Innovation Patent Consultation Closes

Today was the due date for submissions on a proposal to amend the Patents Act 1990, to raise the patentability threshold for innovation patents to the same level of inventiveness as required for standard patents.  The proposal was announced on 24 September 2012, and you can read our initial reaction in IP Australia Gazumps ACIP, and Revives the Petty Patent!  We also published the contents of a notice circulated by the Institute of Patent and Trade Mark Attorneys of Australia (IPTA), in IP Australia Proposal Renders Innovation Patents ‘Obsolete’ – IPTA.

It would be fair to say that we have not heard much in the way of positive responses to the proposal.  While many of those we have spoken with concur that the innovative step threshold has proven to be too low, few seem to agree with the proposition that it should be eliminated altogether, particularly not without a proper review to consider a range of options for improving the innovation patent system.

The most common sentiment seems to be that it would be premature to make changes to the law governing innovation patents at this time, without waiting for the outcomes of the ongoing ACIP review of the system.

Patentology made a submission to IP Australia in response to the innovation patents Consultation Paper.  It is likely that all submissions will be published in due course.  In the meantime, we are publishing the content of our own submission below.  This version has been edited only slightly, to remove background information that is unnecessary in the context of this blog, and to be more ‘web friendly’, e.g. format changes and the inclusion of additional live links.

Submission to IP Australia on

Consultation Paper: Innovation Patents – Raising the Step

25 October 2012

INTRODUCTION

This submission is made in response to the invitation from IP Australia to comment on the Consultation Paper Innovation Patents – Raising the Step.

In summary, it is my view that the proposed reforms – essentially eliminating the second-tier ‘innovative step’ test, and raising the standard to match the new ‘inventive step test’ established under the Raising the Bar Act 2012 – would render the innovation patent system as obsolete and ineffective as was the petty patent system prior to its abolition.

As IP Australia is aware (since it is assisting with the conduct of a survey of users of the innovation patent system) the Australian Council on Intellectual Property (ACIP) is currently conducting an extensive review of the innovation patent system, on a request from the Government made in February 2011.  I understand that ACIP is expected to release an options paper shortly and to have its final report for the Government completed by mid-2013.  I consider that it is therefore premature for such substantial changes as are proposed in the Consultation Paper, to be made to the innovation patent system, without the benefit of ACIP’s report.

Furthermore, I do not consider that the proposed reform would address many of the concerns reflected in the Consultation Paper. There are alternative reforms that might be proposed to address these concerns, while also creating a more workable and balanced second-tier patent right which will assist small to medium enterprises (SMEs) to obtain relevant protection for their lesser, yet nonetheless valuable, innovations.

MY BACKGROUND AND INTEREST

I have worked in industrial and university research environments, and in two IP-intensive high-technology start-up companies.  I have worked in the patent profession since 2002, first registering as an Australian Patent and Trade Marks Attorney in 2005.  My current practice comprises almost exclusively assisting local Australian clients, mostly SMEs, in identifying, protecting and defending their IP rights and competitive position.

I therefore have extensive experience, both as an advisor and at first-hand, of the needs and interests of Australian SMEs in relation to the protection and commercialisation of innovative developments.

I am a firm believer in the importance of an effective and balanced intellectual property system, and patent system in particular, to the success of innovative companies.

THE PROPOSED REFORM

The Government’s proposal, as I understand it, is to eliminate the distinction between ‘innovative step’ and ‘inventive step’, preferably by the repeal of subsections 7(4) – (6), and 18(1A) of the Patents Act 1990 (along with consequential amendments).

STATED REASONS FOR THE PROPOSED REFORM

A number of reasons are put forward in the Consultation Paper for the proposed reform:

1. it is said that the current innovative step standard is too low, in that it permits patentees to obtain monopoly rights over ‘obvious’ developments;
2. it is suggested that innovation patents may inappropriately extend the life of pharmaceutical patents and delay the introduction of less expensive generic medicines;
3. it is further suggested that the comparative ease of obtaining innovation patents may assist companies in the creation of patent thickets;
4. it is implied that innovation patents place too much power, too easily, in the hands of their owners (i.e. that they are open to inappropriate use leading to higher costs for consumers and competitors); and
5. it is further implied that the innovation patent system has ‘failed’ to a degree, in that it is disproportionately employed in specific areas of technology, and it is being increasingly used by foreign companies, despite its primary goal of filling a perceived gap in the IP protection regime (between registered designs and standard patents) of particular interest to Australian SMEs.

There is, however, some doubt as to the true extent of each of these ‘problems’ and, to the extent that they exist (or present a real risk), each might be better addressed by different, and less drastic, reforms.

It is to consider precisely these types of issues that formal review and consultation processes – such as that currently being undertaken by ACIP – are conducted.

INNOVATIVE STEP STANDARD

As noted in the Consultation Paper, the petty patent system was replaced by the innovation patent system in response to the Australian Law Reform Commission’s (ALRC) Review of Designs (1995) and ACIP’s Review of the Petty Patent System (1995). The innovation patent system covered a gap identified by both of these reports: that is, some functional or incremental innovations were not sufficiently inventive to be granted a standard or petty patent, nor could they be protected under the designs system.

The test for ‘innovative step’ recommended in the ACIP report, and subsequently adopted, was based on the expanded novelty test in Griffin v Isaacs (1938) 12 ALJ 169:

Where variations from a device previously published consist in matters which make no substantial contribution to the working of the thing or involve no ingenuity or inventive step and the merit if any of the two things, considered as inventions, is the same, it is, I think, impossible to treat the differences as giving novelty.

It should be recalled that the Griffin v Isaacs test is a remnant from a time before there was a distinct requirement for a patentable invention to involve an ‘inventive step’.  The courts (and other decision makers) were cognisant of the fact that bare novelty was not sufficient to satisfy the general requirement for an invention to be a ‘manner of new manufacture’, and various standards were adopted, depending upon the facts of individual cases, to justify the rejection of claims that were deemed unworthy of patent protection.

However, because there were various tests adopted, the fact that a claim might pass one such test (e.g. by demonstrating a ‘substantial contribution to the working of the thing’) did not necessarily mean that it was validly patentable.

As is clear from the subsequent evaluation of the innovative step threshold by the courts, e.g. in Delnorth Pty Ltd v Dura-Post (Aust) Pty Ltd [2008] FCA 1225, the Griffin v Isaacs test represents a particularly low requirement, being little more than a novelty test.  As the Consultation Paper rightly points out, this means that an eight-year monopoly can be obtained for the development of an obvious innovation.

While it might well be appropriate to lift this standard, the proposal to eliminate it altogether, by adopting the ‘raised’ inventive step standard for all patents, lies at the extreme end of available options. Since 1952, the Australian patent law has included an express requirement that a valid claim involve an inventive step, and there have been a number of occasions on which this standard has effectively been raised:

1. under the Patents Act 1952, inventive step was assessed solely against the common general knowledge in the relevant art (Minnesota Mining & Manufacturing Co v Beiersdorf (Australia) Ltd [1980] HCA 9);
2. as originally enacted, the Patents Act 1990 provided for inventive step to be assessed in relation to a single item of prior art information, so long as the skilled person could reasonably have been expected to ascertain, understand and regard the information as relevant;
3. since 1 April 2001, the Patents Act 1990 has further permitted the combination of prior art information not forming part of the common general knowledge, so long as the skilled person could reasonably have been expected to make the combination; and
4. under the provisions of the Raising the Bar Act 2012, which will come into effect on 15 April 2013, all pertinent prior art information will be available for the assessment of inventive step, regardless of whether it is the kind of thing to which the skilled person would normally refer.

Furthermore, over time the Australian patent system has moved from a local novelty standard (only prior publication or use in Australia considered), to a relative novelty standard (global publication, but only local use, considered), and finally to a global novelty standard (any publication and use, anywhere in the world, considered).

All of these tests have a common general approach to assessing inventive step – namely, whether or not the skilled person would progress from the prior art to the invention by routine steps only.  What differs in each case is the scope of information that is permitted to be included in the prior art base from which the inventive step is taken.

Clearly, there are a number of historically-proven standards available for assessing inventive step. Each sets a higher threshold, not by ‘raising the step’, but by expanding the prior art base against which the step is tested.

In my view, this is the preferable approach to setting a lower threshold. Obvious ‘inventions’ should not give rise to monopolies, however there is scope to restrict the base against which innovative step is measured, without eliminating the ‘obviousness’ test itself.

Any one of the earlier tests for ‘inventive step’ could be adopted as the ‘innovative step’ standard following the entering into force of the Raising the Bar Act 2012, in order to retain a true ‘two-tier’ system, as recommended by ACIP.

What is less clear is which of these tests (or any other that may be devised) provides the most appropriate balance between the private rights of innovators, and the ‘right’ of the general public to the benefits of free competition.  However, this is just the kind of question on which ACIP might be expected to report.

‘EVERGREENING’

It is difficult to understand the assertion in the Consultation Paper that innovation patents may be used to ‘inappropriately extend the life of pharmaceutical patents and delay the introduction of less expensive generic medicines.’

The theory may be that an innovation patent need claim only an incremental advance over an existing (published) patent and, if filed near the end of the term of a standard patent, may be used to protect the improved product for up to eight further years.

There are two difficulties with this theory, as I see it:

1. if the product subject of the original patent is already effective without the incremental improvement, then it is not necessary for a generic competitor to implement the improvement in order to compete; and
2. incremental, or ‘obvious’ improvements are likely to be identified by non-inventive workers in the field, soon after the original product is launched, thus preventing the original patentee from obtaining a new patent for the improvement some years later.

Of course, if an improvement is truly inventive, then it is entitled to standard patent protection, and a term of up to 20 years.

It therefore seems that, logically, the kinds of ‘obvious’ improvements protectable under the current innovation patent system are unlikely to be available for patenting many years after the original application filing date, and that the risk of the system being used for some form of ‘evergreening’ strategy is highly unlikely.

Even if this is a genuine concern, there may be alternative approaches to address the issue, for example:

1. further reducing the term of innovation patents, e.g. to five years; or
2. restricting the permissible subject matter of an innovation patent to exclude pharmaceutical inventions.

Since there could be wider impacts to such reforms, it would be appropriate to wait for the ACIP report to be released before making changes to the law.

PATENT THICKETS

Patent thickets are clusters of patents with similar subject matter which together carve out a substantial monopoly for their proprietor, even though each individual patent may be relatively narrow in scope.

Theoretically, innovation patents may make the formation of thickets easier, by enabling the close clustering of patents having subject matter that is too similar to establish an inventive step, although the differences may be sufficient to satisfy the current innovative step standard.

However, patent thickets have been raised as a concern in other jurisdictions (such as the US), which have no second-tier system of protection. In many cases, the patents in a thicket may have a common priority date, such that they are not prior art to one another.  Generally, then, the ability to create patent thickets is independent of the innovation threshold applied.

Even so, if thickets are a genuine problem of the innovation patent system, then there may be other steps available to mitigate their impact, such as shortening the term of an innovation patent.

‘ABUSE’ OF INNOVATION PATENTS

There are various strategic uses of innovation patents that might be regarded as a form of ‘abuse’, including:

1. dividing innovation patents from pending standard patent applications in order to target alleged infringing activities (see, e.g., Seafood Innovations Pty Ltd v Richard Bass Pty Ltd [2010] FCA 723 and, on appeal, Seafood Innovations Pty Ltd v Richard Bass Pty Ltd [2011] FCAFC 83); and
2. obtaining innovation patents on inventions involving a sufficient advance in the field to qualify under the higher ‘inventive step’ standard, in order to obtain a rapid enforceable right even though the patentee still intends to pursue standard (20 year) patent rights in a related application.

The power of innovation patents lies largely in the fact that they provide for the same remedies – compensation (damages or an account of profits) and/or an injunction – as a standard patent.  Their strategic value lies in the fact that they can be obtained and examined more rapidly, and are not subject to a pre-grant opposition process.

By way of example, Apple Inc has filed, and certified, more innovation patents over the past five years than any other user of the Australian patent system. However, few (if any) of these patents disclose inventions of lower technical merit.  In a number of cases already, corresponding standard patents have subsequently been granted, and the original innovation patents have ceased.

The Delnorth case was also one in which a standard patent was ultimately granted, albeit of different scope to the divisional innovation patents involved in the litigation. Likewise, a standard patent application was recently accepted which is related to the innovation patents in the Seafood Innovations case.

The petty patent system was used for precisely the same types of strategic purpose. If there is no difference in the innovation threshold between first and second tier rights, there is no benefit in pursuing second tier rights (with their associated limitations) other than as part of an assertion, enforcement or defensive strategy.

Petty patent applications were filed mainly by individuals, or alternatively as strategic assets. The petty patent failed to fill any gap in the system of IP protections, and thus was rarely utilised. An ‘innovation patent’ with the same requirement for inventive step as a standard patent would likely result in applicant behaviour reverting to that which prevailed under the petty patent system.

Rather than eliminating the true second-tier threshold, other measures could be employed to curb the power of innovation patent holders, such as:

1. restricting the remedies available upon a finding of infringement of an innovation patent, e.g. to bar the grant of injunctions except in cases of wilful or flagrant infringement (e.g. circumstances similar to those enumerated under subsection 122(1A) of the Patents Act 1990); or
2. limiting the circumstances in which divisional innovation patents may be filed, for example only from first-generation parent applications, and only up until the date of grant of a first divisional innovation patent.

USERS OF THE INNOVATION PATENT SYSTEM

The Consultation Paper notes that:

1. 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), as compared with a rise in applications of 150 per cent averaged over all technologies; and
2. there has been a fall in the proportion of innovation patents obtained by Australian applicants, from 85% in the early years of the system, to 65% at present.

It is unclear why the first of these observations (assuming that the figures are correct) should necessarily be considered to be a negative outcome.  For example, so-called ‘software patents’ have been subject to some criticism, and one response to this is that of the Electronic Frontier Foundation, which has launched a Defend Innovation campaign proposing, amongst other reforms, that the term of software patents should be reduced to five years.  While a number of the Defend Innovation proposals are clearly problematic, the idea that patents should be quicker and easier to obtain, but shorter in duration, in fast-moving fields of technology, has substantial merit.

From a technology perspective, therefore, an alternative interpretation of the statistics might be that the innovation patent system is fulfilling an important role in relation to certain technologies. Further study would no doubt be required to draw any firm conclusions on this issue.

With regard to the proportion of Australian users of the innovation patent system, I observe that the total number of innovation patents granted each year has approximately doubled over the period in which the proportion of Australian use has declined from 85% to 65%.  This means that more Australians than ever are using the system.  Additionally, the ‘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

By comparison with the petty patent system that it replaced, the innovation patent system is a great success.  It is significantly more highly utilised, and is used predominantly by Australian applicants – primarily the individuals and SMEs it was intended to support.

It has, however, proven to be imperfect.  There is a good case to be made that the ‘innovative step’ threshold is set too low, that the power wielded by proprietors of innovation patents is excessive relative to the merit of the subject matter, and that there is too much scope for strategic uses of innovation patents, particularly via divisional filings.

However, it does not follow that all of the problems would be solved by simply eliminating the second-tier threshold, as proposed.  Unless the innovation patent offers a lower barrier to protection, it will cease to perform the function of filling a gap in Australia’s IP protection regime for which it was originally designed.  With the bar being raised on inventiveness requirements for standard patents, there is clearly scope for a corresponding raise in the innovative step standard. There are a number of possible options for such a reform, and all are worthy of consideration.

The perceived problem of ‘abuse’ of the innovation patent system would be more effectively addressed by alternative measures, such as limiting remedies and/or restricting the circumstances in which divisional innovation patents may be filed.

Other general measures that would adjust the balance in the system would include reconsideration of the term of an innovation patent. Perhaps a maximum term of only five or six years would be more appropriate, for example.

I therefore urge IP Australia to reconsider the reform proposal in the Consultation Paper, and put any changes to the legislation on-hold pending publication of the ACIP report, which may well provide additional guidance as to a range of measures for improving the innovation patent system.

I thank IP Australia for this opportunity to comment on the Consultation Paper, and hope that this input may contribute to the development of further robust and valuable reforms to the Australian intellectual property system.

Mark Summerfield
25 October 2012

Tags: Australia, Innovation patent, Law reform