Intellectual property (IP) refers to creations of the mind, such as inventions; literary and artistic works; designs; and symbols, names and images used in commerce.[i]   

The term “intellectual property rights” (IPR) alludes to the legal privileges granted to the inventor or creator to safeguard their work for a predetermined amount of time. These legal rights grant the inventor or creator the sole right to fully exploit their invention or creation for a specific amount of time. One of the major categories of Intellectual Property is Patent which is an exclusive right granted for an invention, that is a product or a process that provides, in general, a new way of doing something, or offers a new technical solution to a problem.[ii] 

What is a compulsory license?

Before one can even begin to comprehend the idea of compulsory licenses for intellectual property rights, one needs to have a firm grasp on what a license actually is. To put it plainly, a “license” is a permission or consent granted by the proprietor of a piece of property, also known as the Licensor, to another individual, also known as the Licensee, who is authorized to use the property owned by the Licensor in exchange for an amount which is referred to as “Royalty.” A license for intellectual property grants the right to use the intellectual property to the licensee. However, just like any other valid contract, a license agreement must also abide by the conditions outlined in Sections 10 and 11 of the Indian Contract Act, 1872.

The term “compulsory licensing” refers to situations where the government either intends to use an innovation that is protected by a patent but permits a third party to produce/use it without the owner’s permission. 

The set of guidelines governing the use of compulsory licensing by World Trade Organisation (WTO) members are set forth in Article 31 of Trade Related aspects of Intellectual Property Rights (TRIPS) (which deals with use without the right holder’s permission), with the following conditions –

(a) the individual or group applying for it must have been unable to acquire a voluntary license from the Patent holder  on “reasonable” commercial terms.

(b) if compulsory  license  is granted, then the  patent holder must receive adequate compensation; and 

(c) the license must be granted primarily for domestic consumption/market.

In most cases, compulsory licenses are issued for the sale of life-saving medications in order to ensure that these medicines are readily available and are within the price range of the general population.

New and innovative drugs could only be introduced without a patent protection prior to India’s accession to the TRIPS Agreement because Indian patent laws did not permit the issuance of product patents.

However, after India became the signatory to the TRIP Agreement, the country’s patent regulations were modified to permit the granting of product patents. Additionally, this step allowed the patent holders more latitude regarding the accessibility, quantity, and cost of the drugs. The Indian Patent Laws as a consequence included numerous comprehensive regulations for compulsory licensing to avoid the abuse of patent rights.

The intention behind the provision of a compulsory license is to ensure that patented innovations continue to function on a commercial scale in India. This is done to ensure that the interests of any individual who is working on or developing an invention are not jeopardized.

The purpose of compulsory licenses is outlined in Section 84 (1) of the Indian Patents Act of 1970, and it is a legal requirement that the general considerations outlined in this section be prioritized during the awarding process for such licenses. The Indian Patent Act places an obligation on patent holders to put their patents to use within India. According to the Indian Patent Act, a compulsory license may be awarded after the expiration of a period of three years from the date on which the patent was granted. This time period begins on the day the patent was granted.

The following are the grounds to acquire the compulsory license :

1. The citizenry’s reasonable expectations regarding the patented innovation have not been met; or 
2. The patented invention is not accessible to the general public at a reasonable cost; or
3. Protected inventions are not utilized on Indian territory.

The Bayer Corp. v. Natco Pharma[iii] case serves as an illustration of a licensing application for Nexaver®, which is utilized in the treatment of advanced liver and kidney cancer –

In 2012, the Indian Patent Office awarded India’s first ever compulsory license to Natco Pharma for the production of generic versions of Bayer Corp’s Nexaver® (Sorafenib Tosylate). This treatment is used to treat liver and kidney cancer, and it can save patients’ lives. This medication was offered for sale by Bayer at an extremely steep markup, with the cost of one month’s therapy coming to around Rs. 2.8 Lakh (3,737.89 USD, based on the current exchange rate of Rs. 74.84 to a USD). Natco Pharma made an offer to sell the medication for 9,000 Indian Rupees (120.15 US Dollars, based on the exchange rate of 74.84 Indian Rupees to one US Dollar), making it affordable for the general public. As a result, each of the three requirements of Section 84 of the Indian Patent Act was successfully satisfied and Natco Pharma obtained the compulsory license for Nexaver. 

Procedure of Obtaining Compulsory License –

The Controller draws his power from Section 87 of Patents Act 1970, for dealing with the applications and procedure to grant Compulsory License to the applicant. The applicant should submit the application through Form 17 or Form 19[iv]. Once the Controller receives any application he verifies if a prima facie case is made out against the Patentee or not, he shall take following factor into consideration – 

1. The nature of the innovation; 
2. The applicant’s aptitude for using the invention; 
3. The extent to which the applicant made reasonable attempts to secure a license from the patentee; 

A notice will be sent to the applicant if the Controller is dissatisfied with the request and will include a statement rejecting the compulsory license if such attempts have not been successful in a reasonable amount of time. Within a month of receiving the rejection notification, the applicant may ask the Controller for a hearing. The Controller will make a decision regarding the case following the meeting. 

If the matter gets ruled in favor of the applicant, then the essential terms and conditions for granting the compulsory license will be decided according to Section 90 of the Patents Act 1970. The Controller is responsible for determining the royalties that are going to be given to the patentee. Other factors like, the investment that the patentee made in the invention, the applicant’s ability to make use of the patentee’s invention, the selling price of the patented product, and the conditions of the license all shall be taken into consideration by the Controller. 

After the controller has given their approval for a compulsory license to be issued, the necessary criteria, terms and conditions for the license will be established. These terms and conditions are categorically mentioned in the Section 90 of Patents Act 1970. The controller is also responsible for reaching an agreement on the royalty or remuneration that is given to the patentee, taking into account the factors listed below:

1. Investment made by the patentee in the invention; 
2. The applicant’s ability to put the patented invention to action; 

• The applicant’s ability to price the product for sale at a level that end-users can afford;

1. The length of time that the registration is valid for.
2. Conditions pertaining to import and export of the Patented product or process;
3. Regarding Non-exclusivity and non-assignability rights of the License.  

In the event of a –

1. national emergency,
2. a situation requiring extreme urgency, or 
3. a non-commercial use for public health, 

The government may issue a notice regarding the compulsory licensing of a patented product, generally it takes place for pharmaceuticals. Any interested party may apply to the controller for the issuance of a license following notice. The controller may award the licensee and determine the terms and conditions if he is satisfied also the Controller will decide on the lowest selling price after accounting for the grantee’s royalty. 

Compulsory Licenses are also granted to a Nation or Country that is unable to address issues of public health because its manufacturing capacity in the pharmaceutical industry is either insufficient or unattainable.[v]

During Covid-19 outbreak, Supreme Court of India in the case ‘Distribution of Essentials v. Unknown[vi] stated the following regarding the possibility of compulsory licensing for vaccines and essential medications such as Remdesivir, Tociluzumab, and Favipiravir : Section 92 of the Patent Act permits the issuance of a compulsory license in the event of a national emergency or extraordinary urgency.  Section 100 of the Patents Act permits certain corporations to use any patents for “government purposes” with the approval of the Central Government. Indian businesses can start producing the pharmaceuticals while negotiating royalties with patent holders. The Supreme Court said that – the patentee’s reasonable royalties must be determined by the High Court if a contract between the Central Government or its authorized corporation and the patentee cannot be reached. Another choice for the government is to use Section 102 to bargain with the patent holders for the rights to the patents. 

Termination of Compulsory License – 

A patent may also be revoked by the Central Government in the public interest under section 66 of the Patents Act. If the Central Government thinks that a patent or the way it is used is detrimental for the State or the public as a whole, it can make a statement to that effect in the Official Gazette after giving the patentee a chance to be heard. After that, the patent is deemed to have been revoked.

However, the controller can revoke a compulsory license issued under Section 84 if the patent’s holder or any other person with title or interest in the patent asks for it to be revoked, if the circumstances that led to the grant no longer exist and are unlikely to occur again. Also, the person who has the required license has the right to object to the end of the license. 

Conclusion

Since compulsory license is an exception and a flexible rule to the general rule of patents, it must be utilized prudently. The provision for the granting of a compulsory license strikes a balance between fully granting patent protection and flatly refusing it. Its immediate effects have been witnessed in the area of innovation funding, and its unrestricted application may discourage pharmaceutical conglomerates from introducing novel drugs in other countries. That being said, businesses may prevent having their product subject to compulsory licensing by pricing their patented module reasonably in light of the current state of the economy. 

References –

• Patent Act, 1970
• Patent Law by P. Narayan, 4^th Edition

[i] https://www.wipo.int/about-ip/en last visited on 28/03/2023 at 7:00 pm

[ii]https://www.wipo.int/patents/en/#:~:text=What%20is%20a%20patent%3F,technical%20solution%20to%20a%20problem. Last visited on 29/03/2023 at 4:13 p.m.

[iii] 2014 (60) PTC 277 (Bom)

[iv] The Patent Rule 2003

[v] Section 92-A of Patents Act 1970

[vi] Suo Motu Writ Petition (Civil) No.3 of 2021