COMPULSORY LICENSING

-Rohan Nandy, 20161390

B.A., LL. B(Hons.) 2016-21

ORIGIN:
Compulsory Licensing is when a state authority and not the actual holder of the patent allows
a third party to use a patent or patent-protected innovation without the consent of the patent
holder but for a remuneration. This exists in the Trade-Related Aspects of Intellectual Property
(TRIPs) as well since 1995 however the origin of this concept can be seen as early as the
Congress of Vienna for Patent Reform 1873, internationally. The concept began much before
that and the earliest mention of the compulsory licensing can be seen in The English Statutes
of Monopolies 1623 from there on it has been a matter of deliberation and even debate over
many conventions. The problem that can arise is that the whole agenda of patent law is to
protect the work of the author from any form of abuse and give the patent holder the monopoly
over the rights of the creation. However, the way patent rights work can be difficult for
sustainability and this is because with the patent rights the price of the product goes higher and
the quantity of the production goes lower. Keeping this is mind, many times such products
(patents) are created which are essential to human life. These kinds of patents are mostly in the
field of medicine and pharmaceuticals where the government licenses the patent to other
competitors in the field in order to level the pricing and make purchasing more flexible. This
is looked as a necessary evil by many analysts of Intellectual Property law and Patent law in
specific because in compulsory licensing the exclusive right of the patent holder to transfer any
sort of licensee rights onto third parties is diluted. However, in my personal opinion the fact
that the patent holder gets a remuneration from the government is a fair measure to honour
his/her rights.

The result of diluting the distribution rights is that there are more competitors in market that
can now sell the product, lowering the price in general but the profits or due amount of the
patent is still being received by the patent holder as he/she is getting remuneration from every
transaction. It might seem like the way compulsory rights are portrayed it is only meant for
cases of emergency but it was observed in the Doha Declaration on Public Health 2001 that it
is upon the discretion of the member state to decide what is the scope of compulsory licensing.
One hurdle that was faced internationally during the development of patent law was that the
rights of the patent holder were protected only within his/her home country and in order to
mitigate this issue the Paris Convention 1883 developed an international standard for protecting
innovations so that more people would be incentivised to create things. The convention also
recognised compulsory licensing under Article 5(A)(2) as it recognised that there could be a
possible threat due to exclusive patent rights. An example of this could be that patent holders
might not be satisfied with the price being offered as there is no standard to set a price to human
innovation but at the same time the creation could be of tremendous value to the public at large.
In a situation like this it would be incumbent on the government to intervene for the greater
good of the citizenry. However, Article 5(A)(4) gives a right to the patent holder to explain
his/her inaction and refuse the compulsory licensing. In the development of the Patent Law the
Paris Convention is looked as an important one as it is still active, and majority of the countries
worldwide are signatories to it. The latest development has come out in the form of the TRIPs
agreement 1994 which also incorporates the Paris Convention 1883 however it shall be
discussed later in this paper.

INDIA:

India is a signatory to the TRIPs agreement 1994 however the development of the compulsory
licensing is relatively new to India jurisprudence as such. The first case pertaining to the
concept came up in India only in 2012 which was the Bayer v. Natco1 case.

The concept of compulsory licensing is addressed both at the national and international level
for India. The national scope is elucidated under the Indian Patents Act, 1970 (Patents Act) and
international is abovementioned TRIPs agreement. In deciding cases the Patents Act will be
the deciding statute and under that section 84-92 in Chapter XVI govern compulsory licensing.
The following are the conditions precedent to permit compulsory licensing in India:

1. The reasonable requirements of the public with respect to the patented invention have
not been satisfied
2. The patented invention is not available to the public at a reasonably affordable price
3. The patented invention is not worked in the territory of India.

From this the Controller General of India can permit a compulsory licensing suo motu if he/she
is satisfied that there is sufficient public cause for an action like this. These provisions are very

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WRIT PETITION NO.1323 OF 2013
much inline with the international standard of compulsory licensing and this can be observed
in the two further discussed.

Bayer v. Natco:

This was a landmark case in India because it was the first case where compulsory licensing
was actually granted and then successfully defended in court as it satisfied as the tests laid
down in the Indian Patents Act. The compulsory license here was granted to Natco Pharma for
the production of Bayer Corporation’s drug Nexavar, a life saving drug for Liver and Kidney
cancer. The patent was not only granted but then successfully defended in the Supreme Court
of India because of the purpose that it served for the general public at large. The drug when
initially manufactured by the Bayer Corporation would cost around 2.8 lakh rupees for the
dosage of a month. Naturally, this was something that only be afforded by the economically
higher strata of the Indian economy. It is important to note how the factual matrix in every case
is very important while ascertaining the compulsory license because if seen objectively, Bayer
is an American company and its medicine in the United States of America might not be as
inaccessible as it is in the Indian scenario. In response to this unachievable price quoted by
Bayer, Natco offered to sell the same product for just 9000 rupees which is substantially
cheaper than Bayer’s price. It could be argued that still it is beyond the price range of many
Indians, but it still increases the reach by a huge margin and the Supreme Court saw the fairness
in that.

We could say that a precedent has been set by this case, but we cannot undermine the fact that
the standard is very high. There was a saving of 2.71 lakh rupees per dosage and Bayer was
even given 6% of every sale payable quarterly. As opposed to the happenings in this case, in
Lee Pharma v. AstraZeneca the compulsory license was never granted by the Patents office in
the first place because according to the Controller General the case failed to show prima facie
that the invention is not worked in the territory of India. The product (patent) here in dispute
was a drug called Saxagliptin which was used in treating Type II Diabetes Mellitus however,
it could not be shown that the alternate being provided by Lee Pharma was substantially
cheaper and the case failed. Something that this case made absolutely clear is the value of the
patent right that is given in the first place, if a person has made a product then he/she has the
right to set a price to it even if it is a high price it will be the sole discretion of the creator. As
per section 84 (1)(b) of the Indian Patents Act it has to be shown that the product no available
at an affordable price and that it is a necessity for human life. Just because you are able to make
the product cheaper in cost does not entitle a compulsory license as the innovator must reap the
benefits of the innovation.

INTERNATIONAL (TRIPs):

All World Trade Organisation members negotiated and brought the TRIPs Agreement to life
and under Article 31 of that Agreement the member states can issue a “non-voluntary” right to
third parties in cases of national emergency and extreme urgency without the consent of the
patent holder, essentially a compulsory license as has come to be known popularly known. The
tenets of Article 31 initially were applicable only to the domestic sphere of each country but
the Doha Declaration, 2001 erased that in order for a more pro-help and pro-cure approach to
come into force.

A huge debate spurred during the South Africa HIV/AIDS epidemic. It was the battle between
corporation and patent rights on the one hand versus humans and human rights on the other
hand. Close to 12 percent of the population of South Africa was hit by this epidemic the scale
of this problem was absolutely unprecedented and without a speck of doubt this was a national
emergency, it very well could have been treated as a international emergency and in many ways
eventually it was. The big Pharma company on the other side was GloaxoSmithKline (GSK)
and they were pushing their patent rights and the scale of the expenditure was not something
that South Africa could afford. In fact the medication was costing $ 10,000 per person and if
only 700.000 people were to be attempted to be treated as was done in Brazil, the whole
operation would cost $ 7 billion which at that time was 27 times the medicine budget of the
country.

In the end it was observed that by using the measures stated in the TRIPs agreement the country
was completely entitled to do all things necessary to prevent this public health emergency. The
European Trade Commissioner, Pascal Lamy, in September 2000 noted that ‘the TRIPS
Agreement provides the necessary flexibility to protect public health concerns, including
through recourse, under certain conditions, to compulsory licensing. While the Commission
attaches great importance to all WTO members adopting intellectual property legislation which
is fully compatible with their international obligations, it does not push countries to adopt
legislation that is more stringent than the TRIPs Agreement requires’.
CONCLUSION:
Compulsory Licensing is a concept that will only grow from this point on. As of now we can
see that the only area of concern is pharmaceutical industries, we observed this in both the
Indian and International situations but observing how human beings are making advancements
in technology there is no saying when can something become so essential to society that
damage to that aspect of living will constitute as an emergency. We have seen that compulsory
licensing is only seen as an emergency measure for the betterment of the public at large and
not for exploiting or trying to diminish the rights of a patent holder. In my opinion the way that
TRIPs defines the process for compulsory license is only so that a government can use patent
holders’ innovations to help the public in general as we had seen in the Bayer v. Natco. It will
remain a necessary evil for the patent holders but only for the greater good of humankind.

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