Author: Iasha, a student, Janhit college of law
Abstract
Every pharmaceutical patent forces a choice between two legitimate claims: the innovator’s right to recoup research investment through a temporary monopoly, and the patient’s right to affordable, life-saving medicine. India’s Patents Act, 1970, resolves this tension through the mechanism of compulsory licensing under Sections 84 to 92, supplemented by the stringent patentability threshold of Section 3(d). This article examines how these provisions operate together as a coherent policy architecture rather than isolated legal tools, tracing their application through the landmark Novartis AG v. Union of India and Bayer Corporation v. Natco Pharma Ltd. disputes. It argues that India’s regime, while frequently criticised abroad as anti-innovation, is in fact a calibrated, TRIPS-compliant model that has influenced access-to-medicine jurisprudence well beyond its borders.
To the Point
Compulsory licensing (CL) permits a government or a designated authority to authorise a third party to manufacture a patented invention without the patent holder’s consent, subject to statutory conditions and payment of royalty. It is not an expropriation of the patent; the patentee retains title and receives compensation, but loses the exclusivity that ordinarily defines patent rights. In India, this power has been exercised only once in the pharmaceutical sector — the 2012 Nexavar decision — yet its shadow influences pricing negotiations, patent drafting strategy, and litigation posture across the industry to this day. Read together with Section 3(d)’s bar on patenting trivial reformulations of known drugs, the Indian regime creates a two-stage filter: first, only genuinely inventive improvements clear the patentability threshold; second, even valid patents can be licensed compulsorily if the patentee fails to make the invention reasonably available. This article unpacks both stages and evaluates whether the balance struck is sustainable.
The Statutory Architecture: The Proof
1. Section 3(d) of the Patents Act, 1970 — the anti-evergreening filter. Introduced by the Patents (Amendment) Act, 2005 to bring India’s law into compliance with the TRIPS Agreement while simultaneously guarding against “evergreening,” Section 3(d) excludes from patentability the mere discovery of a new form of a known substance unless it results in the enhancement of the substance’s “known efficacy.” Salts, esters, polymorphs, metabolites, and other derivatives of a known substance are deemed the same substance unless efficacy — interpreted by courts as therapeutic efficacy — is demonstrably improved. This provision does the work of patent-quality control before the compulsory licensing stage is ever reached.
2. Sections 84–92 of the Patents Act, 1970 — the compulsory licensing framework. Section 84(1) permits any interested person to apply to the Controller of Patents for a compulsory license after the expiry of three years from the grant of a patent, on one or more of three grounds: (a) the reasonable requirements of the public with respect to the patented invention have not been satisfied; (b) the patented invention is not available to the public at a reasonably affordable price; or (c) the patented invention is not “worked” in the territory of India. Section 84(6) directs the Controller to have regard to the nature of the invention, the applicant’s ability to work the invention, the time elapsed since grant, and measures already taken by the patentee to make full use of the invention. Section 90 governs the terms of the licence, including royalty. Section 92 provides for compulsory licensing in “circumstances of national emergency, extreme urgency, or public non-commercial use,” a fast-track route the Government invoked in 2005 in relation to certain HIV/AIDS medication, bypassing the ordinary three-year waiting period and the need for a prior unsuccessful attempt at a voluntary licence.
3. TRIPS Agreement and the Doha Declaration. Article 31 of the TRIPS Agreement expressly permits members to authorise “use of the subject matter of a patent without the authorization of the right holder,” subject to safeguards such as case-by-case assessment, prior negotiation for a voluntary licence (waivable in emergencies), adequate remuneration, and predominant supply for the domestic market. The 2001 Doha Declaration on TRIPS and Public Health reaffirmed that the Agreement “does not and should not prevent members from taking measures to protect public health” and that each member retains the right to determine what constitutes a national emergency. India’s Section 84 and Section 92 track this framework closely, which is why the regime has generally withstood international scrutiny despite political friction.
4. Compensation and safeguards for patentees. A compulsory licence is not a confiscation. Section 90 requires the Controller to secure a licence that is non-exclusive and non-assignable, with royalty fixed after considering the nature of the invention, the expenditure incurred by the patentee in research and development, and comparable licensing arrangements. This preserves an economic return for the innovator while removing the power to exclude generic competition altogether.
Case Laws
Novartis AG v. Union of India, (2013) 6 SCC 1. Novartis sought a patent for the beta-crystalline form of imatinib mesylate, marketed as Glivec/Gleevec, a drug used to treat chronic myeloid leukaemia. The Assistant Controller, the Madras High Court, the Intellectual Property Appellate Board, and finally the Supreme Court all rejected the application on the ground that the new form did not demonstrate significantly enhanced therapeutic efficacy over the previously known imatinib compound, as required by Section 3(d).
The Supreme Court held that “efficacy” under Section 3(d) means therapeutic efficacy, and that improved bioavailability or better flow properties, storage stability, or hygroscopicity are not, by themselves, sufficient unless they translate into measurable clinical benefit for patients. The Court also endorsed the view of the Madras High Court that Section 3(d) was enacted to prevent evergreening and to preserve access to affordable medicines, holding this to be a legitimate exercise of legislative power consistent with India’s constitutional and public health obligations. The judgment is significant not because it denied one company a patent, but because it established a substantive efficacy standard that continues to filter pharmaceutical patent applications in India, encouraging genuine innovation over incremental repackaging.
Bayer Corporation v. Natco Pharma Ltd., IPAB Order dated 4 March 2013 (affirming Controller’s order dated 9 March 2012). This is India’s first — and to date only — compulsory licence granted for a patented pharmaceutical. Bayer held Indian Patent No. 215758 for sorafenib tosylate, marketed as Nexavar, used in the treatment of advanced kidney and liver cancer. Bayer priced a month’s therapy at approximately ₹2,80,000. Natco Pharma, after Bayer declined its request for a voluntary licence, applied under Section 84(1) for a compulsory licence, proposing to sell the drug at approximately ₹8,800 per month.
The Controller of Patents found all three statutory grounds satisfied: the reasonable requirements of the public were not met, since Bayer had supplied only a negligible quantity of the drug relative to the estimated patient population; the drug was not available at a reasonably affordable price, since the Controller held that affordability must be assessed from the perspective of the public and not by reference to the patentee’s research costs; and the patented invention was not “worked” in India, since Bayer imported rather than manufactured the drug domestically. The Controller granted Natco a non-exclusive, non-assignable licence restricted to the treatment of liver and kidney cancer, fixed the price at ₹8,800 per month, set a royalty of 6% of net sales (later revised to 7% by the IPAB), and required Natco to supply the drug free of cost to at least 600 needy patients annually. The Bombay High Court and, ultimately, the Supreme Court (by dismissing Bayer’s Special Leave Petition in December 2014) upheld the grant.
Together, these two cases show the Indian judiciary applying a consistent policy logic: Novartis polices the front end by keeping undeserving patents out of the system, while Bayer v. Natco polices the back end by ensuring that even validly granted patents cannot be used to withhold essential medicines from the public at unaffordable prices.
Subsequent restraint: BDR Pharmaceuticals v. Bristol-Myers Squibb (Dasatinib, 2013) and Lee Pharma v. AstraZeneca (Saxagliptin, 2015). It bears emphasis that India has not treated compulsory licensing as a routine tool. In both these applications, the Controller rejected the CL requests — in BDR’s case for failing to make a prior good-faith effort to obtain a voluntary licence on reasonable terms, and in Lee Pharma’s case for failing to establish that the reasonable requirements of the public were unmet, particularly given the availability of therapeutically comparable alternative drugs. These rejections demonstrate that the Nexavar decision was not a floodgate but a carefully bounded precedent, reinforcing the credibility of India’s regime as rule-based rather than discretionary or protectionist.
Analysis: Striking the Balance
Critics, particularly from originator pharmaceutical companies and some trading partners, have characterised India’s approach as hostile to innovation, arguing that compulsory licensing and a strict Section 3(d) standard depress the incentive to invest in India-directed research and delay market entry of new therapies. This concern is not frivolous: patent systems exist precisely because ex-ante innovation incentives depend on ex-post exclusivity.
However, the statutory design suggests a narrower and more defensible objective than blanket anti-patent sentiment. Section 3(d) does not bar pharmaceutical patents; it bars low-inventiveness derivatives of already-known molecules, leaving genuine new chemical entities and demonstrably superior formulations fully patentable. Section 84 does not permit compulsory licensing on demand; it requires the passage of three years, proof of failure to meet public need on one of three specific grounds, and continuing royalty payments to the patentee. The fact that only one pharmaceutical compulsory licence has been granted in over a decade — against a backdrop of several rejected applications — indicates a regime exercised with restraint rather than routinely deployed as an industrial policy weapon.
From a public health standpoint, India’s position as the “pharmacy of the developing world,” supplying a substantial share of low-cost generic medicines and vaccines to other developing countries, is itself a function of a patent regime calibrated to protect access alongside innovation. The Doha Declaration’s explicit affirmation of a member state’s sovereign right to determine grounds for compulsory licensing situates India’s approach squarely within, rather than at the margins of, the international legal order established by TRIPS.
The more searching question is whether the current framework adequately incentivises indigenous pharmaceutical research and development, as opposed to generic manufacturing capability. A compulsory licensing regime that is credible but rarely invoked may function best as a background deterrent — encouraging patentees to price responsibly and license voluntarily — rather than as a frequently exercised remedy. Evidence suggests this deterrent effect is real: several originator companies have since pursued differential pricing, patient assistance programmes, and voluntary licensing arrangements in India, arguably in the shadow of the Nexavar precedent.
Conclusion
India’s compulsory licensing regime, read alongside Section 3(d), is not an aberration from international patent norms but a considered domestic application of flexibilities that TRIPS and the Doha Declaration were designed to preserve. The Novartis judgment ensures that patents are granted only for genuine pharmaceutical innovation, while Bayer v. Natco confirms that even a validly granted patent cannot be wielded to place life-saving treatment beyond the reach of the population it purports to serve. The restraint shown in subsequent applications — BDR Pharmaceuticals and Lee Pharma — further confirms that India’s Controller and appellate authorities apply the statutory conditions rigorously rather than reflexively favouring generic manufacturers. In this author’s assessment, the Indian model represents a legally sound and, on balance, a socially necessary compromise: it neither guarantees automatic access at the expense of innovation, nor does it permit unqualified monopoly pricing at the expense of patients. Its long-term sustainability will depend on India also strengthening incentives for original pharmaceutical research, so that the innovation half of the equation is not left entirely to foreign originators while domestic industry remains confined to the access half.
Frequently Asked Questions
Q1. Does a compulsory licence cancel the patent?
No. The patent remains valid and the patentee retains ownership and the right to royalty. Only the exclusivity to manufacture and sell is diluted, and only to the extent and for the purposes specified in the licence.
Q2. Can compulsory licensing be sought for any patent immediately after grant?
No. Under Section 84, an application can ordinarily be made only after three years from the date of grant of the patent, except in the emergency route under Section 92, which has no such waiting period.
Q3. Is India’s compulsory licensing regime compliant with its international obligations under TRIPS?
Yes. Article 31 of TRIPS expressly permits compulsory licensing subject to safeguards, and the 2001 Doha Declaration reaffirmed members’ flexibility to determine what constitutes grounds for such a licence, particularly for public health reasons. India’s Sections 84 to 92 mirror these safeguards, including remuneration to the patentee and case-by-case assessment.
Q4. Why has India granted only one compulsory licence for a pharmaceutical patent despite having the power since 1970?
The statutory thresholds are demanding — the applicant must show, on facts, that public requirements are unmet, that pricing is unaffordable, or that the invention is not worked in India, and must generally attempt a voluntary licence first. Subsequent rejected applications (Dasatinib, Saxagliptin) illustrate that the Controller applies these conditions strictly, reserving compulsory licensing for clear cases rather than using it as a routine pricing tool.
Q5. How does Section 3(d) relate to compulsory licensing?
Section 3(d) operates upstream, at the patent-grant stage, by preventing evergreening — the practice of obtaining fresh patents on minor variants of known drugs to extend market exclusivity. Compulsory licensing operates downstream, after a valid patent is granted, when the patentee’s own conduct in pricing or supplying the invention fails to meet public needs. The two provisions together ensure both patent quality and access at different stages of a drug’s life cycle.
