30 Aug 2012

Don't touch what you can't afford! Australia's compulsory licensing of patents regime under review

by James Neil, Richard Hoad

Any business which owns patents, particularly those covering the key areas of technology, should give serious consideration to making a submission to the Productivity Commission's inquiry into compulsory licensing of patents.

The Productivity Commission has been asked to consider whether the current regime for the compulsory licensing of patents in Australia is working "efficiently and effectively". The Commission's recently released Compulsory Licensing of Patents Issues Paper gives a number of hints as to where things might be heading.

What is the current regime?

In Australia, the patentee of a standard patent has the right to exploit the patented invention for 20 years. Anyone wishing to exploit the invention for commercial gain must first obtain a licence.

Under the Patents Act a party seeking a licence can force a patentee to provide access to its invention in certain limited circumstances. This compulsory licensing regime is "generally seen as a safeguard for exceptional cases where a patent system may fail to provide the best outcome for the community as a whole".

In particular, after three years have passed since the relevant patent was granted, a party can apply to the Federal Court for a compulsory licence order on either public interest or competition grounds. In either case, a successful applicant must pay reasonable compensation to the relevant patentee.

The "public interest" test

Under the public interest test, a successful applicant must demonstrate that:

  • it has tried for a reasonable period, but without success, to obtain a licence to work the patented invention on reasonable terms and conditions;
  • the "reasonable requirements of the public" with respect to the patented invention have not been satisfied; and
  • the patentee has given no satisfactory reason for failing to exploit the patent.

Factors which suggest that the "reasonable requirements of the public" are not being met include that:

  • demand in Australia for a patented product is not being met, because of the patentee's failure to manufacture sufficient quantities of the patented product or supply it or grant licences in respect of it on reasonable terms;
  • a trade or industry in Australia is unfairly prejudiced by the conditions attached by the patentee to the purchase, hire or use of the patented product; or
  • the patented invention is not being worked in Australia on a commercial scale, but is capable of being worked in Australia.

The "competition" test

Under the competition test, a successful applicant must demonstrate that the relevant patentee has contravened or is contravening Part IV of the Competition and Consumer Act 2010 (Cth) in connection with the patent.

Part IV of the Act prohibits anti-competitive practices such as exclusive dealing, misuse of market power and resale price maintenance. Section 51(3) however contains certain exemptions in relation to conditions in patent licences.

What is under review?

The current compulsory licensing regime, which has been in place in various guises since 1903, has very rarely been used. Only three applications for a compulsory licence in Australia have ever been made, all of which failed.

This has led some to claim that the current regime is not working. In particular, some commentators have suggested that the public interest test is too ambiguous, with others claiming generally that a public interest test (as opposed to a competition test) is likely to be inherently protectionist and inappropriate, possibly in contravention of Australia's obligations under the Australia-United States Free Trade Agreement.

The effectiveness of the current competition test has also been questioned, in light of the section 51(3) exemptions mentioned above.

As a result, the Productivity Commission has been asked to:

  • assess whether the current compulsory licensing provisions can be invoked efficiently and effectively;
  • advise on the frequency, and impact, of compulsory licences in comparable markets and the common features of such licences;
  • recommend any measures that may be required to efficiently and effectively exercise Australia’s compulsory licensing provisions;
  • recommend any alternative mechanisms deemed necessary to ensure that the balance between incentives to innovate and access to technology best reflects the objectives of reasonable access to health care, maximising economic growth and growing the Australian manufacturing industry; and
  • recommend measures to raise awareness of the compulsory licensing provisions.

The Commission's terms of reference identify several specific key areas of technology which it will consider as part of its inquiry: genes, food security, climate change mitigation, alternative energy technologies and standard essential patents[1]

These are each said to be areas "where the existence of patents have raised sensitive issues that could potentially be addressed through compulsory licensing. A common theme in these cases is a concern about access and/or price for a given technology".

Who are the major players?

Those likely to most vigorously agitate for reform are those with a vested interest in the key areas of technology. For example, the Cancer Council of Australia has expressed concern that the availability of patents relating to human genes and correlative processes "hinders access to affordable healthcare".

Similarly, it is suggested by some international agencies that the patent system in its present form is preventing developing countries from gaining access to patented climate change mitigation and biotech / food security technologies. Such parties are likely to push for the compulsory licensing regime to be reformed to enable greater access to patented technologies in these areas.

By the same token, patentees which have invested heavily in developing patented technologies are likely to strongly resist any further encroachment into their exclusive rights.

What could the changes entail?

Possible reforms mooted in the Issues Paper include:

  • clarifying the operation of existing provisions (by, for example, inserting a statement of objectives into the Patents Act 1990 (Cth) or improving statutory guidance on the criteria for invoking the compulsory licensing regime);
  • consolidating and harmonising the compulsory licensing regime with other non-voluntary patent access provisions such as Crown use and compulsory acquisition by the Commonwealth;
  • providing alternative dispute resolution mechanisms (given that, at present, applications for a compulsory licensing order can only be made to the Federal Court); and
  • seeking to raise awareness of the compulsory licensing regime (particularly among small business and in the healthcare sector).

Where to from here?

The Commission is seeking submissions from interested parties. Having considered those submissions, the Commission will publish a draft report in December 2012, following which it will issue its final report in March 2013.

The deadline for submissions is 28 September 2012. Any business which owns patents, particularly those covering the key areas of technology, should give serious consideration to making a submission to the inquiry.

We will keep you posted as the inquiry progresses.

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[1] A standard essential patent is a patent claiming an invention that needs to be worked in order to meet industry standards (eg. patents covering 3G wireless technology). Back to article

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.