23 September 2012

Draft Regulations Reveal Applicants to be Slugged with Search Fee

Aussie dollarsDraft amendments to the Patents Regulations 1991, published by IP Australia on Friday 21 September 2012, reveal plans to introduce a new search fee which may see customers (as applicants are known these days) paying at least A$2,200 to the government authority for search and examination of an Australian patent application.

The primary purpose of the draft regulations is to implement the Intellectual Property laws Amendment (Raising the Bar) Act 2012 (see previous articles on Patentology, including Bar Raised, as IP Law Reforms Signed Into Law). 

IP Australia has indicated that it will publish the draft regulations in two stages, so as ‘to maximise the time for public comment’.  At this time, draft regulations implementing Schedule 1 (relating to enhanced standards of patentability), Schedule 4 (reforms to the regulatory regime for patent and trade marks attorneys) and Schedule 5 (trade mark and copyright enforcement have been made available for consultation.

We have prepared a ‘redlined’ copy of the present Regulations, showing the changes that would be made by the proposed amending regulations, which we will update when the further draft regulations become available:
  1. Volume 1 (Chapters 1 to 23 and Schedules 1, 1A and 2) [PDF 1.3 MB]; and
  2. Volume 2 (Schedules 2A to 8 and the Notes) [PDF 414 kB].
IP Australia is inviting written submissions on the draft regulations, due by an unextendable deadline of 5.00pm, on 21 November 2012.  Submissions may be emailed (Word or RTF format preferred) to reform@ipaustralia.gov.au.

Over the coming weeks we will take the opportunity to review some of the proposed regulations in more detail, just as we did with the exposure draft of the Raising the Bar Bill (see Australian Patent Reform – Wrap-Up).  Some of the amendments to the Patents Regulations are extensive, and will require careful consideration. 

However, we intend to start with one of the least extensive changes: the amendment of a single row in the table of fees in Schedule 7 of the Regulations, simultaneously eliminating the fee for ‘modified examination’ (which has been repealed by Raising the Bar) while adding a new fee of A$1,710 for a ‘search by the Commissioner in relation to a patent request and complete specification as part of an examination, if the complete application was made on or after 15 April 2013’.

In the remainder of this article we will look at this new fee, the purpose and justification for its introduction, and a comparison with similar fees in other jurisdictions.  While the search fee may be justifiable from a cost-recovery perspective, it appears to us to be problematic from an innovation policy perspective.  Indeed, we believe it is time for Australia to consider introducing US-style ‘small-entity’ fee reductions.

THE NEW SEARCH FEE

At this stage, there is scant explanation as to how the new search fee will work, or when and how it will be applied.  The Explanatory Memorandum states simply:

This item introduces a new fee item in Schedule 7 of the Patent Regulations for a search by the Commission [sic] in relation to a patent request and complete specification for a standard patent.

With all due respect, this is not an ‘explanation’ – it is merely a restatement of the precise wording of the proposed amendment!

However a reasonable guess at IP Australia’s intent is that it wishes to ensure that it receives total fees of not less than A$2,200 in respect of any application which undergoes some form of search and examination in the Australian Patent Office.

WHEN WILL THE FEE BE CHARGED?

The wording of the fee entry – ‘search by the Commissioner in relation to a patent request and complete specification as part of an examination’ – suggests that the fee may not be payable in respect of every patent application filed.  It might be payable only when a complete new search is required to be performed by an examiner.

Thus, for example, where an Australian application is the national phase of a prior application filed under the Patent Cooperation Treaty (PCT), so that a search has already been conducted on the claimed subject matter, a further search may be deemed unnecessary, and the fee may not be payable.  This is particularly likely to be the case if IP Australia was the International Searching Authority.

However, in general a further search should be conducted on PCT applications, if only because the 18 month delay in publication of patent applications means that additional prior-filed applications may have become publicly available since the time of the original international search.

Furthermore, it is not clear whether IP Australia will be willing to rely on searches conducted by other patent offices – such as the US, New Zealand, European, UK or Canadian offices – where they exist, as the basis for examination in Australia.  The concept of ‘work sharing’ to reduce the burden on national patent offices is much talked-about nowadays, but this may be a real test of how viable this truly is.

Another concern is that the fee might be payable more than once on a single application.  For example, if an applicant were to make significant amendment to the claims of an application, such as in response to prior art identified in an initial search, the invention as newly-defined might be sufficiently different to require a further search.

At this stage, therefore, it seems that there is no way to know what IP Australia has in mind as far as the application of the substantial fee is concerned.  The ‘Explanatory’ Memorandum is certainly of little assistance.

WHAT IS THE INTENT OF THE SEARCH FEE?

On the face of it, the introduction of a substantial search fee is not unreasonable.  Currently, the fee charged by IP Australia for an International Search on a PCT application A$2,200.  For this, the applicant receives a search report (listing the documents identified by the examiner), and a Written Opinion (similar to an examination report).  The same fee is charged for essentially the same service, performed as an ‘International-Type Search’ on an Australian provisional patent application.

By comparison, the current fee for the complete examination of a standard patent application is A$490 (if IP Australia has conducted no prior search or examination of the application).  This service includes the prior art search.  It should therefore come as no surprise that the total fees associated with search and examination under the proposed regime will be A$1,710 + A$490 = A$2,200.  The Raising the Bar Act also introduces a new ‘preliminary’ search and examination process, also with a fee of A$2,200.

Currently, the cheapest way for an inventor/applicant to obtain a search and opinion from IP Australia is to file an innovation patent application, and immediately request examination of the patent.  The total Patent Office fee in this case is A$650 (a A$150 filing fee and a A$500 examination fee).  Assuming that publication of the patent is not a concern to the applicant, this is clearly a bargain compared to filing a provisional application (A$80) and requesting an International-Type Search (A$2,200).

It is therefore understandable that IP Australia would wish to close this ‘loophole’.  It will also help the authority in its efforts to charge fees on a ‘cost recovery’ basis, since search and examination is clearly the most labour- and skill-intensive activity carried out by the Patent Office in the normal course of application processing (i.e. excluding matters such as oppositions and other adjudications requiring a hearing and/or formal written decision).

IS THE NEW SEARCH FEE ‘APPROPRIATE’?

While the justification for some form of search fee is apparent, what is less clear is whether a fee of the proposed magnitude is an appropriate form of fee-setting from a policy perspective.  IP Australia has other sources of fee income – most notably annual maintenance fees – which involve no substantial corresponding marginal expense, and which can be (and are) used to cross-subsidise other activities.  Maintenance fees exist for policy reasons – they help to fund the general costs of running the Office, and they provide an incentive for patent-holders to abandon patents which are no longer generating useful business returns, thereby releasing the patented subject matter to the public.

Similarly, it is worthwhile to look at fee-setting for routine patent prosecution (i.e. the steps involved in applying for, and obtaining, a patent) from the perspective of public policy, rather than (or in addition to) a cost-recovery perspective.

From this point of view, it is useful to compare the current and proposed fees with their equivalents in the US and Europe (which already charge separate fees for ‘search’ and ‘examination’).  The US is a particularly interesting case at this time, because the USPTO is also currently revising its fees as part of the implementation of the America Invents Act 2011.

The table below summarises the relevant fees.  The US information is taken from the USPTO web site [PDF 83 kB], while the European fees can be found on the EPO website.  When looking at these numbers, it is worth bearing in mind that the market potentially covered by either a US or European patent is over ten times the size of the Australian market.

 
Australia
USA
Europe
Service
Current
Proposed
Current
Proposed
Current
Search
-
A$1,710
US$620
(A$593)
US$600
(A$574)
€1,165* (A$1,448)
Search (Small entity)
-
-
US$310
(A$297)
US$300
(A$287)
-
Exam
A$490**
A$490**
US$250
(A$239)
US$720
(A$689)
€1,555(A$1,926)
Exam (Small entity)
-
-
US$125
(A$120)
US$360
(A$344)
-
Notes:
*
No fee payable on European phase of PCT applications for which EPO conducted the international search.  Fee reductions apply when prior international search conducted by certain national offices (including €190 for IP Australia).
**
Reduced examination fee of A$300 applies for Australian national phase of a PCT application for which IP Australia conducted the international search.
Higher fee (€1,730) applies to European phase of PCT applications for which EPO conducted the international search, but reduced by 50% (€865) if EPO also drew up an International Preliminary Report on Patentability.
  Currency conversions via Google, as at 23 September 2012

The European search and examination fees are clearly substantially greater than either the US or Australian fees.  However, considering the coverage potentially provided by a European patent, the comparative cost of proceeding with separate applications in multiple European countries, and the quality of search and examination in the European Patent Office, few would feel that they do not represent reasonable value.

The comparison with the US is more interesting.  Two facts are notable:
  1. even with a proposed fee hike, a large entity (company with 500 employees or more) will still pay nearly A$1000 less for a US search and examination then it would for the same service in Australia; and
  2. a small-entity (mostly individual inventors and innovative ‘small’ businesses) will pay even less in the US – only A$631, compared with A$2,200 in Australia.
This reflects the general policy position in the US – that innovation, jobs and economic growth are driven more by the development of new businesses than by the ongoing activities of established large businesses.  This does not mean that large businesses do not contribute – nobody would deny the innovation and economic contributions made by Apple, for example – but it should not be forgotten that every successful large business started out as a struggling new enterprise at some stage.

In this context, it is absurd that it could cost so much more to obtain a patent in Australia than in the US.  And because of the relatively smaller size of the economy, most Australian businesses applying for patents in the US qualify for small entity status, thereby gaining the benefit of the 50% discounted official fees.

SHOULD AUSTRALIA INTRODUCE ‘SMALL ENTITY’ FEES?

In Australia we have no equivalent of the small-entity fee reduction available in the US.  However, there is a definition of a small enterprise which is used in other contexts.  For many taxation purposes – including the operation of the R&D Tax Incentive program – additional benefits are available to ‘entities with an aggregated turnover of less than $20 million per annum’.

The Australian notion of a ‘small’ business is therefore somewhat below that of the US – a solid, innovative business with 500 employees or more should be able to turn over revenues closer to $100 million – but this is not surprising given the smaller size of the Australian economy.

In our view, there is a good case to be made for the introduction of reduced patent fees for applicants satisfying similar requirements to those in the US, and based upon the ‘$20 million per annum’ aggregated turnover standard.

CONCLUSION

The motivation behind IP Australia’s proposed introduction of a new search fee is entirely understandable.  A similar fee structure exists in other countries, and would be appropriate for Australia also.

However, in our view the magnitude of the proposed fee is excessive.  It is excessive on a comparative basis with some of our major trading partners, and it is excessive relative to the means of small, innovative Australian businesses which are already minority users of their own national patent system.

In our view, not only should the magnitude of the fee be reconsidered, but more importantly it is time we started to think in this country about the introduction of reduced fees for small enterprises, in line with the US policy.

9 comments:

Glen said...

The Explanatory Memorandum that goes with these proposed changes states "in the main, preliminary search and opinion (PSOs) will be conducted by the Commissioner, on her own volition, soon after filing, with the results published when the application becomes open for public inspection", so it is doubtful that many applicants will need to pay this fee. In fact, the fee matches the current Article 15(5) search, which can be requested by the applicant for provisional applications, as well as for complete applications (though this is rarely done). Under the new regime, they have stopped Art.15(5) searches for complete applications, and added these new regulations just for complete applications. I suspect these PSOs with fees will probably only rarely be requested, by an applicant or third party, who wants to know the search results early, ahead of the Patent Office providing these same results at no cost. The Patent Office is going to publish a PSO when the specification is published at 18 months from the priority date, so the Office will be carrying these out soon after lodgement in any case, at no cost to the applicant.

anon said...

Here's an interesting paper about patent fees:
The Role of Fees in Patent Systems:
Theory and Evidence
http://www.ipria.org/publications/wp/2010/Working%20Paper%207_2010.pdf

Patentology (Mark Summerfield) said...

Thanks for the link. It is an interesting read - the summary of the impact of low/high fees both pre & post grant in Table 2 bears out my own observations on the effect on SMEs. Not very surprising, but good to know the evidence supports the rational expectations!

A. Non said...

Directed PSOs will incur fee, or the case will lapse IMHO, or not

dude said...

perhaps the search fee includes searching for prior art on Mars or on other earth-like planets where other forms of intelligent life may be found

dude said...

another crazy proposal from IP Australia. I would love to see what would happen if they had proposed a crazier fee increase, say $6000 per search. (exclusive of GST).

Or why not increase the fee to $30,000 per search since the reason for supporting the fee increase to $1710 would be bogus anyway.

Patentology (Mark Summerfield) said...

There is still some question as to when and how the fee will apply - see earlier comments on this post.

It's pretty important that IP Australia provide some clarification, sooner rather than later. Holding your breath?!

Patentology (Mark Summerfield) said...

The description of the $1710 fee is pretty clear that it applies to searches conducted during examination. So it will not apply at other application stages.

There does not seem to be provision for the Commissioner to direct an applicant to pay the $2200 PSO fee, which suggests that if early PSOs are to be mandatory in some cases, they will have to be done for free.

How all this will work is not yet clear to me. Perhaps I'm being dim?

dude said...

I cannot see any legitimate reason for a massive fee increase. Does the Australian government have money problems? Even if it does, the proposal make no sense because the size of the domestic market is far smaller than that of the US, which charges substantially less than the proposed amount.

This proposal is bad for ALL businesses and inventors not just for small/independent inventors.

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