Commentary On Compulsory Licensing Under The Patents Act, 1970

Patents provide exclusive rights to the patent proprietors over their novel creations. There is an implied expectation that the owners of the patents will work the patented inventions pragmatically on a commercial scale without any undue delay. However, in certain cases, these rights are exploited for anti-competitive practices. In order to prevent such abuse, the provision of compulsory licensing is brought into play. The article intends to explain the compulsory licensing regime under Indian patent law. The article is divided under several heads. The first head covers the inception of compulsory licensing in international and Indian legal regime. Second head covers the purpose and general compulsory licensing along with procedures, terms and conditions that are to be considered by which licensing can be obtained. Third head covers different types of compulsory licensing under Indian Patents Act, 1970. Fourth head dwells into the power provided to controller of patents. Lastly, it covers the different precedents of compulsory license in India.

Introduction

The practice of compulsory licensing can be understood as the practice of providing a license to the applicant by the concerned authority contrary to the consent of the patent holder, here the authority is the controller of patents. Due to advances in technological and industrial realm coupled with globalization, it has become important that the inventive knowledge is protected everywhere and that to uniformly. To provide protection and boost trade, a member of the World Trade Organisation (WTO) must be a signatory of Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement.

Not all the members of the WTO are equal in terms of economic and industrial power, therefore they are more susceptible to exploitation. In order, to use the new technological advances in the field of science and medicine, people from poor countries have to pay exuberant prices to access innovation. Such exuberant pricing makes it near to impossible for all citizens to access the innovation. To tackle this problem the practice of compulsory licensing is used that can be understood through Article 31[1] of the TRIPS Agreement.

In the year 2001, the Doha Declaration promoted the practice of compulsory licensing for the medical invention to make the innovations more accessible to citizens of developing and underdeveloped countries. Even in India, post the Doha Deceleration the government made several amendments in 2002 and 2005 respectively to the Patents Act, 1970 (hereinafter referred to as ‘Act’). The Act deals with compulsory licensing under chapter XVI. The Patent Rules of 2003 (hereinafter referred to as ‘Rules’) deal with it under chapter XIII respectively.

Now in the year 2020 midst the Covid-19 pandemic, it is important to discuss the accessibility of the concerned cure to everyone. Therefore, talks for compulsory licensing of the potential cure of the pandemic has become a topic of debate.

General Purpose of Compulsory Licensing

The purpose of compulsory licensing can be understood via a combined reading of section 89[2], 83(b)[3], and 83(f)[4] of the Act. The purpose of the practice is to prevent monopolistic control over importation and exploitation of rights derived from the patent in lieu of anti-competitive practice. The controller grants the license in order to promote the growth on a commercial scale and that to the fullest extent without any undue delay. This is done in order to meet the public requirement and utilise the patent to its fullest extent.

In certain cases recently, the Indian courts have ruled that the provision against anti-competitive practices in the competition act and the provision of compulsory licensing in the patent act are not in exclusion of each other; in fact they have to be read consonance with each other. The question whether a patentee had adopted anti-competitive practices could also be considered by the Controller. However, if CCI has finally found a patentee’s conduct to be anti-competitive and its finding has attained finality, the Controller would also proceed on the said basis and-on the principle akin to issue estoppel-the patentee would be stopped from contending to the contrary.[5]

Compulsory Licensing in India

In India the compulsory licensing is covered mainly u/s 84 of the Act. Apart from section 84, other sections that cover the concerned practice are section 91, 92, 92A of the Act. An application for grant of compulsory licensing can be made to the controller, at any time after the expiration of three years after the patent has been granted, either through Form 17 or Form 19[6] as prescribed under the Rules. The grounds for application have been give under section 84(1) of the Act as follows:[7]

  • Failure on behalf of the Patentee to meet the public requirement.
  • The patented innovation being exuberantly priced and not affordable to the public.
  • Failure to the work the innovation to its fullest in the territory of India.

The applicant also has to state their intent for the prescribed patent. The Act also lays down circumstances that if not satisfied would led to failure of meeting the public requirement. These circumstances are enlisted below as[8]

  • The refusal to grant licensee by the patentee that results in damage to trade, industry and business in India and the demand of the article for public is not being met.
  • The patentee imposes prejudiced conditions on grant of license affecting the trade and commerce in the country.
  • The patentee impose the right of exclusive grant back on license.
  • The failure of the patented innovation to work on its fullest commercial scale.
  • The commercialization of the article is hindered due to importation from abroad.

The controller in order to determine ‘the affordable price’ takes into consideration the per capita income and purchasing power of the Indian people/ or the user, cost of the production, availability and affordability of any substitute of the product etc.[9]

In order to determine the workability of the innovation, section 83 of the Act has to be analysed. The innovation in order to be worked in the territory of India should be utilised to its fullest commercial extent and promote technological innovation. Patent rights do not grant the holder a monopolistic right to exploit the end user. In the case of medical innovation, it should not prejudice the public health and restrain the state from promoting the same[10]. The medical innovations should promote not monetary benefits for the patentee but also health for all the user. The pricing of the innovation should be such that it is accessible to people from all the economic strata.

Procedures for Compulsory Licensing

The procedure to obtain the compulsory license can be divided into two parts, first before the acceptance of the application and the other post-acceptance of application. The application filed under section 84 of the Act should establish that grounds mentioned in section 84(1) have not been met by the patentee. The application should be made in the Form 17 or Form 19 as required. Along with the application, the applicant should establish his intent and his capacity to work the concerned innovation. The applicant should also establish that he/she made efforts to obtain the license from the licensee for reasonable terms and conditions in a reasonable period of time (i.e. six months).[11]

Once the controller is satisfied with the prima facie case he issues an order and directs the applicant to serve the copies of application to either the patentee or his representative. This is done so that the patentee gets a chance to be heard and oppose the applicant’s contention. When the central government orders the controller to grant the compulsory license then the copy of the same is to be served to the patentee as soon as possible.

The opposition to the application can be filed via Form14[12]of the Rules along with the grounds for opposing the application. After the notice of opposition is received by the controller the same is forwarded to the applicant so that both the parties can be heard before deciding the case.

Terms and Conditions of Compulsory licenses

When the controller has agreed to issue a compulsory license, the required terms and conditions of the compulsory license will be laid down. The controller shall also agree on the royalty or remuneration owed to the patentee on the basis of the following[13]:

  • Investment by the patentee in the invention;
  • The workability of the patent invention by the applicant;
  • The pricing of the product for sale at price accessible to end-users;
  • The duration of the license.

The controller may also clarify the requirements related to the exportation and importation of the patented article, non-exclusivity and non-assignability of the license, among other issues.

Where it is appropriate to do so in the public interest, the Government may, at any time, order the controller to allow any licensee, in respect of a patent, to import from abroad a patented product or item or substance created by a patented process. Such authorisation shall be subject to conditions, including the specifics of royalties and other remuneration, the number of imports, the selling price of imports.

Nature of the Order for the Compulsory License

The nature of the order passed by the controller, granting compulsory license to the applicant, acts like a deed. Such that it is executed by the patentee for licensing in the name of applicant along with the terms and conditions established by controller.[14]

Termination of Compulsory License

The compulsory license granted under section 84 may be revoked by the controller by an application filed by the patentee (via Form 21)[15]or by the beneficiary of the patent rights, along with evidence proof that the circumstance during which the compulsory license was granted have ceased to exist. It would be unjust to the patentee if the licensee still holds the right even after the circumstances have changed.[16]

A copy of the application is to be served to the licensee after it is submitted to the controller. Any objection that is to be raised has to be within one month of the application along with the evidence of objection.

Post the filing of objection, the controller calls upon both the parties and examines both the side and passes the order to revoke the license, if he deems it fit.

Licensing of related patents

Post the grant of first patent, any person who has the right to work on the second patent be it as a patentee or a licensee, may file an application to the controller for the grant of license of the first patent. In order to get the license the applicant must establish that the first and the s second patent are related, they cannot be chalk and cheese, and the first patent is necessary to exploit the first patent to its fullest commercial scale. The patent should have made a significant commercial contribution. The applicant should also be willing to cross license his patent. This is done in order to promote the commercial growth and work the innovations to their fullest extent.[17]

 Grant of Compulsory License on notification by the Central Government

The government can make a notification regarding compulsory licensing of a patented pharmaceutical on the circumstances of national emergency, or extreme urgency, or non-commercial use for public health. Any person interested can make an application to the controller for grant of the license post notification. If the controller is satisfied he may grant the licensee and decide the terms and condition. The controller shall set the lowest selling price after taking the patantee’s royalty into consideration.[18]

In case of any epidemic for examples AIDS, tuberculosis, Malaria or any other epidemic, the controller is exempted from following procedures prescribed under section 87 and shall notify the patentee as soon as possible. This is done in order to efficiently provide the citizens with generic drugs without any procedural time lapse.

A compulsory licence for the export of patented pharmaceutical products in certain exceptional circumstances

It is a provision that allows an applicant to manufacture and export the patented pharmaceutical products to a country that has no means to manufacture the concerned product and has a public health crisis. Such an application can only be filed after the country has given compulsory license for the product or by notification allowed for the import from India.

Here pharmaceutical products mean, product or patented process require to produce the requisite medication and diagnostic kits to tackle the public health crisis.[19]

Powers of Controller

Revocation of a patent for non-working

After the expiration of two years from the date of order issuing the first compulsory license, the Central Government or any person may make an application to the controller for the revocation of the compulsory license on the grounds that patent has not met the public requirement, it is not available at an affordable price and has failed to be worked in the territory of India. The application shall set out the necessary facts and applicants intention. Once satisfied the Controller may make an order revoking the license. All the application presented under section 85(1) shall be decided within one year of being presented to the Controller.[20]

Power of Controller to adjourn applications for compulsory licensing

When an application is made under section 84 and 85 respectively on the grounds that the invention has not worked in the territory of India to a commercial scale and to the fullest extent, the controller is satisfied that the time from the sealing of the patent to the time of application is not adequate to determine the work in the territory of India. He may adjourn the application for a period not exceeding twelve months. [21]

Power of Controller in granting compulsory licenses

When the terms and conditions of the license have been decided by the Controller, the licensee can make an application in Form 14[22] to renegotiate the terms and conditions of the agreement. However, the application can only be after a period not less than twelve months of working the patent on a commercial scale to the fullest extent. Such an application cannot be made the second time.[23]

Precedents on Compulsory Licensing in India

Bayer Corporation v. Union of India[24]          

After the amendment in 2002, it was only in 2012 that India granted its first ever compulsory license under section 84 of the Act. The license was granted to Natco Pharma Ltd. for the drug Nexavar, patented by M/S Bayer Corporation under patent No. 215758 that was used to treat liver cancer. The application was made on the grounds that the public requirement is not being met as only 2% of the patients had access to it, the drugs was not available at an affordable price as it used to cost 2.8 lakh for monthly dosage of the drug, it was not in harmony with per capita income and purchasing power of Indian end-user and lastly it was not worked in India as it was only available through importation.

After a Prima facia case was established the controller settled the terms and conditions of the license that the drug should be made available to patients at Rs. 8,800/- for one month dosage and a royalty of 6% was given to the patentee.

In March 2013, Intellectual Property Appellate Board (IPAB) increased the royalty from 6% to 7%. IPAB stated that if it could be satisfied that the production was not possible in India then importation shall be deemed as working of the product in the territory of India.

In 2014, the Bayer filed an appeal at the Bombay High court that was dismissed and the decision of controller and IPAB was upheld. Subsequently Bayer filed a Special Leave Petition (SLP) at the Supreme Court to challenge the decision of Bombay High court. However, the Supreme Court dismissed the SLP thus concluding the legal proceeding around the compulsory license.

In BDR Pharmaceuticals International Pvt Ltd v. Bristol-Myers Squibb Co[25], the application was dismissed by the controller as the applicant had failed to make a Prima Facie case. The applicants did not make any efforts to obtain the license from the patentee and they also lacked sources and infrastructure to work the innovation in India. Thus, failing to set up a ground for the requisite terms and conditions required for the license.

Similarly inLee Pharma v. AstraZeneca AB[26], in the month of June 2015 an application for grant of license u/s 84 was filed by the Lee Pharma for the manufacture and sale of Saxagliptin, drug used to treat type- II diabetes. The application was dismissed on the grounds that applicant failed to establish the grounds mentioned u/s 84(1) of the Act.

Conclusion

It can be easily comprehended that there are different two different types of compulsory licensing one being market driven u/s 84 and 91 respectively and the other being state driven u/s 92 and 92A respectively. One common purpose of both the type is improving accessibility of the patented innovation. However, it is to be noted that the compulsory license given so far in India have been for pharmaceutical products and the main motive of the state driven compulsory licensing is improvement of public health in the times of crisis. Covid-19 pandemic is one such crisis where availability of potential drugs is of prime importance. Compulsory licensing could be a procurement tool if the working of the innovation is not up to the requisite standard of requirement.

Therefore, it is evident that the purpose of compulsory licensing is to establish rights of the patients over patents.

Author: Yasharth Tripathi, a student of National Law University and Judicial Academy, Assam, intern at Khurana & Khurana, Advocates and IP Attorneys.  In case of any queries please contact/write back to us at aishani@khuranaandkhurana.com.

References:

[1]TRIPS: Agreement on Trade-Related Aspects of Intellectual Property Rights, Apr. 15, 1994, Marrakesh Agreement Establishing the World Trade Organization, Annex 1C, 1869 U.N.T.S. 299, 33 I.L.M. 1197 (1994) § 31

[2] The Patents Act 1970 § 89

[3] Id. § 83 cl. b

[4] Id. § 83 cl f

[5] Koninklijke Philips Electronics N.V. vs. Rajesh Bansal and Ors. MANU/DE/2436/2018

[6]The Patents Rule 2003 § 96.

[7]Supra.4 § 84 cl.1

[8]Id. § 84 cl. 7

[9]Gopalakrishnan NS, Anand M. Compulsory Licence Under Indian Patent Law. In: Liu KC, Hilty RM, editors. Compulsory Licensing: Practical Experiences and Ways Forward. London. SpringerVerlag Berlin Heidelberg; 2015. Ibid., p. 26 The Patents Act

[10]Supra. 4 § 83 cl. b

[11]Id. § 88

[12]The Patents Rules 2003 § 98

[13]Supra. 4 § 90

[14]Id. § 93

[15]The Patents Rule 2003 § 102

[16]Supra. 4 § 94

[17]Supra 4. § 91

[18] Id. § 92 cl. 1

[19]Id. § 92A cl. 2

[20] Supra. 4 § 85

[21] Id. § 86

[22]The Patents Rule 2003 § 101

[23] Supra. 4 § 88

[24]  Bayer Corporation v. Union of India,AIR2014Bom178

[25] BDR Pharmaceut4icals International Pvt. Ltd. v. Bristol-Myers Squibb Company. C.L.A. No. 1 of 2013.

[26] Lee Pharma Ltd. v. AstraZeneca AB. C.L.A. No. 1 of 2015. January 19, 2016.

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