Innovation patents ‒ the beginning of the end

By Richard Hoad, Deborah Polites

01 Feb 2018

The phase-out of Australia's innovation patents system will be gradual: new innovation patent applications can be lodged as divisionals of pending standard patent applications filed before the commencement of the amending legislation, so there will be innovation patents in force in Australia until 2027.

In its Final Report in relation to Australia's intellectual property system in late 2016, the Productivity Commission recommended that Australia abolish its innovation patents system. In August 2017, the Federal Government announced that it would accept that recommendation.

IP Australia's exposure draft of legislation to give effect to this recommendation (the consultation period ended in December 2017) brings the phasing out of Australia's "second tier" patent system one step closer, but there is still some life left in the innovation patents system.

What is the innovation patent system?

Innovation patents were introduced in 2001 (replacing the "petty patent" system which had operated since 1979). They differ from standard patents in that they are assessed against a lower standard of inventiveness. In order to obtain an innovation patent, it is not necessary to establish that the subject matter involves "an inventive step" (as is the case for standard patents). Rather, all that is required is to show an "innovative step". This means that a technological development that involves an incremental yet substantive contribution to the technical field may be protected by an innovation patent, even if the advance falls short of being "inventive".

Another advantage of an innovation patent is that the cost of examination is delayed until "certification" - a process which need only be undertaken if the patentee wants to sue for infringement.

In return for these efficiencies, the term of the innovation patent (eight years) is substantially shorter than the 20 years' protection given by a standard patent, and an innovation patent is limited to five claims (theoretically reducing the scope of the monopoly).

Why did the Productivity Commission recommend its abolition?

The innovation patent system was designed to assist SMEs in particular to use the patent system to protect their intellectual property. The Productivity Commission concluded that the second tier patent system had failed. In particular, the Commission expressed the view that:

  • the system was in fact operating against the interests of SMEs;
  • the low "innovative step" threshold had "encouraged a multitude of low value patents" which had "reduced the credibility that patents provide for attracting finance for commercialisation, and created uncertainty for other innovators who are unsure whether they are infringing on another party’s patent"; and
  • users were "gaming" the system by using innovation patents "to improve their bargaining position in patent disputes and to frustrate entry by competitors", including by filing multiple and strategic divisional innovation patent applications, for minor variants of an invention that is the subject of a standard patent application.

In many cases, the distinction between legitimate patent strategy and what the Productivity Commission describes as gaming the system may be very much a question of perspective. In any event, the Commission recommended that the innovation patents system be abolished.

Side bar: the Full Federal Court's decision in Coretell

In early 2017, in a development that might be called the "beginning of the beginning of the end", the Federal Court significantly reduced the potential for patentees to recover damages for infringement of innovation patents. In Coretell v Australian Mud Company [2017] FCAFC 54, the Full Federal Court held that where an innovation patent is granted on a divisional patent application, the time from which damages are payable for infringement commences upon grant of the innovation patent, not (as a single judge of the Federal Court had held in another case) from the filing date of the "parent" application.

Previously, a patent applicant could file a divisional innovation patent application based upon a standard application, but with changes to the claims to ensure that a specific competing product it had identified would infringe. Once granted and certified, the innovation patent would be more difficult to challenge, and would give the patentee the right to recover damages from a period when neither the parent nor the divisional patent was granted - and before the claims of the innovation patent were even known to the alleged infringer. The decision in Coretell addressed this comprehensively, by a finding that would prevent the patentee from recovering any monetary remedy for infringing conduct that took place in that earlier period (ie. prior to grant of the innovation patent).

The Full Federal Court's judgment was handed down after the Productivity Commission released its Final Report. Whether this decision might have had any effect on the issues giving rise to policy concerns surrounding innovation patents will never be known. However, it certainly alleviates some of the concerns which the Productivity Commission had identified.

How does the proposed legislation implement the abolition of the innovation patents system?

If the exposure draft legislation released by IP Australia were to be enacted, the phase-out of the innovation patents system would be a slow burn. Of course, existing innovation patents will be unaffected and will have up to eight years to run. In addition, however, it will still be possible to file new innovation patent applications in certain circumstances.

First, the provisions which abolish the innovation patents system will not commence until 12 months after the legislation receives royal assent. This is intended to preserve the rights of applicants who have filed a provisional or basic patent application prior to royal assent - they will have the usual 12 month period to file an innovation patent application claiming priority from the provisional application (or a somewhat lesser period, if the provisional application is filed in the 12 months after royal assent).

Second, even after the amending legislation commences, a new innovation patent application could be filed if it is filed as a divisional of a standard patent application which was pending immediately prior to commencement (provided the priority date of the claims is also a date prior to commencement). In other words, if you have a pending patent application before the amending legislation commences, you will still be able to employ the strategy - which was much derided by the Productivity Commission - of filing a divisional innovation patent application targeted at the activities of an alleged infringer.

There is a logic to this approach. As the draft Explanatory Memorandum explains:

"Abolishing the innovation patent system is not intended to affect existing rights. The system will continue to operate for innovation patents that were filed before these amendments commence. In addition, existing rights to file divisional applications and convert a standard patent application to an innovation patent application will be maintained for any patent or application that was filed prior to the commencement date of these amendments. This is achieved under the legislation by requiring that any innovation patent filed after the commencement date must have a date of patent and a priority date for each claim that is before the commencement date."

IP Australia called for submissions in relation to its exposure draft legislation (which also addressed issues other than the abolition of the innovation patents system) before Christmas, and 19 such submissions were received. However, only three submissions addressed the issue of innovation patents at all, and only one of these argues for a more aggressive phase-out. As such, it seems likely that the "end of the end" for the innovation patents system will be a while in coming.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.