Compulsory Licensing of Patents, an Indian Outlook

A set of exclusive rights granted by a sovereign state to a patentee in lieu of the public disclosure for a certain period are patents. But, when the sovereign state authorizes a third party to make, use, or sell a patented product without obtaining the consent of the patentee, marks the advent of compulsory licensing. The concept of patents emerged with a purpose to encourage inventions and not for the patentees to merely enjoy the monopoly on the patent. Along with the commercial aspect it is also important for an invention to work to the fullest extent avoiding time lapse. The Indian patents act, 1970 and the TRIPS talk about the provisions for compulsory licensing. The situation in underdeveloped countries with little or no resources for contingency management was a watershed in the history of compulsory licensing.

The Indian patents act, 1970 incorporates compulsory licensing in sections 84 to 94 and rules 96 to 102.  It is very important for the controller to be convinced that a prima facie case has been made out the application which has been filed by the applicant seeking a CL for the proposed patent.

Grounds for granting Compulsory License:

The section 84 (1) of the Indian patents act, 1970 states the conditions for compulsory licensing as follows:

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:— (a) that the reasonable requirements of the public with respect to the patented invention have not been satisfied, or (b) that the patented invention is not available to the public at a reasonably affordable price, or (c) that the patented invention is not worked in the territory of India.

The grounds for granting compulsory license (CL) is explained in the context of the first compulsory license case in India which is popularly referred to as the Bayer vs Natco case (The CL was granted in the favor of Natco pharmaceuticals based in India against Bayer pharmaceuticals based in the US of A.) for the anti-cancer drug Nexavar.

The reasonable requirements of the public with respect to patented invention have not been satisfied: Bayer pharmaceuticals is believed to have admitted that the controller found only 2% of the total number of cancer patients (Kidney and liver for which Nexavar is used) had an access to the drug.

The patented invention is not available to the public at a reasonably affordable price: The drug was found to have been sold at a whooping price of 2.8 lakh INR (for a month long therapy). It was concluded that many patients did not intend to procure this drug purely due to the pricing issues.

The patented invention is not worked in the territory of India: This means that the drug should be manufactured to a reasonable extent in India and mere importation of the drug within the Indian Territory does not amount to sufficient working. (Since majority of India’s drug market is based on importation of drugs, though this clause was weak but with the combination of the earlier two clauses satisfied the need for compulsory licensing of Nexavar).

If the patentee is able to prove that the reasons for not working the invention adequately was justifiable, then the grounds may not be applicable for the grant of CL. Upon the grant of CL an existing license on the patent may be revoked or amended into a CL.

An important clause which is to be considered for issuing CL is the royalty aspect. It is highly essential that the commercial rights of the patentee is not compromised. The onus lies on the patentee to submit necessary evidence regarding the expenditure incurred in making the invention, developing it, obtaining a patent, and its maintenance. This entitles the patentee for adequate royalty upon a CL been issued to the product. Further, it is equally important for the controller to ensure that the applicant who gets the compulsory license is able to work the invention to the fullest extent i.e. justify the ground on which the CL was given to the patent.

Revocation of CL:  The revocation of a CL may be done by the controller as per the section 89 of the Indian patents act, 1970 on the grounds of non-working of the invention. But, after having worked the invention for a minimum of twelve month period if the licensee feels that the grounds on which the CL was granted needs an amendment, then an appeal regarding the same may be put forth to the controller for revising the terms for better working of the invention.

Termination of CL: The CL once granted is liable for termination under sec 94 of the Indian patents act, 1970 provided the controller is convinced that the conditions which were taken into consideration to issue CL no longer exist and the possibilities of recurrence of such contingencies are bleak or unlikely. While terminating the CL it is essential for the controller to take into consideration that the interest of the license holder is not compromised. Also, the CL holder has the right to appeal against the application for termination of CL.

Special provisions for the grant of CL:

Section 92 of the Indian patent act, refers to special provision for compulsory license upon notification by the central government. The three clauses considered for the same are:

  1. When a circumstance of national emergency arises.
  2. When in a state of extreme urgency.
  3.  When there is a case of public non-commercial use.

The most common example for the above mentioned clauses are cases of epidemics or health crisis like AIDS /HIV which grip a nation. During these times it becomes highly essential for the government to procure, disseminate and store the essential drugs. It requires negotiations with the branded drug manufacturers of the required drugs to permit the generic manufacturers to manufacture the same (non-commercial use). In such cases the central government comes into action for catering to immediate requirement of the nation.

Similarly section 92-A of the Indian patents act, 1970 grants CL for export of patented pharmaceutical products in certain exceptional circumstances where a country has very little or no manufacturing capacity of a pharmaceutical product to address the requirement of their public then, upon a notification by such country the required pharmaceutical product may be allowed to be imported from India on the orders of the controller.

Advantages of CL:

  1. Developing or under developed nations have serious affordability issues among their population, thus issue of CL would may act as a facilitator of regulated drug prices.
  1. Sometimes, the patentee would not work on the invention sufficiently and completely. This does not allow the invention to reach the population to the fullest extent. CL acts as a check and balance in such cases.
  1. Contingencies are well handled by the countries due to the CL provision, thus ensuring adequate supply to the affected population.
  1. The growth of generic drugs can be attributed to CL.
  1. It has brought the world on a single platform where the nations can render a helping hand to each other in the time of need through the provisions of CL.

On the contrary, CL comes with its own snag:

  1. Normally when a nation issues CL, it reflects on its ease to accommodate foreign investors and leads to a notion that the nation is non-patent friendly.
  1. The above point may have a cumulative effect on the investment opportunities.
  1. Normally the countries issuing CL are believed to be weak in their IP regime as they frame their laws favoring themselves.
  1. Discouragement of research and development has been a long standing argument against CL as research needs investment opportunities.
  1. Patentee whose product has been issued CL is dissatisfied when it comes to royalties as they can never be compared to the expenditure incurred by in making the invention, developing it, obtaining a patent and its maintenance.
  1. CL transfers the lead from the branded manufacturer to the generic manufacturer thus leading to price wars amongst the generic manufacturers.

Innovation is the lifeline of patents. Encouragement to innovate and advocating research and development are needed for growth and development of an individual, a country, and the world in whole. With growth and development come loads of challenges especially when it comes to research, development, and pricing of the inventions. Though compulsory licenses are believed to compromise exclusive ownership but, they act as a barricade against monopoly rights. It should be kept in mind that though the compulsory licenses may be issued but they should not act as a deterrent to growth and development.

About This Author

Ms. S.L. Soujanya is a registered Patent agent with an academic background in Pharmaceutical sciences. She holds a Bachelor’s degree in Pharmacy from the Osmania University, Hyderabad and holds a Post Graduate Diploma in Intellectual Property Rights Law from NLSIU, Bangalore.

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