04 April 2017

Justice Stephen Burley Pulls Excess Teeth from Australia’s Innovation Patent

ToothThe innovation patent is Australia’s ‘second tier’ patent right.  It is granted without substantive examination (but must be examined and certified before it can be enforced), has a maximum term of only eight years, and requires a lower level of inventiveness than a standard patent in order to be valid.  Despite this, however, a certified innovation patent gives its owner all of the same rights and remedies against infringers – including injunctions and financial compensation – as a standard patent.  And in one respect innovation patents have appeared, since September 2011, to offer a distinct advantage over standard patents in that damages have been held to accrue not just back to the date of certification, or the date of grant, but all the way back to the original effective filing date.  In the case of divisional applications, this could be many years before the actual filing and grant dates of the innovation patent.  (For more information, see Britax Childcare Pty Ltd v Infa-Secure Pty Ltd [No 3] [2012] FCA 1019, and my earlier article Innovation Patents Reach Back in Time for Infringement.)

Innovation patents are currently under attack from a number of quarters, and it is no secret that a number of authorities would like to see the system abolished altogether.  I have repeatedly argued, however, that the main criticisms of the system could be dealt with through some judicious modifications to strike a better balance between reduced patentability standards, patent term, rights of patentees, and rights of competitors and the wider public.  (See, for example, IP Australia Has the Innovation Patent In Its Sights, Again!, Five Easy Ways to Fix the Innovation Patent System, The Productivity Commission on Patents – It’s All About ‘Value’ and ‘Quality’, and Users and Abusers of the Australian Innovation Patent System.)

The strategic use of divisional innovation patents to ‘tailor’ claims targeting a competitor’s activity, and then claim compensation back to the original filing date of the parent application, was highlighted by the Australian Government’s Productivity Commission in its final report on its Inquiry into Australia’s Intellectual Property Arrangements.  In a chapter concluding with a recommendation that the innovation patent system be abolished, it presented the following diagram illustrating the discrepancy between the period during which divisional innovation patent claims are public (i.e. when infringers may be on-notice of liability) and the period over which compensation can be claimed (Figure 8.4, p 255).
PC IP Arrangements Report Figure 8.4
However, in a decision issued on 3 April 2017 and authored by Justice Stephen Burley (with whom Justices Nicholas and Jagot expressly concurred, rather than simply issuing a joint judgment), a Full Bench of the Federal Court of Australia has overruled Britax: Coretell Pty Ltd v Australian Mud Company Pty Ltd [2017] FCAFC 54. 

Accordingly, as the law now stands compensation for infringement of a divisional innovation patent cannot be claimed back to the original date of the parent application.  The correct position, according to the Full Court, is that compensation for infringement of an innovation patent (divisional or otherwise) is available only from the date of grant – which is also the date of publication – of the innovation patent.

The Britax Decision

In Britax Justice Middleton was required to construe relevant provisions of the Patents Act 1990 in order to determine the period over which an innovation patent is enforceable and compensation available.  In doing so, he noted that section 57 of the Act provides for compensation, in certain circumstances, from the date of publication of a standard patent application, prior to the patent being granted and legally enforceable, but that there is no corresponding express provision covering the period of enforceability of an innovation patent.  After considering the legislative history of the innovation patent system, Justice Middleton concluded that the absence of such a provision implied that an innovation patent may be infringed at any time during its term, i.e. from the effective date of filing to expiry (Britax at [22]).

Coretell – Background

In 2007 Australian Mud Company (‘AMC’) sued Coretell Pty Ltd for infringement of innovation Patent no. 2006100113, entitled ‘Core Sample Orientation’.  This patent had a priority date of 3 September 2004 and was certified on 20 July 2006.  The infringement suit was unsuccessful at first instance: Australian Mud Company Pty Ltd v Coretell Pty Ltd [2010] FCA 1169 (see Innovation Patent Claims Once Again Construed Narrowly).  AMC appealed, but was again unsuccessful: Australian Mud Company Pty Ltd v Coretell Pty Ltd [2011] FCAFC 121 (see Australian Appeals Court Further Clarifies ‘Purposive Construction’).
In response to these failures AMC, which still had a pending standard patent application, filed two divisional innovation patents correcting the ‘deficiencies’ in the original patent and targeting Coretell’s activities.  This time, they were successful: Australian Mud Company Pty Ltd v Coretell Pty Ltd (No 4) [2015] FCA 1372).
In appeal, Coretell did not challenge the findings of infringement, although it did (unsuccessfully) challenge the lower court’s conclusion that the two divisional innovation patents were invalid.  More importantly, for present purposes, Coretell appealed against the finding that, under Britax, it was liable to pay compensation to AMC for all infringing acts dating back to the original filing date of the parent application on 5 September 2005.

The Reasoning in Coretell

In Coretell Justice Burley has ‘respectfully disagree[d]’ with Justice Middleton, finding that ‘the relevant date for determining infringement of an innovation patent under the Act is the date of grant for the patent’: at [97].  Contrary to the reasoning in Britax he has concluded that the legislative history better supports this construction of the Act.  In particular, the failure of s 57 to say anything about the period of compensation for infringement of innovation patents – whereas it had done so for the prior second-tier right, the petty patent – was never intended to imply that innovation patents should be enforceable over their entire eight-year term.  The provision addresses the effect of publication, and the Explanatory Memorandum for the amendment to the Act noted that it does ‘not apply to innovation patents because innovation patents will only be published after grant’ (Coretell at [91], emphasis in judgment).

Justice Burley further reasoned (at [92]-[93]) that the ‘ameliorative effects’ of s 57 must be understood in the context of standard patents, which are published prior to grant and are subject to potentially lengthy pre-acceptance examination and post-acceptance opposition, during which time they are not enforceable even if the published claims are valid and ultimately proceed to grant.  No such concern arises in the case of innovation patents, which are rapidly granted and published following only a formalities examination.

As Justice Burley also noted, at [95]:

...the interpretation adopted in Britax reflects a dramatic shift in the policy underlying the grant of substantive rights pursuant to the Act. It leads to the unattractive result that the owner of a divisional innovation patent may file a divisional application upon a much older standard patent and then sue for acts of infringement that took place well before the invention was defined in any claims. I would expect such a policy shift to have been clearly forecast in the language of the Act and in the secondary materials. No such shift is signalled in either.

Conclusion – A Major Step in the Right Direction

The law as it now stands under Coretell is evidently preferable to the former position under Britax and, in my opinion, the Full Court’s construction is clearly correct.  In my view, this abolition of the absurd power of the holder of a divisional innovation patent to claim compensation back to an earlier filing date, potentially years prior to the publication of any claims covering an alleged infringement (and, indeed, even prior to publication of the original parent application) goes a long way towards balancing the rights of patentees with those of competitors and the wider public. 

The Coretell decision significantly limits the ability of patent applicants to ‘retrospectively’ target the activities of competitors, and is therefore likely to change the behaviour of applicants.  After all, the value of obtaining a divisional innovation patent solely for the purpose of pursuing expensive litigation against an alleged infringer is largely negated if the other party can merely cease the infringing activity upon becoming aware of the patent, closing the window completely to any compensation.  As I have written previously, I believe that the innovation patent system would also be improved by eliminating injunctions as a remedy, and limiting damages to an amount corresponding with a reasonable royalty.  With these further changes, the accused infringer could choose to continue its activities secure in the knowledge that it cannot be liable for payment of anything more than a fair licence fee for the use of the patented technology.

Australia could have a really good second-tier patent system that provides incentives for investing in innovation that might not meet the threshold required for a standard patent by securing a benefit to innovators, while opening their innovations up to be shared and built upon by others upon payment of reasonable compensation.  The Australian Government, and the authorities from which it takes its advice, merely require the imagination and will to give this serious consideration, instead of barrelling ahead with proposals to tear the whole system down and throw out the baby with the bathwater!


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