15 July 2012

Australian Public Inquiry into the Compulsory Licensing of Patents

Independent InquiryThe Australian Government has asked its Productivity Commission to conduct a nine-month inquiry into the compulsory licensing provisions in the Patents Act 1990

The stated purpose of the inquiry is to ‘assess, advise and recommend on the impacts and mechanisms of compulsory licensing invoked by the Patent Act's public interest and anti-competitive safeguard.’

The Terms of Reference require the Commission to:
  1. assess whether the current Australian provisions can be invoked efficiently and effectively;
  2. recommend any measures to efficiently and effectively exercise these safeguard provisions, in a manner consistent with Australia's international obligations; and
  3. recommend any alternative mechanisms, to ensure that the balance between incentives to innovate and access to technology best reflects the objectives of reasonable access to health care solutions, maximising economic growth and growing the Australian manufacturing industry.
The inquiry will be relatively wide-ranging, taking into account an number of specific areas of sensitivity and public interest, including access to affordable healthcare, impact of gene patents, climate change mitigation, food security and alternative energy technologies, and technical standards essential patents.  It will also look at comparisons with compulsory licensing provisions in other jurisdictions, and consider how the provisions interact with crown use (i.e. provisions enabling government authorities to compulsorily acquire patent licenses) and the new research exemption to infringement introduced by the Intellectual Property Laws Amendment (Raising the Bar) Act 2012 (see Bar Raised, as IP Law Reforms Signed Into Law).

The Commission is inviting submissions from interested stakeholders, and will be conducting public hearings.


The Productivity Commission was established in April 1998 under the Productivity Commission Act 1998, formally combining three pre-existing bodies – the Industry Commission, Bureau of Industry Economics and Economic Planning Advisory Commission – which had been amalgamated on an administrative basis in 1996.

The Commission is the Australian Government's independent research and advisory body on a range of economic, social and environmental issues affecting the welfare of Australians.  Its role is to help governments make better policies in the long term interest of the Australian community, and particularly to focus is on ways of achieving a more productive economy, which is seen as the key to higher living standards.

The Productivity Commission has not previously been directed to conduct an enquiry expressly in relation to the patent system.  However, a number of previous reports of the Commission (or its predecessors) have touched on aspects of the system, e.g.
  1. Computer Hardware, Software and Related Service Industries - Industry Commission Inquiry Report (1995);
  2. The Pharmaceutical Industry - Industry Commission Inquiry Report (1996);
  3. International Pharmaceutical Price Differences - Productivity Commission Resarch Report (2001);
  4. Evaluation of the Pharmaceutical Industry Investment Program - Productivity Commission Research Report (2003); and
  5. Public Support for Science and Innovation - Productivity Commission Research Report (2007).


The compulsory licensing provisions are found in sections 133, 134, 135, 136, and 136A of the Patents Act 1990.

The main provision, in section 133, allows for the Federal Court to order a patentee to grant a compulsory license in limited circumstances.  The main requirement is that all three of the following conditions are true:
  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; and
  3. the patentee has given no satisfactory reason for failing to exploit the patent.
These conditions apply essentially when the patent holder is not making products (or providing services) in the marketplace using the patented invention, and another party wishes to do so.

Alternatively, a compulsory license can be granted in circumstances where the patentee is contravening the ‘restrictive trade practices’ provisions in Part IV of the Competition and Consumer Act 2010.  This theoretically allows the grant of a compulsory license in ‘antitrust’-type cases, although in practice it may be difficult to establish that a use of a patent goes beyond its intended monopoly effect so as to amount to actionable anticompetitive conduct.
Use of Compulsory Licensing Provisions
To date, we are unaware of any case in which the compulsory license provisions of the 1990 Act have been invoked.  There were similar provisions in sections 108-111 of the predecessor Patents Act 1952, which differed in that a party seeking a compulsory license was first required to petition the Commissioner of Patents, who would then either deny the request, or refer it to the courts.  These provisions were rarely invoked – we have identified only two instances in the reported cases.

Wissen Pty Ltd v Kenneth Mervyn Lown [1987] APO 11 was one case in which a petition was filed and denied.  The patent at issue related to a method and apparatus for preventing birds from roosting on a surface, such as a roof.  The patentee (Wissen) made and sold only a ‘cheap’ plastic version of the invention.  Lown was the original inventor, who had sold his rights to Wissen, and wanted a compulsory license granted to enable him to make a ‘prestige’ model, constructed from metal.  However, there was no evidence, beyond assertions by Lown, to establish a market demand for the prestige bird-deterrent (i.e. that the needs of the public were not met by the plastic product), and so the petition was denied.

Fastening Supplies Pty Ltd v Olin Mathieson Chemical Corporation [1969] HCA 61 was a case in which a petition was referred by the Commissioner to the High Court.  The patent in question related to an improved form of ‘rivet gun’: a fastener driving tool in the form of a captive-bolt gun, which was loaded with a metal fastener and with a cartridge that actuated a driving ram to propel the fastener into the materials to be fastened.  Ramset had a license to the patent from the patentee (Olin), but up until 1968, when the petition was filed, had not made or sold tools embodying the patented invention in Australia.  The court thus accepted (at [11]) that the reasonable needs of the public had not been met.

However, by the time the matter came to be considered by the court, Ramset had commenced manufacture in Australia of a tool according to the patent.  The court was satisfied that the delay had been due to difficulties in developing a design which could be manufactured economically in Australia, and that the production then commenced would be sufficient to satisfy the reasonable needs of the public.  As a result, the petition was denied.

In short, compulsory licensing provisions have hardly ever been invoked in Australia, and never successfully.  This leaves the Productivity Commission with a paucity of data upon which to base any conclusions.  No doubt submissions will suggest on the one hand that the existing mechanism is too costly and success too uncertain, and on the other that the mere existence of the compulsory licensing provisions has been sufficient to ensure that parties reach agreement on licensing terms in order to avoid the expense and distraction of court proceedings.  In reality, there is probably some truth in both of these explanations.


Two aspects of the current inquiry are of particular interest in light of topics regularly covered on Patentology.

Firstly, the scope of the inquiry is specifically required to include an assessment of:

…whether the current Australian [compulsory licensing] provisions can be invoked efficiently and effectively to deal with circumstances where reasonable requirements of the public are not being met or where the patentee engages in anti-competitive conduct. This includes, but is not limited to, consideration of concerns that gene patents may hinder access to affordable healthcare, including access to medical advice that relies on the identification and use of gene sequences related to human health and disease.

Secondly, the Terms of Reference explicitly require the Commission to have regard to:

…access to and transfer of technology, including … standard essential patents in telecommunication technologies, particularly where multiple patentees are involved.

Both of these areas – the validity, use and impact of ‘gene patents’, and the effect of enforcement of patent essential to standards such as those used in mobile communications – have been contentious topics during the past few years. 
We have had cause on a number of occasions to write about the campaigns by various interest groups and politicians to ban the patenting of genetic technologies in Australia (most recently in Gene Patent Opponents Take the Fight Back to Australian Parliament and ‘Gene Patents’: Lies, Damn Lies, and Statistics). 

It seems unlikely that the Productivity Commission will make any surprising findings in relation to ‘gene patents’.  No doubt it will receive submissions outside its terms of reference, arguing simply that genes should not be patentable in the first, and that compulsory licensing is not an adequate solution to the purported problem.  Within the terms, its findings are likely to be as inconclusive as those of various earlier inquiries, i.e. that there is no clear evidence that access to affordable healthcare has been hindered by gene patents in Australia, and that this issue is in any case better addressed through the operation of the public health system, where the government has control over which diagnostic and treatment methods are covered by subsidies, and at what price.  In this context, compulsory licensing provisions are a useful ‘safety net’, even if they are never invoked.
The issue of standards-essential patents has also been prominent in recent times, in particular their use by companies such as Samsung and Motorola in the ongoing global disputes over mobile communications technologies despite obligations to license of ‘fair, reasonable and non-discriminatory’ (FRAND) terms (see our series The Fraught Issue of FRAND, Part I, Part II and Part III).

In relation to standards-essential patents in the telecommunications industry, it seems fairly clear that – assuming a problem exists – the current compulsory licensing provisions are of no assistance.  The public has the choice of dozens of products implementing standardised technologies, notwithstanding that a small number of companies may become embroiled in disputes involving standards-essential patents.  Evidence that the reasonable needs of the public are not being met, that the patents are not being worked, or that there is a substantial lessening of competition in the marketplace as a result of the enforcement of standards-essential patents, would be very hard to come by.

In the case of patents pledged to be available on FRAND terms, there is no need to invoke compulsory licensing provisions.  The patentee is well-aware of its obligation to license, and the disputes are inevitably over what constitutes ‘fair and reasonable’ terms.  In such a dispute, the Federal Court can issue orders regarding licensing terms as a result of a conventional infringement action, without need to consider the conditions required for the grant of a compulsory license.  A key issue is whether (and in what circumstances) standards-essential patent holders should be able to obtain injunctions restraining competitors’ products.  This is not a compulsory licensing issue, it is a question of equity.

In any event, with investigations into FRAND licensing currently underway in Europe and the US, the International Telecommunications Union (ITU) holding a ‘Roundtable’ on patents and FRAND licensing in October, and matters before various courts around the world, a uniform global resolution to many of the issues associate with standards-essential patents is likely to render any findings by the Australian Productivity Commission largely irrelevant.


The practical reality is that the current Australian compulsory licensing provisions – which require a direct application to the Federal Court, and set fairly stringent requirements for success – probably cannot be invoked efficiently and effectively by most prospective applicants.

They are also probably not a panacea for issues relating to affordability and accessibility of health care (including ‘gene patent’ concerns).  With or without patents, affordable and accessible healthcare is provided through the public health system in Australia, and the government has other mechanisms by which it is able to influence costs to the taxpayer and the ultimate patient.

Nor are the compulsory licensing provisions, as they stand, a solution to problems with FRAND licensing of standards-essential patents.

Bearing all this in mind, it seems quite plausible that the Productivity Commission will recommend that the compulsory licensing provisions be simplified and extended to take into account a wider range of scenarios in which the intervention of the court might be appropriate.  Whether a government would act on such a recommendation is another matter altogether.


patent litigation said...

Compulsory licensing is a contemporary necessity, and I'm glad to see countries from Australian to China implementing this model. I, for one, am heartened not only by the Indian Patent Office's recent decision to grant a compulsory license, but also by the further news that India now has plans to distribute some life-saving drugs for free. That -- and not gouging suffering patients at every possible opportunity -- seems to me to be the epitome of corporate responsibility.

Patentology (Mark Summerfield) said...

Thanks for your comment.

The compulsory licensing provisions in the Australian law are not new, and I doubt they will be used to enable the production of cheaper generic drugs in this country. In the developing world, where affordability is a major factor in public health, I agree that compulsory licensing can be an important tool of public policy.

In Australia we have a relatively wealthy populace, and a strong taxpayer-funded public health system, which ensures that important patented drugs are affordable, due to government subsidies under the Pharmaceutical Benefits Scheme.

However, I do not see that corporate responsibility is a factor - if patent-holding corporations were willing to take responsibility without being compelled, there would be no need for compulsory licensing!

John Holland said...

How do the compulsory licensing provisions compare to other countries Mark? Are they used more than here in Australia?

Patentology (Mark Summerfield) said...

Hi John,

To my knowledge, wherever compulsory licensing provisions exist they are rarely, if ever, used.

There is one recent notable exception, which is a case in India. Local generic pharmaceutical manufacturer Natco Pharma Ltd sought and obtained a compulsory licence to make and sell a generic version of the drug NEXAVAR, patented by Bayer Corporation. The basis for the compulsory licence was essentially a 'public good' argument, that Bayer had failed to provide the drug in sufficient quantities, or at an affordable price, in view of the size and economic status of the Indian population.

This decision is currently on appeal. Whatever the final outcome, however, the (so far) successful arguments presented by Natco highlight the fact that compulsory licensing provisions are more easily justified in developing nations, where foreign patent holders may fail to meet the reasonable requirements of the public, and may also suppress the development of a local competitive industry. In the most developed nations, it is more reasonable to expect that market forces will address any problems that arise. The US, for example, has no compulsory licensing provisions (although it does have an equivalent of Australia's 'Crown use' provision, enabling the government to forcibly take a licence in exchange for a reasonable royalty).



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