With all the attention on the Dawson reforms of the TPA, a new remedy for anti-competitive conduct has gone largely unnoticed. Karen Gibbons and Zarghona Fazal examine the impact of an amendment to the Patents Act which attempts to bring together the sometimes conflicting philosophies of competition law and intellectual property law.
- Traditionally, the concept of a patented invention was seen as some kind of an inalienable right. A patent owner could decide how, when and to whom s/he would licence an invention. However, these rights are being progressively eroded. The Patents Act 1990 already contains a mechanism for a patent owner to be forced to grant a licence of his patent if the courts decide it is ‘in the public interest’ to do so.
- Amendments contained in the Intellectual Property Laws Amendment Act 2006 introduce a new ground under which parties can obtain a compulsory license to use a patent. Under the new provisions, a patentee may be ordered to grant a licence if the court is satisfied that the patentee has contravened, or is contravening, the anti-competitive conduct provisions of the Trade Practices Act 1974 (TPA) in connection with the patent or the application and use of the patent.
- Although the amendments provide Australian courts with the option of granting a compulsory licence, the experiences of courts in other jurisdictions suggest that such a remedy will only be ordered in exceptional circumstances. The amendments are more likely to have a greater impact in the context of negotiating a licence.
Previous compulsory licensing provisions in the Patents Act
Previously, if a failure to exploit an invention at all or to a sufficient extent was contrary to the public interest, then third parties could obtain access to the patent. The courts rarely, if ever, granted compulsory licences, although the mere existence of the remedy could assist potential licensees in their negotiations with reluctant patent holders.
In its report, 'Review of the Intellectual Property Legislation under the Competition Principles Agreement', (the Ergas Report), in September 2000, the Intellectual Property and Competition Review Committee recognised that ‘the threat of compulsory licensing may lead to innovations being worked sooner and more widely than they otherwise would have been,’ but that the existing legislation seemed ‘poorly aligned to securing those goals’. The Ergas Report recommended that a compulsory licence order be made only if a strict competition test were satisfied.
New compulsory licensing provisions
The amended Patents Act retains the option to grant a compulsory licence if it is in the public interest, while providing an additional ground based on anti-competitive conduct. Jurisdiction to hear compulsory licensing applications is reserved to the Federal Court alone.
Now, a compulsory licence will be available as a remedy where a patentee engages in anti-competitive conduct such as price-fixing, misuse of market power and exclusive dealing.
Overseas experience suggests that it will be in the context of refusals to licence arising out of a misuse of market power that the compulsory licensing provision will be of most value.
Overseas experience
Compulsory licences have been awarded on competition grounds by the courts in the US and the European Union, but in limited circumstances, and usually linked to some kind of misuse of market power.
EU
European case law provides examples of compulsory licenses being awarded in exceptional circumstances where a dominant firm owns or controls access to intellectual property that competitors in a downstream market rely on to compete, and the refusal to licence amounts to an abuse of dominance.
In the latest landmark European case involving compulsory licensing of intellectual property, IMS Health, the European Court of Justice (ECJ) held that, in exceptional circumstances, a dominant party’s refusal to licence could constitute an abuse of a dominant position in the market. The ECJ held that, ordinarily a refusal to licence cannot be challenged, but a court could order a compulsory licence in exceptional circumstances if the product is indispensable and other conditions are met.
IMS Heath follows from earlier European cases such as Magill. Although many considered Magill to be the thin end of the wedge for compulsory licenses of intellectual property, the reality is that the cases have stressed that compulsory licences will only be awarded in exceptional circumstances.
USA
In the USA, cases have paved the way for compulsory licensing, by finding that in certain circumstances a failure to licence intellectual property rights, may amount to a breach of the anti-monopoly provisions of the Sherman Act (US).
For example, in Image Technical Services it was held that a mere refusal by an intellectual property rights holder to licence creates a rebuttable presumption that the refusal is valid and that there is a valid business justification.
Other cases have come to similar conclusions.
What about section 51(3) TPA?
The amendments to the Patents Act have no effect on section 51(3) of the TPA. Section 51(3) of the TPA exempts conditions of licences and assignments of intellectual property from certain provisions of the TPA, to the extent that those conditions relate to the subject matter of the intellectual property, including patents. Section 51(3) has been the subject of considerable debate and little or no case law. It was inserted in the TPA to protect otherwise valid intellectual property arrangements from potential illegality as a result of the provisions of the TPA.
The government has not attempted to reconcile the amendments to the Patents Act with section 51(3) of the TPA. Understandably, there has been some confusion over its effect, and discussions of potential further reform.
However, arguably no reconciling is required, since section 51(3) does not exempt:
- taking advantage of a substantial degree of market power (section 46)
- misuse of market power in a trans-Tasman market (section 46A), or
- engaging in resale price maintenance (section 48).
Thus, a refusal to licence by an patent-holder with substantial market power could now lead to an application for a compulsory licence if there is a breach of section 46 or section 46A.
In our view, confusion can be solved by drawing a distinction between outright or constructive refusals to licence and the actual provisions of an existing licence. Section 51(3) only provides an exemption to the internal provisions of a licence – it does not exempt a refusal to licence.
Will these amendments have a significant impact?
While the amendments will provide a source of legal redress to those denied a licence on anti-competitive grounds, it is likely that a compulsory licence will only be awarded by Australian courts in rare and exceptional circumstances.
That said, the amendments are likely to have a more significant impact at the negotiation stage where the threat of compulsory licensing will continue to incentivise patent holders to be more flexible in negotiating an agreement to grant a licence.
This article was prepared by Karen Gibbons, Senior Associate and Zarghona Fazal, Articled Clerk, Melbourne.
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