Compulsory Licensing: A Tool for Balancing IP Rights and Public Interest

Patent law rests on a simple bargain: society grants inventors a time-limited monopoly in exchange for public disclosure of their invention. But what happens when that monopoly is used in ways that actively harm the public – through unaffordable pricing, failure to supply the market, or deliberate non-working of the patent? This is precisely where compulsory licensing steps in. It is a legal mechanism that allows a government to authorize a third party to use a patented invention without the patent holder’s consent, under defined conditions and with payment of a royalty. Far from being a loophole, compulsory licensing is a deliberate and internationally recognized tool for ensuring that IP rights do not become barriers to essential goods and services.

What is compulsory licensing? 🔗

A compulsory license is an authorization granted by the government to a third party – typically a domestic manufacturer – to produce, use, or sell a patented invention without the patent owner’s permission. The patent holder is not stripped of their patent; they still own it and are entitled to royalty payments. What they lose is the absolute right to exclude others from working the invention when the public interest so demands.

This is distinct from a voluntary license, where the patent holder willingly negotiates terms with a licensee. In compulsory licensing, the government intervenes precisely because voluntary negotiations have either failed or been refused. The mechanism is triggered not as a punitive measure, but as a corrective one – to ensure the patent system serves its broader social purpose.

The international framework: TRIPS and the Doha Declaration 🔗

At the international level, compulsory licensing is governed primarily by the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), administered by the World Trade Organization. Article 31 of TRIPS permits member states to authorize compulsory licenses, subject to conditions such as prior attempts to obtain a voluntary license (except in emergencies), adequate remuneration to the patent holder, and restricting use predominantly to the domestic market.

However, a critical limitation in the original TRIPS text was that compulsory licenses could only be granted mainly for domestic supply. This left countries with little or no pharmaceutical manufacturing capacity – particularly least-developed nations – unable to effectively use the provision. The 2001 Doha Declaration on the TRIPS Agreement and Public Health addressed this squarely. Adopted at the WTO Ministerial Conference, it confirmed that each member has the right to grant compulsory licenses and to determine the grounds for doing so, and that public health crises – including those related to HIV/AIDS, tuberculosis, and malaria – can constitute a national emergency warranting emergency licensing.

In 2005, WTO members agreed on a formal amendment to the TRIPS Agreement, adding Article 31bis, which created a mechanism allowing generic medicines produced under compulsory license to be exported to countries lacking domestic manufacturing capacity. This amendment entered into force in 2017 and significantly strengthened the global architecture for access to essential medicines.

India’s legal framework for compulsory licensing 🔗

India’s compulsory licensing provisions are embedded in the Patents Act, 1970, primarily within Chapter XVI (Sections 84 to 94). The framework creates multiple routes through which a compulsory license can be granted, each serving a different public interest objective.

Section 84: The standard route 🔗

Under Section 84, any person – whether or not they already hold a license – can apply to the Controller of Patents for a compulsory license after three years from the date the patent was granted. The application must establish at least one of three grounds:

First, the reasonable requirements of the public have not been satisfied with respect to the patented invention. Second, the patented invention is not available at a reasonably affordable price. Third, the patented invention is not worked in the territory of India – meaning the patent holder has neither manufactured the product locally nor made it commercially available in adequate quantities.

Importantly, Section 84 requires that an applicant must first have made genuine efforts to obtain a voluntary license from the patent holder on reasonable terms. Only upon the failure or refusal of such negotiations can a compulsory license application proceed. The Controller then evaluates factors such as the applicant’s ability to work the invention for public benefit, the nature of the invention, and the extent to which the patent has been commercially exploited.

Section 92: Emergency and government use 🔗

Section 92 provides a faster and more direct route. The Central Government can, by notification, enable the Controller to grant compulsory licenses in cases of national emergency, extreme urgency, or for public non-commercial use. Crucially, the requirement of prior negotiation with the patent holder is waived under this provision, allowing the government to act immediately when the situation demands. This section has particular relevance in public health crises, natural disasters, or security emergencies.

Section 92A: Export for global access 🔗

Section 92A implements India’s obligations under Article 31bis of the TRIPS Agreement. It permits the grant of compulsory licenses for the manufacture and export of patented pharmaceutical products to countries that lack the manufacturing capacity to produce those medicines themselves, particularly least-developed countries. This provision reinforces India’s role as a major supplier of affordable generic medicines globally – a role that has earned it the informal designation of the “pharmacy of the world.”

Section 100: Government use 🔗

Separately, Section 100 empowers the Central Government to use any patented invention for its own purposes, or to authorize a government undertaking to do so, without requiring the patent holder’s consent. The government is obligated to pay royalties as mutually agreed, or as determined by the Controller. This provision is broader than compulsory licensing in the traditional sense – it operates as a government prerogative rather than a third-party application process.

Conditions and safeguards 🔗

Compulsory licenses in India are not granted arbitrarily. Several conditions and safeguards apply to ensure balance between public interest and the rights of patent holders. The license is generally non-exclusive, meaning the patent holder can continue to exploit their patent. It is non-assignable, so the licensee cannot transfer it to another party. The scope and duration of the license are tied to the purposes for which it was granted. The licensee must pay adequate royalties, and the licensed product is ordinarily meant for supply predominantly within India, unless specifically authorized for export under Section 92A.

Any party wishing to oppose a compulsory license application has the right to do so within two months of the application being published in the Official Journal of the Indian Patent Office. Both the applicant and the opponent are given an opportunity to be heard before the Controller makes a decision. A patentee can also apply to terminate a compulsory license once the conditions that necessitated it no longer exist, and decisions of the Controller are appealable.

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

The principles above were tested and crystallized in India’s first – and to date, only – compulsory license grant. In 2011, Natco Pharma Ltd., a Hyderabad-based generic manufacturer, applied for a compulsory license under Section 84(1) for Bayer’s patented anti-cancer drug Sorafenib Tosylate, sold under the brand name Nexavar. The drug was used to treat advanced liver and kidney cancer, but Bayer was selling it at approximately ₹2.8 lakh per month – a price entirely out of reach for the vast majority of Indian patients.

Natco had first sought a voluntary license from Bayer, offering to manufacture the drug and sell it at under ₹10,000 per month. Bayer refused. Natco then filed its compulsory license application, proposing to sell the drug at ₹8,800 per month – a price reduction of over 96%.

On March 9, 2012, the Controller of Patents granted the compulsory license on all three grounds under Section 84: Bayer had not satisfied the reasonable requirements of the public (it had sold only 593 boxes in 2011 against an estimated patient population of around 20,000); the drug was not available at a reasonably affordable price; and the patented invention was not being worked in the territory of India (Bayer was not manufacturing the drug locally). Bayer was awarded a royalty of 6% on Natco’s net sales, later raised to 7% by the Intellectual Property Appellate Board (IPAB) on appeal. The Bombay High Court and subsequently the Supreme Court (by dismissing Bayer’s special leave petition) upheld the grant.

The case established that patents carry responsibilities, not just rights – and that a patent holder’s failure to work the patent commercially in India, at an accessible price, can and will attract the compulsory licensing mechanism.

The tension between innovation incentives and access 🔗

The core tension in compulsory licensing is not difficult to identify. Patent protection incentivizes pharmaceutical companies to invest billions in research and development, with the assurance that a period of market exclusivity will allow them to recoup costs and generate profits. Compulsory licensing, by allowing generic production, reduces the commercial value of that exclusivity.

Critics – particularly from the pharmaceutical industry and certain developed nations – argue that widespread or unpredictable compulsory licensing discourages investment in drug innovation, especially for diseases that primarily affect developing countries. The counter-argument, equally compelling, is that a patent system which delivers life-saving medicines exclusively to those who can afford them is not fulfilling its social contract. As the TRIPS Agreement itself recognizes, IP protection is not an end in itself but a means to promote technological innovation and its dissemination to the mutual advantage of producers and users.

The Doha Declaration resolved this tension at the policy level by firmly affirming that TRIPS must be interpreted in a manner supportive of public health. What continues to be debated is the practical extent of that affirmation – how broadly grounds for compulsory licensing should be drawn, what constitutes adequate remuneration, and whether the mechanisms are accessible to countries with limited administrative and legal capacity.

Compulsory licensing beyond pharmaceuticals 🔗

While healthcare dominates the compulsory licensing conversation, the mechanism is not limited to pharmaceuticals. Copyright law also accommodates compulsory licensing – for instance, in broadcasting, cable retransmission, and digital audio transmission, where it is impractical to negotiate individual licenses with every right holder. In India’s context, compulsory licensing in patent law can theoretically be extended to agricultural innovations, clean energy technologies, and digital infrastructure – wherever a patent-backed monopoly obstructs access to something the public depends on.

Competition law intersects here as well. When a patent holder engages in anti-competitive behavior – such as refusing to license on any terms, tying arrangements, or using patents to foreclose market entry – compulsory licensing can serve as a competition remedy rather than purely a public health measure. Section 84’s ground of non-working, for instance, overlaps with competition concerns about manufactured scarcity and artificial pricing.

What the framework means in practice 🔗

For law students and practitioners, compulsory licensing sits at the intersection of IP law, competition law, constitutional rights (particularly the right to life under Article 21), and India’s obligations under international trade law. It is not a blunt instrument – the legal threshold is deliberately high, the procedural safeguards are real, and the grant is exceptional. As the IPAB itself noted in the Natco case, compulsory licenses must be assessed on a case-by-case basis; there is no blanket entitlement.

What compulsory licensing represents, at its core, is a recognition that the patent system operates within a larger social framework. Innovation must be rewarded. But the rewards cannot come at the cost of basic access to essential goods. India’s framework – built around Sections 84, 92, 92A, and 100 of the Patents Act – attempts to hold both of these truths simultaneously, offering patent holders robust protection while ensuring that protection is not weaponized against the public interest.

What do you think? Given that India has granted only one compulsory license since the TRIPS Agreement came into force, does the current legal threshold under Section 84 adequately serve public interest, or does it place too high a burden on applicants? And as essential digital technologies increasingly shape economic participation, should compulsory licensing be more actively considered beyond the pharmaceutical sector?

References

1. https://www.wto.org/english/tratop_e/trips_e/pharmpatent_e.htm
2. https://www.wto.org/english/thewto_e/minist_e/min01_e/mindecl_trips_e.htm
3. https://en.wikipedia.org/wiki/Doha_Declaration_on_the_TRIPS_agreement_and_public_health
4. https://legalblogs.wolterskluwer.com/patent-blog/compulsory-license-india/
5. https://www.rkdewan.com/blogs/compulsory-licensing-under-indian-patent-act/
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.iiprd.com/how-bayer-lost-its-monopoly-the-story-behind-indias-first-compulsory-license/
8. https://pmc.ncbi.nlm.nih.gov/articles/PMC2323529/
9. https://en.wikipedia.org/wiki/Compulsory_license
10. https://www.nlunagpur.ac.in/PDF/Publications/5-Current-Issue/1.%20COMPULSORY%20LICENSING%20OF%20PHARMACEUTICAL%20PATENTS%20IN%20INDIA.pdf