Chapter VI. Compulsory Licensing & Local Working – Comprehending Apprehending or Apprehending Comprehension?

This post was first published on 4th July, 2014.

Compulsory Licenses are licenses granted by the government or the patent office, irrespective of whether the patent holder gives consent to such a license. For most types of Compulsory Licenses, the granting authority fixes the royalty payable to the patent holder. Compulsory Licenses, with respect to patents, are of various types:

General Compulsory License – Granted for all types of inventions when certain predefined parameters are satisfied;

Compulsory License in National Emergency, or Public Health Crisis – Granted when there is a serious health emergency like an epidemic outbreak, or a rampant life threatening disease like cancer, or AIDS;

Compulsory License in furtherance of Public Interest – Granted when the government decides that the license must be granted in furtherance to the interest of general public such as for promotion of an industry, to safeguard health, etc;

Compulsory License for National Security – Generally granted with respect to defence related inventions;

Compulsory License for Patent Working – Granted when one patent’s working is dependant on another’s;

Compulsory License for Government Use – Granted when a government department seeks to use an invention; and so on.

General Compulsory License is one of the rarely used ones. We barely see instances of its usage, as opposed to Compulsory Licenses in cases of public health crisis, which are effectively used by several countries for making AIDS and cancer drugs accessible. Section 84 of the Indian Patent Act deals with General Compulsory Licenses. Clause 1 of Section 84 reads as follows:

“84. Compulsory Licenses.

(1) At any time after the expiration of three years from the date of the sealing of a patent, any person interested may make an application to the Controller for grant of compulsory license on patent on any of the following grounds, namely:

(a) that the reasonable requirements of the public with respect to the patented invention have not been satisfied, or
(b) that the patented invention is not available to the public at a reasonably affordable price, or
(c) that the patented invention is not worked in the territory of India.”

The provision requires at least one of the following requirements to be satisfied for grant of a General Compulsory License:

Reasonable requirements of the public are not being met by the patent holder;
The product is not affordable to the public; or
The invention is not being worked in India.

The first General Compulsory License granted in India was to Natco, on Nexavar, a drug patented by Bayer, used for treating liver and kidney cancer. After due consideration of facts with respect to drug usage, accessibility and manufacturing in India, the Controller General of patents granted the license, holding that all three conditions of Section 84 were met. With regard to the third criterion, the Controller General’s rationale was that the local working requirement was not met because there was no manufacturing in India. This rationale was met with severe criticism from foreign businesses and continues to be so in the USTR submissions by USCC, PHRMA and BIO.

Though the IPAB, on appeal, disagreed with the Controller General and pointed out that importing, under certain circumstances, might be sufficient to satisfy the local working requirement, the concern continues to subsist in several submissions. In their submissions, the USCC and others argue that the requirement of local manufacturing in India violates Articles 3, 27.1 and 31h of the Agreement on TRIPs. The said provisions read as follows:

“Article 3: National Treatment

1. Each Member shall accord to the nationals of other Members treatment no less favourable than that it accords to its own nationals with regard to the protection of intellectual property, …”

“Article 27: Patentable Subject Matter

… patents shall be available for any inventions, whether products or processes, in all fields of technology, provided that they are new, involve an inventive step and are capable of industrial application. Patents shall be available and patent rights enjoyable without discrimination as to the place of invention, the field of technology and whether products are imported or locally produced.”

“Article 31: Other Use Without Authorization of the Right Holder

Where the law of a Member allows for other use of the subject matter of a patent without the authorization of the right holder, including use by the government or third parties authorized by the government, the following provisions shall be respected: …
(h) the right holder shall be paid adequate remuneration in the circumstances of each case, taking into account the economic value of the authorization; …”

It is argued that the grant of the General Compulsory License by India violates Article 3 by treating foreign applicants differently from Indian applicants through imposition of local manufacturing in India. Furthermore, the submissions assert that the grant of Compulsory Licenses against companies that import products and do not manufacture in India, violates the non-discrimination principle in Article 27.1, which prohibits any discrimination with respect to enjoyment of patent rights based on importation/local manufacturing. Also, the submissions argue that the economic value of the patented drug was not given due consideration while granting the Compulsory License, which gives rise to non-compliance under Article 31. Specific reference was made to the National Manufacturing policy, to elucidate India’s intent to flout the patent holder’s interests.

Questioning India’s intent to provide affordable health care, PHRMA submits that Glivec was given by Novartis to 16,000 (95 percent) patients for free, and to the rest of the 5 percent at a highly subsidized price, the benefit of which was lost after the rejection of the patent application. PHRMA points out that the price of the generic version of Glivec, $2,100, is not affordable to Indian patients, making India’s claims of providing affordable access to medicines to all, moot, to say the least.

While rebutting the USCC, PHRMA and BIO, the IPA cites specific paragraphs from the Bayer decision of IPAB, which read as follows:

“Therefore, we cannot decide that…. if there is no manufacture in India, then there is no working” (para 52).

“[Bayer] had not “worked” the invention on a commercial scale even if “import” alone would satisfy the working condition” (para 46, Bayer Corp. vs Union of India, OA/35/2012/PT/MUM; judgement available here.

Based on the IPAB decision, the IPA points out that local manufacturing is not a requirement for local working, and that it can be accomplished even through importation. The IPA also cites examples of Compulsory License regimes in Western European, Asian and Latin American countries, which follow a public interest based system that is much broader and more extensive than the one followed in India. Furthermore, the IPA submits that the DOHA declaration and TRIPS provisions leave the flexibility of determining appropriate grounds to be considered for grant of a Compulsory Licenses, to member states.

IPA’s submission also points out that Compulsory Licenses are granted after due assessment and that they may be subject to multiple cycles of judicial review, if one chooses to do so. The submission refers to the application for Compulsory License on Bristol-Myers Squibb’s Sprycel, which was rejected by the Controller General of patents to show that a Compulsory License will not be granted in India just because someone asks for it and that the assessment is performed on a case by case basis.

Though arguments about Compulsory Licenses in general were put forth, the primary issue in the USTR’s submissions relate to the local working requirement. The question is whether manufacturing in India is required, to meet said requirement. The IPAB has answered that it is not necessary and that importation would be sufficient. Is greater elaboration of what satisfies the local working requirement necessary in order to put an end to this controversy?

We welcome our Readers to share their views.


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