Compulsory licensing and crown use of patents: report released

On May 27th 2013 the Productivity Commission released a report on the compulsory licensing provisions of the Patents Act. Most countries, including Australia, have provisions under which patent owners can be forced to license their patents to others in a limited range of circumstances.

Compulsory licensing is becoming a sensitive issue internationally, particularly in relation to affordable healthcare. This review was endorsed by the Australian government following reviews on gene patents. 

Compulsory licensing provisions rarely used
In over 100 years only three applications for a compulsory licence have been made in Australia, and none of them successfully. Possible reasons for this are:

  • The process for granting a compulsory licence is costly and time consuming, and without certainty of success.
  • Compulsory licensing is thought to be a safeguard that is needed only in exceptional circumstances.
  • Compulsory licensing provisions is regarded by some as an effective deterrent against refusals to licence on reasonable terms.

The Productivity Commission's key findings were as follows:

  • There are no clear alternatives to the Federal Court for compulsory licence applications that would involve less time and cost without affecting the quality of outcomes and scope for appeals. 
  • The criteria for a compulsory licence should be reformed from the current "reasonable requirements of the public" test. 
  • The crown use provisions of the Patents Act provide a less costly and time-consuming alternative that can be invoked for the services of a government. However, only two cases of crown use have been contested in the Australian courts.
  • The crown use provisions should be reformed to make it clear that they can apply to healthcare services. 

The commission's key recommendations were as follows:

  • A public interest test should replace the existing "reasonable requirements of the public test". 
  • When a patent is used to engage in unlawful anti-competitive conduct, a compulsory licence should be available only under the Consumer and Competitive Act.
  • The crown use provisions should be amended to clarify that crown use can be invoked for provision of a service that the Australian, state and/or territory governments have primary responsibility for funding.
  • Approval of a government minister should be required to invoke crown use and subject to the same pricing principles as for compulsory licensing.

The crown use recommendations have now been followed in the Intellectual Property Laws Amendment Bill 2013, introduced into Parliament on 30th May 2013.

Will the proposed changes have much effect?
Applications for compulsory licences are still likely to be a rarity in Australia. Most companies will be reluctant to spend the time and considerable cost of an application to the Federal Court with uncertainty on interpretation of the new "public interest test", if their negotiations for a licence under fair and reasonable terms is unsuccessful.

There could be increased utilisation of the equally rarely used crown use provisions if the proposed changes are implemented.

Federal, state and territory governments may make more use of the crown use provisions, not only in the healthcare sector, but also for patents relating to food security, alternative energy and clean technologies.

This is an Insight article, written by a selected partner as part of IAM's co-published content. Read more on Insight

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