Crown use: On the path to a clearer and more transparent future

Crown use, the safeguard that allows Commonwealth or State Governments to exploit intellectual property ("IP") without the authorisation of the IP owner, is undergoing change, with the introduction into Parliament of the Intellectual Property Laws Amendment (Productivity Commission Response Part 2 and Other Measures) Bill 2019.

Why does Crown use for patents and designs need to change?

In 2013, the Productivity Commission conducted a public inquiry into compulsory licensing of patents, which also considered the Crown use of patents. The inquiry noted that Crown use was a rarely invoked safeguard, with only two reported cases of contested Crown use. The inquiry offered a number of reasons for the low utilisation, including that the Crown use provisions are unclear, so government is hesitant to use them.

There have been instances where the public interest could have greatly benefited from Crown use. For example, the Department of Health abstained from invoking Crown use to allow other research institutes to use the isolated BRAC1 gene that was then patented by Myriad Genetics. The research institute, Cancer Centre, estimated that Myriad Genetics' refusal to grant permission to use the gene patent delayed its cancer research by two years and tripled its costs.

The Bill seeks to implement the 2013 inquiry's recommendations to enhance the clarity and transparency of the Crown use provisions in the Patents Act and Designs Act, by amending the four requirements of Crown use:

• by the Commonwealth or a State;
• for the services of the Commonwealth or of the State;
• without prior notification to the IP owner; and
• remuneration is to be paid to the IP owner following the Crown use.

“Commonwealth or a State”, and "for the services of the Commonwealth or of the State"

The problem

The Crown use provisions were first introduced in the 1950s, and have largely remained unchanged, despite the evolution in government which has led to more activities and government-related bodies, including statutory authorities, Commonwealth corporations and commissions, all of which could be classified as the "Commonwealth or a State."

There is a concern that some bodies such as research institutes, which were established by an Act and may receive government funding, but otherwise have limited government involvement, may obtain an unfair advantage by invalidly invoking Crown use. Conversely, government entities are reluctant to invoke Crown use as they are unsure if they can.

Finally, at its broadest, "for the services of the Commonwealth or of the State" could encompass a wide range of services that have varying degrees of connection to the Commonwealth or State. This is particularly relevant in the health care industry which is delivered by a mix of government and private service providers. Under the current provisions, it is unclear whether non-government health care providers could validly invoke Crown use.

The solution

The Bill proposes two changes:

• Crown use can only be invoked where the Commonwealth or State has the primary responsibility for providing or funding the services; and
• an entity can only invoke Crown use after it has received Ministerial authorisation to do so.

As a result, bodies that have limited government involvement won't be able to claim Crown use, but non-government bodies providing services on behalf of the government can do so. For example, under the new provisions, health care delivered by a private service provider to private patients could still be entitled to invoke Crown use if the Government is primarily responsible for providing the service or the funding for the service. Nonetheless there remain grey areas in the application of the provision.

The requirement for Minister approval also includes one for a statement of reasons. This will ensure the provisions are used only after careful thought. This process should also develop a body of precedent from which future applications can seek guidance from and will ensure the Minister will only grant authorisation in justifiable circumstances. The statement of reason will also enable the IP owner determine whether to appeal the decision that has been made.

Prior notification

The problem

Under the current regime the Crown is not required to provide the IP owner with any prior notification before using the IP. This creates uncertainty for IP owners and IP right holders who are not given an opportunity to minimise any losses or make informed business decisions in light of the Crown use.

The solution

The Bill would mandate prior notification by the Crown to the IP owner in non-emergency circumstances. Following notification, the Crown is required to participate in negotiations with the IP owner for a reasonable period to determine the terms and remuneration for the use. If those fail, the authority can then seek Ministerial authorisation for Crown use.

This requirement is waived in an emergency, where the Crown must advise the IP owner as soon as practicable following the use.

Remuneration

The problem

Under the Patents Act and Designs Act, the IP owner is to be remunerated for Crown use, but neither give any guidance on how the remuneration amount is determined – they simply state it is to be determined between the parties or, if they cannot agree, by the Court. The 2013 inquiry noted the lack of guidance weakens the IP owner’s bargaining power as they have little to base their negotiation position on.

The solution

Remuneration for Crown use must be just and reasonable, having regard to the economic value of the exploitation and any other matter the Court considers relevant. This aligns with the criteria for remuneration of compulsory licensing, the regime that allows the Court to, if it is in the public interest, order an IP owner to grant a licence to another party after negotiation attempts have failed.

Clearer Crown use on the way

Crown use is an important safeguard to ensure that the private protections offered by IP rights do not impede on the Crown’s ability to act in the public interest, especially in the areas of public health and national safety. Conversely, Crown use also represents a significant intrusion on IP owners' rights and excessive utilisation of Crown use could diminish the public's confidence in the IP system. This delicate balance needs the support of a clear and transparent legislative framework which the Bill seeks to achieve.