1|Page

Compulsory licencing of patents

Submitted to: Ms. Kuhu tiwari

(Faculty of IPR)

AMITESH TIRKEY

Submission Date:
Section C
Roll No. 25
Semester VIII

ACKNOWLEDGEMENT
2|Page

I am highly elated to carry out my research on the topic, compulsory licencing of patents. I
would like to give my deepest regard to my course teacher Ms. Kuhu tiwari, who held me
with her immense advice, direction and valuable assistance, which enabled me to march
ahead with this topic. I would like to thank my friends, who gave me their precious time for
guidance and helped me a lot in completing my project by giving their helpful suggestion and
assistance. I would like to thank my seniors for their valuable support. I would also like to
thank the library staff and computer lab staff of my university for their valuable support and
kind cooperation.

Contents
3|Page

Introduction4
Compulsory licencing.5
Origins of compulsory licencing7
Compulsory licencing in other countries.10
Compulsory licencing in
india..12
Conclusion
..13

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
4|Page

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 1 st 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.

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

2
5|Page

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 holders 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 holders 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 Watts 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.

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.

4
6|Page

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

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

5
7|Page

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.

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;

8
8|Page

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 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.
9|Page

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.
10 | P a g e

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
11 | P a g e

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
12 | P a g e

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 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.

Conclusion

10
13 | P a g e

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 Indias 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 citizens11. 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 Bayers 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
11
14 | P a g e

population with various diseases. Expecting developing countries to place business interests
of developed nations ahead of the local public health issues is impractical.12

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 happens13.

12

13