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In this article, Sarthak Chawla, pursuing Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata discusses on Voluntary Licensing of Patents

Introduction

Intellectual Property Rights are exercised through various forms – patents, trademarks, copyright etc. They need to be registered/licensed in order to be protected from possible infringers. The term patent refers to exclusive rights given to an inventor/assignee over an invention/creation created by them for a limited period of time in exchange of the said invention be disclosed to the public.

The problem with patents in India was that owners of patents used the said creation to gain excesses monetarily and thus restricting access to the general public. A classic example of this is the pharmaceutical industry where medicines were not easily accessible to the general public due to its exorbitant prices in the market. One thing we need to understand is that patents are granted to encourage inventions in the society and our Indian Patents Act ensures that no patentee (who has got patent on the invention) could create a monopoly in the Indian market which can go against our competition laws.

The agreement on Trade-Related Aspect of Intellectual Property Rights (TRIPS) concluded the relation between Patents on medicines and their prices. This agreement enforces the member countries to grant patents to Pharmaceutical companies on their product and provides certain flexibility to safeguard the public health. India faced a lot of issues after the implementation of the patent on medicines in India as it was expensive for the people suffering from diseases like Cancer, HIV and the medicine was not reaching to the patients to the extent as it should have been. But our Indian patent laws provide a remedy to the issue in the form of licenses to the generic manufacturers.

Access to Voluntary License

Indian Patent laws provide a remedy in the form of Voluntary and Compulsory license. Voluntary license(VL) has emerged from the issue of high prices on patented medicines. Voluntary license(VL) help the license holder to make, produce and market the generic drug and provide that to patients at affordable prices through the process of Reverse Engineering. There is no legal provision given under Patent Act as this license access is done through mutual contractual agreement.

Voluntary Licensing

Voluntary licensing is the arrangement between the parties where the patent holder and the third party from any of the country come to an agreement of making affordable medicines in their respective countries and sometimes with discounts. A patent holder may give license to the third party either with an exclusive or non-exclusive right, the right to manufacture, import and distribute a pharmaceutical product and much more. The licensee of the patent will act as an agent of the company. The terms in a voluntary license, they may set price ranges or could include other terms like the holder royalty from the distribution of the sales. Voluntary licensing arrangements, at the discretion of the holder, are usually made for strategic reasons rather than as price gestures and they may not entail any price reduction at all.

Implementation of Voluntary License over Compulsory License

The agreement between the countries during TRIPS (Trade-Related Aspects of Intellectual Property Rights) discussion evolved with the patenting of Pharma Products which lead to many issues in India due to a high cost of patented medicines. The Indian patent Act got amended in 2005 and the procedure of Compulsory license was introduced under Section 84 of Indian Patent Act which provides three conditions and on breach of any of those conditions, the government will issue the compulsory license to the applicant without the permission of the Third Party who is a holder of Patent.

  1. That the reasonable requirements of the public with the respect of the invention have not been satisfied.
  2. That the patented product is not available at the reasonably affordable price.
  3. That the patented invention is not worked in the territory of India.

The TRIPS allowed the Compulsory License but it is very difficult in the whole world to implement that due to the involvement of the litigation proceedings. The application for the Compulsory License requires the minimum waiting period of three years of time and after that, the applicant can file for Compulsory License to the Controller General and the decision will depend upon his discretion. This gap of three years can affect patient lives in a severe manner due to either high prices of medicines or due to the shortage of medicines. The very existence of statutory provisions on compulsory licenses may, in fact, be adequate to encourage voluntary licenses. The voluntary licenses are based on the mutual contractual agreement between the patent holder and the third party who is a generic manufacturer. Voluntary License is more favourable as they can save litigation time and cost of both the companies and could save many patient lives.

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Gilead case of offering Voluntary License

Gilead Pharma is a US pharmaceutical company which manufactures medicines for different diseases and health issues. Gilead already had a patent on the medicine which helps to cure Hepatitis C. In 2011, The Company offered Voluntary Licenses to the local generic manufacturers of Indian, Malaysia and many more countries as they have the distribution in many countries. Malaysia didn’t accept the offer and waited for one more year to have the compulsory license from the government over the same drug but the Indian generic manufacturers accepted the offer. The Gilead issued VL’s to 11 Generic Companies and one of the company was Natco Pharma Ltd.  Which had opposed Gilead Patent but withdrew the opposition as soon company gave Natco the Voluntary License. In 2014, The Gilead filed for the patent on the medicine which was the modified drug of the last patented drug only. The Indian patent office rejected Gilead application on the same day. The rejection was based on sec 3(d) of the patent Act which states that no patent could be registered if it is an improved version of the previous patent. Later on, the Gilead went on to file an appeal in Delhi High court which instructed the patent office to reconsider the rejection of patent and after considering that again, the patent office granted the patent to the company drug which resulted in Indian generic manufacturers to stop the production of generic medicines.  There could be some loophole in the decision as the application was rejected because of not having novelty in the new product but after the instructions of the patent office, authorities found novelty in the same product. It is little bizarre but we could just wait for the expiration of three years for obtaining a compulsory license for the manufacturing of Gilead generic medicine.

Pros of Voluntary License

1) It could speed up the access to products. As all generic companies in developing countries are now operating under product patent regimes. This would directly help the patient as they will get the medicine according to the need and the Drug consumer need not have to wait for the pre-grant opposition.

2) This could help the patent holding company to get their product promoted and could reach the invented product to each corner of the world. This helps the holder to accelerate the marketing of the company’s name free of cost and that too with the royalty on total sales of the company.

3) It can speed up the manufacturing with the help of generic manufacturers as the Patent holder being the single holder of the patent could not manufacture with regards to the demand of the whole world.

4) It could also help to improve manufacturing in a more better and affordable way which would eventually lower down the prices for the drug consumer.

5) It would increase competition (if the VL is not exclusive) in the market and curb monopolistic trade practices in Pharma industry as one license could be issued to many generic companies.

Cons of Voluntary License

1) Offering VL to the generic manufacturers could deteriorate the due grant of patent process as the generic manufacturers won’t oppose to the patent application.

2) The generic companies also require enough technology to manufacture the generic medicines and most of the generic manufacturers lack in the technology and only some of them able to go forward with the release of the generic product but it doesn’t create much difference with the prices.

3) Licensor has all the authority to put any restriction during the agreement of the VL such as Geographical Indications that is where to supply the medicines and where not to and many other restrictions to which the licensee is bound.

4) Licensor royalty rate is 5% but it eventually adds up in the product so which is generally borne by the patient only.

 

Conclusion

In the light of above pros and cons, the Voluntary Licenses are preferable if we consider the areas like Sub-Saharan Africa where there is lack of money and improper R&D. The Indian Patent Act needs the amendment of Voluntary License provision which should include the restriction to the power of Licensor and which should solely be made according to the need of poorer section of the country. Voluntary Licenses should not be discussed while the process of pre-grant opposition is going on as it deteriorates the process of grant of the patent. Voluntary Licensing could eventually increase the GDP of the country as the import and national sales would be increased and would add up to National Income.

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