Compulsory Licencing in India- Global Reaction, Advantages, Disadvantages
Intellectual property rights are protected under national and international laws. An example of such protection is the grant of Patents to persons who invented or originated novel inventions.
However, worldwide, the law on intellectual property right in relation to patents has evolved to create an exception which may not be wholly in the interest of the intellectual property owner.
This exception is embodied in the concept of ‘Compulsory Licencing’.
The provisions on compulsory licencing are contained in the Indian Patents Act, 1970 and in the Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement, at the International Level.
In this article, we shall be looking at the concept of compulsory licencing under Indian Law.
Generally, the World Intellectual Property Organization (WIPO), which is the organ of the United Nations regulating Intellectual Property protection worldwide, defines patent as “an exclusive right granted for an invention, which is a product or a process that provides, in general, a new way of doing something, or offers a new technical solution to a problem”.
As a principle, a patentee is usually granted this right of exclusion for a period of twenty years, within which the patentee can exclude every other entity from dealing with its products, except for the purpose of consumption.
The Patent gives the patentee the right to make, sell, export its invention, to the exclusion of other persons, for a specific time period.
Within the period the Patent subsists, no other entity is allowed to reproduce the invention, except with the prior consent of the Patentee.
However, the Law has evolved to make exceptions where the Government can grant an entity the right to reproduce a Patentee’s product, without first obtaining the consent of the patentee.
This exception arises where the entity is granted compulsory licencing by the government.
The Indian Patents Act, 1970, has been amended to incorporate this concept in the Act.
2.0 Brief Background on Compulsory Licencing
Citizens of developing or underdeveloped countries with little or no resources, can be hard-pressed to afford a patented invention that is unaffordable, especially in cases of emergency. E.g. where there is an outbreak of a disease which requires the use of a patented drug.
Because of tough economic situations and urgent public needs, the Government has to devise measures that will enable its citizens purchase a patented product or invention at a cheaper rate.
In order to achieve this, negotiations have to be made with the patentee to permit generic manufacturers to manufacture the patented product.
Although, it is common to see that compulsory licences are given in respect of patented pharmaceutical products, the principles or conditions for the issuance of such licences will still apply to any other invention or technology.
As earlier established, where compulsory licencing is granted, the effect of such licence is that it gives the licencee the right to deal in the Patentee’s product, without first obtaining the prior consent of the Patentee.
The Government therefore bridges the gap of negotiation between the licencee and the Patentee.
3.0 Provisions of the Patents Act, 1970 on Compulsory Licencing
Section 84(1) – 94, 96 – 102, make provisions which regulate compulsory licencing in India. Thus, for the successful grant of this licence, an applicant must comply with these relevant provisions.
- Section 84 of the Patents Act, 1970
Section 84(1) establishes the principles for the grant of a compulsory licencing in respect of patented products in India.
Section 84(1) of the Patents Act provides as follows:
At any time after the expiration of three years from the date of the grant of a patent, any person interested may make an application to the Controller for grant of compulsory license on patent on any of the following grounds, namely:
- That the reasonable requirements of the public with respect to the patented invention have not ben satisfied; or
- That the patented invention is not available to the public at a reasonably afforded price; or
- That the patented invention is not worked in the territory of India.
A reading of the wordings of the section establishes the following
- An interested person (natural or artificial) can only make an application for the grant of a compulsory licence for the use of a patented product, after a three-year period has elapsed from the time the patent was granted.
- The application is made to the Controller.
- The success of the application for a compulsory licence depends on whether or not the application establishes any of the following grounds contained in section 84(1) (a – c).
- The grounds under section 84(1) are grounds which show that the patented product has not had a large success in the interest of the public. Any or all of the grounds may be established. The grounds are simplified as follows:
- The patent has not reasonably satisfied the public requirement.
- The patented product is expensive and the majority of the public cannot afford it.
- The patented product/invention is not being produced in India. It is rather being imported into India.
The grant of compulsory licencing under section 84(1) played out in the Bayer vs. Natco Case. In this case, Natco Pharma, a generic production company, applied for the issuance of a compulsory licence in its favour. This was to enable it produce the Nexavar drug, a patented drug belonging to Bayer Corporation. The Nexavar drug is a medicine for treating Kidney and Liver Cancer.
The grounds for the application were that:
- The Nexavar drug was very expensive. One month’s worth of dosage cost around Rs. 2.8 Lakh; and Natco Pharma was offering to sell the dosage for around Rd 9000.
- The patented drug was not worked in the territory of India. It was being imported into India.
- The reasonable requirements of the public (i.e. the quantity of drug in circulation) was not met. Only 2% of the total number of cancer patients had an access to the drug.
After full deliberations in line with section 84(1), the Government issued the compulsory licence in favour of Natco Pharma. The Government also directed that Natco Pharma was to pay to Bayer a per quarter royalty of 6% on the net sales of the drug.
Bayer Corporation appealed to the Intellectual Property Appellate Board (IPAB), and after due consideration, the board, affirmed the order and increased the royalty rate to 7%. The board observed that the proceedings was done for the public interest and not in the detriment of the inventor nor in favour of the compulsory licensee.
A major observation made by the IPAB, which was a relieve to Patentees in India, was the board’s application of the third ground contained in section 84(1)(c). According to Board, neither the TRIPS nor the Paris Convention, defined the meaning of ‘working of a patent’ locally. In the absence of this definition, the meaning must be determined based on the circumstances of each case.
- Section 84(6) of the Patent Act
It is important to note that another precondition for the successful application under section 84(1) is hinged in section 84(6) of the Patent Act.
Section 84(6) of the Patent Act, requires that an applicant should make an effort to negotiate a voluntary licence with the Patentee before proceeding to apply for a compulsory licence.
An Indian generic company, BDR Pharma applied for the issuance of compulsory licence in respect of a patented invention belonging to Bristol Myers Squibb. The Controller General refused to issue the compulsory licence in favour of BDR Pharma.
The reasons for the Controller General’s refusal was that BDR Pharmacy had not made ‘effort’, as required in section 84(6) of the Patents Act, 1970. According to him, the requirement under section 84(6) is absolute, inflexible and without any exception. An applicant who wishes to obtain a compulsory licence, ought to comply with this pre-requirement.
- Sections 92 of the Patents Act
Section 92 of the Act, makes provisions on specific situations where compulsory licences can be granted They include
- Under exceptional circumstances, compulsory licences can be issued for exports.
- In a case of national emergency, extreme urgency or public non-commercial use, where notification is given to the Central Government, compulsory licences can be issued. In these cases, the Controller can issue a compulsory licence even if there is no formal application made, as long as the Central government has been notified of the circumstances outlined herein.
- It can also be issued to a country which has insufficient or no manufacturing power in the pharmaceutical sector to address public health.
- Section 89 of the Patents Act
This section of the Act makes provisions on the revocation of a compulsory licence. According to the section, where there is evidence that the licencee is unable to work the invention (i.e. produce the invention in India), the licence will be revoked.
The section also allows the revision of the terms of the licence, where there is proof that there is need to amend the grounds on which the compulsory license was granted. This revision is only available where the licencee has been able to work the invention for at least twelve months from the period the licence was obtained.
- Section 94 of the Patents Act
This section stipulates the grounds which necessitate the termination of the compulsory licence.
A compulsory licence will be terminated where the Controller is convinced that:
- the conditions which necessitated the issuance of the compulsory licence no longer exists; and
- the possibilities of recurrence of such conditions are unlikely.
4.0 Rights of the Patentee
From the case studies considered above, the following can be gleaned:
- The patentee is entitled to be notified, and at least consulted, before an application is made for the issuance of a compulsory licence.
- The patentee is entitled to obtain royalties from the licencee. The commercial rights of the patentee cannot be compromised. In order to be able to obtain adequate royalty from the compulsory licencee, the patentee is required so submit all necessary documentary evidence which shows the expenditure incurred in respect of the patented product.
5.0 Global Reaction on Compulsory LicenCing
The reactions are twofold. Developing and underdeveloped countries, who have a lot to gain, are obviously in favour of this concept. On the other hand, developed nation, who are in majority of the cases, the Patentees, are less susceptible to this concept, because of the disadvantages it poses.
This leads us to the advantages and disadvantages of Compulsory Licence.
6.0 Advantages of Compulsory LicencIng
- It is beneficial to public interests, especially the pharmaceutical sector in developed and underdeveloped nations, during contingency periods. This is because cost of procuring the drug or invention is cut back by generic manufacturers, as opposed to the higher prices placed by the patentees.
- It will boost the innovation of companies at lesser cost. The government will prefer to issue compulsory licence as it is will enable transferred technology, rather than funding the Research and Development of such inventions – this is always a costly venture.
- With the increase of generic companies/manufacturers, the invention will be rapidly multiplied, hence, the cost of the patent product will come down, as the supply increases. This forces the patentee to reduce their pricing standing in order to be able to compete in the market. This enhances competition and low pricing.
- It acts as a check on the efficiency of an invention. Where an invention is not sufficient and complete, in the process of issuing a compulsory licence, such inadequacy may be discovered, and this will help the government curtail the spread of the invention within the territory.
- Final consumers, especially patients, will be able to get the invention or drugs at significantly cheaper rates. Thus, affordability issues can be resolved through this medium.
7.0 Disadvantages of Compulsory Licencing
- Foreign patentees may have the notion that the nation is non-patent friendly, and may not have confidence in the intellectual property regime of such nation.
- There is the problem of dissatisfaction with the royalties on the part of the patentee. These royalties may not match the expenditure incurred in the research, making, development, maintenance and obtaining of the patent
- It discourages the development of research amongst generic manufacturers, because obtaining a compulsory license is cost-effective.
The time frame for enjoying the exclusive rights of a patented invention by the patentee, is abridged by the effect of Compulsory Licencing.
In order to achieve a balance between the interest of the Patentee and public interest, governments have to efficiently consider the whole circumstances of an application, or national situations before granting such licences.