Review of Compulsory Licensing in Australia

Date: 2013-06-27
Author: Daneta Crump

A Productivity Commission Inquiry into Compulsory Licensing of Patents has released a Report recommending that the overlap that exists with the Competition and Consumer Act be removed from the Patents Act and that the “reasonable requirement of public” test be replaced with a new “public interest” test.

The Productivity Commission Inquiry Report into Compulsory Licensing of Patents was released on 27 May 2013. The purpose of the inquiry was to assess the impacts and mechanisms of the Patent Act’s compulsory licensing safeguard. The Productivity Commission also considered the Crown use provisions, which have been adopted in the Intellectual Property Laws Amendment Bill 2013 that was introduced into Parliament on 30 May 2013. Refer to our related article - Proposed changes to Crown use in Australia.

Current provisions

Under the Patents Act 1990 patent owners can be compelled to license their patent in a limited range of circumstances under Section 133. The Federal Court may make an order if satisfied that:

  1. all the following conditions exist:
    1. the applicant has tried for a reasonable period, but without success, to obtain from the patentee an authorisation to work the invention on reasonable terms and conditions; 
    2. the reasonable requirements of the public with respect to the patented invention have not been satisfied; 
    3. the patentee has given no satisfactory reason for failing to exploit the patent; or 
  2. the patentee has contravened, or is contravening, Part IV of the Competition and Consumer Act 2010 or an application law (as defined in section 150A of that Act) in connection with the patent. 

Under Section 135, the reasonable requirements of the public are to be taken not to have been satisfied if:

  • an existing trade or industry in Australia, or the establishment of a new trade or industry in Australia, is unfairly prejudiced, or the demand in Australia for the patented product, or for a product resulting from the patented process, is not reasonably met, because of the patentee’s failure:
    • to manufacture the patented product to an adequate extent, and supply it on reasonable terms; or
    • to manufacture, to an adequate extent, a part of the patented product that is necessary for the efficient working of the product, and supply the part on reasonable terms; or
    • to carry on the patented process to a reasonable extent; or
    • to grant licences on reasonable terms; or
  • 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, the use or working of the patented process; or
  • if the patented invention is not being worked in Australia on a commercial scale, but is capable of being worked in Australia.

No compulsory licenses have ever been granted in Australia; this may be due to it being a rarely needed safeguard or because it involves a costly and time consuming process with the Federal Court. Whilst the Productivity Commission considered alternatives, they concluded that there were none that would be significantly less costly and time consuming without also reducing the quality of the outcomes and increasing the scope for appeals.

Key findings of the Productivity Commission and recommendations

Anticompetitive behaviour overlap

Finding: There is an unnecessary overlap between the Competition and Consumer Act 2010 (Cwlth) and the Patents Act 1990 (Cwlth) in relation to anticompetitive behaviour.

Recommendation: deletion of s133(2)(b) from the Patents Act – such that one must rely on the Competition and Consumer Act for a compulsory licence order based on restrictive trade practices of a patent holder.

Replacement of reasonable requirements test

Finding: The current language in Section 135 of the Patents Act regarding “reasonable requirements of the public” does not necessarily focus on the interests of the community as a whole.

Recommendations: replace “reasonable requirement of public” test with a new public interest test, which should specify that a compulsory licence 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 Productivity Commission also recommended that 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.”

What’s next?

The Intellectual Property Laws Amendment Bill 2013 did not incorporate these proposed amendments, however they may be considered in future law amendments.