Compulsory License

In a compulsory license, the government forces the holder of a patent, copyright, or other exclusive right to grant use to the state or others. Usually, the holder does receive some royalties, either set by law or determined through some form of arbitration.

Examples in copyright law

A compulsory copyright license is an exception to copyright law that is usually philosophically justified as an attempt by the government to correct a market failure.

Some compulsory licenses protect those who wish to use a work for educational or non-commercial purposes. In cases when it is judged too burdensome for scattered or small-scale buyers and sellers to find one another and negotiate a price, governments sometimes issue a compulsory license for the use so that the relative difficulty of obtaining permission for it does not extinguish it. For instance, the copyright law of Canada has a compulsory license scheme for orphaned works. This is in contrast to orphan drugs, which often get more protection. In these types of cases, the license must often pass the Berne three-step test.

United States copyright law establishes compulsory licenses as purchase methods or strong market influences in the entertainment industry, such as playing popular music on a radio station or webcast, and for many television transactions, like the use of broadcasted audiovisual works such as television shows in cable television systems.

The Electronic Frontier Foundation and other downloader advocacy groups have suggested forms of compulsory licensing as one possible solution to the legal conflicts surrounding file sharing. In a typical scenario, those who hold the copyrights for the music traded between network users would be legally barred from suing the infringers. In return, the government would extract payments from listeners, perhaps electronic pay-per-song fees or perhaps sales taxes on peer-to-peer file-sharing software, blank storage media, or even Internet access itself. Assisted by some form of P2P "charts," music industry groups would theoretically distribute these royalties to the rights holders.

Examples in patent law

Many patent law systems provide for the granting of compulsory licenses in a variety of situations. The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs) sets out specific situations in which compulsory licenses may be issued, and the requirements of such licences. All significant Patent systems comply with the requirements of TRIPs.

The principle requirement for the issue of a compulsory licence is that attempts to obtain a licence under reasonable commercial terms must have failed over a reasonable period of time. Specific situations in which compulsory licences may be issued are set out in the legislation of each patent system and vary between systems. Some examples of situations in which a compulsory licence may be granted include lack of working over an extended period in the territory of the patent, inventions funded by the government, failure or inability of a patentee to meet a demand for a patented product and where the refusal to grant a licence leads to the inability to exploit an important technological advance, or to exploit a further patent.

TRIPs also provides that the requirements for a compulsory licence may be waived in certain situations, in particular cases of national emergency or extreme urgency.

An area of fierce debate has been that of drugs for treating serious diseases such as malaria, HIV and AIDS. Such drugs are widely available in the western world and would help to manage the epidemic of these diseases in the third world. However, such drugs are hugely expensive to produce and generally well protected by patents. In order to recover the development costs, the patent holding companies charge prices for the drugs which prevent their purchase by third world countries. Although the national emergency provisions of TRIPs allow the grant of compulsory licences in those third world countries, the countries often lack the technology to be able to manufacture the drugs. However, TRIPs requires that compulsory licences be used to fulfill a local requirement, and so it is not possible to manufacture the drugs overseas and import them to the place of need.

This issue was addressed by the Doha declaration which recognised the problem and required the TRIPs council to find a solution. On 17 May 2006 the European Commission's official journal published Regulation 816/2006, which brings into force the provisions of the Doha declaration. This means that the declaration now has legal effect in the European Union, and also in Canada who implemented it in 2005. The declaration allows compulsory licences to be issued in developed countries for the manufacture of patented drugs, provided they are exported to certain countries (principally, those on the UN's list of least-developed countries and certain other countries having per-capita incomes of less than US$745 a year).

In designing defenses against pandemics or bioterrorism, planners sometimes seek huge supplies of certain drugs. Here, the issue is not so much the cost per dose as the number of doses on the market. Many modern drugs have long production cycles, sometimes as long as a year, so the drug companies must always estimate future demand for their patented drugs and vaccines. The number of victims in a flu pandemic or anthrax attack could exceed any reasonable prediction, and for the original maker to increase production could itself be a lengthy process. The issue of compulsory licences allows the number of manufacturers to be increased, thereby allowing greater volumes of supplies to be manufactured.