Patent Licensing For Indian Market Entry Structuring Control Without A Local Presence

Introduction : A foreign company owning Indian patents need not establish a factory, subsidiary or sales force in order to generate revenues in India. It may enter into a licence agreement with an Indian manufacturer and collect royalties. The appeal of licensing lies in the reduced capital outlay, an Indian partner familiar with the local regulatory landscape and distribution chain, and a revenue stream dependent on the fortunes of the licensee. Risk is also clear. Having licensed the technology, the licensor has only the contract and the Indian legal framework as recourse.

This blog looks at patent licensing as a route to the Indian market. It considers the statutory framework provided by the Patents Act, 1970 and applicable tax, foreign exchange and competition laws. It moves on to distinguish a patent licence from a supply, distribution and know-how contract, since mislabelling transactions may result in tax and legal implications. Having discussed the relevant judicial pronouncements, it looks at the key contractual levers (territory, exclusivity, sublicense, minimum performance and royalties) and ends with a deal-structuring checklist for the licensor.

Legal Provisions

The Patents Act, 1970

Section 48 confers upon the patentee the sole right to keep third parties from making, using, offering for sale, selling or importing the patented product in India, or from using the patented process. A licence is nothing but a promise not to enforce those rights against the licensee. Section 70 grants powers of licence to the registered proprietor and Section 68 requires every licence to be granted to be in writing, in a document containing all its terms and conditions, failing which it is invalid.

Under the new Statute, Section 69 now requires the licensee to apply to the Controller to register its interest. Under Section 69(5), an unregistered document is not admissible in evidence of title in contravention of title unless the court so directs otherwise upon reason recorded in writing.

Section 2(1)(i) defines an exclusive licence as one that excludes all other persons, including the patentee. Section 109 provides that the exclusive licensee is entitled to an independent right of action for infringement with the patentee joined as a party to the action. This right is not conferred on a non-exclusive licensee. Section 140 declares certain restrictive clauses void, including tying the licensee to buy unpatented goods from the licensor, barring the use by the licensee of competing technology, exclusive grant-backs, clauses inhibiting a challenge to the patent’s validity and coercive package licensing. Section 141 provides that either party may terminate a licence on three months’ notice once the patent ceases to be in force.

The operation of the patent in India is a statutory requirement too. Under Section 146(2) and Rule 131 of the Patents Rules, 2003, every patentee or licensee shall be required to file an annual statement of working in Form 27. After the Patents (Amendment) Rules, 2024, coming into effect from 15 March 2024, such a statement is to be filed once per three financial years instead of annually; the first triennial statement in respect of existing patents from Financial Year 2023–24 to 2025–26 was due on 30 September 2026.

The fact of non-working is important as it allows any person to apply for a compulsory license three years after the grant of the patent under Section 84 when the requirements of the public are not being fulfilled, the invention is not available at a reasonably affordable price, or it is not being worked in India. Finally, Section 107A(b) allows for the importation of patented inventions produced by any authorised person.

Tax, Foreign Exchange and Competition Law

Royalty payments, both made and received, are transactions of a current account. They do not require any approvals from the government, in view of the liberalisation of current account transactions by way of the amendment by Notification No. 19/2009 dated November 12, 2009 issued under the Foreign Trade Policy.

The licence of an intellectual property right falls under services specified in para 5(c) of Schedule II to the Central Goods and Services Tax Act, 2017, and an Indian licensee is liable to pay the integrated tax on import of services at a rate of 18 per cent on a reverse-charge basis. By virtue of section 3(5)(i) of the Competition Act, 2002, the patentee is at liberty to impose any conditions it deems appropriate to protect its rights, which is a limited exemption from the application of the Competition Act’s anti-boycott agreement provisions.

Distinguishing a Licence from Supply, Distribution and Know-how

These arrangements are often made together, but have different legal bases. A supply arrangement involves overseas manufacture by the foreign company and sale of the resulting goods to the Indian buyer, who acquires the goods, not a right to manufacture; in a distribution arrangement, the Indian party resells the foreign company’s products. Neither a supply nor a distribution arrangement requires the patent licence, since the purchaser of a genuine product does not infringe by virtue of reselling it.

A patent licence, by contrast, authorises the Indian party to do something that would otherwise be an infringement: make, use, or sell the invention locally. A know-how agreement involves transfer of unpatented technical information, such as manufacturing processes, formulations and quality protocols. Know-how is not property under any Indian statute, and so is protected only by contract and the equitable duty of confidence. In practice, a patent licence without the accompanying know-how is often of little value to the licensee, so that usually both are included in a single technology licence agreement.

The distinctions are important in terms of fiscal considerations. Payment for goods is not royalty, whereas a payment for the right to use a patent or for imparting know-how is generally so. If royalty is paid on imported goods as a condition of their sale, it may be added to their customs value under Rule 10(1)(c) of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007.

Case Laws

Natco Pharma Ltd v Bayer Corporation

In 2012 the Controller granted India’s first ever compulsory licence for a patent on a cancer drug (Bayer’s sorafenib), on the ground that the drug was “not available at a price accessible to patients”, that “it did not address a large number of patients”, and that “it was neither exploited nor worked in India”. The order was confirmed by the Intellectual Property Appellate Board in 2013 and by the Bombay High Court in 2014. For a licensor, Natco is a sobering reminder that the mere possibility of importation of a patented drug without local working may be sufficient to vitiate the patent. The alternative for a licensor is to accept a local licence as a hedge against such a challenge.

Engineering Analysis Centre of Excellence Pvt Ltd v CIT

In this Supreme Court case, the Court held that payments for copies of foreign software by Indian distributors and end-users were not royalties since they related to a sale of a copyrighted computer programme, and not to a licence of copyright. While dealing with a copyright issue, the Court’s reasoning applies with equal force to patent law, and provides a useful pointer regarding the definition of a royalty for tax purposes. The tax treatment follows the substance of the transaction – the assignment of copyright in the case of the sale of software, and potentially the assignment of rights under a patent in the case of a licence of a patent.

Telefonaktiebolaget LM Ericsson (Publ) v Lava International Ltd.

This decision is a further reminder that a licensor’s proposed “reasonable royalty” should ideally be tied to a similar licence, to meet the expectations of Indian Courts.

Legal Analysis

Territory and Exclusivity

Exclusivity is the licensee’s main incentive and the licensor’s main concession. The exclusive licence will confer upon the licensee the right to enforce an action under Section 109, and this will suit a licensor who does not have a presence within the locality. But the licensor gets locked out of the market with an exclusive licence arrangement. The other possible licensing agreement is sole licensing, under which the licensor reserves the right to manufacture and sell for itself too. There are limitations to territorial exclusivity. Under Section 107A(b), goods that are authorised to be sold outside the country can be brought into India through importation.

Sublicensing, Performance and Royalties

There is nothing in the statute which allows a licensee to sublicense without the consent of the licensor, and a well-drawn agreement will contain either an absolute prohibition against such activity, or at least ensure that if sublicensing occurs, it is done only with prior written consent in conditions not inferior to those contained in the head licence, with the licensor retaining their right to audit the sublicensee. Minimum performance requirements such as minimum annual royalties, minimum sales volumes or minimum local manufacturing requirements help safeguard the interests of a licensor who grants exclusivity to a licensee which does little with the grant. Such provisions also have a statutory dimension in the sense that local working will assist the licensor in responding both to the Form 27 and a compulsory licensing request.

Competing Viewpoints

The framework faces two dilemmas. First, there is the issue of control. Under section 140, certain clauses that the licensors perceive as normal – for example prohibitions on questioning the validity of patents and exclusive grant-back clauses – become null and void. While one may argue that this serves to protect the weaker Indian licensees and also the general public interest in rooting out the invalid patents, it means that foreign patent owners will have less incentive to license their patents. This does not serve the purpose of technology transfer. Secondly, there is the issue of forum. In case Ericsson succeeds, licensing activity will be monitored using the Controller and the Patents Act. On the other hand, if it fails, then licensing activities will also be subject to scrutiny by the Competition Commission.

Practical Implications

However, for foreign firms, licensing provides a capital-efficient entry mode into the Indian economy that also solves the problem of the work requirement. For Indian producers, it provides access to technology without bearing the burden of R&D. From the perspective of policymakers, the policy discussion is all about whether India has the proper balance between encouraging foreign technology and providing domestic access in its licensing regime, an issue that the upcoming Supreme Court ruling on the jurisdiction of the Competition Commission will influence greatly. The licensor has several ways of ensuring control and accessing the local market simultaneously through a systematic approach:

• Ensure that the Indian patents have been granted, are valid and are owned by the licensor.
• Determine the nature of the transaction, whether it is a supply agreement, distribution agreement, know-how license or patent license or a combination thereof and ensure that it is appropriately documented because it has bearing on taxes and customs.
• Select the kind of grant which could be exclusive, sole or non-exclusive and ensure that territory, field of use and term are clearly specified.
• Agree in writing and register it in accordance with Sections 68 and 69, respectively.
• Make sublicensing dependent on prior written consent with flow-down provisions and audit rights.
• Establish annual minimum royalty payments or performance standards, with the right to make exclusivity non-exclusive or cancel upon failure to meet them.
• Omit or amend void provisions according to Section 140, including validity non-challenge provisions, exclusive grant backs and tie-in arrangements.
• Mirrored after Section 207 of the Income-tax Act, 2025, determine withholding tax treatment and reverse charge GST in case of the licensee.
• Ensure that know-how is protected by confidentiality provisions that survive contract termination, but do not use non-competition covenants that will be void as per Section 27 of the Indian Contract Act, 1872.
• Decide which party will handle the Form 27 filing, infringement actions, product liability and other government approvals.
• Avoid disputes through arbitration with a defined seat and governing law.

Conclusion

Patent licensing can be a good way to enter the Indian market, but a license that works well in one country may not work as intended in another. Indian law has specific requirements for patent licenses, including the requirement that licenses be in writing and registered. Indian law also rejects several common restrictive clauses and weakens the value of exclusivity by allowing parallel imports and threatening to issue compulsory licenses if the patent is not actively used in the country. On the other hand, Indian law incentivises a licensor that carefully drafts an exclusive patent license that ties the licensee’s success to its own and that ensures that the patent is actually exploited in India.

It is important to note that two reforms have been recommended to further the Indian economy and technology development. First, the unclear relationship between the Patents Act and the Competition Act needs to be clarified, whether through judicial rulings or legislative action, so that patent licensing agreements fall under the jurisdiction of one agency. Second, the Indian Patent Office needs to issue guidelines for Section 140 of the Patents Act, similar to those issued in other countries that detail what technology transfer agreements are acceptable. These reforms would encourage foreign patent owners to exploit their patent in India rather than merely selling the technology abroad.

Author :- Khushi Rawat, in case of any query, contact us at Global Patent Filing or write back us via email at support@globalpatentfiling.com.

References

1. Patents Act 1970, ss 48, 68 and 70.
2. Patents Act 1970, s 69(1) and (5).
3. Patents Act 1970, ss 2(1)(i) and 109.
4. Patents Act 1970, ss 140 and 141.
5. Patents Act 1970, s 146(2); Patents Rules 2003, r 131, as amended by the Patents (Amendment) Rules 2024; Office of the Controller General of Patents, Designs and Trade Marks, ‘FAQs on Form 27’ (26 August 2024) accessed 8 October 2026.
6. Patents Act 1970, ss 83 and 84.
7. Department of Industrial Policy and Promotion, Press Note 8 (2009 Series); Foreign Exchange Management (Current Account Transactions) Rules 2000.
8. Income-tax Act 2025, ss 9 and 207.
9. Central Goods and Services Tax Act 2017, sch II, para 5(c); Integrated Goods and Services Tax Act 2017, s 5(3).
10. Competition Act 2002, ss 3(5)(i) and 4.
11. John Richard Brady v Chemical Process Equipments (P) Ltd AIR 1987 Del 372.
12. Customs Valuation (Determination of Value of Imported Goods) Rules 2007, r 10(1)(c).
13. Natco Pharma Ltd v Bayer Corporation (Controller of Patents, Compulsory Licence Application No 1 of 2011, 9 March 2012); Bayer Corporation v Union of India (IPAB, Order No 45 of 2013, 4 March 2013); Bayer Corporation v Union of India (Bombay HC, Writ Petition No 1323 of 2013, 15 July 2014).
14. Engineering Analysis Centre of Excellence (P) Ltd v CIT (2021) 432 ITR 471 (SC).
15. Telefonaktiebolaget LM Ericsson (Publ) v Competition Commission of India (Delhi HC, LPA 247 of 2016, 13 July 2023).
16. Competition Commission of India v Monsanto Holdings (P) Ltd (SC, SLP (C) No 25026 of 2023, September 2025); ‘Supreme Court Dismisses CCI’s Appeal Against Delhi High Court Verdict Quashing Probe Against Ericsson & Monsanto’ (LiveLaw, 23 September 2025) accessed 8 October 2026.
17. accessed 8 October 2026.‘SC to Rule on Competition Body’s Power to Probe Patent-Linked Disputes’ (ETV Bharat, 2 February 2026)
18. Telefonaktiebolaget LM Ericsson (Publ) v Lava International Ltd (Delhi HC, CS (OS) 65 of 2015, 28 March 2024).