23 August 2015

Australia’s Productivity Commission to Examine ‘IP Arrangements’, but Hands Will Be Tied on Patents

BeesThe Australian Government has directed its Productivity Commission to undertake a 12 month public enquiry into the intellectual property system, including its effect ‘on investment, competition, trade, innovation and consumer welfare.’

The enquiry has been established in response to Recommendation 6 of the Competition Policy Review (a.k.a. the ‘Harper Review’) which issued its final report on 31 March this year.  The Harper Review’s recommendation stated, in relevant part, that:

The Australian Government should task the Productivity Commission to undertake an overarching review of intellectual property. …

The review should focus on: competition policy issues in intellectual property arising from new developments in technology and markets; and the principles underpinning the inclusion of intellectual property provisions in international trade agreements.

The Terms of Reference for the Productivity Commission Review into Intellectual Property Arrangements require the Commission to:
  1. examine the effect of the scope and duration of protection afforded by Australia's intellectual property system on
    1. research and innovation, including freedom to build on existing innovation
    2. access to and cost of goods and services
    3. competition, trade and investment;
  2. recommend changes to the current system that would improve the overall wellbeing of Australian society, which take account of Australia's international trade obligations.
The review will look at all aspects of Australia’s intellectual property system, including patent, trade mark, registered design and copyright laws and regulations.  I anticipate that copyright, in particular, will receive close scrutiny.  There are a number of aspects of Australian copyright law – including the treatment of unpublished and ‘orphan’ works, as well as issues relating to technology-neutrality – where substantive reforms may be both desirable and feasible.

Of course, my primary interest is in the patent system.  And here, in particular, the Productivity Commission will find that its hands are largely tied by Australia’s commitments under long-standing international agreements.  Options such as targeting local innovators for preferential treatment,  reducing the term of patents, limiting the scope of patentable subject matter and restricting the rights of patent-holders are all substantially off-the-table as a result of Australia’s existing international obligations.  In any case, none of these things would solve the real problem, which is the lack of an effective innovation ecosystem in Australia which can support the development of new home-grown technologies, and assist Australian innovators to take them to the world.

Hands Tied by International Agreements

The Terms of Reference implicitly recognise the potential for international obligations to limit Australia’s freedom to adapt our intellectual property system to ‘local’ requirements.  The first of nine matters to which the Commission is required to ‘have regard’ is ‘Australia's international arrangements, including obligations accepted under bilateral, multilateral and regional trade agreements to which Australia is a party.’

In this respect, the two most important agreements, with provisions relating to patents, to which Australia is a party are the Paris Convention for the Protection of Industrial Property (‘Paris Convention’) and the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS)

The Paris Convention was first adopted in 1883, and now has 176 members.  Australia has been a party to the Paris Convention since 1925.  The TRIPS Agreement is an annex to the instrument which established the World Trade Organization (WTO) in 1994.  Australia was a founding member of the WTO on 1 January 1995, having been a member of its predecessor organisation, GATT, since 1948.  The WTO now has 161 members.  I mention these statistics in order to emphasise that these are long-standing arrangements that have been supported by successive governments of all political stripes for decades, and t which Australia is deeply committed.  There is absolutely no prospect of Australia withdrawing from these agreements, or any others – such as the Patent Cooperation Treaty (PCT) or the Patent Law Treaty – to which the country is relevantly a party.

Targeting Local Innovation?

Discussion of the value of the patent system often turns to whether the Australian arrangements are benefiting ‘local’ innovators, as if it might be possible to devise rules that would give Australian patent owners some additional advantages over their foreign counterparts.  IP Australia’s Australian Intellectual Property Report 2015 shows that only 6.6% of all Australian standard patents granted in 2014 were to Australian residents.  The obvious conclusion, of course, is that the Australian patent system overwhelmingly benefits foreign users over Australians.

But even supposing we wanted to try to change this, we could not.  Article 2 of the Paris Convention guarantees that nationals of all member states be treated equally with citizens of each country with regard to conditions and formalities, the scope of protection, and the legal remedies available in the case of infringement.  Furthermore, the TRIPS agreement sets minimum standards for conditions of patentability, scope of protection and legal remedies.

On the plus side, membership of these arrangements guarantees these same benefits to Australians applying for patents in the United States, Europe, China, Japan, Korea, New Zealand, and dozens of other countries around the world.  The problem with Australian innovation is not that Australia grants too many patents to foreign companies, it is that too few Australian companies are taking innovative new technologies to the world (I will return to this point later).

Reducing the Term of Protection?

Another complaint often heard about the patent system is that the term of protection is too long, particularly in fast-moving fields of technology.  I do not necessarily disagree with this as a general proposition, however if anything is to change here it will need to occur at the level of the WTO first.

Article 33 of the TRIPS Agreement states, in relation to patents, that:

The term of protection available shall not end before the expiration of a period of twenty years counted from the filing date

Australia could therefore grant patents for terms longer than 20 years, but not for shorter terms.

Limiting Patentable Subject Matter?

Another contentious topic is the range of subject matter for which patents may be granted.  Time and again, the emergence of new areas of innovative commercial activity have led to controversy over whether the expansion of patent protection to cover new fields of development is appropriate.  This includes technologies that are widely regarded as self-evidently suitable for patent protection today, such as applications of electricity, and pharmaceuticals.  Recent and ongoing battles include biotechnology, computer-implemented inventions and business processes.

The TRIPS Agreement has something to say about this, as well.  Article 27, paragraph (1) provides that:

Subject to the provisions of paragraphs 2 and 3, patents shall be available for any inventions, whether products or processes, in all fields of technology, provided that they are new, involve an inventive step and are capable of industrial application.

Paragraph (2) permits limited exclusions for overriding public policy purposes, such as for the protection of ‘public order’, life and health, or the environment.  Paragraph (3) permits WTO members to exclude diagnostic, therapeutic and surgical methods of treatment, and plants and animals (though not microorganisms).  Most developed nations do not implement such exclusions or, if they do, they are interpreted fairly narrowly such that some form of commercially-meaningful protection remains available.

Additionally, paragraph (1) refers to ‘inventions’ and to ‘fields of technology’.  Some WTO members interpret these terms so as to justify certain exclusions from patentability that are not authorised by paragraph (2) or (3).  For example, the grey area between ‘invention’ and ‘discovery’ can be exploited to exclude patents on natural products, even when the products discovered and usefully applied for the first time.  Innovations in areas such as business methods can arguably be excluded on the basis that they are not ‘technology’.

There is, therefore, a little bit of ‘wiggle room’ in relation to patentable subject matter, though nothing that would result in any significant change to the overall operation of the Australian patent system.  As matters stand, the courts are already addressing this issue in their approach to the existing ‘manner of manufacture’ test for patent-eligibility in the areas of genetic technologies, computer software and business processes.

Restricting Patent-Holders’ Rights?

The TRIPS Agreement also allows for some limited incursions into the rights of patent-holders in appropriate circumstances.  These include providing for the grant of compulsory licences to enable third parties to exploit a patent, and the ability of government authorities to exploit patents without prior authorisation (which, in Australia, is called ‘Crown use’).  Generally, in such cases the patentee must still be compensated, e.g. by payment of a reasonable royalty.

Australia already has such provisions.  There is scope for further reform in this area, but again there is nothing that could be done that would significantly impact the patent system as a whole.

Has Anything Changed in the Last 30 Years?

There has not been a review of Australia’s patent laws with such wide-ranging economic terms of reference since the former Industrial Property Advisory Committee (IPAC) reported in 1984 on Patents, Innovation and Competition in Australia [poor quality PDF, 1.1MB].  The IPAC Review was initiated in 1978, and resulted ultimately in replacement of the Patents Act 1952 with the current Patents Act 1990.

To say that IPAC was ambivalent about the value of the patent system to Australia would be putting it mildly.  As stated in the Executive Summary to the IPAC report:

Generally, the history and characteristics of the Australian economy, singly and in combination, with heavy emphasis upon protection, foreign investment and technology importation, do not provide encouragement for the view that there are substantial benefits attributable to the operation of the Australian patent system, while actual and potential costs can be more easily identified.

On the other hand, withdrawal from the international patent system would probably be politically impossible. It would be likely, in any event, to affect the supply of technology by foreign firms to Australia, and to detract from the ability of Australian firms to penetrate large foreign markets with innovations originating in Australia.

While the economic effects of the patent system may be modest, the transition costs of withdrawal from the international system might be much larger.

We conclude that Australia should continue to operate a patent system and to participate in the international patent system.

On a more positive note, however, IPAC went on to observe that:

Account must be taken of aspirations for a future in which the growth of technology-intensive industries will lead the way toward a major growth of innovation-based exports. If these aspirations should be fulfilled, a more favourable benefit/cost margin from the operation of the patent system would eventuate.

Frankly, Australia should be ashamed that while 31 years have passed since the IPAC report was published, such aspirations have yet to be fulfilled.  The country has prospered in recent years on the back of a mining boom driven in large part by Chinese demand for iron ore, but which now appears to be over (though our government would like us to believe that it is just entering a new phase).  At the same time, the Australian Prime Minister, Tony Abbott, has said that coal is ‘good for humanity’ (I am sure this has nothing to do with the fact that Australia has quite a lot of coal, and the Australian government has quite a lot of support from the kinds of companies that are in the business of removing it from the ground).  Furthermore, Australian government policy (or, more accurately, the lack thereof) on renewable energy has seen the sector – which, of course, is a far greater source of innovation and technology-intensive activity – virtually grind to a halt in the past two years.

Meanwhile, Australia is failing to develop, nurture and grow any significant technology-intensive industries.  A recent article from KPMG laments the lack of Australian ‘unicorns’ (i.e. startups valued at greater than one billion dollars from fundraising).  With more than 100 such companies now in existence, Atlassian is the only Australian private company to make the list – not that much of the credit for this can go to the Australian innovation ecosystem, with the bulk of the investment that gave the company its US$3.3 billion valuation coming from US based public investment company T.RowePrice.

Conclusion – The Patent System is Not the Problem!

The Australian patent system no doubt has some impact on research and innovation, access to and cost of goods and services, competition, trade and investment, and the other areas identified in the Terms of Reference for the Productivity Commission review.  However, it is doubtful that the Commission will be able to do any better than IPAC did over three decades ago to quantify the benefits of the system other than in terms of those still-elusive ‘aspirations’.  As for any recommendations for change, the Commission’s hands are now even more tightly bound than IPAC’s, given the intervening creation of the WTO and the TRIPS Agreement.

In any event, if Australia is not getting sufficient benefit from the patent system, it is clear that this is because it is failing in other areas of innovation and economic policy.  More tinkering with the patent laws will be nothing but a case of fiddling while coal burns!


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