Commercial Exploitation: Licensing

In copyright. Section 31 of the Copyright Act permits a compulsory licence where the owner has refused to allow the work to be communicated to the public on terms the complainant considers reasonable. That provision was construed in Entertainment Network (India) Ltd v. Super Cassettes Industries Ltd.

Facts. A private FM radio broadcaster sought a compulsory licence under section 31 to broadcast sound recordings whose owner had refused a licence on the terms offered. The jurisdiction of the Copyright Board to grant such a licence, and the terms on which it could do so, were in issue. The citation is (2008) 13 SCC 30; AIR 2009 SC 1006.

Held. The Board has jurisdiction under section 31 where the owner has refused to allow communication to the public on reasonable terms; the owner's refusal is not conclusive; and the public interest in dissemination must be balanced against the owner's monopoly. The matter was remitted for the terms to be fixed.

Why it matters. It shows that the public interest limits in the international system, which for copyright come through Berne Article 11bis(2) and Article 13 as carried in by TRIPS Article 9.1, are real and are actually used in India.

Statutory licences

A statutory licence differs from a compulsory licence in that the right to use arises from the statute itself on payment of a fixed or fixable royalty, without an application and an adjudication.

Section 31D of the Copyright Act is the Indian example: any broadcasting organisation desirous of communicating a published work by broadcast may do so on giving prior notice and paying royalties at the rate fixed by the Board.

Restrictions on what a licence may contain

Competition law. Section 3(5) of the Competition Act 2002 exempts reasonable conditions imposed to protect intellectual property rights from the prohibition on anti competitive agreements. The word is reasonable, so an unreasonable condition is not saved.

Section 140 of the Patents Act voids certain conditions outright, including tie ins requiring the purchase of unpatented materials, restrictions on using articles supplied by others, and coercive package licensing.

TRIPS Article 40 recognises that some licensing practices restrain competition and may impede transfer of technology, and permits members to specify practices constituting an abuse, mentioning exclusive grantback conditions, conditions preventing challenges to validity, and coercive package licensing. It is worked in [TRIPS Article 40: Anti-Competitive Practices in Licences].

A worked example

Tanvi Sarode holds a patent on a rainwater filter and licenses it three ways.

To a Maharashtra firm, exclusively for Maharashtra. That firm may sue infringers in Maharashtra under section 109, joining Tanvi.

To a Tamil Nadu firm, non exclusively. She licenses two more firms in the same state. None of them can sue.

To a Kenyan firm. Her Indian patent does nothing in Kenya, so what she is really licensing there is know how and the trade mark, and the agreement has to say so.

She includes a clause requiring licensees to buy filter cartridges from her. Section 140(1)(a) of the Patents Act voids it, and the clause is not saved by section 3(5) of the Competition Act because it is not a reasonable condition for protecting the patent.

In year four a rival applies under section 84, saying the filter is priced beyond the reach of the rural households it was designed for. The three grounds and the Article 31 conditions then decide the case, which is [TRIPS Article 31: Other Use Without Authorisation] and [Compulsory Licensing in India].

What it does NOT mean

An exclusive licence is not an assignment. The licensor remains the proprietor and the licence ends.

A compulsory licence is not expropriation. The right survives, the patentee is paid, and the licence is non exclusive and non assignable.

A licence is not always in writing. Section 30 of the Copyright Act requires a licence to be in writing signed, but a bare permission not to sue can be implied.

Quick revision

• Voluntary licences: exclusive (section 2(1)(f) Patents Act, excludes even the patentee), sole (contractual only), non exclusive.
• Standing: section 109 Patents Act lets an exclusive licensee sue, joining the patentee; section 61 Copyright Act requires the owner to be a party.
• Compulsory licence: Paris Article 5A(2); TRIPS Article 31 conditions and Article 31bis exports; India, sections 84, 92 and 92A of the Patents Act and section 31 of the Copyright Act.
• Statutory licence: arises from the statute on payment, no adjudication. Section 31D of the Copyright Act for broadcasting.
• Limits on terms: section 140 Patents Act voids tie ins and coercive packages; section 3(5) Competition Act saves only reasonable conditions; TRIPS Article 40 lets members specify abusive practices.
• Entertainment Network (India) Ltd v. Super Cassettes Industries Ltd: the Copyright Board has jurisdiction under section 31, the owner's refusal is not conclusive, and public interest is weighed against the monopoly.

Test yourself

1. Distinguish exclusive, sole and non exclusive licences, and explain why the distinction matters. An exclusive licence confers on the licensee, to the exclusion of all other persons including the proprietor, the right to do the acts licensed; section 2(1)(f) of the Patents Act 1970 defines it in those terms, and the significant feature is that the licensor excludes itself. A sole licence gives the licensee the assurance that no other licence will be granted while leaving the licensor free to work the right itself; Indian statutes do not define it and it exists only if the agreement creates it expressly, which is why sloppy drafting frequently produces litigation about whether a licence is sole or exclusive. A non exclusive licence leaves the licensor free both to work the right and to license others without limit. The distinction matters commercially, because an exclusive licensee will pay far more for the certainty of being alone in the market, and it matters procedurally, because standing to sue depends on it: section 109 of the Patents Act gives an exclusive licensee the like right as the patentee to institute a suit for infringement, requiring the patentee to be joined, and section 61 of the Copyright Act requires the owner of the copyright to be made a party where an exclusive licensee sues, while a non exclusive licensee has no right to sue at all.

2. What is a compulsory licence and where does the power to grant one come from? A compulsory licence is an authorisation given by the state to a person other than the right holder to work the right without the holder's consent, on terms including remuneration fixed by the state. Its treaty foundation is Article 5A(2) of the Paris Convention, which permits each country of the Union to provide for the grant of compulsory licences to prevent the abuses which might result from the exercise of the exclusive rights conferred by a patent, for example failure to work, subject to the limits in Article 5A(3) and (4). TRIPS then regulates the practice rather than forbidding it: Article 31 permits other use without the authorisation of the right holder subject to twelve conditions, including prior negotiation on reasonable commercial terms, predominant supply of the domestic market, non exclusivity, non assignability, adequate remuneration and judicial review, with waivers of some conditions in a national emergency or for public non commercial use; and Article 31bis, inserted by the Protocol which entered into force on 23 January 2017, permits production for export to members with insufficient manufacturing capacity. In India the powers are in section 84 of the Patents Act on three grounds after three years from grant, section 92 for national emergency, extreme urgency or public non commercial use, section 92A for export, and section 31 of the Copyright Act for works withheld from the public.

3. What limits does the law place on the terms of a voluntary licence? Three sets. Statutory avoidance: section 140 of the Patents Act 1970 makes certain conditions void in themselves, including a condition requiring the purchaser or licensee to acquire from the licensor articles other than the patented article, a condition prohibiting the use of articles supplied by any person other than the licensor, and a condition requiring the licensee to take a licence of another patent it does not want, which is coercive package licensing. Competition law: section 3(5) of the Competition Act 2002 exempts from the prohibition on anti competitive agreements the imposition of reasonable conditions as may be necessary for protecting intellectual property rights, so the exemption is not a blanket one and an unreasonable condition falls outside it and is judged like any other agreement. And the international discipline: Article 40 of TRIPS records the members' agreement that some licensing practices or conditions pertaining to intellectual property rights which restrain competition may have adverse effects on trade and may impede the transfer and dissemination of technology, and permits members to specify in their legislation practices or conditions that may in particular cases constitute an abuse, mentioning exclusive grantback conditions, conditions preventing challenges to validity, and coercive package licensing.