The Productivity Commission recently published its draft report on Australia's Intellectual Property Arrangements (the Draft Report). As you would expect, given the wide range of the Productivity Commission's review, the Draft Report contains recommendations across the full gamut of IP in Australia.

This article will briefly summarize the draft recommendations and the requests for further information relating to the patent system. We would encourage anyone with a stake in Australia's patent system to consider how they might be affected if the draft recommendations are implemented and submit a response to the Draft Report by the deadline of 3 June 2016. You can make your submission here.

What makes a good patent system?

The Productivity Commission has stated that a well-functioning patent system should only grant protection to inventions that are:

  • Socially valuable: that is, new goods, services and processes that improve the allocations of society's limited resources. Socially valuable innovations make contribution to human knowledge and, ideally, should result in knowledge spill overs into other areas of the economy; and
  • Additional: inventions that would not have been developed or commercialised (or for which development or commercialisation would have been delayed) in the absence of patent protection being available.1

A patent system capable of exclusively targeting inventions that are socially valuable and additional is ideal. The question is whether it is practicable to design and implement a system for exclusively targeting these inventions. If not, the question then is: is it better to have a system that captures all socially valuable and additional inventions, while also potentially capturing some low-value inventions, or should we have a system which largely excludes any low-value patents but also potentially excludes innovations of “genuine” value.

The Commission thinks the patent system is failing

The Commission considers the current patent system to be poorly targeted and failing the public by allowing too many low-value patents to be granted.2 However, we suggest it is inherently difficult to properly assess the social value and additionality of an invention without a detailed understanding of the context within which the invention sits. Often this context does not become clear until many years after the invention has being developed. Thus, it seems difficult, indeed potentially unfeasible, to apply tests early in the lifecycle of patent protection to target those inventions that are socially valuable and additional. Nevertheless, the Productivity Commission has made recommendations to alter the standard applied when deciding when to grant patent protection in the hope of making the system better targeted.

Raising the inventive step bar again

Draft Recommendation 6.1
The Australian Government should amend ss. 7(2) and 7(3) of the Patents Act 1990 (Cth) such that an invention is taken to involve an inventive step if, having regard to the prior art base, it is not obvious to a person skilled in the relevant art.

The Australian Government should state the following in the associated Explanatory Memorandum:

  • the intent of this change is to better target socially valuable inventions
  • the test should be applied by asking whether a course of action required to arrive at the invention or solution to the problem would have been obvious for a person skilled in the art to try with a reasonable expectation of success.

The Australian Government should explore opportunities to further raise the overall threshold for inventive step in collaboration with other countries in international forums.

The first of the Productivity Commission's draft recommendations is to amend the definition of an inventive step in Australia to bring it into line with the definition used in Europe.3 This comes as something of a surprise, bearing in mind that changes to Australia's inventive step provisions were only implemented three years ago with the Raising the Bar Act, and those changes were made with the intention of bringing Australia's inventive step law closer into alignment with jurisdictions such as Europe. Given the relatively short timeframe that the Raising the Bar Act inventive step provisions have been in force, it seems premature to propose that Australia makes yet further changes. It is arguable that we do not yet understand the full impact of the changes that have already been made.

In suggesting these changes, the Productivity Commission appears to be harking back to IP Australia's proposal in 2009 to adopt an "obvious to try" test.4 The Productivity Commission intends for its proposed test for inventive step to be applied differently to the current test which asks “would the person skilled in the art (in all the circumstances) directly be led as a matter of course to try the claimed invention in the expectation that it might well produce a solution to the problem”. The Commission proposes instead to ask whether "…the invention or solution to the problem would have been obvious for a person skilled in the art to try with a reasonable expectation of success".5

The Commission has also made several references to the principle that, in Australia, all that is required is a "scintilla" of invention, suggesting that a scintilla is too low. Unfortunately, they have misunderstood this principle which is intended to convey the idea that once the inventive step bar is set an invention is either inventive or it is not.

The Commission is also of the view that Australia should collaborate with other countries for a further internationally coordinated increase to the threshold for an inventive step. This could include exploring whether it is appropriate to assume in all cases that the person skilled in the art is non-inventive.6

Explain yourself

The Commission also suggests that applicants should provide further information on why their invention is not obvious to the Patent Office. The Commission believes that this could be done by either requiring applicants to draft patent claims in two parts: a first part defining prior art features relevant to the claimed subject matter; and a second part defining the features of the invention that add to the prior art.7 Alternatively, applicants could be required to outline the problem that their invention solves, thus aiding identification of the inventive concept.8 The Commission is interested in receiving further information on the implications of such measures.

Information Request 6.1
The Commission is seeking further information from participants on the likely costs and benefits from reforming patent filing processes. Would there be any unintended consequences from requiring applicants to construct their claims in the two–part form that applies in Europe or articulating why their invention is non–obvious? Are there better approaches available?

Object of the Act

Draft Recommendation 6.2
The Australian Government should incorporate an objects clause into the Patents Act 1990 (Cth) (Patents Act). The objects clause should describe the purposes of the legislation as being to enhance the wellbeing of Australians by providing patent protection to socially valuable innovations that would not have otherwise occurred and by promoting the dissemination of technology. In doing so, the patent system should balance the interests of patent applicants and patent owners, the users of technology — including follow–on innovators and researchers — and Australian society as a whole.

The Australian Government should amend the Patents Act such that, when making a decision in relation to a patent application or an existing patent, the Commissioner of Patents and the Courts must have regard to the objects of the Patents Act.

The proposed object clause is directed to those two key values for a well-functioning patent system identified by the Commission: that inventions be socially valuable and additional. The Commission envisions that this objects clause will not only affect when the Courts decide to grant a compulsory licence to a patent, but will actually affect decisions to grant patent protection in the first place.9

It is unclear how the Productivity Commission envisions Patent Examiners will be able to make decisions as to whether granting a patent would be in the public interest. Would the objects clause place some new public interest gloss on, for example, the test for usefulness? Could the objects clause place an undue burden on Patent Examiners and applicants, as well as potentially putting applicants in the position of having to divulge commercially sensitive information to the Patent Office?

Increasing fees

Draft Recommendation 6.3
The Australian Government, with input from IP Australia, should explore the costs and benefits of using higher and more pronounced renewal fees later in the life of a standard patent, and making greater use of claim fees to limit the breadth of patent protection and to reduce strategic use of patents.

The Australian Government should seek international cooperation on making greater use of patent fees to help ensure that patent holders are not overcompensated and to limit the costs of patent protection on the community.

The Commission proposes using higher renewal fees later in the life of a patent in order to deter patentees from maintaining low value patents, thus ensuring only valuable patents are held in force. The Commission acknowledges that small to medium enterprises (SMEs) may have less capacity to absorb higher patent fees than larger firms and agrees that any efforts to make greater use of patents fees should follow a careful analysis of the effect on different market participants. However, the Commission feels that making concessions by way of reduced fees to SMEs carries risks as firms may ‘game’ the system by relocating IP into separate smaller entities.10

The Commission also proposes to make greater use of claim fees to limit the extent of patent protection and reducing the strategic use of patents, implying that the strategic use of patents is something that should be discouraged. The Commission looked for evidence of the strategic use of patents by examining whether applicants were including as many claims as they could before having to pay excess claim fees. This was measured by looking at the difference between the number of patents with 19 and 20 claims, with 20 being the maximum number of claims without incurring excess claim fees.11

Significant jumps between applications containing 19 and 20 claims were considered to be evidence that applicants were including as many claims in their application as possible before having to pay fees, regardless of their merit.12

On average, IT-related industries have the biggest jump from 19 to 20 claims, and therefore by this measure firms in this industry appear the most likely to use claims strategically. In contrast, firms in chemistry appear least likely to use claims in a strategic manner.13 However, what was not clear is whether the Commission conducted any analysis on the types of technology that had patent applications including more than 20 claims. That is, the types of technologies where applicants were willing to pay excess claim fees in order to adequately cover all aspects of their invention.

Also, there appears to have been no consideration of the number of different claim types within patent applications. It may be that certain technologies require more claims in order to adequately cover all aspects of an invention, such as inventions that relate to a novel apparatus and a novel process that is conducted using that apparatus. The high number of claims in a given application might also be due to the fact that an applicant of a PCT application generally prepares one set of claims to suit all jurisdictions, some of which do not limit numbers of claims. We wonder whether substantial increases in claim fees will unfairly target certain technologies and simply lead to multiple patent applications being filed to cover different aspects of the same invention.

Experimenting with experimental use exemptions

An explicit experimental use exemption in Australia was introduced by the Raising the Bar Act and came into force on 16 April 2012. However, the Commission has noted concerns that the existing exemption is too narrow. In particular:

The main concern is that the exemption is limited to experiments ‘on’ the patented invention, and that research ‘with’ the invention may be at risk of infringement. For example, universities may be prevented from using patented laboratory equipment to make new advances in science.14

The Commission would like further information on the impact of broadening the current exemption. It would be particularly interesting to hear from patent holders whose business activities focus on is producing and developing innovative laboratory equipment.

Information Request 6.2
The Commission is seeking information from participants on the costs and benefits of an exemption from infringement for experimental activities that use a patented invention. Are there any examples in Australia where the efforts of researchers have been hindered by the lack of such an exemption?

Goodbye perhaps to innovation patents

Draft Recommendation 7.1
The Australian Government should abolish the innovation patent system.

The Commission has been influenced by the Advisory Council on Intellectual Property’s Review of the Innovation Patent System: Final Report in which it concluded that the Australian Government should consider abolishing the innovation patent system. The Commission too has called for the abolition of the innovation patent system. On this issue, we suggest you consider the excellent article by DCC's Ray Hind that discusses ACIP's initial suggestion to abolish the innovation patent system. You can find a copy of this article here.

Goodbye also to business methods and software patents

Draft Recommendation 8.1
The Australian Government should amend s. 18 of the Patents Act 1990 (Cth) to explicitly exclude business methods and software from being patentable subject matter.

The Commission also proposes to amend the Act to explicitly exclude business methods and software. For the most part, the Commission appears to have simply grouped business methods and software together. However, on the positive side, the Commission has made an information request that suggests it may be open to retaining patent protection for inventions where the software is utilised to deliver genuinely inventive functionality.

Information Request 8.1
What approaches or tests could be used to differentiate between inventions where the contribution of embedded software is trivial and inventions where the contribution of embedded software is genuinely deserving of patent protection? Should such tests be implemented in law or patent examination practices?

Pharmaceutical patents

It is clear that the Productivity Commission has been influenced by the final report of the Pharmaceutical Patents Review (PPR), with over twenty references to the PPR Final Report in the Draft Report. This is likely to disappoint and concern the research-based pharmaceutical industry.

At the time of the PPR, the Institute of Patent and Trademark Attorneys (IPTA) was critical of the review, as the review panel did not contain any member with a background in the research-based pharmaceutical industry, whereas the generics industry was well represented. In addition, it considered the timeline for completing the PPR unreasonably short and that a negative message was being conveyed to the research-based pharmaceutical industry. Overall, IPTA expressed the view that the PPR failed to fully appreciate the importance of patent term in providing the necessary incentives to take inventions from inception through to the marketplace.

The Commission’s draft recommendations, which are shown below, include recommendations to curtail extensions of term and avoid any extension of data protection for biologics.

The Commission also recommends establishing a transparent reporting and monitoring system to detect ‘pay-for-delay’ settlements, to be administered by the Australian Competition and Consumer Commission (ACCC). However, the Commission welcomes further information on the issue of ‘pay-for-delay’ settlements and the transfer to non-monetary benefits.

Draft Recommendation 9.1
The Australian Government should reform extensions of patent term for pharmaceuticals such that they are calculated based only on the time taken for regulatory approval by the Therapeutic Goods Administration over and above one year.

Draft Recommendation 9.2
Regardless of the method of calculating their duration (draft recommendation 9.1), extensions of term in Australia should only be granted through a tailored system which explicitly allows for manufacture for export in the extension period.

Draft Recommendation 9.3
There should be no extension of the period of data protection, including that applicable to biologics.
Further, in the context of international negotiations, the Australian Government should work with other nations towards a system of eventual publication of clinical trial data in exchange for statutory data protection.

Draft Recommendation 9.4
The Australian Government should introduce a transparent reporting and monitoring system to detect any pay-for-delay settlements between originator and generic pharmaceutical companies. This system should be administered by the Australian Competition and Consumer Commission.

The monitoring should operate for a period of five years. Following this period, the Australian Government should institute a review of the regulation of pay-for-delay agreements (and other potentially anticompetitive arrangements specific to the pharmaceutical sector).

Draft Recommendation 9.5
The Australian Government should reform s. 76A of the Patents Act 1990 (Cth) to improve data collection requirements. Thereafter, extensions of term should not be granted until data is received in a satisfactory form.

After five years of data has been collected, it should be used as part of a review to consider the ongoing costs and benefits of maintaining the extension of term system.

Information Request 9.1
How can transparency requirements for pay for delay settlements be implemented in a manner that retains effectiveness but minimises compliance cost?

Should there be public reporting of aggregated data?

How can the system adequately capture agreements that involve the transfer of non-monetary benefits such as licences or transfer of rights?

Summary

Many of the recommendations of the Commission relate to issues raised in previous reviews or during consultation prior to implementation of the Raising the Bar Act. Thus, for some stakeholders in the patent system, the Draft Report can make for frustrating reading as it seems to be taking a backwards step by revisiting issues and past proposals that have already been given detailed consideration.

The Commission’s inquiry was initiated by the Abbott government but, since then, the Turnbull government has asked us to embrace the “ideas boom”. It will be interesting to see what a government keen on fostering innovation makes of the Commission’s final recommendations. In the meantime, do not miss your chance to have your say.