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Last week, the World Intellectual Property Organization (WIPO) published its Global Innovation Index 2018 (GII) report, as it has done every year since 2011.  Jointly authored with Cornell University and the INSEAD Business School in France, the GII is intended to provide ‘a detailed quantitative tool that helps global decision makers better understand how to stimulate the innovative activity that drives economic and human development.’  It ranks 126 economies based on 80 indicators, ranging from intellectual property filing rates to mobile-application creation, education spending, and scientific and technical publications.

In 2018, Australia ranks 20th overall, which is a gain of three places since 2017.  The countries that were ahead of Australia and that have slipped behind in 2018 are New Zealand (now 22nd, down from 21st), Austria (down from 20th to 21st), and Iceland (crashing down from 13th in 2017 to 23rd in 2018).

Yet, while Australia has risen slightly in the overall rankings, it continues to languish in a pathetic 76th place, i.e. in exactly the same position as last year, in a measure that I regard as particularly telling – the ‘innovation efficiency ratio’, which indicates how much innovation ‘output’ the country is getting in return for its innovation ‘inputs’.  Australia’s efficiency ratio is just 58%, which compares to the median of 61%, and is way below the values for those countries that are most effective at converting innovation inputs into outputs, such as Switzerland (96%), Luxembourg (94%), China (92%), the Netherlands (91%), and Ukraine (90%).  Yes, you read that correctly – Ukraine is the fifth highest performing economy on innovation efficiency because, while it ranks just 43rd overall in the GII, and a rather poor 75th on innovation inputs, its effectiveness in converting those inputs places it at number 35 in the output ranking.
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The innovation patent is Australia’s second-tier patent right, which has existed since 2001.  It differs from a standard patent in that it has a shorter term (eight years instead of 20), has a lower inventiveness standard (‘innovative step’ rather than ‘inventive step’), has a five-claim limit, can be granted rapidly following only a formalities review, is not subject to any form of pre-grant opposition, and need not be subject to substantive examination (although it must be examined and certified before it can be enforced against any accused infringer).

In recent years, the innovation patent system has been under a cloud, with a number of forces assembling arguments and evidence in support of its abolition.  Legislation was recently drafted and published for public consultation including provisions that would, if enacted, result in a phase-out of the innovation patent.  However, at the last minute these provisions were removed prior to introduction of the legislation to the Australian Parliament.

If, as still seems most likely, the innovation patent is to be abolished in the near future, this seems to be an opportune time to review its short, but eventful, life.
Prehistory – the Rise and Fall of the Petty PatentBefore the innovation patent, Australia had a secondary patent right called the ‘petty patent’.  Petty patents were originally introduced in 1979, and they differed from standard patents in that they had a shorter term (up to six years), could include only three claims, were faster to obtain, and were not subject to a pre-grant opposition process.  However, they required exactly the same level of inventiveness as a standard patent, and could not therefore be used to protect any invention that could not otherwise be protected by a standard patent.  Unsurprisingly, petty patents came to be used primarily as a tool for strategic patent enforcement.

In 1994, the Australian Government decided to review the petty patent system, in response to recommendations made in a report to the Prime Minister's Science and Engineering Council (PMSEC), The Role of Intellectual Property in Innovation.  In July 1994, the Government referred the petty patent system to a relatively new panel, the Advisory Council on Intellectual Property (ACIP).  The resulting review of the petty patent system was (somewhat ironically, as we shall see) ACIP’s first major inquiry.

In August 1995, ACIP published its report on the Review of the Petty Patent System, in which it recommended that the petty patent be abolished and replaced with a new system in order to fill a perceived gap between registered design rights and standard patent protection.  Among a number of other differences from the petty patent system, the ‘innovation patent’ proposed by ACIP would be a true ‘second tier’ right having a lower ‘inventiveness’ requirement, and which would therefore enable innovators to obtain protection for lower-level innovations that might not otherwise qualify for standard patent protection.
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On 8 May 2018, the Australian Government announced its plans to reform the Research and Development Tax Incentive (R&DTI) program to better target the program and improve its integrity and fiscal affordability in response to the recommendations of the 2016 Review of the R&D Tax Incentive (‘the Review’).  Changes to the program will apply for income years starting on or after 1 July 2018, i.e. the current financial year just beginning.  On 29 June 2018, the government released exposure draft legislation and associated explanatory materials setting out its proposed implementation of the reforms.  It is currently seeking stakeholder feedback on these materials, and has published an accompanying consultation paper outlining areas in which specific feedback on the implementation of the reforms is being requested.

The R&DTI is the Australian Government’s largest, and most costly, innovation incentive program.  In its current form, it provides a tax offset (of 43.5% or 38.5%, depending on annual aggregated turnover) for some of a company's cost of eligible R&D activities.  To be eligible, an applicant must be an incorporated company, and be conducting eligible core R&D activities incurring an expenditure of at least A$20,000.  The legislation defines eligible activities as being experiments that are guided by hypotheses and conducted for the purpose of generating new knowledge.

The Review found that the R&DTI was failing to fully achieve its objectives of generating additional R&D activities and was not well targeted, in the sense that it provides benefits for R&D activities that would have been undertaken anyway.  It also found the cost of the Incentive had exceeded its initial estimates of A$1.8 billion per annum when it was introduced in 2011-12.  In 2016-17, it actually cost around A$3 billion.  The Review made a number of recommendations to improve the integrity and effectiveness of the program and to promote its objectives.  The proposed legislation would implement a number of these recommendations, adopted in the 2018-19 national budget.

If passed, the proposed changes to the R&DTI program will apply a A$4 million cap to the refund available to small companies (although, notably, clinical trials will be exempt from the cap).  They will also reduce the incentive available to large companies, and make the corresponding tax offset dependent upon R&D intensity (i.e. cost of R&D relative to total expenditure).  Additionally, they will close some ‘loopholes’ and make a number of adjustments to the administration of the program, including enhancing transparency by requiring information about companies’ R&D tax claims to be published.

A consultation process in currently underway, with submissions due by 26 July 2018.
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Last week I wrote about a recent Australian Federal Court decision on patent-eligibility of a computer-implemented invention, Encompass Corporation Pty Ltd v InfoTrack Pty Ltd [2018] FCA 421.  There is, however, a further aspect to this decision that may turn out to be of greater significance because, in addition to attacking Encompass’ patents on subject matter and novelty grounds, InfoTrack also sought to have the patents invalidated on the basis that the disclosure in the specification was deficient under the requirements of section 40 of the Patents Act 1990.  I believe that this is the first time that the current provisions, since commencement of the Intellectual Property Laws Amendment (Raising the Bar) Act 2012, have received substantive judicial consideration.  Furthermore, given that the decision has been appealed by Encompass (case no. NSD734/2018), and a Notice of Contention filed by InfoTrack, it seems highly likely that the post-Raising the Bar provisions of section 40 will soon be reviewed by a Full Bench of the Federal Court of Australia.  If so, then we may find out just how far the bar has actually been raised on the disclosure requirements.

The former version of section 40 required, among other things, that a patent specification ‘describe the invention fully’, and that the patent claims defining the invention must be ‘fairly based on the matter described in the specification’.  Over time, the courts interpreted these provisions as, in most cases, requiring only that the description should enable a person of ordinary skill in the relevant field to implement something falling within the scope of the claims without further invention, and should provide a ‘real and reasonably clear disclosure’ of the invention that is broadly consistent (or, at least, not inconsistent) with what is claimed.  In practice, this was a pretty low bar that generally allowed applicants to make relatively broad claims despite possibly having disclosed only a single, specific, implementation of an invention.

By comparison, the current version of section 40 requires that a patent specification ‘disclose the invention in a manner which is clear enough and complete enough for the invention to be performed by a person skilled in the relevant art’, and that the claims must be ‘supported by matter disclosed in the specification’.  The intended effect of these changes is, firstly, to require that the description provide sufficient information to enable the skilled person to perform the invention across the full scope of the claims and, secondly, that the scope of the claims should not be broader than is justified by the extent of the disclosure and the contribution made by the invention.  While these intentions are not necessarily apparent from the wording of the provisions, the idea is that they are implied through the use of similar terminology to that used in other jurisdictions (particularly Europe and the UK), as indicated in the Explanatory Memorandum that accompanied the Raising the Bar legislation.

If the changes to the law achieve their intended effects, then the standard of disclosure required, and the concurrence of the relationship between the description and claims, should be substantially enhanced.  I would have to say, however, that there is little in the first instance decision in Encompass v InfoTrack to indicate just how far the bar has been raised.  This appears, at least in part, to be a result of the way the case was argued, which led the court to give greater attention to what the new provisions are not, rather than to what they are.  In any event, it is to be hoped that consideration by the Full Court will be more enlightening.
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The law – and Patent Office practice – relating to the assessment and examination of patents and applications for computer-implemented inventions in Australia is currently a complete mess.  I challenge anyone – whether an inventor, applicant, patent attorney, patent examiner, Patent Office hearing officer, IP lawyer, barrister or judge – to provide a coherent explanation of how to go about deciding whether an invention involving the use of a computer is eligible for patent protection.  I myself cannot do it, so I would genuinely love to have someone explain it to me.

In this article, I will show you where a unanimous Full Court panel of three judges of the Federal Court of Australia – the highest legal authority to have considered patent-eligibility of computer-implemented inventions in this country – clearly stated that it is impermissible to consider the state of the prior art in assessing whether or not the subject matter of an invention is patent-eligible, i.e. a ‘manner of manufacture’ in the terminology used in the Australian law.  Notably, subsequent Full Court panels have thrice accepted the correctness of this decision without criticism.  Then I will show you where a single judge of the Federal Court recently found an invention to comprise ineligible subject matter on the basis that various components of the claims are known from the prior art. 

I will also show you where a Patent Office hearing officer, in upholding the rejection of a patent application by an examiner, expressly stated that it is legitimate to consider the prior art when assessing patent-eligibility of computer-related subject matter.  I will point you to a recent opposition decision in which the hearing officer found that the claimed invention was not patent-eligible, despite an examiner having accepted the application, and the applicant being successful in establishing that the claims involved an inventive step over prior art raised by the opponent.  And I will identify a further four Patent Office decisions – in addition to 13 published since the beginning of 2017 that I listed last November – in which applications for computer-implemented inventions have been refused, including one relating to an application by Google which cites the aforementioned decision to justify considering prior art when deciding subject-matter eligibility.  In these decisions, the Patent Office is continuing to apply its adaptation of the England and Wales Court of Appeals’ four-step test for patentable subject matter, as set out in Aerotel Ltd v Telco Holdings Ltd; Macrossan’s Application, [2006] EWCA Civ 1371 (Aerotel/Macrossan), despite a lack of any clear authority for this approach in Australia.

Meanwhile, one of two Federal Court appeals of Patent Office decisions has been terminated following unsuccessful mediation, while the other has been delayed after the parties decided that expert evidence is required.  Yes – expert evidence to address whether or not an invention is a ‘manner of manufacture’, which is supposed to be a question of law, on which technical experts have no authority.

This is all, frankly, terrible for the state of patent law, and for high-tech innovation, in Australia.  Literally nobody really knows what the law is.  It is not just that patent applicants, and their attorneys, do not agree with the Patent Office about what is, and is not, patentable.  The Patent Office does not agree with itself!  Inventions that are receiving approval in examination are being rejected in opposition.  Attorneys, examiners, hearing officers and judges are finding it all but impossible to extract coherent principles from the relevant Full Court decisions, without exposing inconsistencies in those decisions.  In Federal Court, technical experts are being called in to shed light on something that is supposed to be a legal issue.  As I recently reported, the examination section that deals with inventions related to computing has the lowest acceptance rates in the Australian Patent Office.  All of this speaks to the uncertainty that currently surrounds what is, and is not, patentable when it comes to computer-implemented invention.
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On 15 April 2013, the majority of provisions in the Intellectual Property Laws Amendment (Raising the Bar) Act 2012 came into effect.  Among other things, these reforms were designed to lift the inventive step standard, and to impose more-stringent requirements on the disclosure in a patent specification.  As a consequence of this, you would think that some inventions that would have been patentable prior to commencement of the reforms would be unpatentable under the new standard, and that some patent specifications that would have passed muster previously could fail to meet the higher standards for disclosure.  And, if so, then it might logically follow that the proportion of applications that successfully pass examination (i.e. are accepted for grant) would be lower under the new law than under the old.

Yet, as logical as that reasoning may seem, just recently I published an analysis indicating that acceptance rates across almost all examination technology sections at the Australian Patent Office were, in fact, consistently increasing on an annual basis between 2014 and 2016.  That result is surely worthy of a closer look!

A more-detailed analysis of Australian patent examination data covering a period of over three years either side of the Raising the Bar reforms, from 2010 up until the end of 2017, indeed confirms that a naïve assumption that lifting standards should reduce acceptance rates is incorrect.  In fact, acceptance rates had been rising for a number of years prior to commencement of the reforms, and initially this trend continued under the supposedly higher standards.  And although there was subsequently a brief decline in acceptance rates, this has been followed by a period during which acceptances have once again been on the rise.  Indeed, right now it appears as though the proportion of applications that are accepted for grant following examination is around 80%, which is almost exactly where it stood immediately prior to commencement of Raising the Bar.
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The Australian Government’s Department of Industry, Innovation and Science (DIIS) has launched a consultation ‘to better understand the needs of innovative Small and Medium Enterprises (SMEs) in managing and exploiting their intellectual capital’.  If my experience is anything to go by, the first challenge will be finding Australian SMEs with an understanding of what intellectual capital is, let alone how to manage and exploit it in any systematic way.  Fortunately, DIIS has provided its own definition of the term: ‘by intellectual capital we mean things like ideas, know-how, branding, data, trade secrets and copyright and also registered intellectual property (IP) rights such as patents, trade marks, designs and plant breeder’s rights.’

While potentially patentable inventions may form only a small part of a company’s intellectual capital – and there are, of course, many businesses that are not at all involved in the generation of new technology – patent filings are nonetheless widely seen as one indication of innovative activity within the national economy.  Additionally, applying for IP protection is a clear signal that a business has some awareness of its intellectual capital, even if only informally.  In the case of a patent filing, someone has at least identified the existence of an invention, and made a conscious decision that it is of sufficient value to warrant protection.  I recently wrote about Australia’s poor performance in patent filings, which I attribute to a generally negative mind-set, arising from a combination of ignorance, aversion, and lack of appreciation of the value of patents (and other forms of IP).  Relatively low rates of patent filing might therefore be a reflection of an absence of awareness, processes, and strategies for actively managing and exploiting intellectual capital within the vast majority of Australian businesses.

According to a 2016 report published by the Australian Small Business and Family Enterprise Ombudsman (ASBFEO), there were over 2.1 million businesses operating in Australia in 2015.  Just 0.2% of these (around 3,700) were classified as large businesses, employing over 200 people.  A further 2.4% (just under 51,000) were medium-sized enterprises, employing between 20 and 199 people.  The majority of businesses smaller than this – 60.6%, or just over two million – are non-employing sole traders (like me).  As I demonstrate in this article, however, even on the most generous interpretation of the available data, less than 0.3% of SMEs and sole traders filed any kind of Australian patent application in 2015.  On average, SMEs filed around 1.5 applications each (if they filed at all), while the typical individual applicant filed only a single application.  By comparison, just over 5% of large firms filed patent applications in Australia, and on average these firms filed over five applications each.

I fear, therefore, that DIIS will not receive too many responses to its consultation, and those businesses that do respond are unlikely to represent a broad cross-section of Australian SMEs.  Businesses for which intellectual capital is barely on the radar are unlikely to become aware of the consultation, or take the time to respond to questions set out in the Submission Guide, such as: ‘What does “intellectual capital” mean to you?’; ‘What role does it play in your business strategy?’; ‘How does your business exploit its intellectual capital?’; ‘Can you tell us about any successes or failures?’; ‘Do you seek advice on how to manage and exploit your intellectual capital?’; and ‘If not, why not?’.

For those SMEs, and other stakeholders, with an interest in the fate of Australia’s innovation patent system, this consultation provides a further opportunity to make their views known.  When provisions to abolish the innovation patent were recently dropped from legislation introduced to Parliament, IP Australia announced that the Government had ‘decided to undertake further industry consultation targeted at better understanding the needs of innovative SMEs before the phase out of the innovation patent occurs’.  The Submission Guide does not expressly mention the innovation patent, however the consultation is explicitly linked to the Productivity Commission’s inquiry into Australia’s IP arrangements, noting that the Government is ‘committed to continue to further explore the overall needs of Australian SMEs in relation to exploiting their intellectual capital, and securing, utilising and enforcing their IP rights.’  Filing numbers presented in this article show that, for whatever reasons, SMEs have made increasing use of the innovation patent system over time.

While the consultation is primarily directed to SMEs, the Submission Guide also appears to envisage that submissions may be received from ‘professional organisations providing service or advice to SMEs.’
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It is perfectly reasonable for anybody who has applied for a patent to want to understand how the application process works, how long it is likely to take, and what are their prospects of actually receiving a granted patent in the end.  Unfortunately, it is not easy to find this information, in part because there are many factors that influence the patent examination process.  These factors include the different laws and regulations that apply in each country, variations that depend upon the field of technology of the invention, and the effect of workloads and application backlogs in the relevant patent offices.

In this article, I will review the application process at the Australian Patent Office, and look at some recent data drawn from the latest 2018 release of the Intellectual Property Government Open Data (IPGOD) to illustrate how delays in examination, and prospects of success, can be dependent upon technology and the way in which examination work is allocated within the Patent Office.  I was initially prompted to conduct this analysis by anecdotal accounts of a patent application ‘death squad’ within a particular team of Australian examiners.  However, since the plural of ‘anecdote’ is not ‘data’, I wanted to see whether there is any evidence to support these accounts within the most recent IPGOD data.  I did find the answer, along with a number of other insights.

The first thing to understand about the Australian patent examination system, for those not already familiar, is that it requires each patent applicant to file a request for examination that is generally distinct from other filing formalities.  This is in contrast to the US system, for example, in which examination fees must be paid at filing of a new application, which is then examined in its turn without further action by the applicant.  In Australia, it is possible to request examination (and pay the corresponding fees) at the time of filing, however most applicants elect to defer this step.  After filing, examination may be requested at any time, but a request must be filed within five years of filing, or within two months of the applicant being directed to request examination by the Commissioner of Patents, whichever is earlier.  This is almost invariably the Commissioner’s direction, since directions are typically issued within three-to-four years of the initial filing date, i.e. well within the five year limit.

As we shall see, what happens next depends strongly upon the field of technology of the invention – or, more precisely, upon how the examination task is allocated within the Patent Office, which is, in turn, largely technology-dependent.
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In the first year of operation of the Australian national patent system – 1904 – just over 1,200 patent applications were filed, more than 85% of which were lodged in the names of individual inventors, rather than companies.  In 2017, by contrast, around 28,600 Australian standard patent applications were filed, of which just 10% named personal applicants – nowadays, 90% of all patent applications are filed by companies and other collective organisations.  This observation naturally prompts the question: when did invention cease to be a predominantly individual activity, and become principally the product of corporate research and development?

With the release by IP Australia last week of the first stage of the 2018 Intellectual Property Government Open Data (IPGOD) it becomes possible to directly answer this question for Australian patent filings.  For the first time, thanks to machine learning technology, every applicant on every application for all four registered IP rights (patents, trade marks, registered designs and plant breeder’s rights) is flagged as either an individual, or a corporate entity.  In past years this information was only consistently available for patent records from around 1980, due to the more limited data that could be extracted from earlier record-keeping systems.  By the 1980’s, over 80% of all patent applications were being filed each year by corporations rather than individuals.

In fact, the transition from consistently 80% or more personal filings to consistently over 80% corporate filings took place over a period of nearly four decades, starting in 1920.  The final year in which more patent applications were filed by individuals than by corporations was 1933, and by the start of the second World War over two-thirds of patent applicants were corporations.

Historical records also clearly show the impact of international conflicts, and global and domestic economic events, on patent filing behaviour.  A comparison using US patent data as a benchmark also shows that filings of Australian patent applications have historically tended towards strong growth, but relatively high volatility.  In the 21st century, however, growth in Australian patent filings has clearly slowed relative to the US benchmark.
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This is a guest contribution from Kelvin Tran of Litimetrics.  Further details about the author can be found at the end of the article.

Since 2010, there have been 472 patent proceedings filed in the Federal Court of Australia.  During the same period, there were over 160,000 standard patents granted, and over 1,400 innovation patents certified.  On those numbers alone, the chance that an applicant or even opponent will be involved in Federal Court litigation is therefore rare.  It’s obvious why - litigation is expensive and lengthy, and litigants, for the most part, are sensible.

Most rights-holders know that litigation only makes sense when the commercial value of the rights to be enforced exceeds the costs of litigation.  But rights-holders often can’t accurately estimate the true costs of litigation.  Litigation therefore also occurs because the parties lack information to make fully informed decisions about whether the value of the rights to be protected outweigh the costs to protect them (i.e. the costs of litigation).  This cuts both ways – those who underestimate the cost and length of litigation might litigate where alternatives make better economic sense, while those who overestimate fail to litigate when it is the optimal strategy.

The source of uncertainty is clear – comprehensive and comprehensible data is not readily available. In this piece, I use data compiled by Litimetrics to look at trends associated with Federal Court patent litigation. I rely on data:
  1. that Litimetrics collects about Federal Court patent litigation from electronic court dockets;
  2. from IP Australia itself (e.g. via IPGOD and AusPat); and
  3. from the published judgments, mined by Litimetrics.
I’ll look at numbers related to the typical duration of proceedings and trials, the various stages that they go through and the proportion of cases that proceed to a final judgment (as opposed to settling). Briefly, the data shows that:
  1. 2013 and 2014 were the busiest recent years for patent litigation in Australia;
  2. the median duration of patent litigation that proceeds to a trial and final judgment is over three years;
  3. cases that settle prior to trial, however, have a median duration of 210 days;
  4. many events punctuate typical patent proceedings – directions hearings alone, for example, average over 16 per proceeding; and
  5. once the trial is over, litigants can expect to wait a number of months for a decision in a patent case.
All of this is useful information for rights-holders who may be considering the commencement of patent proceedings.
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