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Thursday, July 14, 2016

Inquiry into IP Arrangements: Productivity Commissioners hold public hearings, but are they listening?

By Suzy Roessel, Senior Associate

Earlier this year we reported on a range of dramatic changes proposed by the Productivity Commission in its Draft Report on IP Arrangements. The Productivity Commission has now held public hearings, with authors, publishers, designers, innovators, lawyers, patent attorneys and economists giving submissions over six days in cities across the east coast of Australia. I attended most of the hearings in Melbourne. Here are my thoughts on what transpired.

"A large rump of low quality patents"

Despite receiving submissions from some of the most respected IP academics, patent attorneys and IP lawyers in the profession, the Productivity Commission appears to be confused as to the cause of what it describes as "a large rump of low quality patents" – 40 per cent of granted patents according to the Draft Report - currently on the patent register.

A statement at the Melbourne public hearing from Ms Karen Chester, Deputy Chair of the Productivity Commission that "the area where we felt that there was still a disparity is that even with the raising of the bar, we can still grant inventions of patent here when the innovator is led directly as a matter of course" (see page 651) suggests that her understanding of the law of obviousness is somewhat muddled. Worryingly, Ms Chester's statement also appears in a presentation published by the Commission for roundtables held in mid-June (which were held under 'Chatham House' rules).

Of course, the opposite is in fact true. A finding that the person skilled in the art was led directly as a matter of course to try the invention claimed in the expectation it might well produce a useful result would establish a finding that the invention was obvious and render the patent invalid: Aktiebolaget Hässle v Alphapharm Pty Ltd [2002] HCA 59 at [53]. While it is understandable that economists may have an imperfect understanding of the law, it is disconcerting that the recommendation to raise the obviousness threshold seems to be based on such a fundamental misunderstanding.

It was explained to the Productivity Commission that this so-called "large rump of low quality patents" was addressed by the Raising the Bar amendments to the Patents Act 1990 (Cth). As those amendments only apply to patent applications for which examination was requested after 15 April 2013, we will have to wait some time before the kind of analysis conducted by Professor Christie of the University of Melbourne on pre-RTB patents can inform us as to whether the quality of Australian patents post-RTB still lags behind the United States and Europe.

The Productivity Commission also recommends the adoption of an objects clause in the Patents Act, which would describe the purpose of the legislation as being to "enhance the wellbeing of Australians by providing patent protection to socially valuable innovations that would not have otherwise occurred and by promoting the dissemination of technology". Unfortunately, it does not have a clear recommendation as to how the objects clause would be implemented in practice, nor how it will affect the quality of patents in the future.

During the Melbourne public hearing (see page 675) Ms Chester said that the objects clause was "not meant to be a guide for the Examiners … its just meant to provide a sense of adaptive interpretation of the legislation to the judiciary by explaining what's the underlying intent". But this is not consistent with the Draft Report, which describes the objects clause as "especially useful in underpinning decisions by IP Australia and the courts on whether to grant and uphold a patent". Further, the Draft Report claims that an objects clause "will influence the granting of patents through the interpretation of the patent criteria", and that its adoption will – to some extent – address low-quality patents (see page 8 and 186-7 of the Draft Report). While the adoption of an objects clause may be well intended, without a clear picture as to how it will apply in practice, it can only lead to confusion and uncertainty.

Parallel Import Restrictions (PIRs)

A variety of stakeholders submitted that the recommendation to remove the PIRs for books by 2017 was based on out of date data, would irreparably damage the Australian publishing industry, and would result in fewer Australian books. But the Productivity Commission clarified that its terms of reference required it to look at transitional arrangements for removing PIRs only – the decision to remove them had already been made based on 2009 data (see for example page 637). Notwithstanding that, the Productivity Commission has acknowledged that the data needs to be updated as the market has changed, and has said that the Final Report will address this inadequacy.

However, to the frustration of many (with Mr Becker of the Australian Booksellers Association (ABA) asking whether the decision to remove PIRs was made such that his submission was a "victim impact statement"), evidence that the book industry had self-corrected to reduce the high prices reported in 2009 has only added fuel to the fire. The Productivity Commission put the question back to the ABA "if the Australian publishing industry has really lifted its game and it's now a lean, mean machine for booksellers…, why would it be that supply must come from overseas?" (see page 587). This of course led those in the industry to suggest to the Productivity Commission words to the effect 'if it ain't broke, don’t fix it'.

Fair use

The draft recommendation to adopt a US-style fair use defence attracted a lot of discussion, with stakeholders fearful that a flexible defence to copyright infringement (rather than the specific fair dealing exceptions currently in force) will create ambiguity in the market and reverse the onus requiring copyright owners to identify infringers that have unilaterally decided that their use is 'fair' under the four 'fair use' factors.

One can understand these fears, given that the outer boundaries of the fair use exception are still being tested in the United States (for example see our recent post on the Google Books decision). Further, the US Chamber of Commerce filed written submissions warning against adoption of the defence, describing it as a "famously ambiguous doctrine", stating that its adoption will "subject the Australian marketplace to two layers of uncertainty – the short- and medium-term wave of litigation to test the boundaries of this new doctrine, as well as the long-term uncertainty inherent in fair use, even after judicial precedent has been developed."

Of course, the major benefit of the fair use defence is its adaptability – which is attractive given the rate of digital disruption* we have already seen in the market, not to mention the currently unfathomable changes we expect to see in coming years. The Productivity Commission is therefore seeking to implement the fair use defence in the most certain way it can without being prescriptive to the extent that the benefit of the defence is overly hampered (see the fair use roundtable presentation). I for one am looking forward to seeing where they land when the Final Report is released. With all this recent talk of robo-lawyers, perhaps I should divert my resources to creating an 'is this fair use' app?

Business Method and Software Patents

The draft recommendation to exclude business method and software patents from patentable subject matter was another hot topic ripe for debate, with Qualcomm representatives travelling from Hong Kong and New York for the express purpose of attending the hearings. Here the concerns are that the report muddles the concepts of business methods and software together, fails to appreciate the innovative contributions software has to offer, underestimates the commercial life of software innovation, and does not appreciate the limitations of copyright protection in relation to software. Regarding the latter point, this may be further exacerbated should the draft recommendation that the fair dealing defences to copyright infringement be replaced with the broader and more flexible fair use defence be adopted.

The Designs system

Designers submitted to the Productivity Commission that Australia's design registration system is in desperate need of reform, and that Australia has a culture of copying when it comes to industrial designs. It seems the Australian government agrees, given its response to the (now abolished) Advisory Council on Intellectual Property's "Review of the Designs System" released on 6 May 2016. In that response the Government accepted the majority of ACIP's recommendations, including a recommendation to introduce a 6 month grace period before the filing date together with a prior user defence, though notably it did not accept a recommendation to introduce border protection measures to allow for the seizure by Customs of alleged design infringements – something that stakeholders called for at the Productivity Commission's hearings. You can read more on the government's response here.

Now what?

At its dramatic conclusion in Melbourne, author David Day gifted an inscribed copy of his latest book "Antarctica" to Commissioner Jonathan Coppel, a book which the author said would never have been published without PIRs (see page 728):

Random House Australia generously came up with quite a generous advance and that allowed me to do all the international research, going to Norway and England and New Zealand and America, all the international research that was essential for getting that done. They were only confident enough to do it because they had the Australian rights. 

Given the Productivity Commission is due to release its Inquiry Report to the government in August and there are over 430 written submissions on the Draft Report to wade through, I doubt Mr Coppel will have time to read it anytime soon.

You can read the transcripts of the public hearings here. They are quite lengthy, but there are handy bookmarks to individual speakers to help you navigate your way through.

*In June 2016 Productivity Commission released a Research Paper titled "Digital Disruption: What do governments need to do?"

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