In June 2014, following three years of public consultation, the Advisory Council on Intellectual Property (ACIP) released a report in which it made recommendations to reform the Innovation Patent System. ACIP did not, at that stage, recommend abolishing the system. Our previous post on ACIP’s recommendations can be found here.

On 25 May 2015, IP Australia published a report entitled “The Economic Impact of Innovation Patents”. The report concluded that there was no evidence that the Innovation Patent System was fulfilling its initial goal of providing an incentive for Australian Small and Medium Enterprises (SMEs) to innovate. The system was introduced in 2000, replacing the Petty Patent System under which an applicant could obtain a monopoly of six years but the standard of inventiveness was the same as for standard patents.

Within a week of IP Australia’s report, ACIP released a statement concluding, “ACIP considers it likely that the innovation patent is not achieving [its] objective and the Government should therefore consider abolishing the system.”

On 5 August 2015, IP Australia released a consultation paper calling for written submissions in relation to (a) ACIP’s recommendation to abolish the Innovation Patent System and (b) alternative suggestions to encourage innovation amongst SMEs. Interested parties have until 28 September 2015 to make submissions.

IP Australia’s economic analysis

IP Australia’s Office of the Chief Economist undertook its review of the Innovation Patent System on the basis of the Intellectual Property Government Open Data (IPGOD) which allowed applicants from 1990 to 2013 to be linked to ABN numbers, enabling more detailed analysis of the applicants.

  • The following findings of the report raise concerns in relation to the performance of the Innovation Patent System.
  • No macroeconomic effect caused by innovation patents (demonstrating sales growth / market entry) for large firms could be discerned.
  • Most SMEs are not repeat users of the system.
  • SMEs do not certify and renew innovation patents as frequently as large firms.
  • SMEs incur the majority of the regulatory burden imposed by system.

It is also important to note that there were a number of positive findings.

  • Australian SMEs and private inventors are the biggest filers.
  • The number of innovation patents filed by Australian SMEs has experienced continued growth.
  • Applicants for innovation patents in the manufacturing sector spend more on R&D.

ACIP’s May 2015 statement, recommending that the system be abolished, is a one-page document which does not contain any detailed analysis of the key findings made in the economic report. It is not immediately apparent, as the ACIP statement suggests, that the economic findings lead inexorably to the conclusion that the Innovation Patent System should be abolished. While the economic analysis certainly suggests that the Innovation Patent System could be improved, the positive outcomes cannot be ignored. In any event, it is not clear that Australia would be better off without any second-tier patent system.

While the economic analysis identifies that the Innovation Patent System is not functioning as intended, it does not endeavour to answer the question of why this is the case. It is critical for IP Australia to investigate why users are not attracted to the system.

Are the filing costs too great? Do users adequately understand the system? Is the duration of protection appropriate? Are the enforcement costs too expensive? This would, in turn, enable reform options to be considered with a view towards achieving the economic goals which the system was intended to achieve.

Reform options

In ACIP’s 2014 report, the following reform options were canvassed.

  1. Raising the level of inventiveness above the level of “innovative step”.
  2. Excluding methods and processes from the subject matter available for innovation patents.
  3. Requiring applicants to request examination within three years and only permit the term “patent” to be used after the application has been certified.

The first two proposals address issues raised by users of the system (including, in particular, the low level of inventiveness required), but are not designed to stimulate further use of the system by SMEs.

The third proposal could potentially enable further insight as to the value of innovation patents to SMEs. Under the present system there is often no incentive to request examination (and the associated costs provide a disincentive), unless there is a need to enforce the patent against a competitor (which requires the innovation patent to be examined and certified). Requiring applicants to request examination within three years would better enable an assessment of the value of innovation patents to SMEs.

Other options for reform, designed to provide a suitable incentive for SMEs to innovate and increase the frequency of their use of the Innovation Patent System, need to be canvassed. These may include, for example, making the system more user-friendly, less expensive and raising awareness of the availability of innovation patents.

Conclusions

IP Australia’s economic analysis provides an important insight into the way in which the Innovation Patent System is operating. Plainly, it is not operating as originally envisaged.

However, it is far too early to conclude that the system should be abolished.

Rather than seeking input on whether the system should be abolished, IP Australia should be seeking to understand why the system is not working as intended and see whether it can be fixed. IP Australia will certainly receive submissions identifying ways in which the Innovation Patent System can be reformed so that it provides an appropriate incentive for innovation and balanced second-tier patent rights. Reform proposals are not in short supply – many were submitted by interested parties to ACIP’s review. These include raising the threshold for innovative step, requiring mandatory certification and limiting the available remedies. These should be explored rather than the innovation patent system being peremptorily scrapped.