Australia: Does the Australian innovation patent really have to die?

Last Updated: 28 September 2017
Article by Gareth Dixon

Australia's second-tier innovation patent system is presently on death row. With all appeal avenues seemingly now exhausted, we ask the question – albeit somewhat academically, as to whether it indeed has to die – or whether it could be rehabilitated.

Introduction

Last month, the Government released its response to the Productivity Commission's inquiry into intellectual property arrangements in Australia. One of the headline features of the response was that the Government has agreed to phase out the innovation patent system. Whereas there appears to be a general acceptance throughout Australia's IP community that the innovation patent system may be somewhat imperfect, it does not necessarily follow that it was failing to meet its stated objectives – namely, to foster innovation amongst locals SMEs. This article considers whether the Government may have over-reached in recommending a complete culling – could it be medicated and nursed back to health, or is euthanasia the only real option? If it is the latter, Applicants may wish to give some advance thought to availing of the innovation patent facility while it still exists.

Innovation patents 101

From its introduction in 2001, the "innovation patent" has been held up as a symbol of the Australian Government's commitment to encouraging small to medium enterprises (SMEs).

The innovation patent is Australia's second-tier patent system. Novelty, written description and industrial applicability criteria are the same as for the first-tier "standard" patent system. However, in exchange for offering the public only an "innovative step" (a pseudo-novelty test requiring differences amounting to a "substantial contribution to the working of the invention"), a patentee is afforded only an 8-year term as opposed to the standard 20 years.

Innovation patents are "granted" upon filing (a potential problem in itself, as we will see below), but are not enforceable at law until such time as they have been "certified" (i.e., examined). However, once certified, the enforcement remedies available to a patentee are the same as those for a standard patent. Thus, innovation patents – particularly innovation patents divided out from standard patent "parents", can be effective "litigation weapons" because the low innovative step threshold makes them difficult to revoke in a counter-claim for invalidity (and suing against a divisional innovation patent may not expose the parent patent to a revocation suit). Thus, innovation patents provide a legitimate strategic tool for those looking to enforce their Australian patents.

So, what's the problem?

The perceived "problem" with the innovation patent is three-fold. Firstly, there has been a perception that local SMEs were not making use of the innovation patent system (and even if they were, they were not deriving tangible benefits from it). Secondly, that the "granted upon filing" status rendered the system susceptible to abuses such as foreign applicants potentially being able to claim Government subsidies in their country of origin for obtaining a "granted" patent. Thirdly, there has been a perception that the threshold test for innovative step (essentially a pseudo-novelty test, as noted above) was too low and that this, in turn, may give rise to a proliferation of difficult-to-revoke certified innovation patents that were enforceable at law.

Problem 1: Local SMEs are not making use of the system

This appears to be the primary justification for abolishing the innovation patent system. A 2014 review conducted by ACIP (the Advisory Council on Intellectual Property) had recommended – somewhat surprisingly at the time, that the innovation patent system be abolished. Following a protracted review process stretching back to 2011, ACIP eventually concluded by way of economic modelling that the innovation patent system was not meeting its stated objectives. Such objectives, of course, were to stimulate innovation in Australian SMEs by providing easier, quicker and cheaper patent rights as well as an avenue to protect their lower level inventions. Objectively, it appears that the data presented in the economic report were open to a number of interpretations, and that disproportionate weight may have been given to various factors. For example, the fact that there are a relatively high proportion of self-filed innovation patent applications cloud the data relating to the calculated total regulatory cost of the system and the assessment of commercial success of innovation patent filing entities. This obviously has an effect on the concluded net economic impact, which appears to have been a major factor influencing the stand taken by ACIP. Notwithstanding, the Productivity Commission and the Australian Government have subsequently backed this position, which in turn, effectively sounds the death knell for the innovation patent system.

Problem 2: A "granted" patent for a wheel

An example of the shortcomings of the "granted upon filing" status was highlighted by way of innovation patent 2001100012, which was "granted" for a "circular transportation facilitation device" – a wheel. The facility to obtain a granted innovation patent for a wheel suggests that all is not well with the present system. Obvious "fixes" involve reverting to the "filed" status ascribed to a standard patent before such time as it has passed through examination, and/or requiring that every innovation patent application is to be examined within, say, 2-3 years of its filing date (at present, examination/certification is merely optional subject to the limitations in enforceability as mentioned above). Adopting either or both of these two very obvious solutions would ensure that a) nefarious claiming of Government subsidies would be reduced or eradicated; and that b) patents for wheels and the like will not clog the register of patents for the entirety of their 8-year term.

It is worth noting at this juncture that the "real" issue arguably concerns innovation patents in the "borderline patentable" category. Given the low innovative step threshold for patentability, these are hard to ignore and require that a commercial entity expends time and funds obtaining a FTO opinion and/or requesting examination/certification in order to be assured that they may safely carry out their intended activities.

Thus, it appears that two relatively simple "fixes" could address two of the headline deficiencies of the innovation patent system.

Problem 3: The innovative step threshold

As noted above, the test for innovative step is essentially one of pseudo-novelty; this dates back to the decision of the Full Federal Court in Dura-Post (Australia) Pty Ltd v Delnorth Pty Ltd [2009] FCAFC 81 (30 June 2009) and requires an advance over the prior art that amounts to "a substantial contribution to the working of the invention". It is generally accepted that this test represents a very low bar and that the quid pro quo offered by the Government of an 8 year monopoly period invites something more on the part of innovation patent applicants.

In this respect, timing is everything. Indeed, Recommendation 7.2 of the Government response to the Productivity Commission supported the notion that in respect of standard patents, the inventive step threshold was too low also. The current primary test for inventive step is fundamentally whether the skilled person faced with the same problem would have taken, as a matter of routine, whatever steps might have led from the prior art to the invention, whether they be the steps of the inventor or not (Wellcome Foundation (1981) 148 CLR 262 at 286). Along with sub-tests such as the requirement for a "mere scintilla" of inventiveness, the Government agreed that retaining these tests did not, in fact, "raise the bar" as was the intent of the recent 2012 reforms. The Government recommended adopting the "problem/solution" or "obvious to try" approaches of the European Patent Office, which would be expected to provide a higher inventive step standard across the board. Legislative amendments will likely follow.

What then, to do with "directly led as a matter of routine" and/or "a mere scintilla"? Couldn't these become the new examination standards for the innovative step?

Notwithstanding, the (broken) innovation patent system is not meeting its stated objectives

In recommending the innovation patent system be abolished, the Government has merely assumed the position of both the Productivity Commission and ACIP before it. Both had opined that the innovation patent system (as it stood) was unlikely to provide net benefits to the Australian community or to the SMEs who are the intended beneficiaries of the system. The Productivity Commission found that the majority of SMEs who use the innovation patent system do not obtain value from it and that the system imposes significant costs on third parties looking to navigate around thickets of low-level patents.

The Government noted that the innovation patent system was established with the express objective of stimulating innovation amongst Australian SMEs. Rather than "fix" the innovation patent system, the Government was of the opinion that more targeted assistance may better assist SMEs, while avoiding the broader costs imposed by the innovation patent system. Along with initiatives to support SMEs introduced through the National Innovation and Science Agenda (NISA) and existing programs such as the R&D Tax incentive, the Government noted that it had already implemented a number of measures to support SMEs such as the IP Toolkit for Collaboration, Source IP, the Patent Analytics Hub and grants and advisory services for businesses in certain industry sectors looking to leverage their IP. Moreover, IP Australia has recently established a new IP Counsellor to China, is trialling patent analytics services and is raising education and awareness of IP issues with local start ups.

But could a "fixed" innovation patent system meet its stated objectives?

Arguably so. However, the question is merely academic because the abolition of the innovation patents system now seems inevitable based upon the Government's response.

Is abolition widely supported throughout the profession?

The Institute of Patent and Trade Mark Attorneys of Australia (IPTA) is the peak professional body charged with representing the views of our local profession. IPTA had assumed a position diametrically opposed to that adopted initially by ACIP, and now supported by both the Productivity Commission and the Government:

IPTA remains of the view that the innovation patent system remains an appropriate means to stimulate innovation by Australian small to medium business enterprises and that it is an appropriate means for protecting lower level inventions that may not be entitled to standard patent protection. IPTA also believes that the innovation patent system also continues to serve the function of providing a fast route to a granted and certified patent which can be used in enforcement action in a similar manner to the former petty patent.

Although IPTA's position was made public long before the economic modelling that ultimately shaped ACIP's stance (and more latterly, that of the Productivity Commission and Government), there appears little evidence that the views of the wider profession have changed significantly in the interim. Anecdotally, we believe that there remains strong support for the innovation patent system within the profession as a whole.

Next steps

The Government will now seek legislative amendments to the Patents Act 1990 to abolish the innovation patent system, with appropriate transitional provisions to maintain existing rights. The Government has announced that it will continue to explore more direct mechanisms to better assist SMEs to understand and leverage their IP and access affordable enforcement. We are not aware of any specified date by which the system will be abolished, although a "sunset" deadline of around 2-3 years for the filing of the last innovation patent application appears reasonable at this stage.

Shelston IP will keep readers informed as to progress. In the meantime, patent Applicants may wish to give advance consideration to availing of the Australian innovation patent system while it still exists.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Shelston IP ranked one of Australia's leading Intellectual Property firms in 2015.

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