On this page
In simple terms, compulsory licenses are authorizations given to a third-party by the Government to make, use or sell a particular product or use a particular process which has been patented, without the need of the permission of the patent owner. The provisions regarding compulsory licenses are given in the Indian Patents Act, 1970 and in the TRIPS (Trade-Related Aspects of Intellectual Property Rights) Agreement at the International level. Although this works against the patent holder, generally compulsory licenses are only considered in certain cases of national emergency, and health crisis. There are certain pre-requisite conditions which need to be fulfilled if the Government wants to grant a compulsory license in favor of someone.
The policy of the Act in granting patents is to encourage inventions and to ensure that the inventions are worked in India on a commercial scale and to the fullest extent that is reasonably practicable without undue delay. Patents are not granted merely to enable patentees to enjoy a monopoly for the importation of the patented articles. An obligation is, therefore, imposed on a patentee to work the patent in India on a commercial scale and to the fullest extent. The patent may be worked by the patentee himself or through licensees. Failure to fulfil this obligation will entail in the granting of compulsory licences or the revocation of the patent itself. Sections 82 to 98 deal with the circumstances and the grounds under which compulsory licences of different kinds may be granted or the patent revoked for non-working. The object of these elaborate provisions is to prevent the "abuse of monopoly" granted by the patent.
Under Indian Patents Act, 1970 the provisions of ‘compulsory license’ are specifically given under Chapter XVI, and the conditions which need to be fulfilled are given is Sections 84-92 of the said Act.
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 license on patent on any of the following grounds, namely:
The applicant must establish that he has a bona fide interest and also make out a prima facie case. When once this onus is discharged the patentee will be called upon to show why a compulsory licence should not be granted. The terms and conditions of the licence will be determined by the Controller.
Compulsory licence may also be granted in respect of a patent without the use of which another patent cannot be worked.
However compulsory licenses may also be granted, when:
A patent may be endorsed with the words "Licences of Right" after three years from the date of sealing the patent. Where so endorsed any person who is interested in working the patented invention may require the patentee to grant him a licence. If the terms of the licence cannot be mutually agreed upon they will be settled by the Controller. Thus any person may obtain a licence as a matter of right without having to establish a case as in a compulsory licence. Patents for inventions relating to food and medicine are deemed to be endorsed with the words "Licences of Right" immediately on completion of three years from the date of sealing of the patent.
It may so happen that in spite of the grant of a compulsory licence or the endorsement "Licences of right" having been made or deemed to have been made, the reasonable requirement of the public with respect to the patented invention remains unsatisfied or that the patented invention is not available to the public at a reasonably affordable price. In such a case the patent may be revoked by the Controller under the provisions of s. 89 on application made to him by either the Central Government or any person interested.
The Patent Office granted India's first obligatory licence in 2012 to an Indian company called Natco Pharma for the generic manufacture of Bayer Corporation's Nexavar. All three conditions of Section 84 were met: the reasonable requirements of the public were not met, it was not available at an affordable price, and the patented idea was not worked around in India.
This medication is used to treat liver and kidney cancer, and one month's supply costs roughly Rs 2.8 Lakh. Natco Pharma proposed to sell it for approximately Rs 9000, making this potentially lifesaving treatment available to all segments of society, not just the wealthy.
The government made this decision for the benefit of the broader people. However, pharmaceutical companies were outraged because they believed the licence should not have been granted. However, in accordance with the United Nations Development Programme requirements, Natco Pharma pays royalties to Bayer at a rate of 6% of total sales on a quarterly basis (UNDP).
As an exception and flexibility to the general rule of patent, the provision of compulsory licencing must be used with caution. The provision falls somewhere in the middle; neither full patent protection is granted nor is it denied entirely. It has a direct impact on innovation funding, and unrestricted use of this provision may cause global pharmaceutical companies to be hesitant to introduce new medicines in other countries. As a result, if enterprises wish to safeguard their product against compulsory licencing, they must set the price of their patented module based on the country's economic state.
Compulsory licencing is currently the last chance for financially disadvantaged patients in developing countries. Because of the majority population's economic situation, India needs this provision.