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.
Birth of the Innovation Patent
In February 1997 the Government issued its response to the Review of the Petty Patent System, in which it accepted almost all of ACIP’s recommendations. Notably, however, the Government went even further than ACIP had proposed in making innovation patents easier and cheaper to acquire than standard patents. Where ACIP recommended that innovation patents should undergo substantive examination only upon request (by the applicant or a third party), and that a request must be filed within three years, the Government decided that all innovation patents should be granted following only a formalities examination, but that they would only be enforceable following substantive examination, which could be requested at any time during the patent’s term of up to eight years. This decision has arguably resulted in one of the greatest flaws in the innovation patent system.On 29 June 2000 the Patents Amendment (Innovation Patents) Bill 2000 was intriduced to the Australia Parliament. The Bill was subsequently passed, and on 24 November 2000 the Patents Amendment (Innovation Patents) Act 2000 received Royal Assent.
The innovation patent system commenced operation six months later, on 24 May 2001.
Innovation Patent – Initial Scepticism
While many in the patent attorney profession have become staunch defenders of the innovation patent system in recent times, it was not always this way. In the lead-up to introduction of the innovation patent, many in the profession were critical of a system that would allow someone to obtain a ‘patent’ without any substantive examination to assess whether or not it was valid.So it was that on the very first day of operation of the innovation patent system, 24 May 2001, patent attorney John Michael Keogh filed innovation patent application no. 2001100012, entitled ‘Circular Transportation Facilitation Device’. Claim 1 of the resulting innovation patent was in the following terms:
A transportation facilitation device including:-
a circular rim;
a bearing in which a hollow cylindrical member is rotatable about a rod situated within the hollow cylindrical member; and
a series of connecting members connecting the circular rim with the hollow cylindrical member to maintain the circular rim and the hollow cylindrical member in substantially fixed relation; wherein
the rod is positioned on an axis perpendicular to the plane of the circular rim, and substantially central of the circular rim.
This is, of course, nothing more than a claim to a spoked wheel on an axle!
The objective, of course, was to generate a suitable level of outrage about this new system that would enable a person to obtain a patent on the wheel. And based on this article in New Scientist (one of many to publicise the event at the time), you would have to declare ‘mission accomplished’!
What was, however, far less widely-reported at the time was the fact that, on 30 August 2001, the Australian Patent Office revoked the patent. So perhaps the system was not so dysfunctional after all?
Innovation Patent – the Early Years
Compared to its predecessor, the innovation patent was an immediate hit. The ACIP review found that, on average, just 300 petty patent applications were filed each year, with only 50%-60% proceeding to grant. In 2001, with the new system in operation for seven months of the year, 667 innovation patent applications were filed. By 2008, that number had risen to 1312 over the full 12 months. Even so, this remained a relatively low number compared with the 26,597 standard patent applications filed in that year. (Source: IPGOD 2018.)However, in these first seven years of operation, one important question remained unresolved: what, exactly, was the level of advance needed in order to satisfy the innovation patent’s unique ‘innovative step’ requirement? The test had been envisaged as a ‘modified novelty’ standard, based on an old (pre-1952 Act) decision, Griffin v lsaacs (1938) 12 ALJ 169, according to which an innovative step would be present unless the the invention and any single item of prior art information differed only ‘in ways that make no substantial contribution to the working of the invention’. But it took some time for any dispute involving the interpretation of the innovative step standard to make its way into the Federal Court of Australia, so that we could finally obtain a judicial ruling on the precise operation of the law.
Innovation Patent Grows Up, and Goes to Court
On 13 August 2008, a single judge of the Federal Court handed down judgment in Delnorth Pty Ltd v Dura-Post (Aust) Pty Ltd [2008] FCA 1225. The decision confirmed that the innovative step standard did, indeed, set a fairly low bar:Obviousness does not come into the issue. The idea behind it seems to be that a claim which avoids a finding of no novelty because of an integer which makes no substantial contribution to the working of the claimed invention should not receive protection but that, where the point of differentiation does contribute to the working of the invention, then it is entitled to protection, whether or not (even if), it is obvious. (At [53].)
…
In my view the provenance of the phrase "make no substantial contribution to the working of the invention" indicates that "substantial" in this context means "real" or "of substance" as contrasted with distinctions without a real difference. (At [61].)
This approach was confirmed, on appeal, by a Full Bench of the Federal Court on 30 June 2009: Dura-Post (Aust) Pty Ltd v Delnorth Pty Ltd [2009] FCAFC 81.
Innovation Patent Falls on Tough Times
The final recommendation in the ACIP report had been that ‘an evaluation be undertaken of the new system within 5 years of the implementation of the relevant legislation to assess how well it has met its objectives.’ That would have been no later than 2006, at which time very limited information about the operation of the system was available. In February 2011, ACIP was finally asked by the Government to investigate the effectiveness of the innovation patent system in stimulating innovation by Australian small to medium business enterprises. This review was to end up being more protracted than originally envisaged, and in key respects overtaken by events originating elsewhere within the bureaucracy.Notwithstanding the ongoing ACIP review, and perhaps buoyed by its successes in developing the Raising the Bar reforms to Australia’s standard patent system, in September 2012 IP Australia published a consultation paper entitled Raising the Step, proposing that the lower threshold of ‘innovative step’ simply be abolished and replaced with the same ‘inventive step’ test applied to standard patents. By this time, whatever concerns the patent attorney profession may have initially harboured about the innovation patent system had substantially dissipated, as demonstrated by the strong opposition to IP Australia’s proposal by the Institute of Patent and Trade Marks Attorneys of Australia (IPTA).
Ultimately, submissions made in response to IP Australia’s consultation were passed on to ACIP for consideration as part of its ongoing review. ACIP published an ‘options paper’ in August 2013, seeking feedback on various alternative approaches to reform. By this stage, it was becoming apparent that there were elements within the Government agitating against the innovation patent system – although it was far from transparent exactly where these elements were located.
ACIP’s plodding review eventually wrapped-up with publication of its final report on 16 June 2014. While arriving at some recommendations (including raising the ‘innovative step’ standard to a level corresponding with the old ‘inventive step’ test under the Patents Act 1952), ACIP ‘concluded’ that it was unable to make a recommendation as to whether to retain or abolish the innovation patent system due to ‘a lack of adequate empirical evidence’.
Innovation Patent’s Value is Questioned
Meanwhile, behind the scenes, IP Australia’s Office of the Chief Economist was, unbeknownst to outsiders, undertaking its own research study on the ‘Economic Impact of Innovation Patents’. Using Australian patent data (IPGOD) in combination with Australian Bureau of Statistics (ABS) data, Department of Industry data on companies claiming the R&D tax credit, Australian Business Register (ABR) data on company registration/deregistration, OECD data on stock market performance, sales revenue data from IBISWorld, and the results of various patent valuation surveys, the study aimed to investigate the relationship between the innovation patent system and R&D expenditure, firm performance, market competition, regulatory cost, private value, company survival, and the usage by SMEs as well as individual inventors.Based upon a number of econometric models, the study’s findings included: that SMEs and individuals appeared to gain little benefit from the innovation patent system (a majority were one-time users, that never had their patents certified, and allowed them to expire early); that standard patents showed greater correlation with firm survival than innovation patents; that there was generally a stronger positive correlation with R&D expenditure with standard than innovation patents; and that while SMEs and individuals bore much of the cost of the system, most of the benefits accrued to large companies.
Et Tu, Brute?
On 3 March 2015 – without any prior public exposure or consultation on the report – the IP Australia authors presented their findings to ACIP. As a direct consequence of this presentation, on 30 March 2015 the Chair of ACIP wrote to the responsible Minister to revise its recommendation, on the basis that if ACIP had access to IP Australia’s Economic Impacts study during its review it would have recommended that the innovation patent system be abolished. At this time, however, there had been no public release of the Economic Impacts report, nor any public consultation. ACIP additionally recommended that the report be made publicly available.In April 2015 the Government abolished ACIP. There was a neat irony in this – ACIP’s first major review had resulted in the creation of the innovation patent system; its final act was to recommend that the system be abolished.
The Productivity Commission Weighs In
On 25 May 2015 the report Economic Impacts of Innovation Patents was published. On 28 May 2015 ACIP’s revised recommendation was published. And on 5 August 2015 IP Australia (finally) commenced public consultation on the Economic Impacts report, and the proposal to abolish the innovation patent system. This consultation closed on 28 September 2015, with submissions overwhelmingly being opposed to the abolition of the innovation patent.Meanwhile, on 18 August 2015, the Government established an inquiry into Australia’s IP Arrangements, to be conducted by the Productivity Commission (PC). The inquiry was to cover the entire IP system (i.e. not only patents), and the terms of reference required the PC to: examine the effect of the scope and duration of protection afforded by Australia's intellectual property system on research and innovation, including freedom to build on existing innovation, access to and cost of goods and services, and competition, trade and investment; and to recommend changes to the existing system that would improve the overall wellbeing of Australian society, while taking account of Australia's international trade obligations. The submissions that IP Australia had received in response to its consultation on the Economic Impacts report were passed on to the PC for consideration as part of its inquiry.
The PC released an ‘issues paper’ on 7 October 2015, published its draft report on 29 April 2016, conducted a series of public hearings, and eventually published its final report on 20 December 2016. Chapter 8 of the report was devoted entirely to the innovation patent system, concluding with a single recommendation: that the innovation patent be abolished.
Innovation Patent On the Ropes
On 25 August 2017 the Government released its response to the PC report, in which it accepted the recommendation to abolish the innovation patent system.On 23 October 2017, IP Australia released an expose draft of the Intellectual Property Laws Amendment (Productivity Commission Response Part 1 and Other Measures) Bill and Regulations 2017, which included provisions to phase out the innovation patent over a period of eight years (i.e. the maximum innovation patent term). Release of the draft legislation initiated a public consultation, resulting in a number of submissions expressing continuing opposition to abolition of the system.
In a surprise twist, on 28 March 2018 the Intellectual Property Laws Amendment (Productivity Commission Response Part 1 and Other Measures) Bill and Regulations 2018 was introduced into Parliament with the provision for phase-out of the innovation patent being conspicuously absent. The official reason for this omission was that the Government had ‘decided to undertake further industry consultation targeted at better understanding the needs of innovative SMEs before the phase out of the innovation patent occurs.’ That consultation process opened on 25 May 2018.
Conclusion – The Bleak Future of the Innovation Patent
The future of the innovation patent seems uncertain, but its prospects of survival remain bleak. The PC’s recommendation to abolish the system, which the Government has officially accepted, carries significant weight, although aggressive lobbying in the halls of parliament may yet turn the tide. However, the evidence amassing against the innovation patent system most likely makes retaining it in its current form unviable – and, indeed, the overwhelming majority of those advocating to retain the system support reforms to mitigate some of the problems that have become apparent, and improve its effectiveness as a second-tier right that can support the needs of SMEs.Meanwhile, in New Zealand, a private member’s bill titled the Patents (Advancement Patents) Amendment Bill is currently before parliament which, if passed, would introduce a second-tier system strongly resembling an ‘improved’ Australian innovation patent. A ‘first reading’ debate, ahead of a vote to decide whether or not the Bill should proceed to the next stage (consideration by a Select Committee), commenced late in the day on 16 May 2018, but was interrupted by adjournment of the House. That debate has yet to recommence, however it is clear already that the Bill lacks the support of the NZ Minister for Workplace Relations and Safety, Iain Lees-Galloway, who noted that ‘it is clear that this is not the direction that other nations that we compare ourselves with are going in. In fact, they're going in the opposite direction.’
Tags: Australia, History, Innovation patent
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