Navigating the Challenges of Patent Rights Abuse and the Role of Compulsory Licensing

A patent grants its holder an exclusive right to commercialize an invention for a limited period – typically 20 years. This exclusivity is the reward for innovation, meant to incentivize research and development. But what happens when patent holders exploit that exclusivity to price life-saving medicines out of reach, refuse to manufacture the product locally, or block competitors through anti-competitive practices? This is what the law calls an abuse of patent rights – and compulsory licensing is one of the most powerful legal tools designed to counter it.

What constitutes abuse of patent rights? 🔗

Patent abuse is not a vague concept. Under both international frameworks and Indian law, specific conduct by patent holders can trigger legal consequences. Common forms of patent abuse include: failing to manufacture or work the patented invention in the country where the patent is granted; charging prices so high that the public cannot reasonably access the product; imposing restrictive conditions on licensees even after the patent expires; refusing to grant licenses to third parties who wish to produce the product for the public; and engaging in price-fixing or anti-competitive practices that hinder trade or technology transfer.

In the pharmaceutical sector, the consequences of such abuse are particularly acute. When a life-saving drug exists but is either unavailable or unaffordable in a developing country, the gap between patent rights and public welfare becomes impossible to ignore. This is the tension that compulsory licensing seeks to resolve.

The international framework: TRIPS Agreement and the Doha Declaration 🔗

The TRIPS Agreement (Trade-Related Aspects of Intellectual Property Rights), administered by the WTO, sets minimum standards for intellectual property protection that all member nations must follow. While TRIPS requires robust patent protection, it also builds in important safeguards. Article 31 of TRIPS, without using the exact term “compulsory license,” establishes the conditions under which a government can authorize a third party to use a patented invention without the patent holder’s consent.

Those conditions include: the applicant must first have made efforts to obtain a voluntary license from the patent holder; any compulsory license granted must be non-exclusive and non-assignable; its use must primarily be for the domestic market of the country granting the license; and the patent holder must receive adequate remuneration. The normative core of the TRIPS compulsory licensing regime lies in the ample discretion it grants governments – not in narrow safeguards for patentees.

A critical development came in 2001 when WTO member countries adopted the Doha Declaration on the TRIPS Agreement and Public Health at the Fourth Ministerial Conference. The Declaration clarified that TRIPS should be interpreted in a manner supportive of public health and that each country is free to determine the grounds on which compulsory licenses may be granted, including what constitutes a national emergency. The Doha Declaration also recognized that many countries lacked pharmaceutical manufacturing capacity and might struggle to use compulsory licensing effectively – leading to the later addition of Article 31bis to the TRIPS Agreement, which permits compulsory licenses for export to countries with insufficient manufacturing capacity. The Article 31bis amendment entered into force in 2017 after ratification by two-thirds of WTO members.

The Indian Patents Act, 1970: domestic framework for compulsory licensing 🔗

India’s approach to patent law has always been shaped by its socioeconomic realities. The Patents Act, 1970 was a transformative statute, drafted with the recommendations of the Justice Rajagopal Ayyangar Committee in mind, with deliberate provisions for compulsory licensing and requirements that patents be “worked” in India. This legislation is widely credited with the growth of India’s generic pharmaceutical industry and earned the country its reputation as the “pharmacy of the world.”

Following India’s accession to the WTO and its obligations under TRIPS, the Act was amended in 1999, 2002, and 2005 to align domestic law with international standards. The 2005 amendment extended product patents to pharmaceuticals and set the patent term at 20 years, while preserving key public health safeguards.

Section 84: the general compulsory licensing provision 🔗

Under Section 84(1) of the Patents Act, 1970, any interested person – including an existing licensee – may apply to the Controller of Patents for a compulsory license after the expiry of three years from the date of the patent’s grant. The three-year period is intentionally built in to allow the patent holder time to recoup research and development costs before the compulsory licensing mechanism kicks in. A compulsory license may be granted on any of the following grounds:

• The reasonable requirements of the public with respect to the patented invention have not been satisfied.
• The patented invention is not available to the public at a reasonably affordable price.
• The patented invention is not worked in the territory of India.

The Controller evaluates several factors before granting a license – including whether the applicant has genuinely attempted to obtain a voluntary license from the patent holder, whether the applicant has the capacity to manufacture the product and meet public needs, and the nature of the invention and its public benefit.

Section 92: suo motu compulsory licensing by the government 🔗

Beyond the general provision, Section 92(1) of the Patents Act allows the Central Government to grant a compulsory license on its own motion in circumstances of national emergency, extreme urgency, or for public non-commercial use – without waiting for a third-party application. This provision is particularly relevant during crises such as epidemics or public health emergencies.

Section 92A: compulsory licensing for export 🔗

Inserted through the 2005 amendment in direct response to the Doha Declaration’s paragraph 6, Section 92A allows India to grant compulsory licenses for manufacturing and exporting patented pharmaceutical products to countries that lack sufficient manufacturing capacity to address their own public health problems. This provision reflects India’s role as a supplier of affordable medicines to developing and least-developed nations.

Landmark case: Natco Pharma v. Bayer Corporation (2012-2013) 🔗

No discussion of compulsory licensing in India is complete without examining the Natco Pharma v. Bayer Corporation case – India’s first and, to date, only granted compulsory license. The case has become a defining precedent for how Indian courts and patent authorities balance patent rights with public interest.

Background and facts 🔗

Bayer Corporation, a German-American pharmaceutical company, invented a drug called Sorafenib Tosylate, which it marketed in India under the brand name Nexavar. The drug is used to treat advanced-stage liver and kidney cancer. Bayer was granted an Indian patent for Nexavar in March 2008. The drug was priced at approximately ₹2,80,000 per month – entirely out of reach for the overwhelming majority of Indian cancer patients.

In December 2010, Natco Pharma – an Indian generic drug company – approached Bayer seeking a voluntary license to manufacture and sell a generic version at under ₹10,000 per month. Bayer rejected this request. In July 2011, after the three-year statutory waiting period had lapsed, Natco filed for a compulsory license before the Controller of Patents under Section 84(1) of the Patents Act.

The Controller’s decision and IPAB ruling 🔗

In March 2012, the Controller granted the compulsory license to Natco, finding that Bayer had failed to satisfy all three grounds under Section 84(1): the drug’s public requirements were unmet, it was not available at a reasonably affordable price, and it was not being manufactured within Indian territory. Natco was permitted to sell the generic at ₹8,880 per month – a reduction of over 96% compared to Bayer’s price – and was required to pay Bayer a royalty of 6% on net sales.

Bayer appealed to the Intellectual Property Appellate Board (IPAB), which in March 2013 upheld the Controller’s order with a minor modification – increasing the royalty from 6% to 7%. The IPAB firmly held that patents are granted for public benefit and that unaffordability and non-working of a patent cannot be justified by citing philanthropic assistance programs or the argument that an infringer (Cipla) was partially supplying the market.

Bayer then challenged the IPAB’s ruling before the Bombay High Court, which also upheld the compulsory license in 2014. The Court held that the authorities had correctly applied Chapter XVI of the Patents Act and balanced Bayer’s patent rights under TRIPS with India’s obligation to protect public health. The grant was non-exclusive, non-assignable, and valid for the remaining term of the patent.

Significance of the case 🔗

The Natco-Bayer case set critical precedents on three fronts. First, it defined “reasonably affordable price” as being assessed from the perspective of the general public’s ability to pay – not the patent holder’s R&D costs. Second, it established that local working of a patent requires actual manufacturing within India, not just importation. Third, it confirmed that a patent holder’s voluntary patient assistance program does not substitute for genuine public access. The case also demonstrated that compulsory licensing is a legitimate, TRIPS-consistent tool – not an act of patent piracy.

Rejected applications: not every request succeeds 🔗

Compulsory licensing is not a rubber stamp. The Indian Patent Office has rejected several applications where the legal thresholds were not met. In 2013, BDR Pharmaceuticals applied for a compulsory license for Bristol-Myers Squibb’s cancer drug Sprycel (dasatinib). The application was rejected on the grounds that BDR had not made sufficient efforts to secure a voluntary license and lacked the manufacturing capacity to meet public needs. Similarly, in 2015, Lee Pharma applied for a compulsory license for AstraZeneca’s diabetes drug Saxagliptin, but failed to demonstrate that the public would benefit given that comparable drugs were already available at similar price points in the market.

These rejections confirm that the compulsory licensing regime in India – while protective of public interest – demands that applicants clear a high evidentiary bar. The mechanism exists to prevent patent abuse, not to make patents commercially irrelevant.

The ongoing tension: patent protection versus public access 🔗

The debate over compulsory licensing sits at the intersection of two legitimate interests. Pharmaceutical companies argue that patent exclusivity is essential to recover enormous R&D investments and to fund future innovation. Without reliable patent protection, the argument goes, there would be no incentive to develop new drugs. On the other side, public health advocates and governments – particularly in developing countries – point out that a patent on a life-saving drug means nothing to a patient who cannot afford it.

India’s legal framework attempts a careful balance. The three-year waiting period protects the patent holder’s initial investment. The requirement that applicants first seek a voluntary license gives patent holders the opportunity to negotiate. The royalty obligation ensures that even under a compulsory license, the patent holder receives some compensation. And the non-exclusive nature of the license means the patent holder does not lose ownership – they simply lose their monopoly on supply in a market they were failing to serve.

The COVID-19 pandemic brought these questions back into sharp focus globally. Several countries invoked or discussed compulsory licensing provisions to ensure access to vaccines and treatments, reinforcing the continued relevance of Article 31bis of TRIPS and the Doha Declaration flexibilities. India, leveraging Section 92A, was positioned as a critical supplier of generic medicines and vaccines to the world.

What the law expects of patent holders in India 🔗

The Patents Act imposes a clear duty on patent holders: the patent must be worked in India, on a commercial scale, without undue delay. A patent that sits unused – or a drug that is patented but available only at prices that exclude most of the population – risks meeting the conditions that justify compulsory licensing. The law is designed to ensure that the public, who ultimately funded the infrastructure and legal system that protects the patent, derives a fair share of the benefit from the innovation.

This obligation is not merely procedural. It reflects a broader constitutional principle, recognized in Indian jurisprudence, that Article 21 of the Constitution – the right to life – encompasses the right to access essential medicines. Compulsory licensing, therefore, is not just an IP mechanism; it is a health rights instrument.

What do you think? Given that India has granted only one compulsory license since TRIPS came into force, does the current legal framework do enough to prevent patent abuse, or does the high burden of proof on applicants make the mechanism too difficult to use in practice? And with pharmaceutical patents increasingly covering diseases prevalent in developing countries, should international agreements like TRIPS be reformed to make compulsory licensing easier to invoke when public health is at stake?

References

1. https://intellectual-property-helpdesk.ec.europa.eu/news-events/news/compulsory-licensing-india-and-changes-brought-it-trips-agreement-2021-10-12_en
2. https://www.wto.org/english/tratop_e/trips_e/trips_e.htm
3. https://en.wikipedia.org/wiki/Compulsory_license
4. https://www.wipo.int/patent-judicial-guide/en/full-guide/india
5. https://ipindia.gov.in/patents.htm
6. https://patentblog.kluweriplaw.com/2021/08/16/compulsory-license-india/
7. https://blog.ipleaders.in/bayer-corporation-vs-natco-pharma-ltd-a-case-analysis/
8. https://www.globalhealthrights.org/wp-content/uploads/2015/11/Natco-v-Bayer.pdf
9. https://www.iiprd.com/how-bayer-lost-its-monopoly-the-story-behind-indias-first-compulsory-license/
10. https://indiankanoon.org/doc/28519340/
11. https://ir.law.fsu.edu/cgi/viewcontent.cgi?article=1294&context=jtlp