INTRODUCTION

A patent is a contract between the inventor or applicant for the patent and the State,
whereby the inventor or applicant gets a monopoly from the Government for a certain
period in return for disclosing full details of the invention. The patent system ensures that
information on new inventions is made available for eventual public use so as to
encourage technical and economic development and discourage secrecy1.
If an inventor or company has an invention, which they consider to be novel and
inventive, they may apply for a patent. This may be granted only after a detailed
examination by a patent office. Once the patent is granted the inventor or applicant has
the sole right to make, use or sell the invention for a period of twenty years.
India joined TRIPs and the deadline for complying with TRIPs obligation was 1st January,
2005. The Patents (Amendment) Bill, 2005, introduced in the Parliament in March, 2005
with the objective of making the Patents Act compatible with India's international
obligations, particularly under the Agreement on Trade Related Aspects of Intellectual
Property Rights (TRIPS Agreement). Article 27.1 of the TRIPs Agreement requires WTO
members to make patents available for any inventions, whether product or process, in all
fields of technology w, which includes patents for pharmaceutical products or processes.
At the same time, TRIPs provides a reasonable fetter on the rights of the Patentee in
Article 30 and 31 allowing member countries to enact provisions for granting compulsory
license to prevent the abuse of patent right. Hence, under the present amendment, the
need for access of affordable medicines to Indian people at large, encouraging innovation
by Indian industry, its current capabilities in R&D, and balancing of India's obligations
under international agreements with the wider public interest was given primary

1 The Patent system of India, http://www.gian.org/north/files/FAQ.pdf

importance. Further, every effort was made to prevent the grant of frivolous patents and
'ever-greening' of patents2.

COMPULSORY LICENSE
A compulsory license is a prime example of an instrument that threatens pharmaceutical
companies ability to manufacture new drugs. The practice of granting compulsory
license is an exception to the general rule that patent holders have an exclusive right over
their novel invention. In this situation authorization is given to take advantage of an
invention without the patent holders consent.
The purpose of a compulsory license is to increase access to indispensable goods by
providing a wider use of the invention than the patent holder intended. As a result, the
patent holder is compulsorily required to give up a large part of his property right for the
purported benefit of the public. The issuance of a compulsory license comes at a high
price in the world of pharmaceutical sector. The patent holders investment-backed
expectation of earning a profit from the patented medicine is disrupted when his
exclusive right over his patented product disappears3.
The need for compulsory licensing can be easily understood the by the following
example: In 1769, James Watt was granted a patent for his tremendous improvement of
steam engine technology which led to the wide use of efficient steam power across many
industries, and in fact became absolutely fundamental to the industrial revolution. Watt
monopolized his invention and prevented others- notably William Murdoch (his
employee) and Jonathan Hornblower (a rival inventor) from further developing steam
technology. It has been suggested that had Watts patent been compulsorily licensed,

2 Natco vs. Bayer ( Controller of Patents, 2012) Case Analysis, www.academia.edu

3 Dhara Doshi , Compulsory License Regime of Intellectual Property Rights With Reference to TRIPS,
http://www.manupatrafast.com/

society would have benefited from efficient steam engines at least ten years earlier than it
did.
There are a number of reasons as to why the compulsory licenses should be granted even
though they are against the right holder who have put in their best efforts for that
invention creation and getting it patented.
The major reasons which can be put forward in this respect are as mentioned below:
i.

If patented drugs are unaffordable and/or unavailable, a compulsory license for

local production is often the only solution to solve procurement problems,
increase local availability of drugs and save on costs for patients and the national

ii.

health budget.4
It ensures dissemination of technologies, knowledge and supports development in

iii.

totality.
Compulsory License ensures access to products and processes whether or not

iv.

monopoly holder agrees.

Presence of lucid, workable provisions of Compulsory Licensing has a distinct

v.

advantage of creating an atmosphere to encourage grant of contractual licenses.

Compulsory Licensing not only provides opportunities for competition but also

vi.

maintains the growth opportunities for the generics.

Compulsory Licensing provisions raise consumer confidence in the patent system
and reinforce their belief in existing political set up which is necessary for social

vii.

tranquility and political stability.

It gives a message to the world at large that the sovereign supreme exists and
very much cares for the subjects of the nation and continues to abide by the
primary duty of providing safety to subjects and assurance of their lives.5

4 "Should compulsory licensing be allowed? The Times of India (14th March, 2012)
5 Utilitarian Aspects of Compulsory Licensing (P- 232-238):Compulsory Licensing In
Knowledge Economy By Milind. V. Sathe Satyam Law International- 1st Edition, 2012

ORIGINS OF COMPULSORY LICENSING

Compulsory licensing can be traced back to the UK Statute of Monopolies in 1624 which
ruled out monopolies associated with patent. However compulsory licensing only became
an official proposal in the early 19th century. Countries in Europe (example the UK)
popularized compulsory licensing under its anti-patent movements in the 1850s6.
Article 5 A(2) of the Paris Convention of 1883 provides that Each country of the Union
shall have the right to adopt legislative measures providing for the grant of compulsory
licenses to thwart the abuses which might result from the exercise of the exclusive rights
conferred by the patent., for example, failure to work. During the World Wars,
compulsory licensing was resorted to for the purpose of sharing aviation technology and
the manufacture of various drugs like penicillin.
Since the 1990s particularly, after signing of the TRIPS agreement in 1995, compulsory
licensing stipulation has become an obligation of nations to deal with non-working
issues, consider public interest, and handle noncommercial use and unfair competition.
Further to this step, it was Doha Declaration which paid detailed attention to patented
drugs that could cure wide spread fatal diseases7.

6 Intellectual Property Rights A Critical History: Christopher May and Susan Sell. Viva Books
2008
7 Dhara Doshi , Compulsory License Regime of Intellectual Property Rights With Reference to
TRIPS, http://www.manupatrafast.com/

In consequence, compulsory licensing could be issued in developed countries to

manufacture patented drugs on condition for export to least developed countries to treat
epidemic diseases. However compulsory licensing may also be issued by a government
for noncommercial public use or as a remedy to anti-competitive practice. Since 1995 it
is mandatory for WTO members to include compulsory licensing as part of their patent
law stipulation.
The TRIPs Agreement notes that its patent provisions must comply with the Paris
Convention of 1967. Under the Paris Convention, the term patent is interpreted
broadly to encompass all forms of patent laws created within its member nations.

The Paris Convention applies to the protection of industrial property and includes8:

Patents for 12 months;

Utility models - not available in India;
Industrial designs for 6 months;
Trademarks, service marks and trade names for 6 months;
Indication of source or appellations of origin (this is same as the geographical
indications adopted in TRIPS).

TRIPS Agreement
The WTO, in December 1994, approved an important treaty the Trade-Related Aspects of
Intellectual Property Rights (TRIPS Agreement) which came into effect on January 1,
1995. Primary objective of TRIPS Agreement was to minimize the distortions and
impediments to global trade by giving due importance to protection of IPRs. It provided
for minimum standards to harmonize divergent domestic laws of the WTO member
countries and provided mandatory rights for right holders. It required all WTO member
states to adopt Regulations relating to IPRs as laid down in the treaty. TRIPS Agreement
did not repeal Paris Convention. Rather it incorporated Paris Convention under its Article
2(1)6 and both apply on equal footing.

8 http://www.rkdewan.com/iprOverviewTrademarkParisConvention.jsp

TRIPS, however, provided for higher standards of Intellectual Property protection and it
is difficult to reconcile Article 27(1) of TRIPS with Article 5(A) of the Paris Convention.
The TRIPS Agreement, under Article 27(1), provides that the signatory states are obliged
to protect any innovations, whether products or processes, in all fields of technology.
Before 1995, when TRIPS Agreement was not concluded, almost 50 countries had
excluded drugs from patentability. But TRIPS Agreement prohibited any such exclusion.
To enjoy protection, the invention must fulfill three conditions namely, it must be new, it
involves an inventive step, and it is capable of industrial application. Moreover, TRIPS
Agreement, under Article 28, provides the patent holders exclusive rights to prevent third
parties from making, using, offering for sale, selling or importing patented products
without consent of the patent holder. These monopoly rights are provided to the patent
holders for a period of twenty years. The pharmaceutical patent protection, however,
works well only in high income countries with citizens having purchasing power to buy
expensive patented pharmaceuticals. It does not work well in developing and least
developed countries because of different factors, affordable access to medicines being the
most important of them. Keeping in view the practical implications of patent protection in
third world countries, TRIPS Agreement provides mechanisms to poorer countries to
override patents through legitimate means.
Compulsory licenses are granted more frequently in countries which in their national
laws provide for special compulsory licensing provisions for pharmaceutical and food
patents. Even where compulsory licensing provisions are rarely or never used, it is
reasonable to assume that the presence of such provisions has significance in the patent
system. Owing to the threat of compulsory licensing, patent owners negotiate licenses
that they would otherwise refuse to negotiate.

COMPULSORY LICENSING IN OTHER COUNTRIES

i.

USA

Although U.S. patent law does not provide for compulsory licenses, compulsory licenses
are allowed under special legislation and under the antitrust law. The United States is
probably the country with the richest experience in the granting of compulsory licenses to
remedy anti-competitive practices and for governmental use, including national security.
More than one hundred such licenses have been granted, both for present and future
patents. Licensees have generally been required to pay a reasonable royalty, determined
on the basis of the willing-buyer, willing-seller formulation, but in some cases the
compulsory licenses have been conferred royalty free. In some cases, moreover, the
patentee was required to make the results of its research readily available to other
industry members, or to transfer the know-how.
Despite the provisions for compulsory licenses in many national laws, relatively few
compulsory licenses have actually been granted18. But commentators generally agree
that the mere authority to grant compulsory licenses itself promotes some degree of
competition, and that the impact of the compulsory licensing mechanism therefore cannot
be measured on the basis of the number of licenses granted. Ladas (1975) has noted that
The practical value of the existence of compulsory license provisions in the Patent Law
is that the threat of it usually induces the grant of contractual licenses on reasonable

terms, and thus the objective of actually working the invention is accomplished. The
TRIPS Agreement specifically allows Member States to grant compulsory licenses on
grounds to be determined by each Member country (Article 31).
ii.

United Kingdom

The UK Patents Act 1977 also provides for the grant of compulsory licenses under
patents in circumstances where it can be established that there has been an abuse of the
monopoly rights in relation to such patents. In practice though, compulsory licenses are
rarely applied for in the UK. This is because more effective provisions for controlling
abuse of a monopoly can be found in competition law. However, since the UK is a WTO
member, its compulsory licensing regime is intended to comply with the TRIPS
agreement as is the legislation in most other economically significant countries that have
a compulsory licensing regime. There are two regimes for compulsory licenses: one for
patentees who are WTO proprietors and one for non-WTO proprietors. A WTO
proprietor is a national of, or domiciled in, a WTO member country or has a real and
effective industrial or commercial establishment in such a country. Most patentees
encountered in practice will be WTO proprietors9.

9 Compulsory licensing of patents, http://www.taylorwessing.com/

COMPULSORY LICENSING IN INDIA

The relevant system of compulsory licensing is contained in Ch. XVI of the Indian Patent
Act comprising Sections 82 to 94. The grounds, on which a compulsory license can be
granted under the Act, can be subdivided into the following categories:
(i)
(ii)
(iii)
(iv)

Abuse of patent rights (dealt with broadly under Section 84);

Public Interest (dealt with broadly under Section 92).
New Grounds introduced by the 2005 amendments.
Other provisions on compulsory licensing such as Section 91, dealing with the
licensing of related patents.

As per Section 84, any person who is interested or already the holder of the license under
the patent can make a request to the Controller for grant of Compulsory License on patent
after three years from the date of grant of that patent, on the existence of the following
conditions:

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.

The Controller, while granting compulsory license is required to take into account factors
such as the nature of the invention, measures already taken by the patentees or any
licensee to make full use of the invention, ability of the applicant to work the invention to
the public advantage, time elapsed since the grant of the patent, and so on10.
In addition to this, according to Section 92 of the Act, compulsory licenses can also be
issued suo motu by the Controller of Patents 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 mechanism under this provision is set in
motion by the Central Government when it notifies in the Official Gazette that extraordinary circumstances have dictated the grant of compulsory licenses in relation to
patents which help to address the exigency. However, Section 92(2) still requires a person
interested to apply to the Controller for grant of a compulsory license.

10 Compulsory Licensing in India, http://www.selvamandselvam.in/compulsory-licensing-inindia/

CASE ANALYSIS
Indias first and only compulsory license till date was granted by the Patent Office on
March 9, 2012, to Natco Pharma, an Indian company, for the generic production of Bayer
Corporations Nexavar, a drug used for the treatment of Liver and Kidney cancer. The
three grounds mentioned under Section 84 of the Indian Patent Act were all met, i.e.
Bayers drug left the reasonable requirements of the public were unsatisfied, it was not
available to the public at a reasonably affordable price, and the patented invention was
not being worked in the territory of India. While Bayer offered the drug at the cost of Rs.
2.8 lakh for a months therapy, Natco Pharma had offered to sell the medicine at merely a
fraction of that cost (Rs. 8,800). The decision of this case indicated that as opposed to
maintaining an extremely strict patent protection regime, the interest of public at large
would be given more importance by the government. However, the decision also invited
harsh criticisms from the large group of multinational companies, who felt that the issue
of compulsory licenses ought to be exercised in an even more stringent manner.
At a time where global pharmaceutical mergers are subject to intense scrutiny by the
Indian Government and the marketing policies of the pharmaceutical industry are being
debated by the Indian bureaucracy, the grant of Indias first compulsory license in this

sector has certainly raised eyebrows11. The Natco Pharma decision has already resulted in
an adverse perception of the Indian pharmaceutical industry and may adversely impact
foreign investment in this sector. The decision sets the precedent for making expensive
patented drugs available for compulsory licensing under the Patents Act.
More recently, Mumbai-based BDR Pharmaceuticals has been seeking the grant of
compulsory license for the generic production of US drug maker Bristol-Myers Squibbs
anticancer drug Dasatinib, sold under the brand name Sprycel. The Patent Office rejected
BDRs application on the grounds that the company did not make enough efforts to
obtain a voluntary license for the drug. While this rejection was lauded by the
international community and the multinational companies in particular, it seems that the
issue of a compulsory license for the drug may very well be on the cards, as citing the
emergency of a public health crisis under Section 92 of the Patent Act, the Health
Ministry has reportedly sought a waiver of patent rights for Dasatinib. Through a letter to
the Department of Industrial Policy and Promotion (DIPP), the Health Ministry has
allegedly stated that the cost of producing the drug will be met through government
schemes and that around half-a-dozen schemes will be initiated to fund the cost of
making the drugs available to patients for public non-commercial use12.

11 Natco vs. Bayer ( Controller of Patents, 2012) Case Analysis, www.academia.edu

12 Compulsory Licensing in India, http://www.selvamandselvam.in/compulsory-licensing-in-india/

CONCLUSION
With the introduction of a product patent regime in 2005 for pharmaceuticals, and the
consequent increase in patent scope thereof, concerns of compulsory licensing have
assumed great significance in India.
In terms of the current compulsory licensing regime and whether it can adequately cater
to national concerns, the verdict is far from clear. The local working requirement, which
seems to have been the cornerstone of the Indian compulsory licensing regime, still
remains a controversial provision.
The level of technological sophistication in India had been quite negligible in the past,
particularly in comparison to advanced economies such as the US and Japan. However, of
late, the technological competence has been improving by leaps and bounds. In the area
of pharmaceuticals, the over 20,000 crore industry has become one of the world leaders
in generics. In the years to come, India is likely to provide a fertile ground for the
emergence of sophisticated compulsory licensing jurisprudence, at least with respect to
pharmaceutical inventions. In fact, one may argue that today, India should be
characterized more appropriately as a technologically proficient developing country, as

opposed to a mere developing country. A reasonably good indicator of this is the fact that
as opposed to the years 1992-93, when the number of foreign patent applications was
greater than the number of indigenous patent applications, the year 2001-2002 saw a near
reversal in favour of Indian patent applicants. Consequently, India may have more of a
technological base today to make compulsory licensing and local working mandates more
feasible.
However, despite Indias technological progress, concerns of public interest still remain
paramount. India still has a number of public health related concerns that need to be
addressed. The main concern is that unqualified patent protection for pharmaceuticals
will result in substantially higher prices for medicines with adverse consequences for the
health and well-being of citizens13. Therefore, it is only a strong compulsory licensing
regime that would ensure that patents on pharmaceuticals are not misused by patentees,
and that public health concerns are adequately addressed. The recent Anthrax crisis and
the willingness of the US to subject Bayers patent to national expropriation laws
indicates the sensitivity of nations to diseases and the need for patent rights to yield in
times of such crises.
A mere 60 cases of one infectious disease moved these patent pillar nations to
compromise business interests for public health. Developing countries house a sizable
percentage of population with various diseases. Expecting developing countries to place
business interests of developed nations ahead of the local public health issues is
impractical.14
While only one compulsory license has been issued by the Patent Office till date, certain
sections of the international business community have felt that even this instance was not
in compliance with international standards and regulations for the protection of
intellectual property. India in particular is presented with a unique challenge, as owing to
13 Dhara Doshi , Compulsory License Regime of Intellectual Property Rights With Reference to
TRIPS, http://www.manupatrafast.com/
14 Srividhya Ragavan, Cant We All Get Along?- The Case For A Workable Patent Model,
Arizona State Law Journal, vol 35, 2003, p117

the vast disparity in the economic conditions of its citizens, it becomes invariably hard
for the government to strike a balance between ensuring strict compliance with
international standards for patent protection, and adequately safeguarding public health
and well-being. It remains to be seen what implications the patent waiver for Dasatinib
would hold, as and when it happens15.

15 Compulsory Licensing in India, http://www.selvamandselvam.in/compulsory-licensing-inindia