Over 1,000 Australian innovation patent applications were filed in July – an all-time record, ahead of 768 applications in June and 692 in May. Between 2010 and early 2020, there were typically between 100 and 200 innovation patent applications filed each month. But with the system set to close to new applications from 26 August 2021, filings have surged over the past year, with over 600 applications every month since October 2020 (with the exception of February 2021, when ‘only’ 482 applications were filed). China remains the most prevalent country of origin for these applications, accounting for nearly 45% of new innovation patent filings in July. However applications received from India have grown significantly since June 2020, with Indian applicants filing a third of applications in July. Applications by Australian applicants have increased modestly over the past couple of months, rising to 175 in July. Applicants from other jurisdictions seem (so far) nonplussed by the imminent demise of the innovation patent system, with no apparent recent surge in filing numbers.
It is well-known that the motivation for Chinese applicants seeking Australian innovation patents – which are subject only to a formalities examination before being granted – is to obtain government incentive payments without the delay and expense associated with substantive examination. While these subsidy schemes are supposed to be coming to an end, clearly there are still sufficient incentives available for Chinese entities to keep filing for as long as it remains possible to do so. It is less clear why innovation patents have recently become so popular with Indian applicants, however I have noted that many of the applications appear to be filed in the names of academic or research institutes, and/or individuals or teams including people with academic titles. I therefore suspect that being an inventor or applicant on a granted patent may have benefits for people pursuing academic or research careers in India.
In any event, it is clear that the vast majority of innovation patent applications are currently being filed by non-resident applicants for reasons that have nothing to do with any genuine desire to obtain or commercialise intellectual property rights in Australia, and few are filed by the Australia small and medium enterprises (SMEs) that the system was intended to benefit. Surging demand for innovation patents in the lead-up to the system being closed to new applications is overwhelmingly being driven by Chinese and Indian applicants, with Australian residents showing relatively little interest in taking advantage of the final opportunity to file new innovation patent applications.
Of course, genuine users of the patent system – including Australian applicants – are continuing to file standard applications and international (PCT) applications, and these may be converted to innovation patents in the future, or form the basis for divisional innovation patent applications, where the filing date is earlier than 26 August 2021. While these types of applications have been a minority in the past, they will necessarily become the only sources of ‘new’ innovation patents as the system is phased out over the coming eight years.
China and India Now Dominate Innovation Patent Filings
The chart below shows the number of innovation patent applications filed each month over the two years between August 2019 and July 2021, broken down according to country of origin. Included in these numbers are innovation patents created via conversion of an existing application (standard or provisional), counted in the month in which the conversion was actioned.
In July, 1,006 new innovation patents were filed. Of these, 176 were by Australian applicants, 442 by Chinese applicants, 344 by Indian applicants, and 44 by applicants from other countries. (Where there are multiple applicants, an application is classed as ‘Australian’ if at least one applicant is Australian, as ‘Chinese’ if at least one applicant is Chinese but none is Australian, as ‘Indian’ if at least one applicant is Indian but none is Australian or Chinese, and as ‘other’ in all remaining cases. In practice, there are very few mixed-origin applications, so the particular classification rules used make little difference to the results.)
While filing rates were relatively stable up until April 2020, since then the number of innovation patent applications filed by Chinese applicants has increased significantly, while applications from India have grown from nothing to comprising over a third of all filings. Despite the imminent closure of the innovation patent system to new filings, applications by Australian applicants have only increased – if at all – in the last month or two. There has been no discernible change in the numbers of filings by applicants from other countries.
Most Innovation Patent Filings do not Claim Earlier Priority
The following chart shows the same monthly filing numbers, but now broken down by ‘type’ of application: new applications that claim priority from an earlier filing (Australian provisional application, or foreign priority application); new applications that claim no earlier priority date; divisional applications (mostly derived from pending standard patent applications); and applications created by conversion of an existing application (mostly standard applications, although it is also possible to convert a provisional application into an innovation patent).
While it is clear that a majority of new applications do not claim any earlier priority, the likelihood that an Australian innovation patent application is based upon an earlier filing varies with origin. In July 2021, for example, fewer than a fifth of all Chinese-originating applications, 8% of Indian-originating applications, and about a third of applications originating in other foreign jurisdictions, included a priority claim. Among Australian applicants, the picture is more nuanced. Nearly half of all Australian applicants who engaged a patent attorney to assist with preparation and filing of their innovation patent applications claimed priority from an earlier provisional application, while only 7.5% of applications made by self-represented applicants included a priority claim.
Broadly speaking, a priority claim is an indication that the applicant is more deeply engaged with the patent system, i.e. that they have filed applications elsewhere, or are following a filing strategy that takes advantage of the benefits of obtaining an early priority date while delaying full commitment and commencement of the patent term. While the converse is not necessarily true – there may be sound strategic reasons for filing an innovation patent application as the first, or only, application – the fact that applications without priority are so dominant is surely a consequence of the fact that a majority of innovation patent applicants are not genuinely engaged with the system.
The number of divisional innovation patent applications has remained fairly steady over time. This is not surprising – the reasons and incentives for filing divisional applications have not changed, and the phase-out of the innovation patent system will not affect applicants’ ability to continue filing new divisional applications, so long as they are based on existing applications filed prior to 26 August 2021.
The number of innovation patents created by conversion is, and always has been, small. Many of these are former standard applications for inventions that failed to satisfy the inventive step requirement, but which may meet the less stringent ‘innovative step’ threshold.
A Booming Backlog of Applications
A likely consequence of the high demand in the lead-up to the phase-out of the innovation patent system is that the number of pending applications, and therefore the period required to complete formalities examination of all these applications, will increase. The chart below shows the total numbers of innovation patents filed, granted, and pending each month since January 2019.
By the end of July, the number of pending innovation patent applications – i.e. those awaiting formalities examination – passed 1,600. The previous record was 1,283, set back in February 2021, before IP Australia started to rein in the backlog that had been building up since September 2020. Innovation patents granted in July waited an average of 43 days from filing. This was up on the average of 38 days in May and June, although still well below the 68 days that innovation patents granted in March 2021 were pending, on average. Even so, with the backlog now larger than ever, and with new innovation patent applications continuing to be filed in record numbers during August, delays between filing and grant seem certain to keep rising.
Conclusion – the End of the Innovation Patent Begins
Phasing out of the innovation patent system commences on 26 August 2021. At that time, ‘gaming’ of the system by Chinese and Indian applicants will end. The relatively small number of genuine users of the system will need to adopt alternative strategies to protect their innovations. For some, it may well be possible to obtain standard patents instead. Where rapid grant is required, an accessible and inexpensive mechanism for expediting examination is available in Australia, although the possibility of pre-grant opposition remains as a risk that is not present with an innovation patent. (It is worth noting, however, that only 357 out of 97,630 – or 0.4% – of applications accepted between 2016 and 2020 were opposed.)
However, Australia will no longer have a second tier system that enables protection to be obtained for incremental innovations that do not meet the more stringent inventive step requirement of the standard patent. While some continue to bemoan this loss, it is a deliberate policy decision on the part of the Australian government that a high-quality standard patent should be the principal vehicle for protection of IP rights in technology. In this, Australia will be no different from the majority of its major trading partners in the developed world.
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