My attempt to summarise Parma Session 1 ‘Sufficiently plausible’ has been posted on IPKat here.
Clare Cunliffe’s report on the session about IP and competition is here.
The European Commission has fined Google EUR2.43 billion (approx. AU$3.6 billion) for misusing its market power over internet searches.
According to the Commission, Google has over 90% market share for internet searches in the EU.
The Commission found that Google had abused this dominant position in internet searching by promoting results for its own Google comparison shopping service over results for competing comparison shopping services.
While this is no doubt the start of a long legal process, Ben Thompson at Stratechery has an interesting, succinct analysis of the application of competition rules to Internet players here which is well worth reading.
Here is a selection of links to IP-related matters I found interesting this week:
I hope you find some interesting. If you did or have a question, leave a comment or send me an email
Here is a selection of links to IP-related matters I found interesting this past week (or two):
I hope you find some interesting. If you did or have a question, leave a comment or send me an email
The Productivity Commission has released its draft report into Intellectual Property Arrangements.
You will be startled to learn that the Productivity Commission has discovered Australia is a net importer of intellectual property. We buy more IP from the rest of the world than we sell to it. Fig. 2 in the Report indicates Australian IP earned AUD1 villion from overseas, but we paid out about AUS4.5 billion for the use of their IP. The Productivity Commission then notes that we provide surprisingly strong IP protection for a country in our position. This finding guides the Productivity Commission’s recommendations which might broadly be characterised as: take the least restrictive option in terms of IP protection (where our international obligations permit).
The Productivity Commission explained its position this way:
Intellectual property (IP) arrangements need to balance the interests of rights holders with users. IP arrangements should:
• encourage investment in IP that would not otherwise occur;
• provide the minimum incentives necessary to encourage that investment;
• resist impeding follow-on innovation, competition and access to goods and services. (emphasis supplied)
So, for example, after much gnashing of economists’ teeth about the (let’s face it, indefensible) term of copyright protection, the Productivity Commission considers that the appropriate term of protection is somewhere between 15 and 25 years. However, what it actually recommends is rather more limited:
4.1: remove the current unlimited term of protection for published works.
5.1: implement Parliament’s At What Cost? IT pricing and the Australia Tax recommendation to make it clear that it is not an infringement of copyright to circumvent geoblocking.
5.2 repeal the remaining parallel import restrictions for books.
5.3 amend the Copyright Act 1968 to replace the current fair dealing exceptions with a broad exception for fair use.
18.1 expand the safe harbours to online service providers.
The Productivity Commission reports that there are 120,000 active patents registered in Australia. 93% of these have been granted to non-residents. There are also 25,000 – 30,000 applications each year; of which about 60% ultimately proceed to grant.
According to the Productivity Commission, however, there are too many granted patents which do not contribute social value and are not “additional” – in the sense that they would not have been made if there was no patent protection.
This needs to be remedied. However, the Productivity Commission acknowledges that international agreements put constraints on our freedom of action. There are 10 recommendations for patents.
The key recommendation for standard patents is yet another go at raising the threshold of inventive step.
an invention is 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.
This looks very similar to what we already have. As the Productivity Commission envisages matters, however, there are important differences. First, it reverses the onus currently expressed in s 7(2). According to the Productivity Commission, the current position is the opposite of where the onus lies in the USA, Japan, the EU and the UK (amongst others). Rather than a challenger having to prove the invention is obvious, therefore, the patentee will have to prove it is not.
Secondly, the Productivity Commission sees the current requirement that there be only a scintilla of invention being raised. The Productivity Commission sees this low threshold being reflected in the limitation on “obvious to try” being something which the skilled addressee would be directly led as a matter of course. Instead, the Productivity Commission considers that the test should be at least:
whether a course of action required to arrive at the invention or solution to the problem would have been obvious for a person skilled in the art to try with a reasonable expectation of success (as applied by the Boards of Appeal of the EPO).
This change would be buttressed with appropriate comments in the Explanatory Memorandum and, additionally, the insertion of an objects clause into the Act. The latter would be intended to ensure that the Courts focused on the social objectives of the Patents Act including, in particular, the public interest.
On the more colourful fronts, the Productivity Commission also recommended repeal of the
abomination innovation patent and amendment of s 18 explicitly to exclude from patentable subject matter business methods and software.
Pointing to analysis which estimates the net present value to R & D of the extension of term for a pharmaceutical patentat at year 10 at $370 million – of which only $7.5 million would accrue to Australia because our industry is so small – while the cost to the Australian government and consumers of the same extension of term is estimated at $1.4 billion, the Productivity Commission also wants a significant tightening up of the regime for extending the term of pharmaceutical patents. The Productivity Commission also opposes any extension of the period of data protection for therapeutic goods, including biologics.
The Productivity Commission also recommends exploring raising the renewal fees payable, particularly in later year’s of a patent’s life.
The Productivity Commission considers the registered design system deficient but, as we have committed to it internationally and there is no better alternative, we are stuck with it.
However, continuing the net importer theme, Australia should not go into the Hague system “until an evidence-based case is made, informed by a cost–benefit analysis.”
I’m just going to cut and paste here: the Government should:
Also, s 123 should be fixed up so that parallel importing does not infringe.
Like the rest of us, the Productivity Commission is bemused by the Circuits Layout Act and recommends implementing “without delay” ACIP’s 2010 recommendation to enable “essentially derived variety declarations to be made in respect of any [plant] variety.”
On competition policy, s 51(3) should be repealed and the ACCC should develop guidelines on the application of our antitrust rules to IP.
Innovatively, the Productivity Commission also recommends free access to all publications funded directly by Government (Commonwealth, State or Terriroty) or through university funding.
There are also at least 17 requests for further information.
If you are inspired to make a further submission, you should get it in before 3 June 2016.
The Canadian Competition Bureau has published updated guidelines relating to the enforcement of intellectual property rights and the antitrust (competition) rules.
The Bureau does not presume that the exercise of IP rights violates competition rules but, in assessing whether there are competition law ramifications, it distinguishes between two types of conduct: conduct “involving something more than the mere exercise of the IP right, and those involving the mere exercise of the IP right and nothing else.” Special rules, which may be applied in “very rare circumstances” apply to the latter. While the general competition rules apply to the former.
Why should someone in Australia care?
For one thing (bearing in mind the ACCC’s challenge to Pfizer’s practices when its Lipitor patent was expiring – judgment is reserved in the appeal), the US Supreme Court is expected to hand down a decision this year on how US antitrust laws apply to reverse payment settlements.
For another thing, following the Competition Review here in Australia:
Lid dip: Peter Willis
According to the response, “Harper” made
5556 recommendations; the Government has accepted 39 of them in full, 5 in part and the remainder are still under advisement.
In the intellectual property field, the item receiving most press (here and here) is the Government’s acceptance of the recommendation to remove all remaining restrictions on parallel importing books. At the moment, the importation of a genuine book published first in Australia or within 30 days of first publication overseas may be blocked provided the copyright owner complies with the convoluted regime to supply copies in response to an order. This guarantees availability, but still leaves the copyright owner free to set the price it charges the person placing the order.
Restrictions on parallel imports should be removed unless it can be shown that:
• the benefits of the restrictions to the community as a whole outweigh the costs; and
• the objectives of the restrictions can only be achieved by restricting competition.
Consistent with the recommendations of recent Productivity Commission reviews, parallel import restrictions on books and second?hand cars should be removed, subject to transitional arrangements as recommended by the Productivity Commission.
Remaining provisions of the Copyright Act 1968 that restrict parallel imports, and the parallel importation defence under the Trade Marks Act 1995, should be reviewed by an independent body, such as the Productivity Commission.
What the Government plans:
The Government supports the removal of parallel import restrictions on books. The Government will progress this recommendation following the Productivity Commission’s inquiry into Australia’s intellectual property arrangements (see Recommendations 6 above) and consultations with the sector on transitional arrangements.
The terms of reference for the inquiry provide that the Productivity Commission is to have regard to the findings and recommendations of the Harper Review in the context of the Government’s response, including recommendations related to parallel import restrictions in the Copyright Act 1968 and the parallel importation defence under the Trade Marks Act 1995.
Harper’s recommendation 6 was a reference to the Productivity Commission to undertake a 12 month long “overarching review of intellectual property” focusing on
competition policy issues in intellectual property arising from new developments in technology and markets; and the principles underpinning the inclusion of intellectual property provisions in international trade agreements.
The Government response notes that in August it had already made this reference to the Productivity Commission. The response on this point is curiously even-handed. The Productivty Commission:
is to have regard to Australia’s international arrangements, including obligations accepted under bilateral, multilateral and regional trade agreements to which Australia is a party. The global economy and technology are changing and there have been increases in the scope and duration of intellectual property protection. Excessive intellectual property protection can result in higher costs for Australian businesses and consumers and inhibit innovation. However, weak intellectual property protection can lead to under?investment in research and development (R&D) which also stifles innovation. A comprehensive evaluation of Australia’s intellectual property framework is needed to ensure that the appropriate balance exists between incentives for innovation and investment and the interests of both individuals and businesses, including small businesses, in accessing ideas and products. (emphasis supplied)
However, an independent inquiry into the processes for negotiating intellectual property provisions in treaties is not necessary: there are already robust processes in place and publishing an independent cost benefit analysis before the negotiations have concluded might tip our hand in the negotiations.
Section 51(3) gained a slight reprieve. Harper’s recommendation 7 was that it be repealed (and a new power for the ACCC to create block exemptions be introduced). Despite Prof. Harper’s injunctions that this is old news and we should just, er, do it, the Government thinks it should wait and see what the Productivity Commission says. Anyone betting the Productivity Commission won’t recommend …?
The Government also supports conferring a power to grant block exemptions on the ACCC:
A block exemption removes the need to make individual applications for exemption. The exemption is granted if the competition regulator considers that certain conditions are satisfied: either that the category of conduct is unlikely to damage competition; or that the conduct is likely to generate a net public benefit.
A block exemption power that supplements the existing authorisation and notification frameworks will be helpful in establishing ‘safe harbours’ for business. Block exemptions will reduce compliance costs and provide further certainty about the application of the CCA. They are an efficient way to deal with certain types of business conduct that are unlikely to raise competition concerns, either because of the parties engaged in the conduct or the nature of the conduct itself.
So, in the interests of promoting competition, we are going to introduce a European-style power for the regulator to design the marketplace.
The Treasurer and the Minister for Small Business have now announced that review.
According to the Harper Review:
an appropriate balance must be struck between encouraging widespread adoption of new productivity-enhancing techniques, processes and systems on the one hand, and fostering ideas and innovation on the other. Excessive IP protection can not only discourage adoption of new technologies but also stifle innovation.
Given the influence of Australia’s IP rights on facilitating (or inhibiting) innovation, competition and trade, the Panel believes the IP system should be designed to operate in the best interests of Australians.
The Panel therefore considers that Australia’s IP rights regime is a priority area for review. (emphasis supplied)
In reaching that view, the Harper Review flagged concern about entering into new treaties with extended IP protections.
The terms of reference state:
In undertaking the inquiry the Commission should:
- examine the effect of the scope and duration of protection afforded by Australia’s intellectual property system on:
a. research and innovation, including freedom to build on existing innovation;
b. access to and cost of goods and services; and competition, trade and investment.
- recommend changes to the current system that would improve the overall wellbeing of Australian society, which take account of Australia’s international trade obligations, including changes that would:
a. encourage creativity, investment and new innovation by individuals, businesses and through collaboration while not unduly restricting access to technologies and creative works;
b. allow access to an increased range of quality and value goods and services;
c. provide greater certainty to individuals and businesses as to whether they are likely to infringe the intellectual property rights of others; and
d. reduce the compliance and administrative costs associated with intellectual property rules.
Then follows a catalogue of 9 matters for the Commission to have regard to. These include the Government’s desire to retain appropriate incentives for innovation, the economy-wide and distributional consequences of recommendation and the Harper Review’s recommendations in relation to parallel imports.
The Commission must report within 12 months.
Flick J has ruled that Pfizer did not breach antitrust rules by trying to maintain sales of Lipitor after it came off patent.
Pfizer’s patent on atorvastatin (Lipitor) was due to expire on 18 May 2012. Its analysis showed it was facing a revenue cliff: from $771 million a year in 2011 to $70 million a years by 2015. Pfizer came up with a 3-part plan:
The ACCC brought action alleging by implementing this plan, Pfizer had contravened:
Flick J has dismissed the ACCC’s action.
His Honour found that the relevant market was the market for the supply to community pharmacies in Australia of atorvastatin as the ACCC contended. Pfizer argued the market was the market for the wholesale supply of pharmaceutical products and over the counter products to community pharmacies.
His Honour also found that Pfizer had a substantial degree of power in that market until late 2011 and had taken advantage of that power by implementing its scheme. Pfizer did not have a substantial degree of power in the market from January 2012 on wards.
Before January 2012, Pfizer was the only supplier of atorvastatin and the constraints on the price it could charge imposed by the PBS was “not sufficient to render its market power anything other than “substantial”.” Flick J recognised that there was no precise date which could be identified as the point where Pfizer’s market power ceased to be substantial. By late 2011, however, that power was no longer “enduring” as the expiry date of the patent loomed closer. By February 2012, Ranbaxy was able to enter the market offering its generic atorvastatin for sale and the other intending generic suppliers had registered their products on the Therapeutic Goods Register and were starting sales discussions with potential customers.
Flick J found Pfizer took advantage of its power to impose the direct sales to pharmacies model because the pharmacies were opposed to it, but Pfizer was able to impose it on them as the only possible source of atorvastatin. Similarly, the rebate scheme took advantage of that power because it created an expection of payments in the future on terms that were unclear and yet to be decided. Flick J found that the amount of money accumulated within the rebate scheme by the time the patent expired was very substantial – $35 million – a powerful incentive to buy product from Pfizer. One might wonder, however, why the position would have been any different if the terms on which the rebate could be claimed had been clear.
Even in the period before January 2012 when it had a substantial degree of power in the market, however, there was no contravention of 2 46 because it did not take advantage of its market power for a proscribed anti-competitive purpose.
Pfizer also did not contravene s 47 because in implementing the scheme it did not have the purpose of substantially lessening competition.
Rather than having a purpose of deterring competition by the generics, Flick J accepted that Pfizer was motivated by rationale business objectives. For example, selling directly to pharmacies rather than through wholesalers:
But my question, Mr Latham, was directed to Lipitor and generic atorvastatin, not some dream of establishing a generics business? — But once again you’re asking me to make a decision on – on one product, when I have seven products, over $1 billion, coming off patent. And it’s not just Pfizer Australia. It’s around the world. And to try to get the best business organisation that’s going to deliver continuing operations through those generic products, plus, they have these additional benefits of being closer to pharmacy. Going through the licensee doesn’t tick that important box.
The requirement to take 75% of the pharmacies needs to qualify for the “rebate” also did not have an anti-competitive purpose. Rather, Flick J found that the requirement had been reduced from 100% to 75% – sacrificing $30 million in potential revenue – to enable the pharmacy to establish a second source of supply.
Section 51(3) exempts from s 47 conditions in, amongst other things, licences of patent to the extent they relate to the invention to which the patent relates or articles made according to the invention.
Although its operation did not fall to be determined because there was no contravention of s 47, Flick J would have found it did not apply in this case. His Honour considered that the sale of atorvastatin to the pharmacies would not involve any licence. More importantly, his Honour would have held that the condition was collateral to the patent and so outside the scope of the exemption.
In the event, Pfizer went from selling 100% of the prescribed atorvastatin (as Lipitor) in March 2012, to 32% of prescription in April and settling around 22 – 23% by June 2012. While Pfizer antiticpated marketing advantages in being the only supplier likely to supply generic atorvastatin in pills the same shape, size and colour as Lipitor, the evidence showed it held 100% of the generic market until September 2012, after which its share fell away to 16 – 17% by March/April 2013.
Although it rejected the primary judge’s interpretation of s145 of the Patents Act 1990, the Full Court has nonetheless dismissed Regency’s appeal seeking to terminate its licence of MPEG patents.
In 2009, Regency took a licence of a bundle of patents from the MPEG patent pool so that it could make, amongst other things, DVD and Blu-Ray players. All the patents were necessary to make MPEG–2 compliant equipment, but they related to different inventions. By July 2012, some of the patents, but not all, had expired. Regency sought to terminate the licence early, relying on s145.
Section 145 provides:
(1) A contract relating to the lease of, or a licence to exploit, a patented invention may be terminated by either party, on giving 3 months’ notice in writing to the other party, at any time after the patent, or all the patents, by which the invention was protected at the time the contract was made, have ceased to be in force.
(2) Subsection (1) applies despite anything to the contrary in that contract or in any other contract.
The Full Court agreed with Regency that the trial judge`s interpretation of,s145 was wrong but, even so, the right to terminate the licence under s145 did not accrue until all the patents licensed at the time the licence was granted had expired. As there were patents still on foot, therefore, Regency did not have the right under s145 to terminate.
The Full Court considered that the reference to “a patented invention”, an expression not defined in the Patents Act was simply a reference to an invention that was patented, rather than something which was patentable subject matter.
Further, s23(b) of the Acts Interpretation Act 1901 meant that the reference to the singular – a patented invention – could be read as including the plural. While recognising that s145 was intended to protect licensees from being unfairly required to pay licence fees after the patents had expired, Bennett and Pagone JJ pointed out that, as the licensor could also invoke s145, a licensee could be exposed to even greater unfairness if the licence could be terminated after the expiry of one or only some patents:
30 … if MPEG were entitled to terminate the licence when one of the patents or all of the patents for one of the inventions had expired, Regency would be in the position that, having implemented the Standard, it would be required to cease exploitation of the outstanding patents or negotiate a fresh licence.
31 The primary judge recognised the lack of commercial reality and potential unfairness in such circumstances and so do we. It would lead to the absurd result that parties wishing to negotiate for a patent pool would necessarily have to enter into multiple contracts or face the uncertainties and possible damage caused upon the expiry of a single patent of that patent pool. This would be of particular difficulty for a licensee which had “tooled up”, or entered into financial obligations on the faith of the right to exploit the necessary patent, and could also affect third party end users of a product.
Earlier at , Bennett and Pagone JJ had emphasised the importance of certainty provided by contracts:
Regency points to commercial and policy reasons why a licensee should not continue to pay royalties where an invention the subject of the licence is no longer the subject of a subsisting patent. However, this possible disadvantage to a licensee can be taken into account during negotiations for a contract. Regency negotiated a licence fee that included patents now expired but must be taken to have been aware of the expiry of patents during the term of the Contract when it negotiated that fee. This is supported by the fact that the October 2009 amendment to the Contract provided for royalty rates, those rates decreasing over specified periods of time in recognition of the ever approaching end to each of the patents (as observed by the primary judge at ).
While this case did not explicitly turn on questions of misuse of market power, that analysis does not bode well for the ACCC`s pending antitrust action against Pfizer.
Nicholas J delivered a concurring judgment.
Regency Media Pty Ltd v MPEG LA, L.L.C  FCAFC 183