Compulsory Licensing in The Post-Trips Era and Its Impact On Indian Pharmaceutical Industry
Introduction The primary purpose of this article is to provide an insight into the different phases in the evolution of the “compulsory licensing mechanism” and to shed light on the Compulsory License regime in India. The article further explores the relationship between access to drugs and the need for the introduction of compulsory licensing provisions for the promotion… Read More »
The primary purpose of this article is to provide an insight into the different phases in the evolution of the “compulsory licensing mechanism” and to shed light on the Compulsory License regime in India. The article further explores the relationship between access to drugs and the need for the introduction of compulsory licensing provisions for the promotion of public health and highlights its consequential impact on the Indian Pharmaceutical Industry.
Patents provide an exclusive right to the innovator over his invention and prohibit others from exploiting it during the term of the patent. This term of exclusivity gives the patent holder the right to regulate the selling price of the patented product. Conferring patent-protection over pharmaceutical products has always been and continues to be a topic of public debate and discussion.
Since the investment in pharmaceutical is a time-consuming and expensive process, pharmaceutical companies often pursue the protection of patent law as a means of recovering the costs associated with the production of the drug. The high price of the patented drug often deprives the developing countries of the benefits of the patented drug because they do not have the resources to afford such expensive drugs and medicines.
- Critics of patent-protection argue that pharmaceuticals should be exempt from patent-protection because the patent-holders take undue advantage of their monopoly rights in order to make massive profits.
- In response, the proponents of patent-protection claim that eliminating or restricting patent rights would lead to a decline in research and innovation in the pharmaceutical sector.
What is Compulsory License?
In order to regulate the misuse of patent rights, the compulsory licensing mechanism has been introduced. Under this mechanism, the government permits a third party to produce the patented product or process without the permission of the patent owner. In return, the Government grants reasonable compensation in the form of royalty to the patent holder. The primary justification for granting compulsory licensing is to allow developing countries increased access to critical lifesaving medicines at an affordable price.
Compulsory Licensing and India
India is recognized as the world market leader for its strong generic pharmaceutical industry, which has been able to provide drugs at rates that were among the lowest in the world. The Indian pharmaceutical industry, which had the little technological potential to manufacture modern drugs locally in the 1950s, emerged as the most dynamic manufacturing sector in the Indian economy in the 1990s.
It has attained a significant size and degree of technological capacity for the development of generic drugs indigenously and cost‐effectively to emerge as a major developing country competitor on the global market.
The credit for the growth of the generic industry can be largely attributed to the Patents Act, 1970 which allowed for patents in pharmaceutical processes. The process patent regime:
- made it legally possible for domestic pharmaceutical companies to develop alternative processes to produce cheaper versions of foreign-patented drugs.
- allowed Indian companies to launch the generic products in India as well as export them to other countries, mainly to developing countries.
- drastically reduced the drug prices in India, making the patented drugs easily available and affordable to the poor.
The Indian pharmaceutical companies quickly became “the pharmacy of the developing world”. Thus, we see how India’s patent policy focuses more on defending public interest than on monopoly rights.
However, India’s accession to the TRIPS Agreement had led India to amend its patent law by implementing product-patents for its pharmaceuticals. This was a significant challenge for the generic drug manufacturers as it restricted their ability to operate through the proprietary process, thereby directly undercutting the supply of affordable medicines and indirectly eliminating the generic competition that India has been thriving on for a long time.
India was in a difficult position, on the one hand, to protect the public interest and, on the other hand, to comply with the provisions of the TRIPS Agreement. Nevertheless, the Government of India has managed to incorporate the flexibility that exists in the TRIPS agreement in order to ensure that the generic industry remains viable. India has achieved a successful patent policy by striking a balance between the Agreement on TRIPS mandate and protecting poor people’s access to medicine at an affordable price through the provision of a compulsory licensing system.
The TRIPS Era
The TRIPS Agreement has been implemented with the aim of providing adequate safeguards for IPR in line with the priorities of developing countries’ public health and dissemination of innovation in the world.
- Article 31 of the TRIPS Agreement allowed the Member States to issue compulsory licensing, subject to certain conditions. However, in the event of national emergency, extreme urgency, etc., the preconditions may be waived off. It is important to note that TRIPS failed to define “national emergency” anywhere in the text, which led to confusion with regard to the exceptions and led to different interpretations of the specific exceptions by the Members.
- In addition, Article 31(f) effectively limited the advantages of compulsory licensing to Members with sufficient manufacturing capacity and technical know-how, as it allowed the licensees to supply the product only to their country’s domestic market.
Since the Nations which are most likely to make use of the exceptions to patents are economically distressed nations with insufficient or no manufacturing capabilities, the exceptions in TRIPS failed to serve the needs of those nations. Although there is no doubt that TRIPS has sought to establish a strong patent regime, it has restricted countries with poor and low manufacturing capacity to access medicines to meet their public health needs.
The Post TRIPS Era: Doha Declaration
There was an urgent need to resolve the issue of use of compulsory licensing. The Doha Declaration clarified the ambiguity with respect to the TRIPS provisions and set forth other guidelines.
- It allowed each member to grant compulsory licenses and the right to lay down the grounds on which those licenses will be issued, thereby allowing them to decide what constitutes national emergency or extreme urgency and public health crisis.
- It acknowledged that nations with insufficient or no manufacturing capacities in the pharmaceutical sector could face difficulties in making effective use of compulsory licensing under the TRIPS Agreement. Therefore, it allowed for a waiver of “domestic market” restriction on compliance with certain conditions. The Doha Declaration made it possible for countries which cannot manufacture medicines themselves to import pharmaceutical under a compulsory license.
Thus, the Doha Declaration stressed the importance of implementing and interpreting the TRIPS Agreement in such a way as to support public health by promoting both access to existing medicines and the creation of new medicines.
It is important to note that the Doha Declaration:
adopted a positive approach by prioritizing public health over intellectual property rights.
recognised the need to strengthen the system of compulsory licenses in the developing and least developing countries because of their inability to cater to the needs of its people.
It was only after the Doha Declaration that the developing nations were able to make use of the provision of compulsory licensing to access drugs from the developed world.
Impact on Indian Pharmaceutical Industry
Post-TRIPS, India has carefully designed and adopted a patent policy by successfully balancing the competing interests of protecting patent rights and making essential drugs available to everyone. The compulsory licensing provisions have increased access to medicine and have also incentivized innovation within the country through the 2005 Patent Act.
Flexibilities Incorporated in the Patent Act
- Section 84 of the Patent Act protects India from anti-competitive practices and misuse of power by the patent-holder, by allowing local companies the right to challenge the patent holder. A compulsory license under Section 84 shall be issued when the patented drug is unavailable, unaffordable, or not supplied adequately to the public. Therefore, the 2005 Act protects the public health by allowing for compulsory licensing in situations beyond “national emergency”, thus ensuring that the patents do not impede the country’s overall health.
First Compulsory Licensing Case: NATCO v. Bayer
In this context, the first compulsory license granted by India under section 84 is significant. An Indian generic manufacturer, Natco Pharma, applied for a compulsory license for domestically producing the patented kidney cancer drug “Nexavar” developed by the American company, Bayer Corporation. Natco assured that it would be able to sell the medicine at a fraction of Bayer’s price, and so the compulsory license was granted on the basis that Nexavar was not available to 98% of the population, due to its unrealistic price.
The Patent Controller failed to consider Bayer’s R&D investment during the development of the drug and found Nexavar to be unaffordable and unreasonably priced for the Indian market. It established the standard that “reasonable affordable price” described in Section 84 should be seen from the point of view of the public and not from the point of view of the company. This case provides insight into the views of the Government on India on ensuring a steady and affordable price for the population, thereby promoting public health.
- Section 92(A) of the Patent Act facilitates compulsory licenses that grant India-based companies to manufacture and export patented pharmaceuticals to another country which cannot manufacture the product on its own and where such country is addressing public health concerns. Thailand, Zimbabwe, and South Africa are some of the countries that use compulsory licenses to import generic pharmaceuticals from India.
This section safeguards access to medicines for countries suffering from a public health crisis and also safeguards India’s generic industry by granting them the right to manufacture and export drugs that other nations urgently need. Thus, India’s compulsory licensing model protects public health, both domestically and internationally, from the potential harm of patents.
The compulsory licensing provisions in the Patent Act has provided room for the presence of generic manufacturers, thereby achieving the twin objective of providing access to medicines and supporting local generic infrastructure. It can be argued that compulsory licensing provisions may undermine incentives for innovation, but India’s pharmaceutical industry is a testament to the fact that promoting the development of a flourishing domestic pharmaceutical industry may stimulate innovation.
India pharmaceutical firms have been granted more than 40% of Abbreviated New Drug Application (ANDA) in the US. India’s market share of drugs indicates that there has not been a decline in innovation within India.
India’s pre-TRIPS generic pharmaceutical infrastructure has established the foundation for manufacture and export of generic drugs to other nations when a compulsory license is granted. The Indian pharmaceutical industry has used compulsory licensing as an essential public health policy tool to broaden its reach in both domestic and foreign markets. As a supplier of cheap generics, it has made treatments more affordable and improved access to patented drugs.
India’s progressive patent legislation has therefore successfully managed to develop a strong generic industry by concentrating on the protection of consumer interests and prevention of abuse of patents.
Authored by: Karishma Sethia
Student, O.P. Jindal Global University
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 The Patents Act 1970 (No. 39 of 1970), Gazette of India, 1970-09-21, Part II, Sec. 1.
Samira Guennif and N Lalitha, “TRIPS Plus Agreements and issues in Access to Medicines in Developing Countries” 12 Journal of Intellectual Property Rights 471 (Sep. 2007), at 472.
The Patents Act, 1970, Subs. by Act 15 of 2005, S. 52
 Thaddeus Manu Building National Initiatives of Compulsory Licences, 14 J. int’l trade l. & Pol’Y. 23, 23-48 (2015)
Wael Armouti. Grounds for Compulsory License with Selected Cases Granted for Pharmaceuticals, 26 Tul. J. Int’l & Comp. L. 381, 402 (2018), at 402.