to obtain reasonably priced healthcare should not be superseded by patents.
o It was in line with the Doha Declaration on TRIPS and Public Health and the global understanding of public health flexibility under the TRIPS Agreement.
2. Support for Generic Drug Manufacturers:
o Establish a standard for mandatory licensing in India, especially for medications that save lives.
3. Balancing Patents and Public Interest:
o Exhibited India’s dedication to striking a balance between the greater public interest and intellectual property rights, particularly in developing nations.
Criticism and Support
- Support:
o NGOs and public health advocates applauded the decision for putting patient access ahead of business profits.
o It was viewed as a win for the developing world in terms of tackling the cost of necessary medications.
- Criticism:
Bayer and other pharmaceutical companies expressed their disapproval of the decision, claiming it discouraged R&D investment and innovation.
o Bayer attempted in vain to appeal the ruling to India’s higher courts.
Impact on Global Pharmaceutical Policy
- Promotion of Compulsory Licensing:
o Motivated other poor countries to think about requiring vital medications to be licensed.
o Increased knowledge of the TRIPS Agreement’s flexibility.
- Global IP Rights Debate:
o Draw attention to the conflict between access to reasonably priced healthcare and intellectual property rights.
Use of Patents by Government for Its Own Use
Section 100 of the Patent Act provides that the government or any other person authorized can use the patent for its own use accordingly.
In the case of Garrware Wall Ropes Ltd v Al Chopra and Konkan Railway Corporation Ltd (2009), the Supreme Court held that the respondent took the defense of Section 100, stating that he was authorized to use the patent by the government. The court held that the patentee has the same rights against the government as an individual person has. There are some rights that cannot be restricted even by the act of the government. If the government or any authorized person uses it, it should be done through compulsory licenses or an agreement.
