Compulsory Licence

A compulsory licence is a statutory mechanism that permits a third party to use a patented invention without the patentee’s consent, subject to the payment of a royalty determined by the Controller of Patents. It is the most significant limitation on patent monopoly under Indian law and is designed to balance the patentee’s exclusive rights against public interest — particularly access to affordable medicines and the working of patents in India.

For generic pharmaceutical manufacturers, public health advocates, and industries dependent on patented technologies, compulsory licensing is both a legal remedy and a strategic lever.

The statutory framework — Section 84

Section 84 of the Patents Act, 1970 permits any person to apply to the Controller for a compulsory licence after the expiration of three years from the date of grant of the patent.

The three grounds for compulsory licence

1. Unmet reasonable requirements of the public (Section 84(1)(a))

The patentee has failed to meet the public’s reasonable requirements for the patented invention. This includes:

• Inability to obtain the patented product in sufficient quantity
• Refusal to grant a licence on reasonable terms
• Export of the patented article without meeting domestic demand
• Imposition of restrictive conditions on licensees that preclude competition
• Prevention of the development of a commercially viable industry in India

2. Unaffordable price (Section 84(1)(b))

The patented invention is not available to the public at a reasonably affordable price. This is the ground most frequently invoked in pharmaceutical cases. What constitutes “reasonably affordable” is assessed in the context of:

• The price charged in India compared to developed countries
• The price relative to average Indian income
• The availability of cheaper generic alternatives in other countries
• The impact on public health programmes

3. Failure to work the patent in India (Section 84(1)(c))

The patented invention is not worked in the territory of India. “Working” means:

• Manufacturing the patented product in India, or
• Importing the patented product into India in sufficient quantity to meet public demand

Mere importation without local manufacture may suffice if the imported quantities are adequate. However, if the patentee neither manufactures in India nor imports sufficient quantities, the ground is made out.

The procedure

Step 1: Application (after 3 years from grant)

The applicant files Form 17 with the Controller, setting out:

• The grounds relied upon
• The nature of the applicant’s interest
• The terms of the licence sought

Step 2: Notice to the patentee

The Controller serves notice on the patentee and publishes the application in the Official Journal.

Step 3: Opposition by the patentee

The patentee may file an opposition within the prescribed time, challenging the grounds and the applicant’s standing.

Step 4: Hearing

The Controller conducts a hearing where both parties present evidence and arguments.

Step 5: Controller’s decision

The Controller decides whether to grant the compulsory licence and, if so, on what terms. The terms typically include:

Step 6: Appeal

An appeal lies to the High Court (following the abolition of the IPAB).

The Natco case — India’s first compulsory licence

The most significant compulsory licence decision in Indian history is Bayer Corporation v. Natco Pharma Ltd. (2013):

The Natco case established that:

• Price comparison with developed countries is relevant to “reasonably affordable price”
• Local working is not an absolute requirement if importation is adequate
• The public interest in access to medicines is a powerful factor

Government use and special compulsory licences (Sections 92, 92A)

Section 92 — Circumstances of national emergency

The Central Government may notify that compulsory licences shall be available in circumstances of:

• National emergency
• Extreme urgency
• Public non-commercial use

In such cases, the procedural requirements are relaxed, and licences can be granted more quickly.

Section 92A — Export to countries with insufficient manufacturing capacity

India can grant compulsory licences solely for the purpose of export to countries that:

• Have insufficient or no manufacturing capacity in the pharmaceutical sector
• Have notified the WTO of their need for the product

This provision implements the Doha Declaration on TRIPS and Public Health and the WTO Decision of 30 August 2003.

Royalty determination (Section 90)

Section 90 sets out the factors the Controller must consider when determining royalty:

• The nature of the invention and its importance to the public
• The expense incurred by the patentee in developing the invention
• The profit the patentee would have made from exclusive use
• The capital investment required by the licensee
• The risk undertaken by the licensee
• The prevailing royalty rates in comparable licences

In practice, compulsory licence royalties in India have ranged from 4% to 10% of net sales.

Common misconceptions

“Compulsory licences destroy patent rights”

False. A compulsory licence is a limited, non-exclusive licence — the patentee retains ownership and can continue to exploit the patent. The patentee also receives royalties.

“Any generic company can get a compulsory licence”

Not any company. The applicant must demonstrate:

• Technical capacity to manufacture the patented product
• Financial capacity to sustain production
• A genuine intention to supply the market

“Compulsory licences are only for pharmaceuticals”

While most compulsory licence applications have been in the pharmaceutical sector, the statutory grounds apply to any patented invention — including green technologies, telecommunications, and agricultural inventions.

“The patentee has no say in the process”

False. The patentee is entitled to:

• Receive notice of the application
• File an opposition
• Present evidence at the hearing
• Appeal an adverse decision

Frequently raised questions

Can a compulsory licence be revoked?

Yes — if the circumstances that justified the licence cease to exist, the Controller may revoke or modify the licence upon application by the patentee or any aggrieved person.

Can the licensee export the product?

Only if the compulsory licence explicitly permits export. Under Section 92A, export-specific licences can be granted for humanitarian supply to least-developed countries.

What happens to the patent after the compulsory licence expires?

The patentee’s exclusive rights are fully restored. The compulsory licence does not affect the patent term or the patentee’s ability to enforce against non-licensees.

Can a patentee prevent a compulsory licence by reducing the price?

Potentially. If the patentee can demonstrate that the product is now available at a reasonably affordable price and in sufficient quantity, the ground for compulsory licence may be negated.

How long does the compulsory licence process take?

From filing to decision: typically 12-24 months. Expedited proceedings may be possible in public health emergencies.

Related entries

• Patentability Criteria — the foundation of patent rights
• Patent Opposition — challenging patent grant
• See practice area: Intellectual Property