Legal Vidhiya

COMPULSORY LICENSING OF PATENTS: SCOPE & LIMITATIONS

Admin
Spread the love

This article is written by Shrushti Shedge of Symbiosis International University, Symbiosis Law School, Hyderabad Campus, an intern under Legal Vidhiya.

ABSTRACT

Compulsory licensing is an important legal process by which states can license the use, production or sale of a patented invention without the permission of the patent holder, mainly to safeguard the interests of the population. The concept of compulsory licensing of patents has involved in this paper a thorough analysis of its legal underpinnings, scope and limitations both internationally and domestically. Substantive scope of compulsory licensing is also discussed in the paper based on the analysis of different conditions like the need to serve the population, national emergencies, unavailability, non-working of patents, and the influence of anti-competitive practices. Under Indian law in Sections 84, 92 and 92A of the Patents Act, 1970, the following is a structured guide in the granting of compulsory license. 

The paper also underscores the real life constraints that limit the granting of compulsory license such as procedural protection, burden of evidence, remuneration, the issue of innovation and constraints occasioned by international trade. It also addresses the role of judicial interpretation and administrative discretion in the implementation of compulsory licensing, and the issue of balancing access to the essential technologies and the need to have a viable innovation ecosystem.

The analysis is finally summed up by the evaluation of how effective compulsory licensing is as a policy mechanism and suggestions of reforms to guarantee its role in perpetually serving the interest of the people without compromising the technological advancement in the long run.

KEYWORDS

Compulsory Licensing of Patents, Access to Essential Technologies, Patents Act, TRIPS Flexibilities, Patent Working and Non-Use, Judicial Interpretation in IP Law, National Emergency and Health Crises.

INTRODUCTION

Patents are a major constituent of intellectual property systems today because they provide innovators some rights over their inventions within a short time. These are the exclusive rights which are supposed to provide creativity, growth in technology and also encourage investment in research and development. But sometimes the monopoly which is formed by patent tends to limit the availability of vital technologies to the population, particularly in fields that must do with health, safety and basic wellbeing.

Compulsory licensing is a legal procedure which is aimed at rectifying this imbalance. It gives governments a chance to license a third-party to manufacture, utilize or market a patented invention without the approval of the owner of the patent under specific circumstances spelt by law. Instead of sabotaging the patent system, compulsory licensing is one of the protective measures taken to ensure that the safeguards of the rights granted by patents do not work against the society.

The notion of compulsory licensing has long traditions in international law, and it is present in the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). TRIPS recognizes that as much as patents are a key component of innovation, there might be need to introduce exceptions in situations like a national emergency, or a threat to the national security, or where the patent holder is acting in an anti-competitive manner. 

In India, the Patents Act, 1970 has a strong basis on compulsory licensing. All in all, compulsory licensing is a pertinent point of intersection of intellectual property rights and the common good. It emphasizes the necessity of a patent system that safeguards the process of innovation but is sensitive to the requirements of the society, economic facts, and necessities of human welfare.

CONCEPT & LEGAL FOUNDATION 

The compulsory licensing has a powerful position in the international intellectual property regime as a certain exception to the monopolies of the patent owners. The concept, in its fundamental principles, is based on the fact that patents cannot be presented as a monopoly but should be beneficial to the society as a whole. Compulsory licensing by the state when exclusive rights cannot be removed or otherwise fulfil the needs of the people, is seen as a method to carefully restrict the exclusivity of patents temporarily and in the best interests of the population.

A compulsory license refers to a right bestowed upon an entity or individual by a government to use, produce or sell a patented invention without obtaining the approval of the owner of the patent. Compulsory licenses are legal grant, unlike voluntary licenses, which are direct negotiations between the patentee and the licensee, on given terms and conditions.

The idea does not kill or nullify patent rights. The rationale of compulsory licensing is that protection of the intellectual property should not prevail over main social needs like access to medicines, security of the health of the people, technological development, and the prevention of market manipulation.

At the international level, the basis of compulsory licensing is entrenched in the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) which is managed by the World

Trade Organization (WTO). TRIPS acknowledges that member states are free to allow the utilization of a patented invention without the consent of the right holder in Article 31 on the basis of a pre-determined arrangement of procedural and substantive protection.

Article 31specifies major requirements of compulsory licensing such as previous consent with the patent owner, sufficient compensation, and restriction to local supply mostly. Notably, TRIPS does not limit the purposes of providing compulsory licenses and the decision on what are the grounds is left at the national discretion

The legitimacy of compulsory licensing was further strengthened by the Doha Declaration on TRIPS and Public Health (2001) which stated that member states had a right to issue compulsory license and that member states could set the situations which warrant compulsory licensing. The Declaration made it clear that the fact that the public health is subject to a crisis, e.g., an epidemic, a pandemic, or a simple lack of medicines available to everyone, is one of the valid reasons when compulsory licensing is invoked. 

Compulsory licensing is also a part of Indian legal system in the form of Patents Act, 1970. The system of India is considered as one of the most detailed in the group of developing states as it offers the clear grounds, procedure, and protection to the process of compulsory licensing.

a. Section 84 – General Reasons as to why a compulsory licensing may be done.

Section 84 gives any interested individual the right to seek a compulsory license three years upon a grant of a patent. The grounds include:

Section 92 also gives the government the authority to make compulsory licenses without undergoing the three-year limitation in case of national emergency or when of extreme urgency. This type includes the public health crisis, including epidemics, pandemics, or unexpected shortages. Section 92 is a faster process, which allows timely response to emergency needs.

Through this, India is allowed to grant compulsory licenses to produce and export pharmaceuticals to countries which do not have sufficient manufacture capacity. It has harmonized the domestic Indian law with the framework of the Doha Declaration on facilitating access to essential medicines across a border.

The juridical basis of compulsory licensing illustrates a not inconsiderate effort to strike a balance between competing ends:

This idea is not then an exception created by the animosity against patents but rather a procedure aimed at creating a balance between exclusivity and the common good.

SCOPE OF COMPULSORY LICENSING

The idea of scope of compulsory licensing is expressed as to the particular conditions and reasons when a government may interfere with the right to patents and permit the use without the permission of the patentee. This is a substantive scope; which addresses conditions under which a license should be granted; and an operational scope; addressing the degree of use of patented material where a compulsory license has been granted. 

Failure to satisfy the reasonable needs of the populace by the individuals holding patents is one of the reasons why compulsory licensing is necessary. In the event of a patented invention being critical in the best interest of the population but the available supply is insufficient, a compulsory license can be used to make sure the demands of the people are not undermined.

Public requirements can be non-met because of:

It is on this basis that it can be determined that the downfall of patent rights cannot be to the detriment of the society by denying them access to fundamental technologies.

The focus of compulsory licensing is affordability. Although a given patented invention might be present in the market, it might be sold at a price that is not affordable by the average consumer.

This is typical in the pharmaceutical industry where the research is expensive in addition to monopoly and minimal competition leading to prices being high.

Mandatory licensing can be resorted to in cases where the pricing is:

Affordability is understood within the situation of economic conditions, government spending on health, and income inequalities. This is done to make sure that the protection of patents is not a hindrance to the necessary access.

A patent has to be worked in the country that it is registered. Someone who holds a patent has the option of importing the product, rather than manufacturing them locally but over dependence on imports can result in shortages, delays, or expensive prices.

The issuance of a compulsory license on this basis will seek to:

This is based on the fact that patents ought to spur local industry, but not as an instrument of import monopolies.

Compulsory licensing is greatly extended in case of national emergencies. In this case, governments can circumvent the customary mandate of trying to negotiate voluntary licensing deals. Emergencies may include:

This fact provides the state with an opportunity to go on-the-fly and assure that the necessary goods and technologies can be delivered promptly without the need to pass the procedure. The scope of this is wide as the interest of the people becomes the major priority.

Public health emergencies form a subset of national emergencies but are handled differently due to its high occurrence and seriousness in the society. Compulsory licensing will also provide continuity of the important health services when dependence on patent holders might be deficient.

The scope extends to:

The concept of compulsory licensing has gained international acceptance as an acceptable instrument due to the influence of public health.

Patent rights can be abused to the extent of competition distortion. Mandatory licensing is a remedial measure when patent owners practice the so-called exclusive dealing, non-selection of licenses, predatory pricing, or the establishment of artificial shortages.

The reasons against competitive grounds to compulsory licensing are:

Such conditions demonstrate that not only is compulsory licensing a means of social health, but it is also a market fairness regulator.

Doha Declaration has acknowledged the fact that not all countries have domestic production capacity of pharmaceuticals. TRIPS facilitates the export of manufactured products which are produced with the help of compulsory licensing to support such countries. This principle was adopted in India under Section 92A, and this increased the scope of humanitarian export.

The scope includes:

This is a provision that will advance global wellbeing and also make India a player in global health security.

Whereas compulsory licensing is mostly related to medicines, this also applies to other industries such as:

The increase in priorities of climate change, food security, and digital infrastructure costs makes the concept of compulsory licensing in various sectors more and more relevant.

SHORTCOMINGS OF COMPULSORY LICENSING

Although compulsory licensing is an important tool of balancing private rights to patents and the public interest, it is, by its very nature, aimed at exceptional, rather than regular, intervention. It is also limited to a number of legal, procedural, economic and practical restrictions to ensure it is not abused and invoked at will. These are due to the constraints imposed by international treaty, domestic legal protection, judicial review, and the issue of balancing innovation incentives and the welfare of the people.

Compulsory licensing starts with an elaborate application, which is usually submitted by an interested person. The candidate is required to provide a lot of evidence to prove that the statutory conditions, including unmet social needs, unreasonable prices, or inoperability, are met.  

Some of the major procedural burdens are:

Meeting time factors that include the three-year post-grant waiting time, not in emergency cases. These procedural protections deter arbitrary encroachment of patent rights and at the same time pose a problem to smaller companies or applicants who lack resources.

In TRIPS Article 31 and in Section 84 of the Indian Patents Act, it is obligatory that the applicant of a compulsory license must make reasonable attempts to obtain a voluntary license by the owner of a patent. This is necessary in order to avert bad faith bargaining and safeguard the patent holder against unjustified interception.

Limitations arise when:

Even though the requirement may be waived in the case of national emergencies or extreme urgency, it is still a major obstacle when the application is done routinely.

Although TRIPS permits obligatory licensing, trade agreements, foreign pressure, and international relations tend to play a significant role in its enforcement. The fact that countries that depend on foreign investment or trade partnerships heavily might be afraid of economic retaliation may lead to them not issuing compulsory licenses.

Limitations stem from:

Forcing national policy making decisions, it is a tool of compulsory licensing that is rather delicate politically.

·       Innovation Concerns and Effects on R and D Investment.

One of the greatest criticisms of compulsory licensing is that it has been seen to have adverse effect on innovation. Owners of patents cite that excess or random application of compulsory licensing can dishearten investments in research-intensive sectors, especially in pharmaceuticals and biotechnology.

There are restrictions since the policymakers should uphold:

The fear of killing innovation usually causes governments to hesitate in granting compulsory licenses except in exceptional cases.

·       Technology Process and Technology Limitations in Manufacturing.

The concept of compulsory licensing only works well when the applicant has the technology to produce the invention that is patented.The production of quality medicines or complicated equipment in most situations needs sophisticated infrastructure, specialized equipment and better personnel.

Limitations arise when:

These gaps in technology may result in a slow or difficult implementation of a given compulsory license even in case of a compulsory license.

JUDICIAL INTERPRETATION AND ADMINISTRATIVE DISCRETION ON COMPULSORY LICENSING

The judicial interpretation and administrative discretion is at the center of the practical functioning of compulsory licensing. Even though the substantive reason and the procedure are rooted in legislation, the way the compulsory licensing regime turns out to be accessible, predictable and balanced, is a question of interpretation by courts and implementation by the administrative bodies. In other jurisdictions like India the first authority to consider compulsory licensing petitions is the Patent Office with the Intellectual Property Appellate Board (since replaced by the High Courts) the reviewing body in that case, although the decisions must be in line with statutory principles and wider considerations of the general public interest.

The most prominent attribute of judicial interpretation in that direction is that the courts have been adamant in focusing on a balancing two conflicting goals: the rights of patents to encourage innovation, and the need to promote the availability of technology to the masses. The discretion of the administration is also very crucial, particularly since most of the reasons leading to compulsory licensing include: reasonable public need, non-workability of the patent, affordability or national emergency are qualitative in nature and therefore can never be measured in a straight forward manner.

This has been made clear over time by judicial bodies on the boundaries of this discretion. They have emphasized that administrative authorities should be rights based but socially responsive. No general or unverifiable suppositions may be used to dilute patent rights, whereas in the case of patent rights no one may ignore the question of the public interest because of formal observance of the patentee. The courts also acknowledge that compulsory licensing is not an adversarial penalty but a regulation tool that is used in correcting market failures, preventing dominance misuse and in an effort to ensure the working of patents to the benefit of society.

The other aspect of judicial interpretation, which is also important is to determine what is considered to be working of a patent. In a way, courts have been biased towards an interpretation that places more emphasis on local availability, affordability and accessibility rather than the mere importation. The basis of this interpretation lies in the fact that the protection of patents is not given to the monopoly in a vacuum but to ensure the technological advancement and to facilitate welfare. 

CASE LAW ANALYSIS

Judicial interpretation in compulsory licensing has taken a new face either within or outside India. The balancing of the public interest and patent exclusivity has been demanded many times by the courts and its logic has formed the modern interpretation of the mechanism. 

·       Indian Case Law Analysis

A. Bayer Corporation v. Natco Pharma Ltd

This has been the most persuasive Indian decision on compulsory licensing. Natco Pharma tried to license a patented cancer drug, Sorafenib Tosylate, of Bayer on the basis of the unaffordable cost and the inoperative functionality of the patent in India. The license was granted by the Controller of Patents who concluded that the price of the drug put the drug out of the reach of most Indian patients and, thus, did not meet the statutory criterion of the invention becoming availed at a reasonably affordable price.

This decision was subsequently upheld by the Intellectual Property Appellate Board (IPAB) and the Bombay High Court, which upheld this move by India as giving commitment to make sure that life-saving medicines are accessible. The case established some essential guidelines: affordability is perhaps gauged in relation to the buying power of the populace, it is obligatory to work on patents within the country, and the health of people is more significant than business interests are.

B. Telefonaktiebolaget LM Ericsson v. Competition Commission of India

This was not a mandatory licensing case in itself but an issue that saw the borderline of the patent rights and the anti-competitive behaviour. Ericsson has been alleged to have made unjust and discriminatory licensing conditions over Standard Essential Patents (SEPs). The Competition Commission of India (CCI) was allowed by the High Court of Delhi to probe the complaints with the focus that patent rights would not be employed to practice monopoly.

This ruling upheld the anti-competitive conduct as a factor to support state intervention such as compulsory licensing where the high price of licensing or the prohibitive contracts are antithetical to the interest of the people or unreasonable access to the market.

C. Merck Sharp and Dohme Corp. vs Glenmark Pharmaceuticals

In the instant case involving the Sitagliptin anti-diabetic drug, the court did not grant a compulsory license; however, it stated that the interest of the people is the center of focus in any remedies in case of patent claims. The Delhi High Court observed that in cases related to the patent of essential medicines, the courts need to have their eyes open on the balance between the rights to patents and the health requirement of the population.

The decision is commonly cited in cases where judges debate the use of compulsory licensing as a relatively fair reaction to cases of essential medicines.

D. Lee Pharma v. AstraZeneca

Lee Pharma requested a compulsory licence of the drug Saxagliptin with the argument of unfulfilled needs of the population and high costs. The Controller declined the application stating that the applicant had not submitted enough economic and market data. This ruling meant that general public interest claims alone cannot support the granting of compulsory licensing; the applicant must provide the real quantitative support.

This provided further support to statutory safeguards by restating that compulsory licences should not be granted but made after careful scrutiny and considerable consideration.

·       International Case Law Analysis.

E. Canada- Pharmaceutical Manufacturers v. Attorney General of Canada

Prior to the reforms on TRIPS Agreement, Canada enjoyed a wide-ranging compulsory licensing policy where generic manufacturing firms were able to produce patented drugs. The Federal Court ruled that compulsory licensing was a legitimate legislative mechanism in achieving affordability and market competition when the pharmaceutical industry appealed this model. This case is still an early example of judicial activism in support of access to medicines affordably, although Canada subsequently changed its legislation.

F. United States -ebay Inc. v. MercExchange

Although not specifically concerning the issue of compulsory licensing, the decision of the U.S. Supreme Court had a major impact on the discussions regarding the remedies in patent law across the world. The Court decided that the injunctions are not automatic in patent infringement cases, and that courts should take into consideration the public interest to prevent the use of a patent. This argument supports the philosophy of the compulsory licensing: the enforcement of patent should not be at the expense of the welfare of society.

G. South Africa v. Treatment Action Campaign. Minister of Health

This historic constitutional case dealt with the provision of antiretroviral drugs in the times of the HIV/AIDS crisis. Even though this was not a formal compulsory licence, the Constitution Court decided that the government should eliminate barriers to the availability of medicines that are necessary. The ruling confirmed the idea that the health-related interests of people may override intellectual property limitations in case of necessity. It strengthened the principle of state intervention in times of health emergencies on the international level.

H. Brazil Government Use licenses

The negotiations between Brazil and the patent holder failed and Brazil issued a government use license on the patented HIV drug Efavirenz. This ruling has not been subject to a judicial interpretation, but is commonly cited by foreign courts and academics as an indicator of legal use of compulsory licensing in TRIPS. The episode reinforced fair remuneration, priority of the public health and good-faith negotiation as the key aspects of the practice of compulsory licensing.

The affordability, domestic working and evidence-based reasoning have high priority in Indian jurisprudence, but the international practice has a variety of approaches based on prioritizing the welfare of the people, anti-competitive protection, and access to essential medicines.

COMPARISON, EVALUATION AND POLICY RECOMMENDATIONS

The similarity in the purpose of compulsory licensing regimes in various jurisdictions is that these systems have the goal of maintaining patent exclusivity and serving the common good, but their design, application and application are quite different. As it compares India and developed jurisdictions like the United States, the United Kingdom and the European Union, it is possible to observe different regulatory philosophies. India is a country that takes a more liberal and publicinterests-based approach, expressly identifying affordability, non-utilization of patents and unmet social needs as a legitimate reason to intervene. By contrast, other jurisdictions such as the US are more dependent on the government-use provisions of statutes like 28 U.S.C. SS1498 that permit the use of patented technology by a state though rarely provides compulsory licensing of any given private entity. The European states keep up TRIPS-compliant provisions but do not use them as they depend mostly on the market-based negotiation and voluntary licensing.

This cross-jurisdictional observation supports the fact that India has a relatively proactive and socially responsive structure. However, a critical analysis of the Indian model shows that there are areas that have to be polished. Although the law has wide grounds under which compulsory licenses may be awarded, the administration processes can be very time taking, heavy and intricate in evidence presentation. Patent owners usually have superior financial and technical resources and therefore it is hardly possible to satisfy applicants particularly domestic manufacturers to satisfy evidentiary requirements.

The performance of compulsory licensing is also affected by the global trading system. Although the provisions of TRIPS acknowledge the existence of compulsory licensing as a valid tool, there is the likelihood that threat of a diplomatic pressure, trade disputes and investor-state arbitration may make such a tool undesirable. It is necessary to encourage open pricing guidelines. Through the compulsory involvement of patentees in sharing cost structures, estimates of R&D investment and pricing reasoning, authorities can be able to better judge whether a product is reasonably priced. India ought to enhance mechanisms of international cooperation in export, helping those countries that do not produce at all, and enhancing the role of the country as a partner in global health.

CONCLUSION 

Mandatory licensing is a necessary law in the exchange of exclusive rights against patent holders and the wider societal good in the availability of technologies, particularly in areas that affect the national interests of health, security, and socio-economic growth. Although patents are important in spurring innovation because of their short-term monopoly privilege, compulsory licensing is deployed as a corrective measure to ensure that such privileges do not hamper the right of the masses to access vital inventions. The frameworks of both international and domestic systems have revealed that this necessity in balance exists and the statutory model of compulsory licensing in India is one of the most detailed and socially sensitive approaches in the world.

Compulsory licensing has a number of practical challenges regardless of the strength of its legal background. Administrative procedures may be difficult and time-consuming, the burden of evidence is large, and patent holders usually have more informational and financial assets. Also, the economic pressures of the world economy, diplomatic factors and the risk of being viewed as

an unforeseeable IP jurisdiction make using compulsory licensing to be cautiously used, despite it being evident that the conditions of the public-interest favor its application.

With the rapid increase in technological progress and inequalities in access, mandatory licensing will not be a transient emergency response tool, but will continue to be a policy tool long into the future that will have the ability to fix market failures and enhance social well-being.

Compulsory licensing can be done in a well-calibrated manner, which is facilitated by clear guidelines, consistent interpretation, and international cooperation. It will make intellectual property a more fair and robust ecosystem because it strengthens both innovation and accessibility.

REFERENCES

Disclaimer: The materials provided herein are intended solely for informational purposes. Accessing or using the site or materials does not establish an attorney-client relationship. The information presented on this site is not to be construed as legal or professional advice, and it should not be relied upon for such purposes or used as a substitute for advice from a licensed attorney in your state. Additionally, the viewpoint presented by the author is personal.

Exit mobile version