19 December 2018

Will Patent Office Practice on Computer-Implemented Inventions Be ‘Rokt’ By Federal Court Ruling?

RockingA judge of the Federal Court of Australia has reversed a Patent Office rejection of a computer-implemented invention – more precisely, a computer-implemented business process relating to the presentation of online advertising.  In Rokt Pte Ltd v Commissioner of Patents [2018] FCA 1988, Justice Alan Robertson found that a claimed method and system for providing ‘a dynamic, context-based advertising system, introducing a distinction between an engagement offer, without a direct advertising benefit, and an advertisement designed to lead directly to the sale of the product’ is patent-eligible subject matter under the Australian ‘manner of manufacture’ test.

The basic idea of the invention, although the details are not important, is to provide a mechanism whereby a user has an opportunity to engage with an offer while accessing a web site before being presented with targeted advertising.  In this way, advertisements are presented only to those users that are most likely to interact with them, and make a purchase.  Since advertisers must often pay for placement of their advertisements within web pages, the invention provides an improvement in that the costs associated with placing advertisements in front of consumers who do not interact with them may be reduced.

A Patent Office Hearing Officer had found that ‘the substance of the invention in this case amounts to business innovation’, which was not patentable, and therefore refused Rokt’s patent application: Rokt Pte Ltd [2017] APO 34.  Rokt appealed to the Federal Court.

In upholding the appeal, the court rejected an approach to identifying ‘the substance of the invention’ based upon comparing discrete claimed elements with the contents of the prior art, and considering only the contribution made by new or unconventional elements, which has increasingly become standard practice at IP Australia in recent times.  On the face of it, then, the Rokt decision should encourage some change in this practice, although the existence of a number of relevant higher court decisions, a pending judgment from an expanded Full Bench of the Federal Court, and a high likelihood that the Commissioner of Patents will appeal the Rokt decision means that any immediate practice change is unlikely.

Perhaps the most interesting – and, in my view, somewhat alarming – aspect of the Rokt case, however, is the extent to which the parties relied upon expert evidence.  Whether or not a claimed invention comprises patentable subject matter, i.e. is the kind of ‘thing’ for which a patent may be granted, is supposed to be a question of law.  Traditionally, therefore, it has not relied upon an extensive factual background, and particularly not upon evidence as to the state of the prior art, which is more properly the province of enquiries into whether an invention is novel and/or involves an inventive step.  However, largely due to the recent evolution of Patent Office practice, and in anticipation of the arguments the Commissioner was likely to run in the appeal, Rokt clearly felt obliged to back up its case with evidence from an expert witness, causing the Commissioner to follow suit.  Rokt’s expert was even cross-examined in court.

This does not seem right.  I therefore think it important to understand how we got here (spoiler alert – in my view it is IP Australia’s fault) and where we might be headed (hopefully back to more sensible ground, but that is in the hands of the Full Court).

04 December 2018

Proposed Merger of QANTM IP and Xenith IP – Another Symptom of a Great Malaise in the Australian IP Services Market?

MalaiseOn 27 November 2018 QANTM IP Limited (ASX:QIP) and Xenith IP Group Limited (ASX:XIP) announced that they have entered into an agreement to merge through an all-scrip scheme of arrangement.  The merger is subject to approval by a court, and by Xenith shareholders.  If it goes ahead (as seems likely), each Xenith share will be exchanged for 1.22 QANTM shares.  Existing QANTM and Xenith shareholders will end up owning 55% and 45%, respectively, of the merged group, which will comprise five Australian specialist IP firms (Davies Collison Cave, FPA Patent Attorneys, Griffith Hack, Shelston IP and Watermark), along with IP valuation, innovation and advisory service provider Glasshouse Advisory (currently owned by Xenith IP) and Malaysian IP firm Advanz Fidelis (which was acquired by QANTM IP in June 2018). 

Based on the closing share price of QANTM and Xenith on 26 November 2018, the merged group would have a market capitalisation of A$285.2 million, which still places it well behind the original listed Australian IP group, IPH Limited (ASX:IPH), which had a market cap of A$1.11 billion as at close of trading on 30 November 2018.

An additional interesting piece of information to fall out of the QANTM/Xenith announcement is the fact that IPH had itself been courting QANTM with a view to a possible merger or acquisition.  In an ASX announcement on 27 November 2018, in response to ‘media speculation’, IPH confirmed making a number of approaches to QANTM on the basis of non-binding, conditional proposals, culminating on 20 November 2018 with a proposal with an equivalent value of A$1.80 per QANTM share (a notional premium of 37.4% over the A$1.31 at which QANTM shares were trading on that day).  QANTM countered by announcing that its Board did not consider this proposal to be in best interests of its shareholders, due to its ‘highly conditional’ nature and ‘significant execution risk’.

All this would appear to confirm something that I have long suspected – that the Australian market is not big enough to sustain three publicly-listed groups of IP service providers.  IPH obviously saw QANTM as a potential acquisition target, while QANTM clearly did not wish to be acquired on IPH’s terms!  Instead, QANTM and Xenith have decided that they will be stronger together than they are separately.

But why is it such a struggle for these groups to flourish in the Australian market?  One advantage of the public listing of these companies is that, through their annual reports, there is now far greater transparency than ever before in respect of the financial performance of IP services businesses.  In combination with publicly-available data on Australian filings for IP rights, this provides useful insights into where the revenues – and profits – are coming from.  I have looked at these numbers, and I am afraid that my conclusions are not rosy.  The Australian market appears to be stagnant, with firms struggling to enhance profitability.  Growth in the listed groups has come through acquisitions rather than genuine new business, with revenues per professional staff member being pretty consistent across the industry.  Low-value, transactional work, which ought to have the greatest exposure to competition and downward price pressure, continues to be significantly more profitable than high-value, bespoke services.  Yet, despite the obvious challenges and risks that these circumstances present, as far as I can tell firms are continuing to do the same old things that they have done for years, in terms of professional staff management and marketing, with the predictable result that nothing much is changing.

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