Introduction

Compulsory licensing in the context of Patent laws are granted by countries to deal with monopolies acquired in Intellectual Property Rights. The compulsory license is an authorization which permits the third party to use, make or sell an invention for which a patent has been granted, without the consent of the owner of the patent as opposed to the exclusive rights that are conferred on a patentee to use, make or sell a patented invention and prevent unauthorised and illegal use by third parties. 

Compulsory license prevents the abuse and monopolization of a patent thereby, allowing the commercial exploitation of a patented invention by those interested in it. Under the Patents Act, 1970 the provisions concerning ‘compulsory licenses’ are prescribed under Chapter XVI. A compulsory license is granted by the Government and not by private entities or third parties. 

However, the grant of compulsory license operates against the patent owner but compulsory licenses are generally considered in the field of pharmaceuticals to protect public health and health crisis and also in cases of national emergency. 

For the grant of a compulsory license by the Government, certain essential conditions must be fulfilled. Section 84-92 of the Patents Act, 1970 prescribes the conditions which must be fulfilled and the Patents Rules, 2003, rules 96-102 incorporates compulsory licensing. It is crucial for the Controller to be convinced that a prima facie case exists before granting a compulsory license for a patent, sought by the applicant. 

Grounds for Granting Compulsory Licence

Section 84(1) of the Patents Act, 1970 prescribes the conditions for grant of compulsory license. After 3 years have elapsed from the date of grant of the patent, an application can be made to the Controller by any person interested for the grant of compulsory license on the following grounds:¹

• 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 has not been operational in the territory of India. 

An application for the grant of a compulsory licence can be made to the Controller by any person interested and even he who is already the holder of a licence under the patent, when the aforesaid conditions are satisfied. The application must describe the nature of the applicant’s interest and the facts which form the basis of the application.² If the Controller is satisfied that any of the above-mentioned grounds subsists, he may grant a licence upon such terms as he deems fit.³ 

The Controller should take the following aspects into account while considering an application:⁴

• the nature of the invention;
• the time which has elapsed since the sealing of the patent;
• the measures that are taken by the patentee or licensee to make full use of the invention;
• the ability of the applicant to work the invention to the public advantage;
• where the application is granted, the capacity of the applicant to undertake the risk in providing capital and working the invention;
• whether a licence has been obtained by the applicant from the patentee on reasonable terms and conditions and the efforts to obtain a licence has been made within a reasonable period, as the Controller may deem fit. The ‘reasonable period’ shall not exceed a period of 6 months. 

However, the Controller shall not take the aforementioned details of the application into account under the following situations:

• in case of national emergency; or 
• in circumstances of extreme urgency; or
• in case of public non-commercial use; or
• on the adoption of anti-competitive practices by the patentee. 

Revocation of non-working Patents

Where a compulsory licence has been granted to a patent, after 2 years have elapsed from the date of the grant of the first compulsory licence, the Central Government or any person interested can apply to the Controller for an order to revoke the patent. The application for revocation should be based on the following grounds:⁵

• that the patented invention has not been worked in the territory of India; or
• that 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 an affordable price.

An application made to the Controller should clearly state the facts on the basis of which the application is made and where an application is made by any person interested other than the Central Government, it should specify the nature of the applicant’s interest.⁶ Furthermore, every application should be decided within 1 year from the date of presenting it to the Controller. The Controller can make an order revoking the patent if he is satisfied:⁷

• that the reasonable requirements of the public with respect to the patented invention have not been satisfied; or
• that patented invention has not been worked in the territory of India; or
• that the patented invention is not available to the public at an affordable price.   

Where, after considering the evidence the Controller is satisfied that a prima facie case is not present to make an order under Section 84 and 85, the applicant should be notified accordingly and the Controller should refuse the application within one month from the date of such notification. However, the applicant can request for a hearing and based on the hearing the Controller can decide whether to proceed with the application or refuse it.⁸ 

Powers of the Controller

Under Section 86 in certain cases, the Controller has the power to adjourn applications for compulsory licences. An application made under section 84 and 85 on the ground:

• that the patented invention has not been worked in the territory of India; or
• the patented invention is not being worked on a commercial scale to an adequate extent or to its fullest practicable extent within the territory of India and the Controller is satisfied that insufficient time has elapsed since the sealing of the patent to enable the invention to be worked on a commercial scale to an adequate extent or to enable the invention to be worked to its fullest practicable extent, the Controller by order may adjourn further hearing of the application for a period not exceeding 12 months, for an invention to be worked. 

Only when the Controller is satisfied that the patentee has taken prompt, adequate and reasonable steps to start the working of the invention on a commercial scale and to an adequate extent can he order an adjournment.  

Section 88 of the Patents Act confers certain powers on the Controller in granting compulsory licences, which are as follows:

• where the manufacture, use or sale of materials are not protected by the patent and is prejudiced due to the conditions imposed by the patentee on the grant of licences under the patent, or the purchase, hire or use of the article or process which has been patented, the Controller on being satisfied, can order the grant of licences under the patent to the applicant or to customers of the applicant;
• the controller can cancel an existing licence or instead of making an order for the grant of a licence to the applicant, he may order the amendment of the existing licence, when an application is made under Section 84 by a person who is the holder of a licence under the patent;
• when the same patentee holds two or more patents and an applicant for a compulsory licence establishes that the reasonable requirements of the public have not been satisfied with respect to some of the patents, if the Controller is satisfied that the applicant is unable to efficiently or satisfactorily work the licence granted to him under the patents without infringing the other patents of the patentee and if the patents involve technical advancement or are of an economic significance in relation to the other patents, the Controller by order may direct the grant of a licence in respect of the other patents to enable the licensee to work the patents with respect to which a patent is granted under section 84;
• where the Controller settles the terms and conditions of a licence, the licensee after having worked the invention on a commercial scale for a period of at least 12 months can make an application to the Controller to revise the terms and conditions on the pretext that the terms and conditions that were settled have proved to be more onerous than what was expected originally, as a result of which the licensee is unable to work the invention and thereby incurring losses. 

Procedure for Dealing with Applications under Section 84 and 85

Section 87 of the Act prescribes the procedure for dealing with applications under Section 84 and 85. Where an application is submitted under section 84 or 85 and the Controller is satisfied that a prima facie case exists to make an order, the applicant is directed to provide copies of the application to the patentee and any other person interested in the patent and the application is published in the official journal. 

A notice of opposition to the application can be presented by the patentee or any other person to the Controller, within a prescribed time period or within such time which the Controller may allow. The notice of opposition should be sent to the Controller within 2 months from the date of publication of the application.⁹ The terms and conditions of the licence which the opponent is prepared to grant to the applicant should be included in the notice of opposition along with the evidence in support of the opposition.¹⁰ 

The grounds on which an application is opposed must be mentioned in the notice of opposition.¹¹ Furthermore, the opponent must give the applicant a copy of the opposition notice and evidence and notify the same to the Controller. Any further statement or evidence can be made only with the leave of or on the requisition of the Controller.¹² The Controller shall fix a date and time for the hearing of the case and give at least 10 days notice of such hearing to the parties.

Purpose for Granting Compulsory Licences

The Controller shall exercise his powers upon receiving an application under section 84 to secure the following general purposes:

• the inventions that have been granted a patent are worked on a commercial scale without unnecessary delay and to its fullest extent that is reasonably practicable;
• ensure that the interests of any person working or developing an invention that is protected by a patent is not unfairly prejudiced. 

Terms and Conditions of Compulsory Licences¹³

The Controller while settling the terms and conditions of a licence under section 84 should seek to secure the following: 

• the royalty and remuneration for the patentee or other person who is entitled to benefit from the patent is reasonable;  
• the person to whom the licence is granted is to work the patented invention to the fullest extent and with a reasonable profit;
• the public has access to the patented articles at affordable prices;
• a non-exclusive licence is granted;
• the right of the licensee is non-assignable;
• the licence is granted for the remaining term of the patent;
• the licence is granted with the purpose of supply in the Indian market and if required the licensee may export the patented product;
• the licence granted in case of semiconductor technology is to work the invention for public non-commercial use;
• where the licence is granted to remedy a practice which is anti-competitive, if required the licensee is allowed to export the patented product.  

However, a licensee is not authorised by the grant of licence to import from abroad patented articles or products which are made by a patented process, where importing such articles or substances constitutes an infringement of the patentee’s rights unless it is authorised.¹⁴ 

Furthermore, if in the opinion of the Central Government, it is necessary for the public interest, it may direct the Controller to authorise any licensee in respect of a patent to import from abroad the patented article or a substance or article made by a patented process. The Controller may impose such conditions that relate to royalty and remuneration payable to the patentee, quantum of import, the sale price of the imported article and the period of importation. 

First Case in India on Granting Compulsory Licence

In 2012, the Patent Office in India granted India’s first compulsory licence to an Indian company called Natco Pharma Ltd. for the generic production of Bayer Corporation’s patented drug called ‘sorafenib’ having the trade name “Nexavar”. All the three conditions under section 84 were fulfilled viz., the reasonable requirements of the public were not fulfilled, the drug was not available to the public at an affordable price nor was the patented invention worked in India.   

In Bayer Corporation v Natco Pharma Limited¹⁵ Natco Pharma (Plaintiff) filed an application before the Controller for a compulsory licence under Section 84(1) of the Patents Act, 1970 in respect of Bayer’s (defendant) a US-based pharmaceutical company, a patented drug called sorafenib with the trade name “Nexavar” which is used in the treatment of Liver and Kidney cancer. 

According to the Plaintiff’s, the drug was imported in India to a very limited extent and the drug was available only in a few cities and pharmacies. Moreover, the drug was highly-priced at Rs. 2.8 Lakh for one month of therapy, which was beyond the financial reach and unaffordable for the ordinary public. Natco Pharma proposed to sell the drug at Rs 8800 for a month’s worth dosage and make this life-saving drug easily accessible and affordable for the ordinary public and just the affluent rich people. 

The Controller after hearing both the parties came to the conclusion that:

• Bayer failed to satisfy the reasonable requirements of the public because only a negligible quantity of the drug was made available to the public in the 3 years since they were granted a patent for the drug.
• Secondly, the drug was priced very high by Bayer’s which was beyond the financial means and unaffordable by the ordinary public. Thus, the drug was not available to the public on reasonable terms. However, the Controller held that the reasonable price should be construed with reference to the public and leaned in favour of Natco Pharma as it proposed to make the life-saving drug available to the ordinary public at a more reasonable and affordable cost.
• Lastly, the patented invention was not worked in the territory of India, meaning thereby that the drug was not manufactured in India. Moreover, since Bayer had manufacturing facilities in India, there could be no difficulty in manufacturing the drug in India.

However, Natco Pharma is paying royalties at the rate of 6% of all sales on a quarterly basis to Bayer, which is in accordance with the guidelines set by the United Nations Development Programme (UNDP).¹⁶

Subsequently, in 2013, the Health Ministry recommended three drugs used for cancer treatment, trastuzumab, ixabepilone and dasatinib for compulsory licenses which would allow these life-saving drugs to be sold by the Government at a lower and more affordable price making it accessible to the ordinary public. 

Conclusion 

The grant of compulsory licenses to drugs has played a crucial role in the healthcare system. However, a compulsory licence can have an impact on innovation whereby the pharmaceutical companies will be more dependent on generic drugs and will be deprived of innovation. The need to fund and carry out Research and Development will be hampered since they will solely rely on procuring a compulsory licence to a generic drug. 

In developing and underdeveloped countries affordability by ordinary people is a serious issue. Therefore, the grant of a compulsory licence can act as a facilitator to regulate drug prices. It will also ensure adequate supply to the people who are in real need. Compulsory licences have also encouraged countries to help each other and brought them on a single platform, globally.

Even though compulsory licences take away the exclusive rights of a patentee over his patented invention, it also plays a crucial role in curbing and protecting against IPR monopolies. Innovation is an indispensable part of patents. Therefore, the grant of compulsory licenses should not be at the cost of hampering innovation, research, and development which is crucial for the overall evolution and advancement of a country.      

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Endnotes

1.  The Patents Act, 1970 (Act 39 of 1970), s. 84 (1).

2.  The Patents Act, 1970 (Act 39 of 1970), s. 84 (3).

3.  The Patents Act, 1970 (Act 39 of 1970), s. 84 (4). 

4.  The Patents Act, 1970 (Act 39 of 1970), s. 84 (6). 

5.  The Patents Act, 1970 (Act 39 of 1970), s. 85 (1). 

6.  The Patents Act, 1970 (Act 39 of 1970), s. 85 (2). 

7.  The Patents Act, 1970 (Act 39 of 1970), s. 85 (3). 

8.  The Patents Rules, 2003, Rule 97 (1) & (2). 

9.  The Patents Rules, 2003, Rule 98 (1). 

10.  The Patents Rules, 2003, Rule 98 (2). 

11.  The Patents Act, 1970 (Act 39 of 1970), s. 87 (3). 

12. The Patents Rules, 2003, Rule 98 (4). 

13.  The Patents Act, 1970 (Act 39 of 1970), s. 90 (1). 

14.  The Patents Act, 1970 (Act 39 of 1970), s. 90 (2). 

15.  OA/35/2012/PT/MUM(IPAB).

16.  https://blog.ipleaders.in/concept-compulsory-license-patents-act-1970/.