The Final Report recommends that the criteria for obtaining a compulsory licence of a patent be strengthened and streamlined.

The Productivity Commission has now released its Final Report on whether the current regime for the compulsory licensing of patents in Australia is working "efficiently and effectively".

The Final Report is largely consistent with the Draft Report it released in January, but it contains some important differences when it comes to the detail of the recommendations.

The Draft Report recommended that the criteria for obtaining a compulsory licence be strengthened and streamlined. The Final Report generally reflects those same recommendations, but with some textural and practical variations.

Current regime for the compulsory licensing of patents

Under the current regime, in order to successfully obtain a compulsory patent licence, an applicant must persuade the Federal Court that one of following two tests is satisfied:

In either case, a successful applicant must pay reasonable compensation to the relevant patentee.

The public interest test

The Productivity Commission considers that the way in which the current public interest test is defined "conflates the reasonable requirements of the public with the interests of Australian industry" which in turn "could potentially lead to a compulsory licence being issued when it is not in the interests of the community as a whole".

In its Final Report, the Commission recommended changing the existing public interest test. Under the proposed new test, an applicant for a compulsory licence would need to establish the following:

  1. 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;
  2. the applicant has tried for a reasonable period, but without success, to obtain access from the patentee on reasonable terms and conditions;
  3. 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; and
    • other impacts on community wellbeing, including those resulting from greater competition and from the overall effect on innovation.

The Commission recommended that, where the parties cannot agree on the terms of the licence, the Federal Court set those terms, consistent with the public interest, having regard to:

  • the right of the patentee to obtain a return on investment commensurate with the regulatory and commercial risks involved; and
  • the right of the public to the efficient exploitation of the invention.

The competition test

The Commission also recommended that the second ground on which a compulsory licence may be obtained (the competition test) be removed from the Patents Act and that, instead, the Competition and Consumer Act provide that a compulsory licence is a remedy that an applicant can seek in an anti-competitive conduct action under the Competition and Consumer Act. This would essentially be a cosmetic change.

Section 51(3) of the Competition and Consumer Act

In its Draft Report, the Commission also made a number of observations and recommendations about section 51(3) of the Competition and Consumer Act, which exempts certain conduct relating to intellectual property from aspects of Part IV of the Act. In its Draft Report, the Commission concluded that, at least in so far as it applies to patents, the exemption should be removed.

A number of interested parties and neutral observers (including one of the authors of this article, Richard Hoad) filed submissions outlining various reasons for retaining the exemption in the Competition and Consumer Act, including the fact that licensors of intellectual property in Australia frequently take comfort from it when considering their licensing arrangements.

In its Final Report, the Commission stated that it “sees no reason why the exemption should continue to apply to patents” but concluded that any changes to section 51(3) “will need to be based on a consideration of the implications for all types of intellectual property”. The practical effect of this concluding comment is that any reform is likely to await a further review into the effect of section 51(3) on the licensing of intellectual property generally.

Conclusion

The proposed changes to the public interest test for a compulsory patent licence, and the suggested removal of the exemption in section 51(3), would have a significant impact on the licensing of intellectual property in Australia. With an election called for September, however, it remains to be seen whether the Commission’s recommendations will be acted upon by the current or next Federal Government.