28 October 2021

Innovation Patent System ‘Ends’ not with a Whimper, but a Bang!

BombThe innovation patent has been Australia’s second tier patent right since 2001, but it is now being phased out.  Just over two months have now passed since the final day on which new, original (i.e. not derived from an existing application) innovation patents could be filed.  As of 26 August 2021, the only way to obtain an innovation patent application is by division or conversion from an application that itself has a filing date on or before 25 August 2021.  Innovation patents have a maximum term of eight years from the initial filing date, and thus after 25 August 2029, at the latest, there will be no more innovation patents.  Predictably, the number of innovation patent applications being filed grew significantly during the weeks and months leading up to the final deadline, driven in large part by applications of dubious merit originating in China and India.

So how did filing numbers end up?  And why has it taken two months for me to get around to this analysis?  Well, to answer the second question first, the huge deluge of applications – nearly 2,800 over 25 days in August, over half of which were filed in the final six days – created a backlog that IP Australia is still clearing.  As at the time of writing, there remain around 300 innovation patent applications that are yet to be processed in any way, meaning that details of who filed them, and who the applicants are (and where they are from) remain unavailable.  At this point, however, a clear picture is emerging.  Furthermore, there is some evidence that IP Australia has been prioritising the order in which the remaining applications are being processed according to the workload involved, such that almost all unprocessed applications were filed by Indian applicants.

In the final days, Australian resident applicants filed innovation patent applications in unprecedented numbers, apparently driven primarily by those who had received advice from patent attorneys about the final deadline and the implications of the phase out of the innovation patent.  Indian and Chinese applicants continued to fleece the system for cheap patent certificates, accounting for over half of the applications filed in August.  Filings originating elsewhere in the world increased only modestly, suggesting that genuine demand for innovation patents by foreign applicants remained relatively low until the end.

The Rush to File in the Final Countdown

The chart below shows the total number of innovation patents filed each month during the final year of the system’s full operation, broken down by the applicants’ countries of origin.  While filings grew steadily throughout most of 2021, this growth was no predictor of the huge number of applications filed in August when, in just 25 days (18 of which were weekdays) 2,770 innovation patent applications were filed.

Monthly innovation patent applications by country of origin

It is notable that in the final weeks, there was significant and unprecedented growth in filings by Australian resident applicants.  Domestic fillings had been fairly steady for some time, hovering at around 100 or fewer applications each month.  These numbers grew a little in June and July 2021, before increasing more than four-fold in August.  Filings from China and India also surged in the final days, but to nowhere near the same degree.  (The applications of ‘unknown’ origin – being those yet to be processed by IP Australia – appear overwhelmingly to have been made by Indian applicants, as I shall explain later.)

Explaining the Filing Patterns of Australian Residents

Three further charts should help to explain the behaviour of Australian applicants.  The first shows the same monthly total filings as above, but now broken down by application ‘type’: original applications (i.e. brand new filings) that claim priority from an earlier application; original applications that do not claim priority, i.e. where there was no earlier application disclosing the invention; divisional applications (i.e. those derived from other, pre-existing, applications); and, finally, innovation patents created by the conversion of pre-existing applications of other types (typically standard applications that may, for example, have failed to satisfy the higher inventive step requirement).

Monthly innovation patent applications by type

While all categories of application hit new highs in August (including, surprisingly, divisional and converted applications, for which the 25 August deadline did not apply), the largest growth – a factor of three – was in applications claiming earlier priority.  These applications require that the earlier application – either a foreign filing, or an Australian provisional application – has been filed during the preceding 12 months, and thus tend to reflect a longer-term filing strategy.  Relying on an earlier priority date is also beneficial in that it delays the commencement of the eight-year patent term as compared with simply filing an innovation patent application in the first place.

The second chart, below, shows monthly innovation patent applications filed by Australian residents claiming earlier priority, broken down according to whether or not the applicant engaged the services of a patent attorney.  While, historically, Australian applicants with attorneys have been more likely to include a priority claim (most commonly to a prior provisional application), it is clear that the surge in this type of application in August was substantially driven by Australian residents advised by patent attorneys.

Monthly original applications by australian residents claiming priority

The third chart shows the same monthly breakdown, but for applications that did not claim an earlier priority date.  Historically, unrepresented applicants, rather than those receiving advice from attorneys, have tended to be the leading Australian filers of this type of application.  However, as the final deadline for filing of new innovation patent applications neared, this changed, and in August a clear majority of applications without priority were filed using the services of patent attorneys.

Monthly original applications by australian residents not claiming priority

The most likely explanation for the observed behaviour of Australian applicants is that patent attorneys have been proactive in advising clients about the implications of the phase-out of the innovation patent system.  While many self-represented applicants seem to have been aware that the system is being abolished, those with the benefit of professional advice have grabbed the final opportunity to file new innovation patent applications in significantly greater numbers.  It is reasonable to assume that many attorneys informed clients that had filed provisional applications within the preceding 12 months of the 25 August 2021 deadline, leading to the large jump in innovation patent applications claiming priority.  It is also likely that applicants preparing to file new applications during the period leading up to the deadline were advised by their attorneys of the potential benefits in filing innovation patent applications in addition to, or in place of, the provisional or standard applications that they might initially have been contemplating, resulting in a similar surge in applications without priority.

Overall, it appears that applicants with attorneys were less likely to miss out on the final opportunity to file new innovation patent applications than those without.  It should come as no surprise that there are benefits to engaging professional advisers in such a complex area of practice.

How the Final Days Played Out

The chart below shows how the 2,770 innovation patent filings were distributed on a daily basis in August.  Over half (1,477) of these application were filed during the final six days, and most of these were filed on just the final four weekdays.  Many applicants were clearly happy to leave their filings until almost the last possible moment!

August daily innovation patent applications by country of origin

The remaining unprocessed applications (i.e. those of ‘unknown’ origin) are now confined to the final four days of filings.  It is notable that this coincides with what appears to be a sudden drop in applications from India.  While applicant and agent information is not available for these applications at the time of writing, inventor details are.  I have scrolled through the names of inventors on the unprocessed applications, and they appear to be almost exclusively Indian.  My guess is that the apparent ‘prioritisation’ of applications from other countries has a very pragmatic origin.  Many of the innovation patent applications that have been filed from India name multiple individual applicants – the average number of applicants on an application of Indian origin in the final year of filings was 6.2, compared with between 1.2 and 1.3 for applications from all other countries.  Checking and processing these Indian applicants therefore involves about five times the typical workload.  IP Australia can hardly be blamed for leaving these applications until last!

How Long Have the Remaining Applications Been Pending?

Finally, the chart below shows the current distribution of pendency (in weeks) for all of the innovation patent applications that have yet to be granted.  Historically, innovation patents have typically been granted within four weeks of filing.  At present, there are 2,634 applications that have been pending for nine weeks or more, the majority (1,674) of which date from the final two weeks prior to the 25 August 2021 deadline.

Distribution of pendency of applications not granted as at 26 October 2021

Of those applications that have been pending for 11 weeks or more, the overwhelming majority are of Indian origin.  While this is partly explained by the fact that processing of these applications has been delayed by the higher workload involved, it also suggests that they may be more likely than other applications to encounter problems in the formalities examination that is conducted prior to grant.

Conclusion – Most Innovation Patents Will Expire Early

Innovation patents are dead!  Long live innovation patents!  If, that is, you regard eight years as ‘long’.  There have been 7,195 new original innovation patent applications filed in 2021, all of which are eligible for a potential term that will not end until 2029.

The reality, however, is that most will not make it that far.  If past performance is anything to go by, the vast majority of innovation patents owned by Chinese and Indian applicants, as well as most of those filed by Australian residents without the assistance of a patent attorney, will expire after non-payment of the first renewal fee that will fall due in 2023.  Of the remainder, my guess is that fewer than 300 – less than the historical rate, given that many of the ‘last minute’ applications are likely to have been filed somewhat speculatively – will be maintained until full term.  While these numbers will be boosted in the meantime by applications divided and converted from existing standard applications, I expect that by the beginning of 2029 fewer than 500 innovation patents will remain alive.  (By way of comparison, there are currently 13,543 live granted innovation patents, of which just 1,139 are certified and actually enforceable.)

Perhaps, if I am still maintaining this blog in another eight years, I will have the chance to check on this prediction.


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