29 April 2021

In 2021 Annual Report, IP Australia Makes the Best of Declining Patent Filings

ReportingToday (29 April 2021) IP Australia released the Australian Intellectual Property Report 2021 (‘IP Report’), its annual round-up of filing statistics and other facts and figures from the previous year.  As always, my interest is primarily in the Patents chapter of the IP Report and, this year, much of the data presented in that chapter will not be news to readers of this blog.  Notwithstanding small variations – due to the volatile nature of ‘live’ patent records – the IP Report substantially confirms the figures that I published back in January.  The total number of standard patent applications filed in Australia fell by 2%, mostly due to an 8% decline in ‘direct’ filings, while the number of applications filed via the PCT (Patent Cooperation Treaty, a.k.a. international application) route rose by 1%.  Innovation patent applications increased massively – by a factor of around two and a half – driven largely by Chinese demand for granted patent certificates.  Unfortunately for the state of Australian innovation, provisional application numbers continued on a downward trend, with the IP Report noting that they have fallen by an average of 1% per annum over the last 10 years.

The leading Australian resident applicants for standard patents in 2020 were casino gaming machine developer Aristocrat Technologies, national research institute Commonwealth Scientific and Industrial Research Organisation (CSIRO), innovative electrical appliance maker Breville, the University of Sydney, and Monash University.  The top foreign applicant, for the second year running, was Chinese telecommunications device manufacturer OPPO, followed by LG Electronics, Huawei, Apple, and Qualcomm.  The IP Report also confirms that the top countries of origin for Australian standard patent applications were the US, Australia, China, Japan, Germany, and the UK, and that Chinese applicants came within a few dozen applications of knocking Australian residents off second position on the ladder.

As I have pointed out on numerous occasions, the trends in Australian patent filings have not been good for some time.  Not only are Australian residents making less use of the patent system – standard patent filings by domestic applicants in 2020 were down by 10% on 2019 numbers – but Australia is apparently becoming a less-favoured filing destination for many foreign applicants.  The IP Report tries valiantly to be upbeat, noting that standard patent applications have shown an overall upward trend over the past decade, with 2020 filings 15% higher than in 2011, and that despite the decline (for the second year running) in 2020, application numbers remained ‘higher than the 10-year annual average’.

It is important, however, to view that 15% growth figure in context.  Over the decade from 2010 to 2019 (the most recent year for which data is available from the WIPO Statistics Data Center) filings in the US grew by 27%, in South Korea by 29%, at the European Patent Office by 20%, and in China by an unprecedented 260%.  Of the major patent offices, only Japan experienced a decline in filings – and this is hardly a standard against which Australia should be measuring itself.  It is an easy observation that much of the recent growth in filings has been driven out of China, and that this may not be sustainable, however that is hardly positive news for Australia.  Without significant growth in filings from China, standard patent applications in Australia would have fallen by over 3% in 2020.

The next few years are unlikely to bring a turnaround.  As the IP Report points out, a relatively small decline in filings in 2020 ‘occurred despite the considerable economic impact of the COVID-19 pandemic’ but, because patent filings tend to be a lagging indicator, ‘the effects of the economic crisis in 2020 may not be fully observed until beyond 2021’.

Sole versus Joint Applicants

The IP Report includes an interesting breakdown of standard applications according to whether the applicant(s) is/are of Australian or foreign origin, whether there is a single applicant or multiple applicants, and whether multiple applicants are of the same origin (i.e. all Australian or all foreign) or mixed origin (i.e. some Australian, some foreign).

The vast majority of applications were filed by a single applicant (27,310 versus 1,983 with multiple applicants).  This is a good thing.  All sorts of legal complications can arise when a patent is jointly-owned, and even when multiple parties are involved in developing a new invention, it is best to sort out ownership issues and assign all rights to a single entity at an early stage.

Australian residents were involved in joint applications in just 182 cases, in 65 of which the multiple owners included one or more foreign residents.

Performance of Australian States and Territories

At the level of Australian states, there was little separating New South Wales (NSW), Victoria, Queensland and Western Australia, each with between 0.09 and 0.11 standard patent applications per thousand residents.  On a per capita basis, South Australia, Tasmania, and the Northern Territory performed less well.  The Australian Capital Territory (ACT) was a clear leader, with 0.15 applications per thousand residents.  However, this is not really a fair comparison, because the ACT has two clear advantages on this measure: (a) a small population; and (b) the fact that CSIRO attributes all of its patent filings to its ACT address, even though its research is actually conducted at facilities distributed throughout Australia.

Top Technologies

The IP Report identifies the top technology categories for which Australian standard patent applications were filed in 2020 as: medical technology; pharmaceuticals; biotechnology; organic fine chemistry; and civil engineering.  The report also includes a chart of filing trends in these technology areas over the past decade, showing significant recent growth in pharmaceuticals and biotechnology, with relative declines in organic fine chemistry and civil engineering.

The Boom in Innovation Patent Filings

As I observed on a number of occasions throughout 2020 (see, for example, this report from September last year), there was a surge in demand for innovation patents, particularly from China.  Since at least 2011, Chinese applicants have been taking advantage of the Australian innovation patent system, under which patents are granted and a registration certificate issued without substantive examination, to maximise the subsidies they are able to claim for foreign patent grants.  Innovation patent filings more than doubled in 2020, with applications from China exceeding five times their 2019 level.  Indian applicants also seemed to catch on, filing 527 innovation patent applications in 2020 according to the IP Report, compared with just 10 in 2019.

Little of this growth represents any genuine use of the innovation patent system to protect valuable innovation, and the IP Report rightly devotes just two paragraphs, and no charts, to innovation patent filings.  However, some of the innovation patent applications counted in the IP Report have a bearing on interpretation of the number of standard applications filed, as a result of the process of conversion of applications.  The IP Report does not delve into this issue, not least because it is too nuanced to address in this kind of annual summary.  But it is something I to which have been giving some thought recently because of a notable growth in the number of conversions taking place.

Innovation Patents and Conversion of Applications

If you attempt to reproduce the innovation patent filing numbers in the IP Report using IP Australia’s online AusPat search service, you will fail.  The IP Report asserts that 4586 innovation patent applications were filed in 2020, whereas an AusPat search for innovation patents filed between 1 January 2020 and 31 December 2020 (as of 28 April 2021) generates only 4421 results.  The reason for this discrepancy is that – as the IP Report notes – the total ‘includes standard patent applications converted to innovation patent applications’.  I understand this to mean that where a standard application filed prior to 2020 was converted to an innovation patent application during 2020, this application is included in the count of ‘new’ innovation patent filings.

There are two main reasons why applicants typically choose to convert a standard patent application to an innovation patent application:

  1. where it has become apparent that the invention claimed in the application does not meet the legal requirements to be granted as a standard patent; or
  2. where the applicant really wished to apply for an innovation patent in the first place, but by necessity (or, more rarely, error) initially filed a standard patent application.

Conversions of the first type usually occur significantly after filing, once the application has entered examination.  Conversions of the second type usually occur shortly after filing, and are most common in the case of applications based on international applications originally filed under the Patent Cooperation Treaty (PCT).  This is because Australian law only provides for PCT applications to enter the national phase as standard applications.  An international applicant wishing to obtain an innovation patent must therefore use some alternative mechanism to achieve this goal.  There are two available approaches: either to file an innovation patent application as a divisional of the PCT application; or to enter the national phase in the usual manner, and then convert the resulting standard application to an innovation patent.

When an application is converted, there is no new filing.  The total number of ‘active’ applications is unchanged by conversion.  The status of the original application record is changed to ‘converted’, and a new record is created that has a new application number, with other filing details being ‘cloned’ from the original record – just as if the application had been filed as the new type in the first place.  The creation of a new record is necessary because IP Australia’s numbering scheme is dependent upon the application type, so that an innovation patent application cannot retain the same number as a standard application (or provisional application).

Are Conversions Equivalent to ‘New’ Filings?

All of this raises the question of whether existing standard applications that are converted to innovation patent applications should be counted as ‘new’ filings, as has been done in the IP Report.  The answer is, I think, that ‘it depends’.  I do not consider that the approach taken in the IP Report is necessarily wrong, but nor do I think that it is necessarily always correct.

In the case of an earlier-filed application that has been through examination prior to the applicant’s decision to convert, there are arguments for and against counting the converted application among new filings.  Here, the applicant’s behaviour suggests a genuine intention to obtain standard patent rights, with conversion being used as a last resort to preserve some level of protection.  There is, however, only ever one application (which has been counted as a filing in an earlier year), and one patent granted, even though the type of patent is not what the applicant originally filed.  It is not obviously right to count that application for a second time, in a separate year.  On the other hand, the same outcome could have been achieved (albeit at greater expense) by filing a new divisional innovation patent application, and allowing the original application to lapse, in which case the normal approach would be to count the new application.

The additional converted innovation patent applications included in the IP Report’s numbers are almost all in this category, i.e. they have an effective filing date prior to 2020, which is why they would not otherwise be counted among last year’s filings.  This is fine, given that the approach used is declared in the report.  However, it is inconsistent with previous years’ reports, and with the way the other application types have been counted (i.e. numbers for standard and provisional applications do not include conversions, although the numbers in these cases are relatively small).

There is another side to this, however.  Hidden in the numbers of standard (and provisional) filings are cases that were filed during 2020, and then rapidly converted to innovation patent applications.  Clearly the applicants in these cases never intended to pursue standard patent rights.  Most, in fact, are Chinese applicants wanting to file innovation patent applications based on existing PCT applications.  I have identified at least 105 applications in this category.  All should be – and are – rightly counted as innovation patent filings.  Arguably, however, the initial standard applications should not be counted, because they were really filed only as a necessary means to the desired end of obtaining an innovation patent.  In effect, these applications are ‘double counted’ – once among the standard applications, and then again among the innovation patent applications.

If conversions to standard applications are added, and rapid conversions from standard applications to innovation patent applications deducted, then the total number of standard applications filed in 2020 is adjusted down by almost 100, to 29,196.  This suggests that the decline in standard applications in 2020 is larger than is indicated in the IP Report.  Of course, this is not the whole story, because no adjustments were made for conversions in previous years’ IP Reports, which also therefore overestimate the numbers of standard filings.  However, rapid conversions to innovation patent applications have become more common in the last couple of years, along with the massive rise in Chinese (ab)use of the innovation patent system.

Other Content in the 2021 IP Report

The IP Report also includes chapters on the other registered rights administered by IP Australia: trade marks; designs; and plant breeder’s rights.  For the first time, it also contains a chapter on copyright – which is not a registered right in Australia, and is administered by the Department of Infrastructure, Transport, Regional Development and Communications.

This year, the IP Report includes a chapter on research conducted by IP Australia on the role of trade marks in shaping the response of Australian exporters to economic shocks. The research finds that trade mark activity is an important predictor of export entry and performance, and that trade mark owning exporters do better than others when the Australian dollar rises in value, when tariffs drop, and/or when trade barriers are reduced.

As always, the IP Report is an interesting read for those interested in the Australian IP landscape.


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