Compulsory Licensing

As per the WTO, Compulsory Licensing is a special grant when a government allows someone else to produce a patented product or process without the consent of the patent owner. This special provision is rare and generally granted in cases like emergencies or against life-threatening diseases. The compulsory licensing finds legal backing in the TRIPS, which allows a country to grant such a provision. India too has added the concept of compulsory licensing in Chapter XVI of the Indian Patents Act, 1970.

Manufacturing capabilities and innovations through research and development are not uniform across the world and are generally lacking in most of the developing countries and least developed nations. Therefore, recognition of compulsory licensing in the WTO is beneficial for the general populace of the world.

About Compulsory Licensing

A compulsory license is an authorisation granted by the government to someone else, that is, a third party for the production of the patented product without the consent of the patent owner, who has the undue advantage of exclusive rights granted by the patent.

• Need: Compulsory licensing aims to stop patent holders from monopolising the production of goods in the interest of public health.

Provisions of Compulsory Licensing

Compulsory licenses in India are granted by the Office of the Controller General of Patents, Designs, and Trade Marks, generally known as the “Indian Patent Office”.

• Legal basis: The Doha Conference on Public Health, 2001, allowed member countries to decide the grounds for granting compulsory licenses and to define what constitutes a national emergency (situation to grant CL).
  • Subsequently, the compulsory licenses have been acknowledged nationally and internationally and are specifically mentioned in the TRIPS Agreement.
  • India, too, includes the provisions of compulsory licensing by amending the Indian Patent Act of 1970.
• Conditions in India: In India, conditions required for granting compulsory licenses are listed in Chapter XVI (sections 84 to 92) of the IP Act, 1970.
• Section 84: According to Section 84, anyone may request the Controller to grant a compulsory license upon the expiration of three years of a patent, provided the following requirements are met:
  • reasonable expectations of the public with respect to the patented invention have not been met.
  • the patented invention is not being offered to the public at an affordable and reasonable price.
  • the patented invention is not being used in the territory of India.
• Section 92: Additionally, pursuant to a notification from the Central Government, the Controller may issue compulsory licenses "suo motu" under Section 92 in situations of "public non-commercial use," "national emergency," or "extreme urgency."
• Other factors for CL: The Controller can consider other factors, like the nature of the invention, the capability of the applicant to use the product for public benefit and reasonability, but the final discretion rests with him to grant the compulsory license.
• Ownership retention: Even after a third party receives a compulsory license to use a patent, the patent holder retains ownership of the patent and is still entitled to compensation for copies of the products produced using the compulsory license.

Example of Compulsory licensing in India

The use of laws governing compulsory licensing has remained rare and extremely exceptional since the passage of the Indian Patent Laws.

• The first-ever and so far only compulsory license in India for the production of a generic version of Bayer's Nexavar (a medication for liver and kidney cancer) was granted to Natco Pharma in 2012.
  • Conditions met by Natco: The drug was not produced in India and it was not available to the general public for a reasonable price.
  • Natco received a mandatory license that guaranteed the generic Nexavar would be sold for 100 EUR per month.
  • It is noteworthy that Natco Pharma pays Bayer quarterly royalties at a rate of 6% of all sales, in accordance with the standards established by the United Nations Development Programme (UNDP).

Significance of Compulsory Licensing

It is significant to grant a compulsory license as a tool for the effective socio-economic and technological development of a country, especially developing nations.

• Saving lives: Compulsory licensing is necessary to save the lives of the local population in developing nations by ensuring the availability of life-saving medications at reasonable prices.
  • For example: Natco Pharma's compulsory licence and the Thailand government's licence for anti-retroviral and heart disease prevention medications.
• Affordability of products: Patents, particularly those on pharmaceuticals, impede the economic development of developing nations by preventing their citizens from accessing or affording essential medicines and technology.
  • Threats of issuing compulsory licensing may be used to pressurise inventors of essential products into offering different price models that are agreeable to both parties.
• Inventor vs. improver impasse: Due to disagreements between the original inventor and the improver, patents can occasionally slow technological progress in developing countries like India.
  • In such cases, compulsory licensing can be used to break the impasse by putting pressure on the original inventor to come to an amicable agreement with the improver.
• Emergency use of patented drugs: Compulsory licensing can become beneficial during global pandemics as well as health emergencies in any region of the world.
  • It can facilitate the supply of life-saving drugs to the least developed countries and others that cannot afford mass production.
  • For example, in the recent COVID-19, there was an urgent need felt by the world. India became the global supplier of drugs and vaccines.
  • Situations like this can occur in future.

Issues related to Compulsory Licensing

As compulsory licensing is significant in so many countries, it is also ridden with some issues, which are described below.

• Benefitting without research: Without contributing to the expenses incurred in the research and development of the invention, the licensee gains the most from the inventor's work.
• Safety issues: Consumers of these products may be concerned about the safety of unapproved generics of inferior quality.
• Fear of MNCs: There are some diseases that are unique to developing countries or least-developed countries where uncertainty over the patent environment may discourage multinational companies from venturing into countries where compulsory licensing is frequently applied.
• Trade frictions: The companies of developed countries allege that developing countries like India have strict patent laws, which hinder their economic gain.
  • It may happen due to bargaining between a developing country and a multinational firm under WTO rules.