Could proposed amendments to IP laws change how governments can use patented inventions under ‘Crown use’ rights?

On 25 July 2019, the Intellectual Property Laws Amendment (Productivity Commission Response Part 2 and Other Measures) Bill 2019 (Bill) was introduced into Federal Parliament. The Bill proposes amendments to the Patents Act 1990 (Cth) (Patents Act) that would affect the way governments can use inventions owned by third parties, particularly in emergencies.

The ‘Crown use’ provisions in the Patents Act allow a Commonwealth, State or Territory government authority to exploit a patented invention without the patent holder’s authorisation, where this is necessary for the authority to properly provide services.

Under the current law, it is unclear exactly which kinds of authorities and services the provisions cover. This is largely because there have been only two reported cases in which Crown use has been contested in court, and only one of these considered the current provisions – Stack v Brisbane City Council (1995) 59 FCR 71 (Stack). (The other case dates back to 1964, and concerned the predecessor Crown use provisions of the Patents Act 1952 (Cth)).

The decision in Stack

In Stack, the Brisbane City Council (BCC) engaged two non-government entities to sell and supply 60,000 patented water meter assemblies to BCC. BCC did not obtain the patentee's consent, and instead relied on the Crown use provisions.

The central issue for the Federal Court was whether BCC was a relevant ‘authority of the State’. Cooper J found that this was a question of fact that depended on whether BCC had the ‘stamp of government'.

Ultimately, Cooper J held that BCC was an ‘authority of the State’, because:

• BCC was a statutory body, established and ultimately controlled by State legislation;
• BCC's functions and powers were State governmental functions and powers delegated to BCC in State legislation. In particular, BCC had been delegated the power to direct and control the affairs of the people within its territorial boundaries on behalf of the State; and
• the executive of the State government, through its Ministers and the Governor in Council, retained a prominent role and a practical involvement in the function of BCC.

Does the Bill clarify matters?

The Bill offers no additional guidance on what is meant by an ‘authority’, and on its face is unlikely to affect the approach to the question adopted in Stack.

It does however shed some light on the meaning of an authority's ‘services’. The Bill introduces a ‘primary responsibility’ test, which provides that the Crown use provisions will apply to all services primarily provided or funded by the Commonwealth, a State or a Territory.

According to the Explanatory Memorandum to the Bill, the test seeks to provide clarity in procurement situations where non-government entities are involved in providing public services. Under the proposed changes, Crown use would extend to all providers of services similar to those provided or funded by a government, including those offered by non-government providers.

For example, the Explanatory Memorandum explains that where the patented invention involves diagnostic genetic testing, testing undertaken by private health providers may be eligible for Crown use.

This is because governments are responsible for funding the vast majority of genetic tests in the health care sector, meaning that the primary responsibility test is likely to be satisfied. As a result, private health providers may be eligible to exercise Crown use on behalf of a government if they are appropriately authorised or funded by the government, and do not make a profit from their use of the invention.

Interestingly, the primary responsibility test is only intended to clarify the current position. It is not intended to limit the existing scope of Crown use, or prevent Crown use by government authorities with low market share.

A new process for Crown use

The Bill introduces an additional requirement that government authorities must attempt to negotiate with the patentee before invoking the Crown use provisions. However, this requirement does not apply in emergency situations (discussed below). Currently, government authorities are not required to obtain prior consent from, or even inform, a patentee of their intention to exploit a patented invention.

According to the Explanatory Memorandum, the aim of introducing a prior negotiation requirement for Crown use is to achieve ‘better outcomes for all parties’. For governments, coming to an agreement with a patent owner will potentially allow them to incorporate the patentee's other know-how and ensure more efficient exploitation of the patented invention. For a patentee, the new process will promote greater transparency as to how the Crown intends to use their invention.

If an agreement cannot be reached, the relevant Minister is to act as a gatekeeper and ensure the provisions are not used inappropriately. According to the Explanatory Memorandum, ministerial oversight will ensure that Crown use is only invoked where the benefits outweigh the costs. It will also give greater certainty to patent owners that the Crown use provisions will not be used inappropriately.

For Commonwealth exploitation, the relevant Minister is the Minister for Industry, Innovation and Science. For State or Territory exploitation, it is the Attorney-General of the State or Territory.

Where Ministerial approval is given, the disclosure of the approval and a statement of reasons ensures transparency for patentees, who will be notified ahead of time as to how and why the Crown will exploit their invention.

A different process for emergencies

The Bill sets out a different process for Crown use in emergencies. During a period of emergency, the requirement for prior negotiation and the requirement to provide a statement of reasons prior to Crown exploitation do not apply.

In an 'emergency situation':

• exploitation may begin immediately, once the relevant Minister is satisfied the emergency necessitates the exploitation and authorises the exploitation in writing; and
  
  
• the Minister must, as soon as practicable, give the patentee a copy of the approval and a statement of reasons for the approval.

Although the Bill does not define ‘emergency situation’, the Explanatory Memorandum notes that ‘an emergency would include an unforeseen occurrence or a sudden and urgent occasion for action’.

Examples of an emergency situation may include:

• a public health crisis (such as a plague or epidemic);
  
  
• a medical emergency (such as a pandemic);
  
  
• national security situations; and
  
  
• natural disasters.

The Bill acknowledges that the nature of emergency situations is ‘inherently unpredictable’. Rather than specifying factors that might constitute an emergency, the Bill gives, governments scope to exercise their own judgment.

This streamlined procedure is intended to strike a balance between expediency and transparency. For governments, the procedure will enable them to respond quickly in an emergency. For patentees, it will ensure that, even in an emergency, Crown use can no longer occur without their being made aware of the use.

Appeal rights and remuneration for patentees

Under the Bill, a patentee cannot challenge a Minister’s decisions through merits review, but may seek judicial review.

A patentee can apply to the court for an order that the Crown’s exploitation cease, or for a determination of the terms of the exploitation. In particular, a patentee can apply for a determination as to terms of remuneration.

The current Crown use provisions offer no guidance as to how remuneration is to be determined. This disadvantages patentees who, without a standard or criterion to refer to, struggle to obtain fair and equitable compensation in negotiations against their relatively well-resourced government counterparty.

To remedy this, the Bill imposes a ‘just and reasonable’ criterion. This states that a court must determine an amount of remuneration that is just and reasonable, taking into account the economic value of the exploitation.

Of course, the criterion is not entirely patentee-friendly. It is intended to be wide enough to account for all relevant circumstances of each case, including any patentee-favourable exploitation terms which may fairly result in a less generous order for remuneration.

What effect does the Bill have on existing agreements?

While amendments to the Crown use provisions are set to take effect on the date the Bill receives Royal Assent, section 166 of the Patents Act will affect certain patent agreements entered into and licences given before the Bill's commencement date.

Section 166 of the Bill provides that any agreements or licences which include terms permitting a person other than a government authority to exercise the Crown use provisions will be inoperative. This section applies even if the agreement or licence was entered into prior to the commencement date of the Bill.

Accordingly, government authorities should seek to:

• review existing patent agreements and licences to check for any terms which allow a person other than a government authority to exercise Crown use; and
  
  
• ensure that all future agreements and licences comply with section 166 of the Patents Act.

Next steps

Given the proposed changes to the Crown use provisions, government authorities should take steps to:

• update their intellectual property policies and procedures to reflect the proposed changes in the legislation early on in the process;
  
  
• ensure that all staff who may invoke the Crown use provisions understand the new legislative requirements proposed by the Bill; and
  
  
• ensure that any third party service providers are aware of their obligations under the proposed changes to the legislation.

We will keep you informed of any further developments.