This article is written by Preeti Pallavi Jena, a student pursuing a bachelor of law from the school of law, KIIT University, Odisha. This article talks about compulsory licensing in the pharmaceutical industry and threats related to it.

Introduction

The government gives a patent for a product or a process which is new, has an inventive step and will be used in commercial purposes. When there is less amount of competing products in the market these patent holders set a huge price for the medicines they created according to their choice and enjoy the profit gained from it. This causes a monopoly and raises the abuse rate of the patent products. This sale of drugs at a high price makes it less affordable for the people in society and creates restrictions for poor patients from using drugs. This becomes a disadvantage for the society though it is an advantage for the patent holders.

As we know the lesser the product is available, the more will be its reach capacity and price value. This pricing of the product is created as per its demand. The cost of a patented product is also determined through the number of competitors or any alternatives available, manufacturing cost value and also by seeing the market value like is the disease rare or is commonly taking place. These all factors are taken into consideration for setting the price value of a drug and this earns a huge amount to the patent holders if there is no competitive or alternative drug available in the market for such a product. The pricing of medicine varies from country to country on the basis of the needs of the countries.

Patents

The WIPO (World Intellectual Property Organization) defines a patent as an exclusive right given for inventing, selling and importing a product. The term period for availing a patent right over his intention is for a period of 20 years and by availing such right he restricts others from using his product but after 20 years if he wants then he can renew it for more 20 years or else he will have no right over it anymore. But as per some conditions, a 3rd party can be given a right to use the patented product also through compulsory license which is mentioned under the Indian Patents Act, 1970 in chapter XVI.

Patentees manufacture their product in rich countries where there are more demand and need for it, for gaining more money. They deprive the lower or least developed countries of getting benefited by the patented product. One of the major criteria for the patentee is the commercial working in many developed countries. In India, a patentee must mandatorily mention in Form 27 under Section 146(2) and Rule 131(1) regarding the information of the commercial working of the patent at least within 3 months of the end of each calendar year. If a patentee produces wrong information for misleading it can be punished for such offence.

Compulsory licensing

A compulsory license is a license which is given by the government which allows to produce, sell a patented product or process of someone else without their consent. This means any 3rd party can use, sell the patented invention without any consent of the actual owner of the patent product. This concept of compulsory licensing is established both at the national as well as international level with the Indian Patent Act, 1970 and TRIPS Agreement.

Any person as per Section 84 of The Patents Act, 1970 can have the license by making a request to the Controller for providing the compulsory licensing on the patent after minimum 3 years from the date of grant of a patent on the existence of conditions. This compulsory license can be established under Section 92 also by the Controller which is issued by the Central Government if there is any National emergency or for the non-commercial use for the public. Here the control also sees the nature and structure of the invention, the capability for benefiting the public etc. But even after granting the compulsory licensing to another person the owner’s right doesn’t fade, he still has rights on it.

In India, only one compulsory licensing has been issued in 2012 to Natco for Bayer’s Cancer Drug Nexavar. This is a lifesaver medicine which is used for saving the lives of liver and kidney cancer people.

Conditions

There are conditions under Section 84 which should be fulfilled for granting Compulsory licensing in respect of someone. These conditions are as follows:

• The invention which is patented should not be provided to the public at an affordable cost.
• The invention should not be worked in any state of India for the advantage of the people.
• The necessary requirements of the public concerned are not satisfied with regard to the patented invention.

With regard to medical purpose, the companies of pharmaceutical invest resources for gaining approvals for treating new medicines for various diseases. These new medicines made by the pharmaceutical companies are basically sold at a higher price and it becomes out of reach for the people living in the developing or underdeveloped countries. But now many pharmaceutical companies are trying to avail the medicines to everyone. The patent holders also claim more money for creating a new medicine in the market. This compulsory licensing reduces the barrier of the money matter among people and tries to make it available to the whole public in large.

The compulsory license was issued by the Patent Office. There are countries who are accepting of granting compulsory licenses and some countries are also against it. India has continuously faced many problems in the pharma industry majorly with the issues regarding Intellectual Properties. By granting compulsory licensing to the NATCO brought hope in the industry and many lives were saved in the countries and the prices of drugs which were quite high and were available to the rich are now also available to the needy ones. Soon after giving licensing to the NATCO in India, many other pharma companies tried to take advantage of compulsory licensing for making their drugs sold at a low price so that it would be reasonable for a person to avail of it.

Case law

Lee Pharma v. AstraZeneca 

In this case, A Indian pharma company named Lee Pharma filed compulsory licensing for producing and selling drugs at the patent office on June 29, 2015, in Mumbai. The licensing was filed against a patented drug called ‘Saxagliptin’ which is protected in the name of AstraZeneca having patent number 206543. The ‘Saxagliptin’ was used for curing Type II Diabetes Mellitus.

Lee pharma in the year 2014 has requested AstraZeneca for granting a license to the drug. But AstraZeneca did not accept and gave the reasons for not giving compulsory licensing. AstraZeneca sent this in an email but Lee pharma was not satisfied and did not consider it to be a reply and hence he sent many messages like reminders and then he went straight to the patent office for getting the compulsory license.

According to the Controller, the first request which was made by Lee pharma was 13 months prior to the filed application. According to the time period which is mentioned under Section 84(4) of the Patents Act, 1970 is 6 months. This is the relevant reason for the denial of the request for granting the compulsory license. The 2nd reason for the denial of the compulsory license is that there is a presence of DPP-4 inhibitors in sufficient amounts which are treated for Type II Diabetes Mellitus and there is no requirement for the new one for substitutes. And the 3rd reason is that Lee pharma was not able to show that the patented invention was available at a low price which would have been a beneficiary point. And the 4th reason was that Lee pharma as per Section 84(1)(c) failed in proving that it is not there before in the territory of India. These all are the specific reasons for not giving the compulsory licence to Lee Pharma in this case.

TRIPS agreement and compulsory licensing 

• For controlling and countering the abuse of patent rights, TRIPS brought the provision of compulsory licensing for checking the use of invention regularly as per the public morality concerned. TRIPS doesn’t use the exact word ‘compulsory licensing’ but as per Article 31, the government or the authorised person appointed by the government can use a patent without the permission of the holder of such product. Though these rights are given on the basis of certain conditions which are, the applicant must try to obtain the license from the patentee except in the cases of emergency, non-commercial use etc. 
• The patent holder can get the remuneration which is required for taking the economic value of the patent. This has been mentioned in the provision of the TRIPS Agreement in Article 31. Article 31 is very important because it restricts gaining benefits from compulsory licensing in countries. Even though TRIPS had provided many enjoyable credits, an amendment was needed which was made by the Doha Declaration in November 2001. This allowed countries for issuing compulsory licensing for production of drugs and exporting to the other countries which have less capacity for the production of drugs.
• The Doha Declaration tries to protect the health of the public in large and not limited to some individuals. It also promotes medicines to everyone without any discrimination with regard to rich and poor criteria. The implementation of this amendment took place in August 2003. 
• For the first time, this system was used in a country called Rwanda. After this, many other countries, in the fear of the threat of compulsory licensing, started making efforts to make their drugs available in other countries.
• In September 2014, several non-exclusive licensing agreements were signed between Gilead and seven India-based generic pharmaceutical manufacturing firms for the manufacture of Sofosbuvir and a single-tablet regimen of Sofosbuvir which is currently under investigation for distribution in 91 developing countries.
• A middle-income country, Brazil had used compulsory licensing as a threat concerning the prices for AIDS drugs like Nelfinavir and this was a product which was patented in Roche. This company made an agreement and sold it in Brazil at a lesser amount with a 40% discount and in return of which Brazil will not issue compulsory licensing on it.

For granting compulsory licensing of an invention, political party strength is very important. After the grant of compulsory licensing in India, many other countries started granting it. USTR (United States Trade Representative) under Section 301 of Trade Act, 1974 created a report annually where the countries which did not protect the IPR of the companies in the US are threatened by various means. In this annual report, the USA suggested that India has to modify and improve its IP laws relating specifically to compulsory licensing. India along with some other countries was put by the USTR in the ‘Priority Watch List’. Compulsory licensing has been a great benefit because there was no availment of access to the medicines in the underdeveloped and least developing countries. Even though there are a lot of advantages of compulsory licensing, there are also many issues relating to it like lower royalties and the creativeness in inventions also decreased due to this. Due to these disadvantages, the provisions of compulsory licensing are also questioned.

Issues related to compulsory licensing

• Creation of grey market

Grey market means the goods can be sold outside the market area without the permission of the owner but those can be only manufactured with the owner’s consent. To supply the product to the local people may cause the creation of a grey market. This creation arises when the product is designed for a specific market, but it has been sold lesser than its actual price to the targeted people in another market. This leads to grey markets like black markets which are illegal, grey markets are not like that,  they are treated legally. But this market creates an economic burden on the country. When compulsory licensing is given to companies for selling their own drug many other countries also try to make the same medicines without any license. And this creates a loss to the patent holder. Grey market needs to be regularly checked for compulsory licensed products. If the actual price of the drug becomes a reasonable amount and everyone can access it then it will not attract the people of society for going for grey markets. Mainly the person manufacturing and the ones distributing it are responsible for the creation of this market. The dealers of the grey markets should be caught and actions can be taken on them.

• The difference in standards of emergency

A major issue which is raised against compulsory licensing is there is no definite definition of a national emergency. No definition is provided because every country has a different population, health issues, a different way of living and different diseases. As per these factors, the national emergency depends like the health emergency for a country having low population will be different from a bigger country. The environmental conditions also decide the state of emergency in a country.

• Apprehensions of the patent holder

Many patent holders suggest that compulsory licencing discourages inventions and decreases the number of innovations in the country. They state that the patent holds a high amount and also more efforts for inventing but in that case, compulsory licensing gets the benefit without any such efforts. Though the patentee gets a royalty for their innovation which has been granted compulsory licensing. Only if there is a violation in the law then only compulsory licensing will be granted.

• Lower royalty

Compulsory licensing is given when there is an urgent need for it. And in the time of huge need, the price should not be high and a reasonable price of the drug should be made so that everyone can afford it. Due to this, the royalty of compulsory licensing cannot be made very high and hence the price will not be lesser. But the patentee will get some amount of royalty as the agreement has been made. The royalty is given to a person by seeing the products market value, quality etc. More royalty can be provided to the patent holders in the developed countries, where there is a lesser amount of diseases.

Conclusion

There is still more growth which needs to be made in India with regard to compulsory licensing. The granting and rejection of the compulsory licensing for the drugs which are patented need to bring more challenges. In future, there will be more improvement and development to compulsory licensing as per the Indian laws. Compulsory licensing is a major sector for underdeveloped countries. Compulsory licensing makes sure more supply of products to the people at a lower price.

References

• https://www.chemistryworld.com/opinion/compulsory-licences-necessity-or-threat/6200.article
• https://www.csis.org/analysis/compulsory-licensing-cure-distributing-cure
• https://www.lexology.com/library/detail.aspx?g=c74e553c-4659-49cf-b133-f6da0543a002
• https://globalizationandhealth.biomedcentral.com/articles/10.1186/s12992-019-0485-7
• https://link.springer.com/article/10.1057/s42214-020-00068-4
• https://www.bmj.com/content/365/bmj.l2098
• https://www.future-science.com/doi/pdfplus/10.4155/ppa.12.91
• https://www.bananaip.com/ip-news-center/patents-lee-pharma-v-astrazeneca-an-unfinished-story/

LawSikho has created a telegram group for exchanging legal knowledge, referrals and various opportunities. You can click on this link and join: