28 August 2017

Vale Innovation Patent – Australian Government Responds to Productivity Commission IP Report

Sad sackThe Australian Government has issued its response to the Productivity Commission’s final report on its Inquiry into Australia’s Intellectual Property Arrangements, indicating its support for a number of the Commission’s recommendations.  In the area of patents in particular, the Government intends to implement recommendations to further amend the law in relation to inventive step, introduce an ‘objects clause’ into the Patents Act 1990 and ‘phase out’ (i.e. abolish) Australia’s contentious second-tier right, the innovation patent.  It has also indicated its support for a proposal that ‘IP Australia should reform its patent filing processes to require applicants to identify the technical features of the invention in the set of claims’, although it is unclear at this stage exactly what form the implementation of the recommendation will take.

The Government has largely rejected recommendations of the Productivity Commission to set patent fees to promote broader intellectual property policy objectives (as opposed to the current objective of recovering the costs of running the Patent Office), and to restrict the availability of extensions of term for patents relating to pharmaceutical products.  It has, however, indicated support ‘in principle’ for the introduction of a system for transparent reporting and monitoring of settlements between originator and generic pharmaceutical companies to detect potential ‘pay for delay’ agreements, modelled on the US system.

As I will discuss further in this article, the demise of the innovation patent has been on the cards for some time, and is now all but inevitable.  Adding an objects clause to the Patents Act may be little more than window-dressing.  Much will depend on how it is worded (and the Productivity Commission’s proposal will not be popular), and then how much weight it is given by the courts (which might, I would suggest, be very little).  Further enhancing the inventive step standard, which the Productivity Commission has suggested should be based upon the European model, is not hugely controversial, in my opinion. 

As I shall endeavour to explain, however, if there is to be a fight over any of the proposed reforms it is most likely to be over the requirement to identify ‘technical features’ in patent claims.  In combination with raising the inventive step standard to the highest possible level, I believe that this recommendation reflects the Productivity Commission’s general antipathy to the idea that the patent system provides any net economic benefit to Australia, and its belief that patents should therefore be as difficult to obtain as is practicable.  But the potential consequences of a new, and unique, requirement for Australian patent claims could be far-reaching, and detrimental to Australian innovators.

The Inevitable Demise of the Innovation Patent

The demise of the innovation patent – which now seems certain – should come as no great surprise to anybody.  The writing has been on the wall ever since the Office of the Chief Economist at IP Australia presented the results of its study on The Economic Impact of Innovation Patents to the Government’s now-defunct Advisory Committee on Intellectual Property (ACIP).  That study described econometric modelling based on patent information held by IP Australia along with other company data from the Australian Bureau of Statistics, the Department of Industry and Science, the Australian Securities and Investment Commission and the Australian Business Register, and concluded that the innovation patent system was not effectively achieving its stated objective of stimulating innovation in Australian small to medium enterprises (SMEs). 

Ever since then, anybody with an alternative view backed by anything other than an equally bedazzling trove of data and statistical analysis has been unable to compete with the econocrats that currently hold sway with our elected representatives in the national capital.  (That essentially means everybody who has sought to defend the system – as any economist will tell you, the plural of ‘anecdote’ is not ‘data’!)

Time to Let it Go

I have to confess that I have abandoned the fight for the innovation patent.  Its passing will be briefly mourned by some, and then everybody will just carry on primarily using the standard patent system, as they always have.  While I do not believe that the innovation patent is causing any real harm, and that it has significantly benefited a small number of Australian SMEs, It is difficult to defend a system that has been flagrantly abused by Chinese applicants rorting subsidy programs, that has (due to judicial error) enabled patent-owners to collect substantial damages to which they were not entitled, and that has been extensively used by poorly-informed applicants who believed – wrongly – that an innovation patent was a quick, cheap, and easy path to do-it-yourself protection (notwithstanding that IP Australia has itself been instrumental in promoting this misconception).

In short, the IP Australia economists might have reached different conclusions if they had included only genuine, well-advised, applicants in their analysis.  But if they had done that, they would have been working with so little data that they might have been unable to arrive at any statistically-significant results at all.  The bottom line is that once you discount the cheats, the opportunists, and the unfortunately-ignorant, you are left with so few worthy users of the innovation patent system that there really does appear to be little point in keeping it. 

There is some irony in this situation.  When ACIP reviewed the former Australian ‘petty patent’ system in 1995 – and made the recommendations that led to the introduction of the innovation patent – one of the issues it identified was that petty patents were not widely used.  Only around 300 applications were filed each year (over 80% of which were by Australian applicants) and, of these, only 50%-60% were actually granted.  Furthermore, ACIP recognised the importance of applicants being properly advised, particularly with regard to the drafting of legally defensible (and enforceable) specifications and claims.  Its report noted that there was no easy or obvious way to overcome the ‘problem’ of applicants generally requiring professional assistance in this task, and that there would be little difference in the cost of this service when compared with a standard patent.

The innovation patent’s ‘post-grant’ examination system means that anybody who meets some basic formality requirements gets an innovation patent, even if it does not meet any of the substantive requirements in relation to quality and content of the description and claims, novelty and innovative step.  While this system has increased usage as intended (and also as not intended, such as by Chinese collectors of granted patent certificates), it does not appear to have increased ‘worthwhile’ or desirable use of the second-tier patent right.

On this view, then, ACIP’s recommendations to replace a petty patent system that was not working effectively resulted in a system that works about equally as well (or poorly, depending on your perspective), but which largely obscured this truth through having a superficially higher participation rate.  The system succeeded in increasing participation by Australian individuals and SMEs, but failed to produce substantial additional value over that previously provided by the petty patent.

This is not to say that the innovation patent has not delivered any value.  I dare say that most Australian patent attorneys have clients that would say they had benefited significantly from the availability innovation patents.  But the same could no doubt have been said of the petty patent in its day, and that was not enough to save it.

The Productivity Commission’s Problem with Patents

It is a hard truth that the Australian patent system does not deliver a direct economic benefit to Australia.  We are a net importer of technology and intellectual property.  Over 90% of standard patent applications filed here now originate overseas.  As a nation, the US is by far the largest user of the Australian patent system (Australia is a very distant second).  Everything from pet toys to smartphones to blockbuster cholesterol-reducing drugs is potentially more expensive to Australian consumers and taxpayers on account of patent rights granted to companies that take their profits back to their overseas homes without, in many cases, delivering any commensurate benefit to the Australian economy.  Australian companies are (or would be) restricted in their ability to compete in their own home market by the existence of foreign-owned patent rights.

So why do we even have a patent system, if it is so ineffective for us?  The answer to this is that there is more to our participation in the global IP system than any direct benefit we might obtain from our national patent system.  Minimum standards of IP protection are a prerequisite for our membership of the World Trade Organization (WTO).  Providing recognition of foreign nationals’ rights in Australia guarantees that Australians will receive the same treatment under the patent laws in other countries as the citizens and residents of those countries.  Furthermore, having our own domestic system reduces the costs and increases the opportunities for Australian innovators to enter and take advantage of the global system via the mechanisms provided in international agreements such as the Paris Convention and the Patent Cooperation Treaty.  And even if there were insufficient value in our participation in these systems, withdrawal would doubtless result in Australia becoming an international pariah.

Any economic analysis that does not ascribe a realistic value to these, and other, indirect and intangible benefits, will inevitably conclude that the cost of the patent system to Australia exceeds its benefits.  Unfortunately, in the time it was given, the Productivity Commission was barely able to get its collective head around Australia’s domestic IP arrangements, let alone the combinatorially-expanding complexity of the international systems.  It is no surprise, therefore, that its final report reflects a scepticism as to the value of Australia’s IP arrangements to the national economy.

Making Patents Harder to Obtain and Defend

If you cannot pull out of the patent system, the next best thing is to make sure that patents are not too easily granted and enforced, since with Australians being minority users of the system, the primary beneficiaries are necessarily non-residents.  If the Productivity Commission could have its way, Australia would have the highest standards of patentability in the world.  Its recommendation that the inventive step threshold be further raised, along with related disclosure requirements to identify the technical features of the invention, is therefore not at all surprising.

It is certainly not entirely wrong in this.  I also believe that Australia’s standard of inventiveness should be right up there with the world’s toughest.  There is no benefit to Australia in granting patents to non-residents that are broader in scope than they would be entitled to elsewhere.  Nor is there any benefit to Australian applicants in being able to obtain a patent in Australia that they could not equally obtain in any of the countries comprising our most important trading partners.  Australia’s courts and legislators have for too long been far too lenient on patentees with patents covering marginal inventions, perhaps suffering from the misconception that the Australian patent system somehow exists primarily for the benefit of Australian innovators.

I will, however, reserve judgment on the proposed obligation to ‘identify the technical features of the invention in the set of claims’ until some concrete proposal is released for consultation.  If this involves some requirement to provide a more-detailed statement of the intended nature and scope of the invention up-front than exists in other jurisdictions, then it is likely to be harmful to Australian applicants.  I am not aware of any other national or regional system that has a corresponding requirement.  The European preference for claims in ‘two-part’ form, separating prior art elements from those contributing the inventive step, might be regarded as similar.  However, this is not a hard-and-fast rule, nor is it ever necessary to present claims in two-part form until search and examination has commenced, and the content of the relevant prior art, against which inventiveness is assessed, is known.  Furthermore, the European ‘two parts’ are ‘old’ and ‘new’, not ‘technical’ and ‘non-technical’, so it is not apparent that writing claims in the European style would necessarily meet the proposed Australian requirement in all cases.

Explicitly identifying ‘the’ technical features of the invention at filing could be prejudicial in many jurisdictions, especially if previously unknown prior art emerges that requires reconsideration of the exact combination of features that distinguish the invention.  If Australia departs notably from the requirements in other jurisdictions, the best advice to applicants may be not to file in Australia at all, or to file a different specification in Australia to that filed elsewhere, thus increasing costs and complexity.  Foreign residents may simply decide not to bother filing at all, except for very high-value inventions (which the Productivity Commission might regard as a win).  The real losers in this situation, however, are likely to be Australian applicants who may regard obtaining patent rights in their home country as non-negotiable, and thus feel compelled to incur the additional costs involved.

Conclusion – Next Steps for Reform

As in other recent IP law reform efforts, IP Australia will be instrumental in progressing the Government’s implementation of the accepted recommendations of the Productivity Commission in relation to those rights that it is responsible for administering.  With regard to patent law reforms, It intends to:
  1. release public consultation papers shortly where further consultation on the implementation approach is needed, including in relation to the inventive step reforms, and introducing an objects clause for the Patents Act 1990; and
  2. release exposure draft legislation for public comment on the phasing out of the innovation patent system.
I have not seen any announcement that indicates how IP Australia proposes to implement the proposed requirement for applicants to identify technical features in their claims.  The Government response states that this is aligned with the recommendation to raise the standard for inventive step, and that these two recommendations will therefore be implemented at the same time.  This raises the possibility of legislative and/or regulatory changes to implement the proposal, which might be necessary since there is nothing in the present Act or Regulations that could compel an applicant to present claims in any particular format, so long as they meet the section 40 requirement to be ‘clear and succinct and supported by matter disclosed in the specification’.  I infer from this that the implementation may be covered by the upcoming public consultation papers, hopefully providing stakeholders with an opportunity to provide comment and feedback.  I can confidently predict that this proposal will prove to be extremely controversial, and will not be surprised if it is ultimately abandoned, or at least significantly watered-down.

I dare say that many will accept that the abolition of the innovation patent is by now a done deal, and the fight is effectively over.  And while there may be some debate over the precise form of the proposed further amendments to the legislation in relation to inventive step, I do not see this as being hugely controversial in principle. 

I expect greater debate over the wording of any objects clause in the Patents Act.  The specific proposal of the Productivity Commission – that the purpose of the legislation is to enhance ‘the wellbeing of Australians by promoting technological innovation and the transfer and dissemination of technology’ while balancing ‘over time the interests of producers, owners and users of technology’ – will be unacceptable to many stakeholders.  The Government appears to have acknowledged that there is an issue here, stating that it ‘will give further consideration to the exact wording of the objects clause’, so we will just have to wait and see what the consultation paper reveals.

Prepare to be consulted!


Post a Comment

Copyright © 2014
Creative Commons License
The Patentology Blog by Dr Mark A Summerfield is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 3.0 Australia License.