New year, new proposed amendments to IP laws (and the return of some amendments from 2013)

Posted by Nicole Reid and Paul Kallenbach

The Federal Government has released an exposure draft of the Intellectual Property Laws Amendment Bill 2014 (Bill) and a consultation paper seeking comments on the draft by 7 February 2014.

The draft of the Bill is based on the Intellectual Property Laws Amendment Bill 2013 (2013 Bill), which was introduced into parliament in May 2013 but lapsed on the calling of the September 2013 federal election.  However, several changes have been made to the 2013 Bill.

Crown use

Significantly, the provisions of the 2013 Bill amending the Crown use provisions in the Patents Act 1990 (Cth) have been removed.  These provisions had been intended to implement one of the outcomes of the Productivity Commission Inquiry into Compulsory Licensing of Patents, to make it clearer when the Crown use provisions can be invoked.  They would have provided that an authority or authorised person may exploit a patented invention for the purposes of providing a service that the Commonwealth, State and/or Territory governments have the primary responsibility for providing or funding, as long as the Crown had first attempted to negotiate with the patent owner, and then obtained the relevant Minister's approval of the Crown use.

Due to concerns that were raised about the potential breadth of these provisions, they will be the subject of a further, separate consultation process.

Compulsory licensing of patented pharmaceuticals for export

Some changes have also been made from the 2013 Bill to the provisions allowing for the Federal Court to grant compulsory licences to enable Australian organisations to manufacture generic versions of patented pharmaceuticals and export them to countries experiencing health crises.  These provisions are intended to implement the Protocol amending the World Trade Organization Agreement on Trade-Related Aspects of Intellectual Property (TRIPS Agreement), which was accepted by Australia in 2007.

As amended, these provisions of the Bill allow the Federal Court to grant a compulsory licence to exploit (not merely to 'work', as in the 2013 Bill) a patented invention where the Court is satisfied that:

• the pharmaceutical product covered by that patent is to be imported to an 'eligible importing country' (which will be specified in regulations by reference to the list annexed to the TRIPS Agreement) by, or with the authorisation of, that country;
• the proposed use of the pharmaceutical product is to address a public health problem in the eligible importing country in circumstances of national emergency or other extreme urgency, or by the public non-commercial use of the product;
• except in circumstances of national emergency or extreme urgency, the applicant has attempted for a period of 30 days to obtain a licence from the owner of the invention; and
• the applicant, the eligible importing country and any importer will take reasonable measures to prevent the pharmaceutical product from being used for a purpose other than addressing the public health problem that the compulsory licence was granted to address.

The patent owner is required to be paid remuneration, which will either be agreed with the licensee or ordered by the Federal Court taking into account the economic value to the eligible importing country of the licensed use of the invention.

The provision in the 2013 Bill that allowed for the Federal Court to order a further compulsory licence of any other patent (and the grant of a cross-licence) where the applicant would not be able to exploit the pharmaceutical product without infringing that other patent.  Instead, the applicant for a compulsory licence will need to make separate applications in respect of the two inventions (which may, however, be heard together) and there is no provision for the granting of a cross-licence.  These provisions had been criticised as being unclear and unnecessary.

Other amendments

The Bill also:                  

• extends jurisdiction in plant breeder's rights matters to the Federal Circuit Court (formerly the Federal Magistrates Court);
• provides for a single trans-Tasman patent attorney regime and single patent application and examination processes for Australia and New Zealand; and
• makes other minor technical and administrative changes to the various intellectual property statutes.

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.

US Supreme Court finds naturally occurring DNA sequences are not patent eligible

Posted by Mellissa Lai and John Fairbairn

The Supreme Court of the United States today held in Association for Molecular Pathology v. Myriad Genetics, Inc. 569 U.S. (2013) that isolated naturally occurring DNA sequences are not patent eligible. This may have implications for analogous proceedings, which are on foot in Australia.

Australian litigation

The Federal Court of Australia held in February of this year that isolated naturally occurring DNA and RNA are patentable subject matter (see our previous blog post here).   That decision considered Myriad Genetics Inc's (Myriad) Australian patent no. 686004, which relates to a gene associated with human breast and ovarian cancer known as the 'BRCA1' gene.   The decision is the subject of an appeal to the Full Court of the Federal Court.

US Supreme Court decision

Myriad's US patents have also been the subject of litigation, which ultimately resulted in an appeal to the Supreme Court of the United States. In its unanimous decision delivered on 13 June 2013, the Court rejected the argument that isolating a DNA sequence from the rest of the chromosome is patent eligible. As the Court stated:

"To be sure, [Myriad] found an important and useful gene, but separating that gene from its surrounding genetic material is not an act of invention" at page 12.

However, the Court drew a distinction between naturally occurring DNA and complementary DNA (cDNA) sequences. The DNA of genes in the body contain 'coding' and 'non-coding' regions. The body reads the whole sequence and cuts out the 'non-coding' portions to make a related sequence known as mRNA that the body can then go on to read and make proteins. cDNA can be made in a lab by copying the mRNA back into DNA. Therefore the cDNA contains only the 'coding' regions, as the 'non-coding' portions were cut out earlier in the mRNA. In short, cDNA is something new, created with human effort and is not a 'product of nature'.

The Court held that the BRCA cDNA was patent eligible. The Court commented that in some instances, even cDNA molecules may not be patent eligible if it is indistinguishable from a naturally occurring sequence. This may occur if a DNA sequence is so short that it consists only of 'coding' regions, meaning that the mRNA did not have any work to do in cutting out the 'non-coding regions' resulting in a cDNA sequence that is identical to the naturally occurring DNA sequence.

The Court emphasised what its decision did not represent – that is, it does not consider the patentability of DNA which has been altered in other ways, such as by scientifically altering the naturally occurring nucleotides. It is also important to note that, like the Australian case, it does not consider any other aspect of patentability (eg. novelty, obviousness) and did not consider any methods of analysis of the human genome.

Comment

In relation to the Australian proceedings, with the appeal set to be heard on 7 August 2013, it will be interesting to see if the Federal Court takes a similar approach.

Given the narrow scope of the decision, its implications for the biotech industry is fairly limited.   For Myriad Genetics, while its claims over isolated, naturally occurring DNA sequences are now invalid under US law, it has maintained its exclusive rights over the cDNA sequences.   Consequently, competitors of Myriad may be able to offer genetic testing for the BRCA1 and BRCA2 genes provided the relevant cDNA molecule is not used.

Software patents: some recent international developments (and their repercussions for Australia)

Posted by Ella Biggs and Paul Kallenbach

Recent developments in New Zealand and the United States highlight some of the issues that arise in seeking patent protection for software and computer programs.

In Australia, software is a 'patentable invention' for the purposes of section 18 of the Patents Act 1990 (Cth), provided that it is:

• a manner of manufacture;
• novel and involves an inventive step when compared with the prior art base as it existed before the priority date of the claim;
• useful; and
• not the subject of 'secret use'.

Courts in Australia have found that software meets the requirements of section 18 if the invention has some practical or material effect, as recently reflected in the Federal Court's decision in Research Affiliates LLC v Commissioner of Patents [2013] FCA 71 (covered in a previous blog post).

However, impending changes to patent legislation in New Zealand, as well as uncertainties raised by recent US Federal Court judgments regarding how to approach the patentability of software, may have future implications for software patents in Australia.

Legislative developments in New Zealand

New Zealand is in the process of updating its patent regime by replacing the Patents Act 1953 (NZ) (NZ Patents Act) with new patent legislation (Patents Bill).

Under the current NZ Patents Act, computer programs are patentable.  A Report of the Commerce Select Committee in 2010 advised the Government to remove the ability for computer programs to be protected by patent law.  There has been uncertainty in New Zealand regarding whether the Government would accept this recommendation.  This uncertainty was seemingly addressed on 9 May 2013, when the Commerce Minister, Craig Foss, released a supplementary order paper clarifying this issue, following intense pressure from the IT industry.

The supplementary order paper inserts clause 10A into the NZ Patents Act, which provides that 'a computer program is not an invention and not a manner of manufacture for the purposes of this Act'. An invention will be a 'computer program' where 'the actual contribution made by the alleged invention lies solely in it being a computer program'.

A range of factors will be considered by the courts in identifying the 'actual contribution' of the invention. These factors include: the substance of the claim and the actual contribution it makes, what problem the invention solves or addresses and how it does so, the advantages of solving or addressing the problem in that manner, and any other matters the Commissioner or the court thinks relevant (clause 10A(4), Patents Bill).

The essence of this change relates to whether a computer program is capable of implementing a tangible effect, beyond its primary function as a computer program. The supplementary order paper compares two examples to illustrate this point: one is a computer program which contains a method for improving the performance of a washing machine.  In this circumstance, the actual contribution of the computer program is the new and improved way of operating the washing machine, and thus it is eligible for patent protection.  By contrast, a process for automatically completing legal documents, using conventional hardware (the novel aspect of the claim being the computer program itself) would be ineligible for patent protection.  In this instance, the actual contribution of the claim would lie solely in being a computer program, and the mere execution of a method within a computer does not allow the method to be patented.

It seems, then, that what constitutes an eligible patent claim under these changes will be dependent on whether the actual contribution of the patent lies outside of the computer or, if it affects the operation of the computer, that the contribution is not dependent on the type of data being processed or the particular application being used.  There appears be a requirement for an external or tangible effect of the computer program in order to qualify for patent protection, to which clause 10A(4) of the Patents Bill specifically refers the Commissioner and the courts in determining whether an invention will be considered a computer program.

Judicial uncertainty in the US

In CLS Services Ltd v Alice Corporation Pty Ltd, the Federal Court of Appeals (District of Columbia) was expected to provide a clear determination on the circumstances in which computer software would be patentable in the United States. However, the Court in this case did the opposite: the 10 judges of the Court authored five different judgments, all coming to different conclusions on the circumstances in which software will be eligible for patent protection.

In the US, eligibility for patent protection is based on whether the claimed invention is a new and useful process, machine, manufacture or composition of matter, or an improvement of an existing invention.  The court must be satisfied that the invention does not make a claim to a law of nature, a natural phenomenon or an abstract idea.  In this case, Alice Corporation had developed a computerised trading platform used for conducting financial transactions in which a third party settles obligations between the contracting parties to reduce settlement risk.  Alice Corporation sought patent protection over the software's systems and methods.

The Court delivered a divided opinion on a range of different issues.  In particular, the Court was conflicted regarding whether the computer software was more than an 'abstract idea' and eligible for patent protection.  One judgment (the Lourie judgment) found that the software was ineligible for patent protection as the claim did not more than articulate an abstract idea into computer language. That the software did no more than enable a process to be carried out more efficiently, or by a machine rather than a human, was not enough to make the claim eligible for patent protection.  Without doing more than stating a method or a process, and adding nothing of practical significance to the underlying idea, the software was found ineligible for patent protection.

In a judgment that accepted parts of the Lourie judgment but dissented in parts, the Rader judgment found the system claims eligible for patent protection and the method claims ineligible.  The main distinction between the Rader judgment and the Lourie judgment appears to be in the way the interaction between the computer and the computer program is analysed.  The Rader judgment found that the combination of the computer program and the computer itself had the effect of creating a new machine or outcome.  The abstract idea of avoiding financial risk was found to be integrated into a system utilising machines by the operation of the computer program, creating a new and practical effect.

Although there were various other bases for disagreement between members of the Court, this distinction between the two main judgments regarding the way computer programs interact with computers, and how to categorise this interaction, illustrates a fundamental issue in the application of patent law to software.  The inability of the Court to come to agreement regarding the way that computer programs should be categorised, whether as an abstract idea or as having the effect of creating a new machine or outcome, creates uncertainty in the IT industry regarding what software will be eligible for patent protection.

Potential ramifications for Australia

In Australia, software is currently eligible for patent protection.  In IBM v Commissioner of Patents (1991) 33 FCR 218, the Federal Court found that a method and apparatus for producing a curve image was patentable.  This finding was based on the production of the curve being a new application of mathematical methods to computers. 

This reasoning was applied in Research Affiliates LLC v Commissioner of Patents, where using a computer to create a weighted index of assets was found to be ineligible for patent protection.  The facts in this case were distinguished from the IBM case on the grounds that the steps of the patent could have been done manually, and that the role of the computer in the process of creating the weighted index was no more than the use of a computer for a standard purpose. To be eligible for patent protection, it appears then the court will need evidence of a practical application or effect which improves the use of the computer, rather than a computer being used to more efficiently fulfil a task that could have been undertaken by a human.

How the role of computers in producing the 'practical effect' of the patent is categorised will be critical to a finding of patent protection in Australia.

The New Zealand legislature has tried to address the confusion that may arise in making this determination by trying to specify the circumstances in which patent protection will (and won't) be available for computer programs.  Conversely, the US decision of CLS v Alice Corp exemplifies the uncertainty that can arise when a court is unable to clearly determine and articulate the role that computers play in implementing particular computer software.

These US and New Zealand developments highlight an area of potential confusion and uncertainty in Australian law, which software developers should watch with caution.

Federal Court rejects business method patents

Posted by Dennis Schubauer and John Fairbairn

On 13 February 2013, the Federal Court of Australia issued a decision relating to the patentability of business methods in Australia (Research Affiliates, LLC v Commissioner of Patents [2013] FCA 71). Emmett J held that the claimed inventions were business methods that were not eligible for patent protection. The patentability of business methods remains a vexed area of law in Australia (and many other countries). While this decision provides some guidance, it seems unlikely to resolve conclusively the uncertainty in this area of the law.

Background

Under the Patents Act 1990 (Patents Act) there is no express prohibition on patents covering business methods. Section 18(1)(a) of the Patents Act requires that, in order to be patentable, an invention must be 'a manner of manufacture within the meaning of section 6 of the Statute of Monopolies'. Historically, claims regarded as 'mere working directions' or 'mere schemes' have been regarded as unpatentable, and recent decisions have also interpreted the 'manner of manufacture' requirement in a way that rendered business methods unpatentable.

For example, in Grant v Commissioner of Patents [2006] FCAFC 120, the Full Court of the Federal Court of Australia held that, in order for there to be a patentable invention '[it] is necessary that there be some 'useful product', some physical phenomenon or effect resulting from the working of a method'. In that case, a patent directed to a method of asset protection was held not to be patentable. The Full Court applied the relevant principles as enunciated by the High Court in National Research Development Corporation v Commissioner of Patents (1959) 102 CLR 252, including that, in order to be patent eligible, the Court must be satisfied that the 'process belongs to a useful art as distinct from a fine art' and that the effect produced by a claimed invention exhibits the qualities of being an artificially created state of affairs that is of economic significance.

The patent office has not regarded the position to be any different where the claimed method involved a computer. In Invention Pathways Pty Ltd [2010] APO 10 the delegate reasoned that the patentability of a business scheme cannot 'arise solely from the fact that, in a general sense, [the method] is implemented in or with the assistance of a computer or utilises some part of a computer or other physical device in an incidental way'.

In the present case, Research Affiliates, LLC (Research Affiliates) owned two patent applications relating to methods for constructing and using passive portfolios and indexes in securities trading. Consistent with the approach in Invention Pathways, the patent office rejected both of the patent applications on the basis that they were not a 'manner of manufacture'. Research Affiliates appealed those decisions to the Federal Court of Australia.

The decision

Emmett J, in seeking to apply the NRDC test, stated the 'method of a claimed invention will not be patentable if it does not produce an artificial state of affairs, in the sense of a concrete, tangible, physical or observable effect. Even if there is not a physically observable end result, in the sense of a tangible product, a claimed invention that is a method may nevertheless be patentable if it applies the method in a physical device. In such a case, an artificial state of affairs is produced in the physical device by the claimed method. Thus, a physical effect, in the sense of a concrete effect or phenomenon or manifestation or transformation, is required. It is sufficient if there is a component that was physically affected or a change in state or information in part of a machine. They can be regarded as physical effects. However, if the claimed invention is a mere scheme, an abstract idea or mere information, it will not be patentable as there is no physical consequence...'

In refusing the appeal, his Honour held that:

(a) the only physical result generated by the method of the claimed invention is a computer file containing an index. 'However, the index generated is nothing more that a set of data. The index is simply information: it is a set of numbers. It is no more a manner of manufacture than a bank balance';

(b) '[while] the Specification appears to be intended to create the impression of detailed computer implementation, the Specification says almost nothing about how that is to be done';

(c) 'the claimed invention does not involve a specific effect being generated by the computer... The effect of the implementation is not to improve the operation of or effect of the use of the computer'; and

(d) the implementation of the claimed invention 'is no more that the modern equivalent of writing down the index on pieces of paper... The Specification asserts a patentable invention, not in the use of the computer, but in the particular series of steps that give rise to the generation of the index. Those steps could easily have been carried out manually. The aspect of computer implementation is nothing more than the use of a computer for a purpose for which it is suitable. That does not confer patentability.' (emphasis added)

Comment

The decision is timely given that over 7 years have passed since the last judicial consideration of the patentability of 'business methods' (ie. in the Grant case) and, in the intervening time, the uncertainty in this area of law has increased.

The decision does provide some practical guidance for patentees. In particular, his Honour made it clear that a specification must do more than merely recite the implementation of a method using a computer. It must describe how that invention is to be implemented by the computer. Further, there must be a specific effect on or generated by the computer that goes beyond its standard operation.

Emmett J's reasoning may be open to criticism. First, his Honour's distinction between a computer generated output of a 'curve, or a presentation of Chinese characters, or the writing of particular information on a smart card' as being patentable on the one hand but an 'unspecified index' as being unpatentable on the other, may prove to be illusory. It seems his Honour was drawing a distinction between an invention relating to application software and one that merely uses pre-existing software for a purpose for which it is suited. However, if the focus is on the physical consequence of such inventions, at a number of levels, they are indistinguishable.

Second, the reasoning appears to conflate issues of fair basis (ie. whether the specification discloses how to implement the method using a computer) and inventive step (ie. whether the invention was obvious) on the one hand and whether the invention is a 'manner of manufacture' for the purposes of section 18(1)(a) on the other. In Lockwood Security v Doric Products [2004] HCA 58, the High Court made it very clear that such grounds of invalidity should be treated separately. While threshold requirement of 'newness' and 'inventiveness' are relevant to an assessment of section 18(1) (per the High Court's reasoning in NV Philips Gloeilampenfabrieken v Mirabella International Pty Ltd (1995) 183 CLR 655), in the present case his Honour did not expressly adopt such an assessment in his reasons for judgment. They seem to have formed part of the assessment as to whether there was an 'artificial state of affairs, in the sense of a concrete, tangible, physical or observable effect.'

Business methods are potentially very valuable, particularly in the financial services sector. In the present case his Honour noted that Research Affiliates received a 'significant licence fee' for the use of its technology. Therefore companies wishing to protect business methods will need to consider carefully what strategies to use to protect their inventions (eg. confidentiality obligations and/or patent protection) and the extent to which they meet the requirements highlighted by Emmett J in this case.

Federal Court confirms that isolated genetic material is patent-eligible

Posted by Dennis Schubauer and John Fairbairn

Image courtesy of net_efekt

On 15 February 2013, the Federal Court of Australia handed down its much anticipated decision in Cancer Voices Australia v Myriad Genetics Inc [2013] FCA 65 relating to whether human genetic material is patentable in Australia. In what is the first Australian judicial consideration of the issue, Nicholas J held that claims for isolated naturally occurring DNA and RNA are patentable subject matter. This decision (and any appeal) will be closely reviewed by the many interested bodies presently debating whether, as a matter of policy, patents covering genetic materials are appropriate.

Background

For present purposes it is sufficient to note that genes found in the human body are made of nucleic acids and that useful diagnostic and therapeutic tests can be developed by identifying particular genes (and variants of such genes) that are associated with certain diseases.

Myriad owns Australian patent no. 686004 (the Patent), which relates to a gene associated with human breast and ovarian cancer known as the 'BRCA1' gene. The Applicants, which included an organisation representing Australians affected by cancer, commenced proceedings to revoke the Patent. The primary basis of their case was that the claims in issue did not satisfy the requirements of s 18(1)(a) of the Patents Act 1990 (Patents Act) because each claim comprises 'isolated' nucleic acid (either DNA or RNA) that is not materially different to nucleic acid that occurs in nature. Importantly other typical grounds of invalidity, such as lack of novelty or inventive step, were not in issue.

Section 18(1)(a) of the provides that an invention is patentable if, amongst other things, it 'is a manner of manufacture within the meaning of section 6 of the Statute of Monopolies'. Nicholas J stated that this issue must be determined in accordance with the principles enunciated by the High Court in National Research Development Corporation v Commissioner of Patents (1959) 102 CLR 252 (the NRDC Case). The relevant test was summarised as being whether a substance consists of 'an artificial state of affairs, that has some discernible effect, and that is of utility in a field of economic endeavour'. The Applicants accepted the claimed invention was of economic significance.

The decision

His Honour held that:

1. 'There is no doubt that naturally occurring DNA and RNA as they exist inside the cells of the human body cannot be the subject of a valid patent.'
2. 'However, the disputed claims do not cover naturally occurring DNA and RNA as they exist inside such cells. The disputed claims extend only to naturally occurring DNA and RNA which have been extracted from cells obtained from the human body and purged of other biological materials with which they were associated.'
3. The issue of whether this was an artificial state of affairs must be considered in context and 'does not turn upon what changes have been made to the chemical composition of such substances as a result of them having been isolated'.
4. In this case there was an artificial state of affairs because 'in the absence of human intervention, naturally occurring nucleic acid does not exist outside the cell, and “isolated” nucleic acid does not exist inside the cell. Isolated nucleic acid is the product of human intervention involving the extraction and purification of the nucleic acid found in the cell'.

Nicholas J observed that '[it] would lead to very odd results if a person whose skill and effort culminated in the isolation of a micro-organism (a fortiori, an isolated DNA sequence) could not be independently rewarded by the grant of a patent because the isolated micro-organism, no matter how practically useful or economically significant, was held to be inherently non-patentable'.

Comment

The decision affirms the existing patent office approach that isolated genetic material can qualify as a 'manner of manufacture'. The result of the decision is also consistent with the position in much of Europe and in the United States. In the United States, the Court of Appeals for the Federal Circuit upheld the validity of similar claims covering isolated BRCA1 genes, although that case is the subject of an appeal to the Supreme Court.

Nonetheless, patents claiming isolated gene sequences are by no means safe from attack.

First, as noted above, there were several grounds of invalidity that were not argued (eg. novelty and inventive step) and his Honour expressly noted that his 'reasons have nothing to say about the possible invalidity of the disputed claims on any other grounds'. In the case, the patent at issue was relatively 'old', with a priority date of 12 August 1994. Since 1994, there have been considerable advances in genetic technology, including in techniques for isolating and sequencing genes, and in 2003 the Human Genome Project sequenced and mapped the complete human genome.

Second, the recent Intellectual Property Laws Amendment (Raising the Bar) Act 2012 (Amendment Act) means that higher standards (including inventive step, utility, sufficiency and disclosure) will apply to Australian patents and applications examined after 15 April 2013. Interestingly, Nicholas J even noted that new section 7A of the Patents Act (which requires a patent to disclose a 'specific, substantial and credible use for the invention') will 'make it more difficult for patent applicants to obtain patent protection for expressed sequence tags'. These higher patentability standards will provide further grounds for challenging patents.

In addition, various proposals have been and continue to be put to Parliament to reform this area of patent law. While the decision provides guidance on some of the underlying patent eligibility criteria, it remains a contested and developing area of the law and public policy. Regardless of whether the Australian decision is appealed, it seems unlikely that this case will settle the controversy regarding gene patents.

Court restrains Apotex from releasing new generic drug

Posted by Nicholas Liau ● Partner: Paul Kallenbach

Image courtesy of Grumpy-Puddin

Court cases often take months to go to trial. In the meantime, parties sometimes need guidance from the courts as to what they can and can't do before the trial.

Apotex (a pharmaceutical company) has been trying to release a generic version of the drug rosuvastatin, which (it is alleged) may infringe existing patent rights belonging to AstraZeneca. In a recent series of cases, the Federal Court has restrained Apotex, as well as other companies, from marketing this product until the outcome of the final trial. Based on the these decisions, it appears that in pharmaceutical cases, the courts will usually be reluctant to let a new entrant into the market while questions of patent infringement are still muddying the waters.

Balance of convenience

To obtain an injunction restraining Apotex from selling its product, one of the issues AstraZeneca had to show was that 'the balance of convenience' favoured the issuing of such an injunction. In deciding this, the Court had to consider the possible harms to both parties, both with and without the order.

In Apotex v AstraZeneca [2011] FCA 1520 and Apotex v AstraZeneca (No 2) [2011] FCA 213 the Federal Court considered that allowing Apotex to sell its generic version of rosuvastatin would do irreversible damage to AstraZeneca's business, even if AstraZeneca were to eventually win the final trial. An injunction was granted to prevent such damage to AstraZeneca's business. There are a number of reasons particular to the pharmaceutical industry which means that this is a likely outcome.

Firstly, the Court found that the benefit payable by the government under the Pharmaceutical Benefits Scheme (PBS) for sales of rosuvastatin would drop significantly. Under the rules of the PBS, the amount payable is based on the market price of a particular drug. The price of Apotex's drug would be about 75% cheaper than AstraZeneca's if it were allowed to go on sale in Australia. Allowing Apotex's drug to be released on the market would depress the market price for rosuvastatin, meaning that AstraZeneca would receive less money under the PBS. This process is irreversible; even if AstraZeneca were to win the final trial, the workings of the PBS mean that the new (lower) payment would still apply to its drug. This would deprive AstraZeneca of its right to charge higher prices under its patents, effectively denying it the very rights which are meant to be protected by patent.

Bad behaviour

Secondly, the Court found that the 'first mover advantage' is particularly strong in the generic pharmaceutical market. The first generic manufacturer to get its drug to market will always be able to offer a substantial discount on the original drug, allowing it to capture a large market share. Pharmacies are often involved in long term supply contracts, and typically only stock one generic brand of each drug; this limits the possibility of new entrants gaining significant market share. This would usually be something which leans towards allowing a new entrant (such as Apotex) to release its product (after all, it had gone to the trouble of trying to develop and market its generic product quickly to become the first mover).

Nonetheless, the Court took account of the way in which Apotex had approached the litigation, and lambasted it for its conduct.

The Court found that 'Apotex engaged in a carefully orchestrated marketing exercise designed to catch AstraZeneca by surprise'. Apotex had begun to market the drug in Australia in anticipation of its release, but had been evasive about its intentions when questioned by AstraZeneca. It was only days before the drug was due to be released that Apotex finally sued AstraZeneca, claiming that its patents were invalid. In other words, Apotex's first mover advantage was mainly gained because of its poor conduct as a litigant. Apotex knew that AstraZeneca would seek to enforce its patents if Apotex tried to release a generic product, but it continued to make preparations for the drug's sale. The Court found that Apotex was not then able to complain that these preparations would be wasted if an injunction were granted to AstraZeneca. The Court commented that Apotex could have challenged the validity of AstraZeneca's patents much earlier.

A few days ago in Watson Pharma v AstraZeneca [2012] FCA 200, AstraZeneca sought similar orders in relation to two other companies that were trying to release a generic version of the drug in a similar fashion to Apotex (Watson Pharma and Ascent Pharma). The Court was supportive of the approach to the 'balance of convenience' used in the Apotex case, and granted injunctions in AstraZeneca's favour.

The trial is expected to begin in October. In the meantime, it appears that AstraZeneca's patent rights are safe.

UK Supreme Court hears first patent case and clarifies the 'industrial applicability' test

The Supreme Court of the United Kingdom has handed down its first patent decision, over-turning the Court of Appeal's decision to revoke a patent owned by Human Genome Sciences Inc (HGS) covering a nucleotide gene sequence encoding a novel protein, called Neutrokine-α (the Patent). The decision has clarified the 'industrial application' requirement for patentability under English law and has emphasised that it should be interpreted in line with decisions of the European Patent Office (the EPO).

Background to the case

HGS filed the underlying patent application with the EPO in October 1996 and was granted the Patent in August 2005. The claimed invention covers the existence and structure of Neutrokine-α, its amino acid sequence, antibodies to the protein and its membership of the TNF ligand superfamily. The invention was identified using 'bioinformatics' techniques - a computational process which enables researchers to identify genes and proteins by comparing their sequences with previously identified genes. HGS was unable to identify precise activities of Neutrokine-α using this process. However, HGS used existing information about other members of the TNF superfamily to predict the biological properties and therapeutic activities of Neutrokine-α. This led HGS to disclose in the Patent a long list of potential uses of Neutrokine-α in the diagnosis, prevention or treatment of a large number of disorders and conditions.

Eli Lilly and Company (Eli Lilly) commenced opposition proceedings against the Patent in the EPO in June 2008. The EPO revoked the Patent on the basis that the claimed invention constituted a claim to an 'arbitrary member of the TNF ligand superfamily' without a known function (ie. the claims were too general and there was no experimental evidence in the Patent to support any of the contentions). HGS appealed to the Board of the EPO, which subsequently reversed the decision and directed that the Patent be maintained.

Around the same time, Eli Lilly also commenced proceedings in the High Court of England and Wales to revoke the Patent. The trial judge (Kitchin J) revoked the Patent on the basis that HGS had provided no evidence of potential uses for the invention. The trial judge found that the 'functions' of the nucleotide were 'at best, a matter of expectation and then at far too high a level of generality to constitute ... anything except a research project'. Accordingly, it did not amount to sufficient disclosure of an industrial application.

On appeal, the Court of Appeal agreed with the trial judge. Lord Justice Jacob's decision is of particular interest, as he rationalised the reasons for the different outcomes (at that time) in the English Court and the EPO. He noted that the EPO and Courts serve different roles, with the EPO having a more administrative function and the Court proceedings being of a final nature. Additionally, the EPO and Courts have different approaches to evidence and, in this case, they considered different evidence when reaching their decisions.

Supreme Court findings

The central issue for the Supreme Court was whether, in light of the common general knowledge at October 1996, the Patent satisfied the requirement for 'industrial application'. Under Article 57 of the European Patent Convention, an invention is capable of industrial application 'if it can be made or used in any kind of industry, including agriculture'.

The Supreme Court acknowledged that the relevant law to be applied were the principles developed in prior EPO Board decisions. Lord Neuberger, giving the leading judgment, undertook a detailed analysis of the case law in relation to industrial application, which he concluded was consistent on the following principles:

(i) the term 'industry' is to be interpreted broadly, as referring to activities which provide any kind of commercial gain;
(ii) the patent must disclose a 'practical application' and 'some profitable use' for the claimed invention (ie. a 'concrete benefit' to be expected in order for the monopoly to be granted);
(iii) this benefit must be derivable directly from the patent description combined with the common general knowledge;
(iv) a vague and speculative indication as to potential applications that may or may not be achievable will not be sufficient; and
(v) the patent and common general knowledge must enable the skilled person to reproduce or exploit the claimed invention without undue burden.

The Supreme Court was mindful of the strong tension faced by inventors when deciding whether to file a patent application. On the one hand, if an inventor files a patent application early without sufficient evidential data to support the claimed invention, they risk not obtaining the patent and have then disclosed their invention to the public. On the other hand, if an inventor waits until they have further experimental data at hand, they risk a competitor beating them to the patent.

The Supreme Court acknowledged two strong policy arguments in favour of finding that the Patent satisfied the 'industrially applicable' test. They were:

(i) to reduce the risk of a 'chilling effect' on investment in bioscience; ie. a high threshold to satisfy the requirement of industrial application may discourage innovators from investing in research and development; and
(ii) to harmonise the UK's interpretation of the European Patent Convention with that of other European states.

The Supreme Court also noted that where an appellate court is called to consider a case where there are two or more preceding lower court decisions in favour of one party, it is only in rare cases that the appellate court will interfere with their findings. On balance they considered that this was a case where the lower courts' findings should be overturned.

Significantly, the Supreme Court also reconfirmed that, in the interests of harmonisation, European patent law should be followed unless there are strong reasons to differ. That said, the English Courts need not unquestioningly follow EPO decisions, as the Supreme Court acknowledged that 'there has to be room for dialogue between a national court and the EPO'.

Applying these principles, the Supreme Court found that the lower courts had set too strict a standard for 'industrial application' and found that there was sufficient disclosure in the Patent. The Supreme Court therefore (i) allowed HGS's appeal; (ii) held that the Patent satisfied the requirements of Article 57; (iii) dismissed Eli Lilly's cross-appeal on the insufficiency argument; and (iv) remitted the case to the Court of Appeal to deal with outstanding issues.

Impact of the decision

The case has significant implications on the bioscience industry generally and, in the author's view, is likely to receive a mixed reaction. For those patentees owning patents based on bioinformatics techniques and predicted therapeutic uses, the Supreme Court's decision endorsing the lower 'plausible' test for industrial applicability will clearly be welcomed. However, many may view the decision as going too far and potentially opening the floodgates for unduly speculative patents. Lord Justice Jacob, in the Court of Appeal decision, succinctly characterised this concern when he observed that '[you] cannot have a patent for an invention when only years later you or someone else finds out what it is for'.

This is not, however, the end of the case and it remains to be seen how the Court of Appeal determines the other grounds that have been remitted to it by the Supreme Court.

Senior Associate: Dennis Schubauer

The Royal Children's Hospital [2011] APO 94 - a lighter shade of Gray?

Posted by Sarah Doyle

Following the much debated Federal Court decision in University of Western Australia v Gray (No 20) [2008] FCA 498, the ownership of inventions in the context of the employer-employee relationship was considered again earlier this month. This time the Australian Patent Office considered an application filed by the Royal Children's Hospital (RCH) for a direction under section 32 of the Patent Act 1900 (Cth) concerning two patent applications filed by one of its employees, Dr Alexander.

Dr Alexander was Head of Virology at RCH when he developed two inventions the subject of the patent applications. The first invention related to improvements in the medium used to inoculate and grow viruses in culture. The second invention related to improvements in the design of a microtitre tray (a standard tool used in clinical diagnostic testing).

RCH accepted that Dr Alexander was not employed in a sufficiently senior management position to attract a fiduciary duty to forward the interests of RCH, which might otherwise have enabled RCH to argue that, in applying for the patent applications in his own name, Dr Alexander was forwarding his own interests ahead of RCH's interests in breach of that fiduciary duty.

RCH therefore relied on the common law principle that inventions developed by employees 'in the course of their employment' belong to their employer as an implied term of their employment contract, to assert rightful ownership of any patents granted in respect of Dr Alexander's inventions.

UWA v Gray confirmed that, in employment categories where the implied term applies, whether an invention is developed in the course of an employee's employment depends on whether the employee has a 'duty to invent', in the sense that it is part of the employee's engagement to 'utilise his or her inventive faculty in an agreed way or for an agreed purpose, and for the benefit of, or to further the purposes of, the employer'. Put another way, the invention would need to be 'the product of work which the employee was paid to perform'.

As Head of Virology at RCH, Dr Alexander was responsible for the quality and efficiency of the viral diagnostic work performed at RCH. He did not have any express duty to invent under his employment contract and his day to day duties did not involve any pure research. However, Dr Alexander's duty statement specifically highlighted a job requirement of 'identifying potential areas for improvement in the diagnostic service', and he accepted that he had a role in improving the clinical testing procedures at RCH.

The APO considered that this prima facie provided both a duty to invent and an agreed purpose as required by Gray.

The APO then went on to consider whether, as the Federal Court decided in relation to Dr Gray in UWA v Gray, there were sufficient negating factors which were inconsistent with, and went against, the implication of employer ownership of employee inventions that were developed in the course of, and as a product of, what the employee was actually employed to do.

One of the negating factors emphasised by the Federal Court in UWA v Gray was that Dr Gray was not bound by confidentiality obligations preventing him from freely publishing the results of his experiments, even though this would have had the potential to destroy patentability.

Dr Alexander sought to rely on the fact that RCH had similarly failed to impose on him a duty of confidentiality which would ordinarily be required in an industrial setting. However, the APO did not consider this to be determinative in a public hospital environment. This was because hospitals do not need to commercialise an invention to benefit from it. Conversely, hospitals have a large public interest role which is served by disclosing and sharing new methods and techniques including, in the present case, to ensure the proper diagnosis of viral pathogens for the treatment and management of diseases.

The APO also pointed out that in UWA v Gray, Dr Gray's lack of confidentiality obligations was merely one of a number of negating factors. Also critical to the decision in that case were that:

(i) Dr Gray was free to select what lines of research he would undertake and in what fields, without regard to furthering any commercial interest or other benefit of UWA; and

(ii) Dr Gray was expected to solicit funding for his research from sources outside of UWA.

In contrast, the APO found that while Dr Alexander had limited discretion with his lines of research, his research as a whole was confined to, and focused on, improving the viral diagnostic techniques used at the hospital. Such research was directly related to the purposes of, and directly benefited, RCH. Dr Alexander was also not expected to (and did not) obtain any external funding for his research.

Therefore, the APO held there were insufficient factors to negate Dr Alexander's prima facie duty to invent. However, the APO found that the agreed purposes of this duty were limited both by Dr Alexander's specific job requirement to identify 'potential areas of improvement' and by the limited support provided by RCH for Dr Alexander's research (including RCH's refusal of funding requests for laboratory equipment where benefits were untested). This meant that Dr Alexander only had a duty to invent in circumstances where there was a clear motivation arising in the course of his employment, which were found to be broadly limited to situations:

(i) where there was a recognised problem which he would have been reasonably expected to resolve; and

(ii) where he was otherwise motivated to pursue a particular avenue of research in the reasonable expectation of identifying potential improvements (and not just where an invention might possibly result).

Turning to whether the two inventions the subject of the patent applications challenged by RCH were developed within the ambit of this limited duty, the APO held that:

(i) the first invention relating to improvements in the medium used to inoculate and grow viruses was an avenue of research which Dr Alexander would be expected to investigate further in the reasonable expectation of identifying potential improvements in the course of his role as Head Virologist;

but that

(ii) the second invention relating to improvements to an existing device which was already effective in design and not in need of any trouble-shooting was outside the scope of research avenues that Dr Alexander would reasonably be expected to pursue in the reasonable expectation of identifying improvements.

This is a victory of sorts for both RCH and Dr Alexander and demonstrates that while the legal principles may be clear, the application of those principles may lead to very different conclusions depending on the particular facts of the case.

For employers, this reinforces the need to include clear IP assignment provisions in all employment contracts which are more prescriptive than a restatement of the common law principle – 'that the employer will own all IP developed by an employee in the course of his or her employment' - which are still common place in employment contracts.

Partner: Kylie Diwell

Global tablet war between Apple and Samsung continues

As the fierce global battle between Apple Inc. (Apple) and Samsung Electronics Co. Limited (Samsung) continues, the Federal Court of Australia has granted Apple an interlocutory injunction restraining Samsung from releasing the Galaxy Tab 10.1 tablet (the closest competitor to Apple's iPad 2) in Australia. As a result of the injunction, Samsung would miss out on the significant pre-Christmas sales market. Samsung therefore (successfully) applied for an expedited appeal hearing which will be heard by the Full Bench of the Federal Court (comprising Justices Keane, Dowsett and Yates) on Friday, 25 November 2011.

Background to the dispute

Samsung had intended to launch the US version of the Galaxy Tab 10.1 in Australia, however Apple caught on and threatened to take action for patent infringement. Samsung agreed to modify the US version and provide Apple with a sample prior to releasing it. Despite the modifications, Apple commenced proceedings alleging that the modified Galaxy Tab 10.1 infringed 2 of Apple's patents (the Patents), breached provisions of the Australian Consumer Law and constituted passing-off of Apple's iPad 2.

The Patents alleged to have been infringed are the 'Touch Screen Patent' (which covers multipoint touch screens) and the 'Heuristics Patent' (which covers the touch screen method and graphical user interface for determining user commands by heuristics).

The Court's finding

In determining whether to grant Apple the interlocutory injunction, Justice Bennett considered whether Apple had established two elements, namely (i) a sufficient likelihood of success at the final hearing (ie. a prima facie case); and (ii) that the inconvenience or injury Apple would be likely to suffer if an injunction were refused outweighs the inconvenience or injury Samsung will suffer if the injunction were granted (Australian Broadcasting Corporation v O'Neill (2006) HCA 46).

Justice Bennett was of the view that Apple would be successful in proving that the Galaxy Tab 10.1 infringed at least one of its Patents, and therefore found that Apple had established a 'prima facie case'. In doing so, she acknowledged the presumption that the Patent Office has properly examined the patent application and that the granted patent is to be presumed valid unless there is strong evidence to the contrary.

She considered that the 'balance of convenience' was evenly weighted, that is, one party would suffer significant harm whether the injunction was granted or refused.

Ultimately, Justice Bennett appears to have been heavily influenced by Samsung's decision to launch in Australia with its 'eyes wide open' (it knew that Apple would likely commence proceedings because there were equivalent actions pending in the United States). She also criticised Samsung's failure to move expeditiously. Not only was Samsung unable to prepare for a final hearing in November 2011 (albeit on limited grounds), Samsung maintained that it could not be ready for a trial before March 2012 (nearly 5 times the proposed timetable). Accordingly, Justice Bennett found in favour of Apple and granted interlocutory relief restraining the importation, promotion, sale and supply of the Galaxy Tab 10.1 in Australia.

Impact of the decision

The decision was solely concerned with whether to grant the interim injunction (both parties requested that the final decision be reserved in order for them to gather further evidence). As noted above, Samsung has successfully applied for an expedited hearing, which will deal with both Samsung's application for leave to 'appeal', and its substantive case against the injunction. The outcome of this hearing will be crucial as to whether the Galaxy Tab 10.1 can take advantage of the peak holiday shopping period. Interestingly, a number of online retailers have sought to circumvent the injunction by directly importing the Galaxy Tab 10.1 product from outside Australia. It remains to be seen whether Apple will also pursue such retailers and, if so, how.

On a broader level, the decision demonstrates the importance of moving quickly and remaining flexible in the context of interlocutory injunctions. Where a party enters the market with its 'eyes wide open' to the risk of patent infringement (having decided not to revoke the patent first), it would be wise to take steps to prepare defensive evidence as soon as possible.

Partner: Charles Alexander

How the ‘x’ in ‘docx’ may shift the balance of power in US patent infringement cases

Posted by Boris Milivojevic

You may have noticed when upgrading from Microsoft Office 2003 to Office 2007 or later that Microsoft Word documents are now by default saved in the ‘docx’ file format. The ‘x’ denotes that Microsoft has moved to an XML-based file format. XML is a ‘mark-up language’ which tells your computer how text should be displayed in a document. Not a big deal, you might have thought – except that, by incorporating a particular feature relating to ‘custom XML’ in migrating to its XML-based file format, Microsoft is alleged to have infringed a patent held by i4i, a Canadian software company. (While XML is a royalty-free standard, companies are still free to file patents on inventions that implement the standard.)

In early 2008, i4i filed a suit against Microsoft in the Eastern District of Texas alleging that Microsoft infringed its custom XML patent. Under US law, i4i's XML patent is presumed to be valid, and Microsoft, as the party seeking to invalidate the patent, has the burden of proof to show that the patent is invalid.

When applying for a patent in the US, the US Patent and Trademark Office (USPTO) subjects applications to a review before the patent is granted. The applicant must submit all relevant prior art they are aware of, and the USPTO also searches for all relevant prior art. However, due to the limited resources of the USPTO, often not all of the prior art material is considered when granting a patent, creating grounds for alleged patent infringers to argue that the patent is invalid.

In attempting to invalidate i4i's patent, Microsoft pointed to prior art in the form of i4i's SEMI-S4 software, which i4i had developed and sold in 1993. Microsoft alleged that i4i's SEMI-S4 software contained the ‘custom XML’ code that i4i later patented in 1998. If true, this would have constituted a violation of section 102(b) of Title 35 of the US Code (the equivalent of Australia's Patents Act 1990 (Cth)), and render i4i’s patent invalid.

i4i argued that the SEMI-S4 software did not contain the subsequently patented code. Importantly, the code was destroyed after the SEMI-S4 project was completed and could not be put into evidence. This made the standard of proof which Microsoft had to satisfy in order to show patent invalidity a high one. In the end, Microsoft was unable to convince a jury that there was 'clear and convincing' evidence that i4i’s patent was invalid.

Microsoft has now sought to take this issue to the US Supreme Court, arguing that, because the SEMI-S4 software was prior art that the USPTO had not considered in granting i4i’s patent, Microsoft should not have to provide ‘clear and convincing’ evidence that i4i’s patent is invalid. Microsoft has asserted that it should only have to establish a ‘preponderance of evidence’ – the civil standard in US law, broadly equivalent to the Australian ‘balance of probabilities’ standard. In other words, Microsoft argued that it should only have to prove that it was ‘more likely than not’ that i4i’s patent is invalid.

The US Supreme Court has agreed to consider this issue. Interestingly, if the US Supreme Court does agree with Microsoft that it does not have to provide ‘clear and convincing’ evidence that i4i’s patent is invalid, such a decision may be indicative of the Court’s shift away (in more recent times) from interpreting US patent law in favour of patent rights holders.

This shift is exemplified by the case of eBay Inc v MercExchange LLC 547 U.S. 388 (2006).  In that case, the US Supreme Court reversed decades-old court practice, and unanimously held that an injunction should not be automatically granted on a finding of patent infringement.  Instead, as is the Australian approach, it held that a court must consider a number of balancing factors in determining whether or not an injunction is appropriate.

The eBay decision not only significantly favours alleged patent infringers, but brings US law into closer alignment with Australian law.  Before the eBay decision, injunctions provided a strong bargaining chip for patent holders – the spectre of having infringing products banned from the marketplace often forced alleged patent infringers to settle, rather than go to trial and test the validity of the patent.  Today, even if patent infringement cases do go to trial, the eBay decision means that a compulsory licence is the more likely remedy, and the royalties payable under this licence are likely be lower than a patent holder could have negotiated with the looming spectre of a permanent injunction.

If the US Supreme Court now decides to lower the evidentiary standard for prior art to a ‘preponderance of evidence’, this will further shift the balance of power towards alleged patent infringers.

Indeed, such a decision (had it been handed down earlier) might have had a material impact on cases such as the CSIRO’s now-settled Wi-Fi patent dispute with various US tech companies, in that it may have made the Wi-Fi patent easier to invalidate (and potentially waylaid any settlement).

These cases may have also led to a different outcome in cases such as that of RIM, the maker of the BlackBerry, which in 2006 agreed to pay NTP Inc, a Virginia-based patent holding company, US$612.5 million to settle a patent dispute, as it could not invalidate NTP’s patent and an injunction may have shut down the BlackBerry system in the US.

Will the judicial tide continue to turn against patent owners?

Partner: Paul Kallenbach