04 December 2018

Proposed Merger of QANTM IP and Xenith IP – Another Symptom of a Great Malaise in the Australian IP Services Market?

MalaiseOn 27 November 2018 QANTM IP Limited (ASX:QIP) and Xenith IP Group Limited (ASX:XIP) announced that they have entered into an agreement to merge through an all-scrip scheme of arrangement.  The merger is subject to approval by a court, and by Xenith shareholders.  If it goes ahead (as seems likely), each Xenith share will be exchanged for 1.22 QANTM shares.  Existing QANTM and Xenith shareholders will end up owning 55% and 45%, respectively, of the merged group, which will comprise five Australian specialist IP firms (Davies Collison Cave, FPA Patent Attorneys, Griffith Hack, Shelston IP and Watermark), along with IP valuation, innovation and advisory service provider Glasshouse Advisory (currently owned by Xenith IP) and Malaysian IP firm Advanz Fidelis (which was acquired by QANTM IP in June 2018). 

Based on the closing share price of QANTM and Xenith on 26 November 2018, the merged group would have a market capitalisation of A$285.2 million, which still places it well behind the original listed Australian IP group, IPH Limited (ASX:IPH), which had a market cap of A$1.11 billion as at close of trading on 30 November 2018.

An additional interesting piece of information to fall out of the QANTM/Xenith announcement is the fact that IPH had itself been courting QANTM with a view to a possible merger or acquisition.  In an ASX announcement on 27 November 2018, in response to ‘media speculation’, IPH confirmed making a number of approaches to QANTM on the basis of non-binding, conditional proposals, culminating on 20 November 2018 with a proposal with an equivalent value of A$1.80 per QANTM share (a notional premium of 37.4% over the A$1.31 at which QANTM shares were trading on that day).  QANTM countered by announcing that its Board did not consider this proposal to be in best interests of its shareholders, due to its ‘highly conditional’ nature and ‘significant execution risk’.

All this would appear to confirm something that I have long suspected – that the Australian market is not big enough to sustain three publicly-listed groups of IP service providers.  IPH obviously saw QANTM as a potential acquisition target, while QANTM clearly did not wish to be acquired on IPH’s terms!  Instead, QANTM and Xenith have decided that they will be stronger together than they are separately.

But why is it such a struggle for these groups to flourish in the Australian market?  One advantage of the public listing of these companies is that, through their annual reports, there is now far greater transparency than ever before in respect of the financial performance of IP services businesses.  In combination with publicly-available data on Australian filings for IP rights, this provides useful insights into where the revenues – and profits – are coming from.  I have looked at these numbers, and I am afraid that my conclusions are not rosy.  The Australian market appears to be stagnant, with firms struggling to enhance profitability.  Growth in the listed groups has come through acquisitions rather than genuine new business, with revenues per professional staff member being pretty consistent across the industry.  Low-value, transactional work, which ought to have the greatest exposure to competition and downward price pressure, continues to be significantly more profitable than high-value, bespoke services.  Yet, despite the obvious challenges and risks that these circumstances present, as far as I can tell firms are continuing to do the same old things that they have done for years, in terms of professional staff management and marketing, with the predictable result that nothing much is changing.

14 November 2018

Drafting a Patent Specification with ‘Reasonable Skill and Knowledge’ is a Collaborative Exercise Between Client and Attorney

TeamworkA recent appeal decision by a Full Bench of the Federal Court of Australia has clarified what is meant by the requirement for a patent specification to be framed with ‘reasonable skill and knowledge’, finding that this is a collective responsibility that arises among everybody involved, including inventors, patent attorneys, and any other corporate managers or intermediaries.  Under Australian law, this requirement arises in relation to the effect of amendments on the rights of a patentee.  In particular, a patent is only enforceable during the period prior to making an amendment if the specification without the amendment was ‘framed in good faith and with reasonable skill and knowledge’.

This decision should be of interest not only to Australian patent attorneys, but to patent professionals globally who are involved in drafting specifications that may ultimately be filed in Australia, and result in the grant of Australian patents.  It confirms that responsibility for ‘framing’ a specification with ‘reasonable skill and knowledge’ does not lie solely – or even primarily – with the person tasked with actually drafting the specification, but is shared between all those involved in the process.

A competent patent attorney might be expected to have reasonable knowledge of the law and practices relating to the drafting of patent specifications, and to make reasonable efforts to obtain necessary information from a client.  However, the client has a key role to play in ensuring that the patent attorney is properly instructed.  And while the patent attorney is not necessarily expected to share the level of domain-specific technical expertise of an inventor, the specification will nonetheless be assumed to have been drafted with the benefit of the client’s knowledge of the invention, including knowledge that the client reasonably should be taken to have had, in all of the relevant circumstances.  Ensuring that this is the case is at least as much the responsibility of the client as it is of the patent attorney (or other patent professional) tasked with drafting the specification.

31 October 2018

Changes to Australia’s Law on Inventive Step Put On-Hold Following Consultation on Draft Legislation

PauseBack in July, I reported the commencement of a process of consultation on an Exposure Draft of legislation – the proposed Intellectual Property Laws Amendment Bill (Productivity Commission Response Part 2 and Other Measures) Bill 2018 – intended to introduce a number of further reforms to Australia’s intellectual property laws, including abolition of the innovation patent, introducing an ‘objects clause’ into the Patents Act 1990, and (again) raising the standard of inventive step.  The consultation period concluded on 31 August 2018, and IP Australia received 18 non-confidential submissions (including one from me [PDF, 155kB]).  It has now published a response to those submissions [PDF 188kB].  Additionally (assuming that my own experience is representative) individual responses have been prepared and sent to each party that made a submission, which has become a commendable feature of recent consultations by IP Australia.  Full details of the draft legislation, and consultation process, can be found on IP Australia’s web site.

As many readers will be aware, the majority of the provisions in the draft legislation are intended to implement recommendations arising from the Productivity Commission’s (PC) enquiry into Australia’s Intellectual Property Arrangements, that have been accepted by the government. 

Following consultation, IP Australia intends to proceed with the following reforms, substantially as proposed in the draft legislation:
  1. abolition of the innovation patent system;
  2. introduction of an ‘objects clause’ into the Australian Patents Act (for anyone who does not already know, an objects clause is a provision that outlines the underlying purposes of the legislation, which can be used to resolve uncertainty and ambiguity); and
  3. amendments to Crown use and compulsory licensing provisions (subject to a number of technical amendments identified in submissions).
None of this comes as a great surprise.  Given that the government accepted the PC’s recommendations in each of these areas, IP Australia has an obligation to progress the implementing legislation.  Any action to block these reforms must now take place at the parliamentary level.  The changes to Crown use and compulsory licensing in fact received broad support from stakeholders.  On the other hand, many submissions continued to oppose the abolition of the innovation patent system, and the inclusion of an ‘objects clause’, notwithstanding that challenging the decisions already made by the government was beyond the scope of the consultation process.  As would be expected, therefore, such submissions fell on deaf ears.  Indeed, one can almost detect a note of irritation in IP Australia’s reply that it ‘notes that the decision to abolish the innovation patent system was taken by the Government, and that this consultation was directed towards the implementation of that decision.’

In a less predictable twist, however, IP Australia has found a range of concerns expressed in submissions relating to the draft amendments to inventive step provisions to be ‘persuasive’.  In particular, it has been persuaded ‘that the proposed changes to the legislation and the accompanying EM [Explanatory Memorandum] will not achieve the intended outcome of sufficiently raising the threshold for inventive step, as the wording is not sufficiently different and that the courts may not have sufficient regard to the EM when considering the proposed inventive step changes.’

As a result, the inventive step reforms have been placed on-hold pending further consideration:

IP Australia has advised the Government of the outcome of this consultation process. The Government has decided to postpone changes to inventive step to ensure there is sufficient time to formulate and consult further on options to ensure legislative changes have the intended effect.

20 October 2018

Representative Body of Australian Patent Attorneys Seeks to Intervene in Pivotal ‘Software Patent’ Appeal

Balancing interestsOn 19 October 2018, the Institute of Patent and Trade Mark Attorneys of Australia (IPTA) filed an interlocutory application seeking leave to intervene in the appeal (no. NSD734/2018) by Encompass Corporation Pty Ltd against the decision of a single judge of the Federal Court of Australia in Encompass Corporation Pty Ltd v InfoTrack Pty Ltd [2018] FCA 421.  This appeal is of particular significance because it is to be heard by an expanded panel of five judges of the Federal Court, rather than the usual three judges.  Consequently, the decision could potentially overrule (or reconfirm) prior appeal decisions, and will be binding on all Australian courts and tribunals, other than the High Court.

As I reported last week, the Commissioner of Patents recently joined the proceedings as an ‘interested party’ – a development that I suggested may leave many other stakeholders, including numerous current and future applicants for patents on computer-implemented inventions, unrepresented in a case that could substantially shape the patentability of such subject matter for many years to come.  I therefore floated the idea that this presented an opportunity for an organisation such as IPTA to step and speak on behalf of other users of the Australian patent system.  And while I cannot take any credit – I am certain that IPTA would have already had its application in the works before my article was published – I am, naturally, very pleased to see that this has indeed come to pass.

It does seem, however, that the process of joining the proceedings is considerably more fraught for IPTA than it was for the Commissioner of Patents.  While the Commissioner was apparently able simply to ‘appear’ as an ‘interested person’, IPTA has had to make an application to intervene.  That application can be opposed by the principal parties to the appeal, and may be refused by the court.  In fact, the order issued by the court [PDF, 93kB] in response to IPTA’s application includes the following terms:

The application by the Institute of Patent and Trade Mark Attorneys of Australia (IPTA) to intervene on this appeal, pursuant to rule 9.12 of the Federal Court Rules 2011 (Cth), be stood over to the first day of the appeal.

On or before 5pm on Wednesday 31 October 2018, the IPTA file and serve written submissions of no more than 5 pages in length on the question of manner of manufacture within the meaning of s 18(1)(a) of the Patents Act 1990 (Cth) that it would seek to rely upon if intervention were granted.

On the positive side, this process ensures that IPTA will have the opportunity to file short written submissions, although these may be ignored by the court if it decides not to grant the application to intervene.  On the other hand, IPTA will incur the full cost of preparing and filing its written submissions – in addition to the costs of its application and attending court in order to argue its case for intervention – without knowing whether they will receive any consideration by the court.

I have been informed by the current President of IPTA, Richard Baddeley, that while the appellant (i.e. Encompass) has consented to the intervention, the respondent (i.e. InfoTrack) has indicated its intention to oppose IPTA’s application to intervene.  For this reason, IPTA is proposing to confine its intervention to the five-page written submissions, and will not be requesting to present oral submissions at the appeal hearing.

Considering that IPTA’s submissions are likely to support the interests of patentees and patent applicants – the primary stakeholders whose interests are not already represented in the proceedings – it is not surprising that Encompass (the patent owner in the dispute) would support IPTA’s intervention, and InfoTrack would oppose it.  I would like to think, however, that the court will be mindful of the fact that (barring a High Court appeal) it will be setting down legal principles that could endure for a significant period of time, and would therefore welcome all the input it can get to assist it in this task.

Hopefully, then, IPTA’s application to intervene will be granted, and its submissions will be considered by the court in reaching its decision in the Encompass appeal.  It is also my hope that this may finally result in some much-needed clarity, consistency, and coherency in the Australian law, and examination practice, in relation to patent-eligibility of computer-implemented inventions.

17 October 2018

Australian Commissioner of Patents to Participate in Major Software Patent-Eligibility Appeal

AddedThe Commissioner of Patents has been added as an ‘interested person’ to the parties involved in the appeal (no. NSD734/2018) by Encompass Corporation Pty Ltd against the decision of a single judge of the Federal Court of Australia in Encompass Corporation Pty Ltd v InfoTrack Pty Ltd [2018] FCA 421.  As I reported back in June, the case involves a pair of innovation patents owned by Encompass, which survived attacks based on alleged lack of novelty and innovative step, only to be found invalid on the basis that they did not relate to patent-eligible ‘manners of manufacture’.  In reaching this conclusion, the judge appeared to be strongly influenced by the state of the prior art, as represented by the evidence upon which InfoTrack relied for its novelty and innovative step cases.

The Encompass appeal is of particular significance, because an expanded panel of five judges has been assigned.  Usually, only three judges sit on a Full Bench of the Federal Court of Australia to hear appeals against decisions of a single judge.  An expanded panel has the power to overrule prior three-judge decisions (such as those concerning the patent=eligibility of computer-implemented inventions in Research Affiliates LLC v Commissioner of Patents [2014] FCAFC 150 and Commissioner of Patents v RPL Central Pty Ltd [2015] FCAFC 177), and its decision will be binding on all Australian courts and tribunals (including the Patent Office), other than the High Court.

The nature of the Commissioner’s interest in the outcome of the Encompass appeal is therefore clear.  The eventual decision may determine whether the current approach of the Patent Office to computer-implemented inventions – which is increasingly reliant upon consideration of the state of the prior art – is legitimate, or whether the Office has in fact been denying patents on the basis of flawed reasoning.  (Not that there is anything – other than filing divisional applications and keeping fingers crossed for a change in law and/or practice – that applicants can do about this.)

Furthermore, the Commissioner is currently involved in three appeals before single judges of the Federal Court which will undoubtedly be impacted by the Encompass decision: Rokt Pte Limited v The Commissioner of Patents, NSD1292/2017; Repipe Pty Ltd v The Commissioner of Patents, WAD323/2018; and Aristocrat Technologies Australia Pty Ltd v The Commissioner of Patents, NSD1343/2018.  Of these, the Rokt case has already been heard and is awaiting judgment, so the potential for an outcome that is inconsistent with whatever the expanded Full Court decides in Encompass will be of concern to all parties involved (including, presumably, the judge).  The Repipe and Aristocrat cases appear unlikely to be heard until well into 2019 (a hearing date is yet to be set for Repipe, while Aristocrat is currently set down for hearing in September 2019), making it likely that a decision will be handed down in Encompass in plenty of time for the parties to consider its effect on their positions – with the possibility of this resulting in settlement prior to trial.

It appears that the Commissioner intends to make substantive submissions, and to be represented at the hearing in the Encompass case.  According to orders issued by the Chief Justice on 2 October 2018 [PDF, 160kB], the Commissioner is to file a summary of submissions of up to 10 pages in length by 4.00pm on 17 October 2018, following which both Encompass and InfoTrack will have a week within which to file and serve any submissions in reply, also of up to 10 pages.  The implication is clearly that one or both of the main parties to the appeal may take issue with what the Commissioner has to say.

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