Compulsory Licensing in India: Meaning, Grounds, Procedure and Bayer v. Natco

A patent gives its owner the exclusive right to control the commercial use of an invention. However, this right is not absolute.

In some situations, the patent owner may fail to make the invention sufficiently available, may charge a price that the public cannot reasonably afford, or may not adequately work the invention in India. Allowing the patent monopoly to continue without restriction in such cases could harm public health, industrial development, competition, and access to essential technology.

The Patents Act, 1970 therefore permits the Controller of Patents to authorise another person to use a patented invention without the consent of the patentee. This legal permission is known as a compulsory licence.

A compulsory licence does not cancel the patent or transfer ownership to the licensee. The patentee continues to own the patent and is normally entitled to receive a reasonable royalty or other remuneration. However, the authorised licensee may use the invention according to the conditions fixed by the Controller.

The principal provisions governing compulsory licensing are contained in Sections 83 to 94 of the Patents Act, 1970.

Meaning of Compulsory Licence

A compulsory licence is an authorisation granted by the Controller that allows a person to make, use, sell, or otherwise work a patented invention without obtaining the voluntary consent of the patent owner.

It is called “compulsory” because the licence may be granted even when the patentee does not wish to give permission.

However, compulsory licensing is not automatic. The applicant must satisfy the statutory conditions and prove that there is a proper legal basis for interfering with the patentee’s exclusive rights.

For example, suppose a company owns a patent for an important medical treatment but supplies only a very small quantity in India at an extremely high price. If the legal conditions are satisfied, another qualified manufacturer may apply for permission to produce and sell the medicine at a more affordable price.

The purpose is not to punish the patent owner. It is to ensure that patent protection operates in a way that also serves the public interest.

Purpose of Compulsory Licensing

Compulsory licensing attempts to maintain a balance between:

• the patentee’s right to receive a commercial reward;
• the public’s need for access to useful inventions;
• the requirement that patented inventions should be properly worked;
• the availability of products at reasonably affordable prices;
• public health and national interest; and
• the promotion of industrial and technological development.

Section 83 states the general principles that guide the working of patented inventions. It recognises that patents should encourage innovation, technology transfer, social and economic welfare, and public access. It also makes clear that patents should not be granted merely to create a monopoly over the importation of patented products.

Important Provisions on Compulsory Licensing

The compulsory licensing framework includes the following provisions:

These provisions work together to ensure that compulsory licences are granted only after legal scrutiny and on conditions that protect both the public and the patentee.

Compulsory Licence under Section 84

Section 84 contains the general procedure for obtaining a compulsory licence in India.

An application under this section may be made only after the expiry of three years from the date on which the patent was granted.

The three-year period gives the patentee a reasonable opportunity to develop, manufacture, license, market, and supply the invention before another person seeks compulsory access to it.

Who Can Apply for a Compulsory Licence?

An application under Section 84 may be filed by any person interested.

A person interested may include someone who has a genuine commercial, technical, manufacturing, research, or legal interest in working the patented invention.

The applicant does not necessarily have to be an existing licensee. However, the applicant should be capable of demonstrating:

• knowledge of the relevant industry;
• technical ability to work the invention;
• capacity to invest the required capital;
• ability to supply the market; and
• intention to use the invention for public benefit.

A person may also apply even where that person already holds a licence under the patent, if the existing licence terms prevent adequate working of the invention.

Grounds for Grant of a Compulsory Licence

Section 84(1) provides three main grounds. The applicant may rely on one or more of them.

1. Reasonable Requirements of the Public Have Not Been Satisfied

A compulsory licence may be granted where the reasonable requirements of the public concerning the patented invention have not been satisfied.

This ground may apply where:

• the patented product is available only in very small quantities;
• important parts of the market are not being supplied;
• demand greatly exceeds supply;
• the patentee refuses to grant licences on reasonable terms;
• an existing industry is unfairly prejudiced;
• trade or industrial development is restricted;
• the market for export from India is not being properly supplied; or
• restrictive licence conditions prevent effective use of the technology.

For example, if a patented agricultural machine is required by farmers across India but is sold only in a few cities and in very limited numbers, the public requirement may not be adequately satisfied.

The assessment is based on the facts of each case. The Controller may consider the number of people who need the invention, the quantity supplied, geographical availability, industry conditions, and the conduct of the patentee.

2. The Invention Is Not Available at a Reasonably Affordable Price

A compulsory licence may also be granted if the patented invention is not available to the public at a reasonably affordable price.

The Act does not prescribe one universal formula for deciding affordability. The question depends on factors such as:

• the nature of the invention;
• the people who require it;
• the economic conditions of the market;
• the price charged by the patentee;
• the cost of producing and supplying the invention;
• research and development expenditure;
• the benefit provided by the invention; and
• the extent to which ordinary consumers can obtain it.

A product may physically exist in the market but still remain practically inaccessible because of its price.

For example, a medicine available at a few hospitals may not be meaningfully available to the public if its price places it beyond the reach of almost every patient who needs it.

Affordability is therefore considered from the perspective of genuine public access, while also taking the patentee’s investment and legitimate commercial interests into account.

3. The Patented Invention Is Not Worked in India

The third ground applies where the patented invention has not been adequately worked in the territory of India.

Working generally refers to the commercial use, manufacture, supply, or practical implementation of the invention so that its benefits reach the Indian market.

However, it is not correct to say that importation can never amount to working. Indian courts have explained that whether an imported patented product satisfies the working requirement must be decided according to the facts of each case.

The patentee may need to explain:

• why local manufacture was not possible or practical;
• the extent of imports;
• whether demand was adequately met;
• whether the product was available throughout the market;
• whether the importation served public requirements; and
• whether the invention was worked on a genuine commercial scale.

The Bombay High Court observed in the Bayer litigation that local manufacture is not an absolute requirement in every case. Importation may potentially satisfy the working requirement where it is properly justified, but merely importing an insignificant quantity will not necessarily be sufficient.

Prior Effort to Obtain a Voluntary Licence

Before applying under Section 84, the applicant must normally make a genuine effort to obtain a voluntary licence from the patentee on reasonable terms.

The applicant should ordinarily:

1. approach the patent owner;
2. clearly identify the patent and proposed use;
3. offer reasonable commercial terms;
4. explain the capacity to work the invention; and
5. allow the patentee a reasonable opportunity to respond.

The law treats a period not ordinarily exceeding six months as a reasonable period for these negotiations.

The applicant does not have to negotiate endlessly. If the patentee refuses, fails to respond meaningfully, or offers terms that are clearly unreasonable, the applicant may approach the Controller.

This prior negotiation requirement does not apply in the same way where the matter involves:

• a national emergency;
• extreme urgency;
• public non-commercial use; or
• an established anti-competitive practice by the patentee.

Section 84 directs the Controller to consider whether reasonable efforts were made to obtain a voluntary licence, while recognising these exceptions.

What Makes a Voluntary Licence Request Genuine?

A mere formal letter sent only to create evidence may not be sufficient.

The request should contain enough information to allow meaningful negotiation, such as:

• the applicant’s business and technical capacity;
• the proposed purpose of the licence;
• the territory involved;
• expected production;
• proposed price;
• proposed royalty;
• quality-control arrangements; and
• plans for public supply.

Similarly, a patent owner cannot avoid compulsory licensing merely by keeping negotiations open without providing a meaningful response.

The Controller examines the conduct of both parties to determine whether a genuine attempt was made.

Factors Considered by the Controller

Grant of a compulsory licence is discretionary. Even where one of the grounds under Section 84 is alleged, the Controller considers the overall circumstances.

Important factors include:

• the nature and importance of the invention;
• the period that has passed since the patent was granted;
• steps taken by the patentee to work the invention;
• licences already granted;
• the applicant’s technical ability;
• the applicant’s capacity to work the invention for public benefit;
• the applicant’s financial capacity;
• the commercial risk involved;
• efforts made to obtain a voluntary licence;
• public demand;
• affordability; and
• the effect on the patentee’s legitimate interests.

The applicant must show more than a general desire to enter the market. There should be a credible plan to work the invention effectively.

Procedure for Obtaining a Compulsory Licence

The application is made before the Controller of Patents in the prescribed form with the required facts, documents, and evidence.

Step 1: Filing the Application

The applicant must clearly state:

• the patent involved;
• the applicant’s interest;
• the statutory grounds relied upon;
• the facts supporting those grounds;
• efforts made to obtain a voluntary licence;
• the proposed manner of working the invention;
• expected production and supply;
• proposed selling price; and
• the applicant’s financial and technical ability.

The evidence may include market data, price comparisons, supply figures, correspondence with the patentee, manufacturing plans, licences, financial records, and expert material.

Step 2: Establishing a Prima Facie Case

The Controller first examines whether the application presents a prima facie case.

A prima facie case means that the application contains sufficient initial material to justify further proceedings. It is not the final decision.

If no prima facie case is established, the application may be refused at the preliminary stage.

Step 3: Notice to the Patentee

If the Controller finds a prima facie case, the applicant is directed to serve copies of the application on:

• the patentee; and
• other persons whose interests in the patent appear in the register.

The application is also published in the official Patent Office Journal.

Step 4: Opposition by the Patentee

The patentee or another interested person may file a notice opposing the application.

The opposition may argue that:

• public requirements are being met;
• the price is reasonably affordable;
• the patent is adequately worked;
• the applicant lacks technical or financial capacity;
• no proper effort was made to obtain a voluntary licence;
• the proposed terms are unreasonable; or
• the application is not made in good faith.

Step 5: Hearing before the Controller

The Controller gives the applicant and the opponent an opportunity to present evidence and arguments.

After the hearing, the Controller may:

• reject the application;
• grant the compulsory licence;
• limit the licence to a specific use;
• determine the territory;
• fix the selling price;
• decide the royalty;
• prescribe production requirements; or
• impose other conditions in the public interest.

Section 87 requires service of the application, publication in the official journal, an opportunity to oppose, and a hearing before the final decision.

Terms and Conditions of a Compulsory Licence

The Controller does not give the licensee unrestricted control over the patent. The licence is granted on specific conditions.

Under Section 90, the Controller seeks to ensure that:

• the patentee receives reasonable royalty or remuneration;
• the licensee works the invention to the fullest reasonable extent;
• the licensee can earn a reasonable profit;
• the patented product is available at a reasonably affordable price;
• the licence is non-exclusive;
• the licence is non-assignable;
• the licence ordinarily continues for the remaining patent term;
• supply is predominantly directed to the Indian market; and
• public interest is properly protected.

A non-exclusive licence means that the patentee may continue using the invention and may grant other licences.

A non-assignable licence means that the compulsory licensee cannot freely transfer the licence to another person.

The Controller may also restrict:

• the maximum selling price;
• the permitted purpose;
• the manufacturing location;
• exports;
• imports;
• the quality of the product;
• production quantities; and
• reporting obligations.

Section 90 expressly requires reasonable remuneration, affordable public access, non-exclusivity, non-assignability, and a term linked to the remaining life of the patent.

Can the Licensee Import the Patented Product?

A compulsory licence does not ordinarily authorise the licensee to import a patented product where the import would otherwise infringe the patent.

However, the Central Government may direct the Controller to permit importation in the public interest. Such permission may be subject to conditions concerning:

• quantity;
• price;
• duration;
• royalty; and
• other remuneration payable to the patentee.

General Objectives under Section 89

While deciding an application, the Controller should exercise compulsory licensing powers with the objective of ensuring:

1. that patented inventions are worked commercially in India without undue delay and to the fullest extent reasonably possible; and
2. that persons already working or developing inventions in India are not unfairly prejudiced.

Compulsory licensing is therefore not limited to medicine. It may also apply to inventions relating to:

• engineering;
• manufacturing;
• agriculture;
• electronics;
• energy;
• telecommunications;
• chemicals; and
• other industrial technologies.

The public-health context is especially important, but the legal mechanism has a wider industrial and economic role.

Licensing of Related Patents under Section 91

Sometimes, one patented invention cannot be worked without infringing another patent.

For example, a later patent may represent an important technical improvement but may depend on technology covered by an earlier patent.

Section 91 allows the owner of one patent to seek a licence under the related patent where:

• the later invention involves an important technical advance;
• it has considerable economic significance;
• the patents are commercially connected; and
• a licence is necessary to work the invention.

The Controller may require reciprocal licensing so that both patent owners can use the connected technologies under fair conditions.

This provision prevents one patent from completely blocking an important later innovation.

Revocation for Non-Working under Section 85

Granting a compulsory licence may not always solve the problem.

If the invention continues to remain unavailable, unaffordable, or insufficiently worked after the licence has been granted, Section 85 permits a further application for revocation of the patent.

The Central Government or any person interested may apply after two years from the order granting the first compulsory licence.

The Controller may revoke the patent where satisfied that:

• the invention has not been worked in India;
• reasonable public requirements remain unsatisfied; or
• the invention remains unavailable at a reasonably affordable price.

Revocation is more serious than compulsory licensing.

A compulsory licence leaves the patent in force and permits an authorised person to use it. Revocation removes the patent itself.

Section 85 therefore operates as a stronger remedy where the problems continue even after compulsory licensing.

Compulsory Licensing during an Emergency under Section 92

The normal Section 84 process requires the expiry of three years from the patent grant. Section 92 creates a faster route for exceptional situations.

The Central Government may issue a notification where it is satisfied that compulsory licences are necessary because of:

• a national emergency;
• extreme urgency; or
• public non-commercial use.

After the notification, a person interested may apply to the Controller for a licence.

The Controller determines appropriate terms and attempts to ensure that the patented product is made available at the lowest price consistent with the patentee receiving a reasonable benefit.

In urgent cases, the Controller may avoid the ordinary opposition procedure under Section 87. The patentee must nevertheless be informed as soon as reasonably practical.

Section 92 specifically recognises public-health crises involving conditions such as:

• HIV/AIDS;
• tuberculosis;
• malaria; and
• other epidemics.

The provision is not limited to these diseases. They are examples of situations that may justify urgent action.

Is an Emergency Required for Every Compulsory Licence?

No.

A national emergency is not required for an ordinary compulsory licence under Section 84.

Section 84 can operate where any of its three grounds are established after the required three-year period.

Emergency, urgency, and public non-commercial use are relevant mainly to the special procedure under Section 92 and to exceptions from the prior voluntary-licence negotiation requirement.

The WTO’s Doha Declaration similarly confirms that member countries may determine the grounds on which compulsory licences are granted. An emergency is not a universal precondition.

Compulsory Licence for Export under Section 92A

Some countries face serious public-health problems but lack the ability to manufacture the medicines they require.

Section 92A allows compulsory licensing in India for the manufacture and export of patented pharmaceutical products to such countries.

The provision may apply where:

• the importing country has insufficient or no pharmaceutical manufacturing capacity;
• the product is required to address a public-health problem; and
• the importing country has granted a compulsory licence or has otherwise permitted importation from India.

The Indian Controller may grant a licence solely for manufacturing and exporting the required pharmaceutical product.

For this purpose, pharmaceutical products may include:

• patented medicines;
• products manufactured through patented processes;
• ingredients required to manufacture them; and
• diagnostic kits required for their use.

This provision reflects the international system developed after the Doha Declaration to help countries that cannot effectively use compulsory licensing because they lack manufacturing capacity.

Termination of a Compulsory Licence

A compulsory licence does not necessarily continue until the patent expires.

Under Section 94, the patentee or another person having an interest in the patent may request termination where:

• the circumstances that caused the licence to be granted no longer exist; and
• those circumstances are unlikely to return.

Before terminating the licence, the Controller must consider the interests of the compulsory licensee.

For example, if the licensee has invested heavily in manufacturing facilities and supply arrangements, immediate termination could cause unfair harm. The Controller must therefore balance the changed circumstances with the licensee’s legitimate interests.

Difference between Voluntary and Compulsory Licensing

Difference between Compulsory Licence, Government Use and Revocation

These concepts should not be treated as the same.

A compulsory licence is therefore a controlled limitation on patent rights, not a complete confiscation of the invention.

Bayer Corporation v. Natco Pharma: India’s First Compulsory Licence

The most important Indian compulsory licensing decision concerns Bayer’s patent for Sorafenib Tosylate, marketed as Nexavar.

The medicine was used for treating advanced kidney and liver cancer.

Bayer received the Indian patent in March 2008. Natco Pharma later approached Bayer for a voluntary licence, but the request did not result in an agreement. After the three-year statutory period, Natco applied for a compulsory licence under Section 84.

Natco relied on all three grounds:

• reasonable public requirements were not satisfied;
• the medicine was not available at a reasonably affordable price; and
• the invention was not adequately worked in India.

At that time, Bayer’s price was approximately ₹2.8 lakh for one month of treatment, while Natco proposed to supply its version for ₹8,800 per month.

Findings of the Controller

The Controller found that:

• only a small proportion of eligible patients had access to the medicine;
• Bayer’s price was beyond the reach of most Indian patients;
• the quantities supplied were insufficient;
• Natco had attempted to obtain a voluntary licence; and
• the statutory grounds for compulsory licensing were satisfied.

The compulsory licence was granted on conditions that included:

• a maximum price of ₹8,800 for 120 tablets;
• non-exclusive rights;
• non-assignable rights;
• manufacture by Natco at its own facility;
• supply to the Indian market;
• free supply to at least 600 deserving patients each year; and
• payment of a royalty to Bayer.

The Controller initially fixed the royalty at 6% of Natco’s net sales. The Intellectual Property Appellate Board later upheld the compulsory licence and increased the royalty to 7%. The Bombay High Court subsequently declined to interfere with the grant.

Importance of the Bayer–Natco Decision

The case established several important principles:

• high pricing may make a product legally inaccessible even when it is physically present in the market;
• the patentee is responsible for satisfying public requirements;
• supply by an alleged infringer cannot necessarily be used to prove that the patentee has met its obligations;
• affordability must be examined in the context of the public that needs the invention;
• a genuine attempt to obtain a voluntary licence is important;
• working in India must be decided according to the facts of each case; and
• compulsory licensing can protect access while still compensating the patent owner.

The case does not mean that every expensive patented medicine will automatically be subject to compulsory licensing. Each application must satisfy the statutory requirements with evidence.

Compulsory Licensing and the TRIPS Agreement

Compulsory licensing is recognised under international intellectual property law.

Article 31 of the TRIPS Agreement permits a government to authorise use of a patented invention without the patent owner’s consent, subject to legal safeguards.

These safeguards generally include:

• individual consideration of the proposed use;
• prior attempts to obtain authorisation in ordinary cases;
• limited scope and duration;
• non-exclusive use;
• adequate remuneration for the patent owner;
• judicial or independent review; and
• protection of the patentee’s legitimate interests.

The Doha Declaration on the TRIPS Agreement and Public Health, 2001 confirmed that TRIPS should not prevent member countries from protecting public health. It also confirmed that members may determine the grounds for compulsory licensing and define situations of national emergency or extreme urgency.

India’s compulsory licensing provisions therefore operate within the international patent framework while preserving flexibility to address affordability, access, public health, industrial development, and national interest.

Practical Flow of a Section 84 Application

The ordinary compulsory licensing process can be understood through the following sequence:

1. A patent is granted.
2. Three years pass from the grant date.
3. A person interested approaches the patentee for a voluntary licence.
4. Reasonable negotiations fail or the request is refused.
5. The person files a compulsory licence application.
6. The Controller examines whether a prima facie case exists.
7. Notice is served on the patentee and registered interested persons.
8. The application is published.
9. The patentee may oppose it.
10. Both parties submit evidence and attend a hearing.
11. The Controller decides whether a statutory ground is established.
12. If granted, the Controller fixes the royalty, price, term, purpose, and other conditions.
13. The licensee works the invention according to those conditions.
14. The licence may later be modified, terminated, or followed by revocation proceedings where legally justified.

Compulsory licensing therefore operates through a structured legal process. It does not allow a private company to begin using a patent merely because it believes that the invention is expensive or insufficiently available.

Conclusion

Compulsory licensing is an important public-interest safeguard under Indian patent law. It allows the Controller to authorise the use of a patented invention without the patentee’s consent when public requirements are not satisfied, the invention is not available at a reasonably affordable price, or it is not adequately worked in India.

However, a compulsory licence is not granted automatically. The applicant must establish the legal grounds, show the ability to work the invention, and ordinarily make a genuine effort to obtain a voluntary licence first. The patentee continues to own the patent and is entitled to reasonable royalty or remuneration.

Sections 84 to 94 of the Patents Act create a structured system that protects both innovation and public access. Emergency licensing under Section 92 and export licensing under Section 92A further allow India to respond to urgent public-health needs.

The Bayer v. Natco decision remains the leading example of this balance. It showed that patent rights must be respected, but they cannot be exercised in a way that makes an essential invention practically unavailable to the public.