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This article is written by Gurpreet Singh, from the Faculty of Law, Delhi University. This article deals with the compulsory licensing scheme under patent law.   

Introduction

The unprecedented time’s human species is experiencing due to Covid -19 has tested the mettle of the existing systems of the world. One such system is the system of compulsory licensing under patent law for pharmaceuticals. Patents are defined as an exclusive right granted for an invention that can be a product or a process that provides a new way of doing something or offers a new technical solution to a problem. It is a monopoly right granted to prevent the hard labor of the patent holder to go to waste and to promote innovation. On the other hand, compulsory licensing means when a government allows a third person to use the patented product or process without the consent of the patent holder in circumstances enumerated by the Government. This article aims to explore the scope of compulsory licensing and its conflicts with innovation.

Compulsory licensing and the legal framework

Patents ascribe monopoly rights to the patentee for their innovation and creation but covering pharmaceuticals under the patent law is highly contentious. Many people argue that providing monopoly rights under patents for pharmaceuticals will block access to life-saving drugs and the patent holder can increase or decrease the price according to his own choice. On the other hand, some people believe not covering pharmaceuticals under patents will not attract investment in the sector and then leading to a low incentive for creating life-saving drugs.

Compulsory licensing is a middle path to maintain a balance between patent rights and access to life-saving innovation. TRIPS agreement under Article  27 provides that patents shall be available to all inventions. Article 8 of TRIPS allows countries to devise mechanisms in conformity with TRIPS  to protect public health and to prevent misuse of the patent regime. Article 30 of Trips provides certain exceptions to the member countries in the regime of patent rights. 

Article 31 of the Trips agreement deals with compulsory licensing in the case of patents. Article 31 imposes certain restrictions for compulsory licensing the widely contested one is as follows normally the person or company applying for a license has to have tried, within a reasonable period, to negotiate a voluntary license with the patent holder on terms. Only if that fails can a compulsory license be issued, and – even when a compulsory license has been issued, the patent owner has to receive payment; the TRIPS Agreement says “the right holder shall be paid adequate remuneration in the circumstances of each case, taking into account the economic value of the authorization”, but it does not define “adequate remuneration” or “economic value”.

That is not enough to escape scrutiny. Compulsory licensing must meet certain additional requirements as fell that are as listed as follows: the scope and duration of the license must be limited to the purpose for which it was granted, it cannot be given exclusively to licensees (e.g. the patent-holder can continue to produce), and it should be subject to legal review. For “national emergencies”, “other circumstances of extreme urgency” or “public non-commercial use” (or “government use”), or anti-competitive practices, there is no requirement first for a voluntary license. It is the only instance when the TRIPS Agreement specifically links emergencies and compulsory licensing to send across a message that the first step of negotiating a voluntary license can be bypassed to save time. But not to forget fruits of labor should be borne by the patent owner and has to be paid adequately.  

The situation in China 

According to Chinese Patent Law, under any one of the following circumstances, the State Intellectual Property Office may, at the application of an entity or individual that has the condition to exploit a patent, grant him or it a compulsory license to exploit the patent for the invention or utility model:

  1. Where the patentee, after the expiration of three years from the date of grant of the patent right, and the expiration of four years from the date of filing, does not, or does not sufficiently, exploit his or its patent without justification; or
  2. Where the enforcement of the patent right by the patentee has been legally determined as an act of monopoly, to eliminate or to reduce the adverse effects of the act on the competition.

And where a national emergency or any extraordinary state of affairs occurs, or where the public interest so requires, the State Intellectual Property Office may grant a compulsory license to exploit the patent for invention or utility model. China got its patent law in 1984 and the provision of compulsory licensing was available from the beginning, It was amended in 2012 but China still now has not granted a compulsory license in any situation.

The situation in India

According to section 84 of the Indian patent law, a compulsory license can be granted after the expiration of 3 years from the grant of a patent to any person who makes an application to the controller. The license can be granted on the following mentioned grounds: 

  1. Reasonable requirements of the public concerning patented invention have not been satisfied 
  2. The patented  invention is not available to the public at a reasonably afforded price or,
  3. The patented invention is not worked in the territory of India. 

Furthermore compulsory licensing can be granted under the following provision

Section 92A- Compulsory licenses are awarded for the export of pharmaceuticals under exceptional circumstances.

India has granted a compulsory license once in 2012 to the company called Natco Pharma for the generic production of Bayer Corporation’s life-saving drug by the name of Nexavar. According to the Patents office, the requirements of Sec 84 were fulfilled. The drug, Nexavar is used for treating cancer but the cost of one month’s worth of dosage costs was around Rs 2.8 lakh. Natco Pharma offered the drug for a mere sum of Rs 9000 that could be used to save the lives of millions of people at an affordable price.

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The Government took this decision to possibly ease the burden on the poor who couldn’t afford the high-priced life-saving drug but the step taken was not free from criticisms. It was heavily criticized by the pharmaceutical companies as their viewpoint was that it would shake the confidence of the pharmaceutical sector to create and innovate. However, Natco Pharma is fulfilling its obligations by paying the royalties to Bayer at a rate of 6% of all sales every quarter per the guidelines set by the United Nations Development Programme. Cases regarding compulsory licensing are as follows:

  1. In Bayer v Natco  It was found that only 2% of the total cancer patients had access to the drug that was sold by Bayer corporation used in treating kidney and liver cancer and that drug was being sold by Bayer at a price of Rs2, 80,000 for a month’s treatment that made it out of reach for many people in the country. The Patent Office issued a compulsory license to Natco Pharma, which assured that the tablets would be sold for Rs8,880 per month to enable wider reach. It was agreed that 6% of the net selling price of the drug would be paid to Bayer by Natco Pharma as royalty.
  2. Lee Pharma v AstraZeneca AB– In this case of compulsory licensing, Lee Pharma, an  Indian pharma company, applied for a compulsory license for grant of patent in respect of  AstraZeneca’s drug Saxagliptin that deals with diabetes. To contest the case, Lee Pharma argued that the request for a license to the patent owner was not responded to within a reasonable period as mandated by law. The grounds alleged:
  • The patentee failed to meet the reasonable requirements towards the  public;
  • The patented invention is unavailable to the public at a reasonably affordable price;
  • The patented invention is not used in India.

However, all three grounds were negated and the compulsory licensing application was rejected on the ground that Lee Pharma failed to demonstrate the reasonable requirement of public good and also failed to demonstrate the comparative requirement of Saxagliptin concerning other drugs in the market. 

The waiver to and pending amendment of Article 31

The patent standards adopted by the TRIPS Agreement were too high that could disrupt supplies of patented medicines to low-income countries. In the real world scenario, developing countries that needed drugs at lower prices than those of the patentees could issue compulsory licenses under article 31 of the TRIPS Agreement. 

Some countries possessing manufacturing capacities might be willing to assist a low-income country by issuing compulsory licenses on their own accord, with a view of exporting the drug, But unfortunately, that kind of process was restricted under  Article 31(f) of the TRIPS Agreement, which expressly stated that the products manufactured under a compulsory license have to serve “predominantly for the supply of the domestic market”. This created disruptions in the patent’s regime and international cooperation as envisaged by the TRIPS agreement.

Use of compulsory licenses to provide a remedy to the problem

Due to the disruptions in the international coordination and demands of low-income countries to access other markets for low-cost life-saving drugs The TRIPS Agreement was amended to provide for another type of compulsory licensing as a result of efforts undertaken at the 2001 Doha Ministerial Conference where it was deliberated and discussed that the countries unable to manufacture pharmaceuticals should be able to obtain cheaper copies of the invention produced under compulsory licenses elsewhere around the world. 

The idea behind this relaxation is that if such a country needs to turn to the option of compulsory licensing to produce needed affordable pharmaceuticals, producers overseas can step up and supply that need, even if a compulsory license is needed in that country. It is necessary to possess a compulsory license especially for production in one country, for export, and to meet the public health needs of one or more than one country.

The advantages and risks involved

The changes made in the compulsory licensing scheme in the TRIPS have bought a much-needed respite for low-income countries that have enabled them to access patented pharmaceuticals and provide them at lower prices in their own country. Countries that do not have manufacturing capabilities can also invite other countries to manufacture medicines for them under compulsory licensing.

The demand for life-saving drugs has increased over the years and for this to be met compulsory licensing is an adequate solution without undermining the IPR regime and upholding the principles behind that. But everything that glitters is not gold there are immense risks involved in compulsory licensing as the TRIPS agreement provides discretion to the government in their domestic markets to impose compulsory licensing under conditions best understood to them.

This creates an apprehension in the minds of organizations looking to innovate and create. On the other hand, compulsory licensing under the amended THE DOHA DECLARATION ON THE TRIPS  is innate with risks as well It will impact innovation and creation as pharmaceutical companies will be averse to investing capital in research and development in low-income countries as there is a risk of losing the investment if the government imposes compulsory licensing in its territory. Pharmaceuticals companies are also averse to the intentions of the government, any government can impose compulsory licensing that will divest the manpower involved in research and development of the opportunities created by pharmaceutical companies.

Conclusion

Compulsory licensing is a necessary evil that cannot be avoided in the modern world. Countries are in dire need of medicines in face of ever-increasing diseases, on the other hand, it has also sprung up the underlying importance of research and development in the pharmaceutical sector. Patents provide monopoly rights over the patents and underline the principle in the bible thou shall reap the benefits who puts in his labor, but there needs to be a balance drawn between the rights of the patent holder and granting compulsory licensing. Adequate compensation shall be paid to the patent holder in case of compulsory licensing so that the patent holder is not discouraged to invest hard labor in inventions.  

References

  1. https://www.wto.org/english/tratop_e/trips_e/public_health_faq_e.htm
  2. https://www.lexology.com/library/detail.aspx?g=c74e553c-4659-49cf-b133-f6da0543a002
  3. http://docs.manupatra.in/newsline/articles/Upload/6A48CA82-9412-43DE-8964-1CAC00062503.pdf
  4. http://www.cpahkltd.com/EN/QAInfo.aspx?n=20100610144502027337#:~:text=In%20practice%2C%20since%20the%20compulsory,compulsory%20license%20has%20been%20granted.

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