Voluntary vs. Non-Voluntary Licensing: A Comparison for IP Owners

Every intellectual property right – whether a patent, trademark, or copyright – grants the owner exclusive control over how that creation is used. But “exclusive control” doesn’t always mean “used in isolation.” More often than not, IP owners choose to let others use their rights through licensing. What changes dramatically, however, is how that permission is given. In some cases, the IP owner negotiates freely and sets their own terms. In others, the law steps in and overrides that choice entirely. These two scenarios describe the fundamental divide between voluntary licensing and non-voluntary (compulsory) licensing – and understanding this divide is central to how IP is managed, monetized, and regulated in India.

What is voluntary licensing? 🔗

A voluntary license is exactly what the name suggests: a license that the IP owner freely chooses to grant. Under the Patents Act, 1970, voluntary licensing isn’t separately defined in elaborate detail – it flows naturally from the exclusive rights of the patent holder under Section 48, which gives the patentee the power to decide who may or may not use their invention. Because they hold that control, they can choose to share it through a contractual agreement. The same logic applies to trademarks under the Trade Marks Act, 1999, and to copyrights under the Copyright Act, 1957.

In a voluntary license, the IP owner and the licensee negotiate and agree on terms that suit both parties. These terms can cover royalty rates, the scope of use, the duration of the license, territorial limits, and quality standards. The agreement is entirely a product of mutual consent – no government authority compels it, and no court orders it.

Key features of voluntary licenses 🔗

Royalties and commercial terms: The licensor typically receives royalties – a percentage of sales or a fixed fee. Voluntary licensing arrangements are usually made for strategic business reasons, not necessarily as a goodwill gesture, and the terms may include price ranges, quality obligations, and distribution conditions that protect the licensor’s commercial interests.

Quality control clauses: These are especially critical in trademark licensing. Since the goodwill attached to a brand depends on product consistency, courts carefully scrutinize quality control provisions in agreements that involve manufacturing and brand use together. If the licensor fails to maintain adequate oversight, they may face liability under consumer protection laws.

Territorial restrictions: A licensor can limit where the licensee may operate. The license agreement typically defines the territorial extent of the rights granted. Under Section 19(6) of the Copyright Act, if no territory is specified, the license is assumed to extend only within India. In patent licensing, territorial restrictions help IP owners manage different markets and avoid conflicts between multiple licensees.

Exclusivity options: The parties can agree on an exclusive license (where only that licensee can use the IP in a given territory) or a non-exclusive license (where the IP owner retains the right to license others as well). This choice significantly affects the commercial value of the agreement.

A well-known example in the Indian pharmaceutical context is Gilead Sciences, which in 2011 offered voluntary licenses to Indian generic drug manufacturers for its hepatitis C medicine. Companies like Natco Pharma accepted these licenses, enabling them to produce and distribute affordable generic versions of the drug across India and other low-income countries.

What is non-voluntary (compulsory) licensing? 🔗

A compulsory license is the legal opposite of a voluntary one. Here, the government authorizes a third party to use a patented invention without the patent owner’s consent. Compulsory licensing is when a government allows someone else to produce a patented product or process without the patent owner’s agreement – and it is one of the key flexibilities recognized under the WTO’s TRIPS Agreement since 1995.

In India, compulsory licensing for patents is governed by Chapter XVI (Sections 84-92A) of the Patents Act, 1970. The Controller General of Patents, Designs and Trade Marks has the authority to grant such licenses when the statutory conditions are satisfied.

Grounds for compulsory licensing under Section 84 🔗

Any person can apply for a compulsory license after three years from the date of grant of a patent, if any one of the following three conditions is met:

• 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 considers several factors while deciding on such applications, including the efforts made by the applicant to obtain a voluntary license on reasonable terms, the nature of the invention, and the applicant’s capacity to work it effectively.

Conditions attached to compulsory licenses under TRIPS 🔗

India’s compulsory licensing provisions must remain consistent with its TRIPS obligations. The TRIPS Agreement’s Article 31 lays down several conditions: the applicant must normally have tried first to negotiate a voluntary license on reasonable commercial terms; the scope and duration of the compulsory license must be limited to the stated purpose; it cannot be granted on an exclusive basis; and the patent owner must still receive adequate remuneration in every case. Importantly, for national emergencies, extreme urgency, or public non-commercial use, the requirement to first attempt a voluntary license can be bypassed – but payment to the patent holder remains mandatory.

The Doha Declaration on TRIPS and Public Health (2001) further clarified that countries have the freedom to determine what constitutes a national emergency and to decide the grounds for granting compulsory licenses – giving developing countries like India significant flexibility to act in the interest of public health.

India’s landmark compulsory license: Natco vs. Bayer 🔗

India’s first and most significant compulsory license was granted in March 2012. Indian generic manufacturer Natco Pharma received a compulsory license for Sorafenib tosylate, a kidney and liver cancer drug patented by Bayer. The grounds were clear: the drug was not being manufactured in India, and its monthly cost was prohibitively high – making it practically inaccessible to most patients. The compulsory license enabled Natco to produce a generic version at a fraction of the price, dramatically improving patient access. This case remains the definitive illustration of how compulsory licensing operates as a public interest tool in India.

Voluntary vs. non-voluntary licensing: a side-by-side comparison 🔗

Consent: Voluntary licensing is built on mutual agreement – the IP owner willingly enters into the arrangement. Compulsory licensing removes that consent entirely; the state intervenes and the owner has no veto over whether the license is granted.

Trigger: A voluntary license is triggered by commercial opportunity or strategic interest. A compulsory license is triggered by a failure – the failure to make an invention available, affordable, or locally worked – or by a public health emergency.

Terms and control: In a voluntary license, the IP owner controls terms like territory, royalties, quality standards, field of use, and exclusivity. In a compulsory license, the Controller sets the terms. The license is always non-exclusive and non-assignable, its scope is limited to the purpose for which it was granted, and the royalty is determined by adjudication rather than negotiation.

Commercially driven vs. policy driven: Voluntary licensing offers flexibility for business while compulsory provisions address public interest. This is the core tension that both mechanisms are designed to manage: rewarding innovation through IP protection on one hand, and ensuring that socially important inventions actually reach the people who need them on the other.

Duration and reversibility: A voluntary license lasts as long as the parties agree, and can be renewed or renegotiated. A compulsory license issued under Section 84 can be terminated by the Controller if the circumstances that justified it no longer exist, such as when the patentee begins working the invention in India or makes it available at an affordable price.

Beyond patents: compulsory licensing in copyright law 🔗

Non-voluntary licensing isn’t confined to patents. Indian copyright law also contains provisions for statutory licenses – a related concept. Under the Copyright Act, 1957, the Appellate Board can issue licenses to broadcasting organizations that wish to broadcast published literary, musical works, or sound recordings, without requiring the copyright owner’s direct consent, provided prior notice is given and royalties are paid at determined rates. Similarly, compulsory translation licenses can be applied for after seven years from a work’s publication if it hasn’t been made available in an Indian language.

These provisions reflect the same underlying principle that drives compulsory patent licensing: when exclusive IP rights become a barrier to public access to knowledge or culture, the law provides a mechanism to override them – while still ensuring the original creator is compensated.

Strategic implications for IP owners 🔗

For anyone managing IP, whether as a corporate legal team, a startup, or an individual inventor, understanding the relationship between these two licensing modes is practically important. The very existence of compulsory licensing provisions can itself encourage IP owners to offer voluntary licenses proactively, since a voluntary deal typically allows the owner more control over terms, territory, and quality than a state-imposed compulsory license would.

This creates a practical incentive structure: if a patent holder prices a drug so high that it becomes a candidate for a compulsory license application, they face the risk of losing control over how their invention is used. Pre-emptive voluntary licensing – as Gilead did with its hepatitis C drug – gives the IP owner a way to expand access while retaining commercial negotiating power. This is why IP strategy today increasingly involves not just protecting rights, but proactively planning how those rights will be licensed and to whom.

At the international level, Section 92A of the Indian Patents Act also allows compulsory licensing for export of pharmaceutical products to countries with insufficient manufacturing capacity, bringing India’s law into alignment with the post-Doha TRIPS framework designed to serve global public health needs.

What do you think? If a pharmaceutical company holds a patent on a life-saving drug but prices it beyond the reach of most Indian patients, should the government intervene with a compulsory license immediately – or should it first exhaust all avenues for negotiating a voluntary deal? And as an IP strategy matter, how much of a difference does it make to a patent owner whether terms are set by mutual agreement versus determined by a government authority?

References

1. https://thelegalschool.in/blog/patent-licensing
2. https://blog.ipleaders.in/voluntary-licensing-patents/
3. https://www.lexology.com/library/detail.aspx?g=ffdd83a3-1728-41eb-9e43-591bb20ac539
4. https://www.legalserviceindia.com/legal/article-514-licensing-of-intellectual-property-in-india-a-detailed-study-of-its-working.html
5. https://www.wto.org/english/tratop_e/trips_e/public_health_faq_e.htm
6. https://intellectual-property-helpdesk.ec.europa.eu/news-events/news/compulsory-licensing-india-and-changes-brought-it-trips-agreement-2021-10-12_en
7. https://www.jainandpartners.com/blog/details/compulsory-licensing-of-patents-in-india/37
8. https://en.wikipedia.org/wiki/Compulsory_license