Five Easy Ways to Fix the Innovation Patent System

As I reported last week, IP Australia has opened a consultation on the belated recommendation by the now-defunct Australian Advisory Council on Intellectual Property (ACIP) that the government consider abolishing the innovation patent system.

The consultation, and ACIP’s recommendation, arise as a result of IP Australia’s report entitled The Economic Impact of Innovation Patents, which concluded that the innovation patent system is failing to achieve its original objective of encouraging innovation by Australian inventors and small-to-medium enterprises (SMEs).

Specifically, IP Australia is seeking ‘feedback’ on:

1. the ACIP recommendation that the innovation patent system be abolished; and 
2. any alternative suggestions to encourage innovation among SMEs.

I believe that the concept behind the innovation patent – providing a second-tier patent right that is easier and more cost-effective for individuals and SMEs to obtain, but which has a shorter term of protection than a standard patent – is a good one, although it has become clear that the execution of that concept has left much to be desired.  However, the fact that the system is imperfect is no reason to abandon it without some attempt at revision.

With this in mind, I would like to present five simple proposals to address many of the concerns that have arisen in relation to innovation patents.  Readers familiar with recent Australian politics will be aware that nothing gets done in this country unless it can be encapsulated in a three-word slogan.  I have therefore reduced each of my proposals to a simple three-word headline:

1. Raise the Step;
2. Limit the Damages;
3. Reduce the Term;
4. Stop the Injunctions; and
5. Force the Examination.

Further explanation of each of these proposals, and the potential benefits, are set out in the remainder of this article.

1. Raise the Step

There is no question that the ‘innovative step’ standard is set too low.  The Australian courts have expressly recognised that innovation patents can be validly certified, and enforced, despite the fact that they may be directed to objectively obvious developments.  As Justice Gyles stated in Delnorth Pty Ltd v Dura-Post (Aust) Pty Ltd [2008] FCA 1225, at [53]:

Obviousness does not come into the issue. The idea behind it [i.e. the test for ‘innovative step’] seems to be that a claim which avoids a finding of no novelty because of an integer which makes no substantial contribution to the working of the claimed invention should not receive protection but that, where the point of differentiation does contribute to the working of the invention, then it is entitled to protection, whether or not (even if), it is obvious. Indeed, the proper consideration of [the test for innovative step] is liable to be impeded by traditional thinking about obviousness.

The potential therefore exists for patentees to craft innovation patent claims with the primary objective of blocking competitors and stifling innovation in their field of endeavour without providing the benefit of any meaningful advance or contribution of their own.  This is clearly contrary to any sensible public policy considerations.

The innovative step standard therefore must be raised.  It should not, however, be lifted to the same level as a standard patent.  In opting for an innovation patent, rather than a standard patent, the opportunity must exist for an applicant to choose a shorter term of protection in exchange for a lesser standard of inventiveness.  In many cases, inventions protected by innovation patents might (and sometimes do) qualify for standard patent protection.  In this case, the benefit to the patentee is not the protection of an advance that would not otherwise be patentable, but rather a reduction in the difficulty – and therefore time and cost – of examination.

My personal preference for an innovative step standard that strikes an appropriate balance is the test for inventive step that applied under the Patents Act 1990 as originally enacted.  This standard required an inventive contribution, and not merely a ‘substantial contribution to the working’ of the patented product or process, however inventiveness was assessed against no more than one source of prior public information viewed in light of the common general knowledge in the relevant art.  Combining information from multiple sources, unless shown to be part of the common knowledge or ‘stock in trade’ of workers in the field, was not permitted.

The current test (which has applied since the Raising the Bar reforms came into effect on 15 April 2013) for inventive step reflects a policy choice about the contribution required from an inventor in order to obtain a patent, rather than being a reflection of any practical reality.  As in other major jurisdictions, this test permits combining information from multiple prior art sources on the basis of a legal fiction that all such information is available to the ordinary skilled person in the field, with the question then being whether, on that basis, it would have been either obvious or inventive to make the combination.

In practice, many inventions are improvements on existing products or processes, and their inventors arrive at them by consideration of how things might be made better.  Such inventors do not have regard, at the outset, to all of the prior art that they might have found in a diligent search, and regarded as relevant to the matter.  From the perspective of the inventor, an invention has been made, even though the law might ultimately determine that the particular contribution was not sufficiently significant in view of the totality of the pertinent prior art.

Using the ‘single prior art source’ test for innovative step would therefore better reflect the practical reality for most individual inventors and SMEs.  It is a clearly justifiable standard from both a logical and policy perspective.

2. Limit the Damages

One quirk – perhaps unintended – of the innovation patent system is that a patentee is able to claim damages for infringement all the way back to the original effective filing date of an innovation patent.  (See Britax Childcare Pty Ltd v Infa-Secure Pty Ltd [No 3] [2012] FCA 1019, and my earlier article Innovation Patents Reach Back in Time for Infringement.)

Surprisingly, an innovation patent may be infringed before it is published.  If the patent results from a divisional application, this extends to the initial period, both before and after publication, during which its parent application was pending, and prior to filing of the innovation patent application.  Additionally, a published innovation patent may be infringed by acts that infringe the claims as ultimately certified, even if those acts would not infringe the claims of the innovation patent as eventually published.

This is extremely problematic.  Particularly in the case of divisional innovation patent applications filed for the specific purpose of enforcement against a competitor, it enables claims to be crafted to target an infringement with effect back to the original filing date, without the competitor having any prior notice of the claim.

The solution is simple.  As for standard patents, no relief (e.g. damages or an account of profits) should be available in relation to infringement during any period prior to the official publication of the claims that have been infringed.

3. Reduce the Term

An innovation patent enables protection to be obtained more easily, and/or for inventions that would not meet the inventiveness requirements for a standard patent.  The primary trade-off for the patentee is a shorter term of protection.

It is therefore clear that the nature of the trade-off between the ‘innovative step’ standard, and the term of protection, is a key policy lever for determining how, and by whom, innovation patents are used.  Raising the step and reducing the term are both mechanisms to encourage inventors with a higher-level innovation to opt for standard patent protection.

Assuming that the innovative step standard is raised, careful consideration would need to be given to the extent of any accompanying reduction in term.  My gut feeling, however, is that a return to the old petty patent term of six years would likely be appropriate.

4. Stop the Injunctions

Currently, an innovation patent provides its proprietor with the full extent of enforceable rights granted by a standard patent, including the ability to block a competitor by obtaining an injunction against continued infringement.

In my view, there is a strong argument to be made for refusing injunctive relief in the case of innovation patents.  If an inventor makes a ‘lower-level’ advance (or, at least, opts for a lower level of protection) they might well be entitled to the financial benefits that flow from this, including receipt of reasonable royalties if others wish to use the invention during the term of the patent. 

However, given that a lower-level invention is more likely to be the kind of thing that someone else might have come up with independently of the patentee, there is a weaker case to be made for the grant of an injunction.  The requirement to pay royalties already increases a competitor’s cost base, which in many cases will be sufficient to enable the patentee to maintain an edge in the market.

Furthermore, eliminating injunctions for innovation patents would make them less attractive as strategic enforcement tools, particularly for large companies and foreign applicants.  While it would remain possible to obtain a divisional innovation patent based on a pending standard application, as a rapid enforcement tool, an applicant requiring an injunction would be better off accelerating the examination of the standard application.

5. Force the Examination

IP Australia’s economic analysis confirmed a number of facts that are, in my experience, supported by the anecdotal evidence of patent attorneys who work with clients seeking innovation patents, including:

1. over 80% of innovation patents are never examined and certified, and thus never become enforceable;
2. most innovation patents are not maintained for their full eight-year term, and many expire due to non-payment of the very first annual maintenance fee, which is due just two years after filing; and
3. factors that are associated with innovation patents being maintained for longer periods include: the patent is owned by a large company; the patent is certified; the applicant used an agent (i.e. a patent attorney) to prepare and file the application; the patent was filed as a divisional of a standard patent application; the applicant is more experienced with the patent system.

All of this is consistent with innovation patents being more highly-valued, and more effectively used, by applicants that are more sophisticated and/or better advised.  Poor quality innovation patents can be filed speculatively and at little expense by self-represented applicants.  Such patents have little value and are unlikely ever to be certified. 

The ‘publicity’ for the innovation patent, from its inception, has focussed significantly on claims that it is cheaper and simpler than a standard patent, and therefore more suitable for individual inventors and SMEs.  While there is some truth to this, the fact is that any for of IP protection – and patent protection in particular – needs to be part of a broader business and IP strategy in order to be effective.  It is therefore no surprise that sophisticated and well-advised applicants are deriving more value from the innovation patent system than ‘casual’ users.

Casual use should therefore be discouraged.  The potential benefits of the innovation patent system will only be realised if its users have clear strategic goals.  While it is reasonable for patentees to abandon patents covering developments that, ultimately, do not prove to be as commercially valuable as initially hoped, it would be beneficial for them to be compelled to commit, one way or another, at a relatively early stage in the term of an innovation patent.

I therefore this it would be reasonable for innovation patent owners to be required to request examination of their patents after a reasonable period from filing.  In particular, I would abolish the second year maintenance fee (which currently triggers significant numbers of abandonments anyway), and replace it with a compulsory examination request deadline.  Thus a patentee with an ongoing interest in an innovation patent would be required to pay an examination fee within two years, rather than the first maintenance fee.  Subsequent annual fees would, of course, be payable to maintain any patent that survives examination.

Conclusion – Fix, Don’t Flush!

In a comment posted in response to my previous article on this topic, Director General of IP Australia Patricia Kelly stated that ‘IP Australia does not have a fixed view that abolition is the desirable outcome’ for the innovation patent.

This is very good to know, because while the innovation patent system certainly has its flaws, it would be an extreme move to flush it away entirely without considering more targeted and nuanced corrections.

The fact is that the original designers of the innovation patent system did not get the balance right.  This does not mean that a second-tier patent right, which bridges the gap between registered designs and standard patents and is of particular value to local individual inventors and SMEs, is an inherently bad idea, or is necessarily doomed to fail in meeting its policy objectives.

After all, do innovative companies just give up if the first version of a product turns out to be less successful than they had hoped? 

Tags: Australia, Innovation patent, Innovation policy, Law reform