Last month, the Advisory Council on Intellectual Property (ACIP) released an Options Paper outlining a number of options for reforming the Innovation Patent System.

This is the latest step in ACIP's review of the Innovation Patent System which commenced in February 2011, when the then Minister for Innovation, Industry, Science and Research requested that ACIP investigate the effectiveness of the innovation patent system in stimulating innovation by Australian small and medium sized business enterprises.

ACIP released an Issues Paper in August 2011 to seek the views of interested parties. A number of written submissions were received. ACIP also conducted a number of public forums in October 2011 to discuss the key issues.

As part if its review, ACIP commissioned Verve Economics to conduct a study to determine how effective the innovation patent system is in stimulating innovation by Australian SMEs. The Verve report on The Economic Value of the Australian Innovation Patent was released in March 2013.

The Options Paper canvasses a number of options for the future of the innovation patent system and invites further submissions. Submissions close on 4 October 2013.

Background to the review of the Innovation Patent System

The ACIP review was initiated against the background of a number of concerns being raised about the relevance and operation of the innovation patent system. These include: 

• that an innovation patent is overly generous given that it has a very low inventiveness threshold but the same remedies against infringement as a standard patent
• that some applicants are using the innovation patent system to protect higher-level inventions for strategic or tactical purposes rather than trying to protect lower-level inventions
• that an applicant for a pending standard patent has the opportunity to file multiple divisional innovation patents so that a person accused of infringement may find themselves initially defending proceedings for infringement of a first patent, and subsequently see the proceedings amended to include one or more innovation patents drafted to address the weaknesses of the first patent.

The Options Paper outlines 3 broad options for the future of the innovation patent system: 

• Option A: No change
• Option B: Abolish the innovation patent system
• Option C: Change the innovation patent system

Option A: No change

The Options Paper notes that the Raising the Bar Act has made substantial changes to the legislation supporting the innovation patent system (effective from 15 April 2013) and that it may be reasonable to see how these changes interact and 'bed down' before making any more changes to the system.

The paper also comments that the responses to surveys of innovation patent inventors conducted as part of the Verve Economics assessment of the innovation system indicated that individuals and SME user groups appear to be generally satisfied with the system.

Option B: Abolish the innovation patent system

The Options Paper lists a number of factors said to favour abolition of the innovation patent system, as well as a number of factors against.

Issues said to support abolition include:

• The system is under-utilised: only about 300 innovation patents are certified each year from about 1,400 innovation patents that are granted
• The system is not achieving its intended goals or policy outcomes, citing the large portfolios of certified innovation patents held by large companies and the large number of granted divisional innovation patents with standard patent parents
• Indications that sophisticated users are strategically using the system with no quantifiable benefits flowing to the public
• The system creates uncertainty and increases legal costs because of the very low inventive threshold and the fact that an innovation patent does not need to be certified (and once certified, is very difficult to revoke).
• A perception that a lot of ‘poor’ quality, uncertified innovation patents are being granted and placed on the Register of Patents.

Issues which are said to contradict abolition include: 

• If the system is abolished, sole inventors/self-filers and SMEs might be discouraged from entering the patent system because the inventive threshold for a standard patent is too high and the standard patent system is seen as being too difficult to navigate without expensive professional help
• Abolishing the system might remove IP protection that is genuinely useful to SMEs
• Abolishing the innovation patent system will re-establish the ‘gap’ in promoting, protecting and disclosing lower level inventions identified by ACIP in its 1995 Review of the Petty Patent System
• The public mischief caused by having uncertified innovation patents on the Register of Patents may not be as great as is popularly made out since more than half of all innovation patents cease within three years of their date of filing

Replacing the system

The Options Paper raises options for replacing the innovation patent system with an alternative system for protecting low-level inventions. The primary proposal canvassed is to change the registered designs system to permit registration of features of shape or configuration which serve a purely functional purpose.

Option C: Change the system

Recent changes

The paper notes a number of significant changes to the innovation patent system due to the final implementation of the Raising the Bar Act on 15 April 2013, including:

• changes to the deadline for filing a divisional innovation patent which will prevent applicants strategically filing divisional innovation patents during court or opposition proceedings
• various amendments that have tightened up the disclosure requirements for an innovation patent specification
• an increase in the inventiveness level applicable to innovation patents due to the removal of the geographical restriction on common general knowledge used for assessing whether a difference over the prior art involves no substantial contribution to the working of the invention.

ACIP discusses a number of options for further changes to the system.

Raising the level of innovation

ACIP states that it found general agreement that the level of innovation set in the current test for 'innovative step' is too low but there is no agreement within the stakeholder group as to what is an appropriate level of innovation.

Stakeholder suggestions for changing the test include:

• a test of ‘not clearly obvious’; ACIP notes that it is difficult to see how a Federal Court judge would be able to distinguish between what is obvious and what is clearly obvious a test of assessing the substantial contribution made by the innovation against the relevant prior art so that the substantial contribution would have to make a substantial contribution to the working of the prior art; ACIP notes that it is not entirely clear how this would differ in practice from the existing test
• raising the level of the test for innovative step by amending section 7(4) of the Patents Act to permit direct reference to the common general knowledge alone or in combination with any one of the kinds of information set out in section 7(5)
• applying the test of inventiveness as was applicable under the Patents Act 1952 so that the level of innovation would be by reference to what would be obvious having regard to common general knowledge in Australia; ACIP notes that current practices relating to the quick retrieval and use of digital information may generate difficulties in distinguishing between what is generally known and what information can be very readily converted into what is known.

The paper says that ACIP has spent considerable time wrestling with this issue, noting that:

• if the level of innovation is raised to the ‘inventive step’ level, then the innovation patent system is rendered ineffective and it might as well be abolished; but 
• if the level of innovation is raised to an intermediate level, then it is difficult to conceive of a suitable test that will be easily understood by users, IP professionals, patent examiners and the courts.

ACIP invites further stakeholder comment on their preferred option for the level of innovation and how this option will make the innovation patent system more robust.

Reducing remedies

The Options Paper raises the option of removing the possibility of seeking injunctive relief from those innovation patents that are not being commercially exploited. Alternatively, the term of injunctive relief could be reduced by an amount equal to the delay in seeking certification. These options are intended to encourage innovation patentees to use their patents and also discourage undesirable behaviour (such as delaying infringement actions).

Limiting the monopoly

The Options Paper suggests that an alternative to raising the level of innovation might be to limit or restrict the monopoly of an innovation patent to a single embodiment. If the monopoly is restricted to a single embodiment fully disclosed in the specification, then an interested party can better predict the extent of the potential monopoly and make a more informed commercial decision based on this prediction.

Changing processes – formalities check, compulsory certification

The Options Paper discusses a number of possible changes to processes for examination including a proposal for compulsory examination, either before grant, or within three years of the date of grant.

ACIP states that it has some concerns with the compulsory examination proposal since it will substantially increase the costs of obtaining an innovation patent. Such a move could be seen as directly hindering or restricting access to the system by individuals and SMEs.

Exclusions

At the present time, the only specific exclusions from the innovation patent system are plants and animals, and the biological processes for the generation of plants and animals, except if the invention is a microbiological process or a product of such a process. ACIP has considered broadening this list of exclusions from the innovation patent system.

ACIP considers that the following could be excluded from the system:

• methods and processes 
• chemical compositions and pharmaceuticals
• software

ACIP notes that a number of utility model systems in other jurisdictions provide for one or more of these exclusions.

Limiting access to the innovation patent system

Finally, the Options Paper considers whether measures should be taken to limit access to the innovation patent system. The paper notes that it would arguably be inconsistent with the Paris Convention provisions if access to the innovation patents system was restricted solely to Australian applicants and to applicants resident in Australia.

Alternatively, the paper raises the possibility of excluding applications from all but individual applicants and SMEs. The paper states that such a restriction would be consistent with the objective of the innovation patent system to stimulate innovation in Australian SMEs, but also remarks on the difficulty of administering the exclusion without creating undue bureaucracy. The paper points to recent changes to the R&D Tax Incentive Program as possibly providing a suitable model. Under this program, R&D tax incentives are available to entities with an aggregated assessable income of less than $20 million in an income year. An entity’s assessable income is aggregated with the income of its affiliates, entities that it is affiliated with and entities connected with it.