Productivity Commission’s final report pulls no punches on patents

Yesterday the Productivity Commission published its final report on Australia’s IP system. Our high level summary of the Commission’s recommendations across all aspects of the IP system can be found here.

The Commission sees the patent system as tipped in favour of patent owners and its recommendations are designed to restore balance.

This post provides an outline of the key changes proposed to the patent system.

The Federal Government (Department of Industry, Innovation and Science) is conducting a further consultation process before responding to the Commission’s report and submissions may be made until 14 February 2017.

1. Raising the test for inventive step (again)

The Commission acknowledges that the Raising the Bar reforms (which came into force in 2013) moved the inventive step test in the right direction, but believes that they have not gone far enough in filtering out low-value patents.

The Commission recommends the adoption of the European test, that an invention is taken to involve an inventive step if, having regard to the prior art base, it is not obvious to a person skilled in the relevant art.

This is intended to ensure that the “scintilla of invention” standard, held to be sufficient by Australian courts, is no longer applied.

2. Abolish the Innovation Patent system

The Commission has maintained its recommendation, in its draft report, to abolish Australia’s second-tier patent system, having found that the system encourages “low-value patents” and is used to frustrate market entry through the use of divisional innovation patents as a tactical tool in patent disputes.

The Commission believes that:

  • concerns about the costs to small and medium sized enterprises (SMEs) securing IP rights can potentially be achieved through streamlining processes within IP Australia and Australian courts;
  • valuable innovations can be protected by standard patents; and
  • SME’s will benefit from reduced uncertainty about infringement risk arising from innovation patents.

3. No blanket exclusion for software patents (for the moment!)

The Commission has not pursued its recommendation in the draft report that software patents be excluded as patentable subject matter. It has, instead, preferred a “wait and see” approach following the decision of the Full Federal Court in the RPL Central which held that the mere computer-implementation of a business method is not patentable.

The Commission considers that the recommendations to raise inventive step (discussed above) and introduce an objects clause (discussed below), are likely to assist in ensuring that software patents are only granted in limited circumstances.

4. Pharmaceutical patent term extensions cut

Extensions of term of pharmaceutical patents (up to 5 years) are granted to compensate patentees for delay between seeking patent protection for a pharmaceutical substance and obtaining regulatory approval to market that substance.

The Commission concluded that extensions of term do not effectively attract R&D to Australia and recommends limiting extensions of term:

  • to patents for new active pharmaceutical ingredients (APIs); and
  • so that extensions are limited to any delay over one year (255 working days) caused by the Therapeutic Goods Administration in obtaining regulatory approval.

Under this approach, patentees will no longer be compensated for delay caused by the need to conduct pre-approval clinical trials.

5. ACCC to monitor settlements in pharmaceutical patent disputes

The Commission recommends that a reporting and monitoring system to detect “pay-for-delay” settlements be administered by the ACCC. Any agreement which directly impacts on the entry of a generic pharmaceutical product would need to be lodged.

6. Applicants to identify technical features of the invention

The Commission identifies that patent applicants, not examiners, are better placed to identify the technical features, prior art and common general knowledge pertaining to the invention.

The Commission recommends the adoption of the European Patent Office (EPO) requirement that applicants identify the technical features of the invention in their claims. In the EPO, applicants are required to identify the technical problem and the advantages of the invention over the prior art.

7. Introducing an objects clause into the Patents Act

The Commission’s view is that “An objects clause should make clear that the principal purpose of the patent system is to enhance the wellbeing of Australians by promoting technological innovation, and by promoting the transfer and dissemination of technology. In so doing, the patent system should balance the interests of producers, owners and users of technology”.

The Commission considers that this will provide greater clarity to guide administrative and judicial decision-makers.

 8. Extending the jurisdiction of the Federal Circuit Court

The Commission recommends extending the jurisdiction of the Federal Circuit Court to include disputes over all forms of IP, including patents. This is complemented by a proposal for specialist IP judges to be appointed.

9. Patent fees

Finally, the Commission recommends that, patent fees increase:

  • more steeply towards the end of the 20 year term; and
  • for applications with large numbers of claims (e.g. in excess of 20 claims).

This is intended to ensure that only valuable patents remain in force and to discourage patentees from seeking overly broad protection.