IP Australia Gazumps ACIP, and Revives the Petty Patent!

Having published the initial tranche of draft Regulations implementing the Raising the Bar patent reforms just last Friday, IP Australia has today sprung upon the world a new consultation paper: Innovation Patents – Raising the Step. 

And what a surprise it is!  If IP Australia has its way, the innovation patent system will be effectively eviscerated.  The plan is to completely eliminate the distinction in inventive threshold between standard patents and innovation patents, such that an ‘invention’ and an ‘innovation’ would be required to meet exactly the same inventive step threshold. 

Thus, if an invention is not a sufficient advance over the prior art to qualify for a standard patent, it will also not qualify for an innovation patent.  Conversely, anyone with a qualifying patentable invention will have the choice of obtaining a right which is valid for only eight years, is limited to five claims, and is subject to additional exclusions from patentability.  Or they could just apply for a standard patent.

Furthermore, the intention appears to be that the ‘raised step’ will come into effect as soon as possible, in view of the commencement of the Raising the Bar reforms in April 2013.  IP Australia is concerned that the raising of the inventive step threshold ‘will lead to an increased disparity between the threshold for Standard and Innovation Patents, if Innovation Patents continue to be judged against the current innovative step threshold.’ 

The solution, in IP Australia’s submission, is not merely to raise the innovative step threshold, but to abolish it entirely, such that in one fell swoop the entire concept of a genuine second-tier patent right in Australia will be eliminated.

IP Australia’s publication of its consultation paper – which comes complete with drafting instructions for the proposed amendments to the Patents Act 1990 – appears to pre-empt the ongoing review of the innovation patent system currently being conducted by the Australian Council on Intellectual Property (ACIP).  Despite the consultation paper recognising the ACIP review, it is difficult to see what useful purpose a review of the existing innovation patent system could serve if that system effectively no longer exists once a final report is published.

IP Australia is inviting written submissions in reply to the consultation paper, but you will need to be quick!  The deadline is 5.00pm on 25 October 2012, and you will need to find time to squeeze this in while also working your way through the draft Raising the Bar regulations and preparing your submissions in relation to that consultation also.

EVERYTHING OLD IS NEW AGAIN – REMEMBER THE PETTY PATENT?

Once upon a time, Australia had a thing called a ‘petty patent’.  The petty patent was much like a standard patent, except that it had a shorter term (six years) and could not include as many claims.  Sound familiar so far?

Originally introduced in 1979, the petty patent system was not much used, and by 1994 – when the government set ACIP the task of reviewing the system – an average of only about 300 applications were filed each year.  ACIP responded to the government request in 1995, and its report (imaginatively titled Review of the Petty Patent System) is still available from the Completed Reviews page of the ACIP website.

While there was a difference, in principle, between the level of ‘inventiveness’ required for standard and petty patents, ACIP found that there was:

…a widely held perception among the patent attorney profession that in the Patent Office there is relatively little difference between the inventive height required to obtain a standard and a petty patent. This is partly due to the perceived degree of novelty required for a standard patent and the fact that local and absolute novelty search levels are effectively the same. Accordingly, there is a perception that under normal circumstances there is little reason to apply for a petty patent as a standard patent can be obtained for a slightly higher cost and for a much longer term. As a consequence, clients are rarely advised by their patent attorney to seek a petty patent, except when an early search or a quick grant is required for tactical reasons.

The ‘tactical reasons’ to which ACIP referred were essentially the same ones for which innovation patents are now being used – to obtain rapid grant of enforceable rights based on pending standard patent applications and/or to craft claims specifically targeting possible infringement (for more on this, see our recent guest post on the IP Watchdog blog Apple’s ‘Innovative’ Australian Patent Strategy).

So again, this all seems very familiar!

Of course, ACIP was aware that patent attorney perceptions might not necessarily reflect reality, and it also looked to what had been happening in the courts:

Consequently, in examining the need for second tier protection with a lower level of inventiveness, attention needs to be paid to the treatment of inventive height by the courts. We are aware that a limited number of patents have been held invalid by the courts on the grounds of obviousness and believe that these may well have been valid if a lower level of obviousness had been applied.

It was these observations, amongst others, that led ACIP to recommend the abolition of the petty patent system, and its replacement with the innovation patent system.

In summary, the innovation patent system was recommended by ACIP, and introduced by the Howard government, to fill a ‘gap’ in Australia’s IP protection regime, between registered designs and standard patents, in place of petty patents which – despite some advantages in terms of cost and speed of grant – were primarily used for strategic or tactical purposes.  The innovation patent system has proven vastly more successful than the petty patent, with nearly 1600 innovation patents having been granted in 2011.

Yet it seems that IP Australia now wants to turn back the clock.

PERCEIVED PROBLEMS WITH THE INNOVATION PATENT SYSTEM

The innovation patent system is certainly not without its critics (and rightly so).  As Australian patent attorney Peter Treloar wrote in Managing IP last year:

The full consequences of granting patents for so-called obvious inventions under the Australian innovation patents system are now being felt. Patent applicants have found that they can place significant hurdles in front of defendants in patent litigation trials. The result is that the scales are now firmly tipped to the advantage of patentees during litigation.
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Whilst the Australian Patent Office is pushing through legislation to tighten up the obviousness test for standard patents, to bring it into line with a European standard, it would appear that little attention is being given to the potential for use of innovation patents to stifle innovation in Australia (through enforcement of these patents that fail an obviousness test).

This last comment now looks remarkably prescient, with IP Australia (belatedly) turning its attention to innovation patents.  At item 5 of the drafting instructions included in the consultation paper, IP Australia states that:

An invention is taken to involve an innovative step when compared with the prior art base if the invention varies from what has been published or done before the priority date of the invention in a way or ways that make a ‘substantial contribution to the working of the invention’ [Subsection 7(4) of the Act].  Recent case law has confirmed that this requirement is not onerous [Delnorth Pty Ltd v Dura-Post (Aust) Pty Ltd [2008] FCA 1225].  In recent years, concerns have arisen that the ‘innovative step’ threshold for Innovation Patents is too low. In particular, applicants are using Innovation Patents to obtain quick protection for higher level patents that would ordinarily be subject to a Standard Patent application.

The problem with this complaint is that it is not addressed by the proposed abolition of the innovative step threshold.  If a patent is of a ‘higher level’, such that it would qualify for a standard patent, then it will still qualify for an innovation patent even if the threshold is raised.

Indeed, there is evidence that the innovation patents which have been successfully litigated would have qualified as standard patents.  For example, while the Delnorth case is commonly presented as an example of the ‘problems’ with innovation patents, what is less commonly mentioned is the fact that a number of commercially valuable claims survived opposition and re-examination in the corresponding Australian standard patent application, while claims of similar scope have also been granted to Delnorth in the United States (see Re-examination Limits Rights to Flexible Roadside Posts).

Similarly, a standard equivalent of the innovation patents successfully enforced in the other high-profile innovation patent case, Seafood Innovations Pty Ltd v Richard Bass Pty Ltd [2011] FCAFC 83, has recently been accepted (application no. 2010235915) although, perhaps unsurprisingly, it is currently under opposition by Richard Bass Pty Ltd.

Overall, then, it is difficult to conclude with any confidence that ‘low level’ innovation patents are stifling innovation in Australia.  Indeed, an alternative view is that they are enabling inventors to obtain and enforce their rights in a more timely manner than would be possible via the standard patent system alone.

WHO USES INNOVATION PATENTS?

In its consultation paper, IP Australia suggests that the innovation patent system is failing to meet its original objective of providing protection for incremental innovations, primarily to small and medium Australian enterprises.  The ‘evidence’ it offers for this is that:

Since the Innovation Patent was introduced in 2001, there has been a significant rise in Innovation Patent applications within certain high-tech technologies – specifically, electrical devices and engineering (a 350 per cent rise), information technology (a 390 per cent rise), and pharmaceuticals (a 560 per cent rise). This compares to a rise in applications of 150 per cent averaged over all technologies. The annual number of Innovation Patent applications for these technologies has increased from 82 applications (in 2001) to 401 (in 2011), amounting to nearly a quarter of all Innovation Patent applications filed in 2011.

Furthermore:

When the Innovation Patent system was introduced in 2001, over 85 per cent of applications were granted to Australian individuals and companies. This proportion has fallen to about 65 per cent in 2011, with much of that decline in the years since the Delnorth decision…

We would note firstly that a significant contribution to both of these statistics (i.e. the shift to ‘high-tech’ subject matter, and the use of the system by foreign applicants) can be attributed to Apple, which has amassed nearly 100 innovation patents, all by itself, since 2007.  We now know that it had a very specific strategic reason for building this ‘war chest’ of patents!  But gradually these innovation patents are being replaced by their standard counterparts.

Notably, the two most prominent examples (other than Apple v Samsung) of innovation patent based litigation, Delnorth and Seafood Innovations, involve patents held by Australian companies.

And while there has undoubtedly been a decline in the percentage of innovation patents obtained by Australian companies and individuals (from 85% to 65%), the total number of innovation patents granted each year approximately doubled over the same period, meaning that more Australians than ever are using the system.  Additionally, this ‘decline’ to 65% of the total should be viewed in the context of a system in which about 85% of the standard patents granted in Australia in 2011 did not claim Australian priority, suggesting that Australian applicants use innovation patents at a rate at least four times that of standard patents.

CONCLUSION

IP Australia’s desire to raise the threshold on innovation patents is undoubtedly well-intentioned.  There are genuine concerns about the credibility of the innovation patent system, in Australia and overseas.

However, it is not at all clear that the stated rationale for abolishing the innovative step threshold is actually supported by the evidence.  For this reason, it would be a very great shame if IP Australia succeeds in pushing through this reform before ACIP has a chance to report.  The current status of the ACIP review is described on its website as follows:

ACIP released an Issues Paper in August 2011 to seek the views of interested parties. A number of written submissions were received. ACIP also conducted a number of public forums in October 2011 to discuss the key issues. Despite ACIP’s best efforts, the target audience of individual innovation patentees and small to medium business enterprises (SMEs) largely did not engage with ACIP in this review process. Consequently, a research project has been commissioned to try and determine how effective the innovation patent system is in stimulating innovation by Australian SMEs.

An Interim Report will be released in September/October 2012 to seek further public input on a number of possible options for reforming the innovation patent system.

ACIP anticipates that the Final Report for this review will be released in mid 2013.

Even the most rudimentary analysis of the use of the innovation patent system suggests that the situation is not as dire as IP Australia suggests.  ACIP’s research will therefore be extremely valuable in providing input into the most appropriate, measured, response to the existing concerns about the innovation patent system.

There are doubtless a number of alternative reforms which could be made, without effectively abolishing the existing second-tier patent system in Australia.  For example, with the standard for inventive step being raised, would not the ‘old’ standard provide an alternative threshold for an enhanced innovation patent?

We hope to get the chance to find out.  But we are not holding our breath, given IP Australia’s recent successes in getting its own way on IP law reform.

Tags: Australia, Innovation patent, Law reform