The Productivity Commission published its final report on Australia's Intellectual Property (IP) Arrangements in the week prior to Christmas.

The Commission was tasked with analysing the efficacy of Australia's intellectual property arrangements. In particular, the Commission investigated whether current arrangements provide an appropriate balance between

  • access to ideas and products, and
  • encouraging innovation, investment and the production of creative works.

The Commission began looking at these issues in 2015, and this final report represents the culmination of 12 months' work.

Position of the final report

The following statement summarises the Commission's overall position:

'Australia's patent system grants exclusivity too readily, allowing a proliferation of low-quality patents, frustrating follow-on innovators and stymieing competition.'

Although the Commission appreciates that creators and inventors should be awarded for their efforts, the Commission is of the view that the patent system grants an exclusive monopoly too easily. According to the Commission, this results in many low-quality patents which impede innovation and competition.

Compared to the draft report released earlier in the year the Commission has abandoned some of their controversial recommendations that had concerned the IP community at the time.

The remaining recommendations include the following items which are discussed below:

  • Raise the threshold for inventive step
  • Abolish innovation patents
  • Scrutinise software patents going forward
  • Introduce a new IP list in the Federal Circuit Court

Raise the threshold for inventive step

The Commission has stood steadfast on raising the threshold for satisfying the inventive step test. It remains convinced that the current inventive step threshold of a scintilla of invention is too low. It recommends that the threshold be raised to something more akin to the European "problem-and-solution" test for inventive step.

While it may be a noble goal to raise the standards of patents being granted, in our view the problem is that patent examiners, hearing officers and the courts apply the current inventive step threshold inconsistently. Therefore, it would be better to address these inconsistencies instead of changing the underlying statutory basis. Indeed, it is uncertain whether the standard of a scintilla of invention is in fact too low due to these inconsistencies. As a result, the evidence for change is not clear and there is a risk that raising the inventive step threshold introduces even further inconsistencies. This would reduce the efficiency of the Australian patent system instead of providing an improvement to Australian businesses.

Abolish innovation patents

The Commission has recommended abolishing innovation patents. A significant aspect of their objection to the innovation patent system is that the innovative step test is too low a bar. This would allow low-quality patents, patent thickets, strategic use where the patent does not support genuine innovation and the general uncertainty due to a lack of substantive examination. Many submissions suggested modifying the innovation patent system to use a higher threshold on the innovation step (such as the inventive step test as originally enacted). However, the Commission concludes that the innovation patent system is beyond repair and its removal would benefit the community.

We consider that there are many legitimate uses of the innovation patent system that deliver the goals of the entire patent system successfully, particularly among the small to medium sized enterprises. As a result a reform to the innovation patent system would retain the benefits instead of just throwing out the baby with the bathwater.

Scrutinise software patents going forward

Significantly, the Commission has retreated from its earlier anti-software patent stance. The Commission does not explicitly acknowledge that software patents have positive social value but accepts that software patents are in fact suitable for some types of innovation (with particular reference to Qualcomm's submissions) and that software patents should be closely scrutinised going forward. We consider that there remains great value in software patents when used to protect quality inventions. We believe the existence of the patent system incentivises significant investment into research and development in information and communication technologies in Australia.

A particularly notable recommendation was for IP Australia to collect and publish information on patent applications that are accepted or rejected on the manner of manufacture test. This would include information on how the decisions in Research Affiliates and RPL Central have affected IP Australia's consideration and patentability of software inventions. We consider that such information would be beneficial to both patent owners and practitioners who have been grappling with inconsistent applications of the law by examiners (as referred to earlier).

Introduce new IP list in the Federal Circuit Court

The Commission has recommended introducing a specialised IP list within the Federal Circuit Court (akin to the United Kingdom's Intellectual Property Enterprise Court) that would provide a timely and low cost option for resolving intellectual property disputes. Currently intellectual property enforcement cases are often lengthy, complex and expensive. A specialised IP list within the Federal Circuit Court could reduce the costs and encourage more small to medium sized enterprises to use the intellectual property system. In our view, this can only be a good thing.


It is important to note that this final report does not constitute Australian intellectual property law. It remains to be seen whether the Australian Government takes on board any of the recommendations of the Productivity Commission. In our opinion, this report is the latest step in a push to move Australian law closer towards European patent law, which requires patent applications to be more clearly technical in nature with a more demanding inventive step threshold.