Licensing of gene patents in Australia

22.13 The size and character of the Australian biotechnology industry (which is discussed in Chapter 16) means that patent licensing is particularly important to facilitate further research and to allow the development and commercialisation of products. The relatively limited size of the Australian market makes it unlikely that companies will be able to sustain long-term growth or profitability based solely on activities in the domestic market.^[9] In addition, the primary expertise of many Australian biotechnology companies is in the area of research. The resources and expertise of more established—and frequently foreign-owned—companies are typically required to commercialise the results of research and produce a diagnostic or therapeutic product.^[10] Australian biotechnology entities are, therefore, unlikely to raise substantial revenue from the sale of genetic products or processes and are often dependent upon licence fees as a source of revenue.^[11]

22.14 Publicly available information about gene patent licensing practices in Australia is limited and has been largely anecdotal to date.^[12] Some information about patent licence agreements may be gleaned from: patent licences filed with IP Australia;^[13] disclosures made by publicly-listed Australian companies pursuant to the Australian Stock Exchange listing rules (and equivalent disclosure requirements imposed by securities exchanges in other jurisdictions);^[14] and an individual company’s press releases. Such sources will, however, reveal only a portion of concluded transactions. Moreover, public sources of information about patent licences generally exclude details of the commercial terms of such agreements to preserve confidentiality.^[15] It is therefore difficult to obtain a clear picture of what patented genetic materials and technologies are being licensed in Australia, to whom, and on what terms.^[16]

22.15 Studies of biotechnology licensing practices are now being undertaken in a number of jurisdictions to improve policy makers’ understanding in this area and inform their decisions about the appropriate regulation of biotechnology patents.^[17]

Nicol–Nielsen Study

22.16 In 2003, Dr Dianne Nicol and Jane Nielsen published the results of an empirical study of patenting and technology transfer practices in the Australian medical biotechnology industry (Nicol–Nielsen Study).^[18] The Nicol–Nielsen Study examined licensing practices relating to biotechnological inventions, including genetic materials and technologies, among publicly listed and private companies, research organisations and genetic testing laboratories within the Australian medical biotechnology sector.^[19] While the focus of the Study was broader than gene patents, its findings in relation to licensing practices are instructive.

22.17 The Nicol–Nielsen Study reported significant levels of collaborative and licensing activity on the part of each type of entity surveyed.^[20] Respondents to the survey from the ‘research institute’ and ‘company’ sectors reported lower levels of licensing-out of patent rights than might be expected.^[21] However, Nicol and Nielsen commented that this result was ‘reflective of an industry in a growth phase’.^[22] Some entities are still developing their technology and are not yet in a position to enter into licence agreements. Others favour assignment or co-ownership of patents, or establishing a spin-off entity, as a means of providing access to patented technology. Nicol and Nielsen concluded that ‘most patent holders are able to find ways to license-out their technology or to find other means of transferring their technology to other sectors of the industry’.^[23]

22.18 Nicol and Nielsen also concluded that ‘licensing on an exclusive basis is commonplace’ within the Australian medical biotechnology sector,^[24] and that there is some evidence of restricted access to patented biotechnological inventions. However, they found that Australian entities currently have little difficulty accessing broadly applicable research tools and technologies because there is liberal licensing of foundational biotechnological inventions.^[25] To the extent that access to biotechnological inventions is being restricted, Nicol and Nielsen suggested that it typically occurs where providing a third party with access to patented technology could result in a competing product.^[26]

22.19 Responses to the survey and interview data collected by Nicol and Nielsen suggest that a variety of factors affect the terms on which a biotechnology patent will be licensed. The principal considerations are as follows.^[27]

• The nature of the technology—non-exclusive licences are more common for patents on research tools and gene sequences than for a genetic invention that might result in a drug-based therapy; and patent holders are likely to be more willing to license technology that is not critical or central to their business plans.

• Identity and business of the patent holder—academic institutions and biotechnology start-ups appear to be more likely to license patented technology to a third party on an exclusive basis in order to find a partner for the commercial development of the research.^[28]

• Identity and number of potential licensees—‘downstream’ entities such as pharmaceutical companies often insist on exclusive licences to justify investment in the research and development of a drug target or therapeutic product, but favour non-exclusive licensing of research tools; and the scope of rights granted under a licence and the fees payable may differ if the licensee is an academic institution rather than a commercial enterprise.

• Payment considerations—the larger the licence fees sought by a patent holder, the more likely a potential licensee is to require exclusive rights to the patented technology. In the case of research tool patents, seeking a modest fee from many licensees may be the best means to maximise profit from the patent.^[29]

22.20 Respondents to the Nicol–Nielsen Study indicated that refusals to license gene patents are relatively low.^[30] In the small number of cases in which a licence had been refused, respondents suggested that a justifiable commercial explanation might exist. These include that: a licence would conflict with a patent holder’s own business strategy or an agreement already in place with another party; the potential licensee was problematic (in terms of their financial position or reputation in the market place); the proposed terms of the licence (for example, financial terms) were unsatisfactory; or the proposed application of the patented technology by the potential licensee was unethical.^[31] However, Nicol and Nielsen noted that statistics relating to the frequency with which licences are refused in the Australian medical biotechnology sector do not take into account instances in which an entity chooses not to request a licence because it expects the licence to be refused or offered on unreasonable terms.^[32]

Submissions and consultations

22.21 Consistently with responses to the Nicol–Nielsen Study, a number of submissions indicated that licences are being granted over a broad range of gene patents and that the inventions claimed in these patents are being further developed.^[33]

22.22 Submissions also supported Nicol and Nielsen’s conclusion that refusals to license gene patents do not appear to be a significant issue in the Australian biotechnology market at this stage.^[34] Submissions suggested that failures to negotiate a licence generally reflected the normal operation of the market, rather than concerted efforts by Australian patent holders to limit access to gene patents.^[35]

22.23 A few submissions suggested that Australian entities might be using patented genetic technologies without a licence from the relevant patent holder. Comments indicated that Australian researchers might operate on the understanding that research involving patented genetic materials or technology does not require a licence.^[36] In addition, the Royal College of Pathologists of Australasia (RCPA) suggested that, as a matter of practice, licences to patents covering genetic materials are ‘rarely requested by the testing laboratory or demanded by the patent holder’.^[37] These observations are consistent with the conclusions of the Nicol–Nielsen Study, which found that one approach adopted by respondents ‘when a particular area of research is discovered to be infringing a patent is to ignore it’.^[38] The impact of patents on genetic research and the introduction of a statutory experimental use exemption are addressed in Chapters 12 and 13.

22.24 Although the available evidence suggests that Australian licensing practices are not unduly restrictive, a small number of submissions nonetheless encouraged the ALRC to address the potential adverse effects if patent holders were to refuse to license gene patents or offer licences on unreasonable terms.^[39] Submissions were concerned that gene-based healthcare services would be severely affected if licence fees of the magnitude that has reportedly been requested by patent holders in overseas jurisdictions were to occur in Australia.^[40] The RCPA proposed that legislation be introduced to prohibit the exclusive licensing of human diagnostic genetic tests and to impose ‘severe penalties on patent holders that use their restrictive market powers irresponsibly’.^[41] Similarly, the Nuffield Council of Bioethics proposed that public institutions and private entities should be encouraged to license patents over DNA sequences on a non-exclusive basis.^[42]