Why it is Unlikely that the Australian Government Will Invoke Crown Use Provisions in COVID-19 Crisis

On 19 March 2020, Australia’s Shadow Minister for Employment, Industry, Science and Small Business, Brendan O’Connor, wrote to his counterpart, Industry Minister Karen Andrews, to ask if the government had ‘explored how Crown use of patents may be invoked, particularly for urgent manufacturing of supplies such as facial masks’.  While the country’s response to the ongoing coronavirus pandemic has been, for the most part, blessedly free of blatant political point-scoring, this action appears to have been a rare exception.  Fortunately – though not surprisingly, considering the esoteric nature of the topic – the media mostly ignored O’Connor’s primarily self-promoting announcement. 

I have written to the Minister for Industry to ask if the government has explored how Crown use of patents may be invoked, particularly for urgent manufacturing of supplies such as facial masks. #auspol pic.twitter.com/0vuqQaukhT

— Brendan O'Connor (@BOConnorMP) March 23, 2020

One exception to the media silence was InnovationAus, which was happy enough to bumble ineptly through an effort to explain what it was all about, stating that ‘[u]nder the Patents Act, the federal government can use intellectual property without the permission of the copyright owner and does not have to obtain permission or provide compensation during a national emergency.’  Setting aside the tediously common confusion between patents, copyrights, and other forms of IP, this statement is also wrong in asserting that a national emergency excuses the government from providing compensation.  One thing the article does get right, however, is to note that the Crown use provisions of the Australian Patents Act 1990 have ‘virtually never been used before’.  And I do not really expect that to change in the foreseeable future.

Somewhat ironically, in this context, the name ‘coronavirus’ derives from the appearance of such viruses, which have a characteristic ‘fringe’ of rounded or petal shaped projections – reminiscent of the solar corona, the name of which is itself derived from the Latin ‘corona’, meaning ‘wreath’ or ‘crown’.  But no matter how linguistically apposite it might be to invoke Crown use in the fight against the SAR-CoV-2 coronavirus, and the disease COVID-19 that it causes, this is unlikely to happen.  The reason for this is that, in practice, there are at least three circumstances that would need to combine before the government would have any basis to engage ‘emergency’ Crown use provisions:

1. there would have to be a patent or pending application, in Australia, covering a product required for the country’s response to the COVID-19 pandemic;
2. the owner of the patent/application would need to be unwilling to meet the requirement by supplying the product itself, and/or by voluntarily licensing other manufacturers or importers to do so; and
3. for the emergency provisions to apply, the requirement would also need to be so urgent that there was insufficient time for the government to engage in any discussions with the owner to secure the required supplies of the product.

The following discussion relates to the new Crown use provisions that only recently came into effect, on 27 February 2020.

Are There Relevant Patents/Applications?

On the first point, whether there are any relevant patents or applications would depend upon the product in question.  The Department of Industry recently sought information on Australian manufacturing capabilities in relation to medical personal protective equipment (PPE), including surgical gowns, gloves, goggles, hand sanitisers, clinical waste bags, waste bag closure devices (ties), blood and fluid spill kits, mask fit test kits, and thermometers.  Essential products might also include medical treatment equipment such as ventilators, as well as pharmaceutical products including antiviral drugs.  Of these, only the most advanced products and newer drugs are likely to be covered by any Australian patent rights, and these may not be the ones for which there is the most urgent and widespread need.

For argument’s sake, suppose there is a patent covering a product that is essential to Australia’s response to the COVID-19 pandemic, what happens then?

Is the Patent Owner Unwilling to Meet Requirements?

Crown use does not apply only in emergencies.  Under Section 163 of the Patents Act a government authority can exploit a patented invention after obtaining written approval from the Minister for Industry, Science and Technology, or the relevant State or Territory Attorney-General.  However, it can only obtain such approval if it ‘has tried for a reasonable period, but without success, to obtain from the [applicant or patentee] an authorisation to exploit the invention on reasonable terms’: paragraph 163(3)(a).  Furthermore, the government authority must give the applicant or patentee at least 14 days’ notice of the commencement of exploitation of the invention: paragraph 163(3)(e).

So, before Crown use provisions can be invoked, the government authority must attempt to negotiate access to the invention with the patent owner or applicant.  In these difficult times, it is hard to imagine any reputable company trying to hold-out against the weight of not only government pressure, but also public opinion.  What organisation would want to be seen to be profiteering or, worse still, impeding the provision of life-saving products to front-line responders, medical professionals, and patients?

But what if the patent owner is simply unable to meet demand?  Well, then it has the option of voluntarily licensing its patent rights to another manufacturer, either of its own, or the government’s, choice.  Any why would it not do so?  It would be helping to meet essential health requirements, and generating additional revenue from royalties.  It is a win-win situation, without the need for forced compliance.  Invoking Crown use, in these circumstances, is an option of last resort, only required when faced with an especially recalcitrant patent owner!

Is it an Emergency?

The difficulty with the general rules for invoking Crown use under section 163 is the delay inherent in initially attempting to negotiate terms, and finally, after obtaining Ministerial approval, in providing the applicant or patentee with advance notice.  In an emergency, the requirement may be so urgent that delay is unacceptable.  Section 163A thus provides for more rapid authorisation of Crown use in emergencies.

Specifically, if the relevant Minister (i.e. the Minister for Industry, Science and Technology, or the relevant State or Territory Attorney-General) considers that exploitation of an invention is required because of an emergency, there is no requirement that any prior attempt be made to negotiate access to the invention with the patent owner or applicant.  Written approval of the Minister is still required before exploitation of the invention can commence, however there is no requirement to provide the applicant or patentee with advance notice.  Instead, under subsection 163A(4), the Minister is required to notify the applicant or patentee ‘as soon as practicable’ after providing the approval.

While these emergency provisions could potentially be invoked to deal with a crisis such as the COVID-19 pandemic, I think it unlikely that they will be needed in the present circumstances.  Australian federal and state governments have been planning ahead and implementing policies and restrictions to ‘flatten the curve’ of infections for a number of weeks already.  Peak demand on the health system is currently expected to occur in two-to-three months.  As noted previously, the Department of Industry has already been gathering input on Australia’s ability to manufacture required medical PPE.  In the first instance, government authorities will presumably have been contacting existing suppliers of needed products to establish whether they will be able to meet anticipated requirements.  If not, there is still time to seek additional sources of supply, and to ensure that any patent licenses that may be required are obtained.

Compensation

It is not true that an Australian government authority can exploit a patented invention under the Crown use provisions – in an emergency or otherwise – without compensating the patentee.  Section 165 provides for ‘terms’ of exploitation – including remuneration – under either section 163 or section 163A to be established.

It is envisaged, under paragraph 165(1)(a), that terms will normally be agreed between the government authority and the patentee (or applicant, in the case of a pending application).  However, if no agreement can be reached, paragraph 165(1)(b) provides for a court (typically the Federal Court of Australia) to determine the terms.  In this case, under subsection 165(2) the ‘court must determine an amount of remuneration that is just and reasonable, having regard to the economic value of the exploitation of the invention and any other matter the court considers relevant.’  In other words, the patentee is entitled to a fair commercial return, not merely some token payment that the government authority might think it can get away with because of its sovereign power to invoke Crown use!

Conclusion – Invoking Crown Use is an Extreme Measure

Advocates of ‘strong’ patent rights are often suspicious of Crown use, compulsory licensing, and other government ‘march-in’ provisions that exist in various national patent laws.  A recent article on the IP Watchdog blog, for example, referred to patent rights being ‘trampled underfoot on the path towards ridding the globe of COVID-19’.  I do not share such views.  Patent rights exist only because governments create them through legislative action.  In this context, reasonable and balanced provisions to ensure that the government does not legislate away its own ability to effectively provide services to the community are, in my opinion, entirely appropriate.

Most of the time, however, sound commercial decision-making and common sense prevail.  There is, usually, little point in a patentee battling against a government authority that requires supplies of a patented product to meet a clear community need.  This is particularly true when the need relates to healthcare in a country like Australia, which has a universal public health system under which the government is already a major customer of most suppliers in the market.  It makes far more sense for a supplier to work with its customer (i.e. the government) to meet important public needs, and to reach an agreement on the mechanism (e.g. licensing), and compensation, so that more draconian measures, such as invoking Crown use provisions, do not become necessary.

Currently, I am not aware of any evidence that Australian patent rights are implicated in the country’s response to the COVID-19 pandemic.  But if there are relevant patents out there, it seems highly unlikely that their owners would seek to use their rights to restrict the government’s ability to safeguard the health of the Australian community.  Furthermore, with current policies and restrictions seemingly having the intended effect of slowing infection rates and ‘flattening the curve’, there is no sign of the kind of emergency that would precipitate pre-emptive action under section 163A.

In short, nobody should be getting excited about talk of Crown use.  The provisions have, historically, been rarely invoked, and the coronavirus is unlikely to change that.

Tags: Australia, COVID-19, Crown use, Public policy