Australia: Non-Infringement Declarations - Not The Tool They Might Otherwise Be

Last Updated: 8 October 2010
Article by Gareth Dixon and Chris Bevitt

Section 125 of the Australian Patents Act 1990 (Cth) provides that "a person who wishes to exploit an invention may apply to a prescribed Court for a declaration that the exploitation of the invention would not infringe a claim of a particular complete specification". An affirmative decision is termed a non-infringement declaration ("NID") and protects its holder from being liable for damages or an account of profits even where the NID is later revoked.

NID provisions were first introduced into Australian patents legislation in the Patents Act 1952 (Cth). These provisions were aimed at a manufacturer who was proposing to make an article or use a process, but who could not obtain clear legal advice, or an assurance from a patentee that the proposed activities would not infringe a patent.

In theory, an NID is a powerful and worthwhile tool through which duly diligent people working in the same industry can practice an invention right up to the point of infringing a competitor's patent. This, in turn, denies the patentee a de facto extension of claim scope. However, in practice, the precise wording of the Patents Act 1990, as confirmed by the recent decision in Occupational and Medical Innovations Ltd v Retractable Technologies Inc [2008] FCA 1102 redresses the balance more in favour of the patentee in requiring an NID Applicant to first have their own patent covering their intended activities before a Court will grant an NID in relation to someone else's patent.

In his judgment, Dowsett J interprets ss.125 and 126 of the Patents Act to be available only to a party which has a granted patent for the activity it alleges to be non-infringing – and further states:

"There are good policy reasons for limiting the availability of relief to a person who wishes to exploit a patent which has been granted, excluding mere Applicants whose rights have not been finally determined".

Interestingly, but perhaps not surprisingly, this case represents the first time an NID had been sought since the present legislation was enacted more than two decades ago. In theory, an NID is an attractive and advisable tool for one seeking to operate just outside the scope of a competitor's patent claim. However, the legislation provides the significant deterrent that an NID Applicant must not only pay the patentee's costs, but must also undertake not challenge the patent's validity.

A further issue arising from the Retractable Technologies decision relates to whether an NID should be obtainable before the NID Respondent's patent has been granted; there are arguments both for and against this. On the one hand, allowing an NID prior to grant of the Respondent's patent would prevent delays in prosecution impacting adversely on the NID Applicant's business. On the other hand, an NID based on a pending application may be of limited benefit such that the NID Respondent remains able to amend the scope of their claims prior to grant. This means that an NID issued on a pending application may be obsolete by the time the patent eventually grants.

Dowsett J's decision represents a significant departure from the position adopted under the Patents Act 1952 (Cth), which required only that an NID Applicant desired to "use a process, or to make use or sell an article"; it did not refer to an "invention" (which is taken to mean a "patented invention"), as does the present legislation. The Patents Bill 1990 Explanatory Memorandum was silent as to the need for any such change and the narrow scope construed by Dowsett J may therefore be an unintended consequence of the drafting of the present legislation. Notwithstanding, the judicially-imposed restriction that the NID Applicant must themselves be seeking to exploit a patent appears significantly narrower than the intended operation of the provisions, which was that commercial activity should not be unduly inhibited by the patent system, regardless of whether such activity is the subject of a patent. Accordingly, Australia's NID provisions now appear significantly narrower than those of our major trading partners, many of which also have NID provisions.

A further consequence of the Retractable Technologies decision is that the advisability of keeping patentable subject matter confidential is diminished. A granted patent now appears to be a pre-requisite for those wishing to exercise due diligence via the NID route.

The fallout from this controversial decision was swift. In August 2009, IP Australia released a Consultation Paper entitled Streamlining the Patent Process – Toward a Stronger and more Efficient IP Rights System, in which several of the perceived weaknesses of Australia's patent system were identified. Not surprisingly, the NID, in its present form, was highlighted – and it was suggested that the Patents Act 1990 could be amended to clarify that a person is eligible to apply for an NID irrespective of whether they have applied for, or been granted, a patent relating to the activity for which they are seeking the NID.

In addition – and as noted by IP Australia, Dowsett J's decision leaves the following stones unturned:

  • whether it would be desirable to establish a means to challenge the validity of a patent that is the subject of an NID during the NID application process (this option is available in some jurisdictions)
  • whether it is appropriate that the person seeking the NID pay the costs of all parties, unless the Court orders otherwise
  • whether the Commissioner of Patents, as well as the Courts, should have jurisdiction to make an NID
  • whether it is appropriate that one may seek an NID prior to the Respondent's patent granting.

The Retractable Technologies decision juxtaposes the notion that a patent is a "negative right" in that owning a patent does not afford one the right to practice an invention, with the corollary that one cannot now exercise specific due diligence in practising an invention by way of an NID without first having a patent.

Should any further judicial consideration be given to the Retractable Technologies decision, it may be necessary for the Australian Government to reconsider the NID provisions as a whole. We will continue to monitor the consequences of this decision and will keep you informed of any progress.

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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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