WHITHER PATENT USE WITHOUT AUTHORISATION IN ......Technological Change (1969). 3 It should be noted...

WHITHER PATENT USE WITHOUT AUTHORISATION IN AUSTRALIA?

Jane Nielsen* and Dianne Nicol**

I INTRODUCTION Patents provide inventors and their assignees and licensees with a fixed period of market exclusivity,1 during which they can exclude others from use of their inventions and charge monopoly prices on the sale of their products. In return, inventors are required to disclose to the public the nature of their inventions and the best methods of performing them. This public bargain provides the underlying justification for the patent system: patents are good for society because they provide the incentive to innovate and innovation benefits society.2 If inventors can recover the costs put into research and development and earn rewards through product pricing and licence fees, they will be encouraged both to take their inventions through to commercial production, and to engage in further innovation.3 Full disclosure further encourages innovation by allowing others to use the invention once the patent has expired.4

_____________________________________________________________________________________ * B Com LLB (Comb) (Hons), PhD, Lecturer, Faculty of Law, University of Tasmania. ** BSc (Hons), MSc, PhD, LLB (Hons), LLM, Associate Professor, Faculty of Law, University

of Tasmania. The authors thank Mr Lynden Griggs for his extensive and thoughtful comments on this paper. They are also grateful to two anonymous referees for their valuable suggestions for improving the paper.

1 In Australian law, the Patents Act 1990 (Cth) prescribes in s 67 that the term of a standard patent is 20 years. Section 68 prescribes a shorter duration of eight years for innovation patents. Sections 70–79A allow for extension of the term of standard patents for certain pharmaceutical substances for up to five years, subject to certain conditions and limitations.

2 Roberto Mazzoleni and Richard R Nelson, 'Economic Theories about the Benefits and Costs of Patents' (1998) 32 Journal of Economic Issues 1031. For earlier debate about this theory see Kenneth J Arrow, 'Economic Welfare and the Allocation of Resources for Invention' in Richard R Nelson (ed), The Rate and Direction of Inventive Activity: Economic and Social Factors (1962) 609; William D Nordhaus, Invention, Growth and Welfare: A Theoretical Treatment of Technological Change (1969).

3 It should be noted that while the terms 'invention' and 'innovation' are conceptually distinct, they are often used synonymously, even by leading commentators in the field. See, eg, Mark A Lemley and Dan L Burk, 'Policy Levers in Patent Law' (2003) 89 Virginia Law Review 1575, particularly at 1871, 1875 and n 58.

4 However, it is recognised that this is not necessarily the only function of the patent system. Clarisa Long, in particular, argues that this simple view of the patent system provides only part of the picture and that firms may obtain patents for a range of other reasons. She

332 Federal Law Review Volume 36 ____________________________________________________________________________________

Despite this apparent public benefit, privatisation of information in the form of patents and other intellectual property ('IP') rights also has inevitable costs, and one of the crucial roles of IP laws is to strike an appropriate balance between these benefits and costs. The need for this balancing exercise was well articulated in a comprehensive review of the relationship between IP and competition laws in Australia by the Intellectual Property and Competition Review Committee ('IPCRC'), where it was stated that:

Intellectual property laws must therefore involve some balance between the incentives to invest in creative effort and the incentives for disseminating material that is the subject of intellectual property protection. This balance turns on determining the appropriate scope of protection, in terms of the conditions under which protection is granted, the scope and effectiveness of the exclusive privileges provided by protection, and the duration of protection given. Balancing between providing incentives to invest in innovation on one hand, and for efficient diffusion of innovation on the other, is a central, and perhaps the crucial element in the design of intellectual property laws.5

This reflects the importance placed by society on establishing and maintaining a system of encouraging innovation in order to enhance social welfare and build a strong economy.6 One thing that is not clear is how innovation is best served: through strong intellectual property protection, or through efficient uptake of new technological developments in a competitive environment. Patent laws promote dynamic efficiency (often at the expense of static efficiency), by providing incentives for engaging in the process of innovation.7 Corollary costs may be price and quantity distortions that outweigh the benefits provided through inventive activity.8 Follow-on invention may also be adversely affected where access to patented inventions is restricted.9 Numerous studies have attempted to determine which industry structure is most conducive to innovation. While this paper does not consider these studies in detail,10 this debate does highlight the difficulty in setting the appropriate parameters for facilitating innovation.

_____________________________________________________________________________________ reasons that the information disclosure function of the patent system can be as important to patentees as to observers as it gives them the opportunity to 'credibly convey information about the invention to observers': Clarisa Long, 'Patent Signals' (2002) 69 University of Chicago Law Review 625, 636. See also Mazzoleni and Nelson, above n 2.

5 Intellectual Property and Competition Review Committee, Parliament of Australia, Review of Intellectual Property Legislation Under the Competition Principles Agreement: Final Report (2000) ('IPCRC Report') 6.

6 Federal Trade Commission, To Promote Innovation: The Proper Balance of Competition and Patent Law and Policy (2003) ch 2, 3–7.

7 Ibid; Michael A Carrier, 'Unravelling the Patent-Antitrust Paradox' (2002) 150 University of Pennsylvania Law Review 761, 770.

8 Louis Kaplow, 'The Patent-Antitrust Intersection: A Reappraisal' (1984) 97 Harvard Law Review 1813, 1821–3.

9 Suzanne Scotchmer, 'Standing on the Shoulders of Giants: Cumulative Research and the Patent Law' (1991) 5 Journal of Economic Perspectives 29, 31; John H Barton, 'Patents and Antitrust: A Rethinking in Light of Patent Breadth and Sequential Innovation' (1997) 65 Antitrust Law Journal 449.

10 See Jane Nielsen, 'Innovation in Medical Biotechnology: Mapping the Intersection of Intellectual Property and Competition Law' (2007) 35 Australian Business Law Review 407, 412–17.

2008 Patent Use Without Authorisation 333 ____________________________________________________________________________________

The complexity in setting these parameters is further exacerbated with the recognition that, while innovation has an important role in society, it is not the only relevant social value that needs to be considered, particularly in areas such as access to healthcare. The World Health Organisation's Commission on Intellectual Property Rights, Innovation and Public Health reminds us that 'innovation for "medicines and other products" must be situated within a wider picture of efforts across sectors to improve health and development' and that 'the contribution that innovation can make will be meaningful only if we can find ways to make it affordable and accessible to poor people'.11 While patents might provide a necessary incentive for innovation in healthcare, society as a whole is worse off if we do not fulfill our moral obligation to find ways to provide these life-saving treatments to the millions of people, including children, who suffer and die in developing countries because such treatments are not otherwise available and accessible to them.12

Taking all of these factors into account, it is most unlikely that the public interest will be adequately served by an absolute patent monopoly. Strict requirements for the grant of patents should be provided for in patent legislation, with the aim of ensuring that only the most deserving creative endeavours receive such protection.13 It is also necessary to impose post-grant limitations to ensure that dissemination is not inappropriately restricted by unfair use of the patent monopoly, once granted. One of the ways of achieving this end is to provide for state-sanctioned patent use without the authorisation of the patent holder, through such mechanisms as compulsory licensing and government use.14 The need to provide for such uses without the authorisation of the patent holder has been recognised for some time in Australian patent law. For example, compulsory licensing provisions were included in the Patents Act 1903 (Cth), the first Australian legislation providing for the grant of patents.15

Compulsory licensing provisions generally require the user to apply to an independent authority for permission to use the invention. A compulsory licence is a court or administrative order mandating a licence from the patent holder to work the invention. Because of the capacity for compulsory licensing to significantly impact on the incentive goal of the patent system, the grounds justifying the grant of such licences need to be strictly limited and their terms must be clearly defined. Government use (or Crown use, as it is referred to in Australia, and as it will be referred to hereafter) allows use without authorisation by the government for the purposes of the state, but gives the patent holder the right to appeal to an independent

_____________________________________________________________________________________ 11 Commission on Intellectual Property Rights, Innovation and Public Health, Public Health

Innovation and Intellectual Property Rights (2006) 8. 12 Ibid. See also William W Fisher and Talha Syed, 'Global Justice in Healthcare: Developing

Drugs for the Developing World' (2007) 40 UC Davis Law Review 581. 13 However, the extent to which existing provisions and current interpretations of existing

provisions by the courts achieve this aim is contentious and is a matter of ongoing concern for law reform agencies. For example, at the time of writing the Australian Advisory Council on Intellectual Property ('ACIP') is undertaking a review of patentable subject matter. See ACIP, Patentable Subject Matter Issues Paper (2008) <http://www.acip.gov.au/reviews.html> at 23 July 2008.

14 Australian Law Reform Commission, Genes and Ingenuity: Gene Patenting and Human Health, Report No 99, (2004) ('ALRC Report') chs 26, 27.

15 Patents Act 1903 (Cth) s 87.


authority to prevent such use.16 Crown use provisions can be justified on two grounds. First, as the government grants the patent monopoly, it should not be impeded in carrying out its functions.17 Second, since use of the patented invention by the government will be use for public purposes, the benefit of such use outweighs the cost in terms of the patent holder's possible loss of incentive to innovate. As with compulsory licences, Crown use must be confined to clearly delineated criteria in order to preserve the incentive to innovate.18

One of the difficulties with provisions of this nature is that they are usually cast in general terms and are intended to cover the entire field of unfair practices. It must surely be a challenging exercise to draft provisions in such a way that they cover both anti-competitive conduct and conduct that interferes with the timely and cost effective provision of medicines in situations of national emergency, for instance. It is probably not surprising that both compulsory licensing and Crown use are viewed with caution and rarely used.19 While it might be argued that the mere fact that compulsory licensing and Crown use exist encourages patent holders to engage in voluntary licensing,20 this does not justify the ongoing presence of unused and unusable legislative provisions.

The compulsory licensing and Crown use provisions in Australian patent law have been subjected to intense scrutiny by law reform agencies for several years, including the IPCRC, the Australian Law Reform Commission ('ALRC') and the Advisory Council on Intellectual Property ('ACIP').21 Particular attention has been focused on the extent to which existing compulsory licensing provisions are properly adapted to deal with anti-competitive conduct by patent holders. Based on the recommendations

_____________________________________________________________________________________ 16 The Australian provisions relating to Crown use are discussed below in Part VI. Other

countries that have similar provisions include the United Kingdom ('UK') and New Zealand. It should be noted that, in Canada, Crown use (or compulsory licensing, as it is referred to in the Canadian legislation) requires authorisation by the Commissioner of Patents. See ALRC, above n 14, 600.

17 On this point see generally ibid 594–5. 18 Other categories of provisions limiting the patent monopoly include experimental use and

prior use of the patented invention. Experimental use exemptions are expressly included in patent legislation in a number of jurisdictions. For example, in the UK this exclusion is included in s 60(5) of the Patents Act 1977 (UK). In other jurisdictions, including Australia, law reform agencies have recommended legislative reform in order to include them: see particularly ALRC, above n 14, ch 13. See also Advisory Council on Intellectual Property, Patents and Experimental Use (2005) ('ACIP Report on Experimental Use'). The prior use exemption allows users to continue to do what they did before the patent monopoly was granted. In Australia, the Intellectual Property Amendment Act 2006 (Cth) amended the prior use provision in s 119 of the Patents Act 1990 (Cth). Another exemption in this category applies specifically to pharmaceuticals. It allows generic manufacturers to commence the onerous process of obtaining regulatory approval to market generic versions of patented drugs before the patent expires. In Australia, for example, see s 119A of the Patents Act 1990 (Cth) as amended by the Intellectual Property Laws Amendment Act 2006 (Cth).

19 ALRC, above n 14, 594, 611. 20 See Friedrich-Karl Beier, 'Exclusive Rights, Statutory Licenses and Compulsory Licenses in

Patent and Utility Model Law' (1999) 30 International Review of Industrial Property and Copyright Law 251, 260.

21 IPCRC, above n 5; ALRC, above n 14; ACIP, Review of Crown Use Provisions for Patents and Designs (2005) ('ACIP Report on Crown Use').


of these law reform inquiries, the Commonwealth Parliament passed the Intellectual Property Laws Amendment Act 2006 (Cth) ('the IPLAA'), which was designed to clarify the compulsory licensing mechanisms within the Patents Act 1990 (Cth) ('the Patents Act'), particularly with regard to anti-competitive conduct. However, Parliament did not take the opportunity to overhaul the existing grounds for grant of compulsory licences, or to examine other deleterious consequences of patent use, including restrictions on access to medicines. We acknowledge Australia's multilateral and bilateral international obligations limited the types of provisions Parliament was able to introduce into Australia's patent legislation.22 Nevertheless we argue in this paper that a more holistic approach should have been taken to the reform process.

The aim of this paper is to analyse the provisions in the Patents Act dealing with compulsory licensing and Crown use and to assess whether they provide adequate mechanisms for ensuring that use of the patent monopoly is circumscribed to the extent necessary and appropriate to foster innovation and to ensure that other socially desirable goals are not unduly inhibited. We particularly focus on whether passage of the IPLAA has actually clarified and improved the law in this area. Part II of our paper provides the necessary background information for the subsequent analysis of the IPLAA reforms, focusing on the compulsory licensing and Crown use provisions in the Patents Act prior to the introduction of the IPLAA and on the limitations on Australia's capacity to legislate on patent use without authorisation imposed by our international and bilateral obligations. Part III goes on to discuss the nature of the reforms introduced by the IPLAA. The implications of these reforms are analysed and assessed in Parts IV and V, with a particular focus on the competition law perspective. Finally, Part VI considers the need to provide for humanitarian use for healthcare purposes and how this might be facilitated under the Patents Act.

II SETTING THE SCENE FOR THE IPLAA AMENDMENTS

A Legislative provisions in the Patents Act The compulsory licensing and Crown use provisions as they existed under the Patents Act prior to the IPLAA amendments are summarised below. The amendments will be considered in detail in Part III.

1 Compulsory licensing Prior to the enactment of the IPLAA, applications could be made to the Federal Court for non-exclusive23 compulsory licenses under s 133 of the Patents Act in two situations:

_____________________________________________________________________________________ 22 The most relevant multilateral agreement is the TRIPS Agreement: Agreement Establishing the

World Trade Organization, opened for signature 15 April 1994, 1867 UNTS 3, annex 1C (Agreement on Trade-Related Aspects of Intellectual Property Rights) (entered into force 1 January 1995); and the most relevant bilateral agreement is the AUSFTA: Australia – United States Free Trade Agreement, 18 May 2004, [2005] ATS 1 (entered into force 1 January 2005).

23 An exclusive licence permits the exploitation of an invention by a licensee to the exclusion of all others, whereas a non-exclusive licence allows exploitation in conjunction with a number of other licensees. A sole licence gives the licensee the right to exploit an invention along with the patent holder.


(a) if a patentee failed to exploit a patent where exploitation of the patent was necessary to satisfy the 'reasonable requirements of the public'24 but the patentee had provided no satisfactory reason for failing to exploit the patent.25 Before making the order, the Court had to be satisfied that an applicant had attempted to obtain a licence for a reasonable period on reasonable terms and conditions, without success;26 and

(b) where the patented invention in issue could not be worked without infringing another patent.27 In such circumstances the applicant could seek a compulsory licence to the patent that blocked exploitation of the first (dependent) patent.28 However, the applicant was required to show that the new invention involved an important technical advance of considerable economic importance on the other invention.29 It appears that this ground has never been available to the actual owner of a dependent patent who infringed another patent by working their invention. Instead, the owner of the dependent patent would have had to rely on the 'reasonable requirements of the public' ground.

Section 135 defined what was meant by 'reasonable requirements of the public'.30 Essentially, where a new or existing trade or industry in Australia was unfairly prejudiced, or the demand in Australia for a patented product was not reasonably met, this provided grounds for the grant of a compulsory licence. There was no judicial guidance on the circumstances in which a compulsory licence might have been issued or what the 'reasonable requirements of the public' might have been.31 All of these provisions survived the IPLAA, aside from some minor reordering of s 133.32

2 Crown use The Crown use provisions were not modified by the IPLAA. Hence, s 163(1) of the Patents Act permitted and continues to permit the exploitation of a patented invention by the Commonwealth or a State, or by a person authorised by the Commonwealth or _____________________________________________________________________________________ 24 Patents Act 1990 (Cth) s 133(2)(a). 25 Patents Act 1990 (Cth) s 133(2)(b). 26 Patents Act 1990 (Cth) s 133(3A). It should be noted that this provision was introduced in

1994 by the Patents (World Trade Organization Amendments) Act 1994 (Cth) s 11(b) to ensure compliance with the TRIPS Agreement. The Patents Act also provides for revocation of a patent where a compulsory licence has been granted for a failure to work a patent, provided the reasonable requirements of the public have not been met: at s 134.

27 Patents Act 1990 (Cth) s 133(3B). This provision was also inserted by the Patents (World Trade Organization Amendments) Act 1994 (Cth) s 11(b).

28 Patents Act 1990 (Cth) s 133(3B)(a). See also ALRC, above n 14, 625–8. 29 Patents Act 1990 (Cth) s 133(3B). For further details on when a compulsory licence may be

granted, and the conditions on which a grant is predicated, see ALRC, above n 14, 617–21; Dianne Nicol and Jane Nielsen, 'The Australian Medical Biotechnology Industry and Access to Intellectual Property: Issues for Patent Law Development' (2001) 23 Sydney Law Review 347, 370–71.

30 This provision also remains unchanged as a result of recent amendments to the Patents Act. 31 The only reported case in relation to the compulsory licensing provisions is Fastening

Supplies Pty Ltd v Olin Mathieson Chemical Co (1969) 119 CLR 572. 32 The old ss 133(2)(a), 2(b) and (3A) were all merged into the single paragraph s 133(2)(a)

through the IPLAA sch 8 cl 2. As will be discussed in detail below in Part III.B, a new s 133(2)(b) was added to provide for compulsory licensing for contravention of the Trade Practices Act 1974 (Cth).


a State, without liability for infringement of that patent, provided that the exploitation is 'for the services of the Commonwealth or the State'.33 Section 163(1) also provides some conditions governing use by the Crown. Relevantly, notification must be provided to the patent holder,34 and adequate remuneration must be agreed upon.35 However, the conditions on use are much less stringent than for compulsory licensing. In particular, authorisation is automatic — there is no requirement for the Crown to apply to the Federal Court for authorisation, and when a third party is involved, it is the Crown that provides the necessary authorisation.36 There is also no requirement for the Crown to make prior attempts to negotiate with the patent holder. Examples of the applicability of this provision include use of an invention by a State rail authority for construction of rail carriages37 and use by a local government authority of a meter for measuring water supply.38 However, the full scope of the Crown use provisions remains uncertain. In particular, the extent to which they could be utilised for humanitarian purposes needs to be more fully explored.39

B International obligations Legislatures have a certain amount of freedom in setting the boundaries on the patentability of inventions and permissible uses of patented inventions without the authorisation of the rights holder.40 However, from the late 1800s there has been an ongoing push to harmonise patent and other intellectual property IP laws internationally.41

1 The TRIPS Agreement and the AUSFTA The push to harmonise IP laws internationally reached its peak during the Uruguay Round of the General Agreement on Tariffs and Trade (the GATT).42 The Agreement on _____________________________________________________________________________________ 33 Defined as the Commonwealth or a State, an authority of the Commonwealth or a State, or

a person authorised in writing by the Commonwealth or a State: Patents Act 1990 (Cth) s 162.

34 Patents Act 1990 (Cth) s 164. 35 Patents Act 1990 (Cth) s 165. The requirement for remuneration was introduced by the

Patents (World Trade Organization Amendments) Act 1994 (Cth) s 15. 36 However, s 165A of the Patents Act does give the patent holder the opportunity to apply for

an order that such exploitation must cease. This provision was introduced by the Patents (World Trade Organization Amendments) Act 1994 (Cth) s 16.

37 General Steel Industries Inc v Commissioner of Railways (NSW) (1964) 112 CLR 125. 38 Stack v Brisbane City Council (1995) 32 IPR 69. 39 We canvass this issue fully in Part VI. 40 As an example, India has been able to develop a generic pharmaceutical industry because,

in the past, patent legislation expressly excluded pharmaceuticals from patenting in that country: see Jane Nielsen and Dianne Nicol, 'Pharmaceuticals and Patents: The Conundrum of Access and Incentive' (2002) 13 Australian Intellectual Property Journal 289, 293.

41 For example, the Paris Convention for the Protection of Industrial Property was first agreed to in 1883, although it has been revised since that time. The main aims of this Convention are to ensure the equal treatment of foreign and national applications for patents, and that the first applicant in one country has priority over other applicants for the same invention in different countries. Australia has ratified this and various other international IP instruments.

42 For background information on these historical developments, see, eg, the following series of articles: R Michael Gadbaw, 'Intellectual Property and International Trade: Merger or


Trade-Related Aspects of Intellectual Property Rights43 resulted from these negotiations. The TRIPS Agreement is an annexure to the Agreement Establishing the World Trade Organization.44 Membership of the WTO is conditional upon member states being signatories to TRIPS. As a consequence, member states' IP laws must comply with the minimum standards specified in TRIPS. The objectives of the TRIPS Agreement, as stated in art 7, are that the protection and enforcement of IP rights should contribute to the promotion of technological innovation and transfer and the dissemination of technology. Article 7 goes on to state that this objective should be achieved in a way that is to the mutual advantage of producers and users of technological knowledge, and in a manner conducive to social and economic welfare, and to a balance of rights and obligations.

Discussion of the appropriate mechanisms for achieving this objective is a key theme of this article. It is submitted that although art 7 of TRIPS expresses noble sentiments, and other provisions in TRIPS provide flexible means for achieving the right balance between owners and users, in reality it has been quite difficult for member states to take full advantage of these flexibilities. In part, inherent uncertainties in the language of TRIPS are to blame, but pressures from more powerful trading partners also play a role. The TRIPS Agreement only sets minimum standards for IP laws in member countries.45 It leaves members to determine their own means for complying with those standards and to decide whether or not to impose higher standards.46 It also provides an avenue for members to challenge the adequacy of national laws of other members through the WTO dispute settlement procedures.

Since TRIPS entered into force in 1995, the United States ('US'), which was the dominant player in the move to harmonise IP laws around the world, has shifted strategy, moving away from global harmonisation of minimum IP standards towards specific harmonisation of higher US-based standards at the bilateral and regional _____________________________________________________________________________________

Marriage of Convenience?' (1989) 22 Vanderbilt Journal of Transnational Law 223; Carlos Alberto Primo Braga, 'The Economics of Intellectual Property Rights and the GATT: A View from the South' (1989) 22 Vanderbilt Journal of Transnational Law 243; Robert W Kastenmeier and David Beier, 'International Trade and Intellectual Property: Promise, Risks, and Reality' (1989) 22 Vanderbilt Journal of Transnational Law 285; Frederick M Abbott, 'Protecting First World Assets in the Third World: Intellectual Property Negotiations in the GATT Multilateral Framework' (1989) 22 Vanderbilt Journal of Transnational Law 689; Jerome H Reichman, 'Intellectual Property in International Trade: Opportunities and Risks of a GATT Connection' (1989) 22 Vanderbilt Journal of Transnational Law 747.

43 Agreement Establishing the World Trade Organization, opened for signature 15 April 1994, 1867 UNTS 3, annex 1C (entered into force 1 January 1995) ('TRIPS Agreement' or 'TRIPS').

44 Agreement Establishing the World Trade Organization, opened for signature 15 April 1994, 1867 UNTS 3 (entered into force 1 January 1995).

45 See WTO, Overview: the TRIPS Agreement <http://www.wto.org/english/tratop_e/ trips_e/intel2_e.htm> at 23 July 2008. Note also that in India — Patent Protection for Pharmaceutical and Agricultural Chemical Products, WTO Doc WT/DS50/AB/R (1997) (Report of the Appellate Body) it was held that through art 1.1 members are not obliged to implement more extensive protection than was expressly agreed in TRIPS. See also Jerome Reichman, 'The TRIPS Agreement Comes of Age: Conflict or Cooperation with the Developing Countries' (2000) 32 Case Western Reserve Journal of International Law 441, 445.

46 On this point see Bryan Christopher Mercurio, 'TRIPS-plus Provisions in FTAs: Recent Trends' in Lorand Bartels and Frederico Ortino (eds), Regional Trade Agreements and the WTO Legal System (2006) 215.


level.47 This has important implications for Australia, because not only do our IP laws have to comply with the minimum standards set by the TRIPS Agreement, but also with the much higher standards agreed to through the Australia-US Free Trade Agreement. Australia's IP policy cannot be set in a vacuum, but is delimited by these international obligations. Hence, any discussion of Australia's IP laws and proposals for law reform must start with a discussion of the limitations provided by these international agreements.

2 Permissible uses without authorisation under TRIPS The TRIPS Agreement does not impose limitations on the range of permissible types of uses without authorisation. However, art 31 does set stringent requirements on the conditions that must be imposed on such uses. This provision encompasses both compulsory licensing and Crown use.48 The main restriction imposed by art 31 is that:

prior to such use, the proposed user must have made efforts to obtain authorisation from the right holder on reasonable commercial terms and conditions and such efforts have not been successful within a reasonable period of time.49

This requirement may only be waived in the following circumstances: (a) national emergency; or (b) other circumstances of extreme urgency; or (c) public non-commercial use.50

Growing concerns around the world about the need for humanitarian assistance in response to crises such as the HIV/AIDS epidemic raised calls for clarification of the scope of these provisions. This issue was put on the agenda for the WTO's Ministerial Conference in Doha in November 2001, as a result of which the Declaration on the TRIPS Agreement and Public Health ('the Doha Declaration') was formulated.51 The Doha Declaration affirmed that the TRIPS Agreement 'does not and should not prevent

_____________________________________________________________________________________ 47 To use the language of one prominent commentator, the US is using the strategy of forum

shifting to ratchet up IP protection at the international level: see Peter Drahos, Expanding Intellectual Property's Empire: the Role of FTAs (2003) <http://cgkd.anu.edu.au/menus/PDFs/IPRatchet_Drahos.pdf> at 23 July 2008, 6–11. See also ibid.

48 It should be noted that art 30 of TRIPS is also relevant, in that it allows member countries to provide limited exceptions to the exclusive rights conferred by a patent, provided that: 'such exceptions do not unreasonably conflict with a normal exploitation of the patent and do not unreasonably prejudice the legitimate interests of the patent owner, taking account of the legitimate interests of third parties.' This provision legitimises such uses as: experimental use, prior use and use for obtaining regulatory approval of generic pharmaceuticals.

49 TRIPS Agreement, opened for signature 15 April 1994, 1867 UNTS 3, annex 1C, art 31(b) (entered into force 1 January 1995).

50 Ibid. 51 Declaration on the TRIPS Agreement and Public Health, WTO Doc WT/MIN(01)/DEC/2

(2001) ('DOHA WTO Ministerial Declaration') <http://www.wto.org/english/thewto_e/minist_e/min01_e/ mindecl_trips_e.htm> at 23 July 2008. For further background information on the Doha Declaration, see Frederick Abbott, 'The Doha Declaration on the TRIPS Agreement and Public Health: Lighting a Dark Corner at the WTO' (2002) 5 Journal of International Economic Law 469.


Members from taking measures to protect public health',52 and that members are free to determine the grounds upon which compulsory licences are issued, which can include public health crises.53

Article 31 sets out a number of other limitations on use without authorisation that must be provided for in national legislation.54 Perhaps the most critical, from the humanitarian perspective, is that the licensed use must be predominantly for the supply of the domestic market, as provided in art 31(f) in its current form. The patent holder must also be notified of the intended use and reasonable remuneration must be paid. It should be noted, however, that where a patent is being used anti-competitively, none of these limitations applies.55

Although the Doha Declaration provided vital clarification on the scope of art 31, one remaining difficulty is that many countries simply lack the capacity to set up their own drug manufacturing industries. This problem was recognised by WTO members in drawing up the Declaration, paragraph 6 of which calls for members to find an expeditious solution to this problem. Agreement was reached on 30 August 2003 ('the August 30 Decision')56 to allow members to issue compulsory licences for export to countries that lack manufacturing capacity in circumstances of national emergency or other circumstances of extreme urgency. Because this solution does not comply with the requirement in art 31(f) that use should be primarily for the domestic market, members agreed to waive the right to dispute compliance with this requirement until such time as TRIPS is amended to reflect this. In doing so, however, members agreed to a set of stringent requirements that must be complied with in order to take advantage of the waiver. These requirements have been criticised as unworkable in practice, and there is little evidence of rapid uptake to date.57 However, a number of countries have drafted domestic legislation that complies with the terms of the waiver, including Canada, Norway, India, the Republic of Korea and the European Union.58 It is also encouraging that the first notification was received by the WTO from Rwanda's Government Centre for the Treatment & Research on AIDS on 17 July 2007.59 _____________________________________________________________________________________ 52 Declaration on the TRIPS Agreement and Public Health, WTO Doc WT/MIN(01)/DEC/2

(2001) art 4. See also TRIPS Agreement, opened for signature 15 April 1994, 1867 UNTS 3, annex 1C, art 8 (entered into force 1 January 1995).

53 Declaration on the TRIPS Agreement and Public Health, WTO Doc WT/MIN(01)/DEC/2 (2001), art 5.

54 See Nielsen and Nicol, above n 40, 299–301. 55 TRIPS Agreement, opened for signature 15 April 1994, 1867 UNTS 3, annex 1C, art 31(k)

(entered into force 1 January 1995). The issue of compulsory licensing to remedy anti-competitive conduct is discussed in detail below in Part IV.

56 Implementation of Paragraph 6 of the Doha Declaration on the TRIPS Agreement and Public Health, WTO Doc WT/L/540 and Corr 1 (2003) ('Decision of the General Council of 30 August 2003') <http://www.wto.org/english/tratop_e/trips_e/implem_para6_e.htm> at 23 July 2008.

57 See, eg, Médecins Sans Frontières, Neither Expeditious, Nor a Solution: The WTO August 30th Decision is Unworkable (2006).

58 For commentary on the Canadian legislation see Matthew Rimmer, 'The Jean Chrétien Pledge to Africa Act: Patent Law and Humanitarian Aid' (2005) 15 Expert Opinion on Therapeutic Patents 889.

59 Information on notifications is available at WTO, Notifications by Importing WTO Members <http://www.wto.org/english/tratop_e/trips_e/public_health_notif_import_e.htm> at 23 July 2008.


The Protocol Amending the TRIPS Agreement forms the final part of the jigsaw puzzle in putting this agreed solution into place. The WTO General Council agreed to the Protocol in December 2005.60 Once implemented, the Protocol will add art 31bis as an Annex to the TRIPS Agreement to reflect the terms of the August 30 Decision. Regrettably, the original deadline for acceptance by two thirds of members of the WTO Council on 1 December 2007 passed with only fifteen acceptances, requiring an extension to 31 December 2009, or such later date as decided by the Ministerial Conference.61 But even if the amendment is ultimately implemented, because it will continue to impose the same restrictions on compulsory licensing as the waiver, it may still be seen as cumbersome, inefficient and unworkable.62

Some amendments were required in Australian legislation to ensure compliance when TRIPS entered into force in 1995.63 Of particular relevance to the present discussion, the requirement in s 133 of the Patents Act that prior efforts must have been made to obtain authorisation from the patent holder was introduced.64 However, no such requirement was introduced with regard to Crown use. In a recent inquiry into the Crown use provisions by the ACIP, it was noted that the justification provided to the TRIPS Council for exempting the Crown from this requirement was that all Crown use should be considered to be public non-commercial use, for which the need for prior attempts to obtain authorisation is waived.65

3 Permissible uses under the AUSFTA Since around the turn of the century, both Australia and the US have entered into free trade negotiations with various other countries. In addition to the AUSFTA, Australia currently has Free Trade Agreements ('FTAs') in force with Thailand, Singapore, New Zealand and Chile, with five or more others under negotiation and three under consideration.66 The US has many more FTAs in force and under negotiation.67 In terms of IP, the AUSFTA is probably the most significant from the Australian perspective. This Agreement also has significance from the US perspective, since it was one of the first agreements of its kind with another developed country. The US has adopted a template approach in the FTAs it has entered into since 2003, particularly _____________________________________________________________________________________

The notification refers to plans to import of 260,000 packs of TriAvir, a combination of anti-retrovirals manufactured in Canada by Apotex, Inc, over the next two years.

60 Amendment to the TRIPS Agreement, WTO Doc WT/L/641 (2005) (General Council) <http://www.wto.org/english/tratop_e/trips_e/wtl641_e.htm> at 23 July 2008.

61 Amendment of the TRIPS Agreement – Extension of the Period for the Acceptance by Members of the Protocol Amending the TRIPS Agreement, WTO Doc WT/L/711 (2007) (General Council).

62 Evidence to Joint Standing Committee On Treaties, Parliament of Australia, Canberra, 22 June 2007 (Matthew Rimmer).

63 Introduced through the Patents (World Trade Organisation Amendments) Act 1994 (Cth). 64 Patents Act 1990 (Cth) s 133(3A), introduced by the Patents (World Trade Organization

Amendments) Act 1994 (Cth) s 11(b). 65 ACIP, 'Report on Crown Use', above n 21, 16. ACIP's consideration of this matter will be

discussed below, Part VI. 66 Details on Australia's Free Trade Agreements are available at Department of Foreign

Affairs and Trade, Free Trade Agreements <http://www.dfat.gov.au/trade/ftas.html> at 23 July 2008.

67 Details on US Free Trade Agreements are available at: Office of the United States Trade Representative, Trade Agreements <http://www.ustr.gov/Trade_Agreements/Section_Index.html> at 23 July 2008.

http://www.wto.org/english/tratop_e/trips_e/wtl641_e.htm


with regard to IP, largely reflecting domestic US IP laws.68 Concern has been expressed that a number of the IP and related provisions in the US FTA template could detrimentally impact on access to medicines, including: extension of the patent term beyond 20 years; prohibition of the use of test data on drug efficacy and safety for certain periods for the approval of generic products; linkage between drug registration and patent protection; and limitations on grounds for use without authorisation.69

The IP provisions are found in ch 17 of the AUSFTA, which includes some 29 pages of text.70 There is no doubt that the entry into force of this Agreement necessitated significant changes to Australian copyright law, but less so with regard to our patent law.71 This is not to say that the patent provisions in the AUSFTA itself are insignificant. Although the provisions largely reflected Australian patent law as it existed at the time of the Agreement, and hence do not require much in the way of amendment to existing law, they have the effect of setting that law in concrete, at least for the term of the Agreement.72 As a consequence, opportunities for reform of our compulsory licensing and Crown use provisions are now limited by the relevant provisions in the AUSFTA. Similarly, interpretations of existing provisions are likely to be restricted by the same limitations. Article 17.9.7 of the AUSFTA provides that:

A Party shall not permit the use of the subject matter of a patent without the authorisation of the right holder except in the following circumstances:

(a) to remedy a practice determined after judicial or administrative process to be anti-competitive under the Party's laws relating to prevention of anti-competitive practices;73 or

(b) in cases of public non-commercial use, or of national emergency, or other circumstances of extreme urgency, provided that: (i) the Party shall limit such use to use by the government or third persons

authorised by the government; (ii) the Party shall ensure that the patent owner is provided with reasonable

compensation for such use; and

_____________________________________________________________________________________ 68 See Mercurio, above n 46, 220. 69 See particularly Carlos Maria Correa, 'Implications of Bilateral Free Trade Agreements on

Access to Medicines' (2006) 84 Bulletin of the World Health Organisation 399. 70 Kim Weatherall, a prominent critic of the Agreement describes it as 'breathtakingly long,

detailed and opaque' and notes that as a consequence of the IP chapter 'we have lost a lot of flexibility to choose and adjust our own IP policy': see Kimberlee Weatherall, 'Locked In: Australia Gets a Bad Intellectual Property Deal' (2004) 20 Policy 18, 19.

71 Australia implemented the AUSFTA through the US Free Trade Agreement Implementation Act 2004 (Cth) and the Copyright Legislation Amendment Act 2004 (Cth). Further significant changes to Australian copyright law were made through the Copyright Amendment Act 2006 (Cth). In contrast, the amendments to the Patents Act prescribed in the US Free Trade Agreement Implementation Act 2004 (Cth) were only minor in nature. See US Free Trade Agreement Implementation Act 2004 (Cth) sch 8.

72 The Agreement entered into force on 1 January 2005. Art 23.4.2 provides that: 'A Party may terminate this Agreement by written notification to the other Party, and such termination shall take effect six months after the date of the notification.'

73 It is noted in a footnote to the Agreement that: 'With respect to sub-paragraph (a), the Parties recognize that a patent does not necessarily confer market power': see n 17–[23].


(iii) the Party may not require the patent owner to provide undisclosed information or technical know-how related to a patented invention that has been authorised for use in accordance with this paragraph.

As a consequence, although art 31 of TRIPS imposes no limitations on the grounds for compulsory licensing or Crown use, both Australia and the US have agreed to limit the grounds in their legislation to the specific matters identified therein. Use without authorisation in Australia is now limited to remedying anti-competitive conduct, public non-commercial use and situations of national emergency or other circumstances of extreme urgency. It is not clear from the text of the AUSFTA whether or not it is intended to restrict the national emergency and other circumstances provision to situations solely within Australia. If this were the case, it would prevent Australia from implementing the August 30 Decision. No attempts have been made to date to amend the compulsory licensing or Crown use provisions in the Patents Act based on any perceived need to respond to the AUSFTA.74

III REFORM OF THE AUSTRALIAN COMPULSORY LICENSING PROVISIONS

The compulsory licensing provisions under the Patents Act have rarely (if ever) been utilised. In contrast, equivalent provisions have been used extensively in some jurisdictions.75 Due to their seeming obsolescence and complexity, the Australian provisions have been considered in a number of law reform inquiries. This Part will briefly consider the most notable reviews, and consequent amendments to the compulsory licensing provisions contained in the Patents Act.

A Section 133 and law reform The IPCRC examined the provisions as part of its inquiry into IP and competition law.76 In its final report, released in 2002, the IPCRC accepted that a compulsory licensing system, by its very existence, may have the effect of influencing the terms on which licenses are negotiated,77 because the threat of an application for a compulsory licence probably provides an impetus to patent holders to enter into licensing negotiations and ultimately into contractual arrangements.78 Note, however, that given the under-utilisation of the Australian scheme, this aim may not be met. The inequality in bargaining power between many companies, particularly start-up companies, may mean that the threat of a compulsory licensing application is toothless.

_____________________________________________________________________________________ 74 It should also be noted that art 17.9.3 of the AUSFTA mirrors art 30 of TRIPS. Hence there

would seem to be no further restrictions on domestic provisions relating to experimental use, prior use and regulatory approvals for pharmaceuticals. However, art 17.9.6 of the AUSFTA does add some gloss to the requirements relating to regulatory approvals.

75 See the discussion below, Part IV. 76 IPCRC, above n 5, especially 162–3. 77 Ibid 162; F Michael Scherer, 'Comment' in Robert Anderson and Nancy Gallini (eds),

Competition Policy and Intellectual Property Rights in the Knowledge-Based Economy (1998) 104, 106; Nuffield Council on Bioethics, The Ethics of Patenting DNA: A Discussion Paper (2002) 55.

78 See also Nuffield Council on Bioethics, above n 77, 55. Cf ALRC, above n 14, 614.


The IPCRC recommended changes to the compulsory licensing provisions within the Patents Act, including the repeal of s 135, and the amendment of s 133(2).79 This amendment would have replaced the 'reasonable requirements of the public' provision with a provision allowing for the grant of a compulsory licence where the public interest would be met by enhanced competition in a market.80 The basis of the recommendation was a view that the provision as currently drafted is outmoded and fails to secure the goals of a compulsory licensing system. The terms of s 133 were considered to be concerned with the promotion of domestic industry rather than 'securing the best use of resources and achieving high levels of productivity.' Further, it was considered that s 133 was deficient in that it lacked an explicit competition test.81 The IPCRC Report further recommended that compulsory licensing orders be obtainable on application to the Australian Competition Tribunal with rights of appeal to the Full Federal Court.82 Presumably this would go some way towards expediting the application process.

The federal government announced that it would accept these recommendations in part by including a competition test as a ground for the issuance of a compulsory licence, but it declined to repeal s 135 and the broader grounds for issue of a compulsory licence.83 The government also considered that applications for

_____________________________________________________________________________________ 79 IPCRC, above n 5, 162–3. 80 The conditions specified by the IPCRC for the grant of a compulsory licence in these

circumstances were: (a) access to the patented invention is required for competition in the (relevant)

market; (b) there is a public interest in enhanced competition in that market; (c) reasonable requirements for such access have not been met; (d) the order will have the effect of allowing these reasonable requirements to be

better met; and (e) the order will not compromise the legitimate interests of the patent owner,

including that owner's right to share in the return society obtains from the owner's invention, and to benefit from any successive invention, made within the patent term, that relies on the patent.

See ibid 163. Without attempting to draft the conditions that would need to be met, the IPCRC stated that these conditions should be necessarily stringent, and that the expression 'required for competition in the (relevant) market' would 'amount to there being no other option for competition in that market, and that the enhancement of competition that would be secured by the grant would have to be material and substantial': at 163.

81 Ibid 162. 82 Ibid 163. Currently applications for compulsory licences must be made to the Federal

Court. 83 The government considered that making a competition test the sole test for application for a

compulsory licence would be inappropriate because: (a) the recommended test may be more stringent in some circumstances than the

existing tests and may result in the compulsory licensing provisions ceasing to act as an incentive to negotiate a voluntary licence; and

(b) a competition test will not cover some situations where the non-working of the invention, or other effective denial of reasonable access to it, has some negative effect on the public interest which is not dependant [sic] on competition in the market.


compulsory licences should continue to be considered by the Federal Court in the first instance.84

The ALRC also considered this issue in the context of access to gene patents,85 recommending in its final report, released in 2004, that the competition ground proposed by the IPCRC be inserted as an additional ground for the grant of a compulsory licence.86 The ALRC further recommended that the scope of the 'reasonable requirements of the public' test be clarified.87

B The amendments to section 133 As a result of the recommendations made by the ALRC and the IPCRC, the compulsory licensing provisions in the Patents Act were recently amended through the IPLAA.88 Section 133 now provides (in part) as follows:

(1) … a person may apply to the Federal Court, … for an order requiring the patentee to grant the applicant a licence to work the patented invention. …

(2) … the court may, subject to this section, make the order if satisfied that: (a) all the following conditions exist:

(i) 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;

(ii) the reasonable requirements of the public with respect to the patented invention have not been satisfied;

(iii) the patentee has given no satisfactory reason for failing to exploit the patent; or

(b) the patentee has contravened, or is contravening, Part IV of the Trade Practices Act 1974 or an application law (as defined in section 150A of that Act) in connection with the patent.

As foreshadowed by the government, the only major amendment to s 133 was the addition of a breach of Part IV of the Trade Practices Act 1974 (Cth) ('TPA') as a ground for the grant of a compulsory licence. Enhanced access to the compulsory licensing provisions is highly desirable and it is particularly encouraging to note that the importance of compulsory licensing to the competitive process has been recognised. However, the amendments have given rise to the following difficulties: _____________________________________________________________________________________

IP Australia, Government Response to Intellectual Property and Competition Review Recommendations, Information Package ('Government Response') <http://www.ipaustralia.gov.au/pdfs/general/response1.PDF> at 12 July 2007.

84 Ibid. 85 See ALRC, above n 14, ch 13. Although the ALRC's reference was restricted to the issues

surrounding gene patenting, its recommendations have broader implications and are thus generalisable.

86 Ibid 624–5. 87 Ibid. Note also that ACIP received a reference to consider the desirability of a more clearly

delineated experimental use exemption, and in the course of that inquiry the Council also considered the efficacy of the compulsory licensing provisions. ACIP declined to make specific recommendations in relation to compulsory licensing and considered that the issues in relation to compulsory licensing were deserving of broader review than ACIP was capable of providing under the terms of its current inquiry: ACIP, 'Report on Experimental Use', above n 18, 66.

88 The new provisions entered into force on 28 September 2006.

http://www.austlii.edu.au/au/legis/cth/consol_act/pa1990109/s178.html#patent

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(a) the introduction of the competition-based test has raised a number of issues that have yet to be resolved in the competition law context, which demonstrates that the implications of the amendments were not comprehensively considered;

(b) the meaning of 'reasonable requirements of the public' is even more uncertain; and

(c) little attention has been paid to the need for clarification with regard to use without authorisation for humanitarian purposes.

These difficulties will be explored in Parts IV-VI.

IV IMPLICATIONS OF THE NEW COMPETITION-BASED TEST IN SECTION 133

A number of issues associated with the inclusion of the competition-based test are explored in the following discussion. We also seek to discern the extent to which these matters might hinder the operation of the new test in practice.

A Code versus alternative test Prior to the enactment of the IPLAA, the standing of the new competition test was queried. Specifically, a submission to the Senate Economics Legislation Committee, which was given the task of reporting on the Intellectual Property Laws Amendment Bill 2006,89 by the Queensland University of Technology ('the QUT Submission') considered whether the insertion of a competition test into the Patents Act had the effect of creating a code for the compulsory licensing of patents, excluding general powers to issue compulsory licences under other Acts.90 In particular, this submission queried whether the power to create an access regime under s 46 of the TPA was precluded by the amendment to s 133.91

1 The role of section 46 of the Trade Practices Act as an access regime A national access regime is contained within Part IIIA of the TPA: it contains a procedure through which competitors may seek access to infrastructure facilities.92 _____________________________________________________________________________________ 89 See Senate Economics Legislation Committee, Parliament of Australia, Provisions of the

Intellectual Property Laws Amendment Bill 2006 (2006) ch 1. 90 Evidence to Senate Economics Legislation Committee Inquiry into the Intellectual Property

Laws Amendment Bill 2006, Parliament of Australia, Canberra, 28 July 2006, pt 5 (Queensland University of Technology). See also IP Australia, IP Australia Responses to Questions on Notice (2006) 7.

91 Section 46 prohibits the misuse of market power. It provides as follows: A corporation that has a substantial degree of power in a market shall not take advantage of that power for the purpose of – (a) eliminating or substantially damaging a competitor of the corporation or of a

body corporate that is related to the corporation in that or any other market; (b) preventing the entry of a person into that or any other market; or (c) deterring or preventing a person from engaging in competitive conduct in that

or any other market. 92 Described in the Hilmer Report as 'electricity transmission grids, telecommunication

networks, rail tracks, major pipelines, ports and airports': Independent Committee of Inquiry into a National Competition Policy for Australia, National Competition Policy (1993)


The use of IP is specifically excluded from the scope of Part IIIA.93 As such, the Part IIIA access provisions cannot provide an avenue for use of patents without authorisation. However, s 46 of the TPA may provide an appropriate mechanism. In the recent case of NT Power Generation Pty Ltd v Power and Water Authority,94 the High Court confirmed, in obiter, that they did not view Part IIIA as precluding the operation of s 46.95

While there was no indication from the High Court that their comments extended to IP, there is no reason in principle why they should not. Although IP possesses unique characteristics, it should be accorded the same treatment under the TPA as any other form of property. European case law is illustrative, indicating that the European counterpart of s 46, art 82 of the Treaty Establishing the European Economic Community,96 is applicable to access disputes involving IP.97 Although there are important differences between the provisions, there are some similarities between them, which demonstrate that s 46 has at least the potential to be afforded similar treatment.98

So far as remedies are concerned, compulsory licensing appears to be permitted by the TPA.99 Section 87(1) empowers a court to make such order as it thinks 'appropriate' to compensate a party for loss or damage suffered as a result of a breach of Part IV.100 Further s 80(5) gives a court the power to grant a mandatory injunction to do an act or thing, which would enable a court to make an order for a compulsory licence.101 A court may draft an order in such terms as it determines to be appropriate (s 80(1)), and the power conferred by s 80 is broad. It is acknowledged that difficulties would _____________________________________________________________________________________

240. For consideration of the requirements of Part IIIA see, eg, Brenda Marshall and Rachael Mulheron, 'Declarations of Essential Services Under Part IIIA of the Trade Practices Act: A "Discipline" on Access Reform' (2003) 31 University of Western Australia Law Review 226.

93 See the definition of 'service' in the Trade Practices Act 1974 (Cth) s 44B. 94 (2004) 219 CLR 90 ('NT Power'). 95 Ibid 120–2. These comments were made in obiter but nonetheless clearly indicate the High

Court's views on the ability to use s 46 to gain access to IP. 96 Treaty Establishing the European Economic Community, opened for signature 25 March 1957,

298 UNTS 11 (entered into force 1 January 1958). 97 See, eg, Radio Telefis Eireann and Independent Television Publications Ltd v EC Commission

[1995] 4 CMLR 718 ('Magill'). The European Court of Justice has, to a certain extent, retreated from the liberal position posited in Magill, but it remains clear that art 82 is applicable to compel the licensing of IP: see IMS Health GmbH & Co OHG v NDC Health GmbH & Co KG [2004] 4 CMLR 28.

98 Section 46 is broadly modelled on art 82 (formerly art 86) which prohibits the abuse of a position of dominant market power. Although very similar principles of market definition are usually applied in respect of each of these provisions, different market power thresholds are clearly required in respect of each. Unlike s 46, art 82 lists a number of (non-exhaustive) examples of abuse. In this respect, art 82 seeks to regulate specific forms of conduct detrimental to the operation of markets, but s 46 has a broader aim of regulating competitive processes: see especially, Abraham I van Melle, 'Refusals to License Intellectual Property Rights: The Impact of RTE v EC Commission (Magill) on Australian and New Zealand Competition Law' (1997) 25 Australian Business Law Review 4, 22.

99 See also ALRC, above n 14, 618. 100 Although it is not clear whether this would include an order for a compulsory licence, the

grounds listed (in s 87(2)) are examples and are not exhaustive. 101 See generally Lawbook Company, Trade Practices Law, vol 2 (at 100) [18.1010]; A V Jennings

Ltd v First Provincial Building Society Ltd (1996) 18 ATPR 41–494.


invariably arise in setting a commercial supply price,102 an issue that will be explored further below.103

2 The effect of the amendment to s 133 of the Patents Act If the insertion of a competition-based test into s 133 was intended by Parliament to be exhaustive, this would supersede the dictum of the High Court in NT Power and render the comments of the High Court obsolete. Extrinsic material supporting the Intellectual Property Laws Amendment Bill 2006 failed to elaborate on this point. Thus, the QUT Submission urged some clear guidance on whether the competition-based test in s 133 constituted a code.104 The Senate Economics Legislation Committee agreed that the matter was uncertain, and recommended that it be reconsidered and clarified by the government.105

IP Australia provided a submission to the Senate Economics Legislation Committee in response to other submissions, including the QUT Submission. IP Australia submitted that the power to grant a compulsory licence for anti-competitive conduct under s 133 must constitute a code.106 Its view was based on principles of statutory interpretation which stipulate that where an inconsistency exists between a specific and a general legislative provision, the specific provision will prevail. The government confirmed, however, that this was not the effect of the amendment to s 133. In a Further Explanatory Memorandum to the Bill, the government stated that the insertion of the competition-based test into s 133 was intended to complement the remedies available under the TPA.107 Accordingly the amendment was intended to 'clarify that a compulsory licence for a patent is available as a remedy under the Patents Act for any breach of Part IV of the [TPA]. This is in addition to any other remedies that may be available under the [TPA].'108

This clarifies beyond doubt that the 'compulsory licensing' power, available under the TPA and referred to by the High Court in NT Power, remains available. This gives an applicant alleging anti-competitive conduct the option of proceeding under either s 133 of the Patents Act, or choosing to apply for a compulsory licence under s 80(5), or s 87(1) of the TPA. An applicant may well choose to proceed under the TPA, as s 133 stipulates certain grounds that condition an order for a compulsory licence:

(a) a court may not grant an exclusive licence under s 133;109 (b) a successful applicant has very limited powers of assignment;110

_____________________________________________________________________________________ 102 See generally Stephen G Corones, 'Remedies Under the Trade Practices Act for Refusal to

Supply' (1993) 10 Australian Bar Review 259. 103 See below, Part IVB. 104 Queensland University of Technology, above n 90. 105 Senate Economics Legislation Committee, above n 89, 21 [2.92]. 106 IP Australia, above n 90, 7. 107 Explanatory Memorandum, Intellectual Property Laws Amendment Bill 2006 (Cth) 45. The

Further Explanatory Memorandum contained pages intended to replace particular pages of the original Explanatory Memorandum. Section 15AB of the Acts Interpretation Act 1901 (Cth) gives courts the power to consult extrinsic materials to aid in the interpretation of statutes.

108 Explanatory Memorandum, Intellectual Property Laws Amendment Bill 2006 (Cth) 45 (emphasis in original).

109 Patents Act 1990 (Cth) s 133(3)(a).


(c) a court may make the grant of a licence conditional upon 'any other terms specified in the order';111 and

(d) the licence may be revocable in certain circumstances, that is, where the circumstances justifying the grant of the licence have ceased to exist and are unlikely to recur.112

The first two grounds apply whenever a court makes an order under s 133, while the third and fourth grounds are discretionary. None of these conditions are included in the TPA. The 'compulsory licensing' regime contained in the TPA may thus be broader than that contained in s 133. A compulsory licensing scheme, by its nature, promotes competition and may thus enhance innovation.113 Indeed, in industries where technological progress is rapid, competition may be the best inducement to innovation.114 Many 'new economy' industries including computer software and biotechnology involve swift technological change.

On the other hand, a broad access regime has the capacity to undermine the incentive to innovate provided by patent law, as it is more likely to be invoked where an invention is unique and difficult to duplicate, and considerably advances the prior art.115 Inventions that are useful for follow-on research are highly likely to fall within this category. Paradoxically, it is these inventions that are likely to be socially worthwhile and that should be rewarded by providing the inventors (via the patent system) with an opportunity to obtain a return on their investment. This may have an effect not just on the particular technology in question, but on the general research and development culture of an industry as firms react to the risk that their inventions may be appropriated.116

It is for this reason that s 133 includes a number of protections designed to protect the rights of patent holders. If these conditions are able to be circumvented, inventors are less likely to proceed with risky, resource-intensive research. The same could be argued of any access regime.117 However, the broader the regime, the more risk there is that the efficiency goals of the patent system have the potential to be weakened. By encouraging future innovation, the patent system imposes a long-term, dynamic view. Conversely, a broad access regime may place an over-emphasis on short-term goals of _____________________________________________________________________________________ 110 Patents Act 1990 (Cth) s 133(3)(b). 111 Patents Act 1990 (Cth) s 133(3). 112 Patents Act 1990 (Cth) s 133(6). 113 See above, Part I. 114 F M Scherer and David Ross, Industrial Market Structure and Economic Performance (3rd ed,

1990) 660. Scherer and Ross conclude that: What is needed for rapid technical progress is a subtle blend of competition and monopoly, with more emphasis in general on the former than the latter, and with the role of monopolistic elements diminishing when rich technological opportunities exist.

This would tend to suggest that, in some industries, the promotion of a competitive environment may be warranted in order to realise full innovative potential.

115 Richard Hoad, 'Compulsory Licensing of Patents: Balancing Innovation and Competition' (2003) 54 Intellectual Property Forum: Journal of the Intellectual Property Society of Australia and New Zealand 28.

116 Alan Overd and Bill Bishop, 'Essential Facilities: The Rising Tide' (1998) 19 European Competition Law Review 183, 183.

117 For example in relation to the essential facilities doctrine, see Carrier, above n 7, 784.


diffusing innovation.118 It makes sense that an applicant seeking a compulsory licence as a remedy for anti-competitive conduct would seek a remedy under the TPA when the Court is required to consider that statute in any event. Failing to include the s 133 'safeguards' in the TPA and allowing application for a compulsory licence absent these conditions may have the inadvertent effect of undermining innovation.

From a pragmatic perspective, it could be contended that the conditions included in s 133 give very broad protection to a respondent facing a compulsory licensing application. It can be argued that if the Federal Court were to face an application for a compulsory licence under either s 80(5) or s 87(1) of the TPA, it would be likely to impose conditions upon a successful applicant similar to those contained in s 133.119 Courts are unlikely to issue compulsory licences lightly. Given that an exclusive licence restricts even the holder of the IP from exploiting that technology, it is extremely unlikely that any court would make an order granting an exclusive licence to an applicant seeking access to IP required to conduct follow-on research. Indeed, given the nature of a compulsory licence, the Court is likely to be easily persuaded by a respondent to grant it on terms that do not prejudice its interests. However this cannot be guaranteed and, as such, the existence of an alternative access regime may weaken the regime contained in s 133.

Finally, the government's failure to amend s 133 to allow application to the Australian Competition Tribunal in the first instance (as recommended by the IPCRC)120 reduces the accessibility of the provision. Streamlining the procedure for applying for a compulsory licence could have had the effect of making s 133 a more attractive option where anti-competitive conduct is alleged.

B The issue of pricing Whether a compulsory licence is sought under s 133 or the TPA, there are likely to be issues as to how an IP holder should be remunerated. Section 133 provides some guidance as to remuneration. If an amount cannot be agreed between the parties, it allows the Federal Court to determine an amount 'to be just and reasonable having regard to the economic value of the licence and the desirability of discouraging contraventions of Part IV [of the TPA]'.121 The TPA makes no similar provision.122 The QUT Submission raised this issue, and proposed amendment to the TPA to incorporate

_____________________________________________________________________________________ 118 Hoad, above n 115, 32. 119 See, however, Warren Pengilley, 'Queensland Wire and its Progeny Decisions: How

Competent are the Courts to Determine Supply Prices and Trading Conditions?' (1991) 21 University of Western Australia Law Review 225 who is skeptical that courts possess the expertise to be able to make consistent assessments on 'reasonable' supply prices. See also Corones, above n 102, 270–1, who voices similar concerns.

120 See above Part IIIA. 121 Patents Act 1990 (Cth) s 133(5)(b). 122 Although recent amendments led to the insertion into the TPA of pricing principles for Part

IIIA access decisions: see s 44ZZCA. This section sets out the principle that prices should be set at a level that is 'at least sufficient to meet … efficient costs of providing access' and that allows 'a return on investment commensurate with the regulatory and commercial risks involved'. In contrast, no such principles exist in respect of access disputes brought under s 46.


the pricing principles set out in s 133,123 on the basis that failure to stipulate that a royalty be 'reasonable' could lead to a patentee seeking a monopoly rent.124 This matter does not appear to have been referred to the government by the Senate Economics Legislation Committee,125 so the principles applicable to pricing for compulsory licences remain unclear.

It is submitted that the assistance provided by s 133 on the issue of pricing is very limited. Even if these principles were transposed into the TPA, due to the lack of assistance provided by s 133(5)(b), the courts would still be likely to face difficulties in determining an appropriate level of remuneration to be paid to patent holders. This problem is not unique to the Patents Act. The issue of pricing is invariably problematic in respect of any access regime,126 because it requires courts to determine a reasonable royalty, often in circumstances where the parties have had no previous dealings.

1 What are the appropriate principles that should be applied in determining royalty rates?

Although there is no Australian precedent in relation to this issue, there is some overseas jurisprudence that may assist in determining royalty rates.127 For example, there is a large body of United States jurisprudence where compulsory licences have been imposed, and a considerable number of European authorities.128 Many of these compulsory licences have been issued in respect of antitrust violations.129 This case law provides the most valuable guidance available, although it should be remembered that pricing principles may differ between jurisdictions and certainly within the factual context of particular cases. The many patent misuse decisions in existence may also usefully be consulted.130

There is also some Australian precedent dealing with pricing orders relating to tangible property,131 although given the differences between intellectual and tangible _____________________________________________________________________________________ 123 Evidence to Senate Economics Legislation Committee, Parliament of Australia, Canberra, 3

August 2006, 7–8 (Stephen Corones). 124 Ibid. See also Daniel R Cahoy, 'Confronting Myths and Myopia on the Road From Doha'

(2007) 42 Georgia Law Review 131, 146–7. 125 Senate Economics Legislation Committee, above n 89, 18–21. 126 Hoad, above n 115, 32; van Melle, above n 98, 35; Donna M Gitter, 'The Conflict in the

European Community Between Competition Law and Intellectual Property Rights: A Call for Legislative Clarification of the Essential Facilities Doctrine' (2003) 40 American Business Law Journal 217.

127 Hoad, above n 114, 32; van Melle, above n 98, 35. 128 See, eg, F M Scherer and Jayashree Watal, 'Post-TRIPS Options for Access to Patented

Medicines in Developing Nations' (2002) 5 Journal of International Economic Law 913, 914–24; Carlos M Correa, 'Public Health and Patent Legislation in Developing Countries' (2001) 3 Tulane Journal of Technology and Intellectual Property, 1, 43–7; van Melle, above n 98.

129 See Scherer and Watal, above n 128, 916–17; Correa, above n 128, 44. Note that there may be differences between royalty rates issued in respect of antitrust contraventions and compulsory licences issued on other grounds. In particular, lower royalty rates may be imposed for antitrust violations because as a remedial measure a compulsory licence contains a punitive element. Compensating the patent holder is of lesser concern: Cahoy, above n 124, 169–72.

130 Frances Hanks and Philip L Williams, 'Implications of the Decision of the High Court in Queensland Wire' (1989) 17 Melbourne University Law Review 437, 461.

131 See, eg, the cases discussed in Pengilley, above n 119.


property, over-reliance on these precedents when dealing with IP should be avoided.132 This is because IP protection allows pricing above marginal cost, and licence fees should reflect monopoly profits to some extent.133

2 What is a 'reasonable royalty'? The process of establishing a royalty rate that promotes the availability of a patented good whilst providing due reward to the patent holder is invariably difficult. There are two standards on which a court might calculate compensation for a patent holder subject to a compulsory licensing order; one is based on a reasonable royalty, the other on a standard that adequately compensates the patent holder.134 A reasonable royalty rate will be considerably lower, and is the figure on which a vast majority of compulsory licensing pricing orders have been made.135 Thus, it is submitted that even if a patent holder seeks a monopoly rent under the TPA this should not cause undue concern, because it is unlikely that in most cases a monopoly rent will be granted by any court (or administrative body).

A reasonable royalty has generally been interpreted as a price that would be acceptable between a willing licensor and a willing licensee.136 Some commentators assert that courts should take an ex ante approach to licensing. In line with this, a reasonable royalty could encompass monopoly profits, and should include a factor that allows for risk and for delays in return.137 In percentage terms, overseas jurisprudence indicates that US courts have generally awarded low royalty rates for contraventions of antitrust laws, usually in the vicinity of 0.2 to 3.0%, while UK courts have provided relatively generous awards (ranging between 4.0 and 22% in cited examples) in drug patent licensing decisions.138 These prices fall well below 'profits lost' or compensatory awards, which would be likely to be in the vicinity of 50% or greater.139 They illustrate that there may be considerable variance in the manner in which courts award compensation,140 supporting the argument that courts may not necessarily be qualified to make pricing decisions.141 They also demonstrate that awards for breaches of competition law will generally be fairly conservative, but that a number of decisions (particularly those in the pharmaceutical area) have acknowledged the risk involved in investment in research and development. This authority is likely to be informative in respect of breaches of the TPA.

Finally, it should be borne in mind that on many of the occasions on which courts have granted compulsory licences (for violations of competition law and otherwise), _____________________________________________________________________________________ 132 See, eg, Gitter, above n 126, 226. 133 Van Melle, above n 98, 35. 134 Scherer and Watal, above n 128, 920–2. These two methods of measurement are reflected in

the patent infringement provisions of US patent legislation. 135 Ibid 920–4; Correa, above n 128, 44–5. Section 133 of the Patents Act attempts to offset these

competing interests by requiring that a 'reasonable' royalty rate be established. 136 Correa, above n 128, 44. 137 Valentine Korah, 'No Duty to Licence Independent Repairers to Make Spare Parts: The

Renault, Volvo and Bayer & Hennecke Cases' (1988) 10 European Intellectual Property Review 381, 383; Gitter, above n 126, 274.

138 Scherer and Watal, above n 128, 923–4. 139 Ibid 920–4. 140 Ibid 924. 141 This is discussed further in the next section.


rather than determining a royalty rate, they have required the parties to negotiate a reasonable royalty.142 Alternatively, an order for a compulsory licence has in many instances forced a negotiated royalty. The outcomes of these negotiations are, of course, confidential, but this does highlight that a focus on establishing relevant principles for determining a reasonable royalty may be misguided. Parties are far more likely to be willing to agree on a royalty figure once a determination has been made that an order for a compulsory licence is appropriate. In the event that agreement cannot be reached, overseas jurisprudence provides an ample basis on which to base 'reasonable' royalties.

3 Are courts qualified to determine a reasonable royalty? Some contend that courts are qualified to set prices, and that price-setting is no more onerous a task than others faced by the courts, for example, setting punitive damages or allowing for contingencies in damages claims.143 On this view, the ability of courts to make orders for supply of tangible property should stand them in good stead to make decisions with respect to licensing of intellectual property.144 Other commentators warn against the imposition of pricing decisions by courts unqualified to undertake complex pricing inquiries.145 It has been argued that the need to adopt an ex ante approach to pricing is beyond the capabilities of courts,146 and would be more appropriately undertaken by a qualified body.147 Courts are particularly unqualified to deal with ongoing issues such as monitoring and varying prices should circumstances change.148

Understandably, courts grapple with the notion of setting prices. For example, in the few successful cases brought under s 46 of the TPA, there has been a marked reluctance on the part of the courts to impose a price upon the parties where there has been no previous dealing.149 Even where there has been some dealing between the parties the matter is not clear cut. In Pont Data Australia Pty Ltd v ASX Operations Pty _____________________________________________________________________________________ 142 Scherer and Watal, above n 128, 923. The same can be said of patent misuse decisions;

Hanks and Williams, above n 130, 461. As an example see the decision of the European Commission in Radio Telefis Eireann v EC Commission [1991] 4 CMLR 586, 597–8 [14]. This order was not disturbed on appeal by either the Court of First Instance or the European Court of Justice.

143 Van Melle, above n 98, 38. 144 Ibid. 145 Corones, above n 102, 271–3; Pengilley, above n 119, 245; Korah, above n 137, 383; David

Wright, Remedies Under the Trade Practices Act (2006) 254–9. 146 Korah, above n 137, 383. 147 Both Pengilley and Corones put forward the Prices Surveillance Authority ('PSA') as a

body suitably qualified to make pricing decisions, with Corones asserting that the PSA should undertake this role in an administrative capacity and make a recommendation to the court that the court could choose to accept or reject; Corones, above n 102, 271–3; Pengilley, above n 119, 230–1. The PSA has since merged with the Trade Practices Commission ('TPC') to form the Australian Competition and Consumer Commission ('ACCC'). See also Wright, above n 145, 258–9.

148 Pengilley, above n 119, 245; Wright, above n 145, 258–9. 149 For example, in Queensland Wire Industries Pty Ltd v The Broken Hill Pty Co Ltd (1989) 167

CLR 177, the High Court did not indicate whether an order for supply was appropriate, nor set out any principles that would assist the trial Judge, Pincus J, in arriving at a supply price.


Ltd,150 there was marked divergence between the trial judge and the Full Court of the Federal Court on the issue of the price at which copyrighted information should be supplied by the unsuccessful respondent.151 The trial Judge, Wilcox J, ordered supply at cost plus a low level of profit.152 The difficulty lay in determining what level of profit was likely given that the market had never been competitive, but had been monopolised by the respondent. The Full Court disagreed with Wilcox J and ordered supply on terms contained in a prior agreement between the parties153 anticipating that a fresh agreement would likely be negotiated at the conclusion of the litigation.154

These issues are more acute in relation to intellectual property, due to the difficulty in imposing ex ante factors into a supply price. This would tend to suggest that courts are likely to have some problems in setting supply prices, and it would appear logical that a qualified body should have some role in determining supply prices. The merger of the PSA and the TPC removed the PSA as a suitable alternative.155 Wright has proposed that pricing decisions would be appropriately made by the ACCC, the National Competition Council ('NCC'), or a relevant industry minister.156 His suggestion is that s 46 of the TPA be amended to give one of these bodies a residual power to recommend the terms of a supply order in the event that the courts are unable to made a determination. As the trade practices regulator, the ACCC is probably not the most appropriate body to take on this role, and it may be a difficult task for a minister, particularly where the issue is one as complex as the determination of royalty rates for a compulsory licensing order. However it may be possible to allow courts to tap into the expertise available through the NCC by allowing the NCC to assist courts grappling with these issues.

It seems that forced to negotiate, most parties are able to agree on a reasonable royalty in any event.157 It is submitted that under the circumstances, the preferable course of action is for courts to order that the parties negotiate a reasonable royalty. Resort to an independent body in the event that the parties are unable to reach agreement would be ideal. This is likely to lead to the most satisfactory outcome for all parties to the dispute, whilst maintaining consistency in pricing decisions.

C The promotion of competition A final issue is whether an applicant should be required to demonstrate a substantial lessening of competition ('SLC') in a market where a contravention of Part IV is

_____________________________________________________________________________________ 150 (1990) 21 FCR 385; see also ASX Operations Pty Ltd and Another v Pont Data Australia Pty Ltd

(No 2) (1991) 27 FCR 492, 505–6. 151 For a comprehensive analysis see Pengilley, above n 119, 232–5, 243–4. 152 Pont Data Australia Pty Ltd v ASX Operations Pty Ltd (1990) 21 FCR 385, 425–8. 153 ASX Operations Pty Ltd v Pont Data Australia Pty Ltd (No 2) (1991) 27 FCR 492, 505–6. See

also ASX Operations Pty Ltd v Pont Data Australia Pty Ltd (No 1) (1990) 27 FCR 460. 154 ASX Operations Pty Ltd v Pont Data Australia Pty Ltd (No 2) (1991) 27 FCR 492, 505. 155 See above n 147, and accompanying text. 156 Wright, above n 145, 258. 157 It is acknowledged that there may be cases where the parties are so far apart that

agreement is extremely unlikely. For example, where a compulsory licence to generically manufacture a drug is sought on humanitarian grounds, the parties are unlikely to agree on what constitutes a reasonable royalty.


alleged.158 The basis of this submission was that, in many cases, a patented product is 'unlikely to constitute a discrete market' but is 'likely to be part of a broader market containing substitutes for the patented product.'159 Accordingly, this test would require that a compulsory licence only be granted where it would promote competition in the relevant market rather than benefit a particular party, specifically the new entrant.

Again, this matter did not receive further consideration by the government, and it is submitted that this is appropriate. As IP Australia pointed out in its submission, it seems apparent from extrinsic material accompanying the Bill that the government intended that the amendment to s 133 allow application for a compulsory licence where the respondent's conduct is anti-competitive.160 That is, the mischief to be addressed can be gleaned quite clearly from this material. Secondly, the AUSTFA provides quite specifically that compulsory licensing be permitted to remedy anti-competitive conduct and it is unlikely that this Agreement permits replacement of this requirement with a test that would examine the promotion of competition.161 Finally, the effect of granting a compulsory licence would be to increase competition in a market. This would render the inclusion of a SLC test superfluous.

A patented product is very unlikely to constitute a discrete market. As such, it will be difficult to make out a contravention of many of the Part IV provisions. It is difficult to see why an additional SLC test in s 133 would be warranted given that its incorporation would impose an extra burden on applicants for compulsory licences over and above the onerous requirements they already face. As discussed, the IPCRC recommended that the competition test be the sole ground for grant of a compulsory licence. The government declined to adopt this recommendation, and it is submitted that this is a desirable outcome. Not all conduct deserving of a compulsory licence is necessarily anti-competitive.

V OTHER GROUNDS FOR OBTAINING A COMPULSORY LICENCE

A Reasonable requirements of the public To recap, the original recommendation of the IPCRC was that the anti-competitive conduct ground for a compulsory licence under the Patents Act should replace the existing 'reasonable requirements of the public' ground in s 133. Ultimately, however, the government rejected this option, deciding instead simply to add the anti-competitive conduct ground leaving the reasonable requirements ground intact. One further implication of the IPLAA that needs to be teased out is the impact of these amendments, if any, on the reasonable requirements ground.

We have seen that TRIPS does not impose limitations on the grounds for use without authorisation, bearing in mind the special considerations that apply to _____________________________________________________________________________________ 158 Evidence to Senate Economics Legislation Committee, Parliament of Australia, Canberra, 3

August 2006, 8–9 (Stephen Corones). 159 Ibid 8. Professor Corones acknowledged that the additional ground was probably

unnecessary, but considered that it would be useful to have the matter clarified: at 9. 160 Ibid. The extrinsic material referred to by IP Australia was the Explanatory Memorandum,

Intellectual Property Laws Amendment Bill 2006 (Cth) 44-5 [165]-[169] and IPCRC, above n 5, 162–3.

161 IP Australia, above n 90, 9.


national emergencies, other circumstances of extreme urgency and public non-commercial use as well as anti-competitive conduct. Hence the reasonable requirements test does not appear to be limited in its scope by TRIPS. However, the AUSFTA does limit the grounds for use without authorisation to the special categories mentioned in TRIPS. As a consequence, it is submitted that courts hearing compulsory licensing applications based on the reasonable requirements test will be restricted in its interpretation of this provision to the AUSFTA grounds. The justification for this conclusion requires no further elaboration than the succinct statement in s 136 of the Patents Act:

An order must not be made under section 133 or 134 that is inconsistent with a treaty between the Commonwealth and a foreign country. In the ALRC Report on gene patenting, it was concluded that the AUSFTA restricts

the reasonable requirements of the public test to matters related to competition within a market or public non-commercial use.162 However, art 17.9.7(b)(i) restricts public non-commercial users to the government or third parties authorised by the government, suggesting that this is a matter for Crown use rather than compulsory licensing.163 And given that a new anti-competitive conduct test has been added to s 133, the question that remains is whether there is in fact any genuine scope for issuing a compulsory licence under the reasonable requirements test.

The Institute of Patent and Trade Mark Attorneys mentioned the limitation on compulsory licensing imposed by s 136 of the Patents Act in its submission to the Senate Economics Legislation Committee and raised a question as to whether the reasonable requirements test was in conflict with the AUSFTA.164 They then went further and questioned whether this means that 'the test will not apply against US persons'.165 In response, IP Australia commented that

the term 'anti-competitive practices' is interpreted broadly and covers the present compulsory licence provisions under the Patents Act. … As such, there is no conflict with section 136 of the Patents Act nor is there any issue of preferential or different treatment for US persons.166

It does seem somewhat illogical to suggest that the provisions in the Patents Act could be applied differently to different nationalities of applicants or respondents. Indeed, the Most Favoured Nation provision in art 4 of TRIPS would seem to preclude this. In addition, it may have been sound to argue that the reasonable requirements test could be applied to anti-competitive conduct prior to insertion of the new provision through the IPLAA, but, now that we have a specific anti-competitive conduct ground, the legitimacy of the reasonable requirements test becomes more tenuous. While there is some scope for establishing anti-competitive behaviour at common law,167 compulsory licensing on this basis would seem to be precluded by the requirement in art 17.9.7(a) of the AUSFTA that the relevant conduct must have been determined by judicial or administrative process to be anti-competitive under the Party's laws relating to prevention of anti-competitive practices. The mystery deepens as to the true scope of

_____________________________________________________________________________________ 162 ALRC, above n 14, 615. 163 See below, Part VI. 164 See the Senate Economics Legislation Committee, above n 89, 16 [2.66]. 165 Ibid. 166 IP Australia, above n 90, 14. 167 See Stephen G Corones, Competition Law in Australia (4th ed, 2007) 162–3.


the reasonable requirements test! Perhaps the IPCRC was right after all in recommending that s 133 should have been replaced in its entirety with an anti-competitive conduct test.168

B The dependent patent ground The dependent patent ground also warrants some consideration. Recapping again, when a person applies for a compulsory licence through the reasonable requirements limb, a second licence may be available when the invention that is the subject of the first licence cannot be worked without infringing a second patent.169 However, the court can only make such an order when the invention being worked is an important technical advance of considerable economic significance on the second patented invention.170 Moreover, it seems that owners of dependent patents themselves can only obtain a licence by satisfying the reasonable requirements of the public test.

There is no express provision in the AUSFTA allowing for use without authorisation for dependent patent purposes. Hence, to comply with the AUSFTA it would seem that an argument would have to be made that the owner of the non-dependent patent is acting anti-competitively. However, a finding of anti-competitive conduct presents a significant hurdle for a person seeking to work an invention that satisfies the requirement of being an important technical advance of considerable economic significance. Imposition of such a hurdle may well stifle innovation. It may be that the US would not object to compulsory licensing for dependent patent purposes, on the basis that it does not go outside the spirit of the AUSFTA, but it does seem to be outside the precise wording of art 17.9.7.171

It could perhaps be argued that dependency circumstances fall more readily under the ambit of art 30 of TRIPS rather than art 31, and art 17.9.3 of the AUSFTA rather than art 17.9.7. There is certainly some attraction in relying on the former provisions in each of the Agreements rather than the latter, because they give members much more freedom in legislating and in interpreting existing legislation. However, a case could no doubt be made that the latter provisions are intended to cover the field with regard to compulsory licensing and Crown use. As a consequence, it would seem that if the US chose to, it could object to the reasonable requirements of the public ground for compulsory licensing in its entirety as being non-compliant with art 17.9.7 of the AUSFTA.

_____________________________________________________________________________________ 168 However, it should be noted that the government's response to the IPCRC Report was

released prior to the AUSFTA, at which time there may have been scope for other interpretations of the reasonable requirements test.

169 As provided in the Patents Act 1990 (Cth) s 133(3B). 170 Patents Act 1990 (Cth) s 133(3B). 171 It should be noted that there are other significant problems with the dependent patent

provisions. In particular, the fact that provision is not made for the owner of a dependent patent to apply for a compulsory licence, when an inventor who does not own a patent may, gives rise to an anomaly. Uncertainty over the application of the 'reasonable requirements of the public' test means that this ground is inadequate where the owner of a dependent patent seeks access to an original patent. Cf ALRC, above n 14, 623–4.


VI SCOPE FOR HUMANITARIAN USES WITHOUT AUTHORISATION

A Domestic concerns As already noted, art 17.9.7(b)(i) of the AUSFTA restricts use without authorisation for national emergencies, other circumstances of extreme urgency and public non-commercial use to the government or third parties authorised by the government. As such, it seems logical that uses of this nature should be dealt with through the Australian Crown use provisions. Should Australia ever be faced with a national healthcare emergency, there can be little doubt that the Crown use provisions would justify use of patented inventions by the government or a third party on behalf of the government on national emergency or other circumstance of extreme urgency grounds, provided that adequate remuneration were paid to the patent holder and other requirements were complied with. However, the public non-commercial ground could have far greater scope, including use for both public healthcare and public research purposes.

Like compulsory licensing, Crown use has been subjected to some scrutiny by law reform agencies. The provisions were considered during the ALRC's gene patenting inquiry,172 and they were also the subject of a separate review by ACIP.173 The ALRC considered that the Crown use provisions have the potential to be particularly useful when access to a patented genetic invention is required in the provision of public healthcare. The ALRC also stated that these provisions might be usefully invoked where access to a patented biotechnology product is required for public research purposes.174 The ALRC recognised that the application of the provisions will be limited to bodies that fall within the definition contained within s 163(1), and that there may be some uncertainty as to when exploitation is for the services of the Crown.175 The ALRC recommended that amendment be made to s 167(1) to clarify that 'for the services of the Commonwealth or of a State' include the provision of healthcare services or products to members of the public.176

ACIP's review into the Crown use provisions in Australian patent and designs legislation was conducted for the purpose of ensuring the provisions 'reflect the current needs of the Government, business and the Australian public and do not undermine the rationale behind the intellectual property … system.'177 In particular, ACIP considered the appropriateness of imposing restrictions on Crown use in light of the detrimental effect that over-use may have on incentives to innovate, especially given the commercial nature of many activities undertaken by Commonwealth and

_____________________________________________________________________________________ 172 Ibid ch 26. 173 ACIP 'Report on Crown Use', above n 21. 174 ALRC, above n 14, 599–600. 175 Ibid 599–605. For discussion of case law relevant to when a body is likely to fall within the

definition of the 'Commonwealth or a State', see ibid 596–7; ACIP, 'Report on Crown Use', above n 21, 20–1. ACIP expressed doubt about whether research organisations would fall within the ambit of the definition of 'the Crown': at 21.

176 Such as the provision of genetic testing services: ALRC, above n 14, Recommendation 26–2, 602–604.

177 ACIP, 'Report on Crown Use', above n 21, 6.


State authorities.178 Interestingly, submissions received by ACIP provided evidence that the threat of utilising the Crown use provisions was frequently a prompt for Crown bodies to compel parties to enter into licensing agreements voluntarily.179 This suggests that the provisions permitting Crown use are used far more frequently than compulsory licensing.

ACIP shared the ALRC's concerns in regard to the uncertain nature of the Crown use provisions and their possible misuse, and both bodies were concerned to ensure that the provisions remained workable without infringing on the rights of patent holders. In particular, ACIP was concerned that the Crown use provisions do not meet the TRIPS requirement for attempts to be made to obtain prior consent from the patent holder before exploitation.180 ACIP concluded that '[w]aiving these obligations … by reason that all use of the IP is "public non-commercial use" would appear to be no longer tenable.'181 It recommended that the legislation should be amended to require prior efforts to obtain authorisation, and that this requirement should only be temporarily waived in cases of national emergency or other circumstances of extreme urgency or in cases of public non-commercial use. Further, it recommended that the public non-commercial use ground should only be available for Crown entities operating solely in the public interest and should not be available to hybrid public/private organisations that predominantly operate for profit.

Throughout its report, ACIP emphasised that the requirement for prior attempts to obtain consent should only be set aside when necessitated by the urgency of the situation, even when the public non-commercial use ground is being relied upon.182 While ACIP did not explicitly address the ALRC recommendation that services of the Commonwealth or of a State should include the provision of healthcare, it is submitted that limiting public non-commercial use to 'urgent' situations could forestall this option and could significantly reduce the provision's usefulness in the healthcare context. Moreover, this restriction on the public non-commercial use ground goes beyond the prescribed requirements in both TRIPS and the AUSFTA.

Potentially, reliance on the Crown use provisions could have broad ranging implications for both patent holders and health service providers. It is disappointing that the government missed the opportunity to undertake a comprehensive review of these provisions at the same time as its consideration of the reforms that were ultimately included in the IPLAA.183

_____________________________________________________________________________________ 178 Ibid 5–9. 179 Ibid 8. 180 Ibid 18. ACIP also made some key recommendations with regard to the potential for abuse

of the Crown use provisions, particularly: that ministerial approval should be required where invocation of the Crown use provisions is intended; and that standards and processes for remuneration should be amended to provide both the Crown and IP holders with increased certainty. ACIP also recommended that alternative dispute resolution procedures be put in place to assist parties in reaching agreement in relation to remuneration. See Recommendations 2.2, 3.1 and 3.2.

181 Ibid 19. 182 Ibid; see particularly at 2. 183 Recall, however, that the AUSTFA does not permit the transfer of associated know-how

related to a patented invention, so that exploitation of a patented invention may be difficult even in the event the Crown use provisions are able to be utilised; see above, Part IIB.


B International concerns It would be stretching the interpretation of the existing compulsory licensing and Crown use provisions in the Patents Act to use them to facilitate the manufacture of pharmaceuticals without authorisation for export purposes, even in circumstances of national emergency or extreme urgency. It is unfortunate that the federal government did not include appropriate amendments to facilitate such uses in the IPLAA. Such amendments would be consistent with past government statements. For example, the then Minister for Trade, Mark Vaile, stated in 2003, in reference to the negotiation of the August 30 Decision, that

all WTO member countries had a moral obligation to resolve this issue … we must move past old battle lines and all work to ensure the solution makes its contribution to dealing with the public health problems poorer countries face.184

AusAID in its HIV/AIDS strategy 2004 recognised that:185 modifications to the original [TRIPS] agreement grant countries the flexibility to protect public health through … issuing compulsory licences, under certain circumstances, to allow a patented product to be produced domestically without the consent of the patent owner. Pharmaceuticals manufactured under compulsory licences may be used to supply either the domestic market or for export to countries without the capacity to manufacture their own. Countries must adapt national legislation to enable them to take advantage of the above flexibilities. In advising other countries to take advantage of the flexibilities of TRIPS,

particularly the provisions relating to use without authorisation, it would be remiss of the Australian government not to implement appropriate legislative provisions itself.

Following a report by the Joint Standing Committee on Treaties recommending adoption of the Protocol,186 Australia recorded its acceptance on 12 September 2007.187 The next step, going beyond mere acceptance of the Protocol, is for the Australian government to amend the Patents Act forthwith to provide an appropriate legal environment for the export of pharmaceuticals under Protocol conditions. It is acknowledged that the AUSFTA limits the grounds for use without authorisation. However, it is argued that the types of uses intended under the Protocol are permissible, since the permitted uses without authorisation in art 17.9.7(b) include national emergency, or other circumstances of extreme urgency, subject to certain limitations that would have to be included in the enabling legislation. It is also important to acknowledge that the August 30 Decision and the Protocol, at best, will only be a partial solution to the acute problems being faced in least developed and developing countries with regard to access to medicines. As a matter of urgency, the

_____________________________________________________________________________________ 184 Mark Vaile, 'Vaile Welcomes Breakthrough on Access to Medicines' (Press Release, 31

August 2003) <http://www.trademinister.gov.au/releases/2003/mvt067_03.html> at 28 July 2008.

185 AusAID, Meeting the Challenge: Australia's International HIV/AIDS Strategy (2004) 18. 186 Joint Standing Committee on Treaties, Parliament of Australia, Report 86: Review into

Treaties Tabled on 27 March and 9 May 2007 (2007) ch 9, Recommendation 8. 187 WTO, Members Accepting Amendment of the TRIPS Agreement (2008)

<http://www.wto.org/english/tratop_e/trips_e/amendment_e.htm> at 23 July 2008.

http://www.wto.org/english/tratop_e/trips_e/amendment_e.htm


full range of flexibilities within TRIPS must be further examined and utilised, and other non-IP mechanisms should also be explored.188

VII CONCLUSION A considerable amount of time and effort has been invested in examining the use without authorisation provisions in the Patents Act. The federal government has received a number of law reform reports that provided extensively researched advice on the ideal composition of these provisions. In the process, it has implemented some legislative amendments to Australia's compulsory licensing provisions. Concurrently, the government has been active in the international arena and has negotiated bilateral agreements that directly impact on the content of these provisions. Despite being presented with the opportunity in 2006 to implement wholesale reform of the provisions relating to use without authorisation, regrettably, the result of the government's reform package was the insertion of a single provision into s 133 of the Patents Act providing for the issue of a compulsory licence for anti-competitive conduct.

This amendment has given rise to more issues than it has resolved. It would appear that the government failed to think through the many implications arising from the insertion of this test, including its interaction with the access regime provided for under the TPA, and the manner in which pricing disputes should be settled. Its failure to specifically address these matters will likely mean that the compulsory licensing provisions will continue to be utilised only rarely. Another concern is that the government failed to clarify the operation of existing tests contained in s 133. It is not clear how applicants seeking access to a dependent patent should frame a compulsory licensing application. The long-debated meaning of the 'reasonable requirements of the public test' is still uncertain.

Further to this, while the government acknowledged and responded to the need for law reform, its reforms were based on recommendations made in a different legal environment. The government based its amendment on the recommendations of the IPCRC some four years after that Committee's report was released. However, it declined to adopt them fully, with the result that the competition-based test was included as an alternative rather than a substitute. The reasonable requirements of the public test was retained during the process of amendment, but the subsequent conclusion of the AUSFTA throws into doubt the legality of this test.

The reform process has highlighted the fact that the government has not engaged with a number of issues that have now come to the fore. The government has focused on one aspect of patent use and has not considered amendment to the Crown use provisions, despite comprehensive (albeit apparently somewhat contradictory) recommendations by both ACIP and the ALRC. Little focus has been given to humanitarian use and how it might be better implemented in the provisions relating to unauthorised use. By not undertaking a comprehensive reform process, the government has failed to establish the right preconditions for maintaining the correct balance between monopoly and the promotion of innovation.

_____________________________________________________________________________________ 188 On this point, see European Parliament, Resolution on the TRIPS Agreement and Access to

Medicines, EU Doc B6-0288/2007 (2007).


Finding a balance between producers and users of patented goods and technology invariably presents challenges. The 'use' provisions in the Patents Act are at best a 'one size fits all' solution to the conundrum of access and incentive. Attempts to delineate the appropriate point at which to impinge on the rights of producers of technology have been characterised by a strong focus on the rights of commercial users. Even so, commercial users have surely been left wondering how effective the amendments have been, as the amending legislation has raised as many questions as it has resolved. Regrettably, it is unlikely that a further opportunity to consider these issues will present itself in the near future, particularly given the limitations imposed by the AUSFTA.

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