Denham Sadler
September 9, 2019

Govt to abolish innovation patents

Intellectual Property

Govt to abolish innovation patents

Patent changes: Gov't to scrap the SME-focused 'Innovation Patent' scheme

The federal government’s plan to abolish the innovation patent system shows a “disturbing lack of understanding” of the business world and may stifle innovation, according to Centre Alliance senator Rex Patrick.

A Coalition-led Senate committee late last week gave the green light to legislation which scraps the innovation patents, a scheme meant to give SMEs a quicker and cheaper way to trademark innovations that may not qualify as ground-breaking inventions.

The Opposition also raised concerns with the government legislation, which is set to pass the Senate this week, saying it will leave a “significant gap”, with no alternative plans proposed.

The innovation patent system was launched in 2001 to enable Australian companies to protect an incremental advance on existing technology, rather than a new invention, and was valid for a maximum of eight years.

There are about 6500 active innovation patents in the country, compared to 130,000 standard patents. The innovation patents are most popular in civil engineering, furniture and games, information technology methods for management and electrical machinery.

But the Productivity Commission in late 2016 said that the system has become “more harmful than helpful to innovative SMEs”, and recommended it be scrapped.

It said that the scheme has led to many “low value innovation patents” that create uncertainty and have been used “strategically as a litigation tool to target alleged infringers of standard patents”.

The Coalition agreed with this recommendation, and introduced legislation to Parliament in July to completely scrap the innovation patent system.

The government-led Economics Legislation Committee has now produced its report on the bill, giving it the green light despite a number of concerns surrounding it.

While acknowledging that many submissions to the committee called on the government to not scrap the scheme, the report said that IP Australia is “confident the transitional provisions strike a good balance between all relevant interests without adversely affecting existing rights”.

IP Australia studied the innovation patents filed over the last 14 years, and found that firms that have filed these patents don’t have higher incomes than firms that don’t, and that “firms don’t do more R&D and they don’t live longer if they certify their patents”.

“That means that the system isn’t providing a monopoly right or an incentive for the companies that are getting them,” the report said.

“It is, however, creating a lot of uncertainty for other companies, because you have all these uncertain rights sitting around that may or may not be enforceable because people choose not to certify their patents.”

But committee member and Centre Alliance senator Rex Patrick said that the government view that the innovation patent system isn’t working is in “direct contradiction to submissions by SMEs and certainly does not reflect the view and experience of a number of South Australian innovation-based companies”.

The argument that the scheme has failed to incentivise R&D and innovation shows a “disturbing lack of understanding by IP Australia of commercial reality,” he said.

“It makes no sense to shut down the IPS when it is useful and valued by SMEs and, especially, if retaining the IPS costs nothing,” Senator Patrick said.

“There’s a certain arrogance of officials, or indeed many politicians for that matter, who have little if any experience of research, development or business who enjoy regular pay in their bank accounts courtesy of the taxpayer, dictating to entrepreneurs and businesses what’s best for them.”

The Labor senators on the committee said that while the Opposition is generally supportive of scrapping the innovation patents, the government hasn’t done enough to fill the gap this will leave.

“The evidence provided from a number of parties suggests a significant gap could emerge if the innovation patent is removed without alternative mechanisms being put in place to specifically assist small and medium sized enterprises to access the patent system and innovate,” Labor senators Alex Gallacher and Jenny McAllister said in their additional comments.

These comments reflect submissions made by the Institute of Patent and Trade Mark Attorneys of Australia, which said a “real gap is being created” by the legislation, and the AI Group, which said more reform is needed.

“We strongly submit that abolition should not proceed until and unless reforms are in place to ensure that intellectual property law meets the commercial needs of innovative SMEs and fully supports Australia’s economic prosperity by providing a suitably affordable, flexible and accessible alternative,” the AI Group said in its submission.

“Government should work closely with affected businesses to find pathways to this outcome, rather than proceeding with an abolition.”

While appearing likely to support the government’s legislation, Labor is urging it to “immediately address the need for greater support for Australian SMEs in protecting their intellectual property through the standard patent when the innovation patent is abolished”.

“In the government’s response to the Productivity Commission...they expressed that the innovation patent failed in its objectives to stimulate innovation for Australian SMEs and that targeted assistance would better achieve that objective,” the Labor senators said.

“Labor Senators urge the government immediately make public the ‘targeted assistance’ that will stimulate innovation for Australian SMEs.”

The government has said that IP Australia will work with Australian startups, universities and SMEs to develop a “targeted program” to educate and assistant companies with “adopting diversified approaches to protecting their IP”.

The legislation is likely to be debated in the upper house this week.

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