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!

Why Were the Applications Refused?

Of the 101 innovation patent applications refused by IP Australia, 53 were filed in the name of (Mrs) Meiying Zhang.  Mrs Zhang (the applicant) has an address in Fujian Province, China, however she also acted as her own agent by providing a correspondence address in Australia.  The applications were filed between April 2015 and June 2016, and were registered as innovation patents between May 2015 and July 2016.  They cover a wide range of inventions, including a ‘beverage treatment device’, a ‘radiation protective apron’, and a ‘fly trap’.  The specifications filed with each application appear to be professionally drafted, describe credible inventions, and conclude with sensible-looking claims.

So Mrs Zhang must be China’s own Thomas Edison, right?  Well, not exactly.  Upon further investigation, it turns out that she is not, in fact, responsible for any of the inventions, or for the preparation of the corresponding patent specifications.  For example, Mrs Zhang’s ‘beverage treatment device’ bears a remarkable resemblance to a ‘treatment device for cooling and magnetically treating liquid within a container’ invented by Kenneth E Flick prior to March 2008, and exemplified by US patent no. 8,092,673.  Another Zhang ‘invention’, an ‘illuminating device worn on a finger’, was in fact devised by Petrus Gerhardus Cilliers prior to February 1995, and was the subject of UK application number GB9601633.2.  I have little doubt that all of Mrs Zhang’s patent specifications are copied from foreign application publications.  No doubt someone at IP Australia found her prolific filing unusual, and made the same discovery for themselves.

The remaining 48 refused innovation patent applications were filed in the name of a number of different Chinese companies: Innuovo International Trade Co., Ltd. Hengdian Group; Zhejiang Jinguang Solar Technology Co., Ltd.; and Zhejiang Innuovo Rehabilitation Devices Co., Ltd.  All were filed over four working days between 29 July 2016 and 3 August 2016 by the same Australian attorney firm, Admiral Trademarks & Patents Services.  I have previously noted the very large number of innovation patent applications filed by this particular firm on behalf of Chinese applicants.

Can an Innovation Patent Application Really be Refused?

It is not clear that the Patents Act 1990 provides any basis for an innovation patent application to be refused.  Section 52 of the Act provides that:

(1)  If a complete application for an innovation patent is made, the Commissioner must undertake a formalities check in respect of the application.
(2)  If satisfied, on the balance of probabilities, that the application passes the formalities check, the Commissioner must accept the patent request and complete specification.
This suggests that an innovation patent application might be refused if it does not pass the formalities check, the requirements for which are set out in reg 3.2B of the Patents Regulations 1991.  However, there is nothing in this regulation that would authorise refusal of an innovation patent application on the basis that the invention is not new, that the applicant is not entitled to the invention, that the complete specification comprises an infringement of copyright, or that the Commissioner suspects that the application is tainted by fraud.
Furthermore, the regulation expressly provides that, if any of the specified formalities are not satisfied, the applicant be given an opportunity to correct the deficiencies, and that if this is not done within time then the application lapses.
There are a number of provisions of the Act that permit refusal of a standard patent.  These include section 50 (special cases), section 100A (following re-examination), section 60 (following opposition), and section 49 (following substantive examination).  Additionally, section 210A paragraph (2)(a) authorises the Commissioner to refuse an application if the applicant fails to comply with a summons or requirements under section 210 paragraph (1)(a) or (1)(c).  However, this power appears to be dependent upon a proviso in subsection 61(1), which relates to the grant of standard patents only.  This is in contrast to subsection 52(2), which provides that if an application for an innovation patent passes the formalities check then the Commissioner must accept the patent request, without any proviso referring to the powers under paragraph 210A(2)(a).
It is also worth noting that while the Act provides for an applicant to appeal the refusal of a standard patent application on any of the above grounds, there is no specific provision for an appeal of a refusal to accept an innovation patent.  This is unsurprising, since the Act does not provide for innovation patent applications to be refused!

Not the First Time...

As discussed above, the Act does not appear to confer upon the Commission of Patents a power to refuse an application for an innovation patent.  However, this would not be the first time that the Commissioner has exercised a power that does not have any clear source within the Patents Act 1990.  In March 2009, the Commissioner purported to nullify acceptance of Australian standard patent application no. 2004309300, which related to a method of preparing human stem cells from cloned embryos.  The Korean research that supposedly supported the claimed invention had been found in 2005 to have been falsified – a scandal that ultimately led to the key researcher being convicted of fraud and embezzlement of research funds.
The Commissioner justified the nullification of acceptance on the basis that ‘the decision to accept the patent application on 28 May 2008 “was infected by fraud, with the result that it is a nullity”’: H Bion Inc v Commissioner of Patents [2010] FCA 539, at [5].  This was despite the fact that ‘fraud’ was not, and is not, a ground on which the Commissioner may refuse to accept an application under section 49 (although it is a ground of revocation by a court under section 138 paragraph (3)(d)).  Indeed, in order to prevent the applicant from obtaining an extension of time to appeal the decision not to accept the application, the Commissioner argued in open court ‘that her action “in recognising that the acceptance decision was invalid and a nullity did not constitute a decision, let alone a decision under the Act”’: H Bion at [13].  The net effect of all this was not that the application had been refused, but rather that it had not been accepted within the relevant time limit, and had therefore lapsed.

Conclusion – Well-Intentioned But Still Ultra Vires?

The circumstances of the 101 innovation patent applications are different from H Bion.  These applications did not lapse for failure to satisfy the requirements for acceptance within time, but were all refused, notwithstanding that the Act does not provide any clear basis for refusal of an innovation patent application.  There is a parallel with H Bion, however, in that in each instance the basis for the Commissioner’s actions appears to be that the applications were tainted by fraudulent intent.
Personally, I believe that this is a power that the Commissioner should have, so long as the applicant has a right of appeal.  In making the assessment as to whether or not a patent was obtained by ‘fraud, false suggestion or misrepresentation’ the exclusive preserve of the courts under section 138, the Patents Act fails to recognise that there may be cases of fraud that are so obvious and egregious that it is certainly within the capabilities of the Commissioner to investigate and arrive at a conclusion.  One example would be where an application is accompanied by a complete specification that has clearly been copied from an earlier publication, as seems to have been the case with Mrs Zhang’s applications.  It is not apparent what caused the Commissioner to act against the further 48 applications filed via Admiral, since these were never granted and published, however I have little doubt that there was some equally obvious infraction.
I am also in favour of the Commissioner taking action to curb abuse of the Australian patent system – innovation or otherwise.
However, I am not so sure that the Commissioner should be achieving this through potentially ultra vires exercise of powers that are not clearly conferred by the Patents Act.  This is not a case in which the ends justify the means.  It is one of the tenets of our democratic system of government that administrative authorities exercise only those powers granted to them by legislators within the elected parliament.  To exceed those powers, even (as here) with good intentions and the interests of the public at heart, undermines our democracy.  The proper course, if additional powers are necessary in order to do the job properly, is to go back to parliament and make the case for legislative change.


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