ACIP releases Options Paper on review of the Innovation Patent System

Posted by Peter Kearney

Last month, the Advisory Council on Intellectual Property (ACIP) released an Options Paper outlining a number of options for reforming the Innovation Patent System.

This is the latest step in ACIP's review of the Innovation Patent System which commenced in February 2011, when the then Minister for Innovation, Industry, Science and Research requested that ACIP investigate the effectiveness of the innovation patent system in stimulating innovation by Australian small and medium sized business enterprises.

ACIP released an Issues Paper in August 2011 to seek the views of interested parties. A number of written submissions were received. ACIP also conducted a number of public forums in October 2011 to discuss the key issues.

As part if its review, ACIP commissioned Verve Economics to conduct a study to determine how effective the innovation patent system is in stimulating innovation by Australian SMEs. The Verve report on The Economic Value of the Australian Innovation Patent was released in March 2013.

The Options Paper canvasses a number of options for the future of the innovation patent system and invites further submissions. Submissions close on 4 October 2013.

Background to the review

The ACIP review was initiated against the background of a number of concerns being raised about the relevance and operation of the innovation patent system. These include:

• that an innovation patent is overly generous given that it has a very low inventiveness threshold but the same remedies against infringement as a standard patent
• that some applicants are using the innovation patent system to protect higher-level inventions for strategic or tactical purposes rather than trying to protect lower-level inventions
• that an applicant for a pending standard patent has the opportunity to file multiple divisional innovation patents so that a person accused of infringement may find themselves initially defending proceedings for infringement of a first patent, and subsequently see the proceedings amended to include one or more innovation patents drafted to address the weaknesses of the first patent.

The Options Paper outlines 3 broad options for the future of the innovation patent system: 

• Option A: No change
• Option B: Abolish the innovation patent system
• Option C: Change the innovation patent system

Option A: No change

 

The Options Paper notes that the Raising the Bar Act has made substantial changes to the legislation supporting the innovation patent system (effective from 15 April 2013) and that it may be reasonable to see how these changes interact and 'bed down' before making any more changes to the system.

The paper also comments that the responses to surveys of innovation patent inventors conducted as part of the Verve Economics assessment of the innovation system indicated that individuals and SME user groups appear to be generally satisfied with the system.

 

Option B: Abolish the innovation patent system

 

The Options Paper lists a number of factors said to favour abolition of the innovation patent system, as well as a number of factors against.

 

Issues said to support abolition include:

• The system is under-utilised: only about 300 innovation patents are certified each year from about 1,400 innovation patents that are granted
• The system is not achieving its intended goals or policy outcomes, citing the large portfolios of certified innovation patents held by large companies and the large number of granted divisional innovation patents with standard patent parents
• Indications that sophisticated users are strategically using the system with no quantifiable benefits flowing to the public
• The system creates uncertainty and increases legal costs because of the very low inventive threshold and the fact that an innovation patent does not need to be certified (and once certified, is very difficult to revoke).
• A perception that a lot of ‘poor’ quality, uncertified innovation patents are being granted and placed on the Register of Patents.

Issues which are said to contradict abolition include:

• If the system is abolished, sole inventors/self-filers and SMEs might be discouraged from entering the patent system because the inventive threshold for a standard patent is too high and the standard patent system is seen as being too difficult to navigate without expensive professional help
• Abolishing the system might remove IP protection that is genuinely useful to SMEs
• Abolishing the innovation patent system will re-establish the ‘gap’ in promoting, protecting and disclosing lower level inventions identified by ACIP in its 1995 Review of the Petty Patent System
• The public mischief caused by having uncertified innovation patents on the Register of Patents may not be as great as is popularly made out since more than half of all innovation patents cease within three years of their date of filing

Replacing the system

 

The Options Paper raises options for replacing the innovation patent system with an alternative system for protecting low-level inventions. The primary proposal canvassed is to change the registered designs system to permit registration of features of shape or configuration which serve a purely functional purpose.

 

Option C: Change the system

 

Recent changes

 

The paper notes a number of significant changes to the innovation patent system due to the final implementation of the Raising the Bar Act on 15 April 2013, including:

• changes to the deadline for filing a divisional innovation patent which will prevent applicants strategically filing divisional innovation patents during court or opposition proceedings
• various amendments that have tightened up the disclosure requirements for an innovation patent specification 
• an increase in the inventiveness level applicable to innovation patents due to the removal of the geographical restriction on common general knowledge used for assessing whether a difference over the prior art involves no substantial contribution to the working of the invention. 

ACIP discusses a number of options for further changes to the system.

 

Raising the level of innovation

 

ACIP states that it found general agreement that the level of innovation set in the current test for 'innovative step' is too low but there is no agreement within the stakeholder group as to what is an appropriate level of innovation.

 

Stakeholder suggestions for changing the test include: 

• a test of ‘not clearly obvious’; ACIP notes that it is difficult to see how a Federal Court judge would be able to distinguish between what is obvious and what is clearly obvious
• a test of assessing the substantial contribution made by the innovation against the relevant prior art so that the substantial contribution would have to make a substantial contribution to the working of the prior art; ACIP notes that it is not entirely clear how this would differ in practice from the existing test
• raising the level of the test for innovative step by amending section 7(4) of the Patents Act to permit direct reference to the common general knowledge alone or in combination with any one of the kinds of information set out in section 7(5)
• applying the test of inventiveness as was applicable under the Patents Act 1952 so that the level of innovation would be by reference to what would be obvious having regard to common general knowledge in Australia; ACIP notes that current practices relating to the quick retrieval and use of digital information may generate difficulties in distinguishing between what is generally known and what information can be very readily converted into what is known.

The paper says that ACIP has spent considerable time wrestling with this issue, noting that:

• if the level of innovation is raised to the ‘inventive step’ level, then the innovation patent system is rendered ineffective and it might as well be abolished; but
• if the level of innovation is raised to an intermediate level, then it is difficult to conceive of a suitable test that will be easily understood by users, IP professionals, patent examiners and the courts.

ACIP invites further stakeholder comment on their preferred option for the level of innovation and how this option will make the innovation patent system more robust.

 

Reducing remedies

 

The Options Paper raises the option of removing the possibility of seeking injunctive relief from those innovation patents that are not being commercially exploited. Alternatively, the term of injunctive relief could be reduced by an amount equal to the delay in seeking certification.   These options are intended to encourage innovation patentees to use their patents and also discourage undesirable behaviour (such as delaying infringement actions).

 

Limiting the monopoly

 

The Options Paper suggests that an alternative to raising the level of innovation might be to limit or restrict the monopoly of an innovation patent to a single embodiment. If the monopoly is restricted to a single embodiment fully disclosed in the specification, then an interested party can better predict the extent of the potential monopoly and make a more informed commercial decision based on this prediction.

 

Changing processes – formalities check, compulsory certification

 

The Options Paper discusses a number of possible changes to processes for examination including a proposal for compulsory examination, either before grant, or within three years of the date of grant.

 

ACIP states that it has some concerns with the compulsory examination proposal since it will substantially increase the costs of obtaining an innovation patent. Such a move could be seen as directly hindering or restricting access to the system by individuals and SMEs.

 

Exclusions

 

At the present time, the only specific exclusions from the innovation patent system are plants and animals, and the biological processes for the generation of plants and animals, except if the invention is a microbiological process or a product of such a process. ACIP has considered broadening this list of exclusions from the innovation patent system. ACIP considers that the following could be excluded from the system:

• methods and processes
• chemical compositions and pharmaceuticals
• software

ACIP notes that a number of utility model systems in other jurisdictions provide for one or more of these exclusions.

 

Limiting access to the innovation patent system

 

Finally, the Options Paper considers whether measures should be taken to limit access to the innovation patent system. The paper notes that it would arguably be inconsistent with the Paris Convention provisions if access to the innovation patents system was restricted solely to Australian applicants and to applicants resident in Australia.

 

Alternatively, the paper raises the possibility of excluding applications from all but individual applicants and SMEs. The paper states that such a restriction would be consistent with the objective of the innovation patent system to stimulate innovation in Australian SMEs, but also remarks on the difficulty of administering the exclusion without creating undue bureaucracy. The paper points to recent changes to the R&D Tax Incentive Program as possibly providing a suitable model. Under this program, R&D tax incentives are available to entities with an aggregated assessable income of less than $20 million in an income year. An entity’s assessable income is aggregated with the income of its affiliates, entities that it is affiliated with and entities connected with it.

The 'Australia tax' and the report into IT pricing

Posted by Genevieve Watt and Paul Kallenbach

The question of IT pricing, and the perception that Australian consumers and businesses are overcharged for IT products, was referred to the House of Representatives Standing Committee on Infrastructure and Communications (the Committee) by then Minister for Broadband Communications and the Digital Economy, Stephen Conroy, on 18 May 2012.

Following a 12 month inquiry, the Committee released its report, entitled 'At what cost? IT pricing and the Australia tax', on 29 July 2013.

The referral letter for the inquiry pointed to the 'growing interest in the differentials that exist in prices for IT hardware and software sold in Australia', particularly in light of the increase in the value of the Australian dollar, and also highlighted the increasing importance of the internet to Australian consumers and businesses.   In this context, the letter raised a concern that Australian businesses' ability to compete internationally may be compromised if they are faced with higher prices for IT products (including hardware and software). The report also specifically discusses how IT pricing can affect low income consumers (including students and people with disabilities), noting that access to technology and the internet is central to participation in modern society.

The report analyses the various explanations generally given for the higher prices paid by Australians for IT goods, including our geographical remoteness, small and scattered population, and historically weak currency, while questioning whether there are in fact any structural or market-based reasons for vendors to charge higher prices.

The overriding conclusion reached by the Committee is that Australians are often charged higher prices than their counterparts overseas, and that in many cases this is not justifiable on the basis of the cost of doing business in Australia. Instead, the Committee found that, along with a range of goods in general, many IT products are more expensive in Australia simply because of regional pricing strategies (colloquially referred to as the 'Australia tax').

The inquiry

The terms of reference for the inquiry required the Committee to:

• inquire into whether a difference in prices exists between IT hardware and software products, including computer games and consoles, e-books and music and videos sold in Australia over the internet or in retail outlets, as compared with markets in the US, UK and economies in the Asia Pacific;
• establish what these differences are;
• determine why these differences exist; 
• establish what the impacts of these differences might be on Australian businesses, governments and households; and
• determine what actions might be taken to help address any differences that operate to the disadvantage of Australian consumers.

During its inquiry, the Committee received 133 submissions and 15 supplementary submissions, more than half of which were from consumers. The remaining submissions were from business and industry bodies. In contrast to the high level of participation from consumers, who expressed dissatisfaction at their perception that Australians pay higher prices for IT goods, certain industry players were less willing to contribute to the inquiry. As was widely reported at the time, the Committee ultimately took the unusual step of summonsing the Vice President of Apple Australia, the Managing Director of Adobe Australia and New Zealand, and the Managing Director of Microsoft Australia to appear and give evidence at a public hearing.

 

Report

 

It is clear from the content of the Report that the Committee relied heavily on evidence received via consumer submissions, including those that provided a comparison of prices paid for particular IT products across different countries. While the report acknowledges the limitations of such price comparison evidence, the Committee points out that there is a lack of statistics on IT pricing and e-commerce retail sales in Australia, as they are not currently collected by the ABS. While largely relying on consumer submissions for evidence of the existence (or otherwise) of price differentials, the report does carefully analyse many of the main arguments given to explain charging higher prices for IT products in Australia.

 

One such explanation is the idea that Australians face price discrimination because businesses price products based on what the market can bear, rather than on the basis of a mark up of production costs. According to the report, this type of price discrimination can arise when consumers in different geographic locations are willing to pay different amounts for particular goods or services, and those consumers can be practically separated into different markets. In other words, Australians are charged more because they are willing to pay more, and are unable to obtain goods from neighbouring markets at a lower price.

 

Some IT vendors admitted to such practices. Microsoft, for instance, stated that in a free economy it will set prices according to what a regional market would stand. Both Adobe and Microsoft also stated that if consumers are not happy with the prices they charge, they can buy a competitors' products, although Adobe also justified price differentials on the basis of the costs of doing business in the region and running a regional operation.

Such market-based justifications were not entirely accepted by the Committee, which suggested that certain software vendors 'digitally handcuff' customers to their products by making interoperability difficult. Consumer groups also rejected claims that market forces effectively impose competition restraints.

 

A related issue raised by the report is the imposition by certain IT vendors and rights holders of geoblocking techniques, which verify a consumer's location based on their IP or residential address or credit card details, and prevent Australian consumers from purchasing IT products from overseas websites at cheaper overseas prices. In defence of this practice, the report discusses the view of many IT vendors that geoblocking is a legitimate tool enabling them to set regional prices, which is often used to protect the rights of distributors who have exclusive rights in a particular territory.

 

In defence of setting higher prices in Australia, some industry groups and IT companies also submitted that their Australian prices are the result of a range of factors, including exchange rates, the local cost of doing business, relative market size, tariffs, parallel importing, regulations (including green schemes and warranties), wages and the supply chain. Some also pointed to the national warranty regime and Australian Consumer Law, which are more extensive and provide more protections to consumers than corresponding regimes in other countries. On the flipside, the report also notes that when Australian consumers do purchase IT products from overseas websites at cheaper prices, a question arises as to whether the Australian Consumer Law (or any equivalent regime of consumer protection) applies.

 

Some industry groups, including Adobe, also argued that IT prices are inflated due to the margin set by channel partners - the conduits through which goods and services are delivered to consumers in Australia - which they argued often deliver value added services to their customers, such as desktop support, which can increase prices.

 

These arguments are, of course, contrary to the issues highlighted by many consumer submissions. Consumers raised a particular concern about the price differentials for products that are digitally delivered (such as software purchased online), with many of them noting that in this case there appears to be less justification for charging Australians higher prices, as the cost of doing business is no higher. In justifying its price differentials for digitally delivered products, however, Microsoft pointed to the local cost of providing services including maintenance, support and advertising, associated with those products. Apple also pointed out that it has to pay rights holders, including record labels, movie studies and TV networks, and that these entities often set a higher wholesale price in Australia. ARIA similarly stated that record labels incur their own costs in producing music, such as talent sourcing and marketing, and that it is not correct to assume that digitally delivered products are cost-free; while MacMillian Publishers Australia stated that e-books involve many of the usual costs associated with publishing (such as paying the author, commissioning writers and content, editing, designing and marketing) and that there are additional costs associated with digitisation and combating piracy.

 

Not all IT vendors relied on the above arguments to justify their Australian pricing. In contrast to Microsoft and Adobe, for example, the Vice-President of Apple Australia stated that Apple has an overall model of offering equivalent pricing around the world, and that in the case of many of its recently released hardware and software products, US and Australian prices differed by only one to five percent. Even where there was a price difference, Apple pointed out that published prices in Australia include a GST component, whereas in the US the sales tax is added at a later stage.

 

The report separately discusses the issue of IT pricing and copyright infringement, recognising that Australia has some of the highest rates of online piracy around the world. The Committee also, however, acknowledged the opposing views that despite piracy, the entertainment industry experienced significant growth in the last decade, and that infringement sometimes stems from lack of availability of affordable online content. The Committee also noted the view of many consumers that copyright law provisions and techniques like geoblocking have unduly restricted their rights to access copyright material, and accepted that technological protection measures, designed to prevent unauthorised access to copyright material, can restrict competition in copyright markets by preventing consumers from accessing legally acquired content. Balancing the opposing perspectives, the Committee recommended certain amendments to the Copyright Act, which are set out below. These recommendations have been among the most controversial of the Report's results.

 

Finally, the Report analyses ways to increase competition and protect consumer rights, noting that existing competition problems in copyright markets could perhaps be even worse in a case where content is only available in digital form. The report also notes the view of some observers that the balance copyright seeks to strike between the interest of rights holders and promoting the creative industries, and the public interest in accessing copyright material, has swung too far in favour of rights holders.

 

Recommendations

 

As is clear from the above summary, consumer dissatisfaction with the 'Australia tax' was found to be high, despite the justifications offered by some IT industry players. Following the inquiry, the Committee made the following ten recommendations in its report (which perhaps indicate that the Committee, overall, was more persuaded by the consumers' arguments):

1. that the ABS develop a comprehensive program to monitor and report expenditure on IT products, hardware and software, both domestically and overseas, as well as the size and volume of the online retail market;
2. that, considering the importance of IT products to education, and in the interests of greater transparency in this area, the Australian Government, in consultation with Universities Australia and CAUDIT, conduct a comprehensive study of the future IT needs of and costs faced by Australian universities in order to provide clearer financial parameters for negotiations;
3. that the Australian Government consider a whole-of-government accessible IT procurement policy, to be developed by relevant agencies including AGIMO, and in consultation with relevant stakeholder groups including ACCAN;
4. that the parallel importation restrictions still found in the Copyright Act 1968 (Cth) (Copyright Act ) be lifted, and that the parallel importation defence in the Trade Marks Act 1995 (Cth) be reviewed and broadened to ensure it is effective in allowing the importation of genuine goods;
5. that the Australian Government amend the anti-circumvention provisions found in section 10(1) of the Copyright Act to clarify and secure consumers' rights to circumvent technological protection measures that control geographic market segmentation;
6. that the Australian Government investigate options to educate Australian consumers and businesses as to the extent to which they may circumvent geoblocking mechanisms in order to access cheaper legitimate goods; the tools and techniques they may use to do so; and the way in which their rights under the Australian Consumer Law may be affected should they choose to do so;
7. that the Australian Government, in conjunction with the relevant agencies, consider the creation of a 'right of resale' in relation to digitally distributed content, and clarification of 'fair use' rights for consumers, businesses, and educational institutions, including restrictions on vendors' ability to 'lock' digital content into a particular ecosystem;
8. that section 51(3) of the Competition and Consumer Act 2010 (Cth) (CC Act) be repealed;
9. that the Australian Government consider enacting a ban on geoblocking as an option of last resort, should persistent market failure exist in spite of the changes to the CC Act and the Copyright Act recommended in the Committee's report; and
10. that the Australian Government investigate the feasibility of amending the CC Act so that contracts or terms of service which seek to enforce geoblocking are considered void.

Response to recommendations

 

Unsurprisingly, some of the Committee's recommendations have been met with controversy, foremost among them the recommendations in relation to amending the Copyright Act. In particular, the recommended introduction of a right of resale for digital content has been criticised by industry figures on the basis that resellers can sell a product that is for practical purposes brand-new, for second-hand prices, and illegally make and resell multiple copies of a digital product that was purchased once.

 

It will indeed be interesting to see which, if any, of the Committee's recommendations are adopted (particularly by the new Federal Government) and what effect this may have on IT pricing for Australian consumers and businesses.

Privacy Commissioner says website privacy policies are too long, too complex, irrelevant and inaccessible

Posted by Helen Paterson and Charles Alexander

On 14 August 2013, the Office of the Australian Information Commissioner (OAIC) released the results of the privacy sweep of the websites most used by Australians. The privacy sweep was part of the first international internet privacy sweeps conducted in May this year, an initiative of the Global Privacy Enforcement Network in which nineteen privacy enforcement authorities from around the globe participated.

The theme of the sweep was privacy practice transparency. In this context, the websites were assessed for find-ability, contact-ability (i.e. how difficult it was to find contact information for the privacy officer), accessibility, readability (including length) and relevance. The Australian websites' policies were also tested against the new transparency requirements under the new Australian Privacy Principles (APPs), in particular APP 1 – Open and transparent management of personal information.

Under APP 1.3, APP entities must have a clearly expressed and up-to-date privacy policy. The privacy sweep revealed that many privacy policies will not comply with this requirement as they are too long, too complex, irrelevant and inaccessible.

The transparency dont's

47% of the Australian websites failed the read-ability test, being too long and unnecessarily complex. The Privacy Commissioner stated that '[o]n average, policies were over 2,600 words long. In my view, this is just too long for people to read through. Many policies were also complex, making it difficult for most people to understand what they are signing up to…'.

Other issues identified included that the policies:

1. contained irrelevant information or did not contain relevant information. For example, many policies used 'boilerplate' language which did not take into account the relevant privacy jurisdiction, such as sites with .au domain names which were unclear about whether the site complied with the Privacy Act 1988 (Cth);
2. contained over-generalised statements about privacy which offered no details on how organisations were collecting, using and disclosing personal information;
3. were hard to find on the website; and
4. either listed no privacy contact or made the contact information difficult to find.

The transparency do's

The results of the privacy sweep were not all doom and gloom. The following practices were commended:

1. using presentation tools to make the information easily understandable and readable to the 'average' person (the OAIC's preferred reading age level is 14). The presentation tools used included 'plain language; clear and concise explanations; and the use of headers, short paragraphs, FAQs, and tables, among other methods';
2. providing multiple options for contacting the privacy officer;
3. providing both a simplified and full policy to assist individuals in understanding what will happen to their personal information. The Privacy Commissioner stated that '[t]his attempt to use 'layered' privacy policies is encouraging'; and
4. tailoring policies for mobile apps and other technologies (such as assistive technologies like a screen reader).

What now?

The OAIC will use the results of the privacy sweep to inform the development of guidance on the APPs in the lead up to their commencement in March 2014 and to educate organisations about privacy policies.

The Privacy Commissioner stated that '[w]ith only 8 months to go until new privacy laws commence, organisations should be looking at their privacy policies now to ensure they comply with the new requirements'.  Organisations should be wary to ignore this clear call to action.

ALRC Commissioner appointed for 'Serious Invasions of Privacy in the Digital Era' Inquiry

Posted by Lucy McGovern and Veronica Scott

The Federal Attorney-General, Mark Dreyfus QC, has appointed Professor Barbara McDonald as lead Commissioner of the Australian Law Reform Commission's (ALRC) inquiry into Serious Invasions of Privacy in the Digital Era.

The Commissioner: Professor McDonald, a former Professor of Law at the University of Sydney, has lectured in tort, equity, remedies and media law. Preliminary comments suggests she will consider overseas developments and public opinion in the inquiry. Following her appointment, she reportedly stated 'I am fortunate that much work has already been done in Australia and overseas in the last few years, and that many people have commented on how the law should develop'.

The Inquiry: The ALRC has been asked to address prevention of, and remedies for serious invasions of privacy. Further details of the inquiry are available in our June update. The ALRC expects to provide a first consultation paper towards the end of September 2013 and a final report to the Attorney-General by 30 June 2014.