Intellectual Property RightsCompulsory Licensing of Pharmaceuticals- A Boon or Bane

September 19, 20220


The unprecedented period that society faced as a result of Covid -19 has put the world’s current systems to the test. One such system is that of compulsory licensing under the Patent Law governed by the Patent Act, 1970.

A patent is an exclusive right given to an invention, which might be a product or a procedure that offers a new method of doing something or a new technological solution to a problem. It is an exclusive right provided to protect the patent holder’s hard work to foster innovation.

The World Intellectual Property Organization (hereinafter referred to as “WIPO”) defines a patent as an exclusive right given to an invention, which is a product or a technique that, in general, provides a new way of doing something or gives a new technological solution to a problem. A patentee has an exclusive right to his creation for a period of twenty years, and he can prevent anyone from using his patented goods. However, under some instances, a third party may be granted a compulsory license to use a patented product, under certain conditions.


Compulsory licenses are authorizations granted by the Controller General to a third party to manufacture, use, or sell a patented product or method without the approval of the patent owner. This notion is acknowledged at both the national and international levels, with explicit reference in both the patents Act, 1970 (hereinafter referred to as the “Patents Act”), and the Trade-Related Aspects of Intellectual Property Rights Agreement (hereinafter referred to as the “TRIPS Agreement”).

Sections 84 to 92 of the Patents Act outline the pre-requisites that must be met before a compulsory license can be issued in a third party’s favour.

Section 84(1) of the Patents Act, defines the purpose of compulsory licensing and requires that while issuing them, the broad principles outlined in the said section must be considered.

According to Section 84(1) of the Patents Act, a compulsory license can be given after a three-year term from the day the patent was granted, in case if any of the following criteria are not met:

  1. The public needs for the patented innovation have not been met; or
  2. The patented invention is not offered to the public at a fair affordable price; or
  3. The patented innovation is not being used in India.

Furthermore, the Central Government may award a compulsory license suo moto under Section 92(1) of the Patents Act in the following circumstances:

  • National emergency; or
  • extreme urgency; or
  • public non-commercial usage ease.


India is a significant member country that signed the TRIPS Agreement. Prior to the TRIPS framework, patents for pharmaceutical products were not awarded in India.

India is a centre for large pharmaceutical companies that rely heavily on patents. Due to the high demand for patented items and to prevent monopolisation or misuse of patent rights, the Patents Act includes extensive provisions for compulsory licensing.

To give effect to paragraph 6 of the Doha Declaration, which recognises that World Trade Organization (hereinafter referred to as “WTO”) members with insufficient or no manufacturing capacity in the pharmaceutical sector may face difficulties in making effective use of compulsory licensing under the TRIPS Agreement, the Patents Act was amended to include a new Section, Section 92-A, on compulsory licensing for manufacturing and exportation of patented pharmaceutical products into any country that does not have sufficient manufacturing capacity.

Exportation is permitted primarily to countries that have given a compulsory license and have notified or otherwise permitted the entry of patented pharmaceutical items from India.


Bayer v. Natco, (60) PTC 277 (Bom)

On March 9, 2012, the patent office granted India’s first compulsory license to Hyderabad-based Natco Pharma to manufacture a generic version of Bayer’s Nexavar, an anticancer drug used to treat liver and kidney cancer. In Bayer v. Natco, it was found that only 2% of cancer patients had easy access to the drug and that Bayer was selling the drug at an exorbitant price of Rs. 280,000 for a month’s therapy. When Nexavar was brought to India, the patent office granted a compulsory license to Natco Pharma, which guaranteed that the tablets would be sold at Rs. 8,880 per month. It was agreed that 6% of the net sales price of the drug would be paid as Royalty to Bayer.

BDR Pharmaceuticals International Pvt Ltd v. Bristol-Myers Squibb Co., CLA No. 1 of 2013

In the instant case, the administrator denied BDR’s request for a mandatory licence for Bristol-Myers Squibb’s cancer medication SPRYCEL. The administrator denied the BDR’s application for a compulsory licence, finding that the BDR had failed to show a compelling justification for awarding the compulsory licence. The administrator determined that the BDR made no genuine endeavour to get a licence from the patent holder and that the applicant likewise did not obtain the right to exploit the innovation for public benefit. As a result, the application for a compulsory licence was denied.


  • Grey Market

The local supply of patented products may result in the formation of a grey market in multiple ways. When a product is created and targeted to a specific market, it is also transported into another market known as a “grey market”, to sell it for less than its list price in the targeted market. Grey marketing is not unlawful in comparison to black marketing, which involves counterfeit or illicit items. However, they do result in income loss and place an economic strain on the Government.

  • Apprehensions of the Patent holder

A compulsory license applicant who has not spent a single rupee on the innovation cannot be considered the inventor. Certain patent holders believe that forcing inventors to license their inventions will hinder further inventive activity. According to them, the patentee invests a significant amount of money and time in developing the idea, but the obligatory license holder reaps the benefits with minimum work.

  • Royalty-Free Practice or Low Royalty

Compulsory licenses are issued in times of crisis, emergency, or urgency, and are intended for those in desperate need. During a crisis, the product is needed in large quantities and at reasonable costs so that it is accessible to people of all financial backgrounds. In such an instance, the royalty for the required license cannot be particularly high, and the price should not rise.

However, the patentee is still entitled to royalty under the terms of the agreement. Royalty is determined by a variety of factors, including the market value of the product, the region of marketing, quantity of goods to be promoted, the proportion of consumers, the term of the license, etc. If marketing is done in quantity, the royalty is usually lower.

  • The difference in standards of National Emergency

There is no international standard definition of a national emergency. One of the arguments made against compulsory license is that there is no clear accepted definition of a public health emergency. Having a definite, restricted, and stringent definition of a national emergency that applies to all countries is a difficult assignment since each country has its unique health issues, illnesses, lifestyles, and populations.


The primary objective of compulsory licensing is to enhance public access to expensive patented drugs, which helps in enhancing market competition and reduces the cost of patented drugs. However, the market dominance of a drug can lead to high prices and, as a result, patent abuse.

As an exception and flexibility to the general rule of patent, the provision of compulsory licensing must be exercised with caution. as it has a direct impact on innovation funding, and unrestricted use of this provision may cause global pharmaceutical companies to give a second thought before introducing new medicines in other countries. As a result, if enterprises wish to safeguard their product against compulsory licensing, they must set the price of their patented module based on the country’s economic state.

Compulsory licensing is perhaps the only chance for financially disadvantaged patients in developing nations. The issue, however, is that it must conform to international patent protection rules while also protecting public health.

-Team AMLEGALS, assisted by Ms. Devanshi Jain (Intern)

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