Compulsory License for patents: When is it issued?

As per World Intellectual Property Organization (WIPO) reports, there are around 16 million patents in force worldwide.

That means that there are about 16 million opportunities for patent owners to say “no”, in case somebody asks them to commercially use their patented product or a process.

Or does it?

Allow me to change your perspective by making and providing arguments for the following claim:

There are about 16 million opportunities for interested parties to be granted a Compulsory license.

Why is a Compulsory license granted?

The concept of a patent is often considered similar to one of the social contracts. The way you can think of it is:

The patent owner and the society are in an agreement. On one side, society gives the patent owner the right to a limited monopoly over the commercial use of the patent. On the other side, for the sake of technological development, the patent owner agrees to disclose their invention to the public.

It’s a win-win situation. Or at least it’s supposed to be.

However, sometimes patent holders refuse to allow or license others to commercially use their protected inventions.

They think: I’ve put in the effort and resources into developing these patents. They are of immense economic value and I should be the only one generating this value by selling my patented products / providing innovative services.

No doubt, patent owners should be fairly compensated for the costs they’ve put into patent development. However, patent law is very strict about how this needs to be done.

A patent owner can’t just outright refuse to license the protected invention. They must have a justified reason for saying “no” to persons requesting the patent license.

And not just that. If a patent owner does decide to grant a patent license to an interested party, they must set justified conditions for it.

As you see, patent rights (just like many other rights) aren’t absolute. Thinking that rights come without limitations is one of the top things that people get wrong about rights.

And there’s a valid reason for these limitations. Patent rights, just like any other rights, aren’t meant to be abused.

Patent owners shouldn’t be allowed to abuse their exclusive rights at the expense of public benefits. Such behavior often leads to monopolistic practices, which inflate the patent owner’s position, are damaging to competition, and are violations of the antitrust laws.

Moreover, these practices also deprive the public of the benefits of inventions and their future improvements.

So, in cases like these, a fair balance between intellectual property rights and fundamental human rights needs to be struck.

This is why interested persons can request to be granted Compulsory licenses.

Who grants a Compulsory license?

Compulsory licenses are granted by the state administrative authorities.

Who are these authorities? Well, most often they are authorities responsible for affairs in the field in which the invention is applied. If the patent invention is a pharmaceutical drug, for example, that could be the State Ministry of Health.

There’s one crucial thing for you to know, though! These authorities don’t have to grant Compulsory licenses. They are just given the right to do it if they see fit.

The authorities grant Compulsory licenses on a case-by-case basis. That means that they’ll look into the facts of each case, rather than several cases together as a whole.

There are multiple benefits to this approach, but here are just some I’ve gathered:

• Authorities don’t have to go through the sea of irrelevant and complex material to make a decision
• ?There’s no need to follow rigid binding precedents, in case the authorities consider them bad, inappropriate, or illogical
• ?Authorities aren’t making minute distinctions between the facts of very different cases
• They can focus on the social and economic implications of their decisions
• License applicants, who don’t have the money or determination to push a case far enough through the appeal system so a new precedent is created, have a chance at being granted a license

When is a Compulsory license granted?

Wondering what are the exact situations in which patent holders could be “forced” to allow someone else to use or produce their patented products/processes, without being asked to consent to such cessation?

Let me guide you through the most important ones:

1.?????Patent nonuse

For one, a Compulsory license could be granted if the patent owner doesn’t use the patented invention enough or at all. This way, intellectual property is protected from being neglected within the country of interest because the owner is unable or unwilling to commercially use it.

We can draw from this that the purpose of granting a compulsory license is to enable the commercial exploitation of socially beneficial inventions. This leads to the conclusion (which is legally confirmed) that the licensee must prove three things:

• That they’ve inquired the patent owner about the use of the protected patent, under reasonable economic conditions and deadlines.
• That the patent owner refused to license them within a reasonable deadline or didn’t respond at all
• That they have the technical capabilities and production capacities to economically exploit the protected patent

A proof of contacting the patent holder for this purpose could be, for example, a mailed document, with the date of receipt marked on it. It could also be a copy of an e-mail conversation.

As for what is considered a reasonable economic condition or a deadline, that is something that leaves a lot of space for discussion. So, If you’ve got some insight or ideas on this, leave a comment below - I’d love to pick your brain about it!

2.?????Inability to use another party’s subsequently registered patent

Another situation where a Compulsory license can be issued is if the use of other patented inventions is impossible without the license. I’m talking about inventions patented by other parties, after the patent for which a license is requested was registered.

As I’ve already said, this is because further improvements of patented innovations and their use are in the public interest, which must be prioritized over personal interest.

An example of public interests could be interests of national security, health, nutrition, national and other extreme urgencies, development of other vital sectors of national economies, and so on.

Mind you, these later innovations and improvements have to be technically and economically significant in comparison to the initial patent.

One study has shown that the most significant improvements were observed in the patented micro and nano technologies, including pharmaceutical, control technology, and biotechnology patents.

3.?????Unreasonable conditions for patent licensing

Finally, as I’ve briefly mentioned earlier in the article, a Compulsory license could be issued if the patent owner sets unjustified conditions for licensing.

So, which conditions can be considered unjustified?

The simplest way to put it: is the ones that give the patent holder a monopolistic advantage as a result of having IP rights.

For one, we’re talking about unfair terms. These are the anti-competitive terms, like requiring the interested party to buy your other licenses to get the one you’re requesting. Another example is setting restrictive licensing conditions.

Next, unreasonable terms. These include unreasonable licensing rates which would increase the cost to the industry and make it non-competitive.

Finally, non-discriminatory terms. A patent owner can’t discriminate against a licensee, by setting different payment rates or terms, depending on their nationality, skin color, religion, political stance, sexuality, or any similar grounds.

A patent owner can, however, choose whether to grant a license to someone based on their creditworthiness.

When is patent nonuse justified?

Sometimes, a patent holder is justified in refusing to grant a patent license.

For example, if a person requesting a license claims that the patent owner is not using the patented invention, a patent owner may object to this claim.

The way they would do it is to prove that patent nonuse was beyond their control.

For example, a valid reason for nonuse could be national restrictions on the import or export of the patented invention or its essential parts. It could also be national restrictions on product marketing.

For individuals, prolonged illness would also be a proper reason. A force majeure like a natural disaster, a war, or a disease epidemic would also qualify as justified reasons for patent nonuse.

Such is the present situation with access to COVID-19 vaccines. Especially in low-income countries, where only around 16% of people have received a single dose of the vaccine. This is why the World Trade Organization is currently discussing a proposal to temporarily waive IP rights on COVID-19 vaccines.

On the other hand, recessions, funding or manufacturing difficulties, and business disagreements likely wouldn’t qualify as justified reasons for patent nonuse.

Enjoyed learning about Compulsory licenses?

Then I invite you to subscribe to my newsletter, because I’ve got more of these interpretations coming in the next couple of weeks, including some IP news and interesting cases from around the world.

The idea behind this newsletter is to share IP-related information across different industries, so if you want to share your opinion on this (or any related) topic, ask questions or even collaborate in the future, feel free to leave a comment or pick my brain about it through a private message.

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