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 importance. Further, every effort was made to prevent the grant of

frivolous patents and 'ever-greening' of patents2.

1 The Patent system of India, http://www.gian.org/north/files/FAQ.pdf2 Natco vs. Bayer ( Controller of Patents, 2012) Case Analysis, www.academia.edu

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 holder’s 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 holder’s 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 Watt’s patent been compulsorily licensed,

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.

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

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

health budget.4

ii. It ensures dissemination of technologies, knowledge and supports development in

totality.

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

monopoly holder agrees.

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

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

v. Compulsory Licensing not only provides opportunities for competition but also

maintains the growth opportunities for the generics.

vi. Compulsory Licensing provisions raise consumer confidence in the patent system

and reinforce their belief in existing political set up which is necessary for social

tranquility and political stability.

vii. 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.

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.

6 Intellectual Property Rights – A Critical History: Christopher May and Susan Sell. Viva Books 20087 Dhara Doshi , Compulsory License Regime of Intellectual Property Rights With Reference to TRIPS, http://www.manupatrafast.com/

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.

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

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

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

(ii) ‘Public Interest’ (dealt with broadly under Section 92).

(iii) New Grounds introduced by the 2005 amendments.

(iv) 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

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

motion by the Central Government when it notifies in the Official Gazette that extra-

ordinary 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.

CASE ANALYSIS

India’s 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

Corporation’s 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.

Bayer’s 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 month’s 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 India’s 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 Squibb’s

anticancer drug Dasatinib, sold under the brand name Sprycel. The Patent Office rejected

BDR’s 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

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

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.

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 India’s 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 Bayer’s 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

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.

13 Dhara Doshi , Compulsory License Regime of Intellectual Property Rights With Reference to TRIPS, http://www.manupatrafast.com/14 Srividhya Ragavan, ‘Can’t We All Get Along?- The Case For A Workable Patent Model’, Arizona State Law Journal, vol 35, 2003, p117 15 Compulsory Licensing in India, http://www.selvamandselvam.in/compulsory-licensing-in-india