In general, a patent confers on its owner when granted, during the term of protection, the exclusive rights to prevent third parties from making, using, offering for sale, selling or importing of the patented invention without his/her authorization within the territory of the country/region where the patent is in effect. Also, patent owners have the right to assign and conclude licensing contracts in respect of their invention. Such licenses that are granted by the patent owners are considered "voluntary" licenses. Under certain circumstances and conditions, depending on a term used in a specific jurisdiction, a so-called "compulsory" or "non-voluntary" license may be granted by a competent national authority to a third party allowing the exploitation of the patented invention during the patent term without the authorization of the patentee. In particular, under a compulsory license authorization, a court or another competent authority grants specific permission to a person or an entity other than the rights holder to produce, use, sell or import the patent-protected product, or use the patent-protected process, under specific circumstances.

Compulsory License Provisions in the Indian Patents Act

India is one of the important member countries to sign the TRIPS Agreement, which was implemented in our country in 2005. Before the TRIPS regime, product patents for drugs were not granted in India. The generic drugs industry therefore, flourished in India during this time despite a strict patent regime in developed countries. This system had its own benefits such as there was no problem with accessibility to drugs availability in India. Also, the price of the drugs was nominal, even for those drugs which were very costly in other countries at that time. Accessibility of drugs at a very low price is one of the important requirements for the developing nations. But there was a problem with this system that new and innovative drugs could not be launched in India. To solve this problem, India signed the TRIPS Agreement in 1995.

As per the Indian Patents Act, 1970, a compulsory license can be granted for the patents after the expiry of three years of grant of patent. Sections related to compulsory license are 84, 90, 92, 92A, 94, 100 and 102.

Issues related to Compulsory Licensing

Grey Market

The local supply of patented products may lead to the creation of a grey market in different ways. In comparison to black marketing which involves counterfeit or illegal goods, grey marketing may not be called illegal. But they cause revenue loss and pose an economic burden on the country. Grey marketing has a big role in the infringement of intellectual property rights. In case of compulsory licensing, where the generic company (licensee) is given rights to manufacture and sell the patented drug to a target country only for which the compulsory license is granted, but instead, the company itself (licensee) or its dealers sell the drug to other countries also. This is mainly seen when the license is granted for the import of drugs from other countries. Also, when a compulsory license is granted to some company for the manufacture of a certain drug, then some other generic companies also start making the same drug without any license. Such drugs are usually counterfeit. This is a huge economic loss to the country as well as patentee. Hence, grey marketing needs to be checked in case of compulsory licensed products as well.

Difference in standards of National Emergency

A national emergency has no standardized international definition. This is one of the issues being raised from time to time against compulsory licensing that no fixed standardized definition of a national health emergency is available. For example, 1% of the population of a country suffering from a disease may account as a state of national emergency in a country like India where 1% of the population is equivalent to 12.5 million people, while in a country like Canada where 1% population is equivalent to 0.351 million people, it may or may not be accounted as a state of national emergency.

Apprehensions of the Patent holder

The patentee spends a lot of money and effort to develop an invention, and the compulsory license holder gets the benefit without putting in any effort. This disheartens the inventors discourages further innovative activities. It is found that companies under compulsory licensing obligations come under pressure to continue innovativeness to remain ahead to their competitors.

Royalty-Free Practice or Low Royalty

A compulsory license is granted in the situation of crisis, emergency, or urgency which means it is granted for people in great need as well as at affordable prices so that it should be within reach of everyone belonging to any financial class. In that case, royalty for a compulsory license cannot be placed very high so that price level also does not go high. Still, the patentee is given some royalty as per the agreement. Royalty is decided on many bases like market value of the product, area of marketing, the quantity of product to be marketed, percentage of customers, time-period of the license, etc. When a variety of the same product is available in the market, its price is affordable due to competition which is beneficial for society. Nonetheless, patent holder deserves certain royalty for their efforts and invention and so reasonable terms of royalty should be negotiated at the time of agreement.


Bayer v Natco

India's first-ever compulsory license was granted by the Patent Office on March 09, 2012, to Hyderabad-based Natco Pharma for the production of a generic version of Bayer's Nexavar, an anti-cancer agent used in the treatment of liver and kidney cancer. It was established in Bayer v Natco that only 2% of the cancer patient population had easy access to the drug and that the drug was being sold by Bayer at an exorbitant price of Rs. 280,000 for a month's treatment. AsNexavar was being imported in India, the Patent Office issued a compulsory license to Natco Pharma, which assured that the tablets would be sold for Rs. 8,880 per month. It was settled that 6% of the net selling price of the drug would be paid to Bayer by Natco Pharma as royalties.

BDR Pharmaceuticals International Pvt Ltd v Bristol-Myers Squibb Co

In BDR Pharmaceuticals the controller rejected BDR's application for a compulsory license (March 04, 2013) for the Bristol-Myers Squibb cancer drug SPRYCEL. The controller rejected the compulsory license application made by BDR by stating that BDR had failed to make a prima facie case for the grant of the compulsory license. The controller observed that BDR had made no credible attempt to procure a license from the patent holder and the applicant had also not acquired the ability to work the invention to public advantage. Thus, the request for a grant of the compulsory license was refused.


The main aim of the compulsory license is to improve public access to patented expensive medicines. This also increases competition in the market and cuts down the price of patented drugs, because the dominance of a drug in the market may lead to higher prices and hence an abuse of patent may result. Countries should include compulsory licensing as an essential public health policy tool, to be resorted to only in extreme cases when there is no other way out.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.