PROJECT REPORT

ON

“COMPULSORY LICENSING OF PATENT”

Submitted to: Ms. Mahima Tripathi

(Faculty, Intellectual Property Rights)

Submitted by: Devendra Dhruw

B.A.L.L.B (Hons.)

Semester :VI ,Roll No.:59

Section : C

HIDAYATULLAH NATIONAL LAW

UNIVERSITY
RAIPUR(C.G.)

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 ACKNOWLEDGEMENT

I would like to thank Ms. Mahima Tripathi, Faculty , Intellectual Property Rights, HNLU,
accepting this topic to work upon . And I would like to thank my parents, my friends and all
those who helped me. A heartily thank to the UNIVERSITY ADMINISTRATION for providing
us with a good WI-FI facility, without which my project would not have completed. THANK
YOU.

Devendra Dhruw

Semester - VI , Sec : C

Roll no. : 59

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 III

CONTENTS

ACKNOWLEDGEMENTS………………………………………………………………………………...2

TABLE OF CONTENTS…………………………………………………………………………………...3

OBJECTIVES……………………………………………………………………………………................4

RESEARCH METHODOLOGY…………………………………………………………………………...4

INTRODUCTION TO COMPULSORY LICENSING...........................................................................5-10

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RESEARCH METHODOLOGY

This project is based upon descriptive method of analysis. This project has been done after a
through research based upon intrinsic and extrinsic aspects of the project.

Objectives

1. To study the Compulsory licensing of patent.

2. To study the case laws under the compulsory licensing .

Methodology

The nature of the study in this project is doctrinal and is primarily descriptive and analytical.
This project is largely based on secondary & electronic sources of data. Books & other reference
as guided by faculty of Company Law are primarily helpful for the completion of this project.

Mode of Citation

19th edition blue book form of citation is used in this research project

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 INTRODUCTION

Compulsory licenses are generally defined as "authorizations permitting a third party to make,
use, or sell a patented invention without the patent owner's consent." Under Indian Patent Act,
1970, the provision with regard to compulsory licensing is specifically given under Chapter XVI.
The conditions which need to be fulfilled in order for a compulsory licence to be granted are laid
down under Sections 84 and 92 of the Act. As per Section 84, any person who is interested or
already the holder of the licence under the patent can make a request to the Controller for grant
of Compulsory Licence on patent after three years from the date of grant of that patent on the
existence of conditions mentioned in the Section 84 of the Patents Act, 1970. While granting the
compulsory licence, the Patent office will take into account few measures such as the nature of
the invention, any measures already taken by the patentees or any licencee to make full use of the
invention, ability of the applicant to work the invention to the public advantage and time elapsed
since the grant of the patent i.e. worked or not worked.

Compulsory licenses are involuntary contracts between willing buyer and unwilling seller
imposed or enforced by the state. A compulsory license is a legal instrument designed to force
intellectual property owners to license out their statutorily granted right to interested third parties
capable of manufacturing the patented product at cheaper prices. A compulsory license is a
statutorily created license that allows certain parties to use or manufacture a product
encompassed by the claims of a patent without the permission of the patent owner (patentee) in
exchange for a specified royalty.

All across the world the compulsory license on IPRs is granted on almost similar grounds like
unreasonably exorbitant prices of an essential facility or commodity; or patent being not worked
in the country; or where substantial public interest is affected by the way IPR holder is exercising
its right.

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 Background of the COMPULSORY LICENSING

Patents provide monopoly rights to patent holders. There are safeguards in patent regime to
ensure that exclusive right of the patent holder is not misused. Compulsory licensing is one of
the safeguards provided under TRIPS using which patent granting state may allow a third party
to exploit the invention without patent holder’s consent upon terms and conditions decided by
the government. This concept existed since 1623 and was not introduced by TRIPS for the first
time. But this mechanism has undergone significant changes especially in post-TRIPS era.
History of evolution of compulsory licensing is one of the least explored areas of intellectual
property law1.

The notion of Intellectual Property Rights2 is based on the principle that the person who made an
intellectual contribution must have an exclusive right to enjoy the fruits of his labor. It sounds
quite logical, but the monopoly right provided to the inventor is not only in direct conflict with
the competition laws but also has implications with regards to human rights law. Thus, there is a
need to provide safeguards to ensure that this exclusive right of the patent holder is not misused.
Compulsory licensing of patents is one such safeguard under which government of the state that
granted the patent could allow a third party to use the patent without consent of the patent holder
on payment of a reasonable royalty or remuneration to the patent holder. It is “a statutorily
created license that allows certain people to pay a royalty and use an invention without the
patentee’s permission”. This safeguard is particularly useful with regards to pharmaceuticals
especially in the instances of public health crisis when underprivileged states have no other
option but to dilute the patent in order to improve access to affordable essential medicines to
their poor citizens with limited purchasing power.
1
Dr. Raghuvir singh,Law Relating to Intellectual Property - A complete comprehensive material on Intellectual
Property covering Acts, Rules, Conventions, Treatise, Agreements, Digest of Cases and much more..., (3rd Edn.
2010)

2
K.G Nair, Intellectual Property Rights, 301 (1st edn. 1994).

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 MEANING OF COMPULSORY LICENSING

“Compulsory license3 is a license issued by a state authority to a government agency, a company

or other party to use a patent without the patent holder’s consent” 4. In simple words,
“compulsory license is an action of a government forcing an exclusive holder of a right to grant
the use of that right to other upon the terms decided by the government”. The government,
however, pays a royalty to the patent holder in order to compensate them for the use of their
patent without their consent 5. In other words, “Compulsory license means a non-voluntary
license issued by the state to a third party, without the authorization of the patent holder, on the
condition that the licensee pays reasonable remuneration to the right holder in return”. A
compulsory license or a non-voluntary license may also be defined as “an involuntary contract
between a willing buyer and an unwilling seller imposed and enforced by the state”. The
licensee enjoys the right to manufacture, sell or import the patented product. These acts are
otherwise covered by the exclusive rights of the patent holder. No doubt, patents are necessary to
promote innovation. If the government does not ensure patent protection, no firm would have an
incentive to develop new products. If other firms are allowed to copy the same products, there
would be no monopoly and prices would automatically come down. But this price control is at
the cost of innovation. Patent is therefore an imperfect but necessary instrument to encourage
innovation. But when monopolistic patent rights are conferred on the products which are
essential for human life, they can have adverse effects on the socio-economic development of the
country that grants patents. An obvious result of patents may be an increase in price and decrease
in supply of the patented products as the patent holder enjoys monopoly. World Trade
Organization, in its Doha Declaration 6 , recognizes the right of access to affordable medicines.
Life-saving medicines may be beyond the purchasing power of common masses in many
3
The birth of the concept of compulsory licenses is linked to the obligation, introduced by the United Kingdom (UK)
Statute of Monopolies in 1623. Compulsory licensing has been reported to be popular in Britain as early as 1850s.
Later it was recognized by the international community through Paris Convention of 1883
4
Paris Convention, 1883
5
Durojaye, 2011
6
The November 2001 Doha Declaration on the TRIPS Agreement and Public Health was adopted by the WTO
Ministerial Conference of 2001 in Doha on November 14, 2001. It reaffirmed flexibility of TRIPS member states in
circumventing patent rights for better access to essential medicines.

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developing and underdeveloped countries due to patent protection enjoyed by the pharmaceutical
products. The availability of life saving medicines becomes even more uncertain in case of
national emergency. In such situations, the national governments may avail the flexibility
provided under WTO regulations by using the provision of compulsory licensing. It may,
however, be noted that a national emergency is not the only ground for the issuance of
compulsory license. Doha Declaration on Public Health 2001 provides freedom to member states
to determine grounds of compulsory licensing. In the absence of international norms and
standards for this practice, the grounds for granting compulsory licensing vary from country to
country depending on laws of each state. Compulsory licensing obviously involves breaking of
the exclusive right of the patent holder. The purpose behind breaking of the patent right is to
change the terms of bargaining between the buyer and the seller. For instance, if the government
is a buyer and the patent holder is a seller, and the parties fail to negotiate a reasonable price of
the product, compulsory licensing provisions provide for an arrangement using which the
government may dilute exclusive patent right of the patent holder and license some other firm to
sell the same product. Compensation is, however, paid to the patent holder in exchange for use of
his patent. Thus, compulsory licensing, by stimulating generic competition, strengthens the
bargaining position of the government resulting in lowering of prices. Compulsory licensing is
therefore yet another necessary evil. It is a violation of the rights of the patent holder. But this
violation sometimes becomes necessary in order to improve availability of essential products at
affordable prices. It is pertinent to note that access to drugs or to deal with emergency public
health situations is not the only reason for grant of compulsory license. It can be used as a policy
mechanism to deal with anti-competitive practices, non-working of the patent, or other
undesirable behavior of patent holders7. Compulsory license not only forces the patent holder to
use his invention for the benefit of the society but also boosts generic industry of the country
granting such license.

7
Convention for the Protection of Performers, 1961

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Compulsory Licensing in India

In India, compulsory licenses are dealt with under Chapter XVI of the Indian Patent Act, 1970.
The conditions which need to be fulfilled in order for a compulsory licence to be granted are laid
down under Sections 84 and 92 of the Act.

The objective behind this licensing is to prevent the abuse of monopoly granted.

The Indian Patents Act, 1970, was amended in 1999, 2002 and 2005, making the patent regime
of India compatible with TRIPS. Under the new legislation, patentees were able to exercise
greater control over their innovations and their exclusive markets. Keeping this in mind, the
flexibilities provided under TRIPS were incorporated in the Indian Patents Act, 1970, in order to
safeguard public health and improve accessibility to medicines. Relevant chapters on compulsory
licenses include:

(a) Chapter XVI, which deals with the issue of compulsory licenses. The same is covered in four
sections of the Patents Act:

(i) Section 84, under which general compulsory licenses are issued by the Controller on
application;

(ii) Section 91, under which compulsory licenses are issued by the Controller for a related patent
on application;

(iii) Section 92, under which compulsory licenses are issued by the Controller based upon a
notification, by the Central Government, of circumstances of national emergency or in
circumstances of extreme urgency or in the case of public non-commercial use;

(iv) Section 92(A), under which compulsory licenses are issued by the Controller on application
for the manufacture and export of patented pharmaceutical products to any country having
insufficient or no manufacturing capacity in the pharmaceutical sector for the concerned product,
in order to address public health problems.

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(b) Chapter XVII contains provisions for use of inventions for the purposes of government and
the acquisition of inventions by the Central Government.

(c) Chapter VIII of the Patent Rules 2003, and amended in 2006, provides for the moralities of
issue and maintenance of compulsory licenses (Department of Industrial Policy and Promotion,
2010).

An Individual or a co. granted compulsory license has to pay the owner a set of fee for the
license.

                         PATENT LICENCES

There are two types of Patent Licences:

 Exclusive license: Under an exclusive licence, a patent owner transfers all indicia of
ownership to the licensee only retaining the title to the patent. From the point of view of
the patent owner, he surrenders all rights under the patent (including the right to sue for
infringement and the right to licence) to the licensee.

In essence, the licensee steps into the shoes of the patent owner and acquires the right to sub-
licence the patent and sue for patent infringement. However, the exclusivity can be limited by a
field of use. That means that the licensee gets a promise from the patent owner that the patent
will not be licensed to anyone else in a stipulated field of use.

 Non-exclusive licence: By granting a non-exclusive licence, the patent owner essentially

promises not to sue the licensee for patent infringement. Some people think that by
acquiring a non-exclusive licence the licensee acquires the freedom to operate in the
space protected by the licensed patent, but this may or may not be the case. It depends on
whether or not the licensee’s products infringe other patents.

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Terms and Conditions of Compulsory License

The terms and conditions of the license can be kept confidential by the Controller on request by
licensee or the licensor.

1. Royalty and other remuneration, if any reserved to the patentee or other person
beneficially entitled to the patent.

2. Patented article should be worked to fullest extent by a person to whom the license is
granted.

3. Patented article should be made available to the public at reasonably affordable prices.

4. License granted is non-exclusive license.

5. The right of licensee is non-assignable.

6. License is for the balance term of patent unless a shorter term is consistent with the
public interest.

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NATCO Case

NATCO and BAYER CASE STUDY

Abstract:

Bayer’s Anti cancer drug called Nexavar as it was not manufacturing the product in India
and marketing it with extremely high prices which was out of reach for common people.

Taking these reasons into consideration NATCO Pharma had filed the case against Bayer
and won. This resulted in gaining compulsory license on the drug leading a scope of saving
many lives of cancer patients.

Introduction:

BAYER is a chemical and pharmaceutical company founded in Barmen (today a part of

Wuppertal), Germany in 1863. It patented on the active pharmaceutical ingredient called
Nexavar in 2008 to treat liver and kidney cancer in India.

NATCO PHARMA LIMITED was incorporated in Hyderabad in the year 1981. It

manufactures and markets affordable medicines that comply with global standards.

Case study:

“India allows compulsory licensing of Bayer’s anticancer drug nexavar to Natco pharma”.

Bayer, a German Pharma patented on the active pharmaceutical ingredient called Nexavar
in 2008 to treat liver and kidney cancer in India. But the company failed to reach the
requirements of the public. The reasons for the failure were

 The drug is exorbitantly priced and out of reach of most of the people.
 The drug which is a “life saving drug” was frequently in short supply even in cities.
 Failed to manufacture the drug in India even after four years from the patent grant date
and further failed to grant voluntary license for manufacturing in India.

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As these figures clearly demonstrate the neglectful conduct of the Patentee as far as India is
concerned, it forced the Indian Government to pass an order of compulsory license (CL) to
NATCO Pharma, based in Hyderabad against Bayer’s patent on drug Nexavar on March 09,
2012, which is India’s first compulsory license.

Compulsory license (CL):

The CL was granted in accordance with the grounds described under section 84 of the
Indian Patent Act.

Section 84(1) of the Indian Patent’s Act allows any interested person to make an application to
the Controller for grant of compulsory license after the expiry of three years from the date of
grant of patent on any of the following grounds:

a) that the reasonable requirements of public with respect to the patented invention have not
been satisfied
b) that the patented invention is not available to the public at reasonably affordable price,
c) that the patented invention is not worked in India.

1. Reasonable Requirements of public are satisfied [84 (1) (a)]

The drug Nexavar by Bayer was available to only 2% of the eligible patients and thus reasonable
requirements of the public are not satisfied. There was requirement of at least 8842 patients.
Even after the lapse of three years, the Patentee has imported and made available only an
insignificant proportion of the reasonable requirement of the patented product in India. Bayer
did not take into consideration the sales of the generic version of the same drug in India by Cipla
at lesser prices which was one of the reasons given by Bayer for lesser sales of the patented drug
by Bayer in India. The Controller has also taken into consideration the Form 27 (Working of
invention statement) filed by Bayer in 2009 and 2010 which show only an insignificant quantum
of sales (only Rs. 2 crore for 2009) for the eligible patients.8

2. Non-availability at reasonably affordable price [84 (1) (b)]

8
Id.

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The sales by Bayer were at a price of about Rs. 2,80,000/- (for a month) constitutes a fraction of
the requirement of the public and the only reason for not buying by them is due to no reasonable
affordability. Hence, the patented invention was not available to public at a reasonably
affordably price. Consequently a compulsory license be issued to the NATCO.

3. Non-working in India [84 (1) (c)]

According to the international agreements on intellectual property including TRIPS, Paris

convention and the Indian Patent statutes including 83, 90, 84(6),“worked in the territory of
India” means “manufactured to a reasonable extent in India”. And Bayer failed to manufacture
the drug in India even after four years from the patent grant date and further failed to grant
voluntary license for manufacturing in India and thus CL is to be issued to the NATCO.

 Foreign drug companies are no match for local drug manufacturers who promise to
provide drugs at affordable prices to citizens of India who could not otherwise afford
them.
 Finally, by licensing rather than being forced to license, patentees can negotiate (perhaps
with more than one local company) rather than having the Patent Controller decides the
terms.

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 CONCLUSION

Compulsory licensing is an effective ‘cost-cutting’ and ‘access-assuring’ tool in the hands of

developing and under developed countries which they may use to circumvent the patent laws
remaining within the flexibilities provided by the WTO. It can be used to strike a balance
between interests of patent holder and public and to mitigate the restrictive effects of patent
holder’s monopoly rights. Though compulsory licensing provisions have been part of patent laws
of many countries for centuries, the issue of grant of licenses came to limelight after outbreak of
pandemics like HIV/AIDS. The issue of access to needed drugs was discussed at length to find a
mutually agreed solution to the problem. While dealing with issues involving conflicting
interests, balance of interests is the most ideal approach. The purpose of countless negotiations
amongst the WTO members since 2001 was to strike a balance between interests of the patent
owners and LDCs’ right to public health. Despite declarations, decisions, and amendments,
LDCs are still not able to guarantee their citizens access to necessary drugs owing to numerous
factors.

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 BIBLIOGRAPHY

BOOKS:

1. Bansal , Ashwani Kumar, Law of Trade Marks in India, 2006, 5th Edition.

2. Ahuja, V.K., Law Relating to Intellectual Property Rights, 2012, 5th Edition.

WEBSITES:

 https://www.vaishlaw.com/article/indian_intellectual_property_laws/trademark_law_in_i
ndia_everythingyou _must_know.pdf
 http://lobis.nic.in/dhc/SMD/judgement/07-10-2013/SMD07102013S10852005.pdf
 http://judis.nic.in/supremecourt/imgst.aspx?filename=19828
 http://lobis.nic.in/dhc/SMD/judgement


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