As we have reported previously, the Australian Government has asked its Productivity Commission to conduct a nine-month inquiry into the compulsory licensing provisions in the Patents Act 1990 (see Australian Public Inquiry into the Compulsory Licensing of Patents).As a first step in this inquiry, the Commission released an issues paper on 9 August 2012. The purpose of the issues paper is to clarify the scope of the inquiry, and to assist interested parties in preparing submissions to the Commission. The paper covers a range of issues on which the Commission is seeking information and feedback.
The deadline for submissions is Friday, 28 September 2012. Details of how to make a submission are provided in the issues paper, and on the Commission’s web site.
COMPULSORY LICENSING
As the issues paper points out, most countries have adopted mechanisms – including compulsory licensing – to enable, in limited circumstances, access to patented inventions without the permission of the patent holder. The mechanisms are generally seen as a safeguard for exceptional cases in which the patent system may fail to provide the best outcome for the community as a whole. Examples include the failure of a patent holder to exploit the patented invention so that it is made sufficiently available to the public, the need to satisfy important public health or security objectives, and cases in which a patent is used in an anticompetitive manner.While patent holders are unable to block non-voluntary access to their invention, they are generally entitled to reasonable compensation.
PATENT LICENSING IN AUSTRALIA
Very little information is available publicly about the licensing of patents in Australia. License agreements are rarely recorded on the public register, and there terms (and even their existence) are generally confidential between the licensor and licensee.The Commission is therefore keen to hear participants’ views on the extent and nature of patent licensing in Australia.
EXISTING PROVISIONS
In Australia, compulsory licensing provisions in the Patents Act allow a person to apply to the Federal Court for an order requiring a patentee to grant the applicant a non-exclusive licence to ‘work’ a patented invention. The granting of a compulsory licence by the court is subject to satisfying either a public interest test, or a competition test.Compensation must be provided to the patentee when an application for a compulsory licence order is successful. This is an amount negotiated by the patentee and applicant or an amount determined by the Federal Court as just and reasonable, having regard to the economic value of the licence and the desirability of discouraging anticompetitive behaviour.
The Patents Act also includes ‘Crown use’ provisions, which provide specifically for government authorities to obtain licenses to access patented products and services. The Crown use provisions differ from the compulsory licensing provisions in that they do not require an application for an order by the Federal Court prior to using a patented invention. Where governments are responsible for service provision, such as in healthcare, the Crown use provisions may therefore enable less costly and more timely access to patented technologies than a compulsory license.
Additionally, the Patents Act provides for the Governor-General to direct that a patent, or an invention that is the subject of a patent application, be acquired by the Commonwealth with all rights in respect of the patent or invention transferred to the Commonwealth. In this case, the Commonwealth must pay compensation to the patent holder on agreed terms or, in the absence of agreement, on terms determined by a court.
None of these provisions have been used to any significant degree. For example, as we pointed out in our earlier article, there have only ever been two decisions on applications for compulsory licenses. Both of these were under the previous Patents Act 1952, and both were unsuccessful.
As noted in the issues paper, the fact that compulsory licensing provisions are rarely invoked could be interpreted as evidence that:
- the provisions are not effective;
- the provisions operate so effectively as a deterrent that it is rarely necessary to apply for a compulsory licence; or
- the behaviour that they seek to address – a party denying access to their patent on reasonable terms and conditions or behaving anti-competitively in connection with the patent – rarely arises, or at least not to the degree that intervention is warranted.
EFFICIENCY AND EFFECTIVENESS OF COMPULSORY LICENSING
The Productivity Commission is also seeking input on the ‘efficiency’ and ‘effectiveness’ of the existing compulsory licensing provisions.As explained in the issues paper (page 15):
A patents system can be an important determinant of economic efficiency, given its influence on the incentive for innovation and use of inventions. This includes compulsory licences, which if issued too liberally could discourage innovation or, if too restrictively, may reduce the benefits that the community as a whole could achieve from new inventions. … A further consideration will be the efficiency of the process for obtaining a compulsory licence itself, which includes both the financial cost and timeliness.
The Commission uses the term ‘effectiveness’ to mean how successful a policy is in meeting its objectives. The objectives of Australia’s compulsory licensing provisions are not explicitly stated in the Patents Act, however the terms of reference for the inquiry indicate that they are intended as a safeguard to be invoked when the exercise of exclusive rights under a patent is not meeting the reasonable requirements of the public or constitutes anticompetitive conduct.
INTERNATIONAL COMPARISONS
The terms of reference for the inquiry require the Commission to compare Australia’s compulsory licensing provisions with those of other comparable markets.Noting that various countries have a variety of non-voluntary patent licensing and acquisition mechanisms, not all of which are directly comparable with Australia’s compulsory licensing provisions, the Commission is seeking submissions on all forms of non-voluntary licensing of patented inventions, rather than just those embodied in patents legislation.
SPECIFIC CONCERNS
The terms of reference expressly direct the Commission to consider certain specific concerns:- gene patents and access to healthcare;
- climate change mitigation and alternative energy;
- food security; and
- standard essential patents.
A ‘standard essential patent’ (SEP) is a patent on an invention that is required to practise an industry standard, such as digital video coding and transmission, DVD or Blu-ray disc technology, or the 3G cellular wireless technology in telecommunications. Access to such patents can be crucial for entire industries.
When a standards-setting organisation approves a technology, it will generally secure a commitment from SEP owners to license its intellectual property to competitors under fair, reasonable and non-discriminatory (FRAND) terms. Back in February we published a series of three articles, starting with The Fraught Issue of FRAND I: A FRAND Primer, outlining some of the current issues involving FRAND licensing and SEPs.
The Commission is seeking input on the extent to which it is possible to compel licensing on the grounds that an invention involves a standard essential patent, and what role compulsory licensing could play in resolving disputes over FRAND terms.
IMPROVING COMPULSORY LICENSING
The Productivity Commission is also seeking input and suggestions on any measures that might be employed to improve the compulsory licensing regime. It has put forward a few examples of such measures, which could include:- clarifying the operation of compulsory licensing;
- consolidating and harmonising non-voluntary access provisions (i.e. compulsory licensing, Crown use and government acquisition);
- the provision or encouragement of alternative dispute resolution mechanisms; and
- implementation of awareness-raising measures.
ALTERNATIVE MECHANISMS
The Commission will consider whether it is more efficient and effective to use alternatives to compulsory licensing, including the existing Crown use and acquisition provisions, as well as any other options which may be available.The only additional option suggested in the issues paper is non-voluntary licensing by a collecting society, analogous to the manner in which statutory copyright licenses are currently managed. However, any other suggestions are invited.
CONCLUSION
Considering its focus on ‘ways of achieving a more productive economy’, we think it very likely that the Productivity Commission will ultimately recommend that non-voluntary access provisions – including, but not limited to, compulsory licensing – should be simplified and extended to take into account a wider range of scenarios in which intervention might be appropriate.The Commission is also very likely to observe that requiring applications for compulsory licenses to be made via the Federal Court imposes significant expense and complexity, and that cheaper and easier access to license dispute resolution should be available.
Anybody with an interest in the scope of such recommendations, or any of the issues outlined above, would be well-advised to provide relevant submissions to the inquiry by the due date of 28 September 2012.
Submissions may be made, in accordance with the Commission’s guidelines, via the following mechanisms:
Post:
Compulsory Licensing of Patents
Productivity Commission
LB2 Collins Street East
Melbourne Vic 8003
Fax: Delwyn Lanning, 03 9653 2199
Email: patents@pc.gov.au
2 comments:
"A ‘standard essential patent’ (SEP) is a patent on an invention that is required to practise an industry standard.."
does a SEP include any patent that incorporates elements of an industry standard, or only inventions that practices an industry standard AND has a great economic potential?
An SEP is any patent which has claims which would necessarily be infringed by implementing a manadatory element of an industry standard. In some ways it makes no sense to talk about 'economic value' in the case of SEPs, because the value of the patent will often derive largely, or entirely, from the fact that the patented technology is part of a standard.
To give a concrete example, Philips owns a number of patents which cover essential elements of the way in which DVD technology works. One in particular relates to the way in which information bits are actually encoded at the lowest level for recording on the disc. This encoding ensures that long runs of consecutive 'zeros' or 'ones' do not occur, which would make it difficult for the servos in a DVD drive/player to keep track of where individual bits start and end, in order to maintain the correct rotational speed of the disc.
Generically, this type of encoding is known as a 'run length limiting' (RLL) code. A different coding technique was used to achieve the same thing on CDs, and yet another different technique is used for the same purpose on Blu-ray discs. Indeed, RLL codes are used on many physical strorage media, and most communications channels, so there is nothing special about the concept, and there are many different ways known in which to do it.
In some respects, the DVD RLL code is an improvement on the CD code, and the Blu-ray code is an improvement on the DVD code. Novelty and non-obviousness are not a big issue in such cases, because new RLL codes can rarely be derived in any obvious fashion from prior codes. So it is not surprising that Philips was able to patent its improved code for DVD, or to persuade the other participants in the DVD standardisation process that it had developed the best available RLL code at the time.
However, in the absence of the industry standard, the patent has virtually no economic value. Anybody not wishing to license the Philips RLL code for use in their own proprietary applications could simply use one of the prior art codes, or develop their own new and unique code. It is very easy to work around such claims.
But with the standard, anybody who wishes to record or manufacture DVDs, or manufacture and sell players and drives capable of reading or writing DVDs must use the Philips RLL method, otherwise their products are not compatible with any other discs or drives. Philips' RLL patent is an SEP for the DVD system, and it is entitled to a royalty for every single disc, player and drive manufactured and sold in any country where the patent is in-force.
Thus, in practice the patent is extremely economically valuable (to Philips).
On the other hand, value to industry and to consumers lies in the nature and degree of implementation of the standard, not on any particular technical solution developed and adopted for inclusion in the standard, which may be covered by a patent. Generally speaking, when incompatible competing industry standards are developed, one will prevail (though not necessarily through technical superiority). Examples are VHS over Betamax and Blu-ray over HD-DVD. The big winners in such cases are the holders over SEPs over the successful standard.
Mark
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