Head of IP - European Business & Technology Centre
What is Compulsory Licensing?
Compulsory license is an authorization granted by the Government to someone else i.e., a third party to produce a patented product without the consent of the patent owner who has been taking undue advantage of exclusive rights granted by patent. Hence, compulsory licencing tries to eliminate misuse of patent rights by a patent holder in view of public health or anti-competitive practices which would result in restricting trade or hindering technology transfer.
What constitutes as misuse of patent rights?
Misuse of exclusive rights of patent might include for example not working i.e. manufacturing the patented innovation in India and hence preventing the development of local trade and industry. The misuse also includes imposing unreasonable terms for the licensee, forcing restrictive conditions on the use or sale of patented product even after the patent expires, price fixing or even declining grant of license by a patent holder to a third party seeking the licence to produce patented product in the particular market.
Changes in compulsory licensing due to TRIPS Agreement
TRIPS Agreement, a WTO protocol harmonising the minimum standards for IP protection across all WTO members, made it compulsory for its member nations to deal with failure to work a patent as the objective of the TRIPS Agreement was to promote worldly competition and to formulate a global patent regime. Therefore, the TRIPS agreement includes number of provisions that deal with safeguarding public order, morality and health.
Moreover, the TRIPS Agreement defines condition under which compulsory license is allowed such as prior efforts to obtain license from the patent owner, adequate payment to the patent owner and non-exclusive & non-assignable use. Most importantly, TRIPS further states that such use must be granted for the supply of domestic market of the member granting such compulsory license.
India and TRIP agreement and its effect on compulsory licensing
Before India accessed the TRIPS Agreement, the Indian patent laws did not allow grant of product patents, and hence new and innovative drugs could be launched only without a patent protection. But after India accessed TRIP Agreement, the Indian patent laws were amended to allow patenting of product patents. This step also gave more flexibility to the patentees with availability, quantity and price value of the drugs. As the result of this the Indian Patent Laws incorporated many comprehensive provisions for compulsory licensing to prevent misuse of patent rights.
Compulsory Licensing under Indian Patent Law
There are several provisions that remedy misuse of patents rights and provide legal framework to the Office of the Controller General of Patents, Designs and Trade Marks generally known as the “Indian Patent Office” to grant a compulsory license to a third party. For instance, under Indian Patent Laws, a compulsory licensing can be granted after 3 years of getting a patent. Moreover, the Indian Patent Office might grant a compulsory licence only if the use of the patented product is not satisfying public requirements, or the patented product is not accessible to the public at a reasonable price, or the patentee has not worked the patented product in India. In other words, compulsory licences will only be imposed when an innovation which could be greatly beneficial to the public interest is not being used – or at least not sufficiently – by the patent owner.
Indian patent law however requires that number of criteria should be taken into consideration when deciding whether a compulsory licence should be granted to a third party i.e., the applicant for the compulsory licence. Some of the criteria which the Indian Patent Office considers include for instance: if the third party has already approached the patent owner to obtain a licence, or whether the third party has capabilities to meet public interest by manufacturing the patented product, or the actual type of the invention and its benefits for the public.
Examples of compulsory licences in India
Since the enactment of the Indian Patent Laws, the application of rules regarding compulsory licensing has remained low and of a very exceptional nature. In 2012, Natco Pharma was granted the first ever compulsory license in India for the manufacture of a generic form of Bayer’s Nexavar, a drug for liver and kidney cancer. The grounds for granting compulsory licence were that the drug was not manufactured in India, and was sold for 3200 EUR for a monthly treatment which made it unavailable to the public for a reasonable price. The compulsory licence granted to Natco assured that the generic version of Nexavar would be sold for 100 EUR per month.
It is worth mentioning that royalties paid quarterly by Natco Pharma to Bayer are at the rate of 6% of all sales, which is in accordance with the guidelines set by the United Nations Development Programme (UNDP).
Moreover, in 2013 BDR Pharmaceuticals International Pvt Ltd filed for a compulsory licence for a cancer drug SPRYCEL manufactured by Bristol Myers Squibb and in 2015 Lee Pharma filed for a compulsory licence of a diabetes management drug Saxagliptin manufactured by AstraZeneca. Both applications were rejected by the Indian Patent Office as neither BDR Pharmaceuticals International Pvt Ltd nor Lee Pharma sufficiently justified reasons for such grant. In case of BDR Pharmaceuticals International Pvt Ltd , the Indian Patent Office argued that the applicants for compulsory licence did not make a sufficient attempt to obtain a licence from the patent holder and did not have a capacity to adequately manufacture the invention to meet public needs. On the other hand, Lee Pharma failed to demonstrate how the public would benefit from generic version of the drug in view of already available drugs in the market in the same price range.
 The Patents Act, 1970 (Act 39 of 1970), s. 84 (1).
 The Patents Act, 1970 (Act 39 of 1970), s. 84 (6).
- Publication date
- 12 October 2021