The potential impacts of the Productivity Commission’s Inquiry Report into Intellectual Property Arrangements on Australia’s innovation economy

Publication March 2017

What’s the value of intellectual property to a country’s innovation economy?

According to the 2016 Australian Innovation System Report, investment in IP facilitates business growth and spurs productivity improvements. There is a significant correlation between IP protection on the one hand, and research and development, and new-to-market innovation on the other.

We recently published an article about China’s efforts to transition from an economy driven primarily by manufacturing goods to an IP-driven economy, and how they are evolving their IP systems to achieve this goal. By contrast, according to a recent government report, Australia remains a net consumer (rather than producer) of technology. The Inquiry Report into Intellectual Property Arrangements recently published by the Productivity Commission (Report) argues that, in light of this position as a net consumer, Australia’s IP system is weighted too heavily in favour of rights holders and against the interests of the broader community. It has made various recommendations to correct this perceived imbalance. This article considers some of the recommended changes.

However, some of these recommendations, if implemented, will also have the consequence of limiting IP protection, which will have a flow-on effect on the economic incentive to invest in innovation. This appears to be at odds with the objectives of the Australian Government’s $1.1 billion National Innovation and Science Agenda, which aims to stimulate an “ideas boom” and economic growth in key sectors such as science, technology and business innovations.

One of the most important means of encouraging innovation is through a robust and effective IP system. Without this, it will be difficult for Australia to compete in the global marketplace as an innovation economy. Therefore, Australian businesses, consumers and the Government should be asking: should Australia be aiming for an innovation-based economy, or one reliant on manufacturing and mining?

Assuming we do want to move more fully towards an innovation economy, strong economic arguments exist to support moves towards a stronger IP protection system, rather than the opposite approach seemingly being considered by the Report.

Recommended amendments to Australia’s patent regime

  • Raising the inventiveness threshold for the grant of patents, which the Report argues will stem the current proliferation of low-quality, low-value patents. However, this fails to recognise that since the introduction of the changes under the IP Laws Amendment (Raising the Bar) Act 2012 (Cth) in April 2014, the requirements for patentability were substantially increased to align closely with international standards. The new position has only been considered a handful of times by IP Australia and is yet to be tested by the Court, so any further amendments are at best premature and at worst unnecessary. Further, the Report’s position does not account for the self-regulating aspect of the patent system, where low-value patents are simply not worth pursuing given the high costs involved in obtaining them.
  • Abolishing the ‘failed’ innovation patent system. This ignores the many successful two-tier patent systems in other developed countries, and the importance of the ability to obtain an enforceable right quickly (given the potential for delays as a result of the standard patent system’s pre-grant opposition process). It also ignores the potential for reform, rather than rejection, of the innovation patent system to help it better achieve its other objectives which are, admittedly, currently not being met. Potential amendments could include compulsory examination, raising the threshold for innovation, limiting innovation patent divisional applications, and modifying remedies available for infringement.
  • Restructuring renewal fees to rise each year at an increasing rate such that fees later in the life of a patent would well exceed current levels, which the Report argues will ensure only valuable patents are maintained, limit the risk that patents are used strategically, and reduce economic rents arising from patent holders exercising market power. However, the current system is already organised to provide significant economic hurdles for the later years of a patent’s life, such that most patents expire around the eleventh year as it is. In any case, as IP Australia noted in a recent Cost Recovery Impact Statement, patent fees are generally inelastic, that is, demand is minimally responsive to price.  Any price increases would disproportionately affect SMEs and individuals, which appears to be at odds with other aims of the patent regime to encourage innovation by such groups. 

Recommended amendments to Australia’s trade mark regime

  • Reducing the initial period available to a new trade mark applicants to use their mark from five to three years, before it becomes vulnerable to removal for non-use. While this may sometimes help brand owners remove unused trade marks, if implemented, it may also require the introduction of an exception for applicants who can demonstrate clear business reasons for their lack of use.
  • Removing the current presumption of registrability, which requires an examiner to be satisfied to a certain level that a mark is NOT registrable, before rejecting it. This presumption makes practical sense as it could be argued that this should be a requirement in any event, and so removing the presumption is counter-intuitive.
  • Introducing stricter measures for registration of trade marks containing geographic names, to avoid marks being used to convey an impression of provenance or quality. Again, this issue should be considered in the wider assessment of the ability to function as a trade mark.
  • Linking the trade marks and ASIC databases to provide a warning if a business or company name registration may infringe a registered trade mark. This is a good idea in principle, but as all trade mark owners know, their rights in their registered mark only extend to the goods and services covered by their registration (or similar goods and services), and so this could simply function as an unnecessary deterrent to unsophisticated new business entrants.

Recommended amendments to Australia’s copyright regime

  • Replacing the fair dealing exceptions to copyright infringement with a broader and open-ended fair use exception. If implemented in a principled way, this would reduce the opportunities for businesses and consumers currently lost as a result of the current, narrowly drafted, and highly prescriptive exceptions, and would better accommodate new legitimate uses of content that are being made as a result of changing technology. However, if implemented, it would be important that ‘fair use’ does not effectively amount to ‘free use’ because it becomes impossible to defeat the defence in practice.
  • Repealing the parallel import restrictions for books. This makes practical sense if implemented to recognise the realities of the global online marketplace, and stop Australians who purchase from Australian booksellers having to pay more for their books. This could ultimately benefit the Australian booksellers market.
  • Allowing consumers to circumvent geo-blocking without any risk of copyright infringement, which would allow users to pay for competitively priced overseas services that are not available in Australia. Although this would provide users with an alternative to blatant piracy, another solution would of course be encouraging content providers to provide Australians with content of comparable quality and price to that which is available overseas.

Why IP protection matters

The above recommendations suggest that the Productivity Commission has, in focusing on the “interests of the broader community”, in some cases arguably failed to consider the importance of providing economic incentives to innovate, which requires a strong IP system to grow our innovation economy.

Instead of focusing on how Australia might encourage local innovation and IP production to contribute to the “ideas boom”, implementing these recommendations could sadly have the opposite effect of deterring investment in innovation, which would be a step backwards in the push towards a strong innovation-based economy.

The Government is now considering its final response to the recommendations made by the Report and will formally respond in mid-2017. It will be interesting to see, if the Government does implement the recommendations, how it reconciles this shift in policy with the objectives underlying the “ideas boom”.

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