The innovation patent system was introduced in 2001 to replace the petty patent system in Australia. The system was developed to stimulate innovation in Australian Small to Medium Enterprises (SMEs) by providing intellectual property rights for lower level inventions.[i]  This article summarises recently proposed changes to the system, including raising the standard of the innovative step.

In 2011, the Minister for Innovation, Industry, Science, and Research requested a review of the system. The final report on the review was issued by the Advisory Council on Intellectual Property (ACIP) on 16 June 2014.[ii]

ACIP made six recommendations in its final report.

1. Modifying the current innovation patent system.

In the options paper released in 2013, ACIP put forth the options of retaining the current system, abolishing the system all together, or modifying the system.

Unfortunately, despite three years of research and consultations, ACIP could not obtain adequate empirical evidence to determine if the current system has a positive or negative effect on innovation in Australia. Accordingly, ACIP was unable to make a recommendation on abolishing or retaining the system. However, there was evidence to suggest changes needed to be made to the current system.

Accordingly, in its final report, ACIP recommends modifying the current innovation patent system, should the Government decide to retain it.

2. Raising the standard of the innovative step.

In our view, this is the most controversial recommendation.

Under the current system, an invention is taken to involve an innovative step if it varies from the prior art in a way that makes a “substantial contribution to the working of the invention”.[iii] This threshold is much lower than the inventive step threshold for a standard patent. Throughout the review, ACIP found that many stakeholders considered the required level of innovation to be too low.

ACIP therefore recommended raising the level of innovation to a level above the current innovative step, but below the inventive step level required for a standard patent. In ACIP’s view, a suitable level of innovative step would be a modified form of the inventive step test set out in the Patents Act 1952 and described by the High Court in MinnesotaMining & Manufacturing Co v Beiersdorf (Australia) Limited[iv].

Under the proposed new test, an invention would be taken to involve an innovative step if it was non-obvious in view of the common general knowledge (CGK) possessed by a non-inventive skilled worker in the relevant field. CGK both inside and outside Australia would be considered.

There are some problems with this approach.  Firstly, the proposed new test excludes the use of prior art that is not part of the CGK possessed by skilled workers in the field. Thus, it is not enough that the prior art is known or available to skilled workers in the field, but rather prior art will only be taken into account for the purposes of innovative step if it is shown to form part of the CGK, i.e. the “background knowledge and experience”[v], of skilled workers in the field. In practice, this could mean that an innovation which has failed the current “substantial contribution test” could pass the new test if the relevant piece of prior art is not considered to form part of the CGK.

Further, it will be difficult for Examiners to determine if a piece of prior art forms part of the CGK. We can only assume Examiners will consider easily located prior art to be CGK. It would then be up to the Applicant to contradict this assertion, possibly through evidence. This kind of evidence-based assessment will inevitably increase costs in both prosecution and litigation.

In our view, the proposed new test would also add more uncertainty to the innovation patent system.

3. Making examination mandatory.

Under the present system, an application for an innovation patent is accepted and granted provided all formalities are in order. Examination is not mandatory. However, an innovation patent cannot be enforced until it is examined and certified.

ACIP recommends making examination of innovation patents mandatory before the third anniversary of the filing date. Throughout the review, ACIP noted that only about 18 percent of innovation patents have been examined and certified, and only 47 percent were renewed to their third year anniversary. Therefore, the three year deadline was proposed to allow sufficient time for the patentee to properly evaluate the commercial possibilities of their invention before having to request examination.

In ACIP’s view, having uncertified innovation patents provides uncertainty in the patent system.

We are not convinced this change will bring more certainty to the innovation patent system, especially in light of the proposed new test for innovative step. In our view, the uncertainty created by the number of uncertified innovation patents is no greater than that created by the number of standard patent applications that are currently pending. We also note that, under the current system, an interested third party can request examination of an innovation patent that may be relevant to its activities at any stage.

Finally, ACIP notes that mandatory examination will involve the use of additional resources by IP Australia. ACIP therefore also recommends introducing a search fee, similar to the fee which applies to standard patents, if the innovation patent has not been previously searched. We believe the costs associated with mandatory examination will be prohibitive for many Australian SME’s and will discourage use of the system.

4. Changes to use of the term “patent”.

ACIP noted there was a misconception in the public that the term “patent” referred to a legally enforceable right. ACIP therefore recommended that the term “innovation patent” only be used once the patent has been examined and certified.

5. Excluding “methods”, “processes” and “systems” from protection.

Under the current system, all types of inventions are patentable, provided the invention is a manner of manufacture and meets the additional requirements set out in section 18(1A) of the Patents Act 1990.

ACIP recommends excluding all methods, processes and systems from being patentable inventions for the purposes of an innovation patent.

In making this recommendation, ACIP notes that very few countries offer a second tier patent system for methods or processes. ACIP recommends also excluding “systems” as it is concerned claims to a method or process could be re-drafted into system claims. ACIP considers that, if this recommendation is implemented, innovation patents will only apply to an apparatus, product, article or “some other material thing”.

ACIP also noted that methods, processes and systems are somewhat protected by  trade secrets, and the inherent difficulties in reverse engineering a method or process as opposed to a product.

This recommendation was also shaped by numerous submissions received by ACIP arguing that patenting methods, processes and systems at the innovation patent level significantly undermines innovation, especially in the computer software industry.

6. Provided the above recommendations are accepted, the remedies for infringement should remain unchanged.

In ACIP’s view, once the above recommendations are implemented, certified innovation patents will have a higher level of innovation and will only apply to apparatus, articles and “other material things”. Accordingly, the recommendation is that the current remedies for infringement, which are the same as for a standard patent, apply for a certified innovation patent. Such remedies include an injunction, damages or an account of profits.

We are told the Government is presently considering its response to the report. However, we doubt innovation patent reform is a top priority for the current Government, and therefore don’t expect these recommendations to be put into effect in the near future.

In fact, the Minister for Industry, Mr Ian Macfarlane, when recently responding to a question on the Pharmaceutical Patent Review, stated that, “The government has no plans to release the final report at this stage” and “The government is not considering the recommendations made by the panel in the draft report”.[vi] We expect a similar response to the present review.