26 May 2022

Division and Conversion – the Continuing Life of the Australian Innovation Patent

It's a convertible - geddit?!In the Patents chapter of its recently-published 2022 IP Report, IP Australia provides the usual annual filing statistics for 2021.  According to the report, there were 23,371 Australian standard patent applications filed as National Phase Entries (NPEs) from international applications under the Patent Cooperation Treaty (PCT), 9,026 standard applications filed directly in Australia, making up a record total of 32,397 new standard applications.  There were also 4,297 provisional applications filed, and 7,844 innovation patent applications ‘including … standard patents converted to innovation patents’.  On IP Australia’s figures, the top five applicants in 2021 were LG Electronics (259 applications), Huawei (255), OPPO (197), Nestle (157) and Apple (151).

All patent data is a moving target.  The patent office database is a living entity which is updated daily with new applications, and changes to existing applications, including status updates, completion of missing information, and even occasional backdating of records for reasons such as correcting errors or actioning successful applications for extensions of time to complete various actions.  It is not surprising, then, that there are some minor discrepancies between figures in the IP Report and numbers that I published back in January, when the dust was still settling on 2021.  The most notable difference is probably that I awarded the top filing spot to Huawei because, at that time, LG had only 251 filings officially recorded – an additional eight LG applications filed in December 2021 were yet to be fully processed.

A more substantial discrepancy is that I counted only 7,657 innovation patent filings in 2021.  A difference of 187 applications is hard to explain as a consequence ‘late year’ filings, given that most new innovation patent applications were filed prior to 26 August 2021, when the phase-out of the innovation patent system commenced.  The key to this difference is in the words I quoted from the Report above in italics – IP Australia’s numbers include applications that were converted from existing applications of other types, as well as newly-filed applications.

Whether conversions should be included with new filings or not really depends upon what you are trying to count.  On the one hand, converting an existing application to an innovation patent application does not add to the total number of applications in progress, because the original application is effectively replaced by the conversion.  On the other hand, the converted application is assigned a new number and a record of the original application remains in IP Australia’s database, and can be found via the AusPat online search system.  And, from IP Australia’s perspective, the ‘new’ innovation patent application has to be processed through the formalities examination, and granted as a patent, in exactly the same way as a ‘fresh’ filing.

A better approach may be to look more deeply at the circumstances in which conversions are occurring, and to try to account for the applicant behaviour in detail.  It is then possible to make an informed decision on how to account for all applications, depending upon your purposes.  Conversion of other application types to innovation patents remains relevant because, despite the phase-out of the system, it remains possible to convert any pending application filed prior to 26 August 2021.  It also continues to be possible to file new innovation patent applications as divisionals of any standard patent application with a filing date prior to 26 August 2021.

In this article I will therefore look at both division and conversion to innovation patents, and the circumstances in which these strategies have been used, as an insight into the continuing life of the Australian innovation patent during the phase-out period.  I will also endeavour to provide a ‘definitive’ count of new applications filed in 2021.

Innovation Patents and PCT National Phase Entry Strategy

It is not possible for an international PCT application to directly enter the national phase in Australia as an innovation patent application.  That said, any PCT application having an international filing date prior to 26 August 2021 satisfies the transitional provisions enabling it to be the basis for a valid innovation patent.  Such PCT applications may continue to exist up until 25 March 2024 (i.e. 31 months after 25 August 2021).  There are two main mechanisms by which an innovation patent application may be derived from a pending PCT application:

  1. division – it is permissible under the Australian law and regulations for a divisional patent application, including an innovation patent application, to be filed directly, identifying a PCT application as the parent, without first (or ever) entering the national phase; and
  2. conversion – a PCT application that enters the national phase in Australia in the usual manner, as a standard patent application, can be converted to an innovation patent application after national phase entry.

The following shows the number of innovation patent applications created annually via each of these mechanisms, grouped by date of filing for divisionals (‘PCT Div’), and date of conversion for conversions (‘NPE Conv’).  As the chart illustrates, both approaches have been employed by applicants over time. 

Innovation patents derived from international applications

The divisional filing mechanism has been more common overall, although conversions outnumbered divisionals in 2015 and 2020.  The overwhelming majority of these applications were filed with professional assistance, and thus the mechanism chosen in each case is largely determined by the preferred approach of the attorney/firm handling the application.

Counting NPE conversions in innovation patent filing statistics is logical in that the end result of this mechanism is the creation of a new innovation patent application which was (most commonly) the applicant’s intention from the outset.  However, if this method of counting is employed, it raises the question of whether the original NPE filings, that are subsequently converted to innovation patent applications, should also be counted.  I would argue that they should not, since this results in double-counting, with each converted application contributing to both the number of new standard applications filed as PCT NPEs and the number of new innovation patent applications filed, giving the impression of more filing activity than actually occurred.

Other Reasons for Conversion

Filing for an innovation patent from a PCT application is not the only – or even the most common – reason for conversion.  Any live standard patent application having a filing date prior to 26 August 2021 can be converted to an innovation patent application.  (Provisional applications can also be converted, although this is rarely done.)  The chart below shows the number of conversions from standard to innovation patent applications each year, broken down by the stage in the lifecycle of the standard application during which the conversion takes place:

  1. NPEs converted shortly (within four months) after filing, primarily for the reasons discussed above (‘NPE Conv’);
  2. applications converted more than four months after filing, but prior to a request for examination (‘Pre-Req’);
  3. applications converted after an examination request has been filed, but before any examination report has issued (‘Pre-Exam’); and
  4. applications converted after one or more examination reports have issued (‘Post-Exam’).
Innovation patents converted from standard applications

It is reasonable to suppose that post-examination conversions generally occur when an application has failed to overcome objections to acceptance of a standard patent application.  In particular, an obviousness (i.e. lack of inventive step) objection based on a combination of two or more prior art documents cannot be maintained against the claims of an innovation patent, because the innovative step test permits comparison with only a single item of prior art information.  Furthermore, examination of an innovation patent is voluntary (unless requested by a third party), and thus any standard application with outstanding examination objections can be ‘saved’ from lapsing by conversion to an innovation patent.

There appears to have been an increase in post-examination conversions since standard applications became subject to higher standards under the Raising the Bar law reforms.  However, the total number of conversions each year has been typically fewer than 100. This is a very small figure when compared with the total of over 20,000 standard applications that commence examination annually.  Thus any effect of the Raising the Bar reforms is negligible in absolute terms.

Other than the NPE conversions, the reasons why applicants convert standard patent applications to innovation patents prior to examination are unclear.  There is no requirement to provide any explanation when requesting conversion.  I suspect, however, that many of these conversions are a result of applicants becoming aware of prior art (for example, following examination of corresponding applications in other jurisdictions) that is likely to be a barrier to acceptance of a standard application.  A random sampling indicates that pre-request conversions are often prompted by a direction to request examination being issued by the Patent Office.  At this point, if the applicant does not believe that the application will pass examination, then conversion to an innovation patent may be a better option.

Division and Conversion Before and After Phase-Out

Although the innovation patent system is being phased out, and it is not possible to obtain ‘new’ innovation patents with a filing date after 25 August 2021, applicants are continuing to create innovation patents via division and conversion of standard and international applications with earlier filing dates.  The chart below shows the number of innovation patents created through these mechanisms each month over the past two years.

Monthly innovation patent divisionals and conversions

Prior to the phase out date there was reasonable consistency in the number of divisional and converted innovation patents created, monthly fluctuations notwithstanding.  Since the phase out date, there appears to have been a decline in both divisional and converted innovation patent applications.  Over time, the number of applications eligible for division or conversion (i.e. those having an effective filing date no later than 25 August 2021) will necessarily fall, although this does not explain the relatively rapid decline since September 2021.  It does seem, however, that many applicants took the opportunity to bring forward division or conversion of applications prior to commencement of the phase out, even though this would have been unnecessary for most applications already filed.  It is possible, therefore, that we are seeing some temporary consequences of this behaviour over the following months.  The total number of divisional and converted innovation patents created between August 2021 and April 2022 was only 10 per cent lower than during the corresponding period in 2020/21.

Conclusion – the Final Wash-Up

In 2021 there were 70 NPEs and 20 direct standard applications that were both filed and converted to innovation patent applications during the course of the year.  I would count all of these as new innovation patents, and exclude them from the count of new standard applications.  A further three innovation patent applications were created by conversion of NPEs filed late in 2020.  I would exclude these from the 2021 count altogether – they are effectively innovation patents that were filed in Australia in 2020, and counting them in two separate years as different types of application does not reflect this reality.  Additionally, 156 innovation patents were created by conversion of earlier-filed standard applications (including both NPEs and direct filings) at more advanced stages of prosecution.  I would also not count these as new applications. 

Two provisional applications were converted to innovation patents in 2021.  I would count both of these as new filings, given that it is unclear why the applicants chose conversion, rather than simply filing new innovation patent applications claiming priority from the provisional applications (both were converted prior to 26 August 2021).  I would, however, reduce the number of provisional filings to avoid double-counting.

Other conversions of applications filed during 2021 include: one innovation patent application and two standard applications that were converted to provisional applications; and 12 innovation patent applications and two provisional applications that were converted to standard applications.  These should all be counted as the application types to which they were converted, rather than the ones as which they were originally filed.

Finally, three innovation patent applications were filed after the phase-out deadline.  Two of these lapsed after failing to pass the formalities examination, presumably because of their late filing.  These should not be counted, since they were never validly-filed in the first place.  The third has since been granted an extension of time, and been converted to a standard application.  This should therefore be counted as a new standard direct filing rather than an innovation patent filing.

In the final wash-up (using the most recent available data, which is only very slightly different from the numbers in the IP Report), in 2021 there were:

  1. 23,302 new NPEs;
  2. 9,016 new direct standard applications;
  3. a total of 32,318 new standard applications (both NPE and direct);
  4. 7,733 new innovation patent applications; and
  5. 4,291 new provisional applications.

These figures properly account for the effect of conversions, and avoid any double-counting of converted applications.

We can expect to see new innovation patents created, by divisional and conversion, for a number of years yet, despite the phase-out of the system.  The numbers should, however, gradually decline as the number of pending standard patent applications having an effective filing date prior to 26 August 2021 reduces over time.  The innovation patent system is down but not (yet) quite out.


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