Compulsory license under Indian Law

Compulsory licenses are authorizations given to a third-party by the Controller General 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. This concept is recognised at both
national as well as international levels, with express mention in both (Indian) Patent Act,
1970 and TRIPS Agreement. There are certain pre-requisite conditions, given under sections
84-92, which need to be fulfilled if a compulsory license is to be granted in favour of
someone.

As per Section 84, any person, regardless of whether he is the holder of the license of that
Patent, can make a request to the Controller for grant of compulsory license on expiry of
three years, when any of the following conditions is fulfilled –

 the reasonable requirements of the public with respect to the patented invention have
not been satisfied
 the patented invention is not available to the public at a reasonably affordable price
 the patented invention is not worked in the territory of India.
Further, compulsory licenses can also be issued suo motu by the Controller under section 92,
pursuant to a notification issued by the Central Government if there is either a "national
emergency" or "extreme urgency" or in cases of "public non-commercial use".

The Controller takes into account some more factors like the nature of the invention, the
capability of the applicant to use the product for public benefit and the reasonability, but the
ultimate discretion lies with him to grant the compulsory license. Even after a compulsory
license is granted to a third party, the patent owner still has rights over the patent, including a
right to be paid for copies of the products made under the compulsory licence.

Statutory provisions:
Sections 82 to 95 of the act contain various provisions related to compulsory licensing, but
Sections 84, 92 and 92A are of particular significance:
Section 84 states that an interested party can apply for a compulsory licence at any time after
three years from the date of grant of the patent based on:
 a failure to meet reasonable public requirements;
  the inaccessibility of the patented invention at a reasonably affordable price to the
public; or
 the non-working of the patented invention in India.
Section 92 authorises the central government through a gazette notification to issue a
compulsory licence at any time after the grant of the patent in the case of:
 a national emergency;
 circumstances of extreme urgency; or
 public non-commercial use.
The compulsory licensing provisions under Section 92A(1) are unique as they authorise the
central government to issue a compulsory licence for the manufacture and export of patented
pharmaceutical products to any country with an inadequate or non-existent manufacturing
capacity to meet public demand.
Jurisprudence:
The Nexavar case was the first in India wherein the controller general of patents granted a
compulsory licence to Natco Pharma to manufacture and sell Bayer AG’s patented anti-
cancer drug sorafenib tosylate (Nexavar), which is crucial for kidney and liver cancer
patients, in India. Nexavar not only was sold at a higher and unaffordable price in India, but
also was not reasonably available to patients at large. Further, the drug was not being
manufactured in India. Bayer was unsuccessful in its challenge to the controller general's
decision before both the Intellectual Property Appellate Board (IPAB) and the Bombay High
Court. Thereafter, the Supreme Court’s dismissal of Bayer’s special leave petition against the
Bombay High Court’s decision settled the case on the first-ever Indian compulsory licence.

The three grounds set out in Section 84 of the act were upheld in the decision – namely:
 an inadequate supply of the patented drug;
 a high price; and
 non-working of the patented drug in India.

In Roche’s Herceptin case, the Ministry of Health was denied a compulsory licence. In yet
another compulsory licensing matter concerning Dasatinib, a compulsory licence application
filed by BDR Pharma was rejected. BDR Pharma had filed a compulsory licence application
without completing due process as required under Section 84(6) with patentee Bristol Myers
Squibb. The controller general rejected the application and held that the terms 'effort' and
'reasonable', as mentioned in Section 84(6), must be appreciated by the applicant by way of
mutual deliberations. Similarly, in LEE Pharma a compulsory licence application for the drug
Saxagliptin, owned by Bristol Myers Squibb (later assigned to AstraZeneca), was rejected as
LEE Pharma had failed to provide evidence and satisfy the grounds set out in Section 84(1)
of the act.
The judicial approach with respect to grant of compulsory license is that the provision is for
public welfare and it cannot be misused to diminish the rights of the patent holders. There
must a balance between thee rights and making use of the product for welfare purposes.

Tests for compulsory licensing:

The key takeaways on granting compulsory licences from the recent decisions are as follows:

 The courts will examine the genuineness, proactive conduct and efforts of the
applicant towards the patentee for the grant of a voluntary licence (Section 84(6) (iv)).
 Three tests apply to the meeting of reasonable requirements:
1. whether, in addition to the patented drug, there are any alternative drugs available for
the same disease which could be made available to the public at a reasonable cost;
2. if no alternative drug is available, whether the patented drug is available to the public
through manufacture or import by the patentee (commercial working in India) at a
reasonable cost; and
3. a comparison of the cost of proposed drug, the patentee’s drug and any alternative
drugs.
 As the act mandates the filing of a statement of working every year, irrespective of the
existing status of working in India, the requisite form should be filed with due
diligence. If a patent has not yet been worked, the owner should mention what will be
done in the near future.
 The patentee may consider licensing, which must be exercised simultaneously if local
manufacturing is not possible. Similarly, the patentee must address licensing queries
raised by generic companies.
 The pricing of essential life-saving drugs should be considered by the patentee by
strategically monitoring public need and economic status in India.
  The mandatory legal requirements for obtaining a compulsory licence (eg, efforts to
obtain a licence from the patentee and a reasonable timeframe for negotiations in view
of public requirements) should be carefully considered.
Although the limitation of exclusive rights through compulsory licensing can weaken
economic incentives and the motivation to invent and invest in R&D, invention must be
encouraged for the long-term benefit of the public. While the consideration of royalties in
Nexavar appeared beneficiary for the patentee, it is pertinent to strike a balance between the
patent holder's rights and obligations. Aside from the hurdles raised by the economic
consequences of compulsory licensing, it has become important for multinational
pharmaceutical companies procuring patents and doing business in India to understand the
country’s compulsory licensing laws and reevaluate their business strategies, while domestic
companies pursue alternate options to access patented life-saving medicines within the legal
system. Accordingly, a coherent and practical health policy, supported by the right structural
framework, is required.

Conclusion
The provision of compulsory licensing must be used judiciously as it is an exception and
flexibility to the general rule of patent. The provision falls mid-way; neither full patent
protection is granted, nor is it denied altogether it directly affects innovation funding and
unfettered use of this provision may result in global pharmaceutical companies being hesitant
to introduce new medicines in other countries. 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.

Compulsory licensing has now become the hope for financially challenged patients in
underdeveloped countries. India needs this provision owing to the economic condition of the
majority population. But the challenge is that on one hand, it has to comply with the
international standards of patent protection and on the other, it has to safeguard public health.