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12 February, 2017
Australian Government responds to Productivity Commission inquiry into intellectual property arrangements
What you need to know
The Commonwealth Government has responded to the Productivity Commission's inquiry into Australia's intellectual property arrangements.
The Government is considering important reforms to Australia's IP landscape, including increased anti-trust scrutiny of IP agreements, mandatory reporting of settlements in the pharma sector, changes to the requirements for patent validity and abolishing innovation patents.
The Government intends to consult industry and other stakeholders on its proposed reforms.
What you need to do
Consultation on the proposed changes to the patents and trade marks systems will be conducted by IP Australia.
For opportunities to make submissions, consult the IP Australia website.
Consultation on proposed copyright changes will be conducted by the Department of Communications and the Arts. See the Department's website for opportunities to make submissions.
The Australian Government has published its response to a major review of Australia's intellectual property arrangements by the Productivity Commission, which provides independent expert advice on economic issues.
The Commission had recommended far-reaching reforms to Australia's IP framework. Only some of those recommendations have attracted Government support.
Details of the Government's response can be accessed here. Key aspects are outlined below.
Increasing anti-trust scrutiny of IP agreements
Currently, licences and assignments of intellectual property occupy a privileged position under Australian anti-trust law. They are exempt from some (although not all) of the prohibitions which apply to other contracts, including the prohibition on contract terms which have the purpose or likely effect of substantially reducing competition, and the prohibition on contracts for the supply of goods or services which restrict a customer's ability to acquire goods or services from a competitor.
Those exemptions reflect an historical view that IP and anti-trust laws fundamentally conflict. That view has been challenged in a series of Australian inquiries and reviews since the 1990s, which have found that the impact of IP rights on competition is highly dependent on the nature and extent of those rights, as well as the availability of substitutes within a market. Consistent with those findings, the Productivity Commission recommended that the exemptions be abolished. That recommendation has received government support, and appears likely to be implemented.
If so, then IP licences and assignments will require closer scrutiny for compliance with Australia's anti-trust laws.
For example, agreements between competing firms will require careful review where there are few substitutes for their products or services and those firms:
- grant one another exclusive cross-licences to their respective IP;
- agree on contract terms which impose restrictions on output or prices;
- include territorial restrictions in an agreement, enabling the firms to allocate territories between themselves and restrict competition within those territories.
Targeting pay-for-delay in the pharma sector
Pay-for-delay agreements between originator and generic pharmaceutical companies have attracted attention from anti-trust regulators in the United States and Europe, with the European Commission imposing fines exceeding EUR400M in some cases.
These agreements involve a transfer of value from an originator to a generic competitor, coupled with some restriction on generic market entry. Anti-trust regulators have expressed concern that such agreements may reduce competition and elevate drug prices.
The extent of pay-for-delay agreements in the Australian pharmaceuticals sector is unclear. However, as the Productivity Commission observed, parties to such agreements would have no incentive to disclose them, and they are inherently difficult to detect.
Given the potential to reduce competition, the Productivity Commission recommended mandatory reporting of settlements between originator and generic pharmaceutical companies in Australia, modelled on schemes currently operating in the US and Europe.
That recommendation has received in-principle support from the Government. Notably, the Government has indicated that, in considering this recommendation, it will explore mechanisms for capturing settlement agreements reached overseas that impact on Australian markets.
Clarifying the purpose of Australia's patent system
The Government supports inserting an "objects clause" into Australia's Patents Act. Objects clauses play a role when courts or the Patent Office are called upon to resolve finely-balanced issues – the legislation must be interpreted and applied in a way that advances the stated objects.
The Productivity Commission recommended an objects clause based on TRIPS (the WTO's IP treaty), stating that the patent regime should promote technological innovation as well as the transfer and dissemination of technology, striking a balance over time between the interests of producers, owners and users of technology.
The Government supports that recommendation and an objects clause is therefore likely to be adopted. It will have greatest impact when the courts are presented with cases raising contested policy questions, such as the patent-eligibility of biotechnologies and digital innovations. In theory, an objects clause ought to result in more consistent decision-making by the courts, over time.
Raising the bar on inventiveness, again
Inventiveness (or its antithesis, obviousness) is a key determinant of patent validity. In 2012, Australian law was amended to expand the range of information that may be considered when inventiveness is tested. That reform was intended to "raise the bar" on patent validity, leading to higher quality granted patents.
Now the Australian Government has accepted a recommendation by the Productivity Commission to raise the bar again, this time by reforming the fundamental test for deciding whether something was inventive or was obvious.
The Government aims to more closely align Australian law in this area with international norms and, specifically, to "put beyond doubt that the assessment of inventive step in Australia is consistent with the European Patent Office".
Touted reforms include overturning the principal that a mere "scintilla" of inventiveness will sustain a patent; requiring patent applicants to specifically identify the technical features of the claimed invention; indicating that "obvious to try" will be a suitable test in some cases; and, conversely, making clear that "directly led as a matter of course" will not be a suitable test in all circumstances.
The Government has foreshadowed public consultation on the wording of its proposed reforms and we expect a range of strong views to be expressed in this critical aspect of Australian patent law.
Abolishing innovation patents
Australia currently has a two-tier patent system. In addition to standard patents (20-year term), innovation patents provide 8-years of protection for incremental innovations that may not rise to the level of inventiveness required to obtain a standard patent.
Innovation patents were introduced in 2001, with the express aim of increasing use of the patent system by small and medium size enterprises (SMEs). The Productivity Commission concluded that innovation patents had failed to achieve this objective. Rather, the Commission found that innovation patents were often employed by existing users of the patent system as a strategic weapon in disputes with their competitors.
The Government has expressed support for the Commission's recommendation that the innovation patent system be abolished, with alternative, more targeted strategies deployed to increasing use of the patent system by SMEs.
No change to term extensions for pharmaceutical patents
Under Australia's Patents Act, extensions of term of up to 5 years are available where compliance with regulatory
requirements delays the commercial exploitation of pharmaceuticals. Existing case law suggests that term extensions may be available for patents claiming new active pharmaceutical ingredients (APIs), as well as patents claiming new formulations for known drugs.
While the Productivity Commission recommended that term extensions be limited to patents for new APIs, that recommendation has not received Government support. The Government has stressed that any reform of patent term extensions must strike an appropriate balance between promoting innovation and ensuring access to affordable medicines.
Status quo in Australia's approach to IP treaties
In its report on Australia's IP arrangements, the Productivity Commission was critical of the approach taken by successive Australian governments when negotiating IP provisions of free trade agreements (FTAs). It recommended that the Government exclude intellectual property provisions from bilateral and regional treaties, and instead pursue IP reform through multilateral forums such as the WTO. The Commission also recommended that the Government support a review of the TRIPS agreement.
Those recommendations have not received Government support. The Government rejected the suggestion that IP arrangements be "off the table" when negotiating FTAs, making clear that it will take a case-by-case approach to negotiating bilateral and regional treaties that encompass IP protection and processes, while continuing to play an active role in the WTO and WIPO.
Conclusion
The Government's response to the Productivity Commission's inquiry into Australia's IP arrangements is a mixed-bag. While resisting calls for a shift in Australia's approach to international IP policy, the Government has signalled an appetite for domestic law reform, including on contentious issues such as the requirements for patent validity and the interaction between IP and anti-trust law. We expect public consultation on these issues to attract strong interest and robust debate.
For further information, please contact:
Grant Fisher, Partner, Ashurst
grant.fisher@ashurst.com
