05 June 2013

Compulsory Licensing of Patents

The Productivity Commission has released its report on the Compulsory Licensing of Patents.

The Commission comments that
Inquiry participants had differing views on why Australia’s compulsory licensing provisions have been rarely used. In essence, three different reasons were proposed, and only one of these provides a case for reform.
  • The compulsory licensing provisions are such an effective deterrent against refusals to license on reasonable terms that they almost never need to be invoked by a potential licensee. 
  • Compulsory licensing is a safeguard that is only needed in exceptional circumstances, since it is generally in a patent owner’s interest to license. 
  • The process for granting a compulsory licence is so costly and time consuming that a potential licensee rarely finds it a viable option.
It is almost impossible to ascertain whether the compulsory licensing provisions have been a deterrent against refusals to license, given that commercial negotiations are rarely made public. That said, the Law Council of Australia submitted three examples to support the deterrence effect, without naming the parties. 
The view that compulsory licensing is a safeguard only to be invoked in exceptional circumstances is consistent with the previously mentioned evidence, which suggests that relatively few cases arise where a compulsory licence is warranted. 
It is widely recognised that obtaining a compulsory licence would be costly and time consuming. This is largely because an application has to be made to the Federal Court for an order requiring the patent owner to grant a compulsory licence. The primary expense would be the legal costs to prepare and present a case to the court, rather than any fees charged by the court itself. Inquiry participants estimated that the cost could range from roughly $100 000 for a relatively straightforward application to more than $1 million for a pharmaceutical patent that is vigorously contested by the patent owner. 
Federal Court statistics indicate that it is not uncommon for matters to take longer than 12 months to finalise . However, it should also be recognised that the Federal Court has taken steps to employ various case management strategies to improve the efficiency of its processes, and so the high cost and time involved in resolving matters would, at least in part, reflect the complexity of cases that come before it.
The Commission goes on to comment that
There is a clear case to strengthen the criteria for granting a compulsory licence, and to remove overlap and inconsistency across different pieces of legislation. As noted above, there are essentially two grounds for a compulsory licence — the reasonable requirements of the public have not been satisfied, or the patent has been used to engage in unlawful anticompetitive behaviour.
The Patents Act defines the reasonable requirements of the public in a way that focuses on promoting domestic trades and industries. This could potentially lead to a compulsory licence being issued when it is not in the interests of the community as a whole. The Commission has, therefore, proposed that a public interest test be used instead. The intention is to provide an access regime for cases where greater use of a patented invention would deliver a substantial net benefit to the community, and this opportunity arises for reasons other than unlawful anticompetitive conduct.
There should be general pricing principles that explicitly recognise the balance between providing access to inventions and ensuring patent owners receive a return commensurate with the commercial and regulatory risks they face.
Introducing an objects clause into the Patents Act could also assist by clarifying the context for compulsory licensing and the considerations that should guide a court. ... The Patents Act defines the other ground for a compulsory licence — anticompetitive behaviour — as a contravention of Part IV of the Competition and Consumer Act 2010 (Cth) in connection with a patent. This creates overlap and inconsistency because different remedies against such behaviour are also available in the Competition and Consumer Act itself (including effectively a compulsory licence). Moreover, there are differences between the two Acts in the rights afforded to prospective applicants and the potential litigation avenues and process. It is proposed that the competition provisions be taken out of the Patents Act, and that the Competition and Consumer Act be amended to explicitly state that compulsory licences are available as a remedy for breaches of Part IV. 
Some aspects of IP are exempted from certain provisions of Part IV. The rationale for the exemption is unclear. It has been scrutinised in past reviews, including by the National Competition Council, which effectively recommended removing it. The Australian Competition and Consumer Commission (ACCC) has also called for its removal on the grounds that IP rights should be treated the same as other property. The Productivity Commission is mindful that the exemption addresses a range of IP issues, but with respect to access to patents sees no reason why it should not be repealed.
The Commission's recommendations and findings are -
Compulsory licensing provisions 
F 6.1 While the cost and timeliness of the compulsory licensing process could be a barrier for its use by some parties, there are no clear alternatives that would significantly reduce its cost without also reducing the quality of the outcomes and increasing the scope for appeals. 
F 6.2 The Australian Government has agreed to introduce a general objects clause recommended by the Advisory Council on Intellectual Property into the Patents Act 1990 (Cth). This could assist in clarifying the context for compulsory licensing and the considerations that should guide a court. 
R 6.1 The Australian Government should seek to remove s. 133(2)(b) from the Patents Act 1990 (Cth), so that a compulsory licence order based on restrictive trade practices of the patent holder is only available under the Competition and Consumer Act 2010 (Cth). The remedy provisions in the Competition & Consumer Act should be amended to explicitly recognise compulsory licence orders to exploit a patented invention as a remedy under the Act. The new remedy provision should specify that an order must: • not give the licensee, or a person authorised by the licensee, the exclusive right to work the patented invention • be assignable only in connection with an enterprise or goodwill in connection with which the licence is used. The new provision should also contain a clause specifying the basis for determining remuneration, which is identical to the corresponding clause in the Patents Act. 
F 6.3 Section 51(3) of the Competition and Consumer Act 2010 (Cth) — which exempts certain types of conduct involving intellectual property from some provisions of the Act — is unlikely to promote efficient outcomes with respect to access to patented inventions. The Commission sees no reason why the exemption should continue to apply to patents, but any changes to s.51(3) will need to be based on a consideration of the implications for all types of intellectual property, including those beyond this inquiry’s terms of reference. 
F 6.4 The current language in s. 135 of the Patents Act 1990 (Cth), which conflates the reasonable requirements of the public with the interests of Australian industry, is inconsistent with promoting community-wide welfare. 
R 6.2 The Australian Government should seek to amend the Patents Act 1990 (Cth) to replace the ‘reasonable requirements of the public’ test for a compulsory licence with a new public interest test. The new test should specify that a compulsory licence to exploit the patented invention would be available if the following conditions are met:
  • Australian demand for a product or service is not being met on reasonable terms, and access to the patented invention is essential for meeting this demand. 
  • The applicant has tried for a reasonable period, but without success, to obtain access from the patentee on reasonable terms and conditions. 
  • There is a substantial public interest in providing access to the applicant, having regard to: –  benefits to the community from meeting the relevant unmet demand commercial costs and benefits to the patent holder and licensee from granting access to the patented invention other impacts on community wellbeing, including those resulting from greater competition and from the overall effect on innovation.
The new provisions should require the Federal Court to set the terms of the licence, including — where the parties cannot reach agreement — any remuneration, consistent with the public interest, having regard to the rights of:  the patentee to obtain a return on investment commensurate with the regulatory and commercial risks involved the public to the efficient exploitation of the invention. 
R 6.3 The Australian Government should seek to repeal s. 136 of the Patents Act 1990 (Cth). Current and future international treaty obligations should be incorporated directly into the Patents Act or its subordinate legislation. 
Crown use provisions 
R 7.1 The Australian Government should seek to amend s. 163 of the Patents Act 1990 (Cth) to make it clear that Crown use can be invoked for the provision of a service that the Australian, State and/or Territory Governments have the primary responsibility for providing or funding. 
R 7.2 The Australian Government should seek to amend the Patents Act 1990 (Cth) to require:
  • the Crown to attempt to negotiate use of the patented invention prior to invoking Crown use 
  • the Crown to provide the patentee with a statement of reasons no less than 14 days before such use occurs 
  • Crown use to be approved by a Minister (the relevant Federal Minister or State Attorneys-General) 
  • that in instances of Crown use, the patentee is entitled to remuneration determined on the same basis as that for a compulsory licence. 
The first two requirements should be able to be waived in emergencies. However, in all cases patentees should be provided with immediate notice that their patents have been used, and a statement of reasons as soon as practical thereafter. 
Awareness raising 
R 10.1 IP Australia and the Australian Competition and Consumer Commission (ACCC) should jointly develop a plain English guide on the compulsory licensing provisions. The guide should be available on both the IP Australia and ACCC websites.