Compulsory Licensing Inquiry Draft Report—Evolution, Not Revolution

The Australian Government’s Productivity Commission has released its draft report on the public inquiry into the Compulsory Licensing of Patents.

The inquiry was initiated in July this year (see Australian Public Inquiry into the Compulsory Licensing of Patents), and an issues paper was released in August, seeking public input by 28 September 2012 (see Compulsory Licensing Inquiry – Issues Paper Released).

The Commission is now inviting written comment on the draft report, prior to its finalisation and delivery to the government.  The deadline for public submissions is Friday, 8 February 2013.

We must confess that we are a little surprised – though not unpleasantly so – by the draft findings and recommendations in the report.  We had foreshadowed the possibility that the Commission’s remit of identifying ‘ways of achieving a more productive economy’ might lead to some significant proposals for change.  In fact, the draft report proposes only some relatively modest evolution and fine-tuning of the existing non-voluntary access provisions (i.e. compulsory licensing and Crown use).

COMPULSORY LICENCES

Our prediction that the Commission might recommend the simplification and extension of non-voluntary access provisions to take into account a wider range of scenarios in which intervention might be appropriate is looking to be only partly accurate.  The draft recommendations indeed propose a more flexible approach to the grant of a compulsory licence, replacing the current ‘reasonable requirements of the public’ test with a new ‘public interest’ test.

The Commission is concerned, in particular, that the current provisions conflate the ‘reasonable requirements of the public’ with the interests of individual trades or industries.  For example, section 135(1)(a) suggests that the reasonable requirements of the public are taken to be satisfied if ‘an existing trade or industry in Australia, or the establishment of a new trade or industry in Australia, is unfairly prejudiced’ by non-access to a patented invention.

As the Commission sees it, the purpose of a test for whether or not a compulsory licence is appropriate ‘should not be to protect the interest of a particular trade or industry, if this comes at a net cost to the broader community.’  Rather, ‘to the extent that protecting the interests of a particular Australian industry is desirable for economic efficiency, it is more appropriate to consider this as part of a broader public interest test’.

CROWN USE

While a public interest test would potentially expand the circumstances in which a compulsory licence might be ordered, there appears to be little appetite for change in the proposals relating to Crown use.  Indeed, implementation of the draft recommendations would, if anything, make the Crown use provisions slightly more difficult to invoke.

In particular, the draft report proposes a clearer definition of the circumstances in which the Crown use provisions may be invoked, along with new mechanisms to ensure greater transparency in the process, including a requirement for Ministerial approval, and enhanced notification to the patentee.

ROLE OF THE COURTS

Contrary to our expectations, the draft report does not propose any alternative, lower-cost, procedures for applying for a compulsory licence, concluding that there are no viable alternatives to application through the Federal Court of Australia.

We believe that this is the correct conclusion.  While Federal Court proceedings may not be cheap, one of the great strengths of the Australian system is that we have a single court which has exclusive jurisdiction over a majority of substantive IP disputes.  A number of judges of the Federal Court are therefore specialists in these highly technical areas of the law, which results in outcomes of greater quality and consistency.

OTHER ISSUES

Other draft findings and recommendations include:

1. that the Government will add a general ‘objects clause’ to the Patents Act 1990, to assist in clarifying the context for compulsory licensing and the considerations that should guide a court;
2. that the provision for grant of a compulsory licence where there is a violation of competition law, in section 133(2)(b), of the Patents Act should be removed to avoid duplication of, or dependency on, provisions in the Competition and Consumer Act 2010 (CCA), while that Act should be amended to explicitly recognise compulsory licence orders as an available remedy;
3. that section 51(3) of the CCA, which exempts certain IP licensing terms from a number of the usual competition tests, be repealed, at least insofar as it relates to patents;
4. that section 136 of the Patents Act 1990, which requires that the court not make an order in relation to a compulsory licence that is inconsistent with Australia’s treaty obligations, should be repealed, and treaty obligations should instead be explicitly incorporated into the relevant legislation;
5. that while no clear case exists for the inclusion of alternative non-voluntary access mechanisms, the Commission is interested in receiving further submissions on the likely costs and benefits of introducing a ‘licence-of-right’ system (i.e. a legally enforceable mechanism by which a patent holder can voluntarily elect to provide access to a patented invention to anyone who is willing to accept specified conditions, possibly in exchange for a benefit such as reduced patent maintenance fees); and
6. that IP Australia should develop a ‘plain English’ guide to the compulsory licensing provisions of the Act, to raise awareness of their availability and use.

COMMENT

Overall, the draft findings and recommendations are an evolution – rather than a revolution – which reflect the changing economic role of IP rights.  While a patent was once viewed primarily as a form of monopoly right, used defensively to protect a product or market from competition, the contemporary approach to IP management, enforcement and monetisation is far more fluid. 

In a world of open innovation, collaborative research, patent aggregation entities (a.k.a. non-practising entities, or the pejorative ‘trolls’), standards-essential patents (SEPs), patent pools, and an increasing interest in out-licensing, in-licensing and cross-licensing of IP, the notion of a patent primarily as a right to exclude is increasingly outdated.

The right of a patent-holder to an injunction upon establishing infringement has never been less certain.  It is a particularly vexed issue in the case of SEPs, where an injunction on the basis of a single patent might result in the exclusion of a participant from access to an entire market.  The right of NPEs to obtain injunctions is also questionable, since they have no competing product or service to protect.  Even in cases where parties to litigation genuinely compete, courts are increasingly inclined to apply broad equitable principles to assess whether the grant of an injunction is appropriate (e.g. Judge Koh’s recent decision denying Apple a permanent injunction against Samsung, which has so incensed IP Watchdog’s Gene Quinn).

Voluntary licensing of patents – even to nominal competitors – has therefore never been more prevalent than it is today.

In this context, the Productivity Commission makes some interesting observations in the draft report:

1. while survey data from Europe, Japan, and the United States suggest that, among organisations that own patents, around half of patents are used solely by their owner, roughly 40 per cent are unused, and only around 10 per cent are licensed to others, survey evidence and comments from inquiry participants suggest that this is not due to a lack of interest in licensing, and that patent owners do not license out as much as they would like;
2. that where ‘patent thickets’ occur, the private sector has mostly been able to address access issues through use of patent pools and clearinghouses;
3. input from inquiry participants suggests that the infrequent use of the compulsory licensing provisions is because they are a last resort mechanism, with most issues being resolved through mechanisms such as voluntary negotiation;
4. the Law Council of Australia, in particular, argued that a voluntary outcome was superior for a licensee, because the agreement could incorporate other know-how of the patentee and thus be better adapted to the licensee’s needs than a narrow compulsory licence ‘to work the patented invention’;
5. while a voluntary licence will not always be achievable, for the most part there are legitimate commercial reasons for the failure to achieve a negotiated agreement, and in most cases there is therefore no policy reason for allowing non-voluntary access to a patent.

In other words, the Productivity Commission effectively accepts that patents – viewed as being more akin to ‘property rights’ than ‘monopoly rights’ – create a market for innovation, and that most of the time market forces produce efficient outcomes that make intervention using non-voluntary mechanisms necessary only as a final resort. 

We recently canvassed this very same notion in our article Should Compulsory Licensing Provisions be Abolished?  Apparently, we are not yet quite ready for such radical reform.  However, the Productivity Commission seems happy enough to see compulsory licences primarily as a ‘safety net’, necessary only when all else has failed.

Tags: Australia, Compulsory license, Economics, Innovation policy, Law reform