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Indonesia's controversial patent implementation rules are enacted

Published on 31 Jul 2018 | 2 minute read

Indonesia's controversial patent working requirements are now going to be enforced. The Patent Law requires that a granted patent must be worked in Indonesia, otherwise it can be revoked by the government. “Working” a patent means making a product or using the process in the patent. The requirement to use the patent locally was found in the old 2001 Patent Law but there was no sanction for non-compliance. 

Under the revised 2016 Patent Law, revocation of such a patent could be initiated by a party representing national interest. First there was a draft Ministerial regulation setting out details. This was followed by protests from business groups and foreign governments. So, the Indonesian government circulated a draft presidential decree to clarify that the application of Article 20 would be softened by allowing for patent holders to apply for temporary waiver from compliance where they are incapable of working a patent or it is not economically viable to do so.  The aim was to satisfy high tech industries who are unable to manufacture complex products in every country. Pharmaceuticals and electronics/telecoms products are obvious examples.

In July 2018 Regulation 15/2018 was issued by the Minister of Law and Human Rights. IP holder concerns appear to have been largely ignored. The Regulation states that it aims to support efforts to transfer technology, attract investment and provide jobs. Now a patent holder may apply for a dispensation within three years from patent grant if it cannot work its patents in Indonesia. The maximum period allowed for a dispensation is 5 years. However further extensions may be possible if the reasons remain valid. The Regulation is brief and lacks detail.

One question that arises is who can revoke a patent on this basis? The IP office has orally said that the "party representing national interest" could be wider than just the public prosecutor, who represent national interest issues, and that even a private entity or person might be able to revoke on this basis. 

Another question relates to patents granted more than three years ago. The patent office has said that this cannot apply to patents granted before the 2016 patent law revision i.e. patents granted under the old law.  Right now the granted patents that companies are most concerned about are those under the existing law. But after 2019 new granted patents will start to fall victim to the rules. 

Further the proposed waiver of a maximum allowable period of five years will not even last the length of a patent. For many fast moving technologies that might be enough, but not for many. Although the 5 year period appears to be extendible, the details are scant.

In any event the rules will apply to vast swathes of Indonesian patent applications since in practice not that many products can be made in Indonesia. There are complex reasons for the lack of investment in technology in Indonesia, and the patent law is only one small element. 

So companies will need to decide one of several unattractive options: 

  1. File and apply for waivers - that just increases costs and may need to be repeated. Careful calculation of the timeline relative to the technology implementation globally will be needed. 
  2. File and don't apply for a waiver but accept that patents may be revoked. What is not clear is who by and when, at this stage. 
  3. Don't file patents in Indonesia at all if you cannot manufacture here. 

None of these options are good for patent applicants. Patent holders will simply face higher costs and higher invalidity risks than in other countries. It will not help Indonesia in the sense that this won't suddenly enable or force companies to manufacture products in Indonesia. The main reasons for that, are practical commercial matters like foreign investment in a sector is restricted by the negative investment list, or employment costs are high due to the difficulty hiring and firing staff. Using the patent law alone to try to force foreign investment will achieve the reverse – it will increase the cost and complexity of business in Indonesia. 

To decide what next, patent holders will need to analyse their patent portfolio for at risk patents, prioritize their technologies/patent families and then decide how to proceed. 

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Principal, Global Head of Enforcement
+62 811 870 2616
Principal, Global Head of Enforcement
+62 811 870 2616