Australia’s IP Amendment Bill 2019: Game over for the innovation patent system

29 September 2020

Australia’s IP Amendment Bill 2019: Game over for the innovation patent system

By mid-2021, Australia’s innovation patent system will be a rapidly vanishing memory. Lawyers from around the country tell Espie Angelica A. de Leon what that will mean for the small businesses which have benefited the most from the system.

Australia’s Intellectual Property Amendment (Productivity Commission Response Part 2 and Other Measures) Bill 2019 was passed into law on February 26, 2020, to amend the Patents Act 1990. In amending the act, the bill abolishes, among others, the innovation patent system.

Launched in 2000, the innovation patent system provides SMEs with a faster, more convenient and cost-effective way of protecting lower level inventions. Its bar for inventiveness is lower than that for standard patents. Known as the “innovative step,” an innovation patent requires no substantive examination. The system offers protection for eight years and allows a limit of five claims.

Its abolition transpires over an eight-year period starting on August 26, 2021; innovation patent applications may still be filed until that date, subject to limitations. After that date, innovation patent applications will be granted provided they were filed on or before August 26, 2021. Pre-existing patent applications or PCT applications designating Australia whose filing date is before August 27, 2021, may be the basis for a new divisional innovation patent application or be converted into an innovation patent application in the usual way. On August 26, 2029, after the eight-year period during which the innovation patent system is gradually phased out, all innovation patents will expire.

“In my experience, the Australian innovation patent system was generally either utilized to protect lower tier inventions by Australian SMEs who were mostly interested in Australia only, as a strategic filing or for use as a litigation tool. It was only occasionally used in a family of filings throughout the region or the world,” says Scott Philp, senior associate at Spruson & Ferguson in Sydney.

 

Duncan Longstaff, a principal at Shelston IP in Sydney, says the system largely benefitted SMEs. “It is generally quicker and cheaper than the process of applying for a standard patent, particularly as costs associated with examination can be deferred until it has become clearer that the invention has commercial significance. An innovation patent can be examined and certified within a matter of months while examination of a standard patent application takes years. This can be particularly important for technologies with shorter commercial lifecycles that may run their course before a standard patent is likely to be granted, such as inventions in the information technology space,” says Longstaff.

In fact, he says the innovation patent system very much favors patentees. Granted innovation patents are in the Register of Patents. They are not certified and therefore are not enforceable, but their inclusion in the Register comes with a deterrent effect to competitors of the patent right owner. This is despite the fact that no substantive examination has yet been conducted.

The innovative step threshold also worked for the small and medium-sized businesses for obvious reasons.

“The innovative step threshold has been interpreted as requiring merely that the claimed invention differs from each prior art document or act in a way that contributes materially to the working of the invention, which in practice does not take the requirement much beyond the test for novelty,” Longstaff explains. “Accordingly, innovation patents provide strong protection for a patentee, even where the subject matter is ‘obvious’.”

The innovation patent system also allows SMEs to spend less. “Time and money can be saved by pursuing and commercializing incremental innovation, spring boarding from existing work. Inventions that meet the standard patent system test typically require larger investments of time and money in order to make the larger inventive step,” says Robert Munro, a senior associate at Allens in Melbourne.

However, Munro and his team at Allens note that the innovation patent system does have its flaws.

First of all, he says, the courts have excessively lowered the threshold for inventiveness. As a result, some inventions with minor refinements to existing inventions – such as having a mere single innovative component – get to pass the innovative step test. Yet, patent owners get to use the same remedies for infringement as do standard patent owners.

“A lot has been said about the innovative step test in the legislation and its interpretation by the Full Federal Court in Dura-Post v. Delnorth,” says Philp. “Certainly, it is difficult to make a compelling argument for retaining the exceeding low level ‘innovative’ step threshold, particularly when the remedies available to the patentee were the same as for a standard patent.”

 

That only examined or certified innovation patent rights can be enforced also presents a problem. This leads to uncertainties in scope of protection for the unexamined innovation patents. This uncertainty is not just an issue for the innovation patent owner; it also raises questions in the minds of third parties about which claims can be certified, according to the Allens team.

Philp says: “The omission of substantive examination prior to grant and the option for the patentee to drastically change, in particular, broaden the scope of the claims as granted, at any point prior to certification creates significant uncertainty. In one sense the patentee is being granted an eight-year application rather than a granted patent right. This makes the innovation patent an attractive enforcement tool at the expense of clarity of patent rights in the technology space, particularly when combined with the low innovative threshold and low cost.”

Another issue is the fact that innovation patents are also being used by other parties, including large companies as part of their litigation strategy.

“The innovation patent system was introduced to provide protection for lower level inventions, with a particular emphasis on encouraging innovation from SMEs. While it appears this aim has been achieved, others have also used the system. Litigators acting for larger corporations often use innovation patents because they provide access to the same remedies as standard patents and are difficult to invalidate for lack of innovative step. Innovation patents provide a strong form of enforcement and patentees can tailor claims to a particular infringer they wish to enforce against,” Munro explains.

Apple is one such corporation. The company has acquired several innovation patents and has been a prominent user of the innovation patent system.

Yet, many IP lawyers feel the abolition of the innovation patent system was drastic and unnecessary.

For Munro, the system should not have been abolished in its entirety. Instead, a second-tier patent system should have been made available providing an option to obtain early patent protection, reduce costs and protect innovation that does not qualify under the standard patent system.

 

Other Asia Pacific countries have two-tier patent systems, including China, Japan, South Korea, Taiwan, Thailand, Malaysia, Indonesia, Vietnam, Laos, the Philippines, Hong Kong and Tonga. In these jurisdictions, second-tier patent options are called utility models, utility innovations, petty patents or short-term patents. Most of them have inventiveness requirements which are higher than those for Australia’s innovation patent system. In Hong Kong, the bar for novelty and inventive step is equal to that for short-term patents and standard patents. In China, the bar is a little lower than that for their standard patents.

“In general, I think second-tier level protection is underutilized, says Philp. “This may be in part because there has been little effort to harmonize utility model / innovation patent regimes and also because of a lack of understanding of the options available jurisdiction to jurisdiction.” 

For Longstaff, the move to terminate the innovation patent system is quite drastic, even with the 18-month sunset period. Instead, what could have been done was to re-cast the innovative step test to require something of more substance that still falls below the threshold for the inventive step test. Longstaff admits defining this new legal test wouldn’t be an easy thing to do.

For Philp, however, it works just fine. “In terms of a strategy for abolishing the innovation patent system, I believe the Intellectual Property Amendment (Productivity Commission Response Part 2 and Other Measures) Act does so in a well thought out way by winding it back rather than an abrupt end,” he says.

With the IP Amendment Bill 2019’s passage into law, Munro and the Allens team think SMEs are in for more difficult times.

“Many SMEs are likely to be worse off as a result of the amendment,” says Munro. “SMEs which would ordinarily have protected their inventions using innovation patents now have to decide whether to invest greater time and money pursuing protection under standard patents or leave their inventions without protection. Assuming an invention can meet the inventive step test under the standard patent system, it may not be viable for certain SMEs to pursue standard patents given the cost and far greater waiting period for protection. Furthermore, while patent protection is important for enforcing IP rights, owning patents can also be an important prerequisite to attracting investors.”

 

These same issues will also apply to large corporations using innovation patents, the Allens group says. Though they are better able to obtain standard patents, these corporations will have no choice but to meet these more stringent requirements. Plus, they have to deal with longer waiting periods and more sizeable costs.

“One of the objectives of introducing the innovation patent system was to encourage innovation in Australia,” says Scott Sidley, a lawyer at Allens in Melbourne. “Potentially, without the availability of innovation patents, innovators may choose to invest in countries that provide second-tier patent systems.”

According to Longstaff, termination of the innovation patent system means fewer obstacles for many Australian SMEs. Innovation patents can affect SMEs’ freedom to operate because they are difficult to invalidate if certified, and difficult to assess in a cost-effective manner (without professional advice) prior to examination by IP Australia.

“Granted and certified innovation patents will still exist in Australia for up to eight years after the August 26, 2021, sunset period, though, so these benefits to SMEs will take years to materialize. By contrast, the ability of SMEs to apply for their own innovation patent rights will be reduced significantly from August 26, 2021, onwards. After that time, it will only be possible to file new innovation patents as divisionals from pending applications filed before the deadline,” he explains.

Despite the loopholes in connection with the innovation patent system abolition or the difficulties it will potentially cause as observed by the lawyers, they agree that the Bill does resolve some issues. These include matters other than the innovation patent system such as the Crown use provisions.

 

“The changes to the Crown use provisions, which have been relied upon very rarely historically, introduce a more structured approach for negotiation and calculation of remuneration to the patentee,” says Longstaff. “This potentially indicates a government intention to consider reliance upon those provisions in future. The potential for such use has been highlighted by the Covid-19 pandemic, where patented technologies could conceivably be required on an emergency and large-scale basis. More generally, it is foreseeable that the government may seek to rely upon the Crown licensing provisions more often in dealing with private companies, including SMEs, in seeking to access and exploit patented inventions in delivering public services and projects.”

Changes have also been incorporated into the compulsory licensing provisions. These changes likewise provide a more structured way of negotiating and calculating remuneration. Longstaff says this will potentially encourage private parties to seek compulsory licenses more often in Australia.

The bill’s passage into law and the accompanying abolition of the innovation patent system also leaves out the opportunity to acquire patent protection quickly to pursue an infringer.

“Once innovation patents are phased out, SMEs and large corporations will either have to rely on standard patents as intended or will leave inventions that cannot meet the inventive step test unprotected. This may benefit some SMEs by stopping competitors from using innovation patents to lock them out of particular markets and areas of innovation,” says Sarah Muller, a law graduate working at Allens.

Its scrapping will also prohibit firms from “gaming the system.” This is the practice of filing innovation patents to pursue litigation or locking out competitors by filing multiple innovation patents with minor variations to a standard patent application for the same invention. These strategies are undertaken to increase protection and make invalidation of patents more difficult.

Furthermore, the higher bar set for the inventive step has far reaching impact in the long run.

“Inventions will have to meet the higher bar of inventive step, meaning that inventions will need to be more substantial to qualify for the considerable protection of a monopoly that is offered by a standard patent. This will eventually clear the patent register of innovation patents potentially blocking third parties from commercialising their technology. The change also has the potential to encourage innovators to pursue more substantial inventions that can qualify for standard patent protection. While some innovators may move or invest overseas to access second-tier patent systems, the amendment could potentially drive larger developments by Australia-based innovators,” explains Munro.


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