What is a Compulsory Licensing?
Meaning of Compulsory Licensing: – Compulsory licensing is when government allows a third party to produce a patented product or process or plans to use a patent-protected invention without the patent owner’s consent. 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.
It is one of the flexibilities in the field of patent protection included in the WTO’s agreement on intellectual property — the TRIPS (Trade-Related Aspects of Intellectual Property Rights) Agreement.
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.
Article 31 of TRIPS (which deals with use of the authorization of the rights holder) sets out a set of conditions governing the use of compulsory licensing by WTO members, the most important of which are the following: –
- The entity applying for the compulsory license should have been unable to obtain a voluntary license from the rights holder on “reasonable” commercial terms;
- If a compulsory license is issued, a substantial remuneration must be paid to the patent holder; and
- A compulsory license should be given primarily for supply to the domestic market.
According to Section 84 of the Patents Act, 1970, any person who is interested or already the holder of the license under the Patent can make a request to the Controller for grant of compulsory licensing on expiry of the three years, when the following conditions are fulfilled: –
- That the reasonable requirements of the public with respect to the patented invention have not been satisfied, or
- That the patented invention is not available to the public at a reasonably affordable price, or
- The patented invention does not operate in the territory of India.
However, compulsory licenses may also be granted when: –
- Section 92A – For exports, in exceptional circumstances.
- Section 92A – In case of national emergency, exigencies of public non-commercial use by notification of the Central Government
- Section 92A (1) – For a country which has insufficient or no manufacturing power in the pharmaceutical sector to address public health.
The Controller considers certain other factors such as the nature of the invention, the applicant’s ability and reasonableness to use the product for public benefit, but has the final discretion to grant the compulsory license. Even after a compulsory license is granted to a third party, the patent owner retains rights over the patent, including the right to pay for copies of products made under a compulsory license.
Impacts of Compulsory Licensing
The areas to be affected by compulsory licensing are as follows: –
- Innovation: – The innovation of pharmaceutical companies in underdeveloped countries will be less because they will be dependent on generic drugs. They would prefer to obtain a compulsory license for a generic drug rather than funding thier own research and development separately, which is often a very expensive thing. Furthermore, research-based pharmaceutical companies will not launch patent modules in developing countries because there is always a risk of losing patents and losing money in research.
- Competition and Cost: – Compulsory licensing will increase the number of companies manufacturing generic drugs. So the supply will increase, and the cost will go down. It will also force innovative countries to introduce differential pricing of their patent modules to help them stand out on the market.
- Patients: – Patients will get medicines at very affordable rates. In addition, large pharmaceutical companies often offer schemes such as free access to medicine to protect their patents in developing countries.
Cases Pertaining To Grant Of Compulsory License
India’s first compulsory license was granted to Natco Pharma on 9 March 2012 by the patent office for the generic production of Bayer Corporation’s Nexavar, a life-saving drug used to treat liver and kidney cancer. Bayers sold the drug at exorbitant rates, costing a month’s dose of about Rs. 2.8 lakh. Natco Pharma offered to sell it for around Rs. 9000, making it affordable for all walks of life. All the 3 conditions of section 84 were fulfilled and the decision was taken for the benefit of the general public.
In some more cases relating to grant of compulsory license in the pharmaceutical industry, the Controller rejected the grant on various grounds such as failing to prove a prima facie case, not applying for license of patent before applying for compulsory license and failure to prove public use is the product sought to be used by a compulsory license. It is said that in the law of patents, mere registration of a patent is not enough. The court should consider the whole case, the strength of the patent case and the strength of the defense.
In some cases, recently, Indian courts have ruled that the provisions against anti-competitive practices in the Competition Act and the mandatory licensing provisions in the Patents Act are not to the exclusion of each other; In fact, they have to be read jointly. The question whether any patentee has adopted anti-competitive practices may also be considered by the Controller. However, if the CCI ultimately finds a patentee’s conduct to be anti-competitive and has finalized its findings, the Controller shall also proceed on the said grounds and—on the principle of issuance of estoppel—barred the patentee from contesting.
The judicial view with regard to grant of compulsory license is that the provision is for public welfare and cannot be misused to curtail the rights of the patent holders. There has to be a balance between your rights and using the product for welfare purposes.
Requirements For Obtaining a Compulsory License
Compulsory licensing under the Indian Patent Act is well codified and in line with international agreements. The purpose behind granting compulsory license is to maintain the working of patented inventions in India on a commercial scale so that the interest of any person working on or developing any invention is not prejudicially affected.
Section 84(1) of the Indian Patent Act, 1970 provides the purpose behind the Compulsory License and it is necessary that while granting it, the general considerations given in this section are taken into consideration. The Indian Patent Act imposes a duty on the patentor to act on the patent in India. Under the Indian Patent Act, a compulsory license can be granted after the expiry of a period of three years from the date of grant of the patent.
The grounds for issuing Compulsory License are as follows: –
- The person or company applying for a licence has to have tried, within a reasonable period of time, to negotiate a voluntary licence with the patent holder on reasonable commercial terms. Only if that fails can a compulsory licence be issued;
- The patented invention has not worked in the territory of India.
- The scope and duration of the licence must be limited to the purpose for which it was granted, it cannot be given exclusively to licensees and it should be subject to legal review;
- When a compulsory licence has been issued, the patent owner has to receive payment. The TRIPS Agreement says “the right holder shall be paid adequate remuneration in the circumstances of each case, taking into account the economic value of the authorization”, but it does not define “adequate remuneration” or “economic value”.
Fee payment procedure for Compulsory License: –
- The fee is set by the law or through any arbitration or adjudication process;
- Copyright law Many countries provide copyright law for compulsory licensing of copyrighted works for certain uses;
- In most cases, the fee or royalty to be paid for a work that is copyrighted under the compulsory license is defined by the local law, however, it can be negotiated;
- The fee may be determined through negotiations but must contain terms within the boundaries of the compulsory license.
Section 146(2) of the Indian Patent Act requires every patent holder and licensee to provide information as to the extent to which the patented invention has been worked on a commercial scale in India. Relevant information is submitted by the patent and licensee with Form 27. It is required to be filed in each calendar year within three months of the end of each year. Information includes the following: –
- whether the invention has been worked out;
- if the work is not done, the reasons for the non-working and the steps being taken to make the invention work;
- if the work is done, the quantity and value of the patented product;
- if manufactured in India;
- whether imported from other countries, giving details of the countries concerned;
- licenses and sub-licenses granted during the year;
- whether the need of the public has been met partially, substantially or to the fullest extent at a reasonable price.
Failure to supply such information creates the impression of being non-functional and may contribute to the grant of a compulsory license. It is also a punishable offense and can be fined up to ₹10 lakh (USD 13,361.84, Rs 74.84 per USD). Wilfully giving false information is an offense punishable with imprisonment of up to six months, fine or both.
Under Section 92(1) of the Indian Patent Act, a Compulsory License may be granted suo motu by the Central Government in the following circumstances: –
- National Emergency; either
- Excessive Urgency; either
- Ease of Public Non-Commercial use.
To give effect to paragraph 6 of the Doha Declaration, which recognizes WTO members with insufficient or no manufacturing capacity in the pharmaceutical sector, they may face difficulties in making effective use of the licenses mandated under the TRIPS Agreement. The Indian Patent Act was amended.
Exports are primarily permitted to countries where a compulsory license has been granted where such countries have notified or otherwise permitted the import of patented pharmaceutical products from India.
Under Section 100 of the Indian Patent Act, a government-mandated license can be issued on a patented drug for use by the government. The Bombay High Court in the case of Garware-Wall Ropes Ltd. vs A.I. Chopra And Anr. on 19 December, 2007 allowed third party agencies to use a patented invention on behalf of the government.
Under Section 102 of the Indian Patent Act, the government can obtain pending or already granted patents for public use. In return, the government will have to pay the patenting royalties as mutually agreed between the parties.
Procedure For Granting A Compulsory License
Any party interested in obtaining a compulsory license may file a request with the Indian Patent Office through Form 17, online or on paper, with the prescribed fee. It is necessary that the nature of interest of the applicant as well as the facts and particulars on which the application is based in Form 17.
Under Section 87 of the Indian Patent Act, on filing an application for the grant of a compulsory license, the Controller (Controller) at the Indian Patent Office shall analyze the prima facie case made by the applicant against the patentee.
The controller takes into account: –
- the nature of the invention;
- the applicant’s ability to employ the invention;
- whether the applicant has made any effort to obtain a proper license from the recipient of the patent;
- If such efforts are not successful within a reasonable time period.
If the Controller is dissatisfied with the request a notice will be issued to the applicant and will provide a statement rejecting the compulsory license. The applicant may request a hearing with the Controller within one month from the date of intimation of rejection. At the conclusion of the hearing, the Controller will decide the matter.
If the matter is decided in favour of the applicant, the necessary terms and conditions for grant of compulsory license will be decided. The royalty to be paid to the patentee shall be decided by the Controller. The patentee’s investment in the invention, the practicality of the patentee’s invention by the applicant, the sale price of the patented article and the terms of the license shall be considered.
However, the procedure referred to in section 87 shall not apply after consideration of the application when the Controller determines that a national emergency or a state of extreme urgency exists.
The patient versus patent issue is one of the most important problems now in the modern healthcare system. Although India has only passed one compulsory license yet, the number of compulsory licenses granted worldwide is on the rise. The underdeveloped and developing countries want to pass compulsory licenses, and the developed, and the big pharmaceutical companies do not want the compulsory licenses to be passed. The main reason the big pharmaceutical companies do not want compulsory licenses to be passed is that it takes a lot of money and effort to create the drugs, and even then there is no certainty. They have to recoup the costs of the innovation. Hence the companies have to fix the cost of their patented module according to the economic status of the country if they want to protect their product from compulsory licensing.
India, in particular, faces a challenge, owing to the economic condition of the majority population. On one hand, it has to comply strictly with the international standards of patent protection and on the other hand, it has to safeguard public health.
We can say that compulsory licensing has now become the hope for financially challenged patients in underdeveloped countries, and compulsory licensing is now one of the most controversial topics in International Property matters.