What is Compulsory License?

Because of uncertainty over access to treatments for COVID-19, several countries have been laying the legislative groundwork to issue compulsory licenses for products that patent holders refuse to make accessible.

Aspirants can find relevant information related to the Compulsory License for IAS exam in this article.

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What is Compulsory License?

  • A compulsory License authorised by the government allows the company or an individual seeking other’s intellectual property to use it without having to seek the consent of the owner/ the right holder by paying a predetermined fee for the license. The compulsory licence is regulated by the Indian Patents Act 1970.
  •  It is one of the flexibilities in the field of patent protection included in the WTO’s agreement on intellectual property — the TRIPS (Trade-Related Aspects of Intellectual Property Rights) Agreement.
  • It existed in the TRIPS Agreement, ever since it took effect in January 1995.
  • Indian Patent Act,1970 provides that after three years from the date of the grant of a patent, any person can apply for the compulsory license, on certain 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
    • Lastly, the patented invention is not used in the territory of India.
  • Indian Patent Act,1970 authorizes the central government to issue a compulsory license at any time after the grant of the patent, in the case of:
    • National emergency; or
    • Extreme urgency; or
    • Case of public non-commercial use

How many Compulsory Licenses have been issued in India?

Only 1 compulsory license has been issued in India by the Patent Office on March 9, 2012. The license was issued to Natco Pharma for the generic production of Bayer Corporation’s Nexavar, which is a life-saving medicine used for treating Cancer(Liver & Kidney).

Some Related Links

World Trade Organisation (WTO) WTO Agreements
Intellectual property rights National IPR Policy

Conditions for Issuing Compulsory License

  • The person or company applying for a licence has to have tried, within a reasonable period of time, to negotiate a voluntary licence with the patent holder on reasonable commercial terms. Only if that fails can a compulsory licence be issued.
  • When a compulsory licence has been issued, the patent owner has to receive payment. The TRIPS Agreement says “the right holder shall be paid adequate remuneration in the circumstances of each case, taking into account the economic value of the authorization”, but it does not define “adequate remuneration” or “economic value”.
  • The scope and duration of the licence must be limited to the purpose for which it was granted, it cannot be given exclusively to licensees and it should be subject to legal review.

Fee payment procedure for Compulsory License

  • The fee is set by the law or through any arbitration or adjudication process. 
  • Copyright law Many countries provide copyright law for compulsory licensing of copyrighted works for certain uses.
  • In most cases, the fee or royalty to be paid for a work that is copyrighted under the compulsory license is defined by the local law, however, it can be negotiated.
  • The fee may be determined through negotiations but must contain terms within the boundaries of the compulsory license.

Industries under Compulsory Licensing in India

Only 6 industries fall under the compulsory licensing category in India.

They are listed below:

  1. Distillation and brewing of alcoholic drinks.
  2. Cigars and Cigarettes of tobacco and manufactured tobacco substitutes.
  3. Electronic Aerospace and Defence equipment: all types.
  4. Industrial explosives including detonating fuses, safety fuses, gun powder, nitrocellulose and matches.
  5. Hazardous chemicals.
  6. Drugs and Pharmaceuticals (As per the modified Drug Policy issued in September 1994).

The Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement) does not specifically list the reasons that might be used to justify compulsory licensing. However, the Doha Declaration on TRIPS and Public Health confirms that countries are free to determine the grounds for granting compulsory licences and to determine what constitutes a national emergency.

FAQ about Compulsory License | Compulsory Licensing Definiton, Uses & Laws

What are the grounds of compulsory license?

Government or third parties authorized by the government can use compulsory licence. But the following provisions shall be respected:(1)Prior to such use, the proposed user has made efforts to obtain authorization from the right holder on reasonable commercial terms and conditions and that such efforts have not been successful within a reasonable period of time.(2)The scope and duration of such use shall be limited to the purpose for which it was authorized.(3)Any such use shall be authorized predominantly for the supply of the domestic market.(4)The right holder shall be paid adequate remuneration in the circumstances of each case

What is the prescribed for grant of compulsory license?

The compulsory licensing mechanism covers pharmaceutical products, including medicines, vaccines and diagnostics, needed to fight an epidemic.

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