Compulsory Licensing: How Governments Can Override Patents in Emergencies

What is compulsory licensing, and why does it matter?

Compulsory licensing is a legal tool that lets a government allow someone else to make or use a patented product-like a medicine or vaccine-without the patent holder’s permission. It doesn’t take away the patent. The owner still gets paid. But it breaks the monopoly so that life-saving drugs can be made cheaper and faster when people need them most.

This isn’t some radical idea. It’s written into international law. The TRIPS Agreement is the global rulebook for intellectual property, adopted by the World Trade Organization in 1994, which explicitly permits compulsory licensing under certain conditions. Countries have used it for decades-not to punish drug companies, but to save lives.

When do governments use it?

Compulsory licensing kicks in during emergencies. Think pandemics, public health crises, or when a medicine is priced so high that no one can afford it.

During the HIV/AIDS crisis in the early 2000s, countries like Thailand issued compulsory licenses for antiretroviral drugs, cutting the price of lopinavir/ritonavir from $1,200 to $230 per year. In Brazil, a license for efavirenz dropped the cost from $1.55 to just $0.48 per tablet. These weren’t acts of hostility. They were acts of necessity.

The COVID-19 pandemic triggered over 40 countries to consider or issue compulsory licenses for vaccines, tests, and treatments. Canada, Germany, and Israel moved quickly. Others, like the U.S., stayed mostly silent-except for government use under existing laws.

It’s not just for viruses. Compulsory licenses have also been used for cancer drugs, heart medications, and even agricultural chemicals when food security is at risk.

How does it work legally?

Every country has its own rules, but they all follow the same basic framework from the TRIPS Agreement. Here’s what’s required:

1. The government must authorize the license.
2. The patent holder must get paid-"adequate remuneration," as the law says.
3. The product can mostly only be made for the domestic market.
4. Before issuing a license, the government usually has to try to negotiate with the patent holder first.

But there’s a big exception: extreme urgency. If a disease is spreading fast and people are dying, the negotiation step can be skipped. That’s what happened in Thailand and Brazil. That’s what many countries did during COVID-19.

In the United States , compulsory licensing isn’t common, but it exists in three forms: Section 1498 lets the federal government use any patent without permission (if it pays); Bayh-Dole Act lets the government force licensing of federally funded inventions; and the Clean Air Act allows it for environmental tech. Yet since 1945, the U.S. has issued only about 10 compulsory licenses-almost all for military or government use.

In contrast, India has issued 22 compulsory licenses since 2005, mostly for cancer drugs. In 2012, it forced Bayer to license Nexavar, a kidney cancer drug, after the company refused to lower its price of $5,500 per month. The generic version cost $175.

Who benefits-and who loses?

Who wins? Patients. Governments. Generic drugmakers.

Teva Pharmaceutical reported $3.2 billion in extra revenue between 2015 and 2020 from producing drugs under compulsory licenses. Low- and middle-income countries saved billions. UNAIDS found that compulsory licensing helped slash the price of first-line HIV drugs by 92% globally over two decades.

Who loses? Mostly, the companies holding the patents. When India issued its license for Nexavar, Bayer’s stock dropped 10%. The IFPMA claims each compulsory license announcement causes an average 8.2% drop in stock prices for affected firms. Some argue this chills innovation.

But here’s the twist: the threat of compulsory licensing often works better than the license itself. Dr. Brook Baker found that since 2000, 90% of HIV drug price cuts in poor countries happened because companies feared a license would be issued-not because one was. In other words, the mere possibility of a license forces companies to negotiate lower prices voluntarily.

Why don’t more countries use it?

Many countries have the law on the books but never use it. Germany has had the legal right since 1970 but has never issued a single compulsory license for medicine. The UK, Canada, and Australia have similar records.

Why? Three reasons:

• Pressure from the U.S. The U.S. government has listed countries that issue compulsory licenses on its "Priority Watch List" under the Special 301 Report. While no country has been punished with trade sanctions since 2012, the threat lingers.
• Legal complexity. Filing for a compulsory license isn’t simple. It takes lawyers, technical experts, and years. In the U.S., resolving a Section 1498 case takes an average of 2.7 years. In India, it takes 18-24 months.
• Lack of capacity. The WHO says 60% of low- and middle-income countries don’t have the legal or technical staff to run the process properly. They know the law exists-but they don’t know how to use it.

What’s changing now?

The world is moving faster. In June 2022, the WTO agreed to a temporary waiver for COVID-19 vaccine patents, allowing developing countries to produce them without permission until 2027. But so far, only 12 facilities in 8 countries have actually started making vaccines under it.

Meanwhile, the European Union proposed new rules in 2023 requiring patent holders to offer licensing terms within 30 days-or risk automatic compulsory licensing. That’s a major shift. No more dragging out negotiations.

And the WHO is drafting a new Pandemic Treaty that would make compulsory licensing automatic during declared global health emergencies. If it passes, no country will need to ask permission again.

Experts predict a 40% rise in compulsory licensing between 2023 and 2028-driven by antimicrobial resistance, climate-related health risks, and the growing cost of chronic disease treatments.

Is it fair?

It’s not about being anti-patent. It’s about balance.

Patents exist to reward innovation. But when a patent blocks a child from getting medicine, the system has failed. Compulsory licensing isn’t a weapon. It’s a safety valve.

The data shows it works. Prices drop by 65-90% in most cases. Lives are saved. Companies still make money-just not monopoly profits.

And if you’re worried about innovation? Look at the numbers. The U.S. and EU still produce 80% of the world’s new drugs. Compulsory licensing hasn’t stopped them. It’s just made sure those drugs reach the people who need them.

What’s next?

Compulsory licensing is becoming more targeted. Future licenses will likely focus on specific diseases-like tuberculosis, malaria, or rare cancers-and only during emergencies. The era of broad, open-ended licenses is fading.

But one thing won’t change: when a public health crisis hits, governments will still have the right-and the duty-to act.