India: Can Compulsory License (CL) Be A Legal Tool For Pharmaceutical Industry? ‘An Overview Of The CL Under The Indian Pharma Industry

Last Updated: 1 May 2014
Article by Aayush Sharma

Most Read Contributor in India, September 2016

As the grant of Compulsory license (CL) to Natco to make and sell generic version of Bayer AG's patented cancer treatment Nexavar might be an old story under the India's IP regime but it is first CL to be issued in the history of the Indian Patents system. It's the first time that an Indian company has been granted a compulsory licence to market a generic version of a patented drug. After this order, Indian IPR has garnered a lot of attention globally. Recently, The U.S. Chamber of Commerce called on the Indian government to ratchet up pressure on India over intellectual property rights, in a move that could help prevent Indian companies from producing cheap generic versions of medicines still under patent protection1. The U.S government clearly want to allow US pharma companies to sell their patented drugs at the high price in the Indian market. These issues are the outcome of the grant of first CL issued in India.

Compulsory License- The grant of compulsory licensing is a remedy to control abuse of exclusivity which is protected by IP rights. Today, lot of countries have issued compulsory licenses in the interest of mankind. Accordingly, it has been viewed that after the compliance of TRIPS, countries such as Brazil, Thailand, Malaysia, South Africa, Kenya, Ecuador etc. have issued compulsory licenses over the patent rights of AIDS drugs and in 2012 India has also joined the bandwagon of compulsory licensing2. Before moving ahead, it is essential to summon up the definition of compulsory license. Compulsory licenses are involuntary contracts between willing buyer and unwilling seller imposed or enforced by the authorized body. It is a legal instrument designed to force intellectual property owners to license out their statutorily granted right to interested third parties capable of manufacturing the patented product at cheaper prices. In the year 2012, a landmark decision of India's intellectual property office came which granted the first CL to Natco to sell Bayer's patented chemotherapy drug Nexavar (sorafenib tosylate). Compulsory licensing of IPR in India brings another opportunity for Indian Pharmaceutical industry which is 3rd largest industry in the world after US and Japan. In India there are many Indian & MNC Pharma industries where most of them produce generic drugs. Productions of such drugs are relatively lesser in cost as compared to patented drugs and can be easily approached by needy patients. In such a way, most of the Indian Pharma companies established their presence in India and in the market whereas MNC companies who have also established their presence in India and from past many years, these MNC are contributing their enormous presence in the research and development, clinical testing/trials, and further in grant of patents. These companies invest huge amount of money in getting their drugs patented and in protecting their drug against legal actions. In considering the example of the Bayer vs. Natco where IPO grant Natco to sell Bayer's patented drug at an affordable price. Such CL is in favour of betterment of the mankind and to the better health scenario in the country. But considering from the perceptive of those MNC companies, such compulsory licensing may deter R&D, monetary investment, foreign direct investment in Pharma industrial sectors. Such apprehensions of compulsory licensing of IPRs may cause companies to not to venture in to Indian jurisdiction as their right of patent or any other IPR may be licensed to others bringing down the profitability. It can be seen in the Bayer vs. Natco where IPO has sanctioned only 6% of the profits from sale of sofranib by Natco. This indicates that though the profits earned by the IP are much proportional to compulsory license but still it doesn't vanish completely. The royalty earned, which might not be sufficient for Bayer but for the sake of mankind it must be a healthy step.

Grant of compulsory license in the country increases the competition among the Pharma companies but this creates the sense of mistrust between those companies who spends and invests lot of money and their resources to invent a novel drug. In one of the famous saying which give rise to a conclusion suitably fits for this compulsory licensing. According to it, "when the situation has become highly problematic, it is appropriate to use corrective actions that are considered more extreme than usual". Therefore, it is concluded that drastic measures of compulsory license must be used only in drastic times and if this is not been followed than it might be a tough time for Pharmaceutical industry to flourish in India and for healthy India.

Further considering the consequences of compulsory licensing:


The decision of first compulsory licensing might vanish the India's strong IP regime globally. Innovator companies who invest large amount of money in innovation will not feel secure enough to invest in the country where their researched products (incurring millions of dollars) are exploited by lowering the cost3.


Firstly, it can be observed from the CL that it is meant for providing necessary medicines at an affordable cost. But such step of government may demolish the practise of domestic companies to invest in R&D, because a company would not risk the huge expenditures involved in research when with a single decision of the government can allow another company to copy the product legally at a negligible cost. Secondly, this step might harness the relationship between domestic Pharma companies and their foreign counterparts4.

Case: In one of the Compulsory License application made by M/s. BDR Pharmaceuticals against the Bristol Myer Squibb Company.

On 30th October, 2013, IPO rejected the compulsory license application filed by the BDR pharmaceuticals against the Bristol's patented drug Sprycel (dasatinib) which is used by patients suffering from chronic myeloid leukaemia herein-after referred to as "CML5". The drug was sold at a price of Rs. 2761 by the patentee in the Indian market which won't be accessible to many patients because of its high price.

In this case IPO rejected the application because applicant failed to comply with the prima facie case for the grant of compulsory licence, under Section 87 of the Indian Patents Act. Further, IPO states that the applicant did not make efforts to obtain a licence from the patentee on reasonable terms and conditions. This is the second compulsory license application filed in the country. In referring this case, the IPO denied the allegations of MNCs Pharma companies that India issues compulsory licences blindly.






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