IP and COVID-19: Crown use, compulsory licensing, spare parts and other traps

14 May 2020

As the world responds to the COVID-19 pandemic, stories have been circulating of companies offering, and governments seeking, greater access to proprietary medical technologies to meet unprecedented and unexpected need. In one example, a valve manufacturer reportedly promised not to pursue infringement action against Italian volunteers who 3D-printed the patented devices for use in ventilators. Israel has exercised its powers to use inventions in the state interest, while Canada, Germany, France and Ecuador have taken measures to expand government compulsory licence rights. In Australia, the Federal Opposition has queried Australia’s intentions to rely on its own Crown use provisions.

Research efforts and industry cooperation are also being encouraged in unprecedented ways, as usual processes and safeguards are put aside. In the United States, Apple and Google are reportedly working together on contact tracing technologies. Meanwhile, the Australian Competition and Consumer Commission has granted the Medical Technology Association of Australia conditional interim authorisation to allow its members and their suppliers and distributors to cooperate in the production of essential medical equipment.

In this article, we consider potential Intellectual Property implications for the medical technology industry and government agencies as the COVID-19 response continues. These include greater relevance for the rarely-used Crown use and compulsory licensing regimes for patents, designs and copyright, increased reliance on spare parts defences, and risks associated with negotiating licensing deals in an emergency.

Crown use

Under recently amended provisions of the Patents Act 1990 (Cth) and Designs Act 2003 (Cth), Commonwealth, State and Territory governments are permitted to exploit certain patented inventions or designs for government purposes without authorisation from the patentee or registered owner.1 In the present context, this has implications ranging from importation of generic versions of patented medicines to manufacture of otherwise infringing equipment.

Generally speaking, a government agency is required to seek a negotiated outcome (for example, a licence) with the rights-holder, and may only rely on the Crown’s right to exploit inventions if such efforts have been unsuccessful. Where there is an emergency, negotiation can be avoided where approved by the Minister, but in either case the agency is required to provide the rights-holder with a written statement of reasons supporting the exploitation. The Crown is also required to remunerate the rights-holder either as agreed by the parties or as determined by a court.

A foreign country affected by a national public health emergency may also work with Australian manufacturers to obtain the benefit of a compulsory patent licence for the purposes of manufacturing pharmaceuticals for importation to that country, subject to certain conditions, including 30 days’ of failed negotiations with the patentee.

Looking to the medical software context, the Copyright Act 1968 (Cth) also permits Commonwealth or State governments to use copyright material for the services of the government. The terms of the copyright use are either as agreed between the government and the rights-holder or set by the Copyright Tribunal.

From a rights-holder’s perspective, these regimes present a theoretical risk that, faced with COVID-19 exigencies, the government may act first and ask forgiveness – and make payment – later. The reality at this stage appears to be that companies and government are keen to be seen to be collaborating and such steps are unlikely to be necessary. Nevertheless, as the world gets back to normal and companies begin to look to protect their technologies more actively, it is possible that these rarely-used provisions may have their day.

Compulsory licensing

Outside of a government context, the Federal Court may grant a fee-paying patent licence to an applicant where:

  • There is unmet demand for an original patented invention, which can be resolved by granting authorisation to exploit;
  • The applicant has made reasonable attempts to obtain authorisation from the patentee;
  • The patentee has not provided a satisfactory reason for not exploiting the patent; and
  • It is in the public interest to grant a compulsory licence, having regard to the benefits to the public from meeting the unmet demand, the commercial costs and benefits of a licence to the patentee and the applicant, and any other matters which may arise.

The formality of this process for obtaining a compulsory licence means it is unlikely to be practicable for responding to a medical emergency in the short term. However, it may be a useful tool over the medium term as companies work to produce equipment or new technologies in response to COVID-19. In the context of medical technologies potentially affected by thickets of patented inputs, for example, the refusal of a potential licensor to make its technology available may hold up innovation. In such circumstances, an application for a compulsory licence may be successful. This has strategic implications for both prospective licensees and licensors considering licensing deals.

Spare parts

The Designs Act provides for a ‘repair defence’ to a claim of design infringement, if the purpose of using the design is to repair a complex product with two or more replaceable component parts so as to restore its overall appearance in whole or part.

A trade mark can also be used in good faith to indicate the intended purpose of goods, in particular as accessories or spare parts, as long as there is no ulterior motive to take advantage of the goodwill built up by the registered owner or any misleading or deceptive conduct or passing off.

These defences may be particularly useful to manufacturers and distributors of equipment parts suddenly in urgent demand, where those parts are protected by design and trade mark rather than patent rights. On the other hand, rights-holders should be on the lookout for potential infringements where users fail to comply with the specific requirements of the spare parts regimes.

Other licensing considerations

As responses to the COVID-19 pandemic have ramped up, there have been many reports of IP rights-holders permitting their technologies to be used by a wider range of users for a broader variety of purposes, often at very low or no cost. Exclusive licensees are also less likely to object in the present circumstances. In most cases, these arrangements are likely being documented by letter or condensed heads of agreement, raising the risk of dispute as the initial crisis eases.

Issues such as term, renewal, exclusivity, liability and termination rights often take extensive negotiation, which in many cases will not be occurring at this time. Even in detailed licensing agreements, such provisions can cause disputes worth millions of dollars, as demonstrated in the recently decided University of Sydney v ObjectiVision Pty Limited [2019] FCA 1625. After the University of Sydney terminated an exclusive licence agreement with ObjectiVision on the basis of unfulfilled performance requirements, it granted a licence to exploit the relevant glaucoma technology to a third party. ObjectiVision’s claim for millions of dollars in damages was rejected by the Federal Court in a 762-paragraph judgment after a complex lawsuit which largely turned on the validity of the termination.

Grant agreements also warrant close consideration in the current environment. New research grant funds are flowing, and R&D, manufacturing and distribution resources are being redistributed into required medical supplies and technologies. Funding bodies may require rights to use the outputs of funded research, and in some cases to allow third party exploitation. Provisions around use and compensation should be carefully considered, as well as any reach-through to future improvements building on outputs and protections for existing IP and confidential information. In collaborative research contexts, where there may be a number of parties involved, there is also a higher risk of unintentional sharing of IP and associated loss of commercial value.

We are currently witnessing unprecedented adjustments to many aspects of business and industry, and IP is no exception. Further down the track, as the world acclimatises to the ‘new normal’ and industry refocuses on business imperatives, rights-holders may step back from their current willingness to allow such broad use of their technologies. Licensors may seek to scale back or terminate special arrangements, potentially leading to disputes as well as reducing access to technologies for government. At that stage, there may be a renewed need for government to consider Crown use and compulsory licensing, and the health and medical industry to rely on spare parts defences. It will then be important for all players to understand their rights and obligations under a rarely utilised legislative regime.

HWL Ebsworth has extensive experience assisting businesses protect and maximise their IP assets. Please contact a member of our team for further information on how we can assist you.

This article was written by Luke Dale, Partner and Nikki Macor Heath, Senior Associate.

1 We discussed the changes to the legislation at https://hwlebsworth.com.au/further-proposed-amendments-to-intellectual-property-legislation-introduced-to-parliament/

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