Government responds to Productivity Commission's IP inquiry

In brief

The Federal Government has released its response to the recommendations proposed by the Productivity Commission following its inquiry into Australia's IP arrangements. The Productivity Commission's review covered all areas of IP, as well as IP enforcement and international obligations. The Allens Intellectual Property team considers the Government's response to some of the key recommendations.

Background

The Federal Government asked the Productivity Commission (PC) to undertake a public inquiry into Australia's intellectual property system. The PC's inquiry covered all areas of IP, as well as IP enforcement and international obligations. On 25 August 2017, the Government released its response to the recommendations made by the PC in its final report. We discuss the Government's response to some of the key recommendations below.

Copyright

Fair dealing vs fair use

The debate as to whether Australia should introduce a fair use exception is set to continue. The Government notes the PC's recommendation that the Government should adopt the recommendation made by the Australian Law Reform Commission in its report on Copyright and the Digital Economy that the current fair dealing exceptions be replaced by a broad exception for fair use, but says it will publicly consult in early 2018 on 'more flexible copyright exceptions'. Watch this space.

Contracting out of copyright exceptions

Currently, a party can by contract prevent another party from doing something that would otherwise be the subject of a copyright exception. The Government supports, in principle, the recommendation to make unenforceable any part of an agreement restricting or preventing a use of copyright material that is permitted by a copyright exception. It is not clear whether the rule proposed by the PC would apply to all defences and exceptions in the Copyright Act 1968 (Cth). The Government is also looking to address perceived problems created by technological protection measures (TPMs). The PC noted that restrictions on contracting out will be futile if TPMs are used to override copyright exceptions. The Government is currently undertaking a review of the Copyright Regulations 1969 (Cth) and will consider whether new TPM exceptions should be created as part of that review.

Patents

Objects clause

The PC proposed that an objects clause be introduced into the Patents Act to describe the purpose of the legislation as 'enhancing the wellbeing of Australians by promoting technological innovation and the transfer and dissemination of technology' and this has been supported by the Government. At present, the courts do not hear evidence about, or investigate, whether a particular patent creates 'wellbeing' (or indeed any other subjective outcome) for Australians. To the extent that these may become relevant issues requiring evidence in litigation or prosecution, the objects clause would not only create uncertainty for patent applicants and patentees, but increase the complexity and cost of patent examination and patent proceedings.

Changes to the inventive step test

The Government supports the recommendation to:

• amend ss 7(2) and (3) of the Patents Act so that an invention will be taken to involve an inventive step if, having regard to the prior art base, it is not obvious to a person skilled in the relevant art; and
• specify in the explanatory memorandum accompanying the amending legislation that a 'scintilla' of inventiveness is not a sufficient threshold for meeting the inventive step requirement and that the 'obvious to try' test as applied in Europe would, in some instances, be a suitable test.

The proposals were to address a concern of the PC that differences remain between Europe and Australia when it comes to the assessment of inventive step, and that the bar is set too low for patentees in Australia. It was never clear that the differences or problems actually exist, or that the solutions proposed by the PC will remove or solve them.

As to the legislative test, the effect of the proposed wording appears to make no difference to the assessment of inventive step. Whether or not an invention is obvious to a person skilled in the art is already the relevant inquiry. What are the courts to make of a re-wording that makes no apparent difference, but is said to be important? Such a change is likely to increase the complexity and costs of patent examination, as patent applicants and the Patent Office grapple with the supposed change the proposed amendment is said to bring about.

The major historical divergence in relation to the 'starting point' for the assessment of inventive step was not the subject of a recommendation, and has likely been dealt with by the Raising the Bar reforms.

As to the notion of a 'scintilla' of inventiveness, we believe the PC's focus is misguided. The key question in Europe and in Australia is whether something has the quality of invention, not whether it is sufficiently inventive. An investigation into the quantity of inventiveness is not required.

As to the 'obvious to try' test, that test is already used as a practical guide in both Australia and Europe. In both places it is qualified by the requirement that there be an 'expectation of success'. The 'obvious to try' test is not, and has never been, a replacement for the statutory test – that is, whether the invention was obvious to the person skilled in the art.

Abolition of innovation patents

The Government supports the recommendation that the innovation patent system be abolished. The same recommendation was made previously by the now defunct Advisory Committee on Intellectual Property in 2015. The Government says it will look at more direct ways to better assist SMEs to secure and utilise their IP rights.

Extension of term provisions

The Government has – appropriately in our view – said that it has no plans to proceed with the recommendation to reform the extension of term provisions for pharmaceutical patents in the form proposed by the PC. The PC recommended that extensions of term for pharmaceutical patents should be calculated based on the time taken by the Therapeutic Goods Administration (TGA) for regulatory approval over and above one year. The Government recognises that it is not only the time taken by the TGA to assess applications that contributes to the delay associated with the regulatory approval process, but more importantly, the time it takes pharmaceutical companies to complete clinical trials to obtain the evidence required to support an application for regulatory approval.

Trade marks

Grace period

The Government supports the recommendation to reduce the grace period for challenging non-use of a trade mark from five years to three years. This will mean that one will not need to wait five years from the filing date of a mark in order to challenge based on three consecutive years of non-use.

Statement of use or intention to use

The Government supports, in principle, the recommendation to require a statement of 'using' or 'intending to use' a mark at application, registration and renewal. Such a requirement existed many years ago, but was abolished, and it is interesting that the Government supports its reintroduction, plus possibly the re-introduction of an extra step proposed by the PC, involving IP Australia contacting 'intent to use' applicants after the initial grace period, requiring a statutory declaration that the mark is indeed being used.

Parallel imports

Section 123(1) of the Trade Marks Act provides that an importer of trade marked goods will not commit an infringing act if the trade mark was applied to the goods 'by, or with the consent of, the registered owner of the trade mark'. The drafting of s123 – including the onus on the alleged infringer to prove the defence applies – has proved to be problematic and has given rise to uncertainty where an overseas manufacturer registers its trade marks in Australia in the name of a related entity. The Government supports the recommendation to ensure that parallel imports of marked goods do not infringe an Australian registered trade mark when the marked good has been brought to market elsewhere by the owner of the mark or its licensee. The Government has stated it will engage in further public consultation on an exposure draft of proposed legislation to amend the Trade Marks Act to give effect to this recommendation.

Competition law

Repeal of IP exemption

The Government will seek to repeal s51(3) of the Competition and Consumer Act 2010 (Cth) (the CCA) which exempts conditions of IP assignments and licences from most of the competition law prohibitions. The Harper Report on Australia's competition law and policy, released over two years ago, recommended that s51(3) be repealed. At the time of the release of the Harper Report, the Government did not provide any specific response to this recommendation, as the PC inquiry was already underway.

The Harper Report stated that IP licences should be exempt from the per se cartel provisions of the CCA insofar as they impose restrictions on goods or services produced through application of the licensed IP. Such IP licences should only contravene the competition law if they have the purpose, effect or likely effect of substantially lessening competition.

The Harper Report also suggested that s51(3) could be replaced by a more limited block exemption, to provide a safe harbour for certain IP licences and assignments. Safe harbour protections for IP holders are common in many jurisdictions, including Europe, the US, Canada and New Zealand. The PC did not propose any safe harbour, and the Government did not comment on this suggestion in its response. The Government does support the recommendation that the ACCC issue guidance on the application of the competition prohibition provisions of the CCA. Any guidance will be keenly anticipated, particularly if s51(3) is indeed repealed 'immediately', although it is to be noted that 'guidance' does not provide the protection of a safe harbour.

Regime for monitoring settlement agreements between originator and generic pharmaceutical companies

The Government supports, in principle, the recommendation that a system for transparent reporting and monitoring of settlements between originator and generic pharmaceutical companies be introduced to detect potential pay for delay agreements. The ACCC has not yet taken any action in relation to an alleged pay for delay settlement and the Government acknowledges that there is presently no evidence that pay for delay activity is occurring in Australia, but says that this may only confirm the difficulty of detecting such activity.

The Government will further consider options for implementing this recommendation. The PC recommended that the system should be based on the model used in the US and administered by the ACCC. The Government response suggests that this type of scheme may be considered.

The US scheme relies on a register of patents associated with medicines registered by the US Food and Drug Administration, known as the 'Orange Book'. The US registration scheme for generic medicines also provides an incentive for the first generic to market. Both of these items provide the basis for identifying the drugs and the agreements relating to those drugs that need to be filed with the US Federal Trade Commission (FTC) and the US Assistant Attorney General.

However, Australia has no equivalent to the 'Orange Book' and no incentives for the first generic to market. While there are some requirements under the Australia-United States Free Trade Agreement in relation to patents and generic drug registrations, it is not easy to see how these can be adapted to identifying agreements that would need to be reported under an Australian scheme. Additional concerns arise from how the ACCC would use any agreements filed under such a scheme. The FTC has guidelines which it applies to the assessment of filed agreements, and the PC recommended that the ACCC should also include guidelines on the approach to monitoring as part of its broader guidelines on the application of competition laws to IP.

The Government says it will look at implementation options to capture agreements with a direct impact on Australia, whether or not the agreement is made in Australia. The consequence is that global agreements impacting Australia will likely need to be filed with the ACCC, which means this will potentially become a global compliance issue for pharmaceutical companies.

It will be essential for industry consultation to occur as the Government evaluates whether to move beyond its in principal support for a reporting and monitoring scheme.

Conclusions

The Government has signalled that it will not implement significant changes to Australia's IP laws without further public consultation. We will keep you updated as to the release of any discussion papers or opportunities for consultation, and the likely timing and form of any proposed amendments to Australia's IP legislation.