15 October 2017

Australian Patent Law Contains, Includes, and Comprises Dangers for Foreign Applicants

Balancing ActIt is the function of a patent claim to define the scope of the invention protected by the patent.  Infringement occurs when an accused system, article, or process is covered by the particular terminology used in a patent claim.  Many inventions are combinations, e.g. a system, article, or process made up of two or more elements, components, or steps that work together to provide some new and useful function or result.  Claims directed to such inventions must therefore recite the relevant combination.

A generic example of a combination claim is: ‘a widget including element A, element B, and element C.’  In this example, the word ‘including’ is a transitional term signifying that what follows is a list of elements, each of which must be present in a widget that falls within the scope of the claimed invention.

The choice of transitional terms in combination claims can be significant.  To illustrate, if I tell you that my breakfast this morning included coffee and toast, you would probably not assume that this was necessarily the entire content of my breakfast.  My statement would be true if I also had cereal and juice.  Similarly, if I were to add that my coffee contained milk, you might suppose that I could also have added sugar.  On the other hand, if I were to say that my breakfast consisted of coffee and toast, you would naturally understand me to be saying that this is all that I had for breakfast today.

But what if I were to tell you that my breakfast comprised coffee and toast?  If you are a patent attorney, and you know that I am also a patent attorney, then in all likelihood you would understand that I am not excluding the possibility that my breakfast included other elements.  If you are not a patent attorney, then you might think it odd that I would choose an uncommon and potentially confusing word like ‘comprised’, when I could just as easily have been clear and said ‘included’ or ‘consisted of’.

The fact is that in a number of major jurisdictions the transitional term ‘comprises’ (and variations, such as ‘comprising’) is essentially regarded as a ‘term of art’ in patent drafting.  The US Patent and Trade Marks Office Manual of Patent Examining Procedure, Section 2111.03, lists a number of rulings of the US Court of Appeals for the Federal Circuit (CAFC) to the effect that the term ‘comprising’ is ‘inclusive or open-ended and does not exclude additional, unrecited elements or method steps.’  In the 1997 case of Genentech, Inc. v Chiron Corp. 112 F.3d 495 the CAFC expressly stated that: ‘”Comprising” is a term of art used in claim language which means that the named elements are essential, but other elements may be added and still form a construct within the scope of the claim.’  Similarly, the European Patent Office Guidelines for Examination, Part F, Chapter 4, Section 4.21, states that: ‘While in everyday language the word “comprise” may have both the meaning “include”, “contain” or “comprehend” and “consist of”, in drafting patent claims legal certainty normally requires it to be interpreted by the broader meaning “include”, “contain” or “comprehend”.’

Internationally, then, the settled expectation of many practitioners drafting patent specifications and claims is that the words ‘comprises’ and ‘comprising’ can safely be used to indicate that the elements or steps recited in a combination are not intended to be exhaustive.  Thus a claim defining ‘a widget comprising element A, element B, and element C’ will be infringed not only by an unauthorised widget consisting only of elements A, B, and C, but by widgets including these elements along with one or more additional elements that are not essential to the functioning of the claimed invention.

Those international practitioners may therefore be surprised to learn that ‘comprises’, and its variants, enjoy no such presumption of non-exhaustiveness in Australia, as a judge of the Federal Court of Australia recently reminded us in Nichia Corporation v Arrow Electronics Australia Pty Ltd (No 4) [2017] FCA 864.

01 October 2017

Users of the Australian Pre-Grant Patent Opposition System

SparringAustralia has a pre-grant patent opposition system, meaning that an opportunity is provided after a standard patent application has been approved by an examiner, but before a patent is actually granted, for third parties to raise objections.  Specifically, once an application has be accepted for grant, the accepted specification is published and there is then a three-month period during which anybody who believes that the granted patent would be invalid (wholly, or in-part) may file a notice of opposition.  The filing of such a notice commences the formal opposition procedures defined in the Australian Patents Act 1990 and Patents Regulations 1991, which are described in greater detail in this earlier article.  It is also possible to oppose an Australian innovation patent, via a similar procedure.  However, since innovation patents are initially granted quickly, without substantive examination, and can only be opposed after examination and certification, the corresponding opposition proceedings are necessarily initiated post-grant.

The World Intellectual Property Origanization (WIPO) web site includes a handy primer on opposition systems, which suggests that pre-grant systems are relatively uncommon in the developed world, with Australia being counted among such IP luminaries as Costa Rica, Honduras, Mongolia, Pakistan, and Zambia in providing for pre-grant opposition proceedings.  Although the completeness of the WIPO summary is questionable – it does not, for example, include New Zealand, which has a pre-grant system similar to Australia’s – it is certainly true that none of the so-called ‘IP5’ offices (i.e. the European Patent Office, Japan Patent Office, Korean Intellectual Property Office, State Intellectual Property Office of the People's Republic of China. and the United States Patent and Trademark Office) has such a system.  Other than Australia and New Zealand, it appears that the most significant countries having pre-grant opposition systems are India, Spain, and Portugal.

So, who uses the Australian pre-grant patent opposition system?  Using data available in the 2017 edition of IP Australia’s IP Government Open Data (IPGOD) set, I have analysed information on oppositions to standard and innovation patents commenced since 2004 (when the IPGOD opposition records commence).  This analysis shows that:
  1. Australians are overwhelmingly the most common participants in opposition proceedings, with Australian-resident companies or individuals having filed 771 oppositions, and Australians being applicant and/or opponent in two-thirds of all oppositions filed;
  2. Australians are almost equally likely to oppose applications by other Australians (261 oppositions filed) and by US residents (262 oppositions filed);
  3. the US is the second most common origin of opponents (258 oppositions filed), and US-resident companies or individuals are involved, as applicant and/or opponent, in around one-third of all oppositions;
  4. in terms of absolute numbers, US-resident applicants are the most common targets of opposition proceedings (453 cases), however this largely reflects the fact that US residents are by far the largest users of the Australian patent system – in relative terms, Australians are the most likely to be opposed, with oppositions being filed against just over 2% of all accepted applications naming Australian applicants;
  5. the Australian opposition system is rarely used by residents of countries other than Australia and the US, with the next most common origins of opponents being New Zealand (45 cases), Germany (34 cases), and the UK and Denmark (tied on 21 cases each);
  6. even accounting for the generally low usage of the Australian opposition system other than by Australians and US residents, Japan is a notable anomaly – while Japanese applicants were the second largest beneficiaries of the Australian patent system between 2004 and 2016, receiving over 17,500 patents, Japanese applications were opposed only 22 times, and Japanese residents were responsible for only nine oppositions during this period; and
  7. other than relatively high usage by Australians and New Zealanders, and the notably low usage by Japanese, residents of other countries tend to use the Australian opposition system in fairly consistent proportion with their use of the Australian patent system.

11 September 2017

Australian Government Commences Consultation on Proposed Patent Law Reforms

OptionsThe Australian Government recently issued its response to the Productivity Commission’s final report on its Inquiry into Australia’s Intellectual Property Arrangements, indicating support for a number of the Commission’s recommendations.  IP Australia has now published a set of consultation papers discussing proposed implementation of the Government’s response to a number of recommendations in the report, as well as a 2013 report by the Commission on Compulsory Licensing of Patents.  Four of the five consultation papers that have been released relate to patents, and address: amending inventive step requirements; introducing an objects clause into the Patents Act 1990; amending the provisions for Crown use of patents (and designs); and amending the provisions for compulsory licensing of patents.  (Additionally, a fifth paper addresses introducing divisional applications for international trade marks.)

Written submissions in response to questions presented in the consultation papers are due by Friday 17 November 2017, and should be sent via email in Word, RTF, or PDF format to consultation@ipaustralia.gov.au.

It is presently intended that legislative amendments relating to the issues discussed in the consultation papers be included in a Bill for introduction to Parliament in 2018.  Prior to this, it is expected that there will be further consultation on an Exposure Draft of the proposed amendments.

IP Australia will conduct further consultation on other measures covered by the Government’s response to the Productivity Commission’s report – including  phasing out of the innovation patent system – later in 2017, with a view to introducing corresponding further amendments in a Bill as soon as possible.

04 September 2017

Proposed Code of Conduct for Trans-Tasman Attorneys Risks Unintended Adverse Consequences for Firms and Clients

Red TapeFollowing publication of a consultation paper in April 2017, the Trans-Tasman IP Attorneys Board (TTIPAB) – the regulatory body formerly known as the Professional Standards Board for Patent and Trade Marks Attorneys – has now released a Draft Code of Conduct 2018 (‘draft Code’), Draft Guidelines to the Code of Conduct 2018, and Explanatory Notes for public consultation.  The draft Code and other documents, including the original consultation paper, and non-confidential submission received in response, can be found on the TTIPAB web site.

In many respects, the draft Code is an update and improvement on the existing Code of Conduct for Patent and Trade Marks Attorneys 2013, that codifies what most in the IP professions would regard as good ethical and business practice, and plain ‘common sense’.  For example, the draft Code confirms, in a new section 19(1), that ‘a registered attorney is a fiduciary in respect of the registered attorney’s dealings with a current client, and owes a duty of loyalty to a current client’, which is the basis upon which most attorneys have conventionally operated anyway.  Additionally, it draws on comparable international regulations, and in particular the UK Rules of Conduct for Patent Attorneys, Trade Mark Attorneys and Other Regulated Persons, to ensure that the standards applicable to patent and trade marks attorneys in Australia and New Zealand are on-par with the expectations of corresponding professionals in other jurisdictions.

Unsurprisingly, given recent developments in the Australian profession, the main area in which the draft Code includes provisions that are specific to local circumstances is that of firm ownership.  In particular, the draft Code seeks to specifically regulate the way in which Trans-Tasman (i.e. Australian/NZ) attorneys communicate their legal and ownership structures to clients.  In the specific case that an attorney firm is a member of what the draft Code calls an ‘ownership group’ – i.e. two or more firms, often operating independently at least in relation to the provision of attorney services, and having a common owner – the draft Code proposes further obligations to obtain written consent of clients when separate firms within the group act on opposing sides in certain contentious matter.

While the draft Code represents an improvement upon the current Code in many respects, the provisions relating to business structures and ownership groups are unprecedented, and very much influenced by the recent developments in the IP professions in Australia.  As such, I am concerned that they are unduly prescriptive, and have the potential to create unintended (although certainly not unforeseeable) consequences.  In particular, draft provisions relating to client communications are likely to place unduly onerous obligations not only upon Australian and NZ attorneys, but also upon the foreign attorneys with whom they work, and those attorneys’ clients, around the world. 

Furthermore, draft provisions relating to independence of firms within an ownership group may actually have the unintended effect of encouraging firms to form alternative structures.  This could involve mergers of firms, leading to an actual reduction in competition and choice in the marketplace for IP services, or it could involve the development of new structures that have perhaps yet to be imagined.

It is my opinion that a Code of Conduct for attorneys should focus on the fundamentals.  If appropriate ethical obligations are in place, that apply to individual registered attorneys, attorneys who are partners/directors of firms, and incorporated attorneys, then desirable behaviours can be expected – and undesirable behaviours can be addressed through disciplinary proceedings – regardless of legal and ownership structures.  It is not the role of the Code of Conduct to regulate how attorneys go about the day-to-day operations of their businesses, so long as the interests of clients are adequately protected.

As I will explain in this article, I therefore consider that the draft Code is, in some respects, unduly prescriptive.  I anticipate that firms operating within ownership groups will share this view.  However, even independent attorneys should be concerned that the draft Code, if brought into force, would oblige them to communicate information regarding their legal and ownership structure to all clients – domestic and foreign – for whom they act.

Written submissions in response to the draft Code are due by 28 September 2017, and should be sent via email to MDB-TTIPABCodeofConduct@ipaustralia.gov.au.

28 August 2017

Vale Innovation Patent – Australian Government Responds to Productivity Commission IP Report

Sad sackThe Australian Government has issued its response to the Productivity Commission’s final report on its Inquiry into Australia’s Intellectual Property Arrangements, indicating its support for a number of the Commission’s recommendations.  In the area of patents in particular, the Government intends to implement recommendations to further amend the law in relation to inventive step, introduce an ‘objects clause’ into the Patents Act 1990 and ‘phase out’ (i.e. abolish) Australia’s contentious second-tier right, the innovation patent.  It has also indicated its support for a proposal that ‘IP Australia should reform its patent filing processes to require applicants to identify the technical features of the invention in the set of claims’, although it is unclear at this stage exactly what form the implementation of the recommendation will take.

The Government has largely rejected recommendations of the Productivity Commission to set patent fees to promote broader intellectual property policy objectives (as opposed to the current objective of recovering the costs of running the Patent Office), and to restrict the availability of extensions of term for patents relating to pharmaceutical products.  It has, however, indicated support ‘in principle’ for the introduction of a system for transparent reporting and monitoring of settlements between originator and generic pharmaceutical companies to detect potential ‘pay for delay’ agreements, modelled on the US system.

As I will discuss further in this article, the demise of the innovation patent has been on the cards for some time, and is now all but inevitable.  Adding an objects clause to the Patents Act may be little more than window-dressing.  Much will depend on how it is worded (and the Productivity Commission’s proposal will not be popular), and then how much weight it is given by the courts (which might, I would suggest, be very little).  Further enhancing the inventive step standard, which the Productivity Commission has suggested should be based upon the European model, is not hugely controversial, in my opinion. 

As I shall endeavour to explain, however, if there is to be a fight over any of the proposed reforms it is most likely to be over the requirement to identify ‘technical features’ in patent claims.  In combination with raising the inventive step standard to the highest possible level, I believe that this recommendation reflects the Productivity Commission’s general antipathy to the idea that the patent system provides any net economic benefit to Australia, and its belief that patents should therefore be as difficult to obtain as is practicable.  But the potential consequences of a new, and unique, requirement for Australian patent claims could be far-reaching, and detrimental to Australian innovators.

18 August 2017

Extensions of Term for ‘Swiss-Style’ Claims Involving Recombinant DNA Technology? Federal Court Says ‘No’!

Matterhorn SunsetA Full Bench of three judges of the Federal Court of Australia has overturned an earlier decision of the Administrative Appeals Tribunal, and has ruled that extensions of patent term are not available for second and subsequent medical uses of pharmaceutical substances that are produced by recombinant DNA technology: Commissioner of Patents v AbbVie Biotechnology Ltd [2017] FCAFC 129 (AbbVie).  In particular, the court found that so-called ‘Swiss-style’ claims are not directed to pharmaceutical substances, and therefore cannot be the subject of a term extension, even if they involve the use of pharmaceutical substances that have been ‘produced by a process that involves the use of recombinant DNA technology’ (to use the terminology of section 70(2)(b) of the Patents Act 1990).

In Australia, the normal maximum term of a patent, i.e. 20 years from its original filing date, can be extended by up to five years in the case of certain pharmaceutical products, to compensate for the time that is typically required to complete trials and obtain the regulatory approvals necessary to actually commence marketing of a commercial drug.  Generally, extensions are available only for patents covering the pharmaceutical substances themselves – patents on methods of making or using the substances are not extendible (section 70(2)(a)).  The one exception to this rule relates to the use of recombinant DNA technology in the production of a pharmaceutical substance (section 70(2)(b)).

The term ‘recombinant DNA’ (rDNA) refers to a process of bringing together genetic material from multiple sources to create gene sequences that are not present in nature.  One well-established medical application of rDNA technology is the production of human insulin for the treatment of diabetes.  By inserting the human insulin gene into a bacterium (such as E. coli) or yeast, the resulting organism becomes a biological insulin factory.  Insulin produced in this way has almost completely replaced the use of insulin from animal sources, such as pigs and cattle. 

The Australian extension of term provisions implement a policy under which even though a pharmaceutical substance (such as insulin) may already be known, a patent directed to the (known) substance when made by a new process involving the use of rDNA technology can nonetheless be awarded an extension of term.  This provides an additional patent incentive for companies to invest in research and development of recombinant techniques for production of medications.

AbbVie Biotechnology Ltd (‘AbbVie’) owns a number of Australian patents relating to a pharmaceutical substance known as adalimumab, marketed under the name HUMIRA, which is produced by a process of rDNA technology.  The drug was originally approved in Australia in 2003, for treatment of rheumatoid arthritis.  It was subsequently demonstrated to be effective for the treatment of rheumatoid spondylitis, Crohn’s disease and ulcerative colitis, and was approved for use in treating these further conditions in 2006, 2007 and 2013, respectively.  AbbVie has patents covering these further medical uses of HUMIRA, each of which includes ‘Swiss-style’ claims.

AbbVie applied to the Australian Patent Office to extend the terms of its three further medical use patents, however a Deputy Commissioner of Patents determined that they were not eligible for extensions of term under section 70(2)(b).  AbbVie appealed to the Administrative Appeals Tribunal of Australia (‘Tribunal’), which reversed this aspect of the Deputy Commissioner’s findings, deciding that Swiss-style claims can form the basis for an extension of patent term.  Nonetheless, AbbVie’s applications for extension of term were still rejected, because the Tribunal agreed with the Deputy Commissioner that they had not been filed within the applicable time limits.

The Commissioner of Patents appealed the Tribunal’s findings in relation to the eligibility of Swiss-style claims to the Federal Court, which has allowed the appeal, and affirmed the Deputy Commissioner’s original decision.  This does not surprise me greatly – when I wrote about the Tribunal’s decision last year, I said that I believed it to be wrong, and that I thought it quite likely that the Commissioner would appeal.

13 August 2017

Principles of Patent-Eligibility Continue to Trouble Applicants and Examiners in Australia

BorderlineThe law in Australia regarding patent-eligibility of computer-implemented inventions was supposedly ‘settled’ in May 2016, when the High Court rejected an application for special leave to appeal against a decision of the Full Bench of the Federal Court of Australia, thus leaving Research Affiliates LLC v Commissioner of Patents [2014] FCAFC 150 and Commissioner of Patents v RPL Central Pty Ltd [2015] FCAFC 177 as – for the moment, at least – the last word on the subject.  Yet, clearly, patent applicants and the Australian Patent Office continue to disagree on what, exactly, these decisions mean in particular cases.  In July 2017 alone, there were four decisions issued by the Patent Office resulting from hearings relating to objections against alleged computer-implemented inventions on grounds that each was not for a ‘manner of manufacture’, i.e. patent-eligible subject-matter under Australian law.

In Todd Martin [2017] APO 33, claims directed to a system and method for tracking usage of athletic equipment of an athlete using a GPS-enabled device and a computer server were refused.  In Rokt Pte Ltd [2017] APO 34 claims directed to a computer implemented method for linking a computer user to an advertising message by way of an intermediate engagement offer were refused, following the applicant’s efforts to amend in view of an earlier decision in Rokt Pte Ltd [2016] APO 66.  The claims at issue, and which were also refused, in Discovery Life Limited [2017] APO 36 were directed to a computer implemented method for of managing a life insurance policy with a related medical scheme.  Finally, in Bio-Rad Laboratories, Inc. [2017] APO 38, an examiner’s objections against claims directed to a method of establishing a statistically valid assay mean and assay range for a particular lot of a quality control material were upheld by the Hearing Officer, although Bio-Rad has been provided with an opportunity to amend its application to try to overcome the objections.

I am not particularly surprised by the outcomes in Todd Martin, Rokt, or Discovery Life.  This is not to say that they are necessarily correct – I have not spent the time to review the patent specifications in the detail that would be necessary to form a considered view on the matter.  However, on its face each of the three decisions is consistent with the principles set out in Research Affiliates and RPL Central, i.e. the claims appear to recite the use of generic computer technology as a practical implementation tool, and if this generic technology is disregarded, what is left is a scheme, abstract idea, or business process of the kind that has not generally been regarded as patent-eligible.  The Full Court in RPL Central was very clear about the treatment of such cases: ‘Where the claimed invention is to a computerised business method, the invention must lie in that computerisation. It is not a patentable invention simply to “put” a business method “into” a computer to implement the business method using the computer for its well- known and understood functions’ (at [96]).

Bio-Rad, however, is a different matter.  While the invention in this case involves the development and use of a new statistical analysis procedure, which is conveniently implemented by using a computer for its well-known and understood ability to store information, and to perform computations more rapidly and accurately than a human calculator, it is not apparent that disregarding the computer-implementation leaves only patent-ineligible subject matter.  On the contrary, regardless of how the invention is implemented – and even if it were carried out by a person using a pen and paper for calculation – it would still provide significant economic and technical advantages in terms of reduced cost and resource consumption/wastage in the production of quality control material for use in medical testing.

This is not to say that there are no issues with Bio-Rad’s claims – it is certainly arguable that they are overly broad, and encompass subject matter that does not provide the stated advantages of the invention.  However, these are not conventionally eligibility issues, and it is therefore not clear how or why patent-eligibility came to be the central question in the Bio-Rad case.  This suggests to me that the Patent Office is continuing to grapple with the principles of patent-eligibility set out in Research Affiliates, RPL Central, and D’Arcy v Myriad Genetics Inc [2015] HCA 35, and that applicants therefore still cannot expect predictable or consistent outcomes as examiners endeavour to apply these principles on a case-by-case basis.

06 August 2017

The Meteoric Rise and Spectacular Fall of Damages for Unjustified Threats of Patent Infringement

Unjustified Violent ThreatOn 19 August 2016, a single judge of the Federal Court of Australia issued a ruling awarding damages of A$1,506,859 against the Australian Mud Company Pty Ltd for making unjustified threats of patent infringement proceedings against Coretell Pty Ltd: Australian Mud Company Pty Ltd v Coretell Pty Ltd (No 7) [2016] FCA 991.  Less than a year later, however, a different judge has ‘reluctantly’ dismissed a claim for damages allegedly arising from threats of infringement proceedings made to the public at large via a trade publication: Mizzi Family Holdings Pty Ltd v Morellini (No 3) [2017] FCA 870.  This follows a decision in March of this year, by a Full Bench of the Federal Court on appeal, overturning the Australian Mud damages award.

I first wrote about the Mizzi Family Holdings litigation back in January 2014, following the initial findings in December 2013 of a single judge of the Federal Court that the respondent, Daryl Morellini, had not infringed an innovation patent for a ‘cane billet planter’ owned by Mizzi, and that all prior threats of infringement proceedings were therefore unjustified.

The first relevant threat in the Mizzi case had not been made directly to Morellini, but rather had been directed to the cane growing industry more generally through the combination of an advertisement and an article that appeared in the Canegrowers Magazine of 5 April 2010.  The advertisement had been placed by Mizzi, and included a notice of its patent application.  The article was authored by one Mr Terry Hurlock of Invention Pathways Pty Ltd, who had worked in conjunction with Mizzi’s patent attorneys, and was entitled ‘Infringement Danger’.  This juxtaposition of the advertisement identifying the patent application with the article warning about the potential consequences of infringement was found by the court to constitute ‘unjustifiable threats’, in the circumstance that the patent was not actually infringed.  A second threat was said to have been made in June 2011, after another cane grower, one Mr Girgenti, used Morellini’s planter, and Mizzi made a verbal allegation of infringement and demanded the payment of a royalty.

The initial decision in the Mizzi case was followed by a second judgment of the primary judge, on questions of costs and declaratory relief in relation to the unjustified threats (Mizzi Family Holdings Pty Ltd v Morellini (No 2) [2014] FCA 807), an appeal to a Full Bench of the Federal Court, decided in February 2016 (Morellini v Mizzi Family Holdings Pty Ltd [2016] FCAFC 13), and now the most recent decision on damages related to the threats.  Through all of this, the fundamental original finding of the primary judge – that the patent was not infringed – has remained undisturbed.

The major difficulty for Morellini in demonstrating damage was the requirement, emphasised by the Full Court in Australian Mud, to establish causation between the threats themselves and the damages claimed.  The court found (at [20]) that:

There is no direct evidence that anybody declined to deal with Mr Morellini as a result of the threats. It seems that even before the newspaper article on 5 April 2010, there was a degree of reluctance concerning any such dealings. That reluctance cannot have been attributable to the threats. Mr Morellini has not demonstrated that any adverse effect resulted from either of the threats. The newspaper article may well have been widely read within the sugar industry, but there is no reason to believe that the incident involving Mr Girgenti was a matter of common knowledge. Some people in the industry may have heard of it. In either case such knowledge may have reinforced previous perceptions, but that is largely speculative.

As we shall see, unjustified threats provisions were originally enacted to curb anticompetitive, abusive, coercive, or extortionate use of the patent system.  Yet here in Australia we have two recent cases of patentees acting apparently from a good-faith belief that their patents were valid and infringed, and with an arguable case to this effect at first instance and on appeal before a Full Court, in which the prosecution of unjustified threats claims clearly resulted in proceedings becoming significantly more protracted, complex, and costly, than they might otherwise have been.  For a brief period, we hit a high water mark for unjustified threats with a judge awarding over one and a half million dollars in damages, before this was sensibly and firmly reversed on appeal.  Ultimately, neither accused infringer received any award of damages.

How and why did this happen?  What is wrong with the Australian law in relation to unjustified threats that a Federal Court judge could make an astronomical seven-figure award of damages, when the correct sum was zero?  Or that the parties in long-running infringement proceedings would devote such resources to an argument that ultimately brought no benefit to any of them, under provisions that were not originally intended to apply in such circumstances?  And what can be done to fix this situation?

30 July 2017

Technology Specialisations of Australia’s Patent Prosecution ‘Powerhouse’ Firms

Power StationIn 2016, 24,331 patent applications were accepted for grant by IP Australia.  Based on the examination sections to which these applications were allocated, the top technology areas were mechanical engineering (11%), process engineering (10.6%), and construction and mining (9.8%).  And 80% of all these patent applications were handled by just ten firms.  The top three firms – Spruson & Ferguson, Davies Collison Cave, and Griffith Hack – account for over a third of all applications accepted in Australia.

The process of guiding an application through the examination process is commonly known as prosecution.  While local clients generally require a wider range of value-added services, such as advice on patentability and drafting of patent specification, over 90% of all Australian patent applications originate with overseas applicants that primarily require prosecution services.  And since Chapter 20 of the Australian Patents Act 1990 effectively gives registered patent attorneys an exclusive role in providing paid services to complete key tasks required for successful prosecution of a patent application, these services are the ‘bread and butter’ of many of the larger patent attorney firms in Australia.

In this article I will look at the ten firms that power four fifths of all Australian patent prosecution, and the areas of technology in which they operate.  It is important to appreciate, however, that this is not intended as a recommendation of the services these firms provide in relation to any particular technology.  Each firm in the top ten is large enough to employ attorneys with a range of technical backgrounds, and handles applications across all of the technology areas examined by IP Australia.  Self-evidently, far greater specialisation is found in smaller firms, which have fewer attorneys.  Small firms also tend to provide a greater proportion of their services to local Australian clients, and to engage in less of the high-volume incoming prosecution work on behalf of foreign applicants.  A number of smaller firms therefore appeared in my earlier analysis using filing data broken down to distinguish Australian small and large business applicants.  A firm’s experience, and success, in patent prosecution is therefore just one consideration among many in the selection of an Australian IP service provider.

23 July 2017

The USPTO Art Groups That Are Patent Application Purgatory

Reaching HandsA very common question asked by patent applicants is ‘how long will it be until I receive a patent?’  The usual legalese answer to this is, of course, ‘it depends’.  But upon what does it depend?  Some of the factors are within an applicant’s control, such as whether they request examination at the earliest opportunity (in jurisdictions where a separate examination request is required), whether they request expedited/accelerated examination (where it is possible to do so), and how quickly they respond to office actions, pay required fees, and so forth.  But after taking all of this into account, there is still a great deal that is beyond the control of the applicant.

Additional factors that can delay grant of a patent include the backlog of applications in the relevant patent office, the nature of any objections raised by the examiner, and the difficulty of overcoming the objections – either due to their inherent merit, or to the determination of the examiner to maintain the objections in the face of the applicant’s best efforts to present amendments and persuasive arguments.  After all this, however, if the applicant perseveres and is looked upon kindly by the fates, a patent will eventually issue.  But how long after filing will that happen?

The US Patent and Trademark Office (USPTO) has a goal of reducing the average value of what it calls ‘Traditional Total Pendency’ (TTP) to 20 months by 2019.  The TTP is defined as the time between the patent application filing date (which is the date of national phase entry in the case of an international application under the Patent Cooperation Treaty) and ‘final disposition’, i.e. issued as a patent or abandoned.  According to data that can be viewed via the USPTO’s Data Visualisation Center Patents Dashboard, the TTP as of June 2017 is 24.7 months.  However, this number really does not tell the whole story for many applicants.

For one thing, this TTP metric does not take into account applications in which a Request for Continued Examination (RCE) has been filed.  An RCE is typically necessary where an applicant has not managed to secure allowance of an application following a second round of examination, but is not ready to give up and abandon the application.  In many technical fields, the filing of at least one RCE in the course of examination is extremely common.  When RCEs are taken into account, the TTP sits at around 32 months.

Furthermore, ‘average pendency’ characterises the complex process of examination, which occurs across applications in all fields of technology, using just a single statistic, which can be very misleading.  As I will show in this article, average pendency (inclusive of RCEs) varies from 22 months in the fastest examination group to more than 57 months in the slowest (and that is assuming that a patent ever issues at all).  Additionally, the distribution of application pendency varies enormously between different technology groups.  In the slowest group, over an eighth of all applications that ultimately issue as patents take more than eight years to do so.  If your application ends up in that particular cohort, it is of little comfort to know that the average pendency in the group is less than five years!

For rapid processing of your US patent applications, the best fields to be in include semiconductor device fabrication, vehicular technology, telecommunications, and pharmaceuticals.  The worst (perhaps unsurprisingly) include fintech and e-commerce, genetic technologies, and surgical methods and devices.

16 July 2017

IP Firm Patent Filing Data Reveals a Tough and Competitive Market for Australian Attorneys

Professional CompetitionIn its Australian Intellectual Property Report 2017, IP Australia revealed that it received one percent fewer standard patent applications in 2016 than in the previous year. While this is first and foremost a bad sign for innovators, who are clearly finding it harder to justify spending on new products and services, and/or on patenting their developments, it is also not great news for Australian patent attorneys, who are operating in a very challenging business environment.  The silver lining, according to the IP Australia report, was that Australian resident applicants filed 15% more standard applications in 2016 compared with 2015.  You might expect that this would be good for the local patent profession.

However, my own analysis of data released by IP Australia in the Intellectual Property Government Open Data (IPGOD) 2017 reveals a less rosy picture.  Once innovation patents (down by over 4%) and provisional applications (up by just 0.2%, and twice as numerous as standard application filings) are taken into account, the growth in total Australian filings by Australian applicants is only 4%.  Furthermore, all of this is derived from the increase in standard applications, which generally represent the same work, and the same value (to both the applicant and the attorney) as a standard filing by a foreign-resident applicant.  For the most part, provisional applications – which represent the beginning of the patenting process in a majority of cases – are a more telling indicator of current and future innovative activities by clients, and thus of revenues for their attorneys.  Yet provisional filings by Australian entities last peaked in 2012, before declining by nearly 10% in 2013, and have yet to recover to their former high.

Many IP services firms are no different from other businesses, in that they want to generate growth in profits, and deliver value to shareholders – whether these be traditional partners/owners of the firm, a corporate holding company, or investors in a public share market.  With the Australian market for patent filing and prosecution services stagnating, growth must come through developing new service offerings, winning new clients away from competitors, and/or change and innovation within the firm to generate efficiencies, reduce costs, and grow the bottom line.  All of these strategies require investment, whether it be in internal development, marketing, or technology innovation.  It is hardly surprising, then, that some firms are pursuing innovative business avenues, such as public listings and acquisitions, to raise capital and build critical mass to make such investments.

A more complete analysis of Australian patent filing activity over 2015 and 2016 further reveals that:
  1. the top 10 Australian firms accounted for 65% of all patent filings in Australian in 2016
  2. members of publicly-listed groups dominate the top 10 overall, which includes only two independent firms;
  3. however, a more diverse picture emerges when looking specifically at filings by Australian applicants, who are significantly more likely to use the services of an independent firm, particularly if they are an individual rather than a corporate entity; and
  4. while there are many individual gains and losses in market share over the two years analysed, there is no sign (as yet, at least) of any general net tendency for clients to move in either direction between listed and independent firms.
Overall, the figures presented below reflect a dynamic and highly-competitive market for patent filing and prosecution services in Australia.  Fears that public ownership of some firms, and a degree of consolidation in the market, may adversely impact competition appear, for the present at least, to be unfounded.

09 July 2017

Canada Rightly Ditches the ‘Promise Doctrine’ for Utility, Australia Should Follow Suit

CanadaCanada is not a republic.  It is, like Australia, a card-carrying, fully paid-up, current member of the British Commonwealth.  Canada’s Head of State is the same nonagenarian resident of ‘Buck House’ who reigns over us here in Australia.  And while Australia and Canada thus have much in common historically, like most siblings we are growing apart as we grow older.  One further step in that direction was taken by the Canadian Supreme Court on 30 June 2017, when it banished the so-called ‘Promise Doctrine’ of inutility from Canadian patent law: AstraZeneca Canada Inc v Apotex Inc 2017 SCC 36.  In my opinion, Australia should do likewise, either via a similar pronouncement from the High Court or, failing that, through legislation.

The Australian Patents Act 1990 requires, in section 18(1)(c) and 18(1A)(c), that an invention must be ‘useful’ in order to be patentable.  This is also commonly known as the requirement for ‘utility’.  Failure to meet this requirement, i.e. inutility, is therefore a ground upon which a patent application may be rejected, or a patent revoked.  There was originally nothing in the Patents Act to explain exactly what is meant by ‘useful’, although since commencement of the Raising the Bar reforms on 15 April 2013 section 7A has specified that, aside from anything else it may mean, ‘an invention is taken not to be useful unless a specific, substantial and credible use for the invention (so far as claimed) is disclosed in the complete specification’.

Left to their own devices for an extended period of time, the English courts – and subsequently those of countries, such as Australian and Canada, that inherited their legacy – determined that one of the requirements for an invention to be useful is that it should fulfil any promise that may be made for it based upon a reading of the patent specification as a whole.  Furthermore, although there is arguably some inconsistency in the authorities on this point, if the specification makes multiple promises of utility then a claim will generally be invalid if the invention that it defines does not fulfil all of those promises.  In Australia, this principle was most recently demonstrated in Ronneby Road Pty Ltd v ESCO Corporation [2016] FCA 588, where Justice Jessup found all claims of an opposed patent application to be invalid for lack of utility because none would deliver each and every one of six advantages listed in the specification, notwithstanding that a number of the claims would deliver one or more of those stated advantages (see Utility Futility? Usefulness of Inventions and ‘Fatal’ Promises Made in Patent Specifications).

This version of the utility requirement is, in my view, self-evidently absurd.  For one thing, it means that a patent having a specification which makes no explicit statement of the advantages said to be provided by invention is less likely to be invalid for lack of utility than one which includes one or more express ‘promises’.  Additionally, where multiple uses are disclosed in a specification, there is absolutely no sound basis – and certainly no basis in the words of the Patents Act itself – for finding an otherwise valid claim to be invalid simply because, although it is useful, it is not useful for all of the purposes that the inventor has chosen to disclose.

Or, as the Canadian Supreme Court has now wisely stated:

The Promise Doctrine risks, as was the case here, for an otherwise useful invention to be deprived of patent protection because not every promised use was sufficiently demonstrated or soundly predicted by the filing date. Such a consequence is antagonistic to the bargain on which patent law is based wherein we ask inventors to give fulsome disclosure in exchange for a limited monopoly.

Now that our Canadian friends have demonstrated the ease with which this particular tie with the Mother Country can be cut, I can think of no good reason why Australia should not do likewise. 

02 July 2017

How ‘Rational’ Are Australian Patent Applicants?

SharkLast Tuesday night, I watched episode 2 of season 3 of the Australian version of the reality TV program for entrepreneurs seeking investors, Shark Tank.  The episode featured a husband and wife team, Margaret and Peter Powell, who were after funding for their ‘Catch’n’Release’ anchor retrieval system.  Their ingenious mechanism – that immediately impressed all of the ‘sharks’, along with many viewers including me – enables an anchor that has become caught under coral to be dislodged and retrieved without damaging the reef.  Everything was going along swimmingly, until the question of patent protection was raised, and the Powells revealed that a patent application was filed in 1999, and now has less than three years to run.  Four of the five ‘sharks’ very quickly declared themselves ‘out’.

This got me thinking about what motivates Australian innovators to file patent applications.  Obviously Peter Powell never intended that it would take him so long to develop and prototype his invention, or that it would be over 17 years and require the mentorship of a celebrity entrepreneur before he could finally secure a manufacturing deal and bring a product to market.  With the benefit of 20/20 hindsight, it is clear that the Powells would have been better served by waiting to apply for their patent until they were further along the development path.  No doubt, however, they would have had the usual concerns that the invention might be intentionally or inadvertently publicised, appropriated by someone, or independently developed elsewhere, if they did not move to secure their rights at the earliest opportunity.  In other words, they might have been motivated more by fear, uncertainty, and doubt, than by a rational business strategy.

When economists refer to ‘rational choice’, or ‘rational actors’, they are talking about a theoretical construct that is assumed to take account of available information, such as probabilities of events, and potential costs and benefits in determining preferences, and to act consistently in arriving at a self-determined best choice of action.  This is not, of course, how real people generally behave.  Real people often fail to obtain and take into account all of the available information, make little or no effort to determine probabilities, costs, and benefits, and allow their decisions to be swayed by emotional considerations.  Often, the more important the decision, the less likely it is that an individual will make a rational choice (in the economic sense). 

Large corporations, on the other hand, tend to perform somewhat better in the ‘rational choice’ stakes.  For example, a wealthy multinational corporation such as Google, IBM, Microsoft, or Apple, has little to fear over a decision about whether or not to file a patent application for a particular invention – the fate of its entire business hardly depends upon a single patent.  A corporation is better-served by developing a strategy or formula for determining when it will, or will not, file for patent protection, based upon extensive information, experience, and sophisticated advice to which it has ready access.

It therefore seems to me that if we want to know what ‘rational’ behaviour looks like when it comes to Australian patent filing, we should look at how foreign applicants (which accounted for 91% of all standard patent application filings in Australia in 2016, according to IP Australia’s Australian Intellectual Property Report 2017) act.  By comparing the behaviour of Australian applicants against this standard, we might be able to get a sense of just how rational, or otherwise, is their decision-making.

When I did this, I found that the behaviour of large Australian firms (defined as those having 200+ employees) very closely follows that of foreign applicants.  Small-to-medium enterprises (SMEs) appear to be slightly less rational, while private individual applicants (the category into which the Powells fall) exhibit significantly different, and clearly sub-optimal, behaviour.

25 June 2017

Does Your Patent Attorney Possess ‘Reasonable Skill and Knowledge’?

Skills tighropeIt is a general principle of patent law that publication of a patent specification and claims serves to put the public on-notice of the existence and scope of the patentee’s rights.  In an effort to ensure that this is the case, the Australian Patents Act 1990 requires that ‘the claim or claims must be clear and succinct and supported by matter disclosed in the specification’ (subsection 40(3)), while the analogous US provision, 35 USC § 112(b) states that ‘the specification shall conclude with one or more claims particularly pointing out and distinctly claiming the subject matter which the inventor or a joint inventor regards as the invention.’  In Australia we usually refer this as the ‘clarity’ requirement, while the US courts have developed a corresponding doctrine of ‘indefiniteness’.  In its 2014 decision Nautilus, Inc. v Biosig Instruments, Inc, the US Supreme Court interpreted this to mean that ‘a patent is invalid for indefiniteness if its claims … fail to inform, with reasonable certainty, those skilled in the art about the scope of the invention’.  Other jurisdictions have similar requirements.

This is all very well, but what happens if the claims change?  It is not uncommon for a patentee to seek amendment of its patent specification, for example in preparation for, or in the course of, litigation.  Granted patent claims can only be amended in ways that do not broaden the scope of a patent, i.e. no valid amendment can result in any act becoming an infringement that would not have been an infringement prior to the amendment, so this does not provide a mechanism for a patentee to ‘capture’ a previously non-infringing activity.  However, a claim could, in principle, be narrowed by replacing unclear, vague, or ambiguous wording with clearer and more definite wording that specifically targets the actions of a competitor.

In such a case, the patentee would no doubt argue that it was simply ‘tightening up’ the language of its claims to limit the issues to be addressed during infringement proceedings, and perhaps as a pre-emptive defence against a cross-claim for invalidity.  The accused infringer, on the other hand, might argue that it was not properly on-notice of scope of the patent prior to the amendment, as a result of the ambiguity in the wording of the claims.

Fortunately, the Australian legislation anticipates this situation.  Subsection 115(1) provides that:

Where a complete specification is amended after becoming open to public inspection, damages shall not be awarded, and an order shall not be made for an account of profits, in respect of any infringement of the patent before the date of the decision or order allowing or directing the amendment:
        (a)  unless the court is satisfied that the specification without the amendment was framed in good faith and with reasonable skill and knowledge…

In layperson’s terms, if the job was not done honestly and properly in the first place, then the patentee should not expect to be able to obtain any compensation for alleged infringement that occurred prior to the amendment.

But what constitutes ‘reasonable skill and knowledge’?  Does your patent attorney (or, if you are a patent attorney, do you) possess these attributes?  And what responsibility does a patent applicant, in instructing a patent attorney, bear in ensuring that reasonable skill and knowledge are employed?  These issues were recently considered by Justice Jagot in the Federal Court decision Bayer Pharma Aktiengesellschaft v Generic Health Pty Ltd [2017] FCA 250, who confirmed that ‘the words “reasonable skill and knowledge” require the specification as framed to be in the form in which a person, with reasonable skill in drafting patent specifications and a knowledge of the relevant law and practice, would produce given the patentee's knowledge of the invention.’  The judgment also provides some interesting guidelines as to what, exactly, might be expected of a patent attorney in order to meet this standard.

The question was not merely academic, with over $25 million in damages at stake.  And it may not yet be finally settled, with various aspects of the case now in appeal to a Full Bench of the Federal Court of Australia.

18 June 2017

IP Australia’s Chief Economist on the Role of Economic Modelling, the Innovation Patent... and Perpetual Motion!

Benjamin Mitra-Kahn[Note: This is the third, and final, part of the transcript of my conversation last year with IP Australia’s Chef Economist, Benjamin Mitra-Kahn.  The first two parts were A Conversation with IP Australia’s Chief Economist and Talking ‘Data’ with IP Australia’s Chief Economist.]

The Australian innovation patent system has been under a cloud for some time, with first the (now defunct) Advisory Council on Intellectual Property (ACIP), and then the Australian Government’s Productivity Commission, calling for the system to be abolished.  The original source of evidence behind these calls was a report produced by IP Australia’s Office of the Chief Economist entitled The economic impact of innovation patents.  The report used Australian patent filing data, linked to company-level business information, to make the case that the innovation patent is not achieving the objective of stimulating innovation among Australian small and medium enterprises (SMEs).

Many patent professionals have a different perspective on this issue, albeit one that is strongly influenced by the particular cross-section of users of the innovation patent system that they encounter in their daily practice.  I recently read a ‘defence’ of the system by a New Zealand-based practitioner arguing, in essence, that innovation patents had been useful to a number of his clients, and he would be sorry if they were to be abolished.  While I believe that there is an argument to be made, based upon the data, that more weight should be given to attorney-represented SME applicants in assessing the worth of the innovation patent system, the kinds of ‘feelpinions’ expressed in that article do not, in my view, constitute a very useful contribution to the debate.

But if those at the coal face might have difficulty in seeing the forest for the trees (if you will pardon my carbon-based mixed metaphor), might it not also be the case that economists, with their penchant for aggregating and analysing data, could sometimes fail to see the trees for the forest?  Either way, it seems that a clash of cultures has arisen between those who view the individual trees as important and those who believe that the system can only be properly evaluated via an aerial view of the entire forest.  My own inclination, absent evidence to the contrary, is to presume that each of these perspectives lies at the extreme of a continuum, and that they are therefore equally likely to provide an incomplete view.

In any event, this disparity in the perspectives of IP practitioners and economists was a topic I was very keen to discuss with IP Australia’s Chief Economist, Ben Mitra-Kahn, when we spoke last year.  But before we got to that, we first covered the future of IP Government Open Data, a.k.a. the IPGOD, and the fate of patents on perpetual motion under the new ‘utility’ requirements introduced in 2013 by the Raising the Bar patent law reforms.

12 June 2017

Reforms Cut Average Patent Opposition Delays by Two Years, But They Still Take Too Long

Oppositions are downAustralia has a pre-grant patent opposition system, meaning that an opportunity is provided after a patent application has been approved by an examiner, but before a patent is actually granted, for third parties to raise objections.  The usual policy justification for pre-grant oppositions is that they allow grounds of invalidity that may have been unavailable to the examiner to be raised by parties who may have greater familiarity with, and access to, knowledge and prior art information relating to the claimed invention.  Most often, an opponent is a competitor of the patent applicant, and thus has a particularly strong incentive to ensure that an invalid patent that may hinder its own activity is not issued.  Accordingly, the public benefits from this additional level of scrutiny which can reduce the incidence of invalid patents being granted.

The disadvantage of pre-grant opposition proceedings is that they extend the period during which a patent application remains pending – sometimes by many years.  In the event that (as is overwhelmingly the case) a patent is ultimately granted, the patentee may have been deprived of a significant portion of the time during which it might have been able to immediately enforce its rights.  The wider public is also disadvantaged by lengthy delays, during which time the ultimate scope of any patent granted – or, indeed, whether or not a patent will be granted at all – remains uncertain.

Prior to the Raising the Bar (‘RTB’) reforms to the Australian patent laws and regulations, which came into effect on 15 April 2013, the largest contribution to opposition delays was the time taken by opponents and patent applicants to prepare evidence supporting their respective positions.  Although the rules nominally allocated three months to each of the three usual evidentiary periods, applications for extensions of time, and for opportunities to file additional evidence had become, in practice, almost impossible for the Patent Office to refuse.  However, the RTB reforms included significant amendments to the Patents Regulations 1991 that have substantially limited the ability of each party in a patent opposition to obtain an extension of time to prepare evidence.  With four years now having passed since the amendments commenced operation, it is timely to take a closer look at their impact on opposition delays.

Using data available in the 2017 edition of IP Australia’s IP Government Open Data (IPGOD) set, I have analysed 211 patent oppositions that have commenced since 2004, and which proceeded through to a Patent Office hearing and final decision.  Of these, 102 were conduced entirely under the pre-RTB regime, while 57 were conducted wholly according to post-RTB extension-of-time regulations.  The remaining 52 oppositions were ‘transitional’, in the sense that they commenced pre-RTB, but included at least one evidentiary period governed by the post-RTB rules relating to extensions of time.

The main findings from my analysis are that:
  1. the RTB reforms have cut the average total duration of an Australian patent opposition by nearly 50%, from just over four years (1512 days) to just over two years (773 days);
  2. variability in opposition duration has dropped even more dramatically, by more than a factor of three, but the standard deviation remains high at over 200 days;
  3. the average total time required for parties to prepare and file evidence has been slashed from 803 days to just 250 days;
  4. however, the period between finalisation of evidence and a decision following a hearing remains lengthy, averaging 332 days, and also highly variable, with a standard deviation of 130 days;
  5. furthermore, where an application is not refused as a result of opposition (i.e. the overwhelming majority of cases), the period between the decision and grant of the patent is hugely variable, having a standard deviation of 162 days, in relation to an average of just 121 days.
A common contributor to non-evidence-related delays, both before and after a hearing on the substantive merits of an opposition, is the procedure that must be followed if the applicant wishes to amend the application to address grounds of opposition.  Additionally, although appeals of opposition decisions to the Federal Court of Australia are relatively rare, when they do occur they contribute significantly to the average duration and variability of post-decision delays.  Finally, it appears that it is not uncommon for delays to be incurred after finalisation of evidence primarily due to a failure of the Patent Office to progress the opposition expeditiously to a hearing.  These delays may be on the order of many months, as a result of which the average time between completion of evidence and a decision in post-RTB oppositions is now greater than the average time required for preparation and filing of all evidence by both opponent and applicant.

It is therefore clear that while the RTB reforms to the requirements for obtaining an extension of time to prepare evidence have been highly effective, many patent oppositions are still taking months longer to resolve than should be required.  What has changed, however, is that opponents and applicants are no longer the primary source of delays.  The next frontier for further improvement in the speed of resolution of patent oppositions lies within the Patent Office.

04 June 2017

Private R&D Expenditure Positively Impacted by Clustering and Academic Research Spending, New Study Finds

Network effectsThe Australian Government’s Office of the Chief Economist recently published a new research paper entitled The role of spillovers in research and development expenditure in Australian industries (which I will refer to as ‘the Spillover paper’).  The paper describes an econometric model that uses data from Australian companies that conduct research and development (R&D), and looks at how R&D activity of other firms and public institutions affect a firm’s own R&D expenditure, i.e. the effects of ‘spillover’ of R&D being conducted elsewhere.  The paper also examines the impact of geographical proximity and clustering on these R&D spillovers.

Overall, the model indicates that there are positive effects on R&D expenditure due to spillovers from peers and clients to companies that are located nearby (within 25 or 50km).  Furthermore, R&D expenditure by academia also has a positive influence on a company’s R&D expenditure within state boundaries.  However, R&D spending by government bodies appears to have the opposite effect, seemingly ‘crowding out’ private R&D spending.

The study has important policy implications, because it suggests that public support for R&D, whether to private firms through grants and/or tax incentives, or through funding of research in universities and other public institutions, results in benefits not only to the organisation receiving the direct support, but also to other firms and institutions more broadly.

Significantly, the modelling provides further evidence that Australia’s reputation for having a woefully low level of industry/research collaboration (which is based on one rather dubious OECD data point) is largely undeserved.  I have previously observed that Australian companies clustered geographically close to major academic institutions tend to file more patent applications, while research by IP Australia has shown a healthy rate of patent applications naming industry and research partners as co-applicants from Australia when compared with other OECD nations.  The Spillover paper supports this by showing a positive correlation between academic and industry R&D spending, particularly for companies and institutions located within the same state (and, in practice, probably more closely than this, although the paper does not break down academic R&D expenditure below state level).

I discuss further details of the model, and the paper’s key findings, later in this article.  If this is all you are interested in, feel free to skip ahead.  But first I would like to take the opportunity to explain the general process of econometric modelling for readers who may be interested in better understanding how economists think about the kinds of questions addressed by this paper, and how to interpret their results.

28 May 2017

Talking ‘Data’ With IP Australia’s Chief Economist

Benjamin Mitra-KahnIt has been an unduly long time – just over a year, in fact – since I published the first part of a conversation I had with IP Australia’s Chief Economist, Benjamin Mitra-Kahn.  But the two of us (mainly me, if I am honest) have finally got our act together to edit most of the transcript into a readable form.  I am therefore very pleased to be able to start publishing the remainder of our discussion.  Despite the passage of time, the content is still highly relevant, indeed in some ways even more so, considering the increasing importance of economic analysis and the role of data science in driving government policy in relation to intellectual property.

Late last year, for example, the Australian Productivity Commission (PC) released its final report on its Inquiry Into Australia’s Intellectual Property Arrangements.  The report reviewed the Australian IP system in its entirety, and made a number of significant recommendations to the Government, which are currently under consideration.  While prior reviews and inquiries into components of the IP system had been conducted by panels that included economists, the PC’s review was the widest, and the first to be conducted entirely by economists.  Naturally, the PC sought to draw conclusions and make recommendations based on evidence, and a key theme of the final report is the need for accountability in the IP system, including by developing and maintaining a sound evidence base to inform policy decisions.

It is in this context that economic research, such as the 2012 study by Boston University academics James Bessen and Michael Meurer which concluded that ‘patent trolls’ cost the US economy $29 billion in 2011, can have a huge impact.  Some people (including me) questioned the reliability of the source data and methods used in that study, but a far larger number – including some widely-read media outlets – simply took the Bessen and Meurer results at face value.

I was therefore very interested to get the views of IP Australia’s Chief Economist on that particular study, and to talk about the work that is being done in Australia to make better-quality data available to researchers, and other interested stakeholders, through the IP Government Open Data (IPGOD) initiative.

21 May 2017

Identifying Patent-Eligible Software Claims... Using Software

MatrixAs I have previously reported, the major and immediate impact of the US Supreme Court’s Alice decision in June 2014 was to reduce the rate of ‘business method’ patents issued by the US Patent and Trademarks Office (USPTO) by three-quarters, while having a negligible effect on ‘technical’ software-implemented inventions.  While the data in my earlier article ended in December 2015, I have now been able to update my results to the end of March 2017, as shown in the chart below.  There has been no change in the overall trend during the intervening 15 months, with ‘business method’ patent grants still running at around 50% of 2007 numbers, while technical software patents, and patents across all areas of technology, are issuing at rates nearly twice those of 2007.
Patent Grants (March 2017)
In a recent post on the Bilski Blog, US patent agent Mark Nowotarski has made similar observations about the impact of Alice on ‘business method’ patent grants, going on to analyse the characteristics of those patent claims are are still being allowed in the USPTO’s business method Art Units.  He has noted that it is commonly by including ‘physical limitations’ (e.g. reciting hardware such as ‘mobile devices/sales kiosks’ or ‘physical sensors’) and/or ‘software limitations’ (e.g. reciting technical functionality such as ‘graphics/ image processing’ or ‘cryptography/security’) that applicants have been able to overcome Alice-based subject-matter rejections.

This got me thinking.  If there are common forms of technical language that arise in patent-eligible claims, then might it be possible to train a machine-learning system to predict whether a particular claim is, or is not, likely to be patentable?

It turns out that this does indeed appear to be possible.  I built a machine-learning model using data published by the USPTO, including the claims of 24,462 recently-abandoned 4967 recently-allowed applications, all examined within ‘software’ and ‘business methods’ Art Units.  In cross-validation tests (i.e. using a portion of the known data for training, and the remainder to test model performance) I was able to achieve around 75% prediction accuracy.  In trials of a hand-picked ‘random’ sample of more recent patents and published applications, not in the training/test set, the model correctly classified all actually allowed claims (of four examples) as patentable.  It also classified the claims of four abandoned applications as unpatentable, and two published-but-rejected-and/or-amended claims as unpatentable.  In only one case did the model classify a claim that had been rejected on subject-matter grounds as likely-patentable.

The model may thus be capable, with a probability of success of over 70%, of determining whether or not a proposed claim to a computer-implemented invention includes sufficient technical content to overcome a subject-matter-based rejection, at least under the Alice test as it is applied by the USPTO.

14 May 2017

How IP Australia Has Been Quietly Curbing Abuse of the Innovation Patent System

Stop guyUpdate, 16 May 2017: The Commissioner of Patents, Fatima Beattie, has responded to this article in the comments.

While working with the new 2017 release of the Intellectual Property Government Open Data (IPGOD) I noticed something unusual – in October 2016, IP Australia refused 101 innovation patent applications.  Adding to the mystery, in 53 of these cases the refusal was retrospective, in the sense that innovation patents had already been granted, in one case as far back as April 2015.  Not only is refusal something that can only happen to a pending application (a granted patent can, however, be revoked), but it is something that generally does not happen to an application for an innovation patent.  As at the time of this writing, there are 23,387 innovation patent records in IP Australia’s AusPat system.  Never before, nor (as yet) since, these 101 cases has an innovation patent application been refused.

The one thing that all 101 of these applications have in common is that they name a Chinese resident company or individual as applicant.  I have written on a number of previous occasions about suspected abuse of the Australian innovation patent system by Chinese applicants (see Junk Patents Dumped on Australia as Chinese Subsidies Rorted, Chinese Junk Patents Revisited: 2013 Filings Update and, most recently, Users and Abusers of the Australian Innovation Patent System).  IP Australia’s Australian Intellectual Property Report 2017 (‘IP Report’) observed that:
Although Australian residents remain the main users of the innovation patent system, for the first time since its inception, non-residents made up the majority of innovation patent applicants with 54 per cent of the total in 2016.
The increase in international applications is attributable almost exclusively to an increase of some 142 per cent in applications from Chinese residents to 871 applications. This accounts for around 93 per cent of the overall increase in non-resident applications, and represents 38 per cent of total filings.

It is my belief that the primary motivation for Chinese applicants to obtain Australian innovation patents is to secure government subsidies that are paid upon the grant of foreign patent rights.  An innovation patent is granted following a check only of certain formalities, and without substantive examination as to novelty and inventive step (or, rather, the lower standard of innovative step).  Although the resulting patent must pass examination and be certified before it can be enforced, the applicant nonetheless receives a certificate that conveys (at least to anybody who is insufficiently familiar with the workings of the Australian innovation patent system) the impression of a full patent grant .

It is clearly undesirable, to say the least, for the Australian Register of Patents to be cluttered with dubious registrations, and for these Chinese ‘junk’ patents to cloud our ability to assess how effectively the innovation patent system is serving the small-to-medium Australian enterprises for which it was primarily designed.  I therefore welcome any legitimate steps that may be taken to curb this activity.  However, the statutory basis for these ‘refusals’ is not clear to me.  It may be that the Commissioner of Patents is stepping outside the bounds of the Patents Act 1990.  If so, then it would not be the first time!

08 May 2017

Beaton Survey Reveals Listed Australian IP Firms’ Epic Failure to Communicate

FailIn a new report, specialist professional services consulting house Beaton Research + Consulting reveals the results of a survey investigating how users of IP services view public ownership of IP firms, and their perceptions of its effect on service, quality, value, and price.  The report is likely to make uncomfortable reading for executives and practitioners at Australia’s three listed holding companies, IPH Limited (ASX:IPH), Xenith IP Group Limited (ASX:XIP) and QANTM IP Limited (ASX:QIP), and the nine specialist IP firms that they now own.  Conversely, it will bring some comfort to partners and practitioners at privately-held firms, many of whom believe that their independence presents an opportunity to differentiate their services in the Australian market.

While the methodology of the Beaton survey is far from rigorous, and the report states that its findings should be regarded as ‘indicative’ rather than necessarily ‘representative’, the headline results are nonetheless an indictment of listed firms’ efforts to communicate the nature and implications of their changes in ownership and corporate structure.  I have been saying for some time – not only on this blog, but privately to anyone who will listen – that perceptions are important, irrespective of the commercial reality, and that firms within the listed groups have not done enough to address concerns not only of the market, but of their professional employees who are understandably uncertain of what the changes mean for their future career paths.  Yet even I was surprised by the extremity of some of the findings of the Beaton report.

For example, fewer than half of respondents who have used the services of Australia’s longest-standing listed firm, Spruson & Ferguson (owned by IPH Ltd), during the previous 12 months were able to correctly identify their service provider as being a member of a listed group, while nearly a fifth wrongly believed the firm to be privately-owned.  The overwhelming majority of clients of Shelston IP (owned by Xenith IP Group Ltd) did not know whether the firm was publicly or privately owned.

The news is even worse for listed firms when it comes to client perceptions of the service impacts of public ownership.  Nearly 80% of respondents either agreed or strongly agreed that a reduction in the number of privately owned firms is against clients’ interests, while only 2% disagreed or strongly disagreed.  Two thirds believe (i.e. either agreed or strongly agreed) that firms owned by ASX-listed companies must put the interests of shareholders above the interests of clients.  Only 5% perceive that there is a benefit to public ownership in making an IP firm stronger.

It is important to appreciate that the survey findings reflect client perceptions, which may be different from reality – although it is worth recalling the words of Republican strategist and adviser to Ronald Reagan and George Bush Snr, Lee Atwater, who famously said in the 1980s (long before we had ‘fake news’ and ‘alternative facts’) that ‘perception is reality’.  As I recently reported, the Trans-Tasman IP Attorneys Board (TTIPAB) – the regulatory body formerly known as the Professional Standards Board for Patent and Trade Marks Attorneys – has not identified any actual issues of conflict of interest or service standards in the current arrangements implemented by listed groups of IP firms.  However, the TTIPAB did express concern that ‘the degree of awareness and understanding of the listed group scenario among some clients, and the stake-holding public more generally, is limited’.  The Beaton survey unquestionably bears this out. Indeed, ‘limited’ might be regarded as an understatement in light of some of the survey results.

30 April 2017

IP Australia Research Challenges Claims of Country’s Poor Industry-Research Collaboration Record

Chart setupOn 26 April 2017, IP Australia celebrated Alien Day World Intellectual Property Day with the launch of the Australian Intellectual Property Report 2017 (‘IP Report’) and the release of the Intellectual Property Government Open Data (IPGOD) 2017.  The Report includes a summary of latest IP trends and statistics across all IP rights administered by IP Australia (patents, trade marks, registered designs and plant breeder’s rights).  As in previous years, it also presents results from specific research projects undertaken within the Office of the Chief Economist.  This year, IP Australia’s researchers have taken on an often-cited (see, for example, this article from The Australian or this one from InnovationAus.com) statistic that placed Australia last (33rd out of 33 rated countries) in the OECD for collaboration on innovation between industry and higher education or public research institutions over the 2008-10 period.

The OECD assessment featured in its 2015 Science, Technology and Industry Scoreboard, and was based on data provided by the Australian Bureau of Statistics (ABS) survey.  That data, in turn, was based upon a survey of Australian businesses conducted in relation to activities in the 2010/11 financial year (the most recent ABS data on ‘Innovation in Australian Business’ is available from its website).  This measure has been criticised as failing to account for the particular nature of the Australian market – having a small number of large universities and research organisations, and a large number of small firms – and of failing to compare apples with apples, given that most of the other OECD nations used measures  based on a European survey not implemented in Australia.

IP Australia’s research takes up that criticism, noting that ‘asking those firms how often they collaborated with a university is likely to under-estimate the totals’.  Instead, it seeks to use an objective, data-driven, measure of collaboration – namely, the incidence of universities co-filing applications for a patents or other IP rights with industry-based partners.  On this measure, Australia ranks 13th of  35 countries, above average and ahead of many countries that rated very highly in the OECD rankings, such as Finland (first on OECD data), Slovenia (2), Austria (3), Hungary (4), Sweden (5), Germany (7), Norway (8), Denmark (9) and Japan (12).

Personally, I do not believe either set of data.  But at least we now have two different perspectives on measuring collaboration which may encourage policy-makers to view the OECD rankings with the scepticism they deserve!

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