The Future of the Innovation Patent System

In the context of the current review of the current Australian Innovation Patents System [i]

By Ian A. Maxwell

For a standard Australian patent to be granted, an invention must be amongst other things both novel and inventive. The test for novelty differs from one patent jurisdiction to another but has some universally common features. In most cases, for an invention to be considered novel, there must have been no disclosure of it anywhere in the world prior to the filing of the patent application. Any non-confidential act that discloses all of the features of the invention, before the patent application has been filed – made even to a single person, through documents, demonstration or through the sale of a sample of the product – could destroy the novelty of the invention, making it unpatentable.

In order for an applicant to obtain a standard patent an invention also needs to be inventive, or “not obvious”, to another person with similar skills. The inventive step is difficult to arbitrate and this is the area of patent law that usually takes up Court time if ever there is patent litigation. One way to consider this issue is to ask the following question: “Would a non-inventive person, who is experienced and knowledgeable in the area of technology to which the invention relates, when faced with the same problem that the invention has solved, have taken the same steps that led to the invention with a reasonable expectation of success?”

In various industry sectors today, it can be quite difficult to obtain useful patent coverage under the inventive step requirement (which is common in many countries) due to a number of factors, but primarily due to the incremental nature of the technology development in these industries and also the enormous amount of potentially relevant prior art, often from outside the specific industry sector of any one R&D effort. Indeed, sometimes patent claims are deemed to be not inventive, either before the patent office or later in court proceedings during a patent dispute, as a result of combinations of prior art in unrelated areas of technology. A common refrain from inventors is that it is quite impractical to expect them to be aware of the potentially relevant prior art especially from outside of their specific area of practice.

A useful example of these issues relates to an idea that I had a couple of years back. This idea was very innovative, a light for a bicycle that was integrated into the handlebar stem. This product did not exist at the time (& still does not); most bicycle lights are separate after-market items that attach directly to the handlebars. There had been some prior concepts and prototype bicycle lights where the light was, for example, integrated into the bicycle frame but not the stem; integration of a light into the stem makes more sense from a bike manufacturing point-of-view since it is a discrete component in the fabrication of a bicycle and can also be added, if required, as an after-market component. The problem I was trying to solve was three-fold; (a) getting rid of clutter on the handlebars, (b) improving bicycle aesthetics, and (c) removing the risk of theft of bicycle lights. What had changed in the external environment was the introduction of LED lighting which allowed for much more flexible packaging of lighting solutions, allowing new ideas to be implemented. However I knew that it would be difficult to obtain a standard patent for this idea since it would fail the inventive test, which in lay-man’s terms means anybody with half an engineering background would have executed the same solution, once the innovation was explained to them; therefore in patent-speak this was not an invention.

You might ask why I didn’t seek an innovation patent in Australia and commercialize this idea. The answer is very simple; firstly, I had better things to do. Secondly, I have learnt the hard way never to champion my own ideas; we are more oblivious to the deficiencies of our own ideas for some reason. Thirdly, the potential profits that could be derived from this product in the Australian market did not justify the investment in both obtaining an innovation patent and in potential patent disputes. Once the innovation was revealed to the market by product release one could reasonably expect to see any number of cheaper Chinese copies within months, with global distribution. This is an example where innovation is discouraged because of the lack of a global innovation patent system. Without a mandated period of product monopoly many ideas are simply left on the shelf because future financial returns are deemed too risky in the light of potential copy-cats and concomitant reduced product margins, market share, revenues and hence also enterprise values.

Industries that come to mind that confront these issues include electronics, software, internet, areas with mechanical/electrical products and many others where innovations are often of an ‘engineering’ nature. In fact I would be so bold as to suggest that there is now more private sector R&D in these ‘innovation-focused’ sectors than the older-school ‘invention-focused’ sectors, although of course this division is not so clear cut as this – rather one should consider the fraction of R&D outcomes in a sector that result in innovations and/or inventions. Also I would suggest that these innovation-focused sectors are growing at the expense of invention-focused sectors, when measured as a % share of the private sector R&D in first world countries.[ii]

From a viewpoint of the History and Philosophy of Science, this proposed trend away from invention-focused private sector R&D and towards innovation-focused private sector R&D accompanies the transition of science from ‘old-school’ first-principles towards research into ‘complex systems’. The very practice of science has often become petit-engineering these days.[iii] And indeed there are whole sectors of industry where there is very little fundamental science being practiced at any level. It is much harder to pass the inventive-step requirement when the majority of R&D being practiced is mostly engineering.

I believe that it is to the benefit of a nation that R&D in these innovation-focused areas of business and technology is promoted and incentivized by a patent system because the patent system acts to encourage investment in R&D and also helps dissemination of know-how which stimulates even more effort. This is especially the case if a large fraction of industrial R&D is in areas where it is difficult or even impossible to obtain invention-focused standard patents. Without an innovation-focused patent system the end-result would be to drive a large fraction of private-sector R&D ‘underground’ which would result in a reduced level of public dissemination of new knowledge. Worse still, the absence of an innovation patent system might act as a disincentive for companies to practice R&D and business development in emerging and growing industry sectors.

Australia’s innovation patent system, which was originally intended to foster innovation amongst SME’s, may have a more important role as a precursor to an emerging global patent system based around innovation for the high-growth industries where invention is less important and harder to achieve, and will increasingly become so. Many countries have ‘lesser’ patents such as ‘utility’ patents and petty patents, with the US being a noticeable absentee. However to date there appears not to be global consensus on the role of these innovation-focused patent systems and hence the impact of a single patent in these innovation-focused patent systems does not easily translate into global protection of an innovation. This situation creates a paradox for companies since increasingly R&D outcomes require a return on investment justifiable by global product sales, and not just local sales in one country.

Globally there are about 25 jurisdictions that have innovation-focused patents.[iv] Typically these differ from standard patents in one or more of the following respects:

  • Standard of invention required
  • The basis on which novelty is assessed
  • Whether examination is required
  • The speed of grant of an enforceable right
  • Costs
  • Duration of protection

I would strongly argue for a patent system where all features are identical between innovation-focused patents and the standard ‘invention’ patents, except for the term of monopoly and the absence or presence of the inventive-step test. This implied merging of the two patent systems should be independent of whether this means modifications to either or both of the innovation-focused patent system or the standard patent system. I believe that the issues surrounding, e.g. patenting costs and time for patent grant etc., should be resolved for both the innovation and standard patent systems in a unilateral fashion. That is, one should not be seen as a solution for the shortcomings of the other. In this manner innovation patents are best placed to encourage R&D, especially if there was international agreement allowing equivalent and efficient filings of innovation patents across multiple jurisdictions. This can only occur if the process of obtaining an innovation patent is similar to the standard patent system which already has such international agreement on cross-border procedures.

In the ideal situation there would be a single process for applying for a patent, and the test for the inventive step would then automatically send an application down either of the innovation patent system or the standard patent system. Interestingly, in most jurisdictions the test for inventive step is ‘binary’ in that a proposed invention is deemed to be either inventive or not. In reality things are never so binary and it would be useful to adjudicate on the degree of inventiveness, and adjust the term of patent monopoly between a minimum period (say 7 years) and a maximum period (20 years). However any such change to a patent system would require a massive overhaul of existing infrastructure and is hence unlikely. Especially difficult is the question as to who exactly would judge the ‘inventiveness’ of an innovation and how? When the issues surrounding the optimization of the innovation patent system are reduced to the core, this is the nub of the issue.

Another potentially useful addition to an innovation patent system would be a requirement for a publicly available register linking a company’s products and services and the innovation patents that underpin the partial monopoly of these products and services. The internet now makes such a register possible and potentially very useful since it would allow a company’s competitors to be easily aware of the potential infringement issues they are faced with in order to compete. The purpose of a patent system is help disseminate know-how and to fast-track industry development; such a linked register of patent and product interests would be a great assistance to achieve these aims since it would create a blueprint for companies wishing to enter a market sector and remove uncertainties as to future infringement issues, thereby reducing the risks of R&D expenditure.

One issue that we in Australia face is that we are a net importer of goods and services that have patent protection. Therefore anything we do to strengthen and improve our patent system, which naturally leads to increased product margins, will ultimately lead to an increased net trade deficit.[v] So any improvement to and strengthening of the innovation patent system will cause a short-term financial loss to the country and can then only be justified in the context of (a) improving the performance of Australian exporters or import replacements, or (b) the development of a patent system and related technologies that we can later export as a service or technology/software. I will comment on both of these opportunities below.

Australia will benefit by introducing a scheme that encourages innovation into new-age and high-growth sectors where invention is hard to achieve, since these sectors are growing in economic importance. By encouraging such investment in R&D we may be aiding and assisting the development of high-tech export sectors. However other incentives are needed, such as a patent box scheme (for exports only), and very targeted and comprehensive industry innovation programs.[vi] By itself a functional innovation patent system will achieve little, but in conjunction with other programs it may become very important for kick-starting high-tech export opportunities.

Noting the global trend towards high economic growth in innovation-focused sectors in the first world countries (particularly the USA), it is only a matter of time before, e.g. the US, adopts a system similar to the innovation patent system. For Australia the opportunity is to actively develop an innovation patent system that could become the prototype for a future US system, whereby we would potentially create an enormous export opportunity for our patent-related technology and service providers. A key part of marketing such an opportunity to the US legislators will be enabling large US corporations to benefit from the innovation patent scheme in Australia (much like Apple is now). Once these corporations see the benefits they will lobby hard for the US to introduce a similar scheme. However this will only work if our innovation patent scheme is tailored towards large R&D-focused corporations and not to the mythical Australian backyard inventor. Following on from this observation, it is critical that the innovation patent system be as similar as possible to the usual patent system so that there is not a duplication of know-how and costs associated with local conformance, and also for foreign adoption of the scheme.

As a final note, it is clear to me that Australian companies, large and small, rarely have what I would call a good financial perspective on the value of patents and patent portfolios, either from the point of view of asset value (balance sheet) or product margin protection (P&L).[vii] Worse still, our small companies have very limited capability to understand the value of patents and how to use them to aggressively build enterprise value.[viii] The missing link for our SME’s (and even many of our corporations) is not just the cost-effective or timely access to patenting options, but rather a lack of management capability in the companies and also a lack of know-how and skills as offered by typical company IP advisors. I believe these problems need to be addressed if there is to be any local economic benefits resulting from tweaking of the innovation patent scheme.


[ii] I have no data to support this assertion; it is simply based on a broad experience in business and product development across a number of industry sectors.  It would be a very useful study for someone to perform.

[v] Again I have no data to support this assertion. However, using the manufacturing sector as a proxy we know that Australia is a net importer of manufactured goods by a large factor. Assuming that the fraction of manufactured goods protected by patents is the same for imported and exported goods this means that the higher margins associated with patent protection of imported goods will contribute to a higher trade imbalance. Overall it is very plausible that our resources and agriculture exports have a lower ‘mean’ level of patent protection than the manufactured goods that we import.

Trackbacks

  1. […] interesting pieces of reading this week have challenged that view. The first – on the challenges of IP keeping pace with innovation – is a reminder that brands cannot rely on the law alone to protect what they do once they have […]

  2. […] interesting pieces of reading this week have questioned that view. The first – on the challenges of IP keeping pace with innovation – is a reminder that brands cannot rely on the law alone to protect what they do once they have […]

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