Crown use

26.6 Crown use provisions were introduced into English patents legislation in 1883.^[4] Earlier case law had held that the Crown may retain rights to exploit inventions for which a patent had been granted, although this depended on the terms of the particular ‘letters patent’ issued under the Statute of Monopolies 1623.^[5] With the enactment of the Crown use provisions in 1883, the Crown agreed to be bound by patents, but obtained the protection of these provisions when using patented inventions.^[6] In 1903, Crown use and acquisition provisions were included in Australian patents legislation.^[7]

26.7 Historically, the two main justifications for Crown use provisions have been that: (a) the Crown should not be impeded from acting in the public interest by patents, which are Crown grants; and (b) the Crown, through its departments and authorities is ordinarily engaged in public service, rather than commercial activities, and therefore should be in a special position in regard to the use of patented inventions.^[8]

26.8 At the time the Crown use provisions were first enacted, the scope of government activities was much more limited than at present.^[9] Expansion in government services, including the provision of healthcare, has greatly broadened the potential application of the Crown use provisions.

26.9 The frequency with which the provisions have been used is difficult to establish.^[10] Some evidence that the provisions have been used may be found in the two reported cases in which the application of the Crown use provisions has been contested.^[11] Submissions in response to the ACIP Discussion Paper also provide some examples of Crown use being invoked, although not with respect to genetic materials or technologies. While the Crown use provisions may be used only rarely, their importance may lie more in their potential for use. One view is that the primary purpose of the Crown use provisions is ‘to force an unwilling licensor to the negotiating table’ and that the ‘threat of resort to the Crown use provisions may assist in ensuring an acceptable result from those negotiations’.^[12]

26.10 There are various reasons why the Crown might seek to exercise the Crown use or acquisition provisions in respect of genetic inventions used in scientific research or healthcare provision. These reasons include:

• facilitating genetic research by organisations such as the Commonwealth Scientific and Industrial Research Organisation (CSIRO);

• providing medical genetic testing through public sector genetics laboratories; or

• providing novel therapies (such as those involving gene therapy, therapeutic proteins or stem cells) through public sector health organisations or other healthcare providers.

26.11 The Crown use provisions involve significant interference with the rights that patent holders otherwise have under the patent system. It is arguable that the Crown use provisions should not be relied upon too readily and should be invoked only in exceptional circumstances if confidence in the patent system is to be preserved. For example, reliance upon the provision may be justifiable in the case of public health emergencies, such as those in which the United States and Canadian governments contemplated compulsory use of Bayer AG’s patent on the ciprofloxacin antibiotic following bioterror attacks using the anthrax organism in the United States.^[13]

26.12 However, even in these circumstances, Crown use of a patent may be controversial and this factor may act as a political constraint on the exercise of these provisions of the Patents Act. Another constraint is that, as discussed below, where the provisions are invoked, adequate remuneration or compensation must still be paid to the patent holder.

TRIPS Agreement

26.13 The Agreement on Trade-Related Aspects of Intellectual Property Rights 1994^[14](TRIPS Agreement) contains detailed provisions dealing with the use of patented inventions ‘without the authorization of the right holder, including use by the government or third parties authorized by the government’.^[15] There are detailed provisions in relation to the permissible duration and scope of such use, remuneration of the patent holder, and judicial or other independent review of decisions.^[16] These provisions apply to Crown use of patented inventions, which is considered to be ‘public non-commercial use’ for the purposes of the TRIPS Agreement.^[17] Importantly, art 31(b) of the TRIPS Agreement, permits Crown use without efforts being made to obtain prior authorisation from the patent holder.

The Patents Act

26.14 Section 163(1) of the Patents Act allows the exploitation of a patented invention by the Commonwealth or a State, or by a person authorised by the Commonwealth or a State, without liability for infringement of the patent, provided that the exploitation is ‘for the services of the Commonwealth or the State’.^[18] The permitted exploitation expressly includes exploitation by an authority of the Commonwealth or of a State.^[19]

26.15 The relevant Crown authority must notify the patent holder of the exploitation as soon as practicable after the invention has been exploited and must give the patent holder or exclusive licensee information about the exploitation, as reasonably required from time to time.^[20] The terms of the exploitation, including remuneration payable to the patent holder, are to be agreed between the patent holder and the relevant authority or determined by a prescribed court.^[21] The exploitation of the patented invention by the Crown must cease upon a prescribed court declaring that the exploitation of the invention is no longer necessary for the proper provision of services of the Commonwealth or of the State.^[22]

Who is the Crown?

26.16 The Crown use provisions may be exercised by the Commonwealth or a State, by an authority of the Commonwealth or of a State,^[23] or by a person authorised in writing by the Commonwealth or a State.^[24]

26.17 Case law provides some guidance on the entities that may constitute an authority of the Commonwealth or of a State for the purposes of the Crown use provisions.^[25] In Stack v Brisbane City Council (Stack),^[26] the Federal Court of Australia held that the primary focus in determining whether a body was an authority of the State was on the functions of government. A body would be an authority of the State if its functions were ‘impressed with the stamp of government’, or if the body had been given the power to direct or control the affairs of others on behalf of the State. The role and involvement of the executive, through the Governor in Council or the appropriate Minister, was also a relevant factor.^[27]

26.18 In considering what entities may constitute the Crown or a Crown authority, the law on Commonwealth immunity (sometimes referred to as the ‘shield of the Crown’) is relevant.^[28] In Stack, Cooper J stated that the long line of cases relating to Crown privileges and immunities were of limited relevance because the phrase ‘authority of a State’ carried a ‘different emphasis’.^[29] However, he conceded that there is some overlap in the concepts of the Crown for immunity purposes and authorities of the Commonwealth or of a State for the purposes of the Patents Act.^[30] It seems likely that entities that are entitled to Crown immunity will also be authorities of the Commonwealth or of a State for Patents Act purposes.

26.19 The ACIP Discussion Paper observed that the Crown use provisions are applicable to a ‘vast number of municipal councils and statutory authorities throughout Australia’.^[31] The ACIP Discussion Paper suggested that consideration be given to limiting the range of government bodies that can exploit patents under the Crown use provisions—in particular so that ‘deregulated and corporatised’ statutory bodies do not obtain an ‘unfair advantage in the market place’.^[32]

26.20 The ACIP Discussion Paper noted that one option would be to amend the legislation so that any Crown use of patents by any council, statutory corporation or other like body requires Ministerial approval.^[33] This, it was said, would centralise the responsibility for invoking the Crown use provisions and would ensure that they are not contrary to the principles of competitive neutrality.^[34]

Services of the Commonwealth or of a State

26.21 The Crown use provisions apply to exploitation ‘for the services of the Commonwealth or the State’.^[35] Under s 163(3) of the Patents Act, an invention is taken to be exploited ‘for the services of the Commonwealth or of a State’ if the exploitation is ‘necessary for the proper provision of those services within Australia’.^[36]

26.22 In Stack,^[37] the Federal Court considered the reasoning of the House of Lords in Pfizer Corporation v Ministry of Health (Pfizer),^[38] in which it was held that the use of a patented drug (tetracycline) in National Health Service hospitals for patients was ‘for the services of the Crown’.^[39] The House of Lords held that the phrase was not to be limited to the internal activities of Crown authorities, but that the services at issue could ultimately benefit individual members of the public. The House of Lords held, by majority, that an act was done ‘for the services of the Crown’ if it was done for the purpose of performing a duty or exercising a power which was imposed upon or invested in the executive government by statute or by prerogative, including providing services to the general public.^[40]

26.23 The ACIP Discussion Paper referred to Pfizer and noted that the case shows how the Crown use provisions could be applied to the supply of drugs used in the treatment of disease.^[41] The ACIP Discussion Paper questioned whether the sale of patented products to members of the public should be characterised as a use necessary for the proper provision of Commonwealth or State services.^[42] It also suggested that one option was to identify and limit the circumstances in which government can invoke the Crown use provisions, for example by restricting Crown use to situations involving the national interest or to use in times of national emergency, or for defence or public health purposes.^[43]

Remuneration for Crown use

26.24 The Patents Act provides that remuneration for Crown use of a patent is payable to the patent holder on such terms as are agreed, or in the absence of such agreement, as are determined by a prescribed court.^[44]

26.25 The reference to remuneration was inserted by the Patents (World Trade Organisation Amendments) Act 1994 (Cth), which made a suite of amendments to the Patents Act to enable Australia to ratify the TRIPS Agreement.^[45] Article 31 of the TRIPS Agreement requires the patent holder to be paid ‘adequate remuneration in the circumstances of each case, taking into account the economic value of the authorization’.^[46] The Australia–United States Free Trade Agreement appears to set a higher level for remuneration, by providing that patent holders must be entitled to ‘reasonable’ compensation.^[47]

26.26 There is, however, no guidance in the Patents Act on the quantum of remuneration for Crown use. In contrast, the compulsory licensing provisions of the Act state that a patent holder is entitled to be paid for use of a patent under a compulsory licence at an agreed rate or, failing agreement, such amount as is determined by a prescribed court to be ‘just and reasonable having regard to the economic value of the licence’.^[48]