Further to our previous articles, the Australian Government has this week released the Productivity Commission's final Report on Intellectual Property (IP) arrangements in Australia.

The Report covers all aspects of IP with chapters 7, 8, 9 and 10 dedicated to the Productivity Commission’s view on the patent system and their recommendations for reform. The Productivity Commission has outlined a package of reforms with the aim of increasing socially valuable inventions.

While many of the recommendations from the draft Report have been carried through to the final Report, a number, for example excluding business methods and software from being patentable subject matter, have been removed or new recommendations added.

In this article we outline the Productivity Commission’s final recommendations in regard to patents.

The Australian Government is undertaking further public consultation on the final Report until 14 February 2017.

Introduction of an Objects Clause

Following on from the draft recommendations, many participants supported the principle of introducing an objects clause to provide greater guidance to decision makers involved in the design and application of the Act, while others raised concerns.

The Commission recommended that an objects clause would help ensure that decisions in the application and design of the Patents Act are consistent over time with a well-functioning IP system.

RECOMMENDATION 7.1

The Australian Government should incorporate an objects clause into the Patents Act 1990 (Cth). The objects clause should describe the purpose of the legislation as enhancing the wellbeing of Australians by promoting technological innovation and the transfer and dissemination of technology. In so doing, the patent system should balance over time the interests of producers, owners and users of technology.

Raising the Inventive Step

The Report states that there is a robust case for raising the inventive step threshold and recommends that the obviousness test should be aligned with the ‘problem-solution’ approach in Europe. Despite submissions arguing that adopting the European approach would fail to materially raise Australia’s inventive step or that there are risks in seeking to replicate the European Patent Office (EPO) on one aspect of law, the Commission believes that adopting this approach “would clearly raise Australia’s inventive step” threshold.

The Report outlines that the benefits from raising the threshold would be significant and result in 700-800 fewer low-value patents each year.

RECOMMENDATION 7.2

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 Explanatory Memorandum should state:

  • a ‘scintilla’ of invention, or a scenario where the skilled person would not ‘directly be led as a matter of course’, are insufficient thresholds for meeting the inventive step
  • the ‘obvious to try’ test applied in Europe would in some instances be a suitable test.

IP Australia should update the Australian Patent Office Manual of Practice and Procedure such that it will consider the technical features of an invention for the purpose of the inventive step and novelty tests.

Requiring applicants to identify the technical features of their invention

One of the Productivity Commission’s new recommendations in regard to patents would require applicants to identify the technical features of their invention.

In identifying how to improve decision making and improving information available to examiners, whilst minimizing costs to patents offices and applicants, the Report elucidated that requiring applicants to identify the technical features of the invention would impose a minimal burden.

The Report therefore recommends:

RECOMMENDATION 7.3

IP Australia should reform its patent filing processes to require applicants to identify the technical features of the invention in the set of claims.

The Report states that renewal fees in Australia should increase more than proportionally with patent age and should be kept low in the early years of the patent whilst there is uncertainty regarding the patent’s commercial value.

The Report suggests the structure of claims fees should be reformed. For example, a new recommendation was also introduced in regard to reducing the initial threshold for excess claim fees from 20 to 15 and introducing a much higher claim fee for excess claims above 50.

RECOMMENDATION 7.4

The Australian Government and IP Australia should set patent fees to promote broader intellectual property policy objectives, rather than the current primary objective of achieving cost recovery. To this end, the Australian Government, with input from IP Australia, should:

  • restructure patent renewal fees such that they rise each year at an increasing rate (including years in which patents receive an extension of term) — fees later in the life of a patent would well exceed current levels
  • reduce the initial threshold for claim fees, and increase claim fees for applications with a large number of claims.

Abolishing the innovation patent

As we reported in our previous article on this topic , the Productivity 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 cases, 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 Productivity 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

The Commission therefore has kept its recommendation that the innovation patent system be abolished.

Business method patents and software patents

In its final Report, the Productivity Commission found that by adopting the recommendations mentioned above, including raising inventive step threshold, requiring technical features in patent claims and the introduction of an objects clause would provide a better balance for the patent rights of software innovators and users (Finding 9.1).

Therefore, in the final Report, business methods and software have not been explicitly excluded from being patentable subject matter.

Pharmaceutical Patents

Following on from our previous article outlining the draft recommendations in relation to pharmaceutical patent reform, the following recommendations have been made by the Productivity Commission in its final Report.

Extension of Term

Pharmaceutical patents can qualify for an additional five years of protection due to the Extension of term (EoT) provisions.

The Report states that the benefits sought from the EoT arrangements are largely illusory and more than half the new chemical entities approved for sale in Australia enjoy an extension in patent term.

The Productivity Commission recommends that extensions should only be allowed where the actions of the regulator result in an unreasonable delay.The Report states that EoT should only be granted where the time taken by the regulator exceeds 255 working days.

In addition, in its final Report, the Commission also included a new recommendation that EoTs should only be available for patents covering an active pharmaceutical ingredient.

RECOMMENDATION 10.1

The Australian Government should reform extensions of patent term for pharmaceuticals such that they are only:

(i) available for patents covering an active pharmaceutical ingredient, and /p>

(ii) calculated based on the time taken by the Therapeutic Goods Administration for regulatory approval over and above 255 working days (one year).

The Australian Government should reform s. 76A of the Patents Act 1990 (Cth) to improve data collection requirements for extensions of term, drawing on the model applied in Canada. Thereafter no extensions of term should be granted until data is received in a satisfactory form.

‘Pay-for-delay’ agreements refer to patent holders paying generic manufacturers to keep the generic product off the marker beyond the scope of the patent as part of a settlement agreement to resolve a court action. This includes generic products that are not in breach of the original patent and preventing entry into the market after the expiry date of the patent.

According to the Report, concerns regarding pay-for-delay settlements have been raised in other jurisdictions. In Australia, pay-for-delay settlements constitute an offence under the Competition and Consumer Act 2010. However, the Report states that there are currently no arrangements in place to detect such behaviour.

The Report, therefore recommends:

RECOMMENDATION 10.2

The Australian Government should introduce a system for transparent reporting and monitoring of settlements between originator and generic pharmaceutical companies to detect potential pay-for-delay agreements. This system should be based on the model used in the United States, administered by the Australian Competition and Consumer Commission, and include guidelines on the approach to monitoring as part of the broader guidance on the application of the Competition and Consumer Act 2010 (Cth) to intellectual property (recommendation 15.1).

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

Following on from our previous article, draft recommendation 9.1 relating to allowing manufacture for export during the extension period and draft recommendation 9.3 relating to no extension of period of data protection have been removed from the final recommendations.

The Government is undertaking further consultation on the final Report until February 2017, before responding in mid-2017.

We will keep you updated on any further developments regarding the Report and its recommendations.