Shaken, But Not Yet Stirred –The Future Of Australian Innovation Patents

by FPA Patent Attorneys

We summarise and comment on the recent Options Paper released by the Advisory Council on Intellectual Property (ACIP), an independent government-appointed IP advisory body, in relation to its review of the innovation patent system.1 In the Options Paper, ACIP outlines 3 options for discussion:

A. No change;

B. Abolish the innovation patent system; or

C. Change the innovation patent system.

ACIP’s Options Paper is the result of a consultation process following the Issues Paper released in 2011 in response to a direction from the Australian Government to review the innovation patent system. Findings from the Verve Economics March 2013 reportare also discussed in the Options paper. A total of 64 submissions have been reviewed along with input from a series of round-table discussions held in Sydney, Melbourne and Brisbane. ACIP has also reviewed submissions made in response to IP Australia’s September 2012 consultation paper which we previously reported.3 No changes have resulted from IP Australia’s consultation paper. Rather, the Government will rely on ACIP’s final report (due at the end of 2013) to inform its deliberations on the innovation patent system. 

We summarise the 3 options proposed by ACIP below. 

Further submissions and consultations 

Additional roundtable discussions are occurring in September 2013 and written submissions by any interested parties are due by 4 October 2013. ACIP are seeking further comments on the options presented and on policy issue. Comments have specifically been invited on preferred Option C discussed below. These are to be directed to Jeff Carl at ACIP.4

ACIP notes that only 10% of respondents to the Verve Economics survey were from firms with over 200 employees. Also, comparatively few comments were received regarding international perceptions of the innovation patent system. 

If you or one of your clients, as the case may be, would like to make a submission we may be able to assist. Even if you do not want to make a formal submission, we would still be interested in any comments or suggestions you may have.  

Option A – No Change

  • ACIP considers that it is reasonable to wait and observe what effect the recent changes to Australian patent law5 will have.
  • There was widespread agreement that the innovation system is a useful addition to the standard patent system. A majority of the 517 responses in a Verve Economics survey of Australian innovation patent owners portrayed innovation patents in a positive light, indicating that they were used for traditional purposes and added value to their businesses. The survey of Australian innovation patent owners also showed that the small-to-medium enterprise (SME) user-group appears to be generally satisfied with the current system.

Option B – Abolish the system

A number of considerations were discussed in relation to this:

  • Underutilisation – ACIP identified that innovation patents only account for about 5% of all complete patent applications. However, the system provides a means of filing divisional applications for inventions rejected as not being inventive enough for a standard patent. This strategy is considered by ACIP to be an appropriate use of the system.
  • Stimulating innovation – While there is no evidence that the system stimulates innovation despite widespread agreement by stakeholders that it does, there is equally no evidence to the contrary. It is also recognised that innovation patents are also a form of personal property which can be used to obtain funding.
  • Perceived abuse of the system – There is evidence that the system is being ‘strategically’ used by a small proportion of large companies for either: ‘evergreening’, creating ‘patent thickets’ with divisional applications, or targeting alleged infringers. However, recent amendments to the patent system have tightened deadlines for filing divisional innovation patents so as to prevent them being filed during opposition or infringement proceedings.

    It is also recognised that the low standard of patentability for an innovation patent makes it difficult to invalidate an innovation patent during infringement proceedings. However, the recent ‘raising the bar’ amendments to the patent system have to some extent raised the standards required to certify innovation patents. 
  • Uncertainty – The system creates uncertainty because there is no requirement for examination and there is a perception that many innovation patents are of poor quality. Only about 18% of innovation patents are certified. However, on average, more than half of all innovation patents cease within 3 years of filing6. To some extent, this mitigates the uncertainty caused by uncertified innovation patents.
  • Harmonisation – It was noted that few of Australia’s major trading partners are alleged to have ‘utility models’. This appears to be incorrect, in that many of Australia’s largest trading partners, including China, Japan, Germany, France, and Korea, do have some form of utility model. It was also noted that abolition of the system will introduce a deficiency in Australia’s IP system as it will be difficult to protect inventions that do not fit into the registered designs system and are not inventive enough to warrant protection from a standard patent.
  • Alternative protection through the registered designs system and/or unfair competition law was also briefly discussed. It was acknowledged that the courts have rejected any general action for ‘unfair competition’. We do not consider these alternatives as providing adequate or appropriate protection for ‘low-level’ inventions.

Option C – Change the system

There was general agreement in the consultation process that the level of innovation is too low and that level of protection is not commensurate with this. However, there is no agreement on what the innovation threshold should be raised to or what, if at all, the remedies could be reduced to. Further comments are requested by ACIP. Several options are outlined below:

  • Not clearly obvious – It was suggested that a ‘not clearly obvious’ test based on assessing the substantial contribution to the working of the prior art could be adopted. ACIP is in our view justifiably sceptical about whether this would differ in practice from the current system.  
  • Assessing substantial contribution against relevant prior art – This suggestion, advanced  by LCA, FICPI and IPTA, is based on a view that this is how the legislation was originally intended to be interpreted, as opposed to how the Federal Court has judicially interpreted it in Delnorth7. ACIP is uncertain as to how this would differ in practice. Based on recent roundtable discussions, however, this was advanced as being a potentially workable solution.
  • Inventive step – Raising the threshold of inventiveness to same as that for standard patents was proposed in IP Australia’s consultation paper. The majority of responses to the paper did not endorse this change. Generally, there was consensus from stakeholders that this would act as a disincentive for innovation and render the innovation system impotent.
  • Inventive step under Patents Act 1952 ACIP recognises merit in changing the system to use the previous inventive step test with regard to common general knowledge (CGK) as a degree of certainty can be gleaned from previous case law. However, it was noted that there is a question as to whether the concept of CGK is now blurred due to the increased accessibility of information in this digital age.
  • Reducing remedies – It is suggested that reducing remedies such as removing injunctive relief for infringement would bring balance to the system. However, some stakeholders believe that this would reduce the attractiveness of the system. Proposed compromises include: only allowing injunctions for innovation patents being commercially exploited; or limiting the term of injunction to the delay in seeking  certification. ACIP states that undesirable behaviours such as delaying infringement actions to maximise compensation are discouraged as a result. There was little enthusiasm for this option in recent round table discussions, one of the main concerns being that it would make it more difficult for SMEs to enforce their patents or obtain funding to do so.
  • Limiting to one embodiment – It is proposed that the monopoly could be limited to a single embodiment disclosed in the specification as filed. ACIP states that this would reduce uncertainty in uncertified patents. However, if the specification was based on a standard patent, this will increase costs associated with redrafting the specification to comply with such a requirement, and would drastically reduce the scope of protection. Our view, as well as that emerging from roundtable discussions, is that this would not be workable.
  • Restrict to Australian applicants – This was seen by ACIP as being consistent with the objective of the innovation patent system to stimulate innovation in Australian SMEs. However, it is clearly contrary to Paris Convention provisions and received little traction at recent round table discussions in Sydney. The proposal to restrict to individual applicants and SMEs was also seen as being impractical.
  • Exclude chemicals and pharmaceuticals – This would be consistent with utility models in Japan, Korea and Italy. It was noted that only about 3% of granted innovation patents are for chemicals, pharmaceuticals and cosmetics. ACIP agrees that  inventions in these areas are better suited to the standard patent system and has noted that bringing in such a restriction also removes the possibility of ‘evergreening’ with divisional innovation patents.
  • Exclude software – This would be consistent with utility models in Japan and Korea. ACIP considers that software patents require a low level of financial contribution and that it is difficult to evaluate the prior art base because many software developments are not published. ACIP notes that over half of the 34 submissions it received came from software engineers or developers who only addressed this option in an apparent coordinated attack. Roundtable discussions have identified concerns with this exclusion, especially as regards the difficulties associated with properly defining exclusions of this type.
  • Other options for improving the system are discussed, such as requiring at least one claim at grant, compulsory examination, better education for users of the system and changing the name to prevent the misconception that granted innovation patents have enforceable rights. 

Other statistics of interest

  • At the end of 2012, on average, 29% of innovation patent filings were by Australian companies, 49% by Australian individuals and 22% by foreign applicants.
  • There has been a decreasing proportion of filings by Australian individuals and an increasing proportion by foreign applicants.
  • Since 2006, more Australian businesses have been gaining certification of their innovation patents.
  • Most patentees only own a single certified innovation patent. Only 60 patentees have 5 or more certified innovation patents and of these 14 companies have 10 certified patents or more. 
  1. Review of the Innovation Patent System

  2. Verve Economics, ‘The Economic Value of the Australia Innovation Patent’

  3. Innovation Patent – Fundamental changes proposed

  4. Review of the Innovation Patent System

  5. Intellectual property laws amendment (Raising the Bar) Act 2012; Easy Guide

  6. This is comparable with standard patent renewals at the 8-year anniversary, similarly just over a third of the maximum term of the patent

  7. Delnorth Pty Ltd v Dura-Post (Aust) Pty Ltd [2008] FCA 1225


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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