June 13, 2021

Basic Concept of Compulsory License and Government use of Patent

Patent

Introduction

The Patents Act, 1970 was amended three times in 1999, 2002, 2005 respectively to include the concept of ‘compulsory license’ and these are given in the sections 84-92 of the Indian Patents Act, 1970.A patent is an exclusive right granted for an invention, whether it is a product or a process which gives a new technical solution to a problem, and this patent is granted for a specific period to the inventor.

Compulsory licensing in the context of Patent laws are granted by countries to deal with monopolies acquired in Intellectual Property Rights. The compulsory license is an authorization which permits the third party to use, make or sell an invention for which a patent has been granted, without the consent of the owner of the patent as opposed to the exclusive rights that are conferred on a patentee to use, make or sell a patented invention and prevent unauthorised and illegal use by third parties.

Government use of patent

Various statutory provisions in the Patents Act, 1970 (the Act) deal with governmental use of patented inventions. To comprehend these provisions better and appreciate different factual situations, it is important to understand the scope of the rights conferred on grant of a patent. Section 47 provides that the grant of patents is subject to certain conditions. This section inter alia, states that the government may import or make or have made on its behalf any patented product or product made by a patented process for purposes ‘merely of its own use’.      

Section 100 provides that the Government, or any person authorized by it, is empowered to use the patented invention ‘for purposes of Government’. These statutory provisions it seems, render the otherwise guaranteed rights conferred by Section 48 of the Act, conditional in nature.      

A recent case in the Bombay High Court explores the exception under Section 100 of the Patent Act, dealing with the use of an invention by the government or its agencies. In Garware Wall Ropes Ltd v Al Chopra and Konkan Railway Corporation Ltd [1](2009(111) BomLR479), the appellant filed for a temporary injunction as well as rendition of accounts against the respondents for infringing his patent. The respondents pleaded immunity under Section 100, by stating that Section 100 of the Patents Act grants complete protection for using the patents for the work of railways, which is a department of the central Government and such contracts are signed on behalf of the president of India.

The court recognized that Section 48 creates certain rights in favor of the patentee which cannot be taken away in the manner that was being done. At this stage, the court referred to Section 156, which says that a patent shall have the same effect as against the Government, as it has against any person. Under Section 47, the government may practice the invention “merely of its own use”, as against this, if they are used by the government or any person authorized by the government under Section 100, it has to be through an agreement or license by the patentee.

Section 47 of the Patents Act also outlines other instances where patented inventions may be used, such as for imparting educational instructions and the distribution of patented medicines in government dispensaries or hospitals on account of public service.

‘Compulsory Licenses’ Under the Patents Act

In simple terms, compulsory licenses are authorizations given to a third-party by the Government to make, use or sell a particular product or use a particular process which has been patented, without the need of the permission of the patent owner. The provisions regarding compulsory licenses are given in the Indian Patents Act, 1970 and in the TRIPS (Trade-Related Aspects of Intellectual Property Rights) Agreement at the International level. Although this works against the patent holder, generally compulsory licenses are only considered in certain cases of national emergency, and health crisis. There are certain pre-requisite conditions which need to be fulfilled if the Government wants to grant a compulsory license in favor of someone.

Under Indian Patents Act, 1970 the provisions of ‘compulsory license’ are specifically given under Chapter XVI, and the conditions which need to be fulfilled are given is Sections 84-92 of the said Act.

Section 84 of the Patents Act

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:

(a) That the reasonable requirements of the public with respect to the patented invention have not been satisfied, or

(b) that the patented invention is not available to the public at a reasonably affordable price, or

(c) that the patented invention is not worked in the territory of India.

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 expiry of the three years, when the above conditions are fulfilled.

However compulsory licenses may also be granted, when –

  1. Section 92 A- For exports, under exceptional circumstances.
  2. Section 92A- In case of national emergency, extreme urgency of public non-commercial use by notification of the Central Government
  3. Section 92 A (1) – To a country which has insufficient or no manufacturing power in the pharmaceutical sector to address public health.

India’s first case of granting compulsory license

License was granted by the Patent office in 2012 to an Indian Company called Natco Pharma for the generic production of Bayer Corporation’s Nexavar. All the 3 conditions of Sec 84 was fulfilled that the reasonable requirements of the public were not fulfilled, and that it was not available at an affordable price and that the patented invention was not worked around in India.

The Government took this decision for the general public benefit. However, it was heavily criticized by the Pharmaceutical Companies as they felt the license should not have been given.

Procedure for processing compulsory licence application

On filing the application for grant of a compulsory licence along with the relevant facts and evidence, the controller will analyse the prima facie case made by the applicant against the patentee. After considering such factors as the nature of the invention, the applicant’s ability to work the invention and whether the applicant has made efforts to obtain a licence from the patentee on reasonable terms and, if such efforts have not been successful within a reasonable period (ie, six months from the date of application), the controller will decide whether to grant or reject the compulsory licence.

In case the controller is not satisfied with the applicant’s request, a notice will be issued to the applicant regarding rejection of the grant of a compulsory licence. In this scenario, the applicant may request a hearing with the controller, within one month from the date of such notice of rejection. The controller will thereafter decide the fate of the application based on the hearing discussion held with the applicant.

Terms and conditions of a compulsory licence

  • the patentee’s investment in the invention;
  • the workability of the patentee’s invention by the applicant;
  • the selling price of the patented articles (at affordable prices); and
  • the term of the licence.

The government may, if it is necessary to do so in the public interest, direct the controller at any time to authorise any licensee in respect of a patent to import the patented article or an article or substance made by a patented process from abroad. Such authorisation is subject to conditions, including details of royalties and other remuneration, the quantum of import, sale price of the imported article and import period, among other things.

Opposition to the grant of a compulsory licence

When the controller is satisfied, on consideration of an application under Section 84, that a prima facie case has been made out for the making of an order, the applicant will be directed to serve copies of the application to the patentee and any other person appearing from the register (eg, a licensee mentioned in the register). The application made by the applicant is thereafter published in the OfficialJournal.

The patentee or any other person desiring to oppose the application for the grant of a compulsory licence may, within the prescribed time (two months from the date of publishing the application in the Official Journal), file a notice of opposition via Form 14, along with the prescribed fee. The opposition statement should contain statements pertaining to the grounds on which the grant of the compulsory licence is opposed. When such a notice is served, the controller will notify the applicant and give both the applicant and opponent an opportunity to be heard before deciding the case.

Compulsory licence for exporting patented products

A compulsory licence for exporting goods usually relates to exporting pharmaceutical products, particularly in certain exceptional circumstances. A compulsory licence is available for the manufacture and export of patented pharmaceutical products to any country with insufficient or no manufacturing capacity in the pharmaceutical sector for the concerned product, to address public health problems. Such export is allowed, provided that the compulsory licence has been granted by such country or such country has, by notification or otherwise, allowed the import of the patented pharmaceutical products from India. The pharmaceutical products may be any patented product or product manufactured through a patented process of the pharmaceutical sector needed to address public health problems and should be inclusive of ingredients necessary for their manufacture and diagnostic kits required for their use.On receiving an application in the prescribed manner, the controller will grant a compulsory licence solely for manufacture and export of the concerned pharmaceutical product to such country under the terms and conditions as may be specified and published.

Termination of compulsory licence

On an application along with evidence, made by the patentee or any other person deriving title or interest in the patent, the compulsory licence granted under Section 84 may be terminated by the controller when the circumstances considered for grant of the compulsory licence cease to exist. The applicant is thereafter required to serve a copy of the application and evidence to the holder of the compulsory licence and to inform the controller of the date on which the service was made effective.

The holder of the compulsory licence may file his or her objection along with evidence to the application for termination, within one month from the date of the controller’s receipt of the application (and evidence). A copy of the objection and evidence is also required to be served to the applicant by the licence holder.

Thereafter, the controller will appoint a hearing for analysing the facts and issuing a verdict. If the controller decides to terminate the compulsory licence, an order setting out terms and conditions (if any) of such termination will be served to both the parties.

 Important Case Laws dealing with Compulsory License

Bayer v Natco[2]

India’s first ever compulsory licence was granted by the Patent Office on 9 March 2012 to Hyderabad-based Natco Pharma for the production of a generic version of Bayer’s Nexavar, an anti-cancer agent used in the treatment of liver and kidney cancer. It was established in Bayer v Natco that only 2% of the cancer patient population had easy access to the drug and that the drug was being sold by Bayer at the exorbitant price of Rs280,000 for a month’s treatment. Further, on the grounds that Nexavar was being imported within India, the Patent Office issued a compulsory licence to Natco Pharma, which assured that the tablets would be sold for Rs8,880 per month. It was settled that 6% of the net selling price of the drug would be paid to Bayer by Natco Pharma as royalties.

BDR Pharmaceuticals International Pvt Ltd v Bristol-Myers Squibb Co[3]

In BDR Pharmaceuticals the controller rejected BDR’s application for a compulsory licence (4 March 2013) for the Bristol-Myers Squibb cancer drug SPRYCEL. The controller rejected the compulsory licence application made by BDR by stating that BDR had failed to make a prima facie case for the grant of the compulsory licence. The controller observed that BDR had made no credible attempt to procure a licence from the patent holder and the applicant had also not acquired the ability to work the invention to public advantage. Thus, the request for grant of the compulsory licence was refused.

Lee Pharma v Astra Zeneca AB[4]

 In order to make a prima facie case, Lee Pharma declared that request for a licence with the patent owner was not responded to within a reasonable period. The grounds alleged by Lee Pharma were that:

  • the patentee failed to meet the reasonable requirements of the public;
  • the patented invention is unavailable to the public at a reasonably affordable price; and
  • The patented invention is not used in India.

However, all three grounds as well as the compulsory application were rejected. The application was rejected on the basis that Lee Pharma failed to demonstrate the reasonable requirement of the public and further failed to demonstrate the comparative requirement of Saxagliptin in relation to other drugs in the market. Further, the controller held that all the related drugs available in the market were in the same price range and the allegation that Saxagliptin alone was being sold at an unaffordable price was not justified. The controller also stated that Lee Pharma failed to demonstrate the exact number of patients that were unable to obtain the drug due to its non-availability.

Conclusion

The grant of compulsory licenses to drugs has played a crucial role in the healthcare system. However, a compulsory licence can have an impact on innovation whereby the pharmaceutical companies will be more dependent on generic drugs and will be deprived of innovation. The need to fund and carry out Research and Development will be hampered since they will solely rely on procuring a compulsory licence to a generic drug.

 References:

  1. Current Scenario of Patent Act published by Indian Journal of Pharmaceutical Education and Research
  2. https://blog.ipleaders.in/concept-compulsory-license-patents-act-1970/
  3.  https://www.wipo.int/patents/en/
  4.  https://www.wto.org/english/tratop_e/trips_e/public_health_faq_e.htm
  5.  http://www.khuranaandkhurana.com/2017/08/03/compulsory-licensing/

[1] Garware Wall Ropes Ltd v Al Chopra and Konkan Railway Corporation Ltd

[2] Bayer v natco

[3] BDR Pharmaceuticals International Pvt Ltd v Bristol-Myers Squibb Co

[4] Lee Pharma v AstraZeneca AB

Author: Allapureddy Vaishnavi (ICFAI Foundation Of Higher Education (IFHE) University)

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