This post is Part three of a three-part series summarising the changes proposed by the Intellectual Property Laws Amendment (Productivity Commission Response Part 2 and Other Measures) Bill 2019 (Bill) and how those changes may affect the education sector.

The Bill proposes to change various patent and IP arrangements by amending the Patents Act 1990 (Cth) (Patents Act), Designs Act 2003 (Cth) (Designs Act) and the Trade Marks Act 1995 (Cth) (Trade Marks Act) to:

  • begin the process of phasing out the innovation patent system and incorporate a new objects clause in the Patents Act;
  • provide further legislative guidance on the operation of the Crown use provisions; and
  • provide a new legislative test for when an order can be made by the Federal Court for a patentee to grant a licence to another party to exploit an invention.

Part one focused on explaining the changes to the patents regime proposed by the Bill. Part two explained the proposed changes to the Crown use provisions and this Part three explains the changes to the compulsory licensing system.

Changes proposed

Not to be confused with Crown use which we talked about in Part two of this series, a compulsory licence is an order made by the Federal Court for a patentee to grant a licence to another party to exploit an invention to which it holds a patent. This differs from Crown use as the use of the patent under a compulsory licence does not need to be for a public purpose, nor does it need to be related to use by the State, Territory or Federal Government.

The most notable changes proposed by the Bill include the proposed:

  • replacement of the current ‘reasonable requirements’ test with a new ‘public interest’ test; and
  • amendment of subsection 133(1) of the Patents Act to replacing the term ‘work’ by ‘exploit’, meaning that a person can seek an order to ‘exploit’ a patent through a compulsory licence and not only an order to ‘work’ a patent.

For completeness, other changes are also proposed by the Bill, including amendments to who can apply for a compulsory licence to exploit a ‘dependent patent’.

Reasonable Requirements vs Public Interest

The intention of a compulsory licence is to ensure that patents granted in Australia are being exploited within Australia. If a patent is not being exploited in Australia, the compulsory licence regime provides a way for an applicant to compel the grant of a licence that enables that exploitation to occur. Presently, a compulsory licence can only be granted if the ‘reasonable requirements’ of the public are not satisfied by the current patent holder. The Productivity Commission, in its 2013 report, noted there was a potential to confuse the ‘reasonable requirements’ of the public with the interests of the Australian industry. Accordingly, this Bill seeks to replace the previous ‘reasonable requirements’ test with a new ‘public interest’ test.

The intention of the ‘public interest’ test is to provide the Federal Court with more leeway as to what it can consider when determining whether it should grant the applicant a compulsory licence and ensure that orders sought are in the public interest and not just in the interests of the Australian industry. To this end, the Bill lists the following factors as relevant when considering what is in the public interest:

  • the benefits to the public from meeting the (unmet) demand for the original patented invention;
  • the commercial costs and benefits to the patentee and the applicant from providing authorisation to exploit the original invention; and
  • any other matters the court considers relevant, including matters relating to greater competition and any impact on innovation.

Further, the previous ‘reasonable requirements’ test only appeared in patent law, and this meant legal commentary on when a compulsory licence could be ordered was narrow. Ideally, the new public interest test provides avenues for applicants to utilise the case law and theory underpinning similarly worded public interest tests in other legislative regimes. In theory, this should introduce more efficiency and certainty as to how the Federal Court will determine an application for a compulsory licence.

Exploit Vs Work

Presently, under section 133(1) of the Patents Act, an applicant can seek a compulsory licence to ‘work’ a patent. An overlooked amendment within the Bill is replacing the term ‘work’ with the term ‘exploit’, meaning that an applicant can now seek a compulsory licence to ‘exploit’ the patent. Schedule 1 of the Patents Act defines both ‘exploit’ and ‘work’ in the context of patents.

Relevantly ‘work’ is defined as:

“work, in relation to a patented invention, means:

  • where the invention is a product—make or import the product; or
  • where the invention is a method or process—use the method or process or do any act mentioned in paragraph (a) in respect of a product resulting from such use.”

and ‘exploit’ is defined as:

exploit, in relation to an invention, includes:

  • where the invention is a product—make, hire, sell or otherwise dispose of the product, offer to make, sell, hire or otherwise dispose of it, use or import it, or keep it for the purpose of doing any of those things; or
  • where the invention is a method or process—use the method or process or do any act mentioned in paragraph (a) in respect of a product resulting from such use.”

On that basis, a compulsory licence to exploit a patent will provide a broader right than is afforded under the current provisions under which a compulsory licence is ordered to work a patent.

Concerns raised about the Bill

Does the test remain uncertain?

Questions have been raised as to whether permitting the court to consider ‘any other matters the court considers relevant’ will undermine the stated objective of limiting uncertainty. That is to say, by permitting the Federal Court free rein to consider any other matters that it considers relevant to determining what is in the public interest, the efficiencies gained by using the public interest test may be lost. That is because the Federal Court could now consider a multitude of different documents and submissions before determining whether the compulsory licence is in the public interest.

The Federal Government has responded by stating that the amendments provide clarity on when a compulsory licence should be ordered and that the new test allows for a greater focus on whether:

  • Australian demand for a product or service is not being met on reasonable terms;
  • access to the patented invention is essential for meeting the demand of Australians; and
  • it is in the broader public interest to grant access to the invention.

Is the Bill consistent with Australia’s international obligations?

Submissions regarding the Bill raised concerns that the Bill was inconsistent with the Australia–United States Free Trade Agreement (AUSFTA). Relevantly, article 17.9.7 of the AUSFTA requires Australia to prevent the use of a registered patent except when necessary to either:

  • address anti-competitive conduct; or
  • for public use in a national emergency, or other circumstances of extreme urgency.

The concern raised by commentators was that the new public interest test expanded the scope of when a compulsory licence could be ordered to a degree that was beyond what was agreed under the AUSFTA. The Federal Government disagreed with this view. The contrary argument is that article 17.9.7 related predominantly to Crown use, not compulsory licencing, and that, as a consequence, there is no inconsistency. In any case, if article 17.9.7 does apply to compulsory licensing, it seems likely that the Federal Court will use it as a tool to assist in discerning what is, or is not, in the public interest, noting the discretion given to the Federal Court under the amendment proposed by the Bill.

What to expect?

It is difficult to say what precisely these changes will do to the current compulsory licensing regime and when the courts will grant a compulsory licence. However, it is safe to say that we can expect more confidence in parties raising and seeking to apply the compulsory licensing regime. The transition from ‘work’ to ‘exploit’ will grant holders of a compulsory licence broader rights with respect to how the patent can be used. Additionally, the use of the public interest test will allow for the use of a greater amount of case law to interpret what is meant by the public interest.

Further, the public interest test presents a greater risk for patent holders, especially academic researchers, who may not exercise their patent adequately within Australia. In theory, these new compulsory licence provisions could allow a competitor to obtain a licence to your patent if it is not being used to its fullest extent within Australia, provided it is in the public interest for it to be granted. For example, if an invention has applications outside of what is currently being exploited within Australia, an argument could be made that the invention is not meeting ‘Australian demand’ and, therefore, that the issuance of a compulsory licence is in the public interest.

Finally, we expect to see greater weight being placed on documentation that exists outside the Patents Act when determining the application of the public interest test. For example, the Federal Court may use treaties such as the AUSFTA as a tool for interpretation as to what is or is not in the public interest. As a consequence, if you are a researcher or if patents are a significant part of your core business, it will be important to ensure that your patents are being exploited within Australia and that such exploitation meets whatever may be considered the public interest.