Venturing into the unknown

Venturing into the unknown

The Minister for Innovation, Senator Kim Carr recently released a report entitled “venturousaustralia – a Report on the Review of the National Innovation System”. Three recommendations in the report have a potential significant impact on Australian Intellectual Property law.

Recommendation 7.2: “Patent law should be reviewed to ensure that the inventive steps required to qualify for patents are considerable and the resulting patents are well defined so as to minimise litigation and maximise the scope for subsequent innovators”

Part of the discussion leading to this recommendation is directed to perceived problems in relation to patents for software and business systems. There is however no evidence other than from the United States to support the concerns in relation to the Australian market. Statistics1 quoted from the United States show that “software patents are four times more likely to be litigated than chemical patents; and business methods are twelve times more likely to be litigated; finance patents are forty-nine times more likely”. These statistics are not representative of the position in Australia where chemical patents are litigated far more frequently than any of these other categories. Indeed there has been minimal litigation in any of the fields mentioned in Australia. Reference is also made to “anxiety about whether a ‘patent thicket’ has developed in software as a result of software patents” 2 . This concern is presumably of United States origin because the number of software patent applications in Australia is relatively modest and fairly stable over the past several years. A recent report3 shows patent applications in “Information Technology”, represented 5.9% of applications in 2007 5.9%, over 2004-2007 and 4.8%, over 1999-2003.

The second issue canvassed in the report is the view4 that a recent Australian High Court decision has recognised the level of invention required to obtain a patent in Australia is lower than elsewhere. The report expressed the view that “at the very least in the interest of both harmonisation and better public policy the hurdle for registering a patent should be as stringent as other countries”. The problem with this argument is that the evils which the recommendation seeks to address (patent thickets and excess litigation) are prevalent in the United States but not in Australia. It is difficult to understand why harmonisation would avoid the problem developing. Further, harmonisation has a potential to significantly foster the development of patent thickets in Australia. For example, if a model is adopted in which grant of a patent in Australia is a formality on the basis of a corresponding United States patent then major players will be able to readily obtain a large number of patents at minimal cost. This has the potential to greatly increase the number of patents granted in Australia across the board. It is already the case that about 90% of Australian patent applications are filed by non-Australians. The report also cites a recent study5 which found that the more patents held in the market the less likely new firms were to enter. This is a good reason to be very careful about changing the dynamics of the Australian patent system because of the potential to significantly hamper Australian industry.

Recommendation 7.3: “Professional practitioners and beneficiaries of the IP system should be closely involved in IP policy making. However the IP policy is economic policy. It should make the same transition as competition policy did in the 1980s and 1990s to IP being managed as such”

The basis of this recommendation is the suggestion that policy is being managed as a legal issue but that it is fundamentally an aspect of economic policy. This view arises from an analysis of the area of government administering the legislation. Contrary to this suggestion the economic policy imperatives of IP legislation have always been at the forefront of any review and consequently the problem that this recommendation addresses is not clear. Indeed one of the most far reaching reviews of IP legislation in recent times “Review of Intellectual Property Legislation under the Competition Principles Agreement” delivered in September 20006 was chaired by an economist and closely considered economic implications of IP legislation.

Recommendation 7.4: “Firms asserting or defending intellectual property should have a right to opt out of ‘double jeopardy’”

This recommendation is made in response to submissions that the cost of IP litigation hampers enforcement of IP rights. The recommendation seeks to address one component of cost by giving each party a right not to appeal a first instance decision except where the appellant funds the costs of both parties. A difficulty with the proposal is that it prevents access to appeals for under resourced clients without significantly deterring the well resourced. In most cases the cost of an appeal is significantly less than the litigation at first instance mainly due to the evidentiary and procedural aspects such as discovery associated with the latter. A more fundamental matter to be addressed may be the costs of the first instance litigation and its effect on enforcement. The Advisory Council on Intellectual Property currently also has a review of post grant enforcement underway. The issues paper lists a number of cost reduction initiatives being considered.

Overview

The report has identified some potential concerns however, a more detailed review based on Australian analysis is required to quantify the problems and identify potential legislative solutions before any changes are made. To act quickly in relation to the broad recommendations may significantly perturb the landscape to the detriment of Australian business, and not address the fundamental concerns.

Endnotes

  1. Venturousaustralia – a Report on the Review of the National Innovation System 2008, p84, citing Bessen J and Meurer M J, Patent Failure How Judges, Bureaucrats and Lawyers put Innovators at Risk, Princeton University Press, March 2008
  2. Venturousaustralia – a Report on the Review of the National Innovation System 2008, p84, citing Cockburn I M and MacGarvey M J, Patents, Thickets and the Financing of Early Stage Firms, Evidence from the Software Industry 2007
  3. Australian Patent Applications Scoreboard 2008 – University of Melbourne, Intellectual Property Research Institute of Australia
  4. IP Australia Submission to National Innovation Review [No. 537, p52] citing Lockwood Security Products Pty Ltd v. Doric Security Products Pty Ltd (No. 2) [2007] HCA 21 and Aktiebolaget Hassle & Anor v Alphapharm Pty Ltd [2002] HCA 59
  5. Venturousaustralia – a Report on the Review of the National Innovation System 2008, p84, citing Cockburn I M and MacGarvey M J, Patents, Thickets and the Financing of Early Stage Firms, Evidence from the Software Industry 2007
  6. Review of Intellectual Property Legislation under the Competition Principles Agreement [September 2000] Final report by the Intellectual Property and Competition Review Committee