The Role of Compulsory Licensing in Intellectual Property Law

Patent rights give inventors exclusive control over their inventions – but what happens when that exclusivity comes at the cost of public health? A life-saving cancer drug priced at ₹2.8 lakh per month is technically available, but practically inaccessible to millions. This is precisely the tension that compulsory licensing is designed to resolve. It is one of the most significant – and often misunderstood – mechanisms in intellectual property law, allowing governments to override a patent owner’s exclusive rights in the interest of public welfare.

What is compulsory licensing? 🔗

Compulsory licensing, also referred to as non-voluntary licensing, is a government-authorised permission that allows a third party to manufacture, use, or sell a patented product or process without the consent of the patent holder. Unlike a voluntary licence, where the patent owner negotiates and agrees to the terms, a compulsory licence is issued by a government authority – in India’s case, the Controller General of Patents, Designs and Trade Marks – under legally defined conditions.

The key distinction is that the patent owner does not lose their patent. They retain ownership but are required to allow another party to use the invention, typically in exchange for a royalty. The patent system’s monopoly is not abolished – it is temporarily and specifically qualified in the public interest.

The international framework: TRIPS and the Doha Declaration 🔗

At the international level, compulsory licensing is governed by the TRIPS Agreement (Trade-Related Aspects of Intellectual Property Rights), administered by the WTO. Article 31 of TRIPS permits member states to grant compulsory licences under specific conditions – most notably, that the applicant must have first made genuine efforts to obtain a voluntary licence on reasonable commercial terms and failed to do so within a reasonable time period. Additionally, the patent owner must receive adequate remuneration reflecting the economic value of the licence.

For years, there was significant uncertainty about the scope of these flexibilities, particularly for developing countries facing public health crises. That changed in 2001 with the adoption of the Doha Declaration on the TRIPS Agreement and Public Health. The Declaration clarified that each WTO member has the right to grant compulsory licences and to determine the grounds on which they are granted. It further affirmed that public health crises – including those relating to HIV/AIDS, tuberculosis, malaria, and other epidemics – can constitute a “national emergency” for the purpose of issuing compulsory licences without the prior negotiation requirement.

A critical structural problem remained, however: Article 31(f) of TRIPS originally required that compulsory licences be issued predominantly for the supply of the domestic market. This meant that countries with no pharmaceutical manufacturing capacity could not benefit from compulsory licences issued in manufacturing countries. Paragraph 6 of the Doha Declaration instructed the TRIPS Council to find a solution. In 2003, a waiver was adopted, and in 2017, this was formalised as Article 31bis of TRIPS – creating a special compulsory licensing pathway allowing generic medicines to be manufactured in one country and exported to another that cannot manufacture them locally.

Compulsory licensing under Indian law 🔗

India’s approach to compulsory licensing is among the most detailed and balanced in the world. The primary legal provisions are contained in Chapter XVI of the Patents Act, 1970, with key provisions spanning Sections 84 to 92A.

Section 84: the main provision 🔗

Section 84 of the Patents Act, 1970 is the core compulsory licensing provision. Any person – including an existing licensee – can apply to the Controller for a compulsory licence after three years from the date of grant of the patent. The three-year window is intentional: it gives the patent holder a reasonable period to work the patent commercially and recoup R&D costs before any compulsory licence application becomes possible.

An application can be filed on any one or more of the following three 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 has not been worked in the territory of India.

The Controller does not grant the licence automatically. The applicant must demonstrate that they made genuine efforts to obtain a voluntary licence from the patentee on reasonable terms within a reasonable period and failed. The Controller also considers factors such as the nature of the invention, the applicant’s capacity to work the patent, and the measures taken by the patentee to make full use of the invention.

Section 92: government-initiated compulsory licences 🔗

Under Section 92, the Central Government can direct the Controller to grant compulsory licences on its own initiative – without waiting for an application – in circumstances of national emergency, extreme urgency, or for public non-commercial use. Importantly, in such cases the requirement to first attempt a voluntary licence is waived, making the process significantly faster than the standard Section 84 route.

Section 92A: compulsory licences for export 🔗

Incorporating the obligation arising from the Doha Declaration’s Paragraph 6 system, Section 92A was inserted into the Patents Act through the 2005 amendment. It permits the grant of compulsory licences for the manufacture and export of patented pharmaceutical products to countries that have insufficient or no manufacturing capacity, provided those countries have either issued a compulsory licence themselves or otherwise notified their intent to import. This provision directly enables India – as a major generic drug producer – to serve as a pharmaceutical supplier to least-developed and developing nations.

Section 100: use of patents for government purposes 🔗

Separate from the compulsory licensing framework, Section 100 allows the Central Government or any person authorised by it to use a patented invention for government purposes. This is broader and does not require the Controller’s intervention – it is a direct government power, though the patent holder retains the right to adequate compensation.

Conditions and safeguards for patent holders 🔗

Compulsory licensing is not a tool for dispossessing inventors. The Indian Patents Act and TRIPS both build in important protections for patent owners. A compulsory licence is always non-exclusive – the patent owner continues to hold the patent and can grant other licences. It is also non-assignable, meaning the licensee cannot transfer the licence to a third party. The licensee must pay a royalty to the patent holder, the quantum of which is determined by the Controller taking into account the economic value of the licence and the need to correct anti-competitive practices, if any.

Furthermore, a compulsory licence can be terminated under Section 94 once the circumstances that gave rise to it no longer exist. The patent holder can apply to the Controller for termination, demonstrating that the public need has been addressed or that the affordability issue has been resolved. This ensures that compulsory licensing remains a targeted, temporary remedy rather than a permanent curtailment of patent rights.

India’s landmark case: Natco Pharma v. Bayer Corporation 🔗

The most significant and widely studied application of compulsory licensing in India is the Natco Pharma v. Bayer Corporation case, decided in 2012. Bayer held an Indian patent over Sorafenib Tosylate, a drug used in treating liver and kidney cancer and sold under the brand name Nexavar. The price of the drug was approximately ₹2.8 lakh per month’s course, placing it beyond the reach of nearly every patient who needed it.

Natco Pharma, a Hyderabad-based generic drug manufacturer, applied for a compulsory licence under Section 84, arguing that all three statutory grounds were independently satisfied: the drug was not available at a reasonably affordable price, the reasonable requirements of the public were not being met, and the patented invention was not being worked in India. The Controller agreed on all three grounds and granted the compulsory licence to Natco in March 2012 – the first compulsory licence ever granted in India, and the first granted anywhere in the world after the TRIPS Agreement.

Natco was permitted to sell the drug at approximately ₹8,800 per month – around 3% of Bayer’s price – and was directed to pay Bayer a royalty of 6% on net sales. The Intellectual Property Appellate Board (IPAB) upheld the Controller’s decision in 2013, and Bayer’s appeal to the Bombay High Court also failed. The Supreme Court subsequently dismissed Bayer’s special leave petition, making the decision final. This case firmly established the legal precedent and operational mechanics of compulsory licensing in India.

The Lee Pharma case: when compulsory licences are refused 🔗

Not every application succeeds. In 2015, Lee Pharma applied for a compulsory licence over AstraZeneca’s diabetes drug Saxagliptin (Onglyza). The Controller rejected the application on all three Section 84(1) grounds. Lee Pharma failed to demonstrate that public requirements were unmet, that the drug was priced unreasonably relative to comparable alternatives, or that it was not being worked in India. The case reinforced that compulsory licensing is a carefully regulated exception, not a routine tool – applicants must establish each ground with specific, quantitative evidence.

Impact on patent owners and public access 🔗

For patent holders, compulsory licensing introduces a real commercial risk – particularly for pharmaceutical companies that invest heavily in R&D with the expectation of exclusive market returns. Critics of the mechanism argue that frequent or broad use of compulsory licences could reduce investment incentives for research into new medicines, especially for diseases prevalent in developing countries. If a patent can be overridden the moment a drug proves commercially valuable, the argument goes, companies may be less willing to develop treatments for markets where compulsory licensing risk is high.

On the other side, the public interest case is compelling. As the WTO itself has clarified, intellectual property rights are not absolute – they exist within a framework that also recognises member states’ sovereign right to protect public health. In countries like India, where a significant portion of the population cannot afford brand-name pharmaceutical prices, compulsory licensing can be the difference between access and denial of care. The Nexavar case is the clearest proof: the same drug, the same patent, but a price reduction of over 97% through the compulsory licence route.

The balance India’s patent law attempts to strike is clear in its legislative design: a three-year waiting period respects the patentee’s right to commercialise their invention; the royalty requirement ensures they are compensated even when a compulsory licence is granted; and the non-exclusive, non-assignable nature of such licences ensures the patentee retains control of their intellectual property in all other respects. The framework does not eliminate private rights – it calibrates them against public necessity.

Compulsory licensing beyond pharmaceuticals 🔗

While the pharmaceutical sector dominates the compulsory licensing discourse, the mechanism is not restricted to medicines. In principle, it can apply to any patented technology where the public interest is at stake – including agricultural innovations, clean energy technologies, or emergency communications systems. The COVID-19 pandemic renewed debate on this front: several public health advocates called for compulsory licences on vaccine technologies. India’s Section 92 framework was specifically discussed as a vehicle for addressing potential vaccine shortages, given that a national emergency or extreme urgency declaration by the Central Government can bypass the standard negotiation requirements entirely.

What do you think? If a company has invested billions in developing a life-saving drug, does a government-imposed compulsory licence undermine the entire logic of the patent system – or is it a necessary correction that the system itself provides for? And with climate change creating new “emergencies” around clean technology access, should compulsory licensing be extended more aggressively beyond pharmaceuticals to cover green innovations as well?

References

1. https://ipindia.gov.in/
2. https://www.wto.org/english/tratop_e/trips_e/trips_e.htm
3. https://www.wto.org/english/tratop_e/trips_e/pharmpatent_e.htm
4. https://www.wto.org/english/tratop_e/trips_e/public_health_faq_e.htm
5. https://ssrana.in/ip-laws/patents/compulsory-licensing-patents-in-india/
6. https://patentblog.kluweriplaw.com/2021/08/16/compulsory-license-india/
7. https://www.wto.org/english/tratop_e/trips_e/healthdeclexpln_e.htm