Patent Working Requirements

Many jurisdictions have a requirement to demonstrate the working of a patented invention within the country that granted the patent, i.e., a “patent working requirement”. This element of patent law, including how soon after grant it must be demonstrated, the scope of what constitutes the working of an invention, and the amount of evidence required to meet the working requirement, varies considerably around the world.

One of the most restrictive examples of a patent working requirement is India’s requirement for an annual “statement of working”. Under the Indian Patents Act 1970, patentees must lodge Form 27 annually, including details of how the invention is being “worked” commercially in India, or reasoning for not yet meeting this requirement (and steps being taken to remedy this).^[1][2] Other regions such as the United States of America have no working requirement per se, but instead encourage aspects of working requirements through trade practice law and compulsory licensing provisions.^[3]

Compulsory Licensing

One area of patent law closely linked to working requirements is compulsory licensing. Compulsory licensing agreements were originally developed as a means of enforcing local patent working requirements without requiring forfeiture of the patent. Essentially a compulsory licence is a licence granted by the government, to allow use of a patented invention in instances where the patent working requirements are not being met (and/or in certain other situations such as for the supply of medicines to developing countries).^[4] The legal requirements for the granting of a compulsory licence in relation to unmet patent working requirements vary considerably between jurisdictions.

A question commonly asked is whether any such patent working requirements exist for Australia. The following brief summary outlines the requirements for demonstrating the working of an invention and related compulsory licensing laws in Australia.

Australia

Under Australian Patent Law, there is no legal requirement to provide a statement to demonstrate that the invention is being exploited within Australia. However, a provision exists under current Section 133 of the Patents Act 1990, that if a patented invention is not being exploited three years after grant, then a person may apply to the Federal Court to seek a compulsory licence to exploit the invention, where all of the following conditions are met:

(a)       demand in Australia for the invention is not being met on reasonable terms, and

(b)       authorisation to exploit the invention is essential to meet that demand, and

(c)       the applicant has tried without success for a reasonable period to obtain a licence on reasonable terms from the patentee, and

(d)       the patentee has given no satisfactory reason for failing to exploit the invention in Australia, and

(e)       it is in the public interest to grant the licence.^[5][6]

Alternatively, an application can be made under section 133(2), if the patentee has contravened, or is contravening, Part IV of the Competition and Consumer Act 2010 in relation to the patent. This section is substantial and relates broadly to restrictive trade practices such as price-fixing, bid-rigging, allocating customers, restricting production or supply chains, or otherwise restricting competition.^[7]

Regardless of the provision under which compulsory licenses are granted, if successful, the applicant must pay the patentee an agreed amount of renumeration, or an amount determined by the Federal Court to be reasonable and just. This is to be determined with regard to the economic value of the licence; the right of the patentee to a return on the investment involved in developing the invention, including associated risks; and the public interest in ensuring that demand for the invention is being met.^[8]

The burden of requesting a compulsory licence falls to the applicant. Therefore, such requests are relatively rare. As of 2017, only three such requests had ever been made, none of which were successful.^[9] In response to suggestions made in the 2013 Productivity Commission into compulsory licensing, the Patents Act 1990 was amended in early 2020, with the previous condition for “reasonable requirements of the public with respect to the patented invention” being replaced with a new public interest requirement (e).^[10][11]

In determining whether an application meets the requirements of (e), the Federal Court must consider:

• the benefits to the public from meeting the demand for the original invention;
• the commercial costs and benefits to the patentee and the applicant from providing authorisation to exploit the original invention; and
• any other matters the Court considers relevant, including matters relating to greater competition and potential impacts on innovation.^[12]

This amendment also introduced specific provisions relating to dependent inventions. If the applicant is the patentee of an invention that is dependent on the original invention, and is seeking authorisation for the purposes of exploiting the dependent invention, the following further conditions must also be met:

(i)        the dependent invention cannot be exploited by the applicant without exploiting the original invention; and

(ii)       the dependent invention involves an important technical advance of considerable economic significance on the original invention.^[13]

In these circumstances, the compulsory licence must allow the applicant to exploit the original invention only to the extent required to enable exploitation of the dependent invention, and (if desired) the applicant must also grant the patentee of the original invention a reciprocal licence on reasonable terms to exploit the dependent invention.^[14]

Low Adoption Rate of Compulsory Licensing

Potential reasons that compulsory licences under the Australian Patent system are rarely used are a matter of debate. The 2013 Productivity Commission into compulsory licensing in Australia offered three potential reasons for the low adoption rate:

1. Compulsory licensing provisions act as a deterrent against refusals to reasonably license new technologies, meaning such provisions hardly ever need to be utilised.
2. Since it is usually in the patent holder’s interest to license, compulsory licensing provisions are required only as a safeguard for use in exceptional circumstances.
3. The process to obtain a compulsory licence is overly time consuming and costly, so potential licensees rarely consider this option. ^[15]

The Commission reviewed evidence relating to each of these potential reasons, with the finding that the most likely cause for the limited number of applications was simply that compulsory licensing was rarely required. Voluntary licensing agreements provide the patent holder with an easy source of revenue, as well as other potential benefits such as reduced risk and increased manufacturing or research capacity.^[16] Therefore, it is usually in the interest of the patent holder, where not commercialising the invention themselves, to negotiate voluntary licensing agreements on reasonable terms. The Commission also found that the cost of the compulsory licensing process could be prohibitive in certain instances, however there was no easy way to solve this issue without reducing the quality of outcomes.

While lack of awareness was found to be an unlikely reason for the limited implementation of compulsory licensing, the Commission also proposed the development of a plain language guide to compulsory licensing by IP Australia and the Australian Competition and Consumer Commission (ACCC) to raise awareness of these provisions. However, this recommendation does not yet appear to have been implemented.^[17]

[1] Patents Act 1970, (India) s 146(2).

[2] Office of the Controller General of Patents, Designs and Trademarks (India), Statement Regarding the Working of the Patented Invention on Commercial Scale in India, Form No. 27 (2003).

[3] Marketa Trimble, ‘Patent Working Requirements: Historical and Comparative Perspectives’ (2016) 6 University of California Irvine Law Review 483, 488-489.

[4] Carlos M. Correa, Intellectual Property Rights and the Use of Compulsory Licenses: Options for Developing Countries (South Centre Trade-Related Agenda, Development and Equity (T.R.A.D.E.)

Working Paper No 5, October 1999), 1, 3-4.

[5] Australian Law Reform Commission, Genes and Ingenuity: Gene Patenting and Human Health (Report No 99, June 2004) 27.4-27.22.

[6] Patents Act 1990, (Cth) ss 133(1)-(3) as at 18 December 2020.

[7] Competition and Consumer Act 2010, (Cth) pt IV.

[8] Patents Act 1990 (n 6) s 133(5).

[9] IP Australia, Compulsory Licensing of Patents, (Public Consultation Brief, August 2017) 1, 3.

[10] Australian Government Productivity Commission, Compulsory Licensing of Patents (Inquiry Report No 61, 28 March 2013).

[11] Intellectual Property Laws Amendment (Productivity Commission Response Part 2 and Other Measures) Act 2020, (Cth) sch 4.

[12] Patents Act 1990 (n 6) s 133(3)(e)

[13] Ibid s 133(3)(f).

[14] Ibid s 133(3A).

[15] Australian Government Productivity Commission (n 10) 1, 114.

[16] Ibid 1, 115.

[17] Ibid 1, 227-233.