This article was written by Suzy Madar, Kim O’Connell, Scott Bouvier, Matt Swinn and Sarah-Jane Frydman.
As the COVID-19 pandemic unfolds, new and critical needs for medicines, vaccines, diagnostics and other medical tools will continue to arise. Many of these products are patented and so can only be manufactured by the patent owner and any authorised licensees.
The social value of patent protection is well established – without it, there would be little incentive for companies to invest in costly research and product development. However, at critical times, it is important that companies with the capability to manufacture essential materials be able to do so without fear of liability for patent infringement.
To that end, several nations – including Australia – have in place, or have recently legislated to implement, provision for their government to suspend, override or acquire patent rights. In an exceptionally timely coincidence, amendments to strengthen these legislative provisions were implemented in Australia on 27 February 2020. Despite these provisions, the response from industry appears to indicate that companies in the health sphere are looking to suspend enforcement of their patent rights in relation to drugs and devices that have been identified as potentially relevant to treating COVID-19 rather than looking for ways to enforce them.
This alert examines the two primary processes by which patent rights may be circumvented in Australia – the provisions for Crown use and the compulsory licensing regime – and explores how similar provisions have so far been implemented globally in the midst of the COVID-19 pandemic.
Suspending patent rights through Crown use
Australian Commonwealth and State governments have the power under Chapter 17 of the Patents Act 1990 (Cth) (Patents Act) to exploit patented inventions for Crown purposes without the authorisation of the patent holder. These provisions, known as the ‘Crown use’ provisions, provide that this form of exploitation does not, in certain circumstances, constitute patent infringement. Those circumstances are that the Minister considers that the relevant public authority has tried for a reasonable period to obtain authorisation to exploit the invention on reasonable terms and approves the exploitation; the invention is exploited for Crown purposes; and the exploiting person is authorised. The patentee must be remunerated for Crown use, and the Court is to determine an amount that is just and reasonable having regard to the economic value of the patented invention.
Special provision is made for Crown use in the case of an emergency, which may be invoked where the exploitation is so urgent that there is insufficient time for the government to engage in negotiation with the patent owner to provide access to the patented invention.
Last month the Crown use provisions were amended – not in response to COVID-19, but following lengthy reviews by bodies including by the Australian Law Reform Commission and the Productivity Commission. A key object of the reforms was to clarify what constitutes a “Crown purpose”. Previously, Crown use could only be invoked “for the services of the Commonwealth or the State”, which, some said, could be interpreted to exclude healthcare. The amendments clarified that an invention is exploited for Crown purposes if the invention is exploited for the “services of a relevant authority” and the exploitation is by the relevant authority or a person authorised by the relevant authority. Relevant authorities include Commonwealth, State and Territory authorities, and the services are those primarily provided or funded by them – which would include healthcare. The Crown use provisions could therefore be used almost immediately by the Commonwealth and States in order to facilitate the urgent manufacturing of medical supplies for use in treating or preventing COVID-19 infection (keeping in mind that the provisions would only apply to an Australian patent).
Compulsory licensing – an alternative route to facilitate access to medicines
Another framework that could be invoked in a public health emergency in Australia is compulsory licensing under Chapter 12 of the Patents Act. These provisions grant the Australian Federal Court the power, in certain exceptional circumstances, to order a patentee to grant a licence – known as a ‘compulsory licence’ – to another party. A compulsory licence effectively suspends the monopoly rights of a patent owner by granting the third party non-exclusive rights to exploit the patented invention. Two sets of circumstances may give justify the grant of a compulsory licence: where exercising the exclusive rights associated with a patent constitutes anti-competitive conduct or, relevantly to the world in which we find ourselves, where the exercise of exclusive rights would be contrary to the public interest. In the latter case, the Court must be satisfied of the following conditions before making an order:
- demand in Australia for the exploitation of the patented invention is not being met on reasonable terms;
- the patentee has given no satisfactory reason for failing to exploit the patent;
- authorisation to exploit the invention is essential to meet demand;
- the applicant for the order has tried for a reasonable period to obtain authority from the patentee to exploit the original invention on reasonable terms, without success; and
- it is in the public interest to provide the applicant with authorisation to exploit the invention.
The Patents Act also makes special provision for compulsory licences to exploit patented pharmaceutical inventions. The Federal Court has the power to make an order requiring the patentee of a patented pharmaceutical invention to grant a licence (known as a PPI compulsory licence) to manufacture a pharmaceutical product in Australia for export to an eligible importing country to address public health problems in that country.
As in the case of Crown use, the licensee must remunerate the patentee for the exploitation of the patented invention. If the patentee and licensee cannot agree on the amount of remuneration, the Federal Court will determine the remuneration having regard to the economic value of the licence, or in the case of PPI licences, the economic value to the importing country of the use of the patented pharmaceutical product.
The recent amendments to the Patents Act also included amendment to the compulsory licensing provisions, providing for a more structured and certain framework under which those provisions can be invoked. Most significantly, the amendments replaced the previous ‘reasonable requirements of the public’ test for compulsory licensing with the public interest test outlined above.
A global shift to compulsory licensing in the era of COVID-19?
There have been only three applications for compulsory licences in Australia since 1903. Similarly, the frequency with which the Crown use provisions have been used is difficult to establish, but is generally acknowledged to be minimal. However, the threat of compulsory licensing or Crown use has, in many cases, likely acted as an incentive for patentees to provide access to a patented invention on negotiated terms where it is in the public interest.
While the Crown use and compulsory licensing provisions have rarely been invoked in Australia, the recent legislative attention they have received may suggest they are more likely to be relied upon in future. The COVID-19 pandemic is precisely the kind of situation in which the Crown use and compulsory licensing provisions are designed to operate.
Some countries are taking pre-emptive measures by adopting or strengthening legislation empowering the government to sidestep patent rights through compulsory licensing – for instance, Canada passed emergency legislation on 27 March 2020 to empower its health minister to authorise the government or any person to manufacture patented inventions “to respond to a public health emergency”.
Other countries have gone a step further. On 17 March 2020, the parliament of Chile adopted a resolution declaring that the COVID-19 pandemic justified the use of compulsory licensing to facilitate affordable access to key medical products, including ventilators, diagnostics, and any COVID-19 drugs or vaccinations that are brought to market. The Ecuadorian Education, Culture, Science and Technology Commission of the National Assembly did the same three days later.
Israel has already issued compulsory licences for the importation of generic versions of lopinavir / ritonavir (Kaletra), a patented antiviral medicine developed by AbbVie for the treatment of HIV. Lopinavir / ritonavir is one of four drugs being tested by the World Health Organisation in a multi-country clinical trial to test the efficacy of the most promising COVID-19 treatments (all of which are patented antiviral medications developed for other indications).
The Crown use and compulsory licensing provisions may also be encouraging companies to relinquish their patent rights before they are required to. For example, pharmaceutical companies have moved to suspend their patent rights to allow for the manufacture of generic versions of drugs that have been identified as potential treatments for COVID-19. Late last month AbbVie became the first pharmaceutical company to relinquish intellectual property rights for a possible COVID-19 treatment, stating that it will suspend enforcement of its Kaletra patents globally. Gilead Sciences followed suit a few days later, announcing (following public outcry) that it had rescinded its request for a US Food and Drug Administration ‘orphan drug’ designation for the novel antiviral remdesivir, which would have granted Gilead seven years of market exclusivity.
The COVID-19 pandemic places a spotlight on the tension between governments being able to ensure that public health concerns are addressed and the intellectual property system, which provides companies with exclusive rights for a period as the incentive to innovate. Allowing public use of private intellectual property is a near unprecedented measure, and the circumstances in which it should be permitted are similarly extraordinary. Whether Crown use and compulsory licensing provisions will be put to use in Australia depend on which pharmaceuticals and other medical supplies are needed to treat or prevent COVID-19 – and equally, on the willingness of patent holders to unilaterally licence, suspend or choose not to enforce their rights. In any event, it is likely these provisions will be more significant, and more closely scrutinised, now than at any time in recent history.
 See the Intellectual Property Laws Amendment (Productivity Commission Response Part 2 and Other Measures) Act 2020 (Cth).
 Patents Act, s 163A.
 Patents Act, s 133.
 Ibid, s 133(3).