Reprieve for the Innovation Patent Short-Lived, as New IP Laws Amendment Bill Exposed for Comment

My speculation that the last-minute removal from the Intellectual Property Laws Amendment (Productivity Commission Response Part 1 and Other Measures) Bill 2018 of provisions to phase out the innovation patent system had more to do with political expediency than any change-of-heart over abolishing the system appears to have been well-founded.  Despite an announcement at the time that ‘the Government has decided to undertake further industry consultation targeted at better understanding the needs of innovative SMEs before the phase out of the innovation patent occurs’, and the fact that a consultation to learn more about the needs of innovative SMEs remains open until 3 August 2018, amendments to substantially prevent the grant of new innovation patents have re-emerged in an exposure draft of the Intellectual Property Laws Amendment Bill (Productivity Commission Response Part 2 and Other Measures) Bill 2018.  The provisions are unchanged from the earlier draft, and would simply ensure that no innovation patent application having an effective filing date on or after commencement could pass the formalities examination and be validly granted, and that no innovation patent claim having a priority date on or after the date of commencement could be validly certified.

The new draft legislation, published on IP Australia’s web site on 23 July 2018, also includes provisions intended to:

1. amend the inventive step requirements for Australian patents;
2. introduce an objects clause into the Patents Act 1990;
3. amend Crown use provisions of the patents and designs legislation;
4. amend compulsory licensing provisions in the Patents Act; and
5. implement measures to streamline processes within the Patents and Trade Marks Acts and make technical improvements to the legislation.

Further details of the main patent-related provisions are discussed below.

In addition to the earlier consultation on the provisions for phasing out the innovation patent, IP Australia has also previously consulted on options for implementation of the inventive step changes, objects clause, Crown use and compulsory licensing provisions. However, this draft legislation is the first time that specific legislative provisions have been published for comment.

The exposure draft is open for public comment until 31 August 2018.  Instructions for making submissions can be found on the consultation web page.

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Tags: Australia, Law reform, Patent law, Public consultation

Australia Again Fares Woefully in Capitalising on Innovation in WIPO’s Annual Index

Last week, the World Intellectual Property Organization (WIPO) published its Global Innovation Index 2018 (GII) report, as it has done every year since 2011.  Jointly authored with Cornell University and the INSEAD Business School in France, the GII is intended to provide ‘a detailed quantitative tool that helps global decision makers better understand how to stimulate the innovative activity that drives economic and human development.’  It ranks 126 economies based on 80 indicators, ranging from intellectual property filing rates to mobile-application creation, education spending, and scientific and technical publications.

In 2018, Australia ranks 20^th overall, which is a gain of three places since 2017.  The countries that were ahead of Australia and that have slipped behind in 2018 are New Zealand (now 22^nd, down from 21^st), Austria (down from 20^th to 21^st), and Iceland (crashing down from 13^th in 2017 to 23^rd in 2018).

Yet, while Australia has risen slightly in the overall rankings, it continues to languish in a pathetic 76^th place, i.e. in exactly the same position as last year, in a measure that I regard as particularly telling – the ‘innovation efficiency ratio’, which indicates how much innovation ‘output’ the country is getting in return for its innovation ‘inputs’.  Australia’s efficiency ratio is just 58%, which compares to the median of 61%, and is way below the values for those countries that are most effective at converting innovation inputs into outputs, such as Switzerland (96%), Luxembourg (94%), China (92%), the Netherlands (91%), and Ukraine (90%).  Yes, you read that correctly – Ukraine is the fifth highest performing economy on innovation efficiency because, while it ranks just 43^rd overall in the GII, and a rather poor 75^th on innovation inputs, its effectiveness in converting those inputs places it at number 35 in the output ranking.

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Tags: Innovation, Innovation policy, Politics

A Brief History of the Australian Innovation Patent

The innovation patent is Australia’s second-tier patent right, which has existed since 2001.  It differs from a standard patent in that it has a shorter term (eight years instead of 20), has a lower inventiveness standard (‘innovative step’ rather than ‘inventive step’), has a five-claim limit, can be granted rapidly following only a formalities review, is not subject to any form of pre-grant opposition, and need not be subject to substantive examination (although it must be examined and certified before it can be enforced against any accused infringer).

In recent years, the innovation patent system has been under a cloud, with a number of forces assembling arguments and evidence in support of its abolition.  Legislation was recently drafted and published for public consultation including provisions that would, if enacted, result in a phase-out of the innovation patent.  However, at the last minute these provisions were removed prior to introduction of the legislation to the Australian Parliament.

If, as still seems most likely, the innovation patent is to be abolished in the near future, this seems to be an opportune time to review its short, but eventful, life.

Prehistory – the Rise and Fall of the Petty Patent

Before the innovation patent, Australia had a secondary patent right called the ‘petty patent’.  Petty patents were originally introduced in 1979, and they differed from standard patents in that they had a shorter term (up to six years), could include only three claims, were faster to obtain, and were not subject to a pre-grant opposition process.  However, they required exactly the same level of inventiveness as a standard patent, and could not therefore be used to protect any invention that could not otherwise be protected by a standard patent.  Unsurprisingly, petty patents came to be used primarily as a tool for strategic patent enforcement.

In 1994, the Australian Government decided to review the petty patent system, in response to recommendations made in a report to the Prime Minister's Science and Engineering Council (PMSEC), The Role of Intellectual Property in Innovation.  In July 1994, the Government referred the petty patent system to a relatively new panel, the Advisory Council on Intellectual Property (ACIP).  The resulting review of the petty patent system was (somewhat ironically, as we shall see) ACIP’s first major inquiry.

In August 1995, ACIP published its report on the Review of the Petty Patent System, in which it recommended that the petty patent be abolished and replaced with a new system in order to fill a perceived gap between registered design rights and standard patent protection.  Among a number of other differences from the petty patent system, the ‘innovation patent’ proposed by ACIP would be a true ‘second tier’ right having a lower ‘inventiveness’ requirement, and which would therefore enable innovators to obtain protection for lower-level innovations that might not otherwise qualify for standard patent protection.

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Tags: Australia, History, Innovation patent

Australian Government Consultation on Changes to the R&D Tax Incentive Program

On 8 May 2018, the Australian Government announced its plans to reform the Research and Development Tax Incentive (R&DTI) program to better target the program and improve its integrity and fiscal affordability in response to the recommendations of the 2016 Review of the R&D Tax Incentive (‘the Review’).  Changes to the program will apply for income years starting on or after 1 July 2018, i.e. the current financial year just beginning.  On 29 June 2018, the government released exposure draft legislation and associated explanatory materials setting out its proposed implementation of the reforms.  It is currently seeking stakeholder feedback on these materials, and has published an accompanying consultation paper outlining areas in which specific feedback on the implementation of the reforms is being requested.

The R&DTI is the Australian Government’s largest, and most costly, innovation incentive program.  In its current form, it provides a tax offset (of 43.5% or 38.5%, depending on annual aggregated turnover) for some of a company's cost of eligible R&D activities.  To be eligible, an applicant must be an incorporated company, and be conducting eligible core R&D activities incurring an expenditure of at least A$20,000.  The legislation defines eligible activities as being experiments that are guided by hypotheses and conducted for the purpose of generating new knowledge.

The Review found that the R&DTI was failing to fully achieve its objectives of generating additional R&D activities and was not well targeted, in the sense that it provides benefits for R&D activities that would have been undertaken anyway.  It also found the cost of the Incentive had exceeded its initial estimates of A$1.8 billion per annum when it was introduced in 2011-12.  In 2016-17, it actually cost around A$3 billion.  The Review made a number of recommendations to improve the integrity and effectiveness of the program and to promote its objectives.  The proposed legislation would implement a number of these recommendations, adopted in the 2018-19 national budget.

If passed, the proposed changes to the R&DTI program will apply a A$4 million cap to the refund available to small companies (although, notably, clinical trials will be exempt from the cap).  They will also reduce the incentive available to large companies, and make the corresponding tax offset dependent upon R&D intensity (i.e. cost of R&D relative to total expenditure).  Additionally, they will close some ‘loopholes’ and make a number of adjustments to the administration of the program, including enhancing transparency by requiring information about companies’ R&D tax claims to be published.

A consultation process in currently underway, with submissions due by 26 July 2018.

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Tags: Legislation, Public consultation, Tax incentives