When a life-saving drug costs more than a person’s annual income, who gets to decide if it’s sold? That’s where compulsory licensing comes in - a legal tool that lets governments step in and let others make or sell patented medicines without the company’s permission. It’s not about stealing intellectual property. It’s about making sure people don’t die because a patent is being used to keep prices high.
What Is Compulsory Licensing, Really?
Compulsory licensing is a clause in international patent law that allows a government to authorize a third party - usually a generic drugmaker - to produce a patented product, like a medicine, without the patent holder’s consent. The catch? The patent owner still gets paid. The law requires "adequate remuneration," which usually means a royalty based on what the drug would earn under normal market conditions.
This isn’t a new idea. The first rules were written in 1883 under the Paris Convention. But it became a global standard in 1994 with the TRIPS Agreement - the trade deal that tied intellectual property rights to international commerce. TRIPS says countries can use compulsory licensing, but only under certain conditions: you must try to negotiate with the patent holder first, you can’t export the product unless you’re a country with no manufacturing capacity, and you must limit production to your own domestic needs.
Still, the rules have exceptions. If there’s a national emergency - like a pandemic - you don’t have to ask the company first. That’s what happened in 2020, when over 40 countries, including Germany, Canada, and Israel, prepared to issue compulsory licenses for COVID-19 treatments and vaccines. Most didn’t end up using them, but the threat alone pushed companies to lower prices or offer voluntary deals.
How It Works in the U.S., India, and Brazil
Not all countries use compulsory licensing the same way. The U.S. has the legal power, but rarely uses it. There are three paths: Section 1498 lets the federal government use a patent if it’s for public use - like military tech or pandemic supplies - but the patent owner must sue for compensation in federal court. The average case takes nearly three years and pays out around $5.2 million. Then there’s the Bayh-Dole Act, which lets the government force a license if a company that got federal funding doesn’t make the invention available to the public. The NIH has received 12 requests since 1980 - and denied every single one.
India, on the other hand, has used compulsory licensing aggressively. Since 2005, it’s issued 22 licenses, mostly for cancer drugs. The most famous case was Nexavar, a kidney and liver cancer drug made by Bayer. In 2012, India granted a license to Natco Pharma to make a generic version. The price dropped from $5,500 a month to $175. Bayer sued, but lost after eight years of legal battles. India’s law requires proof that the drug isn’t affordable or available in sufficient quantity - and that the applicant can actually make it.
Brazil’s approach is narrower but effective. Between 2001 and 2017, it issued three compulsory licenses - all for HIV drugs. In 2007, it forced Merck to allow a generic version of efavirenz. The price per tablet fell from $1.55 to $0.48. That saved the government millions. Brazil didn’t need to wait for lawsuits. Its system lets health officials declare a public health emergency and move fast.
Thailand, Spain, and the Power of Speed
Thailand’s 2006-2008 program was one of the most visible uses of compulsory licensing. It targeted drugs for HIV and heart disease. Abbott’s lopinavir/ritonavir, which cost $1,200 a year, dropped to $230. Bristol-Myers Squibb’s efavirenz fell from $550 to $200. These weren’t just savings - they were lifelines. Thailand didn’t wait for negotiations. It used the TRIPS emergency clause and moved immediately.
Spain did something similar in 2020. When the pandemic hit, it passed a decree allowing compulsory licensing for coronavirus-related tech - no prior negotiation required. Other EU countries like Germany and France have the laws on the books, but have never used them. Why? Political pressure. Pharmaceutical companies lobby hard. In Germany, the industry’s influence is strong. In Spain, the government prioritized public health over corporate profits.
The Global Impact: Price Drops and Who Benefits
Compulsory licensing doesn’t just change prices - it changes lives. Between 2000 and 2020, the price of first-line HIV drugs fell by 92% in low- and middle-income countries. That’s because of compulsory licenses and the threat of them. Companies started offering voluntary discounts just to avoid being forced to license.
Generic drugmakers are the real winners. Teva Pharmaceutical made $3.2 billion extra between 2015 and 2020 by producing drugs under compulsory licenses. But the biggest beneficiaries? Patients. In countries like India, South Africa, and Thailand, people who couldn’t afford treatment now have access. The World Health Organization says 60% of low-income countries can’t even issue a license because they lack legal or technical capacity. That’s the real gap - not in the law, but in the ability to use it.
Why Big Pharma Fights Back
Drug companies argue that compulsory licensing kills innovation. A 2018 study found that countries with active licensing programs saw 15-20% less investment in pharmaceutical R&D. The International Federation of Pharmaceutical Manufacturers says each license announcement causes an 8.2% drop in stock prices for affected companies. That’s real money.
But critics point out: most R&D is funded by public money. The U.S. government spent over $100 billion on biomedical research between 2000 and 2020. Many of the most important drugs - including mRNA vaccines - were built on taxpayer-funded science. If the public paid for it, why should they pay again at monopoly prices?
There’s also the chilling effect. Companies now delay launching drugs in countries with strong licensing laws. Or they price them so high upfront that even a license doesn’t help - because the drug is never made available in volume. That’s a loophole. And it’s why experts like Dr. Ellen ‘t Hoen say the "negotiate first" rule in TRIPS is outdated. In a pandemic, you don’t have time to wait for a meeting.
What’s Changing Now?
In June 2022, the World Trade Organization agreed to a temporary waiver for COVID-19 vaccines. It allowed developing countries to produce vaccines without patent permission until 2027. But so far, only 12 facilities in 8 countries have been authorized to use it. Why? The process is still too complex. You need manufacturing capacity, regulatory approval, and technical know-how. A license doesn’t mean a pill appears overnight.
The European Union is now pushing new rules. Its 2023 Pharmaceutical Strategy says companies must offer licensing terms within 30 days - or face automatic compulsory licensing. That’s a game-changer. It flips the script: instead of governments chasing companies, companies now have to respond or lose control.
Meanwhile, the WHO is drafting a Pandemic Treaty. Draft Article 12 says that during a declared global health emergency, essential medicines should be automatically licensed. No negotiations. No delays. Just access.
The Bottom Line
Compulsory licensing isn’t a weapon. It’s a safety valve. It exists because patent law was never meant to override human life. The system works - when it’s used. India proves it can cut prices. Thailand proves it can save lives. Spain proves it can move fast in a crisis.
But it’s not a magic bullet. It requires strong legal systems, political will, and public pressure. Most countries still don’t use it. Most don’t even know how. And until that changes, the real cost of patents won’t be measured in dollars - but in lives lost because the system didn’t bend when it needed to.
Is compulsory licensing legal under international law?
Yes. The TRIPS Agreement, part of the World Trade Organization rules, explicitly allows countries to issue compulsory licenses for public health reasons. Article 31 outlines the conditions, including paying fair compensation and limiting use to domestic needs. The Doha Declaration in 2001 confirmed that countries have the right to use these tools to protect public health, even if it means overriding patents.
Does compulsory licensing discourage innovation?
Some studies suggest a link between compulsory licensing and reduced R&D investment - around 15-20% in countries that use it often. But this ignores the fact that most major drug breakthroughs are funded by public money. The U.S. government spent over $100 billion on biomedical research from 2000-2020. When companies charge monopoly prices on publicly funded science, it’s not innovation being punished - it’s public investment being exploited. Compulsory licensing ensures that public funds don’t just enrich shareholders.
Can any company apply for a compulsory license?
No. Only governments can issue them. But they can authorize a private company - usually a generic drugmaker - to produce the drug. In India, Natco Pharma produced the generic version of Nexavar under a government-issued license. The applicant must prove it can manufacture the drug and that the patent holder hasn’t met public demand. In most cases, the government decides who gets the license based on technical capacity and public interest.
How is "adequate remuneration" determined?
There’s no single formula. In the U.S., courts use the "Georgia-Pacific factors," which look at 15 things like royalty rates for similar licenses and the profitability of the product. In India, the patent office set a flat rate of 6% of net sales in the Nexavar case. Other countries use cost-plus models or market comparisons. The key is that the payment must reflect the economic value of the invention - not what the patent holder wishes to charge.
Why don’t more countries use compulsory licensing?
Three main reasons: fear of trade retaliation, lack of legal capacity, and political pressure. The U.S. has listed countries that issue licenses on its "Special 301 Watch List," though it hasn’t imposed sanctions since 2012. Many low-income countries lack lawyers or patent experts who know how to navigate the process. And pharmaceutical companies spend millions lobbying governments not to act. In Germany and Japan, the industry’s influence is so strong that even when the law allows it, no license has ever been issued.
Can compulsory licensing be used for things other than medicine?
Yes. While 68% of licenses are for pharmaceuticals, they’ve also been used for agricultural chemicals, software, and clean energy tech. The U.S. has used compulsory licensing under the Clean Air Act to allow access to patented emissions-control technologies. The Marrakesh Treaty allows licenses for accessible formats of books for blind readers. The principle is the same: when public interest outweighs private control, the law steps in.