Following our recent articles regarding the release of the Productivity Commission’s (“Commission”) draft report on Intellectual Property (IP) arrangements, we now provide our summary of a number of the report’s draft recommendations relating to the patent system.

Reforming the inventive step

The Commission found that the current threshold for inventive step in Australia is too low.  The Commission believes that this has led to a growing number of patented ‘low-quality’ inventions that do not benefit the community.   The Commission considers that the effectiveness and efficiency of the patent system can be improved by introducing reforms to the inventive step test by setting the threshold requirements at a higher level to better target ‘socially valuable’ inventions.1  The Commission generally defines ‘socially valuable’ inventions as innovations that result in new goods and services or production methods that improve the allocation of society’s limited resources, and contribute to knowledge spillovers into other areas of the economy.2

Draft Recommendation 6.1 is proposed to increase the overall inventive step threshold.  That is, by amending sections 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.3

The proposed amended wording is closely aligned with the wording of the legislative test for inventive step applied by the European Patent Office.  The Commission considers that this reform will simplify the test for inventive step, and remove the explicit requirement for decision makers (for example, patent examiners) from having to distinguish between the prior art and common general knowledge.  The Commission also considers that this reform will shift the onus of proof onto applicants to prove that their invention is non-obvious (instead of being on the decision maker to prove that the invention is obvious).4

Whilst such a reform should fulfil the stated purpose of raising the overall inventive step threshold, the Commission acknowledges that the inventive step test is still likely to be below the ‘optimal threshold’ required to eliminate misuse of the patent system.  The optimal threshold may also shift over time from the evolution of product life cycles and the cost of innovation.5  The Commission also recognises the risks of raising the threshold above the level applied in other countries, such as decreasing or delaying the diffusion of innovation into Australia.6  The Commission recommends pursuing international collaboration to examine ways to further raise the overall inventive step threshold, including a review of how the prior art and the person skilled in the art should be defined.

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.

Making greater use of patent renewal and claim fees

The Commission considers that the re-structuring of patent renewal fees and claim fees will help to achieve greater flexibility in the strength of patent rights in Australia (i.e. duration of protection and use of claims).7

Draft Recommendation 6.3 is proposed to 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.8

The Commission points to evidence to suggest that longer patent rights increase the scope for unused patents to be later strategically and opportunistically revived to catch infringers.9  This is perceived to impose costs without adding innovation, and increases the ‘economic rents’ that arise from patent holders exercising market power.10  The Commission considers that one mechanism to counter this effect is to enforce higher renewal fees later in the term of a patent.

The Commission also identifies the need for claim fees to be re-structured, so as to reduce the likelihood of patent holders extending the breadth of claims beyond what is needed to promote innovation.11  The Commission considers that increasing excess claim fees may limit the breadth of patent protection by discouraging applicants from including more claims than necessary in a patent specification.  The Commission recognises the risk that applicants may adopt a practice of drafting longer and more complicated claims (but still limiting the total number of claims) to avoid excess claim fees.  Accordingly, the Commission believes there is also need for complementary reforms, for example by limiting the length and scope of individual claims.  The Commission emphasises the importance of collaboration between IP Australia and other experts (including international experts) to provide input and develop a workable solution.12

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.

Abolishing the innovation patent system

The Commission considers that the innovation patent system is flawed, and has contributed to an abundance of low value innovation patents that do not target inventions of social value.  The current innovative step threshold, much like the inventive step threshold, is believed to be too low.  Innovation patents have therefore, in some case, been strategically used to target alleged infringers of standard patents or to increase uncertainty over the scope of rights for competitors, without truly promoting innovation.  The Commission believes that this uncertainty has made it more difficult for Australian small and medium sized enterprises (SMEs) to innovate and therefore the primary objective of the innovation patent system is not being met.13

Two key reforms to the innovation patent system have been proposed by the Commission:14

  • Raising the innovative step threshold to the same level required for the inventive step threshold under the standard patent system, such that obvious inventions are excluded from patent protection.
  • Introducing mandatory examination for innovation patents, and also limiting the period in which damages could apply until after the official publication of the claims that have allegedly been infringed.

However, the Commission is of the view that even with the above reforms, there would be greater benefits for the community if the innovation patent system is simply abolished.  The Commission believes that doing so will simplify the overall patent system, reduce administrative work, and also remove the ability for the strategic misuse of innovation patents.15

Draft Recommendation 7.1 therefore proposes to abolish the innovation patent system.

DRAFT RECOMMENDATION 7.1

The Australian Government should abolish the innovation patent system.

Reforming the patentability of business methods and software inventions

Business methods have been defined as a method of operating any aspect of an economic enterprise, including ‘trading, transacting, finance, resource management, marketing and customer service’16.  The Commission found that Business Methods and Software patents reward low– (or even no–) value innovations, and therefore, on balance, it is unlikely that granting patents in the area of Business Methods and Software increases the welfare of the community.  While recommendations with regards to changes to the inventive step threshold for standard patents, and dispensing with innovation patents, may ‘knock out’ a large share of Business Methods and Software inventions, the Commission still considers that there is value in making clear that Business Methods and Software should not be considered patentable subject matters.17

Draft Recommendation 8.1 suggests that the Australian patent system should exclude Business Methods and Software from patent protection, as was done in a number of other countries.18  More particularly, it is recommended that section 18 of the Patents Act 1990 (Cth) be amended to explicitly exclude Business Methods and Software from being patentable subject matter.  According to the Commission, amending the Patents Act 1990 (Cth) as recommended would minimise the ongoing legal uncertainty, and bring Australia into alignment with the approaches taken in other jurisdictions without impinging on international obligations.

A contrasting view is that, even if there is no case for patenting Business Methods and Software, it is not necessary to explicitly exclude Business Methods and Software from being patentable subject matter.  The patentability of Business Methods and Software in Australia has already drastically been restricted by the courts, for example by the Commissioner of Patents v RPL Central Pty Ltd [2015] FCAFC 177 decision, by qualifying what constitutes a manner of manufacture within the meaning of section 6 of the Statute of Monopolies (i.e. section 18(1)(a)).  Presently, business system inventions that are not within a ‘field of technology’ are not patentable.  Accordingly, since that decision Business Methods and Software inventions generally do not meet the “manner of manufacture” criteria of patentability.

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

Next Steps

The Productivity Commission has invited submissions on the draft report until 3 June and has stated its plans to present its report to the Australian Government in August. You can read the Productivity Commission’s full draft report here .