Compulsory Licensing in India: Statutory Grounds, Procedure and Scope

Introduction to Compulsory Licensing

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Compulsory Licensing (CL) is a legal provision under which a third party can produce, use, import, sell a patented invention without the approval of the patentee. Chapter XVI (Sections 84 to 94) of the Indian Patents Act, 1970 provides for the limitations of the negative externalities of the typical 20-year exclusivity given under Section 53. Unchecked absolute patent monopolies can lead to fake shortages, increased prices or local markets going unserved. It operates as an administrative safety valve for balancing public welfare and private intellectual property rights while providing basic pay for innovators.

International Framework

India’s compulsory licensing regime is directly grounded in international treaty standards:

• Paris Convention (1883), Article 5A: This permits member governments to take legislative steps, including non-voluntary licensing, to prevent the abuses inherent in exclusive patent rights, such as the non-working of the patent locally. 
• WTO TRIPS Agreement (1994), Article 31: This relates to “other use without authorisation of the right holder”. Nonvoluntary licensing is subject to case-by-case examination, good-faith attempts to secure a voluntary licence and adequate reimbursement of the patentee.
• Doha Declaration on TRIPS and Public Health (2001): It reiterated that flexibilities in TRIPS should be read in a manner that they protect public health and broad access to medicines, and that sovereign countries should be able to choose their own legal justifications for providing compulsory licenses.

Domestic Policy Framework

At the domestic level, the underpinnings of the system are traced back to the 1959 Justice N. Rajagopala Ayyangar Committee Report. The research warned that developing countries should not allow foreign patent monopolies to hinder their industrial development and access to vital products.

This is codified in Section 83 which provides that patents should promote legitimate commercial operations in India and not be a mere exclusive avenue for imports. The law stipulates that patent rights should not be prejudicial to public health and the growth of domestic industry, and that the commodities protected should be available to the public at reasonable rates.

Section 84(1) provides for a minimum time of three years from the date of grant of patent during which no third party can apply for a compulsory licence. This is to protect the interest of the patentee. This window gives the right holder enough time to establish manufacturing, logistical and distribution pipelines in the local market. 

Statutory Grounds Under Section 84

Beyond the three-year statutory threshold, any “person interested” may petition the Controller of Patents on one or more of three express grounds:

1. Unmet Reasonable Requirements of the Public [Section 84(1)(a)]

Section 84(7) outlines clear evidentiary benchmarks for establishing that the public’s needs remain unfulfilled: 

• Impact on Industry or Trade [Section 84(7)(a)]: The patentee refuses to grant a licence on reasonable conditions, therefore impeding the development of a trade, industry or existing commercial establishment in India;
• Export Market Suppression [Section 84(7)(b)]: The rejection denies access to viable export markets which would otherwise be available to local producers. 
• Restrictive Trade Conditions [Section 84(7)(c)-(d)]: The patentee requires the acquisition of unpatented materials, discourages the use of local raw resources, or imposes anti-competitive limitations on commerce. 
• Failure to Supply on a Commercial Scale [Section 84(7)(e)]: The patentee does not adequately supply the domestic market on a commercial scale or under reasonable conditions. 

2. Prohibitive Pricing [Section 84(1)(b)]

The invention should be available at a “reasonably affordable price” based on the purchasing power of an average Indian consumer and not on the basis of the unilateral R&D expenses of the patentee.

In Bayer Corporation v. Natco Pharma Ltd (2012) Bayer marketed its kidney and liver cancer medicine, Sorafenib (Nexavar) for a monthly regime of about Rs 2,80,428. Natco offered to give a generic equivalent for ₹8,800 per month. This foundation was confirmed by the Patent Office and appellate bodies which found Bayer’s pricing to be exorbitant and effectively to prevent broad public access. 

3. Patent Not Worked in the Territory of India [Section 84(1)(c)]

The applicant must prove that the innovation is not being commercially worked in India. In Bayer v. Natco, the Intellectual Property Appellate Board (IPAB) clarified that import does not per se prevent a patent from being “worked”. But if an application relies on imports solely, they will have to present strong economic or technical reasons why local production cannot be established and demonstrate that the volume of imports is sufficient to satisfy the demand of the domestic market. The IPAB held that the patent was not worked in India under Section 84(1)(c) since Bayer had imported just a small proportion of the medicine required to treat the indigenous patient population. 

Procedure Before the Controller

The statutory process under Sections 84, 87 and 90 read with Patent Rules 96 to 101 is a quasi-judicial process: 

1. Filing the Application (Rule 96)

An eligible / interested person as per Section 2(1)(t) fills Form 17 with verified statements and empirical evidence to establish Section 84(1) reasons. 

2. Preliminary Review [Section 84(6)]

The controller takes into account the applicant’s technical capacity, financial backing and ability to commercially work the idea. Importantly, the applicant must make serious efforts to negotiate a voluntary agreement with the patentee within no more than six months. 

3. Initial Evaluation [Section 87(1)]

There is no case on its face so the controller declares an intention to refuse and the applicant has one month within which to request an administrative hearing. When a case is made out the application is served on the patentee and published in the Official Patent Office Journal. 

4. Opposition and Hearing [Section 87(2), (4) & Rules 98–101]

Any person interested or the patentee can oppose the grant by completing Form 14 within two months from the date of journal publication. Formal pleadings and evidence are exchanged by the parties and an oral hearing is held.

5. Terms of the licence [Section 90]

Subject to grant, the controller shall impose required conditions to ensure that the licence is non-exclusive and non-assignable, provides a reasonable royalty reflecting the economic value and development expenses and gives priority to the domestic Indian market at the lowest practicable price.

Statutory Safeguards for Patentees

Chapter XVI includes clear protections to prevent arbitrary or bad-faith licensing:

• Adjournment of Proceedings (Section 86): If the non-working is due to genuine external constraints such as delay in clinical trials or waiting for approval from the Central Drugs Standard Control Organization (CDSCO), the Controller may adjourn the application for a period not exceeding 12 months to give the patentee time to bring the patent into operation. 
• Termination of Licence (Section 94): The patentee may file an application in Form 21 for revocation of the compulsory licence on the ground that the conditions which led to the grant of the licence have ceased to exist and are not likely to reoccur. The Controller shall make this assessment without prejudice to the legitimate commercial investments of the licensee.

With the abolition of the IPAB with the enactment of the Tribunals Reforms Act, 2021, all appeals against the Controller’s orders under Sections 84, 86, 90 or 94 are filed directly before the Commercial or IP Divisions of the relevant High Court, along with the regular constitutional writ remedies under Articles 226, 227 and 136 of the Constitution of India.

Why Section 84 Compulsory Licences Remain Rare

India has a huge generic manufacturing industry, but the Bayer v Natco case is so far the only successful compulsory licensing under Section 84. The practical and legal obstacles behind this are:

Stringent Evidentiary Requirements

The applicants have to offer strong market data showing demand, patient volume and how pricing reacts to market fluctuations when seeking for permission. In Lee Pharma v AstraZeneca (2015) regarding saxagliptin, the court rejected the application on the basis that the applicant was unable to demonstrate there was a real demand from the public, could not show there were no viable alternatives on the market and did not consider the issues concerning the other DPP-4 inhibitors on the market. It shows the importance of having a solid case with precise data when seeking approval.

Strict Voluntary Negotiation Mandate

The applicant must show persistent and good faith efforts to acquire a voluntary commercial licence. In BDR Pharmaceuticals v. Bristol-Myers Squibb (2013) (Dasatinib), the Controller rejected the application at the threshold stage since BDR only submitted one initial request letter and did not respond to substantive queries from BMS on production and safety procedures.

Preemptive Voluntary Licensing Models

Innovation leaders in the pharmaceutical industry are generally proactive in managing the dangers of compulsory licensing. One popular way to do this is to enter into direct voluntary license arrangements with Indian generics. This allows them to collaborate and continue to have access to the medicines, while protecting their intellectual property.” 

Another method is to engage with programs like the Medicines Patent Pool (MPP), which promotes the sharing of patents on important medicines, hence improving access for people who need them. 

A lot of companies also have Patient Assistance Programs (PAPs) that offer tiered pricing. This is an example of commitment to health equity, as it allows people from lower-income families to acquire necessary pharmaceuticals at lower prices. 

Lengthy Litigation and Commercial Viability

Contested Section 84 cases can involve lengthy and burdensome litigation. It often takes years to resolve, requiring many administrative hearings, multiple objections and complex court appeals. So, many generic manufacturers find it easier and more cost-effective to wait for the patent to expire than to fight a long court battle over a Section 84 application. 

Geopolitical and Trade Pressures

Compulsory license decisions attract extensive external trade scrutiny, such as unilateral reports from the U.S. Trade Representative (USTR) under the Special 301 framework, causing domestic authorities to be inclined to implement Section 84 carefully. 

Conclusion

Section 84 of the Indian Patents Act, 1970 is a crucial method to balance the rights of the patentee with the societal needs. It acts as a safeguard against the abuse of patent monopolies to the extent that the rights granted to inventors do not take precedence over vital national objectives such as public health and socio-economic development.

This section provides a powerful legal instrument to address problems such as non-working patents, overpricing and unmet market needs. But it does have strict legal requirements and a heavy burden of proof, which means it cannot be used for the unjust taking of patents.

This is shown in practice in the few cases when Section 84 is invoked. A noteworthy example is Bayer v. Natco. That shows the provision is not for routine commercial transactions, but is a powerful regulatory weapon.

Section 84, in summary, is a vital feature of Indian patent law, as it promotes genuine innovation and market solutions, providing a safety net for public interest in case the market fails to respond.

Also Read: Calcutta HC Revokes Letters Patent Leave in Maitra Servicenter Dispute

References

• https://ipindia.gov.in/frontend/pdf/patents/1_113_1_The_Patents_Act__1970___incorporating_all .
• Patents Rules, 2003 – Rules 96 to 101, Form 14, Form 17, and Form 21.
• WTO TRIPS Agreement – Article 31 – International standard for unauthorised use.
• WTO Doha Declaration on TRIPS and Public Health (2001)
• An International Guide to Patent Case Management for Judges
• Bayer Corporation vs Union of India Through The Secretary on 15 July, 2014
• The threat of compulsory licensing in the pharmaceutical industry – iPleaders – Lee Pharma v. AstraZeneca (2015) for Saxagliptin, rejection for failure to establish statutory grounds.
• Indian Patent Office Rejects Compulsory Licensing Application: BDR Pharmaceuticals Pvt. Ltd. Vs Bristol Myers Squibb