An outline of the patent system
2.4 Patents are the oldest form of intellectual property, but their historical origins are obscure. In England, in the fifteenth century, the monarch began to grant monopoly rights as a means of attracting new industries from continental Europe, but these were more in the nature of a royal licence to avoid the effects of guild regulations than a true grant of exclusive rights to carry on an activity. It was only in the following century that patents began to be granted in respect of inventions, and the patent system was put on a statutory basis for the first time in the seventeenth century with the passage of the Statute of Monopolies 1623 (Statute of Monopolies). Despite its age, this English statute continues to have relevance to Australian patent law today.
2.5 As it first developed, the English patent was a slow, costly and cumbersome procedure for encouraging and protecting inventions. The procedure was described in derisory terms by Charles Dickens in a short story published in 1850, ‘A Poor Man’s Tale of a Patent’. Over the years there were many piecemeal reforms to the system, but it was the Patents Act 1883 (UK) that provided the basis of modern patent law.
2.6 Patent legislation in Australia has always been closely modelled on that of the United Kingdom. Prior to Federation, each of the Australian colonies had its own legislation based on the Patents Act 1883 (UK). In 1901, the Australian Constitution gave the newly established Commonwealth Parliament power to make laws with respect to ‘copyrights, patents of invention and designs, and trade marks’. In 1903, this power was exercised with the enactment of the Patents Act 1903 (Cth).
2.7 As in the United Kingdom, there have been many amendments to Australian patent legislation in response to formal commissions of inquiry. The 1903 Act was re-enacted with substantial changes in 1952 and again in 1990. The Patents Act 1990 (Cth) (Patents Act) provides the current legislative framework governing the grant and administration of patents in Australia.
Functions of patents
2.8 Patent law has been described as a ‘stressful if fertile union’ between certain contradictory principles: self-interest and the common good; monopoly rights and liberty; the ownership of ideas and public disclosure of knowledge. This union results from the dual goals of patent law—to benefit society by encouraging the provision of new and useful goods, and to encourage and reward inventiveness.
2.9 These goals are achieved by providing incentives for innovation and knowledge sharing by granting monopoly rights, for a limited period, to exploit a new product or process. Monopoly rights encourage investment by providing an opportunity to recoup the financial outlays involved in developing an invention. They also reward the inventor by allowing a return to be made on the time and resources expended on research and development.
2.10 The limited duration of the monopoly means, however, that the patented invention eventually will be available for free and unrestricted use when the patent term expires: the compromise is thus ‘a way of securing future benefits for the common good’. In addition, patents promote knowledge sharing during the term of the patent by requiring the patent holder to place the details of the invention in the public domain. As one United States judge has stated:
The purpose of the patent system is not only to provide a financial incentive to create new knowledge and bring it to public benefit through new products; it also serves to add to the body of published scientific/technological knowledge. The requirement of disclosure of the details of patented inventions facilitates further knowledge and understanding of what was done by the patentee, and may lead to further technologic advance.
Exploitation of patents
2.11 A patent gives the inventor the right to stop others from exploiting the invention for a limited period. However, a patent does not grant an absolute right to exploit an invention in any way the inventor may choose. A patent holder may have to satisfy regulatory requirements in order to exploit the patented product or process; for example, a patented pharmaceutical compound may need approval under the Therapeutic Goods Act 1989 (Cth) before it can be marketed lawfully and sold as a treatment for a particular condition. Similarly, the use of a patented invention is subject to the general law; for example, the components required to manufacture a car may be the subject of many patents, but the car must still be used in accordance with motor traffic laws.
2.12 A patent holder is not obliged to exploit a patented invention, but the failure to do so may have implications for the patent holder’s rights. For example, the patent could be subjected to compulsory licensing, or it could be used or acquired by the Crown under relevant provisions of the Patents Act. A patent holder may authorise others to exploit the patent by granting a licence on agreed terms. This may be on an exclusive, sole or non-exclusive basis, and almost certainly will require the licensee to pay royalties or other fees to the patent holder.
2.13 It is important to note that while patents are a form of intellectual property, they do not confer ownership in the physical material described in the claims for a patented product or process. Thus, a patent over a genetic sequence does not amount to ownership of the sequence itself.
Criteria for patentability
2.14 Although there is considerable variance in detail from one jurisdiction to another, most countries apply similar tests for patentability: an invention must be novel (that is, new), must involve an inventive step, and must have a useful application. In addition, the description of an invention in a patent application must be sufficient to allow a person skilled in the relevant art to create the invention independently.
2.15 Chapter 6 of this Report provides a detailed discussion of the criteria for patentability under Australian law. Briefly, the Patents Act provides that an invention will be patentable if it is a ‘manner of manufacture’ within the meaning of s 6 of the Statute of Monopolies; is novel; involves an inventive or innovative step; is useful; and has not been used secretly within Australia prior to filing the patent application.
2.16 Certain inventions are expressly excluded from patentability. Australia has relatively few express exclusions, but they include inventions involving ‘human beings, and the biological processes for their generation’, as well as inventions the use of which would be contrary to law. Other jurisdictions recognise a broader range of exceptions, including inventions involving diagnostic, therapeutic and surgical methods of treatment of humans and animals; and inventions whose commercial exploitation would be contrary to morality or public order. Exclusions from patentability are discussed in Chapter 7.
 See, eg, A Gomme, Patents of Invention: Origin and Growth of the Patent System in Britain (1946); H Fox, Monopolies and Patents (1947).
 S Ricketson, The Law of Intellectual Property (1984), 859–861.
 The Patents Act 1990 (Cth) s 18(1)(a) requires a patentable invention to be a ‘manner of manufacture within the meaning of section 6 of the Statute of Monopolies’.
 C Dickens, ‘A Poor Man’s Tale of a Patent’ (1850) II(70) Household Words 1.
Australian Constitution s 51(xviii).
 L Kass, ‘Patenting Life’ (1981) 63 Journal of the Patent Office Society 570, 580.
 The Patents Act 1990 (Cth) s 13(1), sch 1 defines ‘exploit’ to include make, hire, sell or otherwise dispose of the product, use or import it, or keep it for the purpose of doing any of those things.
 Intellectual Property and Competition Review Committee, Review of Intellectual Property Legislation under the Competition Principles Agreement (2000), 136.
 P Baird, ‘Patenting and Human Genes’ (1998) 41 Perspectives in Biology and Medicine 391, 391.
Integra Life Sciences v Merck KgaA 307 F 3d 1351 (2002) (Newman J, dissenting).
 In Australia, a standard patent has a term of 20 years; an innovation patent has a term of eight years.
 Common terms in patent licences are described further in Ch 22.
Patents Act 1990 (Cth) s 18.
 Ibid ss 18(2), 50(1)(a), 101B(2)(c), (d). See Ch 7.
 See Agreement on Trade-Related Aspects of Intellectual Property Rights (Annex 1C of the Marrakesh Agreement Establishing the World Trade Organization),  ATS 8, (entered into force on 1 January 1995), art 27(2).