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An experimental use exception for New Zealand's patent legislation. An options paper [2006] NZAHGovDP 1 (1 February 2006)

Last Updated: 12 July 2020

An Experimental Use Exception for New Zealand’s Patent Legislation

An Options Paper February 2006

ISBN 0-478-28465-9

© Crown Copyright
First Published February 2006 by the Regulatory and Competition Policy Branch Ministry of Economic Development
P O Box 1473 Wellington New Zealand

http://www.med.govt.nz

Permission to Reproduce: The copyright owner authorises reproduction of this work, in whole or in part, so long as no charge is made for the supply of copies, and the integrity and attribution of the work as a publication of the Ministry of Economic Development is not interfered with in any way.

Disclaimer

The opinions contained in this publication are those of the Ministry of Economic Development and do not reflect official government policy.

Readers are advised to seek specific legal advice from a qualified professional before undertaking any action in reliance on the contents of this publication. While every effort has been made to ensure that the information set out in this publication is accurate, the Crown does not accept any responsibility whether in contract, tort, equity, or otherwise, for any action taken, or reliance placed on, any part, or all of the information in this publication or for any error in or omission from this publication.

Contents

Information for Persons Making Submissions

Submissions in relation to this options paper are invited from inventors, scientists, patent owners, patent attorneys, users of patented inventions and members of the public.
Submissions will be considered in the development of policy recommendations to the Government on possible legislative reform.

To aid respondents in making submissions, questions for discussion appear at the end of this options paper.

Submissions should be sent to:

Experimental Use Submissions Attention: Warren Hassett Regulatory and Competition Branch Ministry of Economic Development PO Box 1473
WELLINGTON

E-mailed submissions are also welcome and should be sent to: patexpuse@med.govt.nz

Further copies of this paper may be downloaded from the Ministry’s website: http://www.med.govt.nz

Submissions may be subject to disclosure under the Official Information Act 1982. Persons making submissions that include commercially or otherwise sensitive material that they wish the Ministry to withhold under that Act should clearly identify the relevant information and the applicable grounds under which the Ministry could withhold the information.

The closing date for submissions is 7 April 2006

1. Introduction

1. This options paper deals with the issue of the use of patented inventions for research or experimental purposes by parties other than the patent owner. In particular, it considers the question of whether or not New Zealand’s patent legislation should explicitly state that such use does not infringe a patent. Several possible options for dealing with this issue are presented for consideration.

1.1 Why is the issue of experimental use being considered?

2. In recent years concerns have been expressed in many countries, including New Zealand, over the granting of patents for genes and gene sequences (“genetic material”). Some of these concerns relate to moral or cultural matters, while others relate to implications for research and for the cost and availability of health services. Genes and gene sequences are patentable in New Zealand.

3. The breadth of patents granted for genetic material have raised economic concerns. In particular, concerns have been raised that patents are being granted for genetic material even though the patent owner has not identified any specific use for the material, or that, having identified just one use, rights will be granted that cover all uses to which the genetic material might be put.

4. A consequence of this is that other researchers who wish to use the patented genetic material in order to identify a use, or further uses, must then pay a licence fee to do so. This may discourage such research, which could mean that potentially valuable clinical applications of genetic material will not be developed, or that development of such applications will be delayed until the patent expires. There is also concern that patents of such breadth may unnecessarily raise the cost of health care.

5. These concerns came to prominence in New Zealand in 2003 when an Australian company Genetic Technologies Ltd (GTG) approached a number of New Zealand organisations, including District Health Boards and Crown Research Institutes, seeking to enforce two patents relating to the use of so-called non-coding DNA. Non-coding DNA is used in diagnostic testing for a number of health conditions and is also used extensively in the life sciences.

6. As a result of the concerns raised by the activities of GTG, the Government asked officials for further information on the issues surrounding the granting of patents on genetic material. The status of the use of patented inventions in research or experimental work was one issue that was identified as being of particular concern. Consequently, the government asked the Ministry of Economic Development, in consultation with the Ministries of Health and Research, Science and Technology to consider the possibility of a research exemption for New Zealand’s patent legislation.

7. Similar concerns expressed in Australia led to the Australian Government asking the Australian Law Reform Commission (ALRC) to consider issues surrounding the patenting of genetic material. As part of its review, the ALRC considered the question of whether an experimental use exception should be incorporated into Australia’s patent legislation. The Australian Advisory Council on Intellectual Property (ACIP) was directed to specifically consider the issue of an experimental use exception. The ALRC and ACIP reviews are discussed in Section 5 of this document.

7.1.1 What is a Patent?

8. A patent is an intellectual property right granted under the Patents Act 1953. The grant of a patent provides the patent owner with the exclusive right to make, use or sell the patented invention for a term of up to 20 years from filing the patent application. Patent applications are granted after an examination process by the Intellectual Property Office of New Zealand by (IPONZ).

9. In return for the exclusive right provided by the grant of a patent, the patent applicant must provide a full and complete description of the invention, which is made public by IPONZ when a patent application is accepted. Once the patent has expired, anyone may use the invention.

10. The exclusive rights provided by the grant of a patent allow patent owners to prevent others from copying their inventions and “free riding” on their investment in research and development. This gives inventors a greater opportunity to make a return from these investments, and provides an incentive to develop inventions that might not otherwise be developed. It is this incentive for innovation, and the resultant benefits to society that is the main justification for the grant of a patent.

10.1.1 Use of Patented Inventions in Research

11. Much innovation is “cumulative”. That is, it builds on the results of previous innovation. There may be problems, though, if previous innovations are the subject of current patent rights.

12. For example, researchers wishing to undertake research involving a patented invention may need to actually use or produce that invention. This raises the question as to whether or not research or experiments involving the patented invention will infringe the patent. If research or experiments involving a patented invention were considered to infringe a patent, significant costs could be imposed on researchers. Such costs could act as a disincentive to research in areas where there was a risk of infringing patents.

13. If the possibility that research or experimental work might infringe patents did act as a disincentive to research, innovation in New Zealand could be inhibited. This would run counter to the goal of the Government’s Growth and Innovation Framework to develop a knowledge economy. The question of the status of research or experimental work involving patented inventions is therefore one that could have significant implications for innovation in New Zealand.

1.2 What are the issues?

14. The question of the status of research or experimental work involving patented inventions arose from consideration of the implications of granting patents for genetic material. This question, though, is relevant to other areas of technology as well. The discussion of this question in this document will therefore not be limited to research involving patented genetic material.

15. There are three questions that will need to be addressed when considering the issue of the use of patented inventions in research:

1. does research involving a patented invention constitute patent infringement? and
2. if it does, is this a problem that needs to be addressed? and, if so,

3. how should this problem be addressed?

16. The purpose of this document is to consider these questions and to seek public input on whether or not changes to New Zealand’s patent legislation in this area might be needed

2. Experimental Use and Patent Infringement

17. In considering the issue of the use of patented inventions in research or experimentation, the first question that needs to be considered is whether or not such use constitutes patent infringement.

2.1 The Law in New Zealand

18. The infringement provisions of the Patents Act 1953 do not specifically mention experimental use. The most relevant case-law would appear to be Smith Kline & French Laboratories Ltd vs Attorney General¹. This case dealt with the question of whether the importation of a patented substance (in this case a pharmaceutical) for the purposes of conducting experiments connected with obtaining marketing approval constituted an infringing “use” of the invention. The Court of Appeal held that it did.

19. In this decision Hardie Boys J stated:

“Doubtless experimentation will usually have an ultimate commercial objective; where it ends and infringement begins must often be a matter of degree. If the person concerned keeps his activities to himself, and does no more than further his own knowledge or skill, even though commercial advantage may be his final goal, he does not infringe. But if he goes beyond that, and uses the invention or makes it available to others, in a way that serves to advance in the actual market place, then he infringes”.

20. It would appear from this decision that it is the ultimate objective of the research which determines whether or not the use of a patented invention for research or experimental purposes infringes a patent. “Non-commercial” research would not infringe, while “commercial” research would. It is not clear though, just where the boundary between “commercial” and “non-commercial” research lies.

21. What does appear to be clear, however, is that the status of the researcher or research organisation involved is immaterial. In light of this, the activities of a non-profit institution such as a university may be just as liable for patent infringement as those of a commercial organisation.

2.1.1 The Regulatory Review Exception

22. In December 2002, the Patents Act 1953 was amended to introduce a “regulatory review exception”. This allowed third parties to make, use or sell an invention for purposes reasonably related to the development and submission of information to a government agency in order to gain approval to make, use or sell the invention². This exception was intended to facilitate the entry onto the market of generic products, such as generic pharmaceuticals. It does not cover research or experimental work done for purposes unconnected with obtaining regulatory approval.

¹ (1991) 4 TCLR 199

² S68B of the Patents Act 1953.

2.1.2 Review of the Patents Act 1953

23. In August 2000, the government began a review of the Patents Act 1953. This review has now been completed. A new Patents Bill has been drafted by the Parliamentary Counsel Office. An exposure draft of this Bill was released in December 2004³. Public submissions on the exposure draft have been analysed, and further draft of the Bill is being prepared. It is expected that the Bill will be ready for introduction to Parliament late in 2006. At this stage it seems likely that the Patents Bill will be enacted and brought into force by mid 2008 (after suitable regulations are developed).

24. The issue of the experimental use of patent inventions was not specifically dealt with in this review, as, at that time, it had not been identified as a problem. The infringement provisions of the draft Patents Bill do not contain any specific provisions regarding the experimental use of patented inventions that would alter the existing situation. Subsequent events, both in New Zealand and overseas (as described later in this document) have highlighted potential problems with the law as it stands.

25. Compared with the Patents Act 1953, the draft Patents Bill contains a more comprehensive definition of the rights associated with the grant of a patent. In particular, clause 17(1) of the Bill provides that:

A patent gives the patentee the exclusive rights, during the term of the patent, to exploit the invention and to authorise another person to exploit the invention.”

26. Clause 17(2) of the Bill defines “exploit” as including the acts of making, hiring, selling, using, importing or otherwise disposing of the invention. This does not alter the position with respect to the use of patented inventions in research or experimental work, compared with the position under the Patents Act 1953. The Bill also retains the regulatory review exception referred to above.

27. If, after considering public submissions, the government decides to incorporate a research exemption in New Zealand’s patent legislation, it is intended that the exemption be introduced by way of a Supplementary Order Paper to the draft Patents Bill if it cannot be incorporated into the Bill prior to its introduction.

2.2 Status of Experimental Use Under the Patents Act 1953

28. It seems then, that the Patents Act 1953 and associated case-law provide little guidance for researchers looking to find out whether research or experimental work that they wish to carry out would be held to infringe a patent. On the basis of the case-law, the question could probably only be determined by a Court after the work had been carried out, and only then if the patent owner decided to initiate an infringement action that eventually went to court. The status of research or experimental work involving a patented invention in New Zealand seems uncertain.

2.3 Is There a Problem?

29. Since the status of research or experimental work involving a patented invention in New Zealand appears uncertain, it is clear that there is a possibility that such work

³ A copy of the draft Patents Bill can be obtained from http://www.med.govt.nz/buslt/int_prop/patentsreview/draftbill/index.html

could be held to be infringement. This leads to the second question posed in the introduction: does this cause a problem that needs to be addressed?

2.3.1 Have There Been Infringement Cases Involving NZ Researchers?

30. The first question that might be asked is whether any New Zealand researchers have been sued for patent infringement on the basis of the use of a patented invention in research or experimental work. In New Zealand, to date, there is little evidence that researchers have been sued for patent infringement for research or experimentation involving a patented invention. Perhaps the most relevant case is that involving Genetic Technologies Ltd (GTG).

31. Genetic Technologies Ltd (GTG) is an Australian company that, in 2003, sought to enforce two New Zealand patents on non-coding DNA⁴ analysis and mapping. The GTG patents claim a “strategy” whereby characteristics of (and mutations in) the genes can be predicted by looking at the non-coding part of the gene in unrelated individuals. GTG approached the health sector and a number of life science organisations including the Crown Research Institutes, with the intention of entering into licensing agreements. It appeared that almost anyone undertaking genetic research or testing would be infringing these patents.

32. The parties concerned formed a consortium to negotiate with GTG. The matter was subsequently settled out of court after the validity of the patents was questioned. It was agreed that no license fee would be payable by consortium members for use of the methods covered by the patents. Notwithstanding this, the consortium members still incurred substantial legal costs.

33. Apart from the GTG case, the Ministry is unaware of any other cases where New Zealand researchers have faced infringement actions, or threats of such actions. This does not, of course, mean that other cases do not exist.

2.3.2 Effect of Possible Liability for Infringement on Research

34. Even if there have been very few, if any, cases where research or experimental work involving a patented invention has been the subject of infringement litigation, this does not necessarily mean that there is no problem. It is possible that the potential for being sued for infringement may make researchers reluctant to consider research or experimental work in areas that may be the subject of patent rights.

35. If researchers are sued for patent infringement, they could incur significant costs. If their work is found to be infringing, they could be liable for damages, as well as having to pay an ongoing license fee for future use of the invention involved. Even if a court was to find in the researcher’s favour, there could still be significant costs incurred by the researcher, as an award of costs by the courts would be unlikely to cover all of the costs incurred by the researcher.

36. Of course, researchers could avoid the risk of being sued for infringement by taking the precaution of obtaining a license. There are, however, costs involved in following this course, quite apart from the license fee. The researcher would have to determine which

⁴ Non-coding DNA is DNA that does not confer a specific trait.

patent(s) was involved, and then locate and negotiate with the patent owner. These “transaction costs”, as well as the license fee, may be unaffordable for many researchers or research institutions, particularly if there were more than one patent and patent owner involved.

37. In recent years, there has been significant publicity about this issue, both in New Zealand and overseas. This may have increased awareness among researchers about the possibility that their research work could infringe a patent. If researchers have decided not to pursue particular areas of research to avoid the risk of conflict with patent rights, innovation in these areas may be inhibited. This may mean that New Zealand misses out on the benefits of such innovation

2.4 International Experience

2.4.1 Australia

38. As in the New Zealand Patents Act 1953, the infringement provisions of the Australian Patents Act 1990 do not specifically exempt experimental use from patent infringement. Such use is not explicitly included either. There appears to be no Australian case law dealing with the issue of experimental use. The most relevant Court decision appears to be a 19^th century case, Frearson v Loe⁵. In this decision it was held that:

“Patent rights were never granted to prevent persons of ingenuity exercising their talents in a fair way. But if there be neither using nor vending of the invention for profit, the mere making for the purpose of experiment, and not for a fraudulent purpose, ought not to be considered within the meaning of the prohibition, and if it were, it is certainly not the subject of an injunction.”

39. The Patents Act 1990 also contains a regulatory review exception (s78). This applies only to patents extended under s70 of the act, and, as in New Zealand, does not apply to research or experimental work unconnected with gaining regulatory approval.

40. In the last few years the Australian Law Reform Commission (ALRC) and the Australian Advisory Council on Intellectual Property (ACIP) have considered the issue of a research exemption for the Patents Act 1990. The work done by the ALRC and ACIP is considered in section 5 of this document.

2.4.2 The United States

41. As with New Zealand and Australia, there is no explicit research exemption in the United States Patents Act (Title 35, U.S. Code). Judicial decisions have, however, established experimental use of a patented invention as a defence to an allegation of infringement. In Whittemore v Cutter⁶ Supreme Court Justice Storey held:

“[I]t could never have been the intention of the legislature to punish a man who constructed such a machine merely for philosophical experiments, or for the purpose of ascertaining the sufficiency of the machine to produce its described effects.”

⁵ [1878] UKLawRpCh 49; (1878) 9 ChD. 48

⁶ 29 Fed. Cas. 1120, 1121 (CCD Mass. 1813).

42. Later court decisions have interpreted this experimental use defence very narrowly. In Roche Products, Inc. v. Bolar Pharmaceuticals Co., Inc⁷ the Court of Appeal for the Federal Circuit (CAFC) held that the experimental use rule could not be construed:

"so broadly as to allow a violation of the patent laws in the guise of ‘scientific inquiry’, when that inquiry has definite, cognizable, and not insubstantial commercial purposes. The defense is also limited to "tests, demonstrations, and experiments" not "in keeping with the legitimate business" of the alleged infringer.”

43. In a more recent decision, Madey vs Duke⁸, the CAFC held that:

“[R]egardless of whether a particular institution or entity is engaged in an endeavour for commercial gain, so long as the act is in furtherance of the alleged infringer’s legitimate business and is not solely for amusement, to satisfy idle curiosity, or for strictly philosophical inquiry, the act does not qualify for the very narrow and strictly limited experimental use defense. Moreover, the profit or non-profit status of the user is not determinative.”

This decision is widely regarded as narrowing the experimental use exception in the United States to the point where most organisations carrying out research or experimental work involving patented inventions could find themselves liable for patent infringement.

2.4.3 The United Kingdom

44. The United Kingdom Patents Act 1977 contains a specific “experimental use” exception. This is based on provisions in the Community Patent Convention, (ratified by the United Kingdom and 8 other EU states, but never brought into force). S60(5) of the 1977 Act states inter alia:

An act which apart from this subsection, would constitute an infringement of a patent for an invention shall not do so if –

(a) it is done privately and for purposes which are not commercial

(b) it is done for experimental purposes relating to the subject matter of the invention.

45. These exceptions appear to have been interpreted rather narrowly by the courts. In Smith, Kline & French Laboratories v Evans Medical Ltd⁹ , Aldous J considered that: the word "privately" in s60(5)(a) includes commercial and non-commercial situations; is not synonymous with "secret" or "confidential"; and is used as the opposite of "publicly", denoting an act done for the person's own use. With regard to the reference to "purposes which are not commercial" in s.60(5)(a), the purposes of acts had to be considered. Aldous J found there would be infringement if the purposes included any commercial ones in addition to the non-commercial ones.

46. With regard to s60(5)(b), Aldous J went on to say that:

“if an act is to fall within s60(5)(b) it must be done for purposes relating to the subject matter of the invention found in the claims of the patent alleged to be infringed. The purposes must

⁷ Roche Prods., Inc. v. Bolar Pharm. Co., Inc., [1984] USCAFED 216; 733 F.2d 858, 863 (Fed. Cir. 1984).

⁸ Madey v. Duke University, [2002] USCAFED 222; 307 F3d 1351, 1362. (Fed. Cir. 2002)

⁹ [1989] FSR 513

relate to the claimed subject matter in the sense of having a real and direct connection with it.”

47. In Monsanto v Stauffer¹⁰ Dillon LJ held:

“trials carried out in order to discover something unknown or to test a hypothesis or even in order to find out whether something which is known to work in specific conditions e.g. of soil or weather, will work in different conditions can fairly, in my judgement, be regarded as experiments. But trials carried out in order to demonstrate to a third party that a product works or, in order to amass information to satisfy a third party, whether a customer or a body regulating the safety etc of such products, that the product works as its maker claims are not, it was held, to be regarded as acts done ‘for experimental purposes’.“

48. Michael Fysh (a Judge in the UK Patents County Court) has suggested that, on this basis, the experimental use exception has a rather narrow effect in UK/Irish law. He said¹¹:

“The qualification may cover such acts as verification of various kinds (such as seeing whether a compound can be made as proposed or will work in a particular climate), assessment of validity, and in-house experiment for the purposes of improvement and modification etc. But the exception would in my view exclude the use of a patented process in experiments specifically to test some other product or process with a view to the direct use of the results thereof for a commercial purpose.”

2.4.4 The EU

49. The patent legislation of a number of EU states (in addition to the UK) also has an experimental use exception similar to s60(5)(b) of the UK Patents Act. Much of the case law dealing with this exception relates to patented pharmaceuticals. The main area of contention has been the question of whether or not clinical trials conducted during the term of a patent constitute “experiments”. Such trials will usually be connected with obtaining of marketing approval for generic pharmaceuticals.

50. The German courts have generally been willing to treat such trials as non-infringing “experimental use”. In most other EU countries, including the UK, such trials are considered to be infringements. In all other technical fields, the experimental use exception has not caused any problems in case law. As long as tests/experiments are directed toward better understanding the content of a patent, or toward doing further research with regard to the invention, no significant problems have ever been observed¹².

2.4.5 Japan

51. S69(1) of the Japanese Patents Act states:

¹⁰ [1985] RPC 515

¹¹ Fysh, Michael, Legal Issues in Exploiting Drug Patents in Europe, LES – Italy Conference, December 2002.

¹² Goddar, Heinz, The Experimental use Exception - a European Perspective, CASRIP Symposium Publication Series, No 7 July 2002, http://www.law.washington.edu/casrip/Symposium/Number7/1- Goddar.pdf

“The effects of the patent right shall not extend to the working of the patent right for the purposes of experiment or research.”

The experimental use exception in Japanese Patent Law dates from 1909. At that time Japan was still a developing country and the ability to “reverse engineer” was needed to allow the development of new technologies¹³.

52. The Japanese Patents Act does not define “experiment”. The Japanese courts have held that the testing of generic pharmaceuticals for the purposes of obtaining regulatory approval during the term of the patent on the original pharmaceutical falls within the experimental use exception.

¹³ Kastsuya Tamai, The Experimental Use Exception – a Japanese Perspective, CASRIP Symposium Publication Series, No 7 July 2002, http://www.law.washington.edu/casrip/Symposium/Number7/1- Tamai.pdf

3. International Obligations

53. New Zealand is a signatory to a number of international agreements dealing with aspects of patent protection. These are the Paris Convention for the Protection of Industrial Property, the Patent Co-operation Treaty and the WTO Agreement on Trade Related Aspects of Intellectual Property Rights (the TRIPS Agreement). Of these, the most relevant to the issue of a research exemption is the TRIPS Agreement, in particular Articles 30 and 27.

54. Article 30 of the TRIPS Agreement states:

“Members may provide limited exceptions to the exclusive rights conferred by a patent, provided that such exceptions do not unreasonably conflict with a normal exploitation of the patent and do not unreasonably prejudice the legitimate interests of the patent owner, taking account of the legitimate interests of third parties.”

55. If New Zealand were to adopt a research exception, it would have to be consistent with Article 30. The scope of such an exception would need to be carefully considered to ensure that it did not extend beyond the boundaries set by Article 30.

56. Article 27 of TRIPS states, in part, :

“...patent rights shall be available and patent rights enjoyable without discrimination as to the place of invention, the field of technology...”

The effect of this is that any research exemption proposed for New Zealand’s patent legislation must apply to all technologies, and to all patents regardless of the country of origin of the invention. This is because such an exemption is an exception to patent rights. Applying it to some technologies but not others would result those technologies enjoying lesser patent rights than those technologies not covered by the exemption.

57. To date there appears to have been no WTO Dispute Panel rulings on whether or not a research or experimental use exception would fall within the scope of Article 30. The only ruling that may be relevant concerned a dispute between Canada and the EU. This dispute related to the adoption by Canada of a “regulatory review exception” in its patents legislation. This provision is essentially the same as the similar exception

adopted by New Zealand (s68B of the Patents Act 1953) subsequent to the resolution of this dispute.

58. In the WTO Panel Report relating to this dispute, it was accepted that Article 30 should be read in conjunction with other Articles in the TRIPS Agreement, in particular Article 7, which states:

“The protection and enforcement of intellectual property rights should contribute to the promotion of technological innovation and to the transfer and dissemination of technology, to the mutual advantage of producers and users of technological knowledge and in a manner conducive to social and economic welfare, and to a balance of rights and obligations.”

The WTO Panel considered that the “regulatory review exception” was not inconsistent with Article 30¹⁴.

59. The existence of explicit experimental use exceptions in the patent legislation in a number of countries suggests that the principle of such an exception is not inconsistent with Article 30. It can be noted that in an early draft of Article 30, “acts done for experimental purposes” were explicitly listed as an exception to patent rights¹⁵.

¹⁴ World Trade Organisation Panel Report Canada – Patent Protection of Pharmaceutical Products, http://www.wto.org/english/tratop_e/dispu_e/7428d.pdf

¹⁵ Gervais, Daniel, The TRIPS Agreement, Drafting History and Analysis, 2d Edition, Sweet & Maxwell 2003, para 2.292.

4. Exceptions to Other Intellectual Property Rights

60. In considering the question of a research exemption for New Zealand’s patent legislation it may be useful to look at how similar issues are dealt with in other areas of intellectual property. Some other intellectual property statutes provide exceptions to rights granted that could be considered as forms of “research exemptions”. These include plant variety rights and copyright.

4.1 Plant Variety Rights

61. The grant of plant variety rights provides plant breeders with exclusive rights over the exploitation of their new varieties. The justification behind the grant of these rights is to provide an incentive for breeders to invest in the development of new varieties. The grant of plant variety rights in New Zealand, is governed by the Plant Variety Rights Act 1987 and the UPOV¹⁶ Convention. A variety that is protected by a plant variety right is known as a “protected variety”.

4.1.1 The Plant Variety Rights Act 1987

62. The Plant Variety Rights Act 1987 provides for exceptions to the rights that plant breeders have over their protected varieties. S18 states that any person may:

“(a) Propagate, grow, or use a protected variety, for non-commercial purposes; or

(b) If the production of the hybrid or new variety concerned does not require repeated use of that variety, -

(i) Hybridise, or produce a new variety from, a protected variety; or

(ii) Sell and hybrid of, or new variety produced from, a protected variety.

4.1.2 The UPOV Convention

63. S18(b) of the Plant Variety Rights Act 1987 implements the so-called “breeders’ exemption”. This originates from Article 5(3) of the 1978 Revision of the UPOV Convention (UPOV 78), of which New Zealand is member. The Plant Variety Rights Act 1987 is based on UPOV 78.

64. The UPOV Convention was revised in 1991. New Zealand has not acceded to this revision, known as UPOV 91. Compared with UPOV 78, UPOV 91 provides plant variety rights owners with stronger exclusive rights over their protected varieties. UPOV 91 retains the breeders’ exemption, although modified to take account of the stronger rights.

65. The breeders’ exemption is contained in Article15(iii) of UPOV 91. The relevant part of Article 15(iii) reads:

“[the breeder’s right shall not apply to] acts done for the purposes of breeding other varieties.”

¹⁶ UPOV is the French Abbreviation for the International Union for the Protection of New Varieties of Plants.

Article 15(iii) also allows the “other varieties” to be freely exploited if certain conditions are met.

66. UPOV 91 also contains an “experimental use” exception. Article 15(ii) reads:

“[the breeder’s right shall not extend to] acts done for experimental purposes.”

4.1.3 The Purpose of the Breeders’ Exemption

67. The breeders’ exemption is provided for in the UPOV Conventions to ensure that plant breeders have access to the propagating material of protected varieties for the purposes of developing new varieties. This is in recognition of the fact that most new varieties are developed from existing protected varieties. If the use of protected varieties for the purposes of developing new varieties was an infringement of a plant variety right, the ability of plant breeders to develop new varieties would be restricted. This would run counter to the object of granting plant variety rights, that is, to encourage the development of new varieties.

4.1.4 Review of the Plant Variety Rights Act 1987

68. Certain aspects of the Act have recently been reviewed, and a draft Bill to amend the Plant Variety Rights Act 1987 has been drafted. An exposure draft of this Bill was released in August 2005¹⁷. The Bill provides for the same stronger rights for plant variety rights owners as provided for in UPOV 91. The breeder’s exemption is to be retained, suitably modified, and reads:

“A grantee’s rights under this Act are not infringed by acts done in relation to a protected variety or essentially derived variety for the purposes of breeding a new variety.”

The “experimental use” exception contained in UPOV 91 is not, at this stage, being incorporated into the Bill. This exception would be adopted in the Plant Variety Rights Act if New Zealand were to ratify UPOV 91.

4.2 Copyright

69. Copyright deals with the rights of authors and other creators over their original literary, dramatic and artistic creations. The prime purpose of copyright is to benefit society by encouraging the creation of such works, while also encouraging their dissemination. Copyright in New Zealand is governed by the Copyright Act 1994, the terms of the TRIPS Agreement and the Berne Covention¹⁸.

4.2.1 The Copyright Act 1994

70. The Copyright Act 1994 gives copyright owners certain exclusive rights in their works. The Act provides for some exceptions to these rights. The most relevant of these for the purposes of this discussion is s43, Research or Private Study. S43(1) states:

¹⁷ http://www.med.govt.nz/buslt/int_prop/plantvarietyreview/draftbill/index.html

¹⁸ Berne Convention for the Protection of Literary and Artistic Works

“Fair dealing with a work for the purposes of research or private study does not infringe copyright in the work.”

71. There is no definition of “research” or “private study” in the Act. In the Newsmonitor case¹⁹, Blanchard J defined “research” as “the searching into a matter or subject or the investigation or close study of it”. Blanchard J also observed:

“...research is... ...something of which a business organisation is capable. The word is commonly used in business, as in the phrase ‘research and development’. It is ultimately intended to enable commercial exploitation or is, perhaps, defensive in character – too improve a product, for example, thus avoid the loss of sales or even product liability litigation. Ulitmately, the product of the research is likely in some form to be made public. So I conclude that fair dealing for purpose ... can be something done with a commercial end in view.”

72. The Act does not explicitly define “fair dealing”. It does, however, provide guidelines that are to be used by a court in determining whether a particular act constitutes “fair dealing”. S43(3) states:

“In determining, for the purposes of subsection (1) of this section, whether copying, by means of a reprographic process or by any other means, constitutes fair dealing for the purposes of research or private study, a court shall have regard to –

(a) The purpose of the copying; and

(b) The nature of the work copied;

(c) Whether the work could have been obtained within a reasonable time at an ordinary commercial price; and

(d) The effect of the copying on the potential commercial market for, or the value of, the work; and

(e) Where part of a work is copied, the amount and substantiality of the part copied taken in relation to the whole work.”

4.2.2 The TRIPS Agreement

73. Article 13 of the TRIPS Agreement allows exceptions to the exclusive rights conferred by copyright. It states:

“Members shall confine limitations or exceptions to exclusive rights to certain special cases which do not conflict with a normal exploitation of the work and do not unreasonably prejudice the legitimate interests of the right holder.”

4.2.3 The Purpose of Copyright Exceptions

74. If society is to benefit from the existence of copyright, an appropriate balance must be struck between the interests of creators of copyright works, and users of these works. The exceptions provided in copyright law are intended to strike this balance, with a view to maximising public benefit from copyright.

¹⁹TVNZ Ltd v Newsmonitor Services Ltd [1993] NZHC 2004; [1994] 2 NZLR 91, 105.

4.3 Summary

75. The examples of plant variety rights and copyright show that providing for exceptions to intellectual property rights in relation to “research” or “experimental” work is an accepted principle. In both cases, the aim is to ensure that innovation or creation is not inhibited by ensuring that innovators or creators are able to build on the results of previous innovation or creation.

76. The breeders’ exemption incorporated into the plant variety rights system is perhaps the most relevant to a discussion on the question of a research exemption from patent infringement. The copyright example is perhaps less relevant, given the differences between a patentable invention and a copyright work. Nevertheless, the concept of “fair dealing” contained in the Copyright Act 1994 (and also in the copyright legislation of many other countries), could be helpful in defining the scope of a research exemption for New Zealand’s patent legislation, if such an exemption is considered desirable. The interpretation of the term “research” in s43 of the Copyright Act 1994 by the New Zealand Courts might also be helpful.

5. The ALRC and ACIP Studies

77. As mentioned in paragraph 40 both the ALRC and ACIP have considered the question of an experimental use exception for the Australian Patents Act 1990. The Australian Government may, after considering the ALRC and ACIP reviews, decide to incorporate a research or experimental use exception into the Patents Act 1990. If this happens, this raises the question: would New Zealand be disadvantaged if New Zealand’s patent legislation did not contain a similar exemption?

78. If Australia was to incorporate an explicit research or experimental use exception into its patent legislation, and New Zealand did not follow suit, New Zealand researchers could be placed at a disadvantage compared with their Australian counterparts. Australian researchers may have greater freedom to carry out research involving patented inventions. This could result in Australia being a more attractive place to carry out research than New Zealand.

79. In light of this, it would be useful to draw upon the work done by the ALRC and the ACIP, when looking at the question of a research or experimental use exception for New Zealand’s patent legislation. This will be of particular relevance to New Zealand given that the infringement provisions of New Zealand’s patent legislation will, after passage of the draft Patents Bill, be very similar to those of the Australian Patents Act 1990.

80. It is therefore not intended to repeat, in this document, the analysis carried out by the ALRC and ACIP. This document should be seen as complementary to the ALRC and ACIP reviews. Readers of this document are encouraged to read the documents produced by the ALRC and ACIP in conjunction with this one, in considering any submissions they may make.

5.1 The ALRC Report

81. In December 2002, the Australian Federal Attorney General asked the ALRC to examine the laws and practices governing the grant of intellectual property rights over genetic materials and related technologies, with a particular focus on human health issues. The ALRC released an Issues Paper “Gene Patenting and Human Health” in July 2003²⁰, which defined the scope of the inquiry and outlined questions for discussion.

82. A further consultation paper, “Gene Patenting and Human Health”, was released in March 2004²¹. The final report, Genes and Ingenuity: Gene Patenting and Human Health” was tabled in the Federal Parliament on 31 August 2004²². One of the issues that the ALRC looked at was the issue of research or experimental use exemption. In its final report the ALRC recommended (Recommendation 13 – 1):

²⁰ http://www.austlii.edu.au/au/other/alrc/publications/issues/27/

²¹ http://www.austlii.edu.au/au/other/alrc/publications/dp/68/

²² http://www.austlii.edu.au/au/other/alrc/publications/reports/99

“The Commonwealth should amend the Patents Act 1990 (Cth) (Patents Act) to establish an exemption from patent infringement for acts done to study or experiment on the subject matter of a patented invention; for example, to investigate its properties or improve upon it. The amendment should also make it clear that:

(a) the exemption is available only if study or experimentation is the sole or dominant purpose of the act;

(b) the existence of a commercial purpose or objective does not preclude the application of the exemption; and

(c) the exemption does not derogate from any study or experimentation that may otherwise be permitted under the Patents Act.”

83. The ALRC considered that the experimental use exemption should apply to all patented inventions, not just those concerning genetic materials and technologies. Submissions to the ALRC emphasised that the problems encountered in relation to the experimental use of patented genetic technologies are similar to those applicable to other subject matter, such as business methods and pharmaceuticals. The Australian Government has yet to respond to the recommendations made by the ALRC.

5.2 The ACIP Review

84. This review was initiated in response to concerns that had been expressed that the grant of patents, particularly in the biotechnology field, may be inhibiting research and development. There was also concern that Australia was earning insufficient return on its investment in research and development. It was considered that inadequate use of the patent system may contribute to this lack of return.

85. In asking the ACIP to consider the issues, the Australian Government gave the ACIP the following brief:

“to examine whether some types of patents are inhibiting research and development in Australia and determine whether both Australian researchers and business would benefit from introducing an experimental use exception provision (or some other provision) into the Australian patent legislation. In examining this question, ACIP should consider whether an experimental use exemption would help researchers more effectively use the patent system to commercialise their research and development.”

86. The ACIP released an issues paper in February 2004²³ inviting written submissions. The public submissions can be found at http://www.acip.gov.au/expusesubs.htm. Most submissions considered that there was a case for some sort of experimental use exception for the Patents Act 1990.

87. After analysing the public submissions, the ACIP released an options paper²⁴ in December 2004. The paper presented 5 basic options (labelled A – E) for implementing

²³ Patents and Experimental Use, Issues Paper, Advisory Council on Intellectual Property, February 2004, p2, http://www.acip.gov.au/library/patentsexpuse.PDF

²⁴ Patents and Experimental Use, Options Paper, http://www.acip.gov.au/library/Experimental%20Use%20Options%20Paper%20A.pdf

an experimental use exception. Some of these basic options were split into sub- options. Four options were preferred by the ACIP. These preferred options are:

88. These options are summarised below. More detail on these options can be found on pages 7 – 16 of the ACIP report.

89. Most of the submissions²⁵ received by the ACIP on the options paper supported the concept of a research exemption for the Patents Act 1990. That is, ACIP Option B received little support, as did Option C1. Support appeared to be strongest for ACIP options C7 and C8.

90. In November 2005, the ACIP’s final report²⁶ on Patents and Experimental use was published by the Australian government. The ACIP has proposed an experimental use exception which it believes would optimise levels of innovation in Australia while meeting Australia’s international obligations. This proposal is also discussed below.

5.2.1 The ACIP Preferred Options

Option B – No Change

91. Option B proposes no change to the Australian Patents Act 1990. The current situation where there may be some uses of a patented invention which do not constitute infringement would be maintained, although it is uncertain whether experimental use is included in this. The courts could be left to decide on these points.

92. The ACIP options paper acknowledged that this option retains the disadvantages of the status quo, in particular the uncertainty over the status of experimental use of a patented invention. It was considered, however, that given the lack of evidence that this uncertainty is actually causing a problem, the potential disadvantages of making significant changes to the law might be greater than the costs of leaving things as they are.

²⁵ The submissions can be found at: http://www.acip.gov.au/expuseoptsubs.htm

²⁶ http://www.acip.gov.au/reviews.htm#expuse

Comment

93. The “current situation” referred to in this option is similar to the current situation in New Zealand. The “pros” and “cons” of this option set out in the ACIP Options Paper are therefore also relevant to New Zealand.

Option C1: Definition of Exploitation Does not Include Experimental Use

94. Under this option the Australian Patents Act 1990 definition of exploitation of a patented invention would be amended to not include experimental use, such as through adding the phrase “other than experimental uses”. No definition of “experimental use” or any other guide to interpretation of the term would be provided, the interpretation of this term being left to the courts.

Comment

95. The Patents Act 1953 does not define the rights attached to a patent in terms of “exploitation”. The draft Patents Bill, proposes (in cl 17) a definition of the rights attached to a patent that is identical to that in the Australian Patents Act 1990. This option could, therefore, be implemented as part of the Patents Bill.

96. This would be the simplest way of implementing a research exemption. Although simple, this approach has disadvantages. As the ACIP options paper acknowledges, the lack of a definition of “experimental use” would still leave considerable uncertainty as to what constitutes “experimental use”. Another disadvantage (not mentioned by the ACIP) would be the risk that the courts could adopt a definition of “experimental use” that was so narrow that most research or experimental work would fall outside it – this is essentially what has happened in the United States.²⁷

Option C7: Exemption for Fair Experimentation, with Inclusive Permitted Uses

97. This would involve amending the Australian Patents Act 1990 to create an exemption from infringement for acts that constitute “fair experimentation” on an invention. To guide the Courts in determining what constitutes “fair experimentation”, the following would be considered:

• The purpose and character of the act;
• The subject matter of the invention;
• The availability of the invention in the market place; and
• The commercial effect of the act upon the patent holder.

98. In addition, “fair experimentation” would be defined as including (but not limited to) the following “permitted uses”:

• Determining how an invention works;
• Determining the scope of the claims;

²⁷ See Madey v Duke, supra

• Determining the validity of the claims; or
• Developing an improvement to the invention.

Comment

99. Option C7 appears to be an attempt to achieve clarity and certainty as to what acts constitute “experimental use”, and are hence exempt from infringement, while retaining a degree of flexibility. It is not entirely clear from the ACIP paper whether the “permitted acts” are subject to the considerations for determining whether an act is “fair experimentation”, or whether those considerations only apply to acts not falling within the “permitted uses”. The way Option C7 is presented appears to suggest the latter is intended.

Option C8: Exemption for Experimenting “on the Subject Matter of the Invention”, with Inclusive Permitted Uses

100. This option would involve amending the Australian Patents Act to provide that acts of experimenting “on” the subject matter of an invention would not constitute infringement. The exemption would only be available if experimentation was the “sole or dominant” purpose of the act.

101. There would be some “permitted acts” that would be considered to fall within the exemption. They include (but are not limited to):

• Determining how an invention works;
• Determining the scope of the claims;
• Determining the validity of the claims; or
• Developing an improvement to the invention.

Comment

102. Like option C7, this option appears to be an attempt to construct an exemption that provides clarity and certainty to researchers, while leaving some flexibility. It would be left to the Courts to interpret terms such as “experimentation”, or “dominant purpose” or “on the subject matter of the invention”. This latter term may cause problems, though, as it may be difficult to distinguish between experimentation “on” and experimentation “with” a patented invention.

5.2.2 The ACIP Final Proposal

103. After considering public submissions on its preferred options, the ACIP proposed, in its final report, a single preferred option for an experimental use exemption as follows:

“The rights of a patentee are not infringed by acts done for experimental purposes relating to the subject matter of the invention that do not unreasonably conflict with the normal exploitation of the patent.

Acts done for experimental purposes relating to the subject matter of the invention include:

• - determining how the invention works;
• - determining the scope of the invention;

• - determining the validity of the claims;

• - seeking an improvement to the invention.”

104. The ACIP report emphasises that the list of examples is not intended to be treated as a list of “permitted acts”. Any activity falling within the scope of the acts listed must still satisfy the test of not unreasonably conflicting with the normal exploitation of the patent if it is to qualify for the exemption. The proposed exemption is also not intended to derogate from any other exemption from infringement that exists under the Patents Act 1990.

Comment

105. The proposal for an experimental use exception adopted by the ACIP uses the European wording “acts relating to the subject matter of an invention”. The ACIP felt that this is more likely to be considered to be in accord with the TRIPS Agreement than other forms of exemption. The words “do not unreasonably conflict with the normal exploitation of a patent” are taken from Article 30 of the TRIPS Agreement.

6. Conclusion

106. Paragraph 14 posed three questions that would need to be answered when considering the issue of the use of patented inventions in research:

1. could research involving a patented invention constitute patent infringement;

2. If it does, is this a problem that needs to be addressed; and, if so,

3. how should this problem be addressed?

107. The answer to the first question would appear to be yes – the limited case law in this field suggests that research involving a patented invention could be held to infringe a patent, although not all such research would. It is uncertain, though, just what research activities would be found to be infringing, and what would not be.

108. This leads to the next question: is this a problem that needs to be addressed? There appear to have been few (if any) instances of New Zealand researchers being held liable for patent infringement over their research activities. Submissions to the ACIP review suggest that this is also true in Australia.

109. The possibility that research involving a patented invention could lead to researchers being held liable for patent infringement could, however, be a problem. If uncertainties over the status of research involving a patented invention do influence decisions regarding research activities, research and innovation could be inhibited.

110. Researchers may prefer to steer clear of research in fields covered by patents rather than run the risk of being sued for patent infringement, or incur the cost of negotiating licenses. Submissions to the ACIP review suggest that this may be a problem in Australia. It does seem then, that the answer to question (ii) above, is there may well be a problem. One of the purposes of this document is to seek submissions from interested parties to determine whether there is, in fact, a problem.

111. If there is in fact a problem, how might this problem be addressed? It is likely some sort of amendment to New Zealand’s patent legislation, such as a “research” or “experimental use” exemption to clarify the status of research work involving patented inventions would be required. But how might such an exemption be worded so as to give clarity and certainty for all concerned? Another purpose of this document is to seek input from interested parties on the wording of an exemption if it is determined that one is desirable.

112. In order to assist the Ministry in formulation its recommendations to the government on this issue, submitters are invited to consider the questions set out in Section 7.

7. Questions for Consideration

The Situation in New Zealand

1. Under New Zealand law as it currently stands, it appears uncertain as to whether or not research or experimental work involving a patented invention would constitute patent infringement. Please indicate whether or not you agree with this statement, together with reasons for your choice.

2. Are you aware of any instances where researchers in New Zealand have been faced with an infringement action over their use of a patented invention in their research or experimental work? If so, please provide details.

3. Are you aware of any instances where New Zealand researchers’ decisions regarding their research activities have been influenced by uncertainty about whether those activities might infringe patents? If so please provide details.

4. Is there a justification for incorporating an explicit research or experimental use exemption into New Zealand’s patent legislation? Please give reasons.

5. If your answer to question 4 is “yes”, how might “experimental use” or “research use” be defined?

6. If a research or experimental use exception were to be incorporated into New Zealand’s patent legislation, should certain activities be specifically defined as falling within any research or experimental use exception, or should any activity be specifically excluded?

7. If Australia were to adopt a research or experimental use exception, would New Zealand be disadvantaged compared to Australia if New Zealand did not adopt such an exception? Please give reasons. If so, should New Zealand adopt the same exception as Australia?

The ALRC and ACIP Reviews

8. The ALRC recommended that an experimental use exception be incorporated into the Patents Act 1990, and set out three criteria that such an exception should meet. What are your views on the ALRC’s recommendation?

9. The ACIP Options paper presented four preferred options. The ACIP final report proposed a further preferred option. Do you have a preference for one of these options? If so why?

10. Do you have a preference for any of the other options presented in the ACIP Options Paper (apart from the preferred options)? If so, why?