The political economy of the current round of compulsory licensing in India

Yusuf Hamied (Image from here)

The present round of compulsory licencing which has been kick-started by the DIPP, is widely seen as the fruits of a sustained lobbying effort by the generic pharmaceutical lobby. While the media is yet to identify, the ‘masterminds’ behind the lobbying, the final result of the lobbying effort is keeping in line with the demands of Yusuf Hamied, the head of Cipla. (For our previous posts on these issues please click hereand here)

Ever since, India brought in a pharmaceutical patent regime in 2005, Yusuf Hamied has been a strong advocate for a system of ‘licences of right’, which did exist under the pre-2005 patent legislation where certain patents, especially patents that could be used to manufacture medicines and foods, were deemed to be open to be licensed by any person interested in manufacturing them. The statute even fixed the upper limit of the royalty rate at “4% of the net ex-factory sale price in bulk of the patented article (exclusive of taxes levied under any law for the time being in force and any commissions payable) determined in such manner as may be prescribed.”

The exact provision is reproduced as follows,

87. Certain patents demand to be endorsed with the words “Licences of Rights”

(1) Notwithstanding anything contained in this Act,-

  1. every patent in force at the commencement of this Act in respect of inventions relating to-

(i) substances used or capable of being used as food or as medicine or drug;

(ii) the methods or processes for the manufacture or production of any such substance as is referred to in sub-clause (i);

(iii) the methods or processes for the manufacture or production of chemical substances (including alloys, optical glass, semi-conductors and inter-metallic compounds),

shall be deemed to be endorsed with the words “Licences of right” from the commencement of this Act or from the expiration of three years from the date of sealing of the patent under the Indian Patents and Designs Act, 1911, whichever is later; and”

The provision containing the effect of ‘Licences of Rights’ is as follows:

“88. Effect of endorsement of patent with the words is “Licences of Rights”.

(1) Where a patent has been endorsed with the words “Licences of right”, any person who is interested in working the patented invention in India may require the patentee to grant him a licence for the purpose on such terms as may be mutually agreed upon, notwithstanding that he is already the holder of a licence under the patent.

(2) If the parties are unable to agree on the terms of the licence, either of them may apply in the prescribed manner to the Controller to settle the terms thereof.

(3) The Controller shall, after giving notice to the parties and hearing them and after making such inquiry as he may deem fit, decide the terms on which the licence shall be granted by the patentee.

(4) The Controller may at any time before the terms of the licence are mutually agreed upon or decided by the Controller, on application made to him in this behalf by any person who has made any such requisition as is referred to in sub-section (1), permit him to work the patented invention on such terms as the Controller may, pending agreement between the parties or decision by the Controller, think fit to impose.

(5) In the case of every patent in respect of an invention referred to in sub-clause (i), or sub-clause (ii), of clause (a) of sub-section (1) of section 87 and deemed to be endorsed with the words “Licences of right” under clause (a) or clause (b) of that sub-section, the royalty and other remuneration reserved to the patentee under a licence granted to any person after such commencement shall in no case exceed four per cent of the net ex-factory sale price in bulk of the patented article (exclusive of taxes levied under any law for the time being in force and any commissions payable) determined in such manner as may be prescribed.”

During the TRIPs negotiations, the bloc of developed countries were firm in their demand for prohibiting ‘licences of right’ which existed not only in Indian law but if I’m not mistaken even in the law of the U.K. albeit in a milder form. In any case, the provisions pertaining to ‘licence of rights’ was deleted by India in order to ensure compliance with TRIPs.

Yusuf Hamied however never dropped the demand to reinstate such a regime for atleast life-saving drugs. Here’s an excerpt from an interviewhe gave to Wharton in May, 2009:

India [email protected]: What are the key lessons to be learned by Indian lawmakers from the controversy in AIDS-ravaged South Africa?

Yusuf Hamied: The controversy in AIDS-ravaged South Africa gives you a glimpse of what’s in store in a monopoly. India must seriously examine its Intellectual Property Rights (IPR) position and see how best TRIPS (Trade Related Intellectual Property Rights) can be interpreted, as IPR laws are national laws. India should cull the best points from various laws to suit her future needs. For example, American patent laws include the Bolar Provision, so that generic companies can have products ready for sale as soon as a patent expires. Compulsory licensing is valid under TRIPS and can be invoked when there is a national emergency. But diseases like malaria, tuberculosis and leprosy are permanent, perpetual and even perennial emergencies in countries like India, and I’d say that we need a system of automatic license of right for a fixed royalty to the patent holder (typically, about 2% to 4% of net sales).

In fact, many of these issues were raised in the I.K. Gujral Committee Report in 1993. The committee was of the opinion that India should insist on automatic licensing in certain circumstances, besides recognizing the need that countries at different stages of development need to be treated differently.

He’s repeated this demand more than once, including in an interview to Forbes last year. In fact even the Annual Report (P. 16) filed by Cipla for the year 2008-09, the Company publicly stated the following:

“When it comes to saving lives, the destiny of the world cannot be left to one or two companies. It is necessary for all countries to modify their intellectual property laws to ensure availability of essential and life-saving drugs. This is possible only by introducing a permanent compulsory licensing system for all drugs, whereby a suitable royalty on net sales should be paid to the inventor and patent holder. Cipla has always been appealing to the Indian government to modify its intellectual property laws to safeguard Indian consumers from monopoly. The Indian government should adopt a pragmatic compulsory licensing system. This is the only possible way to make drugs available for the healthcare needs of our large population, at affordable prices.”

About 5 years after Parliament enacted the historic amendments to bring India in compliance with its TRIPs requirements, the DIPP released in August, 2010 a public consultation paper on compulsory licensing of pharmaceutical patents dealing separately with S. 92 licences under Category I and S. 84 licences under Category II. Although the paper is presently not available on the DIPP website, I have made available a copy of the policy over here. We had blogged about this paper over hereand here.

The CL policy announced by the DIPP was extremely ambitious and sought to give provisions like Section 92 a very, very liberal reading to include not only epidemics such as an outbreak of AIDs, malaria etc. but also chronic diseases like cancer and diabetes. While referring to the grounds in S. 92, the DIPP states:

“Given the extremely diverse nature of these three grounds, one view is that it may not be feasible or even desirable to focus the scope of their application in a definitional sense. Another view is that it is necessary to clarify that these grounds can be used for promoting access to medicines like cancer and diabetes. Para 4 of the “ Doha Declaration on the TRIPS agreement and Public Health” specifically clarifies that the TRIPS agreement does not and should not prevent Members from taking measures to protect public health. It further affirms the Members rights to protect public health and in particular to promote access to medicines for all. Thus chronic diseases can also be addressed though such provisions.”  

The Indian Pharmaceutical Alliance, the lobby of generic pharmaceutical companies responding to this suggestion stated “Whether patents for cancer and diabetes drugs (or for that matter any other article) can be notified under Sec 92 will depend on the justification relating to its use in conditions of national emergency, extreme urgency or public non-commercial use. There are only three grounds, as enumerated in the section itself, for invoking powers under Sec 92. Public health crises relating to the specified diseases and other epidemics are deemed to be within the scope of one or more of the grounds specified.”

The entire response of the IPA can be accessed over here.

The final results of Hameid’s lobbying and the DIPP’s discussion paper from 2010, is that India is today pretty much back to a system of ‘licence of rights’ for life-saving pharmaceuticals products, albeit on a case-by-case basis.

For all practical purposes, the entire purpose of TRIPs stands defeated because it is widely believed that PhRMA was the main force propelling TRIPs and protection of pharmaceutical patents was seen as the raison d’être of TRIPs.

How will PhRMA react to this announcement and more importantly how will the United States Trade Representative react to this announcement?

In response to the Nexavar compulsory license, the USTR in its Annual 301 report was extremely understanding of India’s public health concerns, stating The United States will closely monitor developments concerning compulsory licensing of patents in India following the broad interpretation of Indian law in a recent decision by the Controller General of Patents, while also bearing in mind the Doha Declaration on TRIPS and Public Health found in the Intellectual Property and Health Policy section of this Report.” 

Further in the section on IP and Health Policy, the report states: “As affirmed in the Doha Declaration on TRIPS and Public Health, the United States respects a trading partner’s right to protect public health and, in particular, to promote access to medicines for all, and supports the vital role of the patent system in promoting the development and creation of new and innovative lifesaving medicines.” We had blogged about it over here.

Will the USTR be as understanding of India’s decision today?

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2 thoughts on “The political economy of the current round of compulsory licensing in India”

  1. Dear Prashant,

    In discussion of the political-economy of the recent Compulsory Licensing developments, there is one key issue that has not yet been discussed that is to me ‘the elephant in the room.’ Please bear with me as I try to get this across as clearly as possible while I am still trying to crystalize my own thoughts!

    Both in the West and also across the developing world –– in Africa, Asia, Lat Am, MENA, etc. –– healthcare is funded through a combination of individual contributions (out of pocket and private or employer based insurance), direct and indirect Government support (this includes public insurance programs, direct vaccination campaigns, etc.), and also of course the Access initiatives of pharmaceutical companies to reduce the cost of medicines for either specific populations or markets, e.g., SubSaharan Africa.

    Here we see the Indian Government has been very engaged in cost-containment through expanding compulsory licensing (and incidentally transferring commercial benefit from foreign companies to domestic manufacturers), and price controls.

    This also has the effect of ‘privatizing’ total public health costs onto foreign drug companies, domestic companies (price controls), and other private actors (individuals, employers, insurers, etc.).

    The elephant in the room: Is this policy sustainable for long term gains in public health?

    Taking into account that the Western model for pharmaceutical pricing may not be appropriate for large subsets of patients in India, cancer therapies may be complex molecules that are more difficult or expensive to manufacture, and also may require intravenous administration.

    India has so many vulnerable citizens that can’t afford either to pay any out of pocket costs or to purchase insurance, so how does the CL policy address this great need?

    We used to say at the height of the HIV/AIDS crisis that it is not possible to fully privatize public health – to shift the costs totally to private companies and individuals – and we saw many public institutions and governments step up to share the burdens with private companies over time.

    These partnerships have been much more effective, over time, to promote tech transfer, capacity building, and in general substantially improve access to medicines.

    CLs may give good PR to the government (for ‘standing up’ to foreign companies) and provide benefits to domestic companies (Cipla etc., gain CLs to sell commercially valuable products at very low royalty rates).

    How much benefit does it bring to the common man, woman or child?

    How do other large developing countries provide a minimal public health ‘safety-net’ ? (e.g, Indonesia, Philippines, Malaysia, Brazil, China, Russia, South Africa)?

    So these are the questions I am pondering and I look forward to your thoughts!

    Best regards,


  2. Hi Susan,

    You are right, to an extent.

    I don’t think the Indian government gives a damn about public health. For example, oncologists have been pleading with the government to make cancer a ‘notifiable disease’, which means that all cancer cases have to be informed to the government and the only aim of this measure is to collect statistics so that doctors can identify patterns across the country, making it easier to study the disease and prepare national responses.

    Till date, the Health Ministry has not made any move, although some of the individual states have acted on their own to make cancer a notifiable disease.

    Having said that though, some drugs like Herceptin are simply out of range of even those middle class Indians who have health insurance – I kid you not – to that extent, Big Pharma needs to be more realistic in pricing their drugs.

    As for a long term cancer-care policy, I don’t think the Govt. has any clue on what it is doing. Somehow NGOs appear to be interested in only those measures which profit generic companies than those measure which bring substantial long term relief to cancer patients.


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