Both of the latter amendments relate to compulsory licences. There has been considerable discussion about the possible unduly wide scope of these licences. To us, the scope is not surprising given that they arise directly from the Productivity Commission, which is pro-competition.

Compulsory licence versus Patent Office Licence (POL)

Whilst there is every reason to believe the proposed compulsory licence provisions will pass into law, there is another form of licence that remains untouched. This licence is one in which the decision to grant or not grant a licence is made by the Patent Office. By contrast, licences are generally negotiated between a patent owner and a potential licensee. The difference in the case of a compulsory licence is the Federal Court is responsible for determining if a licence is to be granted and if so, the terms of the licence.

The grant of a POL may be subject to terms, though such terms do not include royalties. It therefore follows that a POL may be highly valuable.

Extensions of time

Australia has a relatively generous general extension of time regime. Whilst there are extension of time provisions specific to a particular purpose, for example, the grace period for late payment of annuities, evidentiary extensions in opposition proceedings, section 223 of the Patents Act finds wide application.

Essentially, to enliven section 223, a party to a proceeding under the Patents Act must have failed to take a timely action caused by an error or omission of that party. Some examples of such actions include missing the 31 month national phase filing date; not paying a renewal fee on time or in the grace period; not filing a timely opposition; and not filing a timely request for examination. Often what is causative is a docketing error relating to a due date. However, any error or omission that is causative may qualify as supportive of the extension of time.

An additional qualifying requirement is that the causative error or omission must have occurred on or before the relevant due date. For example, an applicant decision to proceed made prior to the national phase due date, though the date is missed due to the applicant’s attorney error is qualifying. By contrast, a patentee decision not to renew a patent prior to the due date followed by a “change of mind” after the grace period is not qualifying.

The final qualifying requirement is that the extension of time application is filed without any undue delay once the relevant party becomes aware of an error. As discussed below in the Sandoz decision, the magnitude of the delay (in this case 10 years) is to be assessed in all of the circumstances of the application.

The origin of a POL

If a third party fails to file a timely opposition, it does not lead to a loss of patent rights. However, when a renewal fee is missed, it may be of the order of a year before the error is noticed and extension application filed. A diligent third party checking the status of such a patent, at say seven months after the renewal date, may reasonably conclude that the patent has been abandoned. That is, in such circumstances there has been a perceived loss of patent rights. If the third party proceeds to exploit the invention of the ceased patent, what is the status of that third party if a valid extension of time is allowed and the patent restored?
Is the third party now an infringer?

The answer lies in the provisions of section 223, specifically:

223(9) Where the Commissioner grants:

  • (a) an extension of more than 3 months for doing a relevant act; or
  • (b) an extension of time for doing a prescribed relevant act in prescribed circumstances;
  • the prescribed provisions have effect for the protection or compensation of persons who, before the day on which the application for extension of time is advertised under subsection (4), exploited (or took definite steps by way of contract or otherwise to exploit) the invention concerned because of the failure to do the relevant act within the time allowed, the lapsing of the patent application or the ceasing of the patent, as the case may be.

Regulation 22.21 of the Patents Regulations 1991, directed to protection or compensation of certain persons, is prescribed for subsection 223(9) as follows:

22.21(2) Persons who availed themselves of or exploited, or took definite steps by contract or otherwise to avail themselves of or exploit, inventions:

  • ...(c) in the case of inventions to which subsection 223(9) of the Act applies – within the period of time extended under that subsection;
    may apply, in the approved form, to the Commissioner for the grant of licenses to exploit the inventions.

22.21(5) The Commissioner, if reasonably satisfied that the application should be granted, must grant a license to the applicant on such terms as the Commissioner thinks reasonable.

The key criteria are that the definite steps to exploit the patent where taken as a consequence of the patent ceasing, and that the steps were taken before an extension application was filed.

Satisfying these requirements allows the third party to request the grant of a POL. Importantly, such an application may be opposed by the Patentee.

If the third party is successful, the license is granted by the Patent Office with the Commissioner determining the scope and terms. Importantly, the grant of the POL does not involve the Patentee, and accordingly, the Patentee does not receive royalties.

Ultimately, the grant of a POL permits the third party to continue to exploit the patent with a defence to infringement.

Practical application

To date, only three POL cases have come before the Commissioner:

  • HRC Project Design Pty Ltd v Orford Pty Ltd [1997] APO 12 (1997) (Orford)
  • Garden City Planters Pty Ltd v Vivre Veritas Pty Ltd [2012] APO 133 (18 December 2012) (Vivre Veritas)
  • H Lundbeck A/S v Sandoz Pty Ltd [2019] APO 18 (11 April 2019) (Sandoz)

In Orford and Sandoz, licenses were granted whilst in Vivre Veritas, a license was refused. The Sandoz decision is particularly relevant as the POL application was triggered by an extension of time of some 10 years by Lundbeck to file an application for a patent term extension.

In assessing Sandoz’s POL application, the Deputy Commissioner, Dr Barker, adopted the considerations cited in Orford and in related litigation-H Lundbeck A/S v Alphapharm Pty Ltd [2016] APO 45, namely:

Was there relevant exploitation of the invention?
Did the applicant have knowledge of the status of the patent at all material times?
Did the applicant exploit the invention because of the failure to do the relevant act within time?
Should a licence be granted and if so on what terms?

In Sandoz, it was found the POL should be granted on the following terms:

The licence commences on 14 June 2009 (date Sandoz commenced exploitation, immediately after the Lundbeck patent expired) and continues until the expiration of the term of the patent (i.e. the extended term of 9 December 2012);

The licence is personal to Sandoz Pty Ltd in the sense that it belongs to that company but may be transferred with that company if that company changes hands by acquisition or merger, but it
cannot be assigned or transferred; and it cannot be sub-licenced.

It is therefore evident that notwithstanding the 10 year extension granted to validate a patent term extension application, the resulting grant of a patent term extension was unenforceable against Sandoz.
The value to Sandoz of such a licence was stated to be “an extremely valuable right” and “run into millions of dollars”.

By satisfying all of the considerations enunciated in Sandoz, a third party ought to be able to position itself to obtain a POL. However, Sandoz is under appeal in the Federal Court. It is therefore possible that the position taken by IP Australia may be reversed.