Significant changes proposed to Australian patent law

In the last week of March 2006, the Federal Government introduced the Intellectual Property Laws Amendment Bill 2006 into Parliament. As its title suggests, the Bill proposed changes to a number of areas of intellectual property law. The most significant of the proposed changes relate to Australian patent law, and it is these changes which are the focus of this alert.

The following proposed reforms to Australian patent law are particularly noteworthy:

• the expansion of the available relief for patent infringement to include the possibility of an award of additional (or exemplary) damages;
• an expanded and clarified prior use defence;
• a wider springboarding defence in relation to pharmaceutical patents; and
• a new ground for the grant of a compulsory licence.

Introduction of exemplary damages for patent infringement

The Bill proposes to amend the Patents Act 1990 by inserting a new section 122(1A) which would empower a court to grant an award of additional damages for patent infringement if it considers it appropriate having regard to all relevant matters. This would be additional to the usual remedy of compensatory damages or an account of profits.

The Bill lists the following factors as being relevant to the consideration by a court as to whether to award additional damages in a particular case:

• the flagrancy of the infringement;
• the need to deter similar infringements;
• the conduct of the infringer after the infringements occurred;
• the conduct of the infringer after being put on notice by the patentee that the conduct was alleged to be an infringement of the patentee's rights; and
• any benefit shown to have accrued to the infringer.

The new remedy would be available for infringements occurring after the law commenced.

It is expected that the availability of additional damages for patent infringement will represent a major new weapon in a patentee's armoury and may well encourage further patent litigation in Australia.

Expanded prior use defence

Section 119 of the Act currently provides a limited defence to a person who was making a patented product or using a patented process, or had taken definite steps to do so, before the priority date of a relevant patent claim. There has been some uncertainty about the scope of this defence in the following respects:

• whether the defence only operates in relation to the making of a product or the use of a process (such that, for example, it would not protect the sale or importation of a patented product);
• whether the defence was available if the prior use occurred overseas and not in Australia; and
• whether the benefit of the defence may be assigned or licensed.

The Bill proposes that the existing provision be repealed and replaced with a new prior use defence which would resolve these uncertainties. First, the defence would be available in relation to any act of exploitation which would (but for the defence) infringe the patent. Second, the defence would only be available where the prior use had occurred in Australia. Third, the defence would be capable of assignment (although it would not, by inference, be capable of being licensed). As is presently the case, the new defence would not be available if the infringer had stopped or abandoned (other than temporarily) the relevant activities before the priority date of the relevant claim.

The expanded prior use defence would be available in relation to patents granted based on applications filed on or after the commencement date.

Broader springboarding defence in the case of pharmaceutical patents

The current Act makes provision for the term of certain pharmaceutical patents to be extended. This reflects the long development and regulatory lead time in the pharmaceutical industry. Section 78(2) of the Act currently provides that, during the extended term, the patentee's rights in relation to such inventions will not be infringed by the taking of steps to have therapeutic products included in the Australian Register of Therapeutic Goods ("ARTG") or to obtain similar regulatory approval overseas. This allows generic pharmaceuticals companies to produce test samples for regulatory approval during the extended term and thereby position themselves to release a product to market immediately after the patent expires. Without section 78(2), the production of such samples would be likely to infringe the patent in issue.

The Bill proposes the repeal of section 78(2) and introduction of a new section 119A into the Act which would provide a defence to infringement of a pharmaceutical patent at any time for a person who exploits the patented invention solely for the purposes of obtaining a listing on the ARTG of goods intended for therapeutic use (other than medical devices or therapeutic devices) or the obtaining of equivalent regulatory approval overseas. However, export from Australia of goods produced for the permitted regulatory purpose will amount to infringement of the relevant pharmaceutical patent unless the export occurs during the extended term of a pharmaceutical patent and the goods consist of or contain:

• a pharmaceutical substance per se that is in substance disclosed in the complete specification of the patent and in substance falls within the scope of the claim or claims of that specification; or
• a pharmaceutical substance when produced by a process that involves the use of recombinant DNA technology, that is in substance disclosed in the complete specification of the patent and in substance falls within the scope of the claim or claims of that specification.

The new defence would apply in relation to acts occurring after commencement of the new provision and in relation to patents in force at that time or subsequently.

Compulsory patent licensing reforms

The Bill also proposes significant reforms to Australia's compulsory patent licensing laws.

Section 133 of the Act currently provides that a person may apply to a court for an order requiring the patentee to grant the applicant a non-exclusive licence to work a patented invention. A court may make such an order if it is satisfied that that the reasonable requirements of the public with respect to the patented invention have not been met and that the patentee has not given a satisfactory explanation for its failure to exploit the invention. Prior to making such an application, the applicant must demonstrate that it has tried for a reasonable period of time, but without success, to obtain a licence on reasonable terms. The licence fee is to be agreed between the parties or, failing such agreement, will be set by the court at a just and reasonable amount having regard to the economic value of the licence.

The Bill proposes to repeal section 133(2) of the Act and replace it with a new provision which would authorise the Federal Court to grant a compulsory licence in two circumstances:

• The first ground for the grant of a compulsory licence would essentially reflect the existing "reasonable requirements of the public" test (section 133(2)(a)).
• The second ground available would be where the patentee has contravened one of the restrictive trade practices provisions of the Trade Practices Act 1974 (Cth) (the "TPA") in relation to the patent (section 133(2)(b)).

In effect, the Bill proposes an additional remedy for contraventions of competition law where a patent is involved. It would appear to be a very lengthy and difficult process to obtain a compulsory licence on this ground, and it therefore seems unlikely that this reform will have a significant practical effect.

The Bill also provides that if, two years after the compulsory licence was granted, the patentee is continuing to contravene the restrictive trade practices provisions of the TPA in connection with the patent, the court may make an order revoking the patent. This would be additional to the existing ground for revocation which applies in cases where, two years after the grant of a compulsory licence, the reasonable requirements of the public have still not been met and the patentee has not satisfactorily explained its failure to exploit the patent.

The new ground for a compulsory licence would be available in relation to conduct occurring after the commencement date in relation to a patent granted before, on or after that date.

The way forward

The Bill had its second reading speech on 30 March 2006. It is unclear when the Australian Parliament will vote on the Bill. It is noted that the annual federal budget will be delivered shortly, which often increases the legislative load significantly. Nonetheless, there is no reason to expect that the above reforms will not be enacted in substantially their current form at some stage later this year. Those changes will bring significant changes for patentees, prior users of patented inventions and the pharmaceuticals industry.