Contemporary Issues Of Compulsory Licence Under The Indian Patent System - Is It Pandora Box
Author: LawSphereX
Category: Intellectual Property
Published:
Updated:
CONTEMPORARY ISSUES OF COMPULSORY LICENCE
UNDER THE INDIAN PATENT SYSTEM: IS IT PANDORA BOX?
Hariharan K. K, LL.M., IPR Student, VIT School of Law, Vellore Institute of Technology, Chennai, Tamil Nadu, India – 600127 Dr. P.R.L. Rajavenkatesan, Professor of Law, VIT School of Law, Vellore Institute of Technology, Chennai, Tamil Nadu, India-
600127 ABSTRACT
Compulsory License has been considered as an affirmative concept for the welfare of the people and can be issued by the government as per the conditions laid down by the Patents Act,1970 as amended in 2005. Compulsory licensing enables the state to authorise third parties to produce a patented product without the patent holder's consent, prioritising public health and access to necessary medications during emergencies. The need for issue of compulsory licence and use of the same is depending upon situation prevailing in the state ad it was introduced for the purpose of helping the people by lowering the cost of the patented goods. The COVID-
19 global pandemic emphasised the significance of compulsory licensing
within the patent system and the impact of intellectual property rights on drug accessibility. This paper discusses about the legal framework, challenges & the positive & negative impacts of Compulsory Licence and suggestions for effective use of the same. Keywords: Compulsory Licence, India, Patents, Innovation and World Trade Organizaton.
Introduction
The issue of compulsory licence is a matter of debate in India for more than four decades. The compulsory licence is not a voluntary licence but involuntary licence can be issued by the government to third parties without the consent of the patent holder but reasonable royalties can be paid to the patentee. The Patents Act,1970 has guaranteed the exclusive rights to the patentee for the use of the invention and others are prevented from exploitation without consent of the patent holder. An effective patent system will impose no restrictions on a patentee's ability to operate as a monopolist, provided the market permits it; the patentee will be able to limit output of their innovation to maximize profit.
However, numerous countries have sought to constrain its full potential in pursuit of alternative political objectives, such as local implementation of the invention or the fulfilment of consumer demand. The method employed is typically a type of Compulsory license, which restricts the patentee from functioning as the exclusive producer. He will be compelled to confront direct competition, subject solely to a royalty or other fee based on the licensee's sales, determined by an external arbitrator according to a standard of reasonableness1. Unlike trademark law, a patentee is not required to utilize or plan to exploit the innovation. Compulsory licences allow individuals other than the patent holder to utilize the invention when the patentee is either unable or unwilling to exploit it2.
The origin of compulsory licensing dates back to the Statute of Monopolies, 1624 in the United Kingdom, which aimed to limit monopolies in patent rights. The idea became more prominent during the anti-patent movements that emerged in the country, which sought to reduce the negative effects of patents, particularly the difficulty people faced in accessing and benefiting from patented products and innovations. Large corporations often secured patent protection, making it challenging for small industries and manufacturers to compete. The Patents Act of 1883 introduced measures to address the issue of patents that were not being utilized. The concept gained global significance when Article 5A of the Paris Convention3 recognized the need for member nations to implement laws allowing for the granting of compulsory licences4.
"India’s first patent-related legislation was the Act VI of 1856, aimed at encouraging the creation of new, useful products and encouraging inventors to reveal their innovations. However, this Act was repealed in 1857 as it lacked approval from the
1 W.R. CORNISH, INTELLECTUAL PROPERTY 205 (Sweet & Maxwell, Universal Book Traders 2nd ed. 1989).
2 LIONEL BENTLY & BRAD SHERMAN, INTELLECTUAL PROPERTY LAW 524 (Oxford 1st ed. 2003).
3 Paris Convention, 1883, Art. 5A.
4 Deli Yang, Compulsory Licensing
For better or For Worse, the Done Deal Lies in the Balance, 17 JIPR 76, 77 (2012).
British Crown. The Act XV of 1859 replaced it, introducing “exclusive privileges” for useful inventions and extending the priority period from six to twelve months. This Act, unlike its predecessor, excluded importers from the definition of inventors. Drawing inspiration from the UK’s Patent Act of 1852, it included provisions allowing assignees to apply in India and took into account the public use or publication of inventions in either India or the UK to determine novelty. In 1872, the 1859 Act was consolidated to also provide protection for designs, leading to its rebranding as the "Patterns and Designs Protection Act" under Act XIII of 18725. This legislation was further modified in 1883 to safeguard the novelty of inventions disclosed at India’s exhibitions. A grace period of six months was introduced for filing patent applications after an exhibition's opening.
Although the Act remained largely unchanged for 30 years, patent law developments in the UK led to amendments in the Indian legal system. As a result, an 1888 Act was introduced to align Indian patent laws with those of the UK, consolidating invention and design protections. The Indian Patents and Designs Act of 19116 replaced all previous existing laws which establishes the Controller of Patents for patent administration. It was amended in the year of 1920 to allow for reciprocal arrangements with the UK and other countries to secure priority. Further changes in the year of 1930 introduced secret patents, patents of addition, government use of inventions, and extended patent terms from 14 to 16 years. In the 1945 amendment introduced provisional specification filings and required complete specifications within nine months.
Post-independence, the Indian Patents & Designs Act of 1911 was deemed insufficient in the country’s new political and economic landscape. In the year of 1949, the Indian government constituted a committee led by Justice Dr. Bakshi Tek Chand to review and recommend reforms to patent law, with a focus on preventing patent abuse, ensuring affordable access to food and medicine, and improving the functioning of the patent system. The committee's recommendations were considered and amendments were made to the 1911 Act in 1950 to introduce compulsory licensing and patent endorsements with the words “licence of right. ” In the year of 1957, the Indian government appointed a committee under the head of Justice N. Rajagopala Ayyangar to examine further regarding the existing patent law.
The committee submitted its final report in the year of 1959 which highlighted the flaws existing in the system and also recommended major reforms which helped in shaping the
1965 Patents Bill, which later resulted in the Patents Act of 19707. This new legislation became
enforceable by 1972 with the publication of the Patent Rules. The modifications were
5 Patterns and Designs Protection Act, 1872, No.13, Acts of Parliament, 1872 (India).
6 Patents and Designs Act, 1911, No.2, Acts of Parliament, 1911 (India).
7 Patents Act, 1970, No. 39, Acts of Parliament, 1970 (India).
introduced in 1994 and these changes were initially implemented via an ordinance in December
1994. A subsequent ordinance in 1999 was later brought into the Patents (Amendment) Act of
19998. The act was applied retrospectively from January 1, 1995. The amendment act permitted
regarding the filing of product patent applications. The examination was deferred till December 31, 2004, meanwhile the applicants was able to secure the Exclusive Marketing Rights (EMRs) under certain conditions. Further the Patents (Amendment) Act of 20029 was brought which was enforced on May 20, 2003 along with new Patent Rules. The Patents (Amendment) Ordinance of 2004 was brought into effect from January 1, 2005 which was later replaced by the Patents (Amendment) Act of 200510, which was effective from April 2005”11. Overview of Compulsory Licensing As per the Act, the term ‘Patent’ is defined as “a patent for any invention granted under this Act”12. And the term ‘Invention’ is defined as “a new product or process involving an inventive step and capable of industrial application”13.
“A compulsory licence is an involuntary contract between a willing buyer and an unwilling seller imposed and enforced by the state”14. Therefore, it refers to the authorization given to an individual or entity by the state for the purpose of commercial exploitation of a patented invention without a voluntary licence from the inventor in exceptional circumstances, as mentioned in the patent law15.
“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 licence 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”16. An application may be submitted under the provision by an individual who already possesses a licence under the patent. No individual shall be precluded from asserting that
8 Patents (Amendments) Act, 1999, No. 17, Acts of Parliament, 1999 (India).
9 Patents (Amendment) Act, 2002, No. 38, Acts of Parliament, 2002 (India).
10 Patents (Amendment) Act, 2005, No. 15, Acts of Parliament, 2005 (India).
11 IPRServices, EQUALCONSULTANCY (Nov.11,2024, 10:30 PM), https://equalconsultancy.com/new/iprservices/.
12 The Patents Act, 1970, §2(1).
13 The Patents Act, 1970, §2(1)(j).
14 P. Gorecki, Regulating the Price of Prescription Drugs in Canada
Compulsory Licensing, Product Selection, and Government Reimbursement Programmes, (Economic Council of Canada, 1981). 15 Abhinav Gupta and Aqa Raza, Patent Law and Compulsory Licensing: Indian Perspective, 29 JIPR 5, 7 (2023).
16 The Patents Act, 1970, §84(1).
legitimate public needs are unmet or that the patented invention is not utilized within the territory of India or is not accessible at a reasonably affordable price17. The application must include a statement detailing the nature of the applicant's interest, along with specified particulars and the facts supporting the application. The Controller may issue a compulsory license under terms he considers appropriate, if he is convinced that any of the aforementioned conditions are met18. Even when any of these grounds exist, additional limits are imposed on the issuance of a forced license. These restrictions embody the stipulations of the TRIPS Agreement regarding this matter. Before any grant, the applicant must first demonstrate unsuccessful attempts to obtain a standard license under fair commercial terms and conditions.
Secondly, any given compulsory license must be non-exclusive and subject to the payment of adequate remuneration to the patentee, reflecting the economic worth of the license19. “A survey of international intellectual property law reveals that the three most prevalent compulsory licensing provisions are applicable where a dependent patent is being blocked, where a patent is not being worked, or where an invention relates to food or medicine. Additionally, compulsory licensing may be implemented as a remedy in antitrust or misuse situations, where the invention is important to national defence or where the entity acquiring the compulsory licence is the sovereign”20. Legal Mechanism for Issue of Compulsory Licences The Rights of Patentee is discussed in The Patent Act of 1970, specifically Section 2(1)(p), defines who is recognized as a patentee.
This section states that “a patentee is the person or entity listed in the patent register as the grantee or owner of a patent”21. This legal designation grants the individual or entity ownership rights and the exclusive benefits tied to the patented invention. Under the Patent Act of 1970, the term “patentee” refers to the individual or entity that is officially recorded as the owner of a patent22. A Compulsory licence can be granted by notification by the Central Government in circumstances of (i) national emergency; (ii) extreme urgency; (iii) in case of public non-commercial use23. The following
17 AVTAR SINGH, INTELLECTUAL PROPERTY LAW 291 (Eastern Book Company 1st ed. 2013).
18 V.K. AHUJA, LAW RELATING TO INTELLECTUAL PROPERTY RIGHTS 567 (Lexis Nexis 2nd ed. 2013).
19 PAUL TORREMANS, HOLYOAK AND TORREMANS INTELLECTUAL PROPERTY LAW 116 (Oxford
8th ed. 2016). 20 Gianna Julian-Arnold, International Compulsory Licensing: The Rationales and the Reality, 33 IDEA 349 (1993).
21 The Patents Act, 1970, §2(1)(p).
22 The Patents Act, 1970, §2(1)(p).
23 ELIZABETH VERKEY & JITHIN SAJI ISSAC, INTELLECTUAL PROPERTY 455 (Eastern Book Company 2nd
ed. 2021). are the rights provided for the patentee by the patent office such as (i) Exclusive Right to Manufacture, Use, Sell, and Distribute; (ii) Right to Licence the Patent; (iii) Right to Prevent Infringement; (iv) Right to File Infringement Suit; (v) Right to Compensation for Government Use; (vi) Right to Amend the Patent Application; (vi) Right to Surrender the Patent; (vii) Right to Benefit from Importation; (viii) Right to Exclusive Marketing Rights (EMRs); (ix) Right to Seek Relief Against False Marking; (x) Right to Sublicence, etc. As per Section 53 of the Act, these rights are guaranteed for a duration of 20 years from the date the patent application is filed24.
The duration of a patent may be abbreviated by the issuance of a 'compulsory licence' or 'licence of right' to any individual to utilize the invention when the patentee neglects to exploit the idea in the public interest25. The status of patentee changes if a patent is transferred or assigned to another individual or entity. If there are multiple inventors or joint patentees, they all collectively share the rights & obligations related to the patent. The international perspective on compulsory licensing shall be discussed by starting with Paris Convention. The issuance of compulsory licences is one of the most contentious aspects of patent law. Since the ratification of the Paris Convention for the Protection of Patents in 1883, nations have employed several strategies to verify that the patented innovation functions within their territories26.
“In the realm of international patent law, compulsory licensing has gained prominence as a policy tool that minimizes the use of patent forfeiture while ensuring nations' ability to safeguard their interests by requiring patents to be utilized within their borders. The first formal conditions for compulsory licences in international patent law were introduced in 1925, through Article 5A of the Hague Act under the Paris Convention. This article reinforced the initial aim of the Paris Convention, which was to prevent countries from taking unfair advantage of the technological advancements of more industrialized nations, like the United Kingdom, which tended to favour domestic patentees.
“The Hague Act allowed countries to adopt legislative measures to curb abuses stemming from the exclusive rights granted by patents, such as the failure to work a patent, as stated in Article 5(2) of the Act. It also prioritized compulsory licences over patent forfeiture to address such abuses, as per Article 5(3)”27. One significant result of Article 5A of the Hague Act was that patent forfeiture was
24 The Patents Act, 1970, §53.
25 DR. B.L. WADEHRA, LAW RELATING TO INTELLECTUAL PROPERTY 25 (Lexis Nexis 5th ed. 2011).
26 N.S. GOPALAKRISHNAN & T.G. AGITHA, PRINCIPLES OF INTELLECTUAL PROPERTY 416 – 17
(Eastern Book Company 2nd ed. 2014). 27The subsequent Act of Lisbon 1958 amended Art. 5A (2) to explicitly address compulsory licences. Reichman, Non-Voluntary Licensing of Patented Inventions. restricted to very specific conditions. Another key outcome was the broader adoption of compulsory licensing, both geographically—by introducing this tool to more countries—and in terms of the grounds that constituted abuse. The most recent version of Article 5A, found in the Stockholm Act of 1967, remains one of the core provisions of the Paris Convention. While Article 5A(2) merely grants member countries the right to legislate measures for compulsory licences, Articles 5A(1) and 5A(3)-(4) impose direct obligations concerning patent forfeiture and compulsory licensing in cases where patents are not sufficiently worked.
These self-executing provisions can be applied directly to private individuals in countries with monist legal systems. Given the large number of countries that are party to the Paris Convention, this article played a key role in establishing the first international standards for compulsory licensing. Articles 1-12 and 19 of the Stockholm Act were later incorporated into the TRIPS Agreement through Article 2. 1 of TRIPS, which extended the effect of the Stockholm Act to TRIPS member states. However, it is important to note that Article 5A does not compel member states to adopt compulsory licensing laws. Despite the widespread adoption of the Paris Convention, its impact on compulsory licensing remained somewhat limited, as the article did not address the issue of compensating patent holders and left considerable discretion regarding the procedures for establishing compulsory licences.
Crucially, Articles 5A(2)-(4) do not exclusively govern the grounds for compulsory licensing. As Bodenhousen pointed out, measures like compulsory licences for reasons unrelated to correcting abuses of exclusive rights, such as in cases of public interest or patent dependency, are outside the scope of Article 5A. The article’s limited application encouraged the adoption of compulsory licences on public interest grounds. Before the TRIPS Agreement came into effect, countries that were party to the Paris Convention enjoyed broader flexibility in both the grounds and procedures for establishing compulsory licences compared to the more restrictive framework of Article 31 of TRIPS. Principal Features of Paris Convention are National Treatment, Right of Priority, Independence of Patents, Parallel Importation, Protection against also indications and unfair competition.
28 Next, we shall discuss with respect to the TRIPS Agreement. Dissatisfaction and disputes over compulsory licences, especially from developing nations, whose desire for broader access to technology has grown since the 1970s, were significant drivers behind the TRIPS initiative. However, at that time, 28 Dhara Doshi, Compulsory Licence Regime of Intellectual Property Rights With Reference to TRIPS, manupatra (Oct. 17, 2024, 1:56:56 AM) https://www-manupatrafast- in. egateway. chennai. vit. ac. in/pers/Personalized. aspx the conflict between developed and developing nations was not centred around the balance between initial and later inventors. Instead, developing nations focused on utilizing patent protection for "developmental and social welfare goals.
" Flexible interpretations of the Paris Convention allowed for stricter local working requirements and expanded grounds for issuing compulsory licences. Tensions between these two groups intensified in the early 1980s during the unsuccessful negotiations for the seventh revision of the Paris Convention. One key factor is that which led to the collapse of these talks and the shift from WIPO to GATT as the focal point for international IP law was the push by developing countries to broaden their rights to grant compulsory licences. The TRIPS Agreement took a more protectionist stance by reflecting the priorities of developed nations and patent holders. This shift was largely driven by concerns over free-riding on emerging digital technologies and the use of market access to developed countries as a leverage in exchange for stronger Intellectual Property enforcement standards.
Article 31 of TRIPS, which addresses "Other Use Without Authorization of the Right Holder," including government-authorized use, indirectly establishes the framework for compulsory licences without directly naming them. It builds upon Article 5A of the Paris Convention by restricting the extent to which member countries can legislate on compulsory licensing. Nevertheless, TRIPS do not eliminate the obligations laid out in Article 5A of the Paris Convention, as the agreements are designed to complement, rather than conflict with, each other. “Compulsory licensing provisions are outlined in Article 31 of the TRIPS Agreement.
A compulsory licence may be issued under specific conditions outlined in the Agreement; they are: (d) The use shall be non-exclusive; (e) The use shall be non-assignable, except in conjunction with the relevant portion of the enterprise or goodwill associated with such use; (f) The authorization for use shall primarily serve the domestic market of the Member granting the licence; (g) The authorization may be revoked, provided that the legitimate interests of the authorized parties are adequately protected, if the circumstances that justified the authorization no longer exist and are unlikely to reoccur. The competent authority should possess the power to assess, upon substantiated request, the ongoing validity of these conditions; (h) The rights holder shall receive appropriate compensation based on the economic significance of the authorization in each instance.
Compulsory licensing of patents is included in the TRIPS Agreement from the outset”29. The procedural guidelines for compulsory licences in Article 31 of TRIPS reflect the key concerns that arose during the negotiations. Critics had previously pointed to a lack of transparency and the quick approval process for compulsory licences under the Paris Convention. TRIPS addresses more specific grounds for compulsory licences and also governs their use by governments or authorized third parties. Some interpret TRIPS as allowing compulsory licences in certain cases outlined in the article, with the exception of semiconductor technology. However, TRIPS do not require member nations to enact laws that guarantee compulsory licences.
Since the implementation of the TRIPS Agreement, two major trends in international law have influenced the conditions for compulsory licences in national legislation, though neither specifically addresses follow-on innovation. The first trend highlights the growing role of compulsory licences as tools of economic policy, particularly for developing countries. This led to an amendment to TRIPS, ensuring access to medicines for these nations (Article 31 bis). The second trend is the emergence of bilateral investment treaties and regional trade agreements among WTO members, which include clauses aimed at protecting intellectual property rights and often raise the minimum standards for IP protection set by TRIPS, leading to what is known as "TRIPS-plus" agreements.
The TRIPS Agreement oversees the World Trade Organization (WTO) by establishing a minimum standard for various forms of intellectual property regulation, including compulsory licensing. Article 31 of the TRIPS Agreement permits compulsory licensing under certain specific conditions which ensures that such licences are granted in a manner that respects the rights of the patent holders also addresses the public health needs. The TRIPS Agreement and public health is further affirmed by the Doha Declaration that member states can issue compulsory licences to protect the public health and promote the access to medicines. The Doha Declaration is adopted in
2001 which acknowledges the difficulties faced by developing countries in accessing the
medicines in affordable prices and also clarifies that the TRIPS Agreement should be interpreted in order to support the public health objectives, promoting access to both existing medicines and the development of new ones. This declaration provides a robust foundation for countries to justify the use of compulsory licensing in their national laws. The Doha Declaration reaffirms that developing countries can exercise flexibilities built into the TRIPS agreement to meet the public health needs of their citizens, in particular highlighting that any 29 Ipshita Khatri, Compulsory Licencing under Patents Law in India, 5 INDIAN J. L. & LEGAL RSCH. 1, 3 (2023). member state has a right to grant compulsory licence on medicines-essentially reverting that country’s patent law to pre-TRIPS days-so as to allow the production and importation of less expensive generic drugs.
The declaration assures that each member state has “the freedom to determine the grounds upon which such licences are granted”—stipulating that this includes but is not limited to cases of national or medical emergency—and there is no exhaustive list as to which diseases can be treated. 30 In the Rules of European Union Law, the Compulsory licences are primarily governed by the national laws with limited harmonization through EU regulations. However, within the European Union, the framework for implementing postincident compulsory liability rules is shaped by the Enforcement Directive. Additionally, Council Regulation (EC) No. 1/2003 permits the granting of compulsory licences to address anti-competitive behaviour.
It is also important to note that compulsory licences based on nonworking of a patent typically conflict with Article 36 of the Treaty on the Functioning of the European Union (TFEU). ”31 Now let us discuss regarding the grounds with respect to issuing of compulsory licence. The first purpose for granting compulsory licence is “that the patented inventions are worked on a commercial scale in the territory of India without undue delay and to the fullest extent that is reasonably practicable”32 and the second purpose is “that the interests of any person for the time being working or developing an invention in the territory of India under the protection of a patent are not unfairly prejudiced”33. The patent system should provide advantages not only to the owner but also to the public across all sectors.
The compulsory licence is granted not only for non-working but also for other applicable circumstances. Individuals interested in the production of patented products may request the government to issue compulsory licences for such products based on the grounds outlined in sections 84 and 90 of the Patent Act, 1970, along with the associated terms and conditions. “The grounds for granting compulsory licensing of patents under the Patents Act of 1970 can be broadly categorised under the following sub heads: Abuse of Monopolistic Rights (Section 84); Licensing of Patents (Section 91); Public Interest (Section 92); Compulsory Licence for Export of Pharmaceuticals (Section 92A)”34. “The patentee and/or any other individual is afforded the chance to contest the
30 Doha Declaration on TRIPS Agreement and Public Health, Para. 5(b).
31 Alina Wernick, Mechanisms to enable follow-on Innovation, 15 Munich Studies on Innovation and Competition 188–
194 (2021).
32 The Patents Act, 1970, §89(a).
33 The Patents Act, 1970, §89(b).
34 Saurabh Chaudhari, Compulsory Licensing Under the IPR Regime in India, SHODHGANGA (Nov. 11,2024, 10: 50 PM), http://hdl. handle. net/10603/453983. issuance of a compulsory licence. The phrase 'any other person' in sections 87(1) and 87(2) has been read widely by the courts. In Sugan Engineering (P) Ltd v Star Textile Engineering Works Ltd. , the Controller determined that those without a direct stake in the patent may contest an application for a compulsory licence”35. The process usually involves applying for a compulsory licence, followed by a review by the relevant authority, which assesses if the criteria are met before granting the licence with specific terms and conditions. Let us discuss some provisions where compulsory licensing is applicable. A dependent patent cannot be utilized without violating a prior, already-granted patent.
This situation can result in the inability to exploit the later patent if the two patent holders are unable to reach a licensing agreement. The impact of this issue depends on whether the improvement protected by the dependent patent holds more or less value than the original invention. This "holdup" issue becomes significant when the original patent adds minimal value compared to the enhancement. Additionally, refusal to grant a licence can harm society by delaying the introduction of improvements until the expiration of the original patent or prolonging the process through litigation, which may lead to increased consumer costs36. “In some countries, the inability to work a dependent patent is seen as being against the public interest, as it hinders the unrestricted use of all patented inventions. ”37 To address this, many nations have implemented compulsory licensing laws.
However, such licences are rarely granted due to the procedural and practical hurdles in place. Before applying for a compulsory licence, an inventor must create an improvement, secure a patent, survive possible opposition, and attempt voluntary negotiations—all of which are time-consuming and costly. In cases where the improvement represents a significant technological advancement, a cross-licensing agreement would likely be in the best interest of both parties38. Nations have a vested interest in ensuring patents are actively used, as this guarantees the public access to innovative products. Many countries see patent grants as a form of contract between the state and the inventor, where the patentee is granted exclusive rights on the condition that they will exploit the invention within the country, benefiting the wider community.
“When a patent holder fails to implement their invention locally, it is seen as a breach of this implied agreement, potentially leading to the 35 Ipshita Khatri, Compulsory Licencing under Patents Law in India, 5 INDIAN J. L. & LEGAL RSCH. 1, 9 (2023). 36 Gianna Julian-Arnold, International Compulsory Licensing: The Rationales and the Reality, 33 IDEA 349, 350 (1993). 37 International Bureau of WIPO, Compulsory or Non-voluntary Licences in Respect of Patents for Invention, from Meeting of Experts on The Acquisition by Developing Countries of Environmental Relevant Technology Protected by Intellectual Property, U. N. Doc. WIPO/UNCED/CE/6 (1991). 38Gianna Julian-Arnold, International Compulsory Licensing: The Rationales and the Reality, 33 IDEA 349, 351 (1993). reduction or revocation of the patent”39.
Provisions against non-use are designed to encourage local utilization of inventions and to prevent patentees from unfairly withholding useful innovations from the public. These provisions take the form of either compulsory working, which requires the patent to be commercially utilized within the country, or compulsory licensing, where the government facilitates a licensing agreement between private entities. Revocation typically occurs only when compulsory licensing is ineffective. “Common reasons for enforcing these provisions include failure to use the patent within a specific timeframe, refusal to licence the invention under fair terms, or blocking the use of another patent”40. Let us discuss some provisions Relating to national sovereignty etc. , .
The Patent Act of 1970 stipulates that when the government utilizes a patent, it must provide adequate remuneration based on the economic value of the patent's use in each specific case. The patentee at research and development would possess financial input and additional factors, such as labour, must be considered when calculating royalties. This approach benefits both the licencee and the patentee, fostering future research and development41. The compensation awarded to the patent owner should reflect the actual losses incurred by the owner, rather than the gains realized by the infringer42. Various compulsory licensing provisions are employed by governments to address monopolistic practices, protect national defence interests, promote public welfare, and respond to emergencies.
For instance, in Chile, the regulatory committee issues compulsory licence if the patent holder abuses his monopolistic rights. Similarly, In Brazil, Industrial Property Law of 1996 specifies for compulsory licensing in the cases of public interest or national emergencies. “In South Korea, a nonexclusive compulsory licence may be required if a patent's use is deemed necessary for the public good”43. In the field of pharmaceuticals and food, several reasons justify a country's interest in fostering a domestic pharmaceutical industry. First, a national pharmaceutical sector can provide employment opportunities for professionals such as chemists, pharmacists, and doctors, reducing brain drain due to limited job prospects. Second, it can contribute significantly to the economy. Third, a local industry may produce affordable medications tailored to local income levels. Fourth, due 39 A.
Mian, Compulsory Licensing - Copyright and Patents, as presented at the Regional Forum on the Judiciary and the Intellectual Property System, Islamabad, Pakistan (1986). 40 Scott, Compulsory Licensing of Intellectual Property in International Transactions, 11 EIPR 319, (1988); 41 Kamban Socretes, Compulsory Licensing under the Patent System in India, 6 INDIAN J. L. & JUST. 63, 69 (September 2015).
42 Hughes Aircraft Co. v. United States ex rel. Schumer, 520 U.S. 939 (1997)
43Laws and Enforcement Decrees of Industrial Property, The Office of Patents Administration, The Republic of Korea, translated by the Office of Patents Administration, Articles 51, 59 and 60,1988 edition. to the high costs and long timelines involved in drug development—estimated at $231 million and 12 years per drug—smaller countries, particularly those without multinational pharmaceutical companies, cannot easily innovate new medicines. Lastly, maintaining a domestic pharmaceutical industry is essential for national defence. Among compulsory licensing laws, those relating to food and medicine are the least common. 44 Emerging Issues of Compulsory Licences The establishment of patents aims to promote innovation by offering economic incentives to potential inventors. The implementation of compulsory licences facilitates access to essential commodities for a broader population.
They attain opportunities and possess interest as a resource. Implementing compulsory licences in the pharmaceutical sector enables AIDS patients in low-income countries to access essential medications at reduced prices, thereby serving their interests as resource consumers. The implementation of compulsory licences enhances an individual's reflective interest when they are adequately informed and make choices free from fraud45. Countries can be grouped into two categories based on their attitude toward intellectual property rights (IPRs): developing/underdeveloped countries and developed nations. Developing countries generally do not prioritize IPR protection due to various factors.
They view piracy as a means to provide affordable goods and services to their citizens, reduce unemployment by supporting local industries that produce counterfeit goods, and advance their technological development by freely accessing intellectual property from more advanced nations. Furthermore, most patents in these countries are held by citizens of developed nations, so governments are unwilling to invest heavily in an administrative system to enforce these patents. The developed countries, whose economies are highly dependent on research and development (R&D), view IPR protection as essential for progress. Their patent systems incentivize innovation, accelerate technological advancement, improve productivity, and strengthen their global trade positions. For example, Italy's pharmaceutical research and development grew by over 600% after implementing drug patent laws in 1978.
Developed countries are particularly concerned that compulsory licensing—a process where governments force patent holders to licence their patents to others—might undermine the incentive to innovate by interfering with the exclusive rights of patent holders46. The patents system in 44Gianna Julian-Arnold, International Compulsory Licensing: The Rationales and the Reality, 33 IDEA 349, 353 (1993).
45 Meirong Guo, Interest Analysis on Compulsory Licensing, 7 BLR 205, 208 (2016)
46 Muhammad Zaheer Abbas, Pros and Cons of Compulsory Licensing
An Analysis of Arguments, 3 IJSSH 254, 254 (2013). underdeveloped countries exhibits a concerning characteristic: a minimal percentage of registered patents are actively utilized. The monopolies conferred by patents are predominantly employed by foreign patentees to inhibit the application of patented inventions within these nations. Patents in pharmaceuticals exemplify how patentees exploit their rights to market products, produced domestically, at monopoly prices that are disconnected from production costs. 47 The negative aspects of compulsory licensing are that it reduces the incentives for innovation and especially in the field of pharmaceuticals and the risks associated with producing unsafe generics which would harm the consumers.
The developed countries says that the compulsory licence can cause frictions in trade, deter foreign direct investment and trigger “brain drain”, as talented scientists and researchers from developing countries may look for better opportunities elsewhere. They also state that the pharmaceutical companies often lower the prices of drugs in poorer countries which makes the concept of compulsory licence unnecessary as a cost-control measure. However, there are also strong positive arguments like the grant of Patents especially on essential medicines can hinder the economic growth and limit the access to therapeutic pharmaceuticals in emerging nations which often lacks in technical and industrial infrastructure. Compulsory licensing can help the countries to negotiate fairer drug prices and ensuring affordability in availing availability of vital pharmaceuticals.
It also breaks up monopolies and cartels which are abuses of patent rights48. This concept is necessary when deadlocks between the original patent holders and improvers delay the technological progress which is seen in historical cases like the Wright Brothers49 and Edison50. It also helps in preventing patent suppression where a patent holder intentionally blocks the use of a technology for the national advantage. Furthermore, the compulsory licensing allows the governments to address the situations where one refuses to licence patent prevents the use of another individual/ entity in significant invention. Compulsory licensing does not discourage in the field of Research & Development as companies can get back their research expenses through sales in the developed nations with strong patent protections by exercising their monopolistic rights.
Compulsory licensing plays a crucial role in fostering the local generic pharmaceutical industries, which can develop the economic growth and access to healthcare in
47 Compulsory licensing, THE ECO. WEEKLY, January 11, 1964 at 42.
48 Jenkins, Compulsory licensing
a major IP issue in international Business today? pp.371.
49U.S. Centennial of Flight Commission, Glenn Curtiss and the Wright Patent Battles, [Online]. Available: http://www.centennialofflight.gov/essay/Wright-Bros/Patent _Battles/WR12.htm
50 U.S. Supreme Court Centre, the incandescent lamp patent, Vol. 159, U.S. pp 465, 1895.
the developing countries. 51 Ultimately, compulsory licensing is justified on the basis of social justice. Robust patent protection should not be prioritized over human lives, particularly during public health crises like HIV/AIDS or pandemics. The global consensus acknowledges the legal right of sovereign states to issue compulsory licences, as patents are regarded as stategranted privileges that may be restricted under specific circumstances for the greater public good. This rationale specifically became relevant during the global health crises, where access to essential medicines became an important and urgent issue which needs to be addressed immediately. Thus, compulsory licensing remains a critical concept for balancing innovation incentives with public health and social justice needs.
The economic and social concerns are addressed under the purview of compulsory licensing such as promoting the industrial development, reducing the healthcare expenses and also ensuring that equitable access to technology by enabling local production of patented products and that would stimulate the domestic industries and reduce the reliance on foreign manufacturers. Hence the concept of compulsory licensing can help in developing a local pharmaceutical industry therefore, it would lead to creation of more job opportunities, economic growth, improved public health outcomes and boosts the economy. It also can lower the healthcare expenses for governments and individuals by making treatments more affordable for public and freeing up resources for other health initiatives.
The essential technologies are ensured that they are accessible and promotes social equity and improves the quality-of-life disadvantaged populations. Judicial Analysis on Compulsory Licence in India and Other Nations The Incorporation of Compulsory Licensing was done for the first time in India, in the case of Bayer Corporation v. Union of India52. The compulsory licence was granted to Natco Pharma for manufacturing a generic version of Bayer's cancer drug. Bayer, a global pharmaceutical company which holds the patent for a cancer drug named as Sorafenib Tosylate, sold under the brand name called Nexavar which is used for treating kidney cancer. Natco applied for this licence in 2011 under Section 84(1) of the Patents Act, 1970, citing public access concerns. On 9th March, 2012, the Controller General of Patents granted the licence by ruling in the favour of Natco.
Bayer, disagreeing with the decision, made an appeal to the IPAB 51Muhammad Zaheer Abbas, Pros and Cons of Compulsory Licensing: An Analysis of Arguments, 3 IJSSH 254, 255 (2013)
52 Bayer Corporation v.Union of India, (2014) 60 PTC 277 (BOM).
for seeking a stay on the decision of the Controller. However, the IPAB upheld the Controller’s decision. The judgement was based on three core elements of Section 84(1). First, the drug's availability did not meet the "reasonable requirements" of the public (Section 84(1)(a)). Second, the exorbitant price of Nexavar made it not accessible to the vast majority of the Indian population by violating Section 84(1)(b). Third, in this case, the patented drug was not being “worked” or sufficiently manufactured, as stipulated by Section 84(1)(c). The Controller further referred to Article 5(A)(2),53 which gives countries the right to issue compulsory licences to serve the larger interest of public. The compulsory licence allowed the Natco pharma to sell the drug at a lower price and ensuring affordability, while Bayer was to receive a 7% royalty on net sales of the drug.
The decision emphasized balancing patent rights with public health needs. This case established the legal grounds for issuing of compulsory licensing in India by setting a precedent by balancing the patent holder’s rights along with public health concerns. In F. Hoffman-La Roche Ltd. and Another v. Cipla Limited,54 the court noted that provision relating to compulsory licensing had disposed of the question of drugs affordability. Without departure based upon ad hoc principles, the purpose of legislation should be followed because it was also contemplating that after grant, patent holder would have at least a threeyear monopoly period wherein hefty R&D costs could also be recovered. In Franz Zaver Huemer v.
New Yash Engineers,55 The Delhi High Court noted that the patentee's non-use of the patent constitutes a basis solely under Section 84 for the issuance of a compulsory license to another party; nevertheless, the grounds outlined in Section 84 do not serve as defences under Section 107 in a lawsuit initiated by the patentee. In Geigy SA’s Patent,56 three essential elements were recognized in the licensing price calculation: an allocation for research and development costs, an allocation for promotional expenditures, and a suitable increment. In Knutsson’s and Bjork’s Patents,57 this method was identified as the most effective for ascertaining the consent of willing persons when identical licenses are accessible. Conclusions and Suggestions The role of compulsory licensing improves access to essential medicines and has a
53 Art. 5A (2) Paris Convention, 1883
54 F. Hoffman-La Roche Ltd. and Another v. Cipla Limited, 2009 (40) PTC 125 (Del.) (DB) at p. 152.
55 Franz Zaver Huemer v. New Yash Engineers, AIR 1997 Del 79.
56 Geigy SA’s Patent, 1964 RPC 391.
57 Knutsson’s and Bjork’s Patents, 1996 RPC 461.
mixed impact on innovation and balances the various stakeholder’s interests. The procedures for compulsory licensing which enhances the transparency and fairness also promotes the international cooperation in the field of patent law. The broader aspects of economic and social implications of compulsory licensing should be considered by policymakers which ensures in serving the public good without hindering innovation. At the end, the reality of compulsory licensing under the patent law has various aspects which requires a detailed understanding of legal, economic, and social dimensions. The implementation and impact can be navigated in a better way by balancing between incentivizing innovation and ensuring access to essential medicines as well technologies.
It is also important to equally consider the public at large while speaking about monopoly rights of the patentee as nation interest is prevailing over private interest. The provisions of compulsory license under the Patents Act,1970 should make use of it by Government of India whenever necessary. The concept of compulsory licensing remains as an important tool in addressing challenges related to global health and promoting equity in access to life-saving treatments.