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TABLE OF CONTENTS

S.NO CONTENTS PG.NO

1. Introduction 1

2. Definition and Rationale for Compulsory Licence 2

3. History of Compulsory Licence 3-7

4. Indian Law on compulsory licence 7-13

5. Classification of compulsory licence 13-17

6. India’s Issue of Compulsory Licence 18-21

7. Critics of Compulsory Licence 21-23

8. conclusion 23
 COMPULSORY LICENCE
INTRODUCTION :
Patents provide the exclusive right to the patent holder for his innovation. It gives an absolute
right to the patent holder , by allowing him to determine the price of the medicine as he sees fit,
increasing the risk of abuse of patent rights. Purchasing patent protected pharmaceuticals at
such high rates is sometimes impractical for underdeveloped and developing countries, as well as
limiting access to the important medicines for people. TRIPS agreement provided Compulsory
Licensing to make the drug accessible to the general public on the grounds of public morality. It
further also allows generic competition. TRIPS Agreement introduced the provision for granting
of Compulsory Licensing under Article 31, as it supports the granting of rights to the
manufacture of the patented product by the Government without the consent of the inventor.
After the Doha Declaration 2001, the member countries were allowed to grant compulsory
licences for the purpose of export of essential drugs to countries who had less or no
manufacturing capacity of essential drugs. it was clarified that member countries have been
given enough flexibility as well as freedom for determining the grounds for granting compulsory
licence and they also have the power to make suitable changes in the national legislation. US
constitution Art 1 sec 8 cl 8, grants congress the authority to enact legislation to promote the
progress of science by securing for limited times to inventors the exclusive right to their
discoveries. Traditionally a licence results from a bargained for exchange between patent owner
and patent desiring the licence. However the compulsory licence requires a patent owner to
permit any person to manufacture , sell, use of patented invention for a fixed time.as well here
the owner is compelled to licence at a rate thought to be reasonable by the government. The
compulsory licence in a sense is seen as a threat to greedy patent holders to work their
productions at reasonable prices. The Compulsory license thus provides a safeguard against
lack of use of a patent or misuse of the patent holder's monopoly rights in order to protect
the public interest.These licences attempt to create a balance between accessibility and the
patent holder’s right of appropriation, giving enough incentive to the right holder to produce
more inventions, without hindering the opportunity available to competitors to use them.

1
DEFINITION

Compulsory Licensing is a legal vehicle whereby a government grants to itself or to the third party
the right to produce or import a patented product without authorization of the patent holder.
Compulsory licences are conceptually fundamentally problematic1. It can be seen by breaking
down the two terms, where ‘compulsory’ refers to something that has to be done without the
exercise of choice and ‘licensing' refers to something which is usually done at the volition of the
parties. Compulsory licences signify the proverb “one hand giveth, the other hand taketh away”, as
the governments that granted the patents in the first place are the ones that issue compulsory
licences.

RATIONALE FOR COMPULSORY LICENSE

Patent system provides pharmaceutical Companies with exclusive rights necessary to control
output and pricing of new drugs. Price as a barrier to drug therapy. As an example, Retrovir, an
antidrug for human immunodeficiency virus (HIV) also for AIDS is priced at $2400 per year of
treatment. In order to mitigate this problem compulsory licensing was introduced.
● Compulsory Licensing would increase output and decrease price by creating
marketplace competition within a patent protected pharmaceutical drug.It gives wider
availability of medicines at affordable prices.
● Issuance of a compulsory licence will give the chance for the local industry to
manufacture the generic copy of the patented product before the expiration of the
patent period.
● Compulsory licences "mitigate the restrictive effect of exclusive rights and strike a
balance between the title-holders' interests and those of the public in the diffusion of
knowledge and the access to, and affordability of the outcomes of innovation and
creativity.
● The grant of compulsory licensing provides an opportunity to the small industries to use
and develop the patented invention creating opportunities for society as a whole.

1
From a strictly contractual perspective, a compulsory licence violates the elements of consent necessary for a valid
contract, since the consent is neither free nor mutual when a party is compelled.

2
.HISTORY OF THE COMPULSORY LICENCE
The origin of the concept of compulsory licences lies in the UK Statute of Monopolies
Act, 1623 and was granted to make patented inventions work locally. This concept of
compulsory working system was also seen in the French Law of 1791 practically adopted by all
the patent systems except that of the United States at present. Section 22 of the UK Patent
Act of 1883 provided for grant of Compulsory licence in cases in which the patent was not
being worked in the UK, the reasonable requirements of the public were not satisfied, or any
person was prevented from working or using an invention. This is the key provision that
has influenced the development and growth of Compulsory licence in other countries as well
as for making inroads in the Paris Convention. The Paris convention recognized and
stipulated compulsory licence in its Hague 1925 revision. At The Hague in 1925
compulsory licensing was adopted as the main means to ensure the exploitation of a
patent2

PARIS CONVENTION:

Compulsory licences have been documented in treaties as early as 18833. Article 5

of the Convention states that “Each contracting state shall have the right to take legislative
measures, providing for the grant of compulsory licenses to prevent the result form the exercise
of the exclusive rights conferred by the patents, for example, failure to work.The Treaty
recognized the right for a country to "take legislative measures providing for the grant
of compulsory licences to prevent the abuses which might result from the exercise of the
exclusive rights conferred by the patent.

TRIPS AGREEMENT
TRIPS Agreement is one of the flexibility is Compulsory License. It was clarified and detailed
in the Doha declaration of 2001 and 2003. The TRIPS Agreement undertakes to tackle the
issue of high prices of patented drugs by allowing for their compulsory licensing, under
Article 31, which covers "Other Use without Authorization of the Right Holder". TRIPS
allows for countries to provide limited exceptions to the exclusive rights conferred by

2
Deepika Sekar &Aishwarya H., Are-Look Into Compulsory Licensing: After Natco V Bayer, INDIAN
JOURNAL INTELLECTUAL PROPERTY LAW,
3
Paris Convention for the Protection of Industrial Property, 21 U.S.T. 1583, art. 5(A)(2).

3
a patent provided that the exceptions do not conflict with a normal exploitation of the
patent and do not unreasonably prejudice the legitimate interests of the patent owner4.
And also Article 31 of the TRIPS Agreement lists a set of mandatory conditions that
must be fulfilled prior to the issuance of any compulsory licence." they are free to impose
additional conditions that must be met before a compulsory licence will be issued.

The TRIPS Agreement under Article 31 grants the right to use a patented product without the
permission of the patent holder subject.

However, this was subjected to certain conditions:

● (a) Authorization to make such use of patented product shall be considered only on
individual merits;
● (b) Such use may be permitted only if, before any such use, the user making such a
proposal had made efforts on a personal level to obtain authorization from the holder of
the patent on such commercial terms and conditions which are reasonable. However,
such efforts have not shown any progress within the reasonable period of time.

However, it must be noted here that this requirement can also be waived off by any member in
situations which calls for a national emergency or such other circumstances which are of
extreme urgency or in cases which involves non-commercial use;

● (c) The duration as well as the scope of use of the patented product shall be limited only
till the attainment of the purpose for which it was actually authorised;
● (d) Such use shall be non-exclusive;
● (e) Such use shall be non-assignable;
● 25 (f) Any such use must be authorised predominantly for the sole purpose of supply of
the domestic market of the member authorising such user.

The specific conditions for possibly permitting compulsory licensing identified in Article
31 are:national emergency or other conditions of extreme urgency; public non-commercial
use; possible remedy for anti-competitive practices; or dependent patents. Article 31 also
identifies the provisions that must be respected-including efforts to negotiate with the
patent owner, payment of adequate compensation, and judicial review. a certain sum of
4
WTO Agreement

4
money (royalty5) is issued to the patentee as agreed between the parties. It will be dependent on
several bases, for example, on product market size, marketing location, total amount of the
product to be sold, average consumers of the product, licence duration, etc. In case of bulk
marketing, the royalty is mostly lower than 1%. Still it will be equal to a lot of money if the
demand of that product is higher.

In addition to these requirements, countries are free to determine the appropriate

method of implementing the provisions of compulsory licences within their own
legal system and practice6. Many countries' legislations contain additional
requirements beyond what is specified in TRIPS for the issue of a compulsory licence.
Under TRIPS, it is mandatory for all member countries of WTO to provide patent protection
for all products including pharmaceuticals7TRIPS honours the right of a country to protect the
health of its people, by incorporating certain flexibilities that can be used to conquer
patenting related obstacles to acquire low-cost generic medicines.

The A particular difficulty in the use of compulsory licences arises when the country
lacks the ability to manufacture generic medicines8. When the TRIPS agreement was
originally adopted, it did not allow the developing countries to use compulsory licences
to import drugs. TRIPS states that products made under compulsory licensing
must be "predominantly for the supply of the domestic market9. This meant that even if
a country issued a compulsory licence, the country could not gain access to the drug if it
did not have the capacity to develop and manufacture generic drugs within the country.

5
Article 31(h) of TRIPS Agreement requires that the right holder shall be paid adequate remuneration, but
does not provide a standard by which "adequate" remuneration can be measured.
6
Article 1 of TRIPS states that "[m]embers shall be free to determine the appropriate method of
implementing the provisions of this Agreement within their own legal system and practice." While each
country is free to implement the provisions on its own, countries should create baseline
restrictions on the issue of compulsory licences to balance incentives towards innovation and public health.
7
TRIPS Agreement Article 70(8). This article makes explicit reference to "patent protection for pharmaceutical
products."
8
WTO General Council, Implementation of Paragraph 6 of the Doha Declaration on the TRIPS Agreement and
Public Health, 43 I.L.M. 509 (2003)
9
Wto agreement

5
DOHA DECLARATION -A HEALTH PERSPECTIVE

The 4th Round of the WTO Ministerial Conference, met at Doha in 2001 to resolve the
uncertainties in the TRIPS Agreement, more particularly the compulsory licensing issue
while considering public health

.It was recommended by the WHO that the TRIPS Agreement of the WTO "can
and should be interpreted in a manner supportive of WTO members right to protect public
health, and particularly, to promote access to medicines for all and enable access to existing
medicines and research and development into new medicines10.

Doha Declaration emphasizes the right of every member to grant compulsory license and
freedom to determine the grounds upon which such licenses are granted. This provision in a
sense implies that none of the limitations on compulsory license, as enumerated under Article
31 of TRIPS shall apply. But the Declaration did not intend so, and also clarified "national
emergency"11 condition. All it meant was that member countries could determine their
own grounds for granting license. The Doha Declaration pointed out the fact that it would
be difficult for WTO member countries which do not have manufacturing capacities in
the pharmaceutical sector could face difficulties in making use of compulsory licensing. And
therefore, it instructed the Council for TRIPS to resolve this issue. Art 31 bis was
added in the TRIPS Agreement . It gives exportation of compulsory licence.Under Article 31bis,
a country in need of a particular pharmaceutical product, and without the manufacturing
capabilities to produce it, is able to import the drug under a compulsory licence from a producing
country without violating provisions found elsewhere in the Agreement. In response to the
Doha Ministerial Declaration, governments in developed and developing countries have
passed legislation and implemented policies to accommodate the production and export
of generic medicines to countries that can issue compulsory licences but do not have the
necessary infrastructure to produce medicines12. This decision was so important that

10
Declaration on the TRIPS Agreement and Public Health, WTO Ministerial Conference,
11
Regarding clarification of "national emergency", the Doha Declaration stated that each member had the
right to determine what will constitute national emergency or other circumstances of urgency in that
nation. It being understood that public health crises, like HIV/ AIDS, T.B, malaria, etc can be circumstances of
national emergency/ extreme urgency.
12
WTO General Council, Implementation of Paragraph 6 of the Doha Declaration on the TRIPS Agreement and
Public Health, 43 I.L.M. 509 (2003)

6
the WTO adopted a separate declaration called the Declaration on the TRIPS
Agreement and Public Health. . Canada's Access to Medicines Regime ("CAMR") is one
of the first pieces of legislation that creates a legal mechanism for generic manufacturers to
export medicines under a compulsory licence. India followed suit and passed a similar
regulation, followed by Norway13 and the European Union.

Indian Law on Compulsory Licensing

The provisions with respect to compulsory licence are incorporated in Chapter XVI of the
Patents Act 1970, consequent to the 1999,2002 and 2005 amendments following Ayyangar
Committee Report,14 in order to comply with the requirements of the TRIPS agreement.
The committee observed:"India is not unique in having to face this problem patents for vital
inventions being owned by foreigners who evince no desire to work them within the country.
The problem is common to all underdeveloped countries which have adopted the patent
system of rewarding inventors. Two means for reducing this handicap have generally been
adopted, namely: (1) compulsory working, with revocation of the patent in the event of
non-working, and (2) compulsory licensing on terms of royalty settled by an outside
authority where the parties do not agree. " The compulsory licence in India can be granted for
abuse of patent rights15, in public interest'" and also under some grounds introduced by the
2005 amendment16.
Section 83 provides general principles applicable to working of patented inventions.local
The term working or local working is not defined under the Indian Patents statute. However, by
a combined interpretation of various provisions of the Act, one can determine what constitutes
working. Section 83(a) specifies that patents are granted to encourage inventions and to ensure
that the inventions are worked in India on a commercial scale to the fullest extent that is
reasonably practicable, without undue delay. Section 83(b) states that patents are not granted
merely to enable the patentees or patent licensees to enjoy a monopoly for importation of the
patented article. Further, section 83(c) stipulates that the grant of patent rights should contribute
to the promotion of technological innovation and to the transfer and dissemination of

13
See WTO Fact Sheet, (As of 2006, Norway, Canada, India and the EU have made such laws, and
Australia is in the process).
14
AYYANGAR, REPORT ON THE REVISION OF THE PATENT LAW, 60 (1959)
15
Patents Act,1970 (India), Section 84.
16
Section 92- special provision for compulsory licences on notifications by central governent

7
technology.section 83 (d) states that patents granted do not impede protection of public health
and nutrition and should act as instrument to promote public interest and specially in sectors of
vital importance for socio-economic and technological development of india. Section 83 (e)
states that patents granted do not in any way prohibit the central Government in taking measures
to protect public health. Clause (f) of section 83 goes on to state that patent rights should not be
abused and the patentee should not resort to practices that unreasonably restrain trade or
international transfer of technology.
WORKING REQUIREMENT: The Patents Act also requires patent to contribute to the
“promotion of technological innovation and to the transfer and dissemination of technology17.
This is stated as one of the general considerations applicable to the working of patented
inventions in India which, if not satisfied, could lead to the issue of compulsory licences.

Local working, which the Patents Act refers to as “worked in the territory of India”, is another
requirement18. The Patents Act requires every patentee to submit annual working statements to
the Patent Office19. This is done by filing Form 27 of the Patents Rules before the Patent
Office.Form 27 requires information to be submitted annually on the working of a patented
invention on a commercial scale in India, including information on importation. In 2010 the
government of India sought suggestions to work on the compulsory licensing regime for
formulating a new policy on the issuance of compulsory licensing in the pharmaceutical sector20.
NON-WORKING

The non-working ground is assessed after the elapse of a discrete period, such as the
four-year period following the date of the application's submission or the three-year period
since the grant of the patent. The following are examples of how this ground is utilised in
numerous patent laws, including the Indian Patent Act:

17
The Patents Act, 1970, §83(c)
18
The Patents Act, 1970, §83(a). The phrase “worked in the territory of India” has not been defined in the Act
19
See J. Sai Deepak, Working of Patents: Public Notice Issued by Patent Office to Patentees and Licensees, Spicy
IP Blog, January 5, 2010, available at http://spicyipindia.blogspot.
com/2010/01/working-of-patents-public-notice-issued.html
20
Bindu D. Menon, Compulsory licensing of patented drugs under study, Hindu Business Line, August 24, 2010,
available
athttp://www.thehindubusinessline.com/todays-paper/tp-marketing/compulsory-licensing-of-patented-drugs-under-st
udy/article 1002281.ece

8
 ● The patented product has not been worked, or insufficient working by the patent holder
in the country;
● The reasonable requirements of the public with respect to the patented product
have not been satisfied; and
● The patented product is not available to the public at a reasonably affordable price."

Under section 83 of the Act, importation of the patented product in India may amount to
non-working of the patent in the territory of India. This suggests that the patented product must
necessarily be manufactured in India. Under Paris Convention also, importing of patented
invention by patentee may lead to its compulsory licensing21.It is still debatable as. to
whether or not domestic demand should be met through local working (manufacture in the
country) only, or whether meeting domestic demand through importation would be
sufficient."

APPLICATION OF COMPULSORY LICENCE

Under section 84(1), an application for the grant of compulsory licence can be made to the
Controller General of Patents, Designs and Trademarks if either the "reasonable
requirements of the public" with respect to the patented invention have not been satisfied,
or the patented invention is not available to the public at a "reasonably affordable price",
or the "patented invention is not worked" in the territory of India. Such application can be
made only after expiry of 3 years from the grant of the patent. Any person can make an
application under section 84(1), notwithstanding the fact that he already holds a license
from the rightful licence holder.

REASONABLE REQUIREMENT:
The section 84(7) enlists the circumstances under which 'reasonable requirements of the
public' are not deemed to be met. The section also casts a duty on the patent holders to protect
their patented products. The term working of patent under section 84 of the Act refers to
the commercial working of the patented invention or working it to the fullest extent
reasonably possible. The Indian Patents Act articulates what it means when the

21
Paris Convention for the Protection of Industrial Property (Amendment)1967, Article S(A).

9
reasonable requirements of the public are deemed not satisfied22. This determination is
made based on factors such as the refusal to grant a licence on reasonable terms,
prejudicial development of trade, and failing to meet the demand for the product23.Failure
to satisfy and meet the reasonable requirements of the public may arises due to the following
reasons:

● The inadequate manufacturing which is taking place in India, this could be due to the
failure of granting licensing on reasonable agreeable terms thereby prejudicing the
Indian industry and commercial activities.
● The necessary patent is not working on a commercial scale in India
● The demand for the necessary patent is being met by the importing the goods as a result
hindering the commercial working of the patent in India or
● Lastly, due to the restrictive conditions being imposed by the patentee, it ends up
prejudicing the Indian industry and commercial activities.

These factors could be the possible failures to satisfy the reasonable requirements of the public.
and may arise in the following situations:

● The patent is not being working to the fullest extent which is practicable
● The patented product is still being imported, thereby hindering the invention in India on a
commercialised scale.
● The conditions imposed by the patent holder upon the grant of licence, manages to
prejudice the trade or industry in India.
● The Patent holder is unable to manufacture and meet the demand of the public and supply
them on reasonable grounds. The patent holder may also reject to grant license on
reasonable terms thereby harming the establishment of new trade and industry in India.

The reasonable affordable price for a patented invention is decided taking into consideration the
circumstances involved in each case. The undue price charged for an invention may also lead to
an 'abuse of a dominant position' under the Competition Act, 2002. The reasonable public
need requirement and the reasonable price requirement embody an important

22
Sec 90
23
Sec 90

10
TRIPS objective, which is to ensure the mutual advantage of producers and users of
technological knowledge in a manner conducive to social and economic welfare24. The
burden of showing that the patent holder has not met the reasonable public need is
necessary to prevent potential abuse when the patent holder makes its best efforts to make
the invention available to the public. The reasonable price requirement is equally
necessary because it takes into account the actual purchasing capability of the
people of the country.

The requirement reinforces the TRIPS principle that members may take measures to
promote the public interest in sectors of vital importance to their socio-economic needs and
technological development. In India generic medicine companies can themselves apply for
pharmaceuticals compulsory licensing compared to some other countries where only the
government can grant such licences on its own accord.

Compulsory licence can be granted under section 92 in cases of national emergency,

extreme urgency, and public non-commercial use. Under this section, the compulsory
licence is granted by the government by way of a notification in the Official Gazette.

National emergency or extreme emergency

Compulsory licences may be issued in cases of national emergency or other circumstances of

extreme urgency. It does not have a common international definition. This is one of the
concerns that are posed from time to time against compulsory licences since there is an absence
of defined uniform concept of national health emergency. In the case of national emergency,
which is usually declared by the government in an official decree, such as when urgent public
health needs arise as a result from a natural catastrophe, war, or epidemics," lack of access to
medicine may represent the basis of extreme urgency. Each country is free to expand the
definition of national emergency and extreme urgency in their legislation. concept of
national health emergency that extends to all countries, since each country is unique in respect to
its population, lifestyle and illness concerns. The nature of health-related concerns in a less

24
See WTO Agreement, at art. 7 (Objectives - The protection and enforcement of intellectual property
rights should contribute to the promotion of technological innovation and to the transfer and dissemination
of technology, to the mutual advantage of producers and users of technological knowledge and in a manner
conducive to social and economic welfare, and to a balance of rights and obligations).

11
populated country is quite different from a country with a large population. For example,in India,
1% of its population suffering from a specific disease will be equal to 12.5 million people, which
may account for a state of national emergency, while in Canada, where 1% of its population will
be equal to only 0.351 million people, might not be considered to be a situation of national
emergency.

GOVERNMENTAL USE OR PUBLIC NON COMMERCIAL USE

Compulsory licences may be imposed by governments to permit them and their contractors to
make noncommercial public use of the patents without the consent of the right holders.
Government use licences differ from ordinary compulsory licences in terms of concerning the
objectives of each licence.Government Use licences are exclusively granted to promote public
interests either by the governments themselves or by third parties acting for or on behalf of the
governments. However, the private party acting for or on behalf of the government is not
precluded from making profit; private operators cannot be expected to carry out their activities
without any commercial benefits. In this context is not the (commercial) intermediate activity
required to produce the needed drugs, but instead the noncommercial end use of that product by
the government, e.g., not-for-profit distribution of medicines through a public health program.

EXPORT COMPULSORY LICENCE

Under section 92A, if a country has insufficient or no manufacturing capacity in the

pharmaceutical sector for the concerned product and a patent has been granted by such country,
then a compulsory licence shall be available for manufacture and export of patented
pharmaceutical product, in order to address the public health problems in such
country.

under section 92A: Compulsory licence for export of patented pharmaceutical products in certain
exceptional circumstances.-{ 1) Compulsory licence shall be available for manufacture and
export of patented pharmaceutical products to any country having insufficient or no
manufacturing capacity in the pharmaceutical sector for the concerned product to address public
health problems, provided compulsory licence has been granted by such country or such country
has, by notification or otherwise, allowed importation of the patented pharmaceutical products

12
from India. (2) The Controller shall, on receipt of an application in the prescribed manner, grant
a compulsory licence solely for manufacture and export of the concerned pharmaceutical product
to such country under such terms and conditions as may be specified and published by him. (3)
The provisions of subsections (1) and (2) shall be without prejudice to the extent to which
Pharmaceutical products produced under a compulsory licence can be exported under any other
provision of this Act.

CLASSIFICATION OF COMPULSORY LICENCE:

Chapter XVI of the Patents Act classifies compulsory licences into four categories, namely –
market-initiated compulsory licence (section 84), compulsory licences for related patents
(section 91), special compulsory licences for emergency situations and government use (section
92) and compulsory licences for export of pharmaceuticals (section 92A). Recent studies have
grouped compulsory licences based on existing state practices that fall within the framework of
Articles 31 and 31 bis of the TRIPS Agreement.
Abuse and Public Interest
This is a conduct-based classification, in which the grant of a compulsory licence depends on the
conduct of the patent holder which could either mean not using the patent, or using the patent
right in an abusive manner. A compulsory licence is granted to control abuses of the
patent holder's exclusive rights.The following are examples of the anticompetitive behavior
of the patent holder:
● Excessive pricing;
● Preferential treatment regarding prices and conditions of sale;
● Failure to supply the domestic market with the patented product or supplying it on
prohibitive terms;
● Stopping production of the patented product given the production capacity and market
demand; and
● Exercising legally conferred rights in a manner that adversely affects the transfer
of technology."
If anti competitive behaviour has been determined by a judicial or administrative process,
then the applicant for the compulsory licence is not required to approach the patentee first

13
in an effort to conclude a voluntary licence on reasonable commercial terms and
conditions.
Public interest
Most compulsory licences issued so far are initiated by Member States on the ground of public
interest. The public interest grounds could be used to address issues like government use,
blocking patent and anticompetitive practices. The public interest ground is employed
predominantly for domestic use25.Compulsory licences may be issued in the public interest when
they address environmental, public health, national security, or economic development
concerns by promoting third-parties." Many countries have used this ground to issue
compulsory licences; for example, Canada frequently used this ground to issue compulsory
licences with the objective of promoting its generic pharmaceutical industry" The Indian Patent
Act addresses the public interest criterion by pointing out how this interest could be infringed:
that patents granted do not impede protection of public health and nutrition and should act as
instrument to promote public interest especially in sectors of vital importance for
socio-economic and technological development of India; (e) that patents granted do not
in any way prohibit Central Government in taking measures to protect public health."
Local and International
This is a territory-based classification. Compulsory licences can be classified on the basis of the
countries involved in the granting process. Most licences are granted by the local government to
address local needs. Government-initiated licences are tools with which governments bargain
with the originator pharmaceutical companies. On many occasions, governments that bargain
under the shadow of compulsory licences have been able to get into agreements with major
pharmaceutical companies.
Government-use and Market-initiated
This is a need-based classification. Compulsory licences can be classified on the basis of the
need for which they were issued, i.e., those issued to meet an essential need such as a health
emergency and those issued to meet a market-initiated need. Compulsory licences issued for
use by the government are essential licences granted to meet a perceived national emergency or a
looming health crisis26. A national emergency could be characterised by the contagious nature of

25
TRIPS Agreement Art. 31(f).
26
The Patents Act, 1970, §92(1), a special provision for compulsory licences states that “If the Central Government
is satisfied, in respect of any patent in force in circumstances of national emergency or in circumstances of extreme

14
the disease, the speed of its spreading, as well as the absence of any readily available and
universally accessible cure. An example of national emergency could be what happened during
the great plague. Since the right to grant compulsory licences does not depend on the state of
emergency or other circumstances of emergency, there have been some instances of
market-initiated licences.
One of the defining features of a market-initiated compulsory licence is that it is not
necessarily triggered by an emergency but by an act of a market competitor requesting for a
licence and the consequent denial by the patent holder. In other words, a market-initiated
compulsory licence is the functional opposite of a government-use compulsory licence.
The ability to issue a market-initiated compulsory licence depends on the absorptive capacity of
the market to manufacture the drug locally. The capacity to manufacture is crucial as the
initiation of the compulsory licence is dependent on the market.
Capacity also implies that competitors in the market, who are likely to initiate the
process, have the technical, financial and administrative capacity that would eventually bring the
drug into the market. Therefore, capacity barriers often include lack of production capacity,
absence of distribution networks and absence of buying power required to effectively use the
compulsory licensing provisions. Countries without the capacity to manufacture may not be able
to avail full benefits of having market-initiated compulsory licences in their laws.
Apart from capacity barriers, the issuance of market-initiated compulsory licences could be
hindered by the lack of legislative provisions in the local laws or by a procedure-ridden regime
that is laborious.One of the key prerequisites for functioning of a market-initiated compulsory
licensing regime is the working requirement27.
A market-initiated compulsory licence could be granted on any of the three grounds:
● first, that reasonable requirements of public interest with respect to the patented invention
have not been satisfied;
● second, that the patented invention is not available to the public at a reasonably
affordable price;

urgency or in case of public non-commercial use, that it is necessary that compulsory licences should be granted at
any time after the sealing thereof to work the invention, it may make a declaration to that effect, by notification in
the Official Gazette, and thereupon the following provisions shall have effect[…]”
27
The criteria for reasonable requirement of the public will not be considered to be satisfied if the patented invention
was not being worked in India on a commercial scale to an adequate extent or if it is not being so worked to the
fullest extent that is reasonably practicable. Therefore an applicant making an application on the above ground will
have to establish the demand expected for the patented invention and the extent to which it has not been satisfied.

15
 ● third, that the patented invention is not worked in the territory of India28
All patents are granted subject to the conditions stipulated under the Patents Act29. Any
interested person is allowed to make an application before the Patent Office setting out the nature
of his interest, an d the terms and conditions that he will accept30. The person seeking the
compulsory licence is required to establish a prima facie case31.The Patents Act provides for a
process of opposition by which the patentee or any interested persons intending to oppose the
application may give notice of opposition to the Controller, stating the grounds of such
opposition32. On receiving the notice of opposition, the Controller will notify the applicant and
give the applicant and the opponent a hearing33.Chapter XVI of the Patents Act also lists the
relevant factors to be considered in determining an application for compulsory licence34
NEGOTIATION REQUIREMENT

TRIPS requires that prior to the issue of a compulsory licence, the applicant must
have "made efforts to obtain authorization from the right holder on reasonable commercial
terms and conditions and that such efforts have not been successful within a reasonable
period of time. The purpose of this requirement is to ensure that the patent holder is
notified about the intent of the applicant and has the opportunity to negotiate a voluntary
licence A voluntary licence from the patent holder is preferable to a compulsory licence
issued by the government because it maintains the incentive for potential patent holders
to continue to innovate and avoids government intervention with intellectual property
rights. The negotiation requirement can be waived in the case of national
emergencies or other circumstances of extreme urgency35. The rationale for this
exception is obvious; when there is no time to negotiate, TRIPS will not prevent
countries from adopting measures necessary to maintain public health36

28
The Patents Act, 1970, §84(1
29
The Patents Act, 1970, §48
30
See The Patents Act, 1970, §84; See also The Patents Rules, 2003, Rule 96.
31
The Patent Rules, 2003, Rule 97
32
The Patents Act, 1970, §87(2), 87(3).
33
The Patents Act, 1970, §87(4).
34
The Patents Act, 1970, §84(6).
35
Art 31 (b)
36
Art 8.2

16
India does not have an explicit negotiation requirement37. India's version of this
requirement, as set out in Indian Patents Act, compares the actual availability of the
invention to the reasonable requirements of the public. Patent holder delays in the
distribution of the invention are considered grounds to challenge the patent and to
obtain a compulsory licence38. In addition, the decision to issue a compulsory licence is
based on other factors such as the nature of the invention and the amount of time that the
patent has been available.

Quantity Limitations and Notifications

Most compulsory Licence legislation places a limit on the quantity of medicines

exported and used for their intended need, even though this is not mandated by TRIPS.
The Indian Patent Act contains a condition that the import of articles under a
compulsory licence will not infringe upon the rights of the patentee39. These provisions
serve as measures to deter overproduction of generic medicines. This is desirable
because overproduction of generic medicines may create a grey market, consequently
diluting the patent holder's profits.

Time Limitations

TRIPS provides that the scope and duration of compulsory licences be limited to
the purpose for which it was authorised40. The purpose of the time restriction is to ensure
that the compulsory licence is used for the purpose for which it was authorised. In this
regard, TRIPS recognizes the importance of limiting the amount of time that a patent
holder's right to exclude others from the use of the patent is suspended.
Regulatory Approval Requirement
Another issue that countries seeking to export medicines under a compulsory
licence must consider whether the drugs will need to undergo regulatory approval. The
standard practice is to perform an abbreviated review based on the data submitted by the
generic manufacturer showing that the product is equivalent to a brand-name product

37
Sec84 (1)
38
Sec 85
39
Section 90
40
Art 31(c )

17
already approved. Drugs intended for export should be subject to regulatory standards to
ensure that a minimum level of quality is sustained. This policy ensures that a proper level
of care is taken during the manufacturing process. In addition, this requirement works to
protect the producer from liability from injuries that may occur from the use of substandard
drugs. If medicines created for export under the TRIPS agreement are not subject to the
same standards for use in the producing country, then substandard medicines may
expose manufacturersto liability.

INDIA ‘S ISSUE OF COMPULSORY LICENCE

Patent holders advocate strict intellectual property laws and frequently express
opposition to the creation of compulsory license frameworks in order to maintain the
ability to commit such practices. In addition, patent holders may resort to litigation,
political measures, and diplomatic channels to stifle the issue or use of a compulsory
license. TRIPS addresses these practices and indicates that countries may take
appropriate measures to prevent the "use of intellectual property rights and "practices
which unreasonably restrain trade or adversely affect the international transfer of
technology." As seen in cases such as the one between Bayer and Natco Pharma, patent
holders often refuse to negotiate voluntary licenses in order to maintain the exclusive right
to use an invention

9th March, 2012 marked a revolutionary day in the history of compulsory licensing in India. It
was the day when India, granted their very first compulsory licensing in the case of Natco
Pharma Limited v. Bayer Healthcare Llc41 to a Hyderabad based Pharmaceutical Company
called Natco Pharma Limited or manufacturing the drug called 'Nexavar' (Sorafenib) for
the treatment of advance staged cancer in kidney and liver. Bayer Corporation obtained the
patent for this drug in United States of America (1999) and in India in the year 2008. In 2008,
Natco Pharma Limited is a generic pharmaceutical company and it approached Bayer
Corporation to grant voluntary licensing for the purpose of manufacturing as well as selling of

41
(2013) 3SCC (Civ) 227

18
the patented drug in India, however the same was rejected. In the meantime in the year 2010,
Cipla Pharmaceuticals which is an Indian drug manufacturing company started selling a generic
version of the drug Nexavar. after a period of three years (2011) since Bayer attained its patent in
India, Natco applied to the Controller for the grant of compulsory licensing under Section 84 of
the Patents Act. The Controller held that all the three conditions were fulfilled, stating:

● Firstly, Bayer failed to meet the reasonable requirement of the public. Over the three
years of the patent being granted in India they only supplied 200 bottles of the drug,
whereas the actual requirement was approximately 9000 bottles.
● Secondly, the patented invention was not available at reasonable affordable pricing. In the
present case one month worth's dosage amounted to Rs. 2,80,000 (Rupees Two Lakhs
Eighty Thousand) whereas Natco was offering to sell the drug for Rs. 9000 (Rupees Nine
Thousand) thus making the drug available at a reasonable affordable price for the general
public.
● Lastly, there were no manufacturing units present in India, there were nor were there any
efforts made to set up any manufacturing unit. Therefore, it could be said that the
patented innovation by Bayer was not adequately worked in the territory of India.

Taking into consideration all the above points, the Controller allowed a compulsory license in
favour of Natco in India. However, the same was challenged before the Intellectual Property
Appellate Board ("IPAB") and it upheld the order of the Controller with certain changes:

● According to Article 21 of the Indian Constitution no one should be deprived of his right
to health, and therefore when it comes to the drug in question, it can be said that the
reasonable requirement of the public was not met. Bayer had only provided 200 bottles
thereby not meeting the demand of 3,000 bottles. Secondly when it comes to the Cipla
selling the generic version of Nexavar and thereby meeting the demand of the public. The
IPAB held that the requirement needed to be met by Bayer Corporation alone and that
they could not rely on the sales undertaken by Cipla since that was being contested in
another litigation.
● With respect to Bayer's contention that granting of compulsory licensing would result in
the patented product being sold at a lower price than the patentee (Bayer Corporation)

19
 and this would affect its market and have an adverse effect on recovery of research and
development costs. This would also pressurise Bayer to reduce its own prices which
would affect the primary object of their grant. However IPAB overruled the contention
and stated that the interest of the public at large should be adopted and taken into
consideration. The main purpose of compulsory licensing would be to provide the
patented product at an affordable price to the public.
● IPAB held that importation was not the only option which was available for this drug in
India, to the contrary it held that Bayer should take efforts for establishing a
manufacturing unit in India.
● Lastly, on the issue of reasonable efforts for negotiations not been taken place by Natco,
in terms of discussing the potential licence agreement as mentioned under section
84(6)(iv) it was held that there were no obligations for Natco to make any further
attempts.

Thus granting Compulsory Licensing to Natco Pharmaceutical Limited and that 6% of the net
selling price of the drug would be paid to Bayer Corporation as royalty.This decision was heavily
criticised by several pharmaceutical companies as it would negatively affect the sector and
weaken their ability to create and innovate. This judgement has opened the doors for easier ways
of obtaining compulsory licensing not only in India but leaving an international impact too. The
impact would be seen drastically in the pharmaceutical industry, in terms of investments,
research and development costs, trade relations as well as other related matters.

Followed by this judgement, in the case of BDR Pharmaceuticals Pvt. Ltd. vs. Bristol Myers
Squibb(2013) where the plaintiff's request for compulsory licensing of Bristol's cancer drug
Sprycel was rejected. The Controller rejected the application made by BDR, as it failed to make
a prima facie case under Section 87 of the Patents Act. It was held that BDR had failed to take
steps to procure a voluntary licence from the patentee and also that BDR did not have the ability
to work the invention for the benefit of the public. Another case where compulsory licence was
rejected was in the case of Lee Pharma v. AstraZeneca AB where their application for
compulsory licensing was rejected in respect of AstraZeneca's drug Saxagliptin which deals
with diabetes. Lee Pharma strived to show that negotiation for a voluntary licence with the
patentee had taken place however, they weren't rewarding as the patentee did not respond within

20
a reasonable period. Lee pharma challenged on the three grounds of Section 84(1) which was
rejected by the Controller General and the licence was refused.

The main aim and purpose of this system is to balance the conflict of interest which takes place
between the patent holders exclusive right as well as making the invention available to the public
at affordable pricing. The system should be used judiciously as it acts as both an exception as
well as flexibility guarding patents. Taking into consideration the last two cases where the
compulsory licence was denied in India, it proves that the provisions cannot be abused to
dwindle with the patentee's right42 India's issue of the compulsory licence signifies a
landmark in the effort to increase access to patent medicines for people around the world.
The action marks India's first use of the World Trade Organization ("WTO") Trade
Related Aspects of Intellectual Property Rights ("TRIPS") agreement provisions
allowing a country to use the subject of a patent without the authorization of the
right holder43. Under TRIPS, countries must respect the exclusive rights conferred by
patents except under certain circumstances, such as when it is necessary to protect public
health, provided that the exceptions do not unreasonably conflict with a normal exploitation
of the patent and do not unreasonably prejudice the legitimate interests of the patent
owner44.

CRITICS OF COMPULSORY LICENCE

Pharma companies 90% of all pharmaceuticals, although seeking to improve their health, are
organised to get maximum profit. Also they are research intensive yet few new products only
reach the market because they need to attain effectiveness to warrant human testing. Research
and development costs are excess , so they must recapture the expense of compounds helping to
reach the market , also to provide investors with a rate of return on all research compensation.
Economic impact of Pharma company income will decline. the generic medicines generated
under such compulsory licences are priced lower than if the patent holder were to
sell the medicine.This is a monetary concern for pharmaceutical companies because the
selling of generic medicines at lower rates than the brand medicines may undermine the
42
DEVIKAJ. ASHAR 1 compulsory licensing in the pharmaceutical industry.
43
Madhur Singh, Compulsory License Will Allow Natco To Sell Generic of Bayer's Nexavar in India, 83 PAT.
TRADEMARK & COPYRIGHT J. 691 (2012)
44
WTO Agreement

21
pharmaceutical companies' target markets in which medicines are sold at a premium
rates. In this way, manufacturers view compulsory licences as a factor that may impact
their profitability.

Parallel Importation
Another concern for patent holders is the threat of a grey market created by parallel
importation. Parallel importation occurs when a product that is sold in one market is
imported into another market to take advantage of the difference in pricing between the
markets. Drugs created under a compulsory licence may make their way into markets that
they were not originally intended to reach, creating a grey market. Under TRIPS, a patent
holder cannot raise a dispute regarding parallel importation unless it can show that the
country is engaging in discriminatory practices. In this way, a compulsory licence may
unintentionally enable misappropriation of medicines to the pharmaceutical company's
primary markets. This in turn undermines the pharmaceutical company's profitability.

As mentioned above, pharmaceutical companies seek to recuperate the costs of research

and development by selling their medicines at a premium rate. This is only possible
if the price charged is higher than the actual cost to manufacture the medicine. Most
compulsory licence legislation seeks to restrict use of the medicines once they are within
the intended country. For example, in the Indian Patent Act, the grant of a compulsory
licence comes with the condition that the import of the patented article will not
infringe upon the rights of the patentee45. Compulsory licensing in the European
Union prohibits the release for free circulation and re-export of products created under a
compulsory licence.

The concern is that once the drug is within the intended country, the receiving country or
entity may choose to divert the drugs to a commercial market and thereby make a profit
at the expense of the patent holder's profitability. The purpose of restrictions on the use of
the drugs is to ensure that the operation of the compulsory licence does not interfere
with the normal exploitation of the patent and does not unreasonably prejudice the
legitimate interests of the patent owner in accordance with TRIPS.

45
Section 90-Indian patent Act

22
Foreign Investment Concerns
compulsory licences legislation may cause patent holders to avoid certain countries and seek
more business friendly environments. For example, if the threat of a compulsory licence
causes the patent holder to avoid registering the patent in a country, then the patent holder
would avoid having a compulsory licence issued for that product. However this
reasoning is not convincing because if the patent holder does not file for a patent in a
particular country, a generic medicines manufacturer will have the right to produce
the medicine without infringing any patent rights. Consequently, there would
be no patent infringement and generic manufacturers would be free to create the
medicines in that country without infringing upon any patent46.

CONCLUSION:

The provisions regarding compulsory licensing are recognised worldwide and are contained in
both the TRIPS agreement and under Indian Law. Compulsory licensing is a crucial part of the
patent law regime of a country. While an inventor must be given incentive for their
innovation, the interests of society and humanity must also be considered alongside the interests
of the patent holder. compulsory licence legislation provides incentive for both
pharmaceutical companies and developing nations to return to the table and negotiate a
voluntary licence. Because the underlying goal of compulsory licence legislation is to
encourage the creation of voluntary licences. Compulsory licensing allows patent holders to
benefit but at the same time stands against monopolistic and anti-competitive practices. Inventors
cannot gatekeeper their inventions solely for their own benefit. As such compulsory licensing is
an essential concept that allows for the advancement of society while also protecting the
reasonable interests of inventors and has established itself as an inalienable part of patent law.

46
See- Kishore Khan, STRIKING A BALANCE IN COMPULSORY LICENCE LEGISLATION

23
BIBLIOGRAPHY

● Kishore Khan, STRIKING A BALANCE IN COMPULSORY LICENCE

LEGISLATION
● Madhur Singh, Compulsory License Will Allow Natco To Sell Generic of Bayer's
Nexavar in India, 83 PAT. TRADEMARK & COPYRIGHT J. 691 (2012)
● DEVIKAJ. ASHAR compulsory licensing in the pharmaceutical industry.
● Bindu D. Menon, Compulsory licensing of patented drugs under study, Hindu Business
Line, August 24, 2010,
● J. Sai Deepak, Working of Patents: Public Notice Issued by Patent Office to Patentees
and Licensees.
● Deepika Sekar &Aishwarya H., Are-Look Into Compulsory Licensing: After Natco V
Bayer, INDIAN JOURNAL INTELLECTUAL PROPERTY LAW.

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