Madderns

The Australian government agency responsible for administering IP rights in Australia has recently announced that from May 2021 to June 2022, it will be conducting a trial of an innovative machine learning model to improve the process where patent applicants are directed to request examination.

While patent examination can be requested at any time, examination must be requested within two months of receiving a direction from IP Australia to do so, or within five years of filing (whichever is sooner). Failure to request examination in time will result in lapsing of the application.

IP Australia will typically direct an applicant to request examination around 4 years after filing. Once Examination has been requested, it joins a queue, where it waits to examined, with IP Australia aiming to issue a first report within 12 months.

For applicants looking to accelerate the process, there is the existing option of requesting expedited examination, where IP Australia will aim to issue the first report within 8 weeks of the request.

S44(2) of the Patents Act 1990 stipulates that the Commissioner may, on one or more prescribed grounds, direct the applicant to request examination. The prescribed grounds are found in Reg 3.16 of the Patents Regulations 1991:

• That the Commissioner reasonably considers it expedient to give the direction having regard to the progress made in the examination of applications filed before the filing date of the application concerned;
• That the Commissioner reasonably considers it to be in the public interest to give the direction;
• That the Commissioner reasonably considers it expedient to give the direction, having regard to the examination of another application for a standard patent or the examination of an innovation patent.

The Regulations also require that the direction must be given in writing and state the grounds on which it is given.

The intent of the new model is to issue a direction to applicants when an applicant’s IP strategy is more developed, with the aim of helping applicants navigate the patent examination process more efficiently. This will apply to applications made using patent attorney firms and self-filers. The model may change the previous first come, first served order of directions by focusing on applications that are considered more likely to be ready for examination, but the model will not change the directions process as mandated by the Patents Act.

However, it will be interesting to see whether the reason provided is updated to indicate that the decision has been made because of this new process, or whether it will remain the current default reason:

“You have received this direction because either progress has been made in the examination of applications filed before the filing date of your application or I consider it to be in the public interest”

The announcement of this trial comes around the same time that the Australian Government’s commissioned review in to the accessibility of the Australian patent system to small and medium enterprises (SMEs) was tabled in parliament. Provide a link.

The final report of the Patents Accessibility Review made 16 recommendations intended to improve both the accessibility of the patent system and the support provided to Australian SMEs applying for protection in Australia and overseas.

The report was based on findings from oral consultations with SME representatives and other specialists, including commercialisation advisors, organisations representing patent attorneys such as IPTA and FICPI and patent attorneys. The research team also considered submissions and undertook their own research.

While the complete report makes interesting reading for all stakeholders, it does provide commentary on processing times for patent applications, with the executive summary stating:

“On processing times there is no significant issue, given that IP Australia can arrange for expedited review of a patent application at no extra cost, this taking three months. Some participants were quite happy for the delay of a year or so (this being the standard patent examination time under normal circumstances) – but there is no doubt that the availability of an expedited review service will deal with any problem here.”

The Report identified that for many, the delay in examination of a patent application was useful, as costs were postponed, including the following, non-attributed quote:

“Australia is amongst the fastest jurisdictions in the world.

This is a red herring. SMEs applications shouldn’t be dealt with quickly. …It’s important to defer prosecution costs.”

The decision to move to this new process raises many questions:

• What metrics does IP Australia intend using to determine how developed an applicant’s IP strategy is?
• What does IP Australia consider to be efficient navigation of the patent examination process?
• Will this model be influenced by the progress of corresponding overseas patent applications?
• What does it mean to be more likely to be ready for examination?
• What can an applicant do to prevent early directions issuing?

While the findings of the accessibility report are not contradictory to IP Australia’s efforts to improve the customer experience, it is hoped that the agency is careful when it comes to anticipating the diverse needs of its customer base.

In a welcome boost for Australian innovators in biotech and medical technologies, the Australian government has announced the introduction of a new patent box scheme which will come into effect on 1 July 2022.

Patent box schemes of different forms are currently available to innovators in over twenty countries including many European countries. The general concept of a patent box scheme is to encourage innovation by applying a lower rate of corporate tax to any profits made from patented inventions.

The Australian government is introducing a patent box to encourage businesses to undertake R&D and keep patents in Australia. The patent box will tax income derived from Australian medical and biotech patents at a 17 per cent effective concessional corporate tax rate. Normally corporate income is taxed at 30 per cent or 25 per cent for SMEs.

Only granted Australian patents with a filing date after 11 May 2021 will be eligible for the patent box.  It seems likely that the patent box will also only apply to granted Australian standard patents and not innovation patents.

The government has said it will consult closely with industry on the design of the patent box before implementation on 1 July 2022.

In addition to the new patent box scheme which incentivises businesses at the ‘back end’ of the commercialisation pathway, Australia also has an R&D tax incentive, which provides incentives to carry out earlier stage research and development in Australia.

At this stage, the patent box scheme will only apply to biotech and medical technologies, although the government has also suggested it could be extended to the clean technology sector. In an effort to incentivise innovation in a wide range of sectors in Australia it would be good to see the patent box scheme eventually extended to other technology areas as well.

Madderns will monitor the implementation of the patent box scheme closely and update our clients and associates when we have further information.

The Australian economy is dominated by SMEs, which account for 99 per cent of all companies, and thus have the potential to play a key role in re-building post-COVID-19.

As we look for ways to build the post-COVID-19 economy, a recent comprehensive study by the European Patent Office (EPO) has provided some insights on the positive role that innovation and Intellectual Property (IP) rights plays in increasing profitability and creating jobs.

The EPO study of more than 127,000 companies found that those companies that held at least one IP right, whether it be a patent, trade mark or design, generated 20 per cent higher revenues per employee than their counterparts without any IP rights. They also paid their employees 19 per cent more, and had more than 2.5 times the number of employees.

For those companies that held patents rights, their performance was substantially better, generating 36 per cent more revenue per employee, paying their employees at least 50 per cent more, and having more than five times the number of employees.

The econometric analysis allowed the results to be stratified based on company size, and this analysis indicated that SMEs were by far and away the main beneficiaries of IP rights. In terms of numbers, around 9 per cent of SMEs held at least one IPR, and less than 1 per cent owned a patent. In contrast, around 55 per cent of large companies held at least one IPR with 18 per cent owning a patent. Despite the low numbers of SMEs holding at least one IPR, they gained much more from this than larger companies, with the average revenue per employee gain of 67 per cent compared to 18 per cent for large companies.

The overarching conclusion of their analysis was that ownership of IPRs, specifically patents, trade marks and designs, was strongly associated with improved economic performance at the individual firm level and that this association was especially strong with SMEs.

Perhaps most telling was that for SMEs that owned patents, trademarks and designs, their revenue per employee was double that of their competitors without any IP rights.

Clearly holding intangible IP rights has very tangible benefits for the rights holders, especially SMEs.

The EPO study is certainly a very comprehensive and compelling study, where they combined IPR portfolio data with economic data pulled from the ORBIS financial database to study more than 127,000 companies (~85 per cent of which were SMEs) in 28 EU states, from 2007 to 2019 (thus spanning the GFC). The study used two complementary analysis methods and calculated descriptive statistics, as well as using a powerful econometric analysis model to study country level and firm size level effects.

Writing as an ex-statistics lecturer, it was particularly warming to read the EPO methodology, including the discussion around the choice of the outcome measures and use of panel regression to control for factors that could have affected economic performance, to “isolate” the relationship between IPR ownership and firm performance.

These results also compare favourably with earlier studies. In 2016, Farre-Mensa of the Harvard Business School was lead author on a NBER study which investigated whether patents helped start-ups grow and succeed. The study analysed all patent applications filed in the US between 2001 and 2014 and found that the start-ups that obtained patents recorded 51 per cent sales growth, a 36 per cent increase in jobs, and double the likelihood of an eventual listing on a stock exchange. Earlier research by Mann and Sager in 2006 came to a similar conclusion, and rather interestingly found these benefits could be reaped through the granting of just one patent.

These results robustly show that SMEs and start-ups that focus on innovation and obtaining IP rights reap the rewards of improved revenue and growth.

The Australian economy currently ranks a lowly 87th in the Harvard Atlas of Economic Complexity. This is particularly appalling given Australia is ranked as having the 8^th richest economy.

Australia could thus do well to actively encourage innovation and the uptake of IP rights to strengthen and build the post COVID-19 economy. Not only is this likely to generate greater revenue and jobs, these innovative companies would create a more diverse and robust economy.

Before a trade mark is adopted, searches should be conducted to check whether anyone else has registered or is already using a similar mark.  It is also important to consider whether the proposed mark is sufficiently “distinctive” or unique to be registrable.  This will depend on whether other businesses are likely to need to use the proposed mark in respect of their own goods and services.

The following examples are generally not considered to be distinctive:

• Descriptive words that have a direct reference to the relevant goods/services. This also applies to minor misspellings or variations of descriptive words.
• Geographical names that have an obvious or potential connection with the relevant goods/services.
• Surnames, depending on the commonness of the surname and whether the goods/services are very specialised or commonplace.
• Single letter marks, unless the mark is stylised in a unique manner.
• Combinations of numbers that have a meaning or relevance in the marketplace.
• Logos that are simply an ordinary depiction of the goods or consist of a very simple design.

If the Trade Marks Office raises a “distinctiveness” objection, it may still ultimately be possible to obtain a registration by filing evidence of use of the mark to show acquired distinctiveness.  However, preparing this type of evidence can be time-consuming and costly with no guaranteed outcome.  It is consequently preferable to consider the question of distinctiveness prior to adopting and commencing use of a new mark.

Examples of distinctive marks include:

• Invented words with no meaning.
• A mark that is emotive or allusive but not directly descriptive of the relevant goods/services.
• An unusual combination of words or a clever play on words.
• Two letter marks and three letter marks, unless the letters have a descriptive meaning or are commonly used acronyms or abbreviations in the relevant industry.
• Combinations of letters and numerals, unless the combinations are commonly used to indicate characteristics of the goods such as size or quantity. .
• Stylised logos.

As the question of distinctiveness can be subjective, an option that may be worth consideration is to file an application for the proposed mark through the fast-track “headstart” system.  “Headstart” applications are assessed within 5-10 days (sometimes even sooner) and so we can find out very quickly whether a distinctiveness objection is likely to be raised.  “Headstart” results will also provide an indication of whether there are conflicting similar marks that may pose an obstacle to an application.  Once “headstart” results are issued there is a further 5 day period to decide whether to proceed with formally filing the application.

Take-home message:

Distinctive marks are easier to register and enforce.  It is consequently beneficial to invest some time selecting a mark that is unique and, ultimately, likely to be more memorable in the marketplace.

Patent term extensions (PTEs) are available in many countries and can be used to extend patent life to compensate patent holders for the time lost waiting for regulatory approval of a new drug.

Currently, PTEs are not available in China. However, it’s positive to note that PTE provisions have recently been passed into legislation in China through the fourth amendment of the Patent Law, which will take effect on June 1, 2021.

A number of issues around the proposed PTE program remain pending or unresolved but will be addressed by the amended Rules for the Implementation of the Patent Law (‘the Rules’). The amended Rules will be further explored once they are released.

Statutory Provisions

Article 42 of the fourth amended Patent Law covers extensions, and is translated as follows:

42. ……. In order to compensate for reductions in patent term arising from regulatory review and approval of a new drug in China, the Patent Administration Department of the State Council, at the request of the patentee, may extend the term of an invention patent related to the new drug which has received regulatory approval. The term extension is no more than five years, and the total remaining term from the regulatory approval should not exceed 14 years.

Eligibility

The draft Rules suggest the extension is available for a drug product, a method for preparing the drug or a medical use of the drug. It also indicates that the new drug covers three types of drugs: chemical drugs, biological products and Chinese medicine.

Notably, the draft Rules clarify that the new drug-related invention patent refers to a patent related to the active ingredient of the new drug that receives regulatory approval for the first time by the Drug Supervision and Administration Department of the State Council.

However, we think there is a need for further clarification on the scope of the active ingredient, particularly on whether the term active ingredient refers to the active moiety and its salt, ester or crystal forms on a broad construction, or whether it is limited to the active moiety itself on a narrow construction.

Timing for Filing a Request for PTE

According to Article 42 set out above, the patentee cannot file a request for PTE before a new drug containing the active ingredient receives regulatory approval in China.

The draft Rules prescribe that the patentee must file a request for PTE with the Patent Administration Department of the State Council within three months from the date the new drug receives regulatory approval.

Furthermore, a request for PTE will need to be filed at least six months prior to the patent expiration date. With the amended Patent Law in China coming into force on June 1, it seems likely that certain pharmaceutical patents will miss the time limit for filing a request for PTE if the patent expires before December 1, 2021. No retrospective remedy is available.

Needless to say, it is essential for the patentees to monitor these time limits if considering a request for PTE.

Request for PTE Requirements

According to the draft Rules, applicants should satisfy the following requirements when filing a request for PTE:

• In the case that there is more than one patent related to a new drug, a request for PTE may be filed for only one eligible patent;
• In the case that a patent covers multiple drug products, the patent term may be extended on the basis of only one drug product;
• A patent term extension has never been applied to the patent; and
• The remaining term of the patent must not be less than six months.

We don’t believe these requirements prevent the patentee from filing another request for PTE based on a different patent (for example, a patent that claims different subject matter such as a preparation method and a medical use), in case a request for PTE based on one eligible patent (for example, a patent that claims a drug product) fails, but this needs confirmation.

It is also unclear if the regulatory review and approval period for a crystal form of the active ingredient can serve as a basis for a PTE, wherein an earlier product containing an amorphous form of the active ingredient previously received regulatory approval.

The second requirement arises when more than one drug product becomes subject to regulatory review and approval. Clarification is required on whether the one drug product that serves as a basis for a PTE request is meant to be the first one that receives regulatory approval.

Calculation of the Extension Term

According to the draft Rules, the extension term is equal to the period between the filing date of the patent and the date on which a new drug receives regulatory approval, reduced by five years.

Limited Protection Scope During the Extension Term

Compared to full protection afforded during the standard patent term, a more limited protection will be available during the extension term. Protection will be limited to only the new drug that receives regulatory approval and its approved indications (see Rule 85 item 6 of the draft Rules).

Closing comments

In response to the newly-introduced patent term extension program, a patent linkage system will be concurrently established in China. Given the huge potential market in China, it is critical for innovator and generic pharmaceutical companies to be prepared for these changes.

Madderns will endeavour to produce further explanatory articles in this series following this introduction, to ensure we can help provide a full picture of the changes which lie ahead.