Franke Hyland and Macquarie University

Franke Hyland is proud to announce that they have been selected to provide patent attorney services to Macquarie University. After an extensive tender process, Franke Hyland was successful in their tender to provide patent drafting and prosecution services for a three year period.

Macquarie University is on track to become one of Australia's leading research universities. To reach that goal, they are investing heavily in research, new infrastructure, teaching facilities, and in developing mutually beneficial relationships with industry. There are (as at 2010) over 31,000 students, and almost 1,000 academic staff on campus.

We look forward to a long and successful partnership with the University.

The Problem with Provisionals

Provisional patent applications were originally made a part of the patent system to assist inventors. The idea was to allow for a less thorough, and hence less expensive, initial filing as a way of recording that an invention had been made, but without the full detail and formality of a regular patent application. Provisionals act as a ‘place holder’ for a year, within which time a regular patent application must be filed, or the protection lapses.

One advantage of filing a provisional application is that it buys time for the applicant to do further research and refine the invention, before the regular patent application is filed. However, this is often more theoretical than real: the application can only protect what is disclosed in it. So if the further work is to produce more examples within the scope of the already filed provisional, that theory works. If the further work finds new uses, changes significant features or isolates a whole new aspect as important, then the provisional will not, and cannot, protect these aspects.

Provisionals do not require a full set of claims to be drafted, and this can save some expense. However, it is important that they do contain at least broadly stated claims. If you do not define your invention yourself by claims, then you are leaving it to a court to later define what it was you disclosed if this arises in any later court proceedings. In some countries, amendment is only possible within the scope of the invention as disclosed, and if you do not have claims to define a broad scope, there is a risk that it will be read narrowly, and result in limited protection.

There is one clear advantage of filing as a provisional, and that is that you effectively get another year of protection in Australia. Patent term in almost all countries is 20 years from filing. In Australia, this runs from the complete application, not the provisional, so in effect you can get the year of the provisional, plus 20 years. Hence, for products where the extra year is very valuable, such as pharmaceuticals and agrichemicals, provisionals are an important tool to maximise the value of the IP.

The law in Australia is currently out of step with our major trading partners. The Patents Act 1990 provides that a provisional only has to describe the invention, not fully describe the invention as is required for a complete application. This means that a lower level of disclosure has been adequate in a provisional to enable a corresponding timely filed complete application to be validly based on the provisional.

This has lead to the idea that you can file a ‘quick and dirty’ provisional, with a minimum of information and at a minimum of expense, and then fix it up with a well drafted complete within the one year period, generally when funding or a licensee can be located. This is seriously flawed strategy, on several levels.

While this sounds helpful, none of our major trading partners – the United States, European Union, Canada, Japan, China, South Korea – have any kind of comparable provision. In a number of cases in the United States and elsewhere, such a ‘quick and dirty’ provisional has been found to provide an inadequate disclosure and so the initial filing date is lost, often with dire consequences for the patent. You cannot protect what you do not disclose, and so an initial cheap filing is the equivalent of building on poor foundations. No matter what clever (and expensive) strategy you later adopt, you cannot fix the foundations.

This peculiarity of Australian law does no kindness at all to Australian researchers, who may erroneously assume that the law in other countries works in a similar way, and see a ‘quick and dirty’ provisional as a way to save money at the early stage of development. Nothing could be further from the truth – in fact, it will materially reduce the value of the IP in the eyes of licensees and investors, as a weak provisional is essentially an invitation to attack validity of the granted patent.

Very extensive amendments have been proposed in the IP ‘Raising the Bar’ Bill, which has been the subject of extensive consultations over the past two years, and has been read a first time in the Senate. When the bill is passed and enters into effect, a provisional application will be required to fully describe the invention, in order for a complete application based upon it to validly claim the provisional date. The standard of disclosure will no longer be lower.

In fact, since the amendments once active are likely to be operative 6 months after royal assent, likely some time late next year, it is important to take this into account right now. Any provisional filed now is likely to be completed after the new provisions are operative.

The days when the ‘quick and dirty’ provisional had any application are not just over – this amendment puts the final nail in the coffin. The quality and value of any patent is directly determined by the quality of the provisional, and there is no role now for anything less than a well drafted provisional.

by Peter Franke

Making the most of the Patent Prosecution Highway

One of the major challenges facing the international patent system is the growing number of applications in the major patent offices. The largest patent offices are the ‘Big 5’ - the US, Chinese, Korean, Japanese and European patent offices.

As you can see from this graph, the numbers of applications are staggering, and the growth in recent years has been huge. The meteoric rise in filings from China, and to an extent India, reflects their rapid industrialisation, and movement from nations that only absorb technology to those that develop and export their own IP. There are estimated to be 6.7 million patents in force around the world, and around 1.9 million new applications were filed internationally in 2009.

An interesting fact is that  as a consequence of the use of the European patent system, the Australian patent office now handles more new patent applications than France and the UK.

In an increasingly multilateral and interconnected world, patent officials are spending more and more time examining exactly the same patent applications as have been filed in each of the other 4 ‘big 5’ offices. There has been a great deal of work done between the offices to enable greater recognition of work by the other offices, so as to reduce the extent of duplication (quintlication!) and unnecessary re-work. Even modest gains on each case can create significant increases in overall efficiency and reduce the time application have to wait to be examined.

Patent Prosecution Highway

One measure has been the adoption of the Patent Prosecution Highway (PPH) process. This started as a set of bilateral agreements between the USPTO and a few other national patent offices, which has grown to bilateral arrangements between the USPTO and 20 other national offices. The precise nature of the agreements vary, but they are all concerned with allowing improved speed of processing from applicants.

More recently, this had spread to co-operation between other offices. The Japanese and Chinese patent offices have just announced that they have established their own PPH process. This will involve, in addition to examination co-operation, the exchange of English language abstracts of their respective patent collections, to assist them both in better searches and examination.

Advantages for Australian applicants

For Australian applicants, the PPH arrangements provide a real opportunity. Australia has a very liberal process for allowing expedited examination. For a small additional cost, it is possible to have examination occur quickly, generally within two months. Assuming a favourable examination outcome, and prompt action, the application can be accepted within about 4 months from filing. The favourable outcome can then be used to invoke the PPH arrangements with the US. Again, assuming that the examination outcome is generally favourable (for at least some claims) then a US issued patent can be obtained within 6 or 7 months.

In the normal course, this would be closer to 3 years or longer. As is always the case in the US, it is possible to allow some claims to proceed to issue, and file a continuation to pursue broader claims, if appropriate.

Early grant in the US is not always an advantage, but depending upon the business strategy, it can be extremely valuable. For example, transforming a pending Australian application into granted patents in the US and Europe can be very significant for potential investors, as it takes a probability into a reality.

A mechanism for rapid examination in the US for Foreign applicants

Recently, the PPH agreement between the US and Australia has been amended, so as to include any cases examined by the respective offices, including cases that claim priority from another country. This means that applicants from other countries (including the US) can use the Australian expedited examination process, obtain acceptance, and then file in the US and use the PPH process. We offer very cost effective inclusive pricing for expedited examination, please let us know if this is of interest and we will be happy to provide more detail.

We expect to see more and more of such bilateral and multilateral examination agreements , and so we will continue to monitor the development of PPH and similar mechanisms, to identify the advantages and opportunities for our clients in their use.

by Peter Franke

R&D Tax Credit – New & Improved

Many of those who have invested in R&D over the last 20 years will be familiar with the former R&D Tax Concession scheme. It provided a corporate tax rebate based on ‘eligible’ R&D investment at ‘income deduction’ rates varying between 125% and 175% of the investment, depending on the type of activity paid for (and in which years the investment occurred). A key distinction was between what comprised ‘core activities’ and ‘support activities’.

Of course, this did require quite a bit of expert record-keeping to prove to the taxman that the activities were genuine R&D as defined in the Tax Act.

The system was generally thought to provide a good incentive, but was criticised on some fronts and was also seen to be open to some ‘over-claiming’, particularly in the area of what could be classified as ‘support activities’.

The area of software development also proved a difficult one under the old scheme, with many ‘in-house’ software development activities failing to attract the incentive.

From 1 July 2011 the new R&D Tax Credit scheme came into effect. This scheme has a number of significant differences from the old scheme, most aimed at making the system easier to use, and to redress some of those difficulties mentioned above.

Without going into too much detail (as we are, after all, patent attorneys, not tax accountants!) the highlights of the new scheme include:

• the incentive is now available to a wider range of companies, with the rules on Australian ownership of resultant intellectual property (IP) having been relaxed. The criteria is now based around the activity actually occurring in Australia;
• the effective rebate ‘rate’ per R&D dollar has increased for all entities, and more so for smaller entities;
• the Tax Credit is now ‘below the line’ - meaning the rebate is calculated as an after-tax reduction in tax paid;
• for smaller entities (turnover of less than $20M) the Tax Credit can be paid in cash if the company is not in profit and therefore not paying net tax;
• the rules around software development have been relaxed, enabling much more of this key activity to attract the benefit.

However, the rules around the eligibility of ‘supporting activities’ have been tightened, excluding claims for activities that are not solely provided to support the R&D effort, but which also support much of the ‘business as usual’ activity (e.g. roads built to access both R&D and production activity).

If you are interested in finding out more about how to access these benefits, Franke Hyland are happy to recommend some REAL experts in the field to help you!

by Adam Hyland

New ACIP issue paper on a 'Review of the Innovation Patent System'

In recent years, the Advisory Council on Intellectual Property (ACIP) has been conducting a number of reviews and issued corresponding papers on IP reform in Australia.

On 17 August 2011, ACIP issued a paper calling for submissions on its next review concerning the Innovation Patent system.

The closing date for submissions for review is 14 October 2011.

The Innovation patent system is a unique system in the global IP arena.

At its heart, the innovation patent system offers a second-tier patent enforcement regime to the standard patent system. The innovation patent requires the satisfaction of an 'innovation step' test, which is considered and intended to be a lower threshold than the 'inventive step' test required for a standard patent. The trade-off for this lower threshold test being that the maximum term of an innovation patent is less than that for a standard patent – 8 years as opposed to 20 years. However, there have been criticisms that, while for a shorter term, the innovation patent offers the same level of infringement enforcement as a standard patent, although is much harder to counter due to its lower validity threshold requirements.

The innovation patent has been criticised as being overly generous to patent owners and open to abuse. The innovation patent is much more encompassing in terms of what subject matter it can provide patent protection for when compared with other second-tier patent mechanisms offered in some other countries (notably utility models provided in Germany, China, Japan and Korea).

The innovation patent can also offer a quick enforcement strategy while a parallel standard patent application is pending, due to the quick turnaround times offered for the progress of innovation patents by IP Australia. Such strategic uses may not have been originally intended and foreseen, however the system has been exposed to quite valid strategic uses in this regard.

The review paper is being expansive enough to ask radical questions such as whether a second-tier patent system in Australia is still required and, if so, should a utility model system, as used elsewhere, be adopted. 

Realistically, we are unlikely to see reform of such magnitude occur.

In the current Australian patent climate, the standard patent system is on the verge of significant legislative reform to 'raise the bar'. This would potentially further the validity threshold gap between the innovation patent system and the standard patent system.

The ACIP paper does propose amendments to raise the bar of the innovation patent system to close the perceived gap which will occur following the pending changes to the standard patent system. If anything, this is likely to be where the ACIP paper may be more likely to effect change.

by Simon Ellis

Biofuels - Something Happening Here

I attended the Biofuels Summit in Brisbane on 28-31 August 2011. I have to say it was an eye-opener as to the breadth and depth of both the R&D and commercialisation work that I going on in Australia and the rest of the world in the biofuels area.

The ‘face’ of biofuels over the last few years has been the fermentation of bio-ethanol from cereal (food) sources. However, because of the ‘food vs fuel’ debate on land use, this has moved on to new and interesting technology fields – sometimes called ‘second generation’ biofuels.

While I was struck by the inroads bio-fuels have already made into the automotive fuel chain, it seems that the level of use of biofuels could be a lot higher than it is. There were a number of perceptions that are holding back biofuels at the moment, including apparently limited refuelling facilities, the perceived risk of voided engine warranties, compromised emissions rating, limited fuel tank (range) capacity, need for engine modifications, need for mechanic training. These are some of the perceptual challenges for the biofuel industry.

The solution in Brazil is to make it illegal to sell any car that cannot run on ethanol!

Nevertheless, some transport companies are embracing biofuels. Finemores Transport are using biodiesel from Biodiesel Producers P/L in Wodonga, who use tallow as a feedstock. They have used more than 20 million litres of B20 biodiesel since 2008 without problems.

Boeing are working on sustainable biofuels from non-food sources to replace fossil jet fuels.

The Summit showcased a number of companies that have some interesting technologies in development:

• Lanzatech are a New Zealand based technology company who have developed a technology to convert steel-making waste gas to biofuel. They have a Chinese joint venture planning to make >30 million gallons of ethanol per yr by 2013. Not surprisingly, the see their patent and IP portfolio as a key strength.
• Zeachem is a US based biomass processor using biochemical treatment to produce ethanol, which is based on the digestive organisms of termites.
• Licella is an Australian company using a new technology to produce high energy density bio-crude in one pass. They are working with Norske Skog to build the largest pilot facility in the Southern Hemisphere to process biomass to biofuels.
• Aurora Algae are based in WA and were founded at UC Berkeley. They have a pilot facility near Karratha WA for harvesting biofuels from algae, while simultaneously producing dietary Omega-3 EPA fatty acids. To date, they have filed 39 patents in low cost cultivation/harvesting/extraction/conversion of algae biofuels.
• Microbiogen are using their expertise in yeast to create technology for making sustainable next generation biofuels. They have developed a yeast strain that can metabolize xylose, previously thought to be impossible. Microbiogen argue that even second generation biofuels will still ‘crowd out’ food production. Their technology can allow this to be avoided.

Interestingly (ominously) there were a couple of representatives from the Australian Consumer and Competition Commission (ACCC) attending the summit. They told me they always take an interest in emerging markets, and the biofuel industry is certainly emerging!

by Adam Hyland

A reduction in Red Tape - Business Name Registration Changes

Business name registration is a necessary evil if you operate in Australia as a business under anything than a personal or company name. If you trade as a trust, a partnership, or just want to operate under another name, then you must register a business name.

The idea of the system is to ensure that customers, suppliers and the public at large can identify the entities which are trading. It is important to understand that registering a business name does not create any rights in the name registered – for that, you would need to register a trade mark with IP Australia. The process is fairly simple in most cases, and the fees (while never welcome) are not excessive.

The big problem arises when a business wants to operate in several locations within Australia. Each state and territory has a separate system. In most cases, you are also required to have a local business address specified. In the era of internet based sales, it is not always easy to tell if you are trading in a particular state or territory. What is a reasonable system for one state becomes an messy and expensive exercise when you are required to register in six states and two territories.

Another complication is that the system currently operates independently of the Australian Business Number (ABN) system, which is required for tax, GST and related purposes.

Following from a decision at COAG (Council of Australian Governments, including Federal, State and Territories), a bill has been introduced into the Federal Parliament to create a single national business name system. States will refer their powers to the Commonwealth, and ASIC will operate a single, on-line system. Existing names will be grandfathered, with provisions to deal with the co-existence of (e.g.) ‘Beachside Fish & Chips’ in multiple states.

Also, the system will require that an ABN be provided for each registration, so that the business name and ABN systems are aligned.

It will take all the states to pass their corresponding legislation before the new scheme is in operation, so it is likely to be a year or two away. The outcome should be a much more efficient, on-line, one stop national business name system, which will simplify requirements for anyone in or starting a new business.

by Peter Franke

Patent Prosecution Highway pilot program between IP Australia and the USPTO extended and expanded

Since 14 April 2008, IP Australia and the USPTO have been trailing a program called the Patent Prosecution Highway (PPH). The underlying aspect of the program is to allow accelerated or expedited examination of a patent application in either Australia or USA based upon a corresponding application in the other country which has at least one formally allowed claim.

The pilot was initially restricted to only patent applications which were originating in either Australia or the USA. In other words, applications having a priority claim from a country other than Australia or USA were excluded from the program. By practical effect, this tended to exclude the program from non-US and non-Australian applicants.

Since, January 2011, the program was expanded to include applications coming from the PCT system. Again, though, only PCT applications having originated from Australia and USA and having either of these countries as the International Searching/Examination Authority were eligible for the PPH program.

The PPH program has now been extended for another 12 months, which commenced on 15 July 2011. However, the extended program has now been expanded so as to be less restrictive on what constitutes eligible applications. Now the requirement of origin has been removed so that any Australian and US patent application will be eligible regardless of country of priority claim. In effect, this has now opened the door for the program to any applicant having eligible corresponding US and Australian patent applications.




by Simon Ellis

EMDG's - something from the Government that really can help

Export market development grants (EMDG's) are a long running Federal Government program designed to assist new exporters.They provide a grant of up to 50% of expenses incurred in relation to launching and developing export markets, covering expenses such as:

Overseas promotion and travel costs

Trade fairs

 Marketing visits

Promotional literature and advertising

Visits from overseas buyer

Intellectual property registration and insurance costs

The grants are available on the basis of funds being spent and then claimed.There are a set of detailed criteria for eligibility, mainly to prevent any rorting of the system, but any Australian resident IP developer or manufacturer is very likely to be eligible.There are caps on the maximum  and minimum amount that can be claimed, and on the size of business ( turnover under $50  million).

As a bonus, in the first year you can claim expenses back for the last two tax years, which could be a great head start for any emerging exporter.

Intellectual property expenses which are allowed include those which relate to registration of patents, trade marks, designs, plant breeder’s rights, and copyright. It does not cover expenses relating to Australia or New Zealand, but it does cover the costs of  seeking protection in other countries, including your Australian attorney’s fees, official fees and foreign attorney costs.

For more information, contact us or go to http://www.austrade.gov.au/What-Is-EMDG/default.aspx.

One final tip – claims for the 2010/11 year are now open, and if you get in early, your claims will also be paid early.

Peter Franke

AIFST 2011 Blog

I was very pleased to attend the 44^th annual AIFST Convention in Sydney, from the 10^th – 13^th July 2011. Franke Hyland was particularly pleased to sponsor the Executive Lunch on Tuesday 12^th July. Thanks to our guest speaker, Arthur Blewett, CEO of Agrifood Skills Australia (www.agrifoodskills.net.au), who gave an excellent presentation on the work his organization is doing to bridge the skills gap for the agri-food industries.

I was also honoured to be asked to succeed Prof. Ken Buckle as the public officer of the AIFST. Prof. Buckle will be stepping down from the position in the near future and I look forward to being able to contribute to the Institute in some small way.

Following are my (semi-random) compilation of information thoughts provoked by the sessions I attended at the convention:

•  In the next 40 years we will consume as much food as we have in the last 500 years. The challenge for the food industry and for food technologists is to determine how we will make up the likely gap between food demand and food production safely/reliably/cost effectively/nutritionally?
•  In 1942 50% of all food borne illness was caused by raw milk. Yet ‘raw milk’ seems to be making a comeback for what seem to be uncertain nutritional reasons.
• Technology transfer is one of the key priority areas for Australia's national food plan.
• The JR Vickery Address was delivered by Ian Chubb, Chief Scientist of Australia. He thinks food scientists need to do a better job at telling stories that bring home the benefits of new food technologies. He also thinks that technology transfer is one of Australia's main contributions to global food security, and that climate change is a major risk to Australia's food security and industry. His message is that the status quo will not get us through: innovation in the food industry is crucial to Australia's future.
• We have heard a lot about peak oil. However, peak phosphorous will be reached some time this century. No phosphorous = no food.
• Woolworths have seen a great increase in consumer demand for instant reaction to food trends, and for information on food products.
• Woolworths say consumers want manufacturers and retailers to make healthy food choices easier.
• Birch & Waite say austerity is currently a strong household trend, along with a new focus on quality and a developing affinity for home brands. They also see gourmet inspiration from TV shows such as Masterchef and ‘star’ chefs driving consumer behaviour.
• Businesses need an innovation process, not just a development process. Birch & Waite recommend a value stream study to underpin the innovation process.
• Kim Leighton from the Australian Food and Grocery Council AFGC says food companies cannot afford to ignore social media.
• Watch for the AFGC's upcoming smartphone app 'GS1' - will allow in-store product information delivery via direct scanning.
• An MRI scan on a potato? Yes - to find the perfect way to make crispy roast potatoes. A food technology gem I learned today at the AIFST conference!
•  Planet Ark says that carbon output labelling on food products helps consumers take personal responsibility for their carbon emissions. Carbon footprint is not an inherent property of a food product. It changes as different decisions are made along the supply chain. The issue of environmental labelling of foods is evolving - for now the focus is on carbon footprint as a proxy for overall impact. Aldi is the first company in Australia to sign up to the Planet Ark carbon production label program.
• Visy says 84% of consumers say they are concerned about the environmental impact of packaging, but only 13% actually buy environmentally sustainable packs. Nevertheless, Visy is investing AUD 500M in sustainable packaging technologies.
• The biggest challenge in recycling packaging is getting the consumer to deal appropriately with the used packaging at the start.

If you would like any more information on any of the topics mentioned above, please contact me here via mail@frankehyland.com.au.

by Adam Hyland

Adam at the IPBC 2011 in San Francisco

Having enjoyed my time in New Orleans, I spent a couple of days in Florida catching up with a number of US patent attorney colleagues. A consistent theme in my discussions with them was the pervasive view that the US economy is in a very poor state and belts that tightened during the GFC are remaining so.

A consequence of this is that US companies who previously would have included Australia in their global patent strategy are often declining to do so. While this isn’t good news for Australian patent attorneys who rely heavily on this work coming into Australia, it does make me wonder whether there are some golden opportunities out there for Australian companies to exploit US technology that is not being actively protected here? It is worth spending some time and effort to investigate this if there are US technology leaders in your area of business.

Following this I attended the Intellectual Property Business Congress (IPBC) in San Francisco. This was a relatively small event (500 delegates) but there were some real thought leaders in the area of commercial use of IP in attendance, which made for some very engaging sessions.

Out of these, I made the following observations (across a number of topic areas):

• Between now and 2015, the USPTO and the EPO expect to greatly increase ‘shared workload’ co-operation in the areas of searching and examination of patent applications.

• Currently, about 90% of USPTO trade mark examiners work exclusively from home. While more difficult to implement due to the nature of the work, they would like eventually to have the same proportion of patent examiners working from home.

• There was a lot of discussion about the difficulties associated with properly valuing a patent or patent portfolio. Judge Randall Rader, Chief Judge of the Court of Appeals for the 9th Circuit, challenged the IP community to achieve the type of valuation certainty apparent in the real estate market. This comment was not met with universal acclaim, mainly due to the far more limited number of IP transactions, and the limited number of ‘buyers’ likely for any given IP transaction.
• Microsoft says that the driver of value of patents in their organisation is litigation value, especially where the paten tis nearing the end of its life. If not litigation value – the IP will be divested.
• For the ‘non-practicing entity’ – they say that a patent that has no commercialisation within five years, the return on investment starts to look ‘ugly’, and divestment of the IP will ensue.
• Microsoft and Alibaba Group (one of China's leading IP owners www.alibaba.com) agree that they will NEVER settle 'unmeritorious' IP infringement lawsuits brought against them by trolls or competitors.
• This year, the China Technology Exchange (CTEX) conducted the first patent auction in China. Twenty-eight Chinese patents were sold for about USD 450,000. A second patent auction, focussed on wireless communication and cloud computing will be held in Beijing in the northern autumn this year.
• Chinese companies filed 13,000 PCT patent applications in 2010. This puts China a long, long way ahead of Australia, for example, as an international filer of patents. There may be a Chinese company’s patent in your future …
• Chinese utility models comprise about 35% of the patent applications filed in China.
• 48,000 patent lawsuits were concluded in China in 2010. The vast majority of these were disputes between Chinese companies on each side. The patent litigation landscape in China is overwhelmingly about Chinese competitors, not about the Chinese vs Foreigner case we are more likely to hear about.
• Also in contrast to popular belief, foreign entities suing Chinese entities over patent rights in China have a 98% win rate in court. Chinese patent courts are reportedly very good for simple and quick patent litigation, less so for more complex matters. Anecdotally, the results of enforcement of Chinese court orders are better in the industrialised north-east, than in the less developed west of the country.
• Chinese electronics and communications company Huawei Technologies has 20 R&D centres across the globe, and have over 20,000 granted patents throughout the world, including over 500 granted US patents, and over 2000 granted European national patents.
• Most Chinese regional governments subsidise patent applications by locals, often to the extent of covering all of the costs incurred. This accords with my view that the Chinese are on a path to become net IP exporters, much the same path taken by Japan after WWII, and faster than Japan.

“The Great Patent Debate” at IPBC pitted Prof. Michael Meurer from Boston University and Prof. Peter Menell from the Berkeley Centre for Law & Technology versus Mark Blaxill and Ralph Eckardt from 3LP Advisors as the 'anti' and 'pro' sides.

The ‘anti’ patent argument was based on the idea that for most industries, the proliferation of patents presently hinders innovation. Among other things, they argued:

• that the patent system works well for the chemical/industries, but it is an economic drag on other industries
• poor examination means there are too many weak patents: not used against actual copyists, but against other innovators
• Microsoft did an enormous amount of innovation in its early years – but developed no patents

The ‘pro’ patent side countered that:

• companies and regions heavily involved in electronics and other manufacturing industries cite economic benefits from patenting
• the rate of patenting in the US against GDP is flat, and lower than it was in 1979, refuting the idea that companies are increasingly stuck in an IP quagmire;
• Patent litigation is ultimately a failure of negotiation. Stronger patent rights will equate to greater certainty of outcome, which would lead to less litigation.

Ultimately, neither side of the debate argue that the patent system should be dismantled, but perhaps there is room to consider moving away from the ‘one size fits all’ system of incentives that the present patent system represents. Both sides agreed the patent system would work better if there was a better market for negotiating the value of patent rights.

The session on ‘open innovation’ explored the following points:

• Collaborative IP sharing can drive better outcomes for the participating businesses.
• Patent pools have the advantage of mitigating group risk.
• Whole new businesses can be built from the shared IP of two or more companies who are willing to share IP.
• However, some organizations have difficulty sharing their "crown jewel" IP by participating in patent pools, collaboration etc.
• For open source collaboration to work, EVERYONE has to play ball - any hold-outs are likely to cause the collaboration to fail
• The attitude that "We have no patents, we open-source everything" equals a non-fundable company, according to Erin-Michael Gill of MDB Capital. However, he says that if you focus on great proprietary positions - there will be real returns. He also says that open source licensing agreements are confusing, which creates uncertainty for investors.
• Skype is a great example of reaping the benefits of keeping key IP assets close to the chest.

Finally:

• As the number of IP trade transaction increase, proper management of ‘chain-of-title’ assumes crucial importance, because the IP value can be lost completely if this area is neglected.
• Successful companies not only understand their own IP, but also their competitors’ and their CUSTOMERS’ IP.
• Companies who tend to defend a lot of litigation see the value and benefit in paying for external IP.
• As SME’s tend to get smaller, IP in some form is becoming their main asset and output. Technical IP often dominates intangible asset value early, but this leaches into brand value over time, as the brands support the IP.
• American Express sees a future role and business opportunity as an IP market place facilitator. They see the hurdles to a functional IP marketplace presently as a lack of uniformity in patent claim interpretation and a lack of transparency around IP transactions (in contrast with the publicly available record of real property transactions). One of the issues I see with this also is that the value of IP is not necessarily intrinsic - it will vary with the situation of the purchaser/licensee.

That concludes my ramblings from IFT11 and IPBC 2011. Next year these two conferences clash with one another on the same weekend in Las Vegas and Lisbon, Portugal respectively so I won’t be able to cover both. Happy to take suggestions on which one I should cover!

by Adam Hyland

Major improvements to U.S. Patent Law passed by Congress

After many years of gestation, the U.S. House of Representatives on June 23 passed the America Invents Act. The Senate passed its own version in March 2011. While there is some minor work required to reconcile both versions, what is clear is that U.S. Patent Law is on the verge of the largest substantive changes in 60 years, and that U.S. law will be more harmonised with international norms than ever before.

First to File

The most important change from an Australian perspective is the move to a 'first to file' type system. In the rest of the world, regardless of who invented first, the first inventor to file becomes the legitimate patent owner. This is not currently the case in the U.S. At present, an inventor who files later but invents first can, subject to very stringent evidence requirements, obtain the patent rights. However, this expensive and time consuming procedure - called an interference - creates significant uncertainty for investors and the public at large.

It also creates an anomaly where in some cases one party owns the U.S. patent, after a successful interference, supplanting the owner throughout the rest of the world. Although the example of small inventors was often used to justify the first to invent principle, in fact the overwhelming beneficiaries were U.S. corporates who understood how to play this game.

The U.S. will now abolish this distinction, and operate a first to file system, in common with the rest of the world. This will, for example, make current elaborate laboratory notebook practices involving witnessing of pages unnecessary for patent law purposes.

New Review Processes

Many countries, for example  Japan, Australian and under the European Patent System, have had review procedures available to challenge a decision to grant a patent at the patent office, and benefiting from the technical expertise of the patent office examiners. These are generally known as opposition systems, and provide an alternative to challenge in the court system.  Although a limited form of this existed previously in the U.S., a more extensive version will operate as the new inter-partes review and post grant proceedings. These proceedings will be handled by the Administrative Patent Judges of the current Interference Trial Section of the USPTO. A window will operate after grant for such reviews and again after filing patent infringement litigation.

This will provide an avenue for much lower cost challenges to dubious patents.

Fees and Delays

There has been a major push, supported by business in general, to allow the patent office to keep all the fees it collects, so that the funds can be re-invested in measures to reduce the backlog of patent applications. There are (as at 27 June 2011) 703, 175 pending U.S. patent applications which have not been examined. The USPTO is a major operation, employing almost 10,000 staff and having annual revenue of about 2.1 Billion USD. Historically, this pool has been convenient one to dip into to assist the general budget issues of the U.S. Federal Government. A limited form of this measure was passed by the House, in contrast to the Senate, where the full segregation was allowed. This will have to be settled by negotiation, prior to signature by President Obama.

The process of patent reform in the U.S. has taken many years, and although this Act does not resolve all the issues, it will make a vast improvement, especially from the perspective of non-U.S. users of the U.S. patent system.

by Peter Franke

Adam at the Institute of Food Technology Convention, New Orleans - Part II

Hi again!

Here are my latest thoughts and observations from IFT11.

• A number of big names have opted not to exhibit at IFT11, including Danisco, Kerry Ingredients and FMC.
• Talking to most of the exhibitors, they feel that things are a little quiet in the expo, compared with previous years. Many are saying that they are nevertheless making a useful number of good quality contacts.
• I did discover one Australian company at end expo: Cavitus Pty Ltd., an ultrasonic processing technology development company from Sydney. I spoke to Dr Darren Bates, the CTO of Cavitus, with whom I had drafted a couple of ultrasonic processing patent applications a few years ago. You can check out what he is doing at www.cavitus.com.
• The field of functional ingredients and delivery systems is very big business for the major ingredient suppliers. Particularly so for ingredients that allow an on-pack claim. 
• The same trend is happening in pet foods, with claims for brain health, joint health, renal health, eye health being pursued (to name a few!).

Finally, did you know that McDonalds in the U.S. work with their beef suppliers to ensure they only use Temple Grandin's humane cattle handling systems? (Check out Dr Grandin's site here)

More thoughts soon!

Cheers, 

Adam

Adam at the Institute of Food Technology Convention, New Orleans - Part I

My first couple of days at the Institute of Food Technology convention (IFT11) have been great, if a little overwhelming! Over 9,000 attendees, 900 exhibiting companies - hard to know where to begin.

I will give a bit of a 'grab bag' of impressions and ideas:

• sustainability is a major theme and concern of the food industry. What exactly does it mean? It does seem to be a mix of issues including environmental concerns, public health, employee welfare and charitable works. These things have been part of corporate social responsibility (CSR) for some years. Listening to the likes of McDonald's, Wal-Mart and Coca-Cola the sustainability drive is now about pushing suppliers to adopt their CSR policies.
• A big presence of Chinese chemical and ingredient companies at the expo. While some of their marketing pitches are unsophisticated, their determination and pricing is compelling!
• No identifiable Australian presence at the conference or expo. Apart from a few expats doing great things over here - special thanks to Wayne Howard and the team at BASF for their hospitality!
• Whole grains and their health benefits seem to have a higher recognition here than in Australia. Even corn producers are getting in on the act with ' whole corn' formulation ideas being demonstrated.
• There is a debate raging between corn producers and others about the health benefits of high fructose corn syrup (HFCS), with some products now sporting 'HFCS-free' claims.

More thoughts from New Orleans tomorrow. Follow my tweets on @frankehyland

Adam

Government’s response to ACIP’s ‘Review of Post-Grant Enforcement Strategies’ report

In recent years, the Advisory Council on Intellectual Property (ACIP) has been conducting a number of reviews and issued corresponding papers on IP reform in Australia.

A report issued on 19 February 2010 by ACIP entitled Post-Grant Patent Enforcement Strategies, made a number of quite radical proposals intended to address perceived prohibitive issues of effectiveness and cost faced by SMEs when considering enforcing their granted patent rights.

On 3 June 2011, the Government issued a response to the report’s recommendations. Despite the hype, the Government’s response is quite deflating on the more radical recommendations and only the ‘soft’ recommendations have been accepted.

Of the interesting recommendations was a general push for better access to alternative dispute resolution with a patent focus. Within this framework was a recommendation that IP Australia host an IP dispute resolution centre. The Government, while condoning the use of alternative dispute resolution (ADR) mechanisms, rejected the idea that IP Australia hosts such a centre. Similarly, the proposal of the formation of a specific Patent Tribunal for patent disputes was rejected on the question of value, given that such a tribunal would be inevitably limited to issuing non-legally binding recommendations as opposed to binding decisions.

Another interesting proposal was to empower Australian Customs to seize goods which potentially infringe an Australian patent right. Australian Customs currently have such powers in regards to Australian Trade Mark and Copyright owners. Again, the Government response was to reject this proposal on practicality. The question of patent infringement is not an easy question to determine and hence, should Australian Customs be burdened with a question it is not readily equipped to answer.

While some may see the Government’s response as deflating, the reality is that the Government’s response is quite grounded from a practicality viewpoint. What will be the spin generated by this non-event?

by Simon Ellis

New directions in medical devices create challenges in IP Protection

A major new trend in medical devices was commented on repeatedly at the AusMedTech conference earlier this week. This is a consequence of the convergence, and increasing sophistication, of several key technologies.

In this class of device, a relatively simple sensor is disposed on a patient. This may be implanted or worn, and typically senses a particular parameter. The sensor communicates wirelessly to another device, which then sends the data via the internet to a remote server, or the cloud, for processing. The data is then processed, often in a very sophisticated way, and reports or provides indications to patients and/or their physicians. Device systems addressing conditions as diverse as epilepsy, hypertension, congestive heart failure and incontinence were discussed at the conference.

This is a very powerful new technical methodology, which also creates a new business model. As well as the supply and fitting of the sensor device, an additional source of revenue comes from the on-going processing, reporting and management of the devices and the processing. From the device manufacturer’s perspective, there are risks that, for example, the user or their physician could contract with an alternative provider for the processing and reporting work. There are thus multiple risks to the revenue base of the business – not just supply, fitting and servicing of the device, but also the on-going processing and report service.

In some cases, it may be possible to bundle the on-going services as free, or paid up front, particularly when the life of the product is relatively short. If the device is intended to be worn occasionally, for example in a blood pressure monitoring situation, then the business could proceed mainly as a fee for service operation. However, these options are difficult for an implanted device, or one intended to be operated by an intermediary on multiple patients. To some extent, and in some situations, careful software licensing may be able to reduce the risks.

In terms of patent protection, the challenge is how to control the service aspect. One issue is territory – if the processing is happening in the cloud, then to the extent it is localised in any territory, that may not be a territory where the patent is effective. Generally, where a method is claimed, if key steps are not taken in the jurisdiction, then the patent is not infringed. Even if method steps are spread across multiple jurisdictions where there are patents, because only part of the method is performed in one place, there may be no infringement. For example, the pre-processing of the data may occur on a patient owned device; the data is initially processed in a second country, the report compiled and generated in a third country, and the report sent back to the physician in the first country. Depending upon the system, it may not even be possible with any certainty to define the territory where the steps are undertaken.

This kind of issue is inherent in cloud computing. Very careful attention to matching the scope and framing of the patent, in a full understanding of the business model and risks in that model, is critical to obtaining effective protection. It is critical for such businesses to undertake a careful analysis of their patent portfolio with a view to minimising the opportunities for opportunistic infringement.

by Peter Franke

Who owns Intellectual Property? Don't follow the money!

“I paid them to do the work, so I own the intellectual property. Don’t I?”

Well, um, probably not.

The fundamental that must be remembered with intellectual property of any kind – ownership naturally rests with the creator, whether that is the designer, author, inventor etc. Paying someone to do a job, where doing that job results in the creation of intellectual property, does not in itself transfer ownership of the intellectual property.

Intellectual property ownership can only be transferred by an explicit contract – one that identifies the IP and to whom it is to be assigned. We suspect that there is a wealth of valuable IP whose ownership still actually rests in the hands of contracted researchers, designers, authors and the like because their contract did not make any clear arrangement for the transfer of IP created in the course of their work to the contracting organisation.

The only ‘exception’ to this rule (or so it is often said) has been the case of the employee inventor/designer/author. However, it would be a mistake to assume that ANY intellectual property produced by ANY employee is actually owned by the employer.

The line of decisions by Australian courts seems to be steadily narrowing the circumstances in which an employer will automatically own the IP output of an employee’s work.

As ever, the answer to the question of IP ownership depends on the unique circumstances of each situation, but to illustrate some general principles, here is a list of circumstances that are likely to mean the employee actually owns the IP in the output of their work:

• If the employee is not expected to create IP as part of their regular role, e.g. if they are part of the sales team, even though they may work with R&D personnel, or even if they are a researcher at a university;
• If the employee creates something new at work, that they were not ‘directed’ to create, even though they are in a role that usually involves the creation such new things;
• If the employee operates as a highly skilled specialist in their role, such that they do not operate under close supervision.

So, in what circumstances will an employer own the IP? Something like this:

• Where the employee is employed to create IP, such as a member of an R&D team, design team or software development team, but where the employee has a more functionary role – not acting as an independent specialist without technical supervision – and is working on a project that forms a part of the employer’s development plan, and is not a ‘skunk work’ with a business application.

Failing that, an employer, or user of contract IP generators, who does not institute a program of obtaining IP assignments is letting ‘its’ business IP walk out the door.


by Adam Hyland

Integrated Patent Examination of Australian and New Zealand Patents

The Prime Ministers of both Australia and New Zealand announced the creation of an initiative to integrate examination of Australian and New Zealand patent applications within a three year period. The initiative is part of a larger framework of bi-lateral measures to simplify or harmonise trade relations between the two countries.

The integrated patent examination initiative announced is still at a high level and details of exactly how the initiative will be brought into practice is something the respective patent offices (IP Australia and IPONZ) will be focusing upon over the immediate future.

The initiative is directed to the scenario where patent applications for the same invention are filed in both Australia and New Zealand. The current practice is that the Australian application is examined by IP Australia and the New Zealand application is quite separately examined by IPONZ. The initiative is designed to replace the separate examination of the applications with an integrated approach so that both applications will be examined by a single examiner at either IP Australia or IPONZ.

It must be stressed that the initiative is not aimed at a harmonisation of patent law between the two countries. There are a number of issues which distinguish the Australian and New Zealand patent legislations. In fact, more distinctions may come when the proposed draft New Zealand patent legislation comes into effect.

Consequently, the integrated examination will inevitably result in the applications being examined separately under their own separate laws, albeit by the same person. The practical hurdle that needs to be addressed in order to implement the initiative will be to train the Australian and New Zealand patent examiners to confidently and competently be able to apply the laws of another country.

To the extent that there are certain overlaps in the patent legislation of Australia and New Zealand, given examination will be conducted by a single examiner, the initiative may well reduce duplication of work and provide a consistent expression of opinion. However, will these perceived benefits be negated or outweighed by the practical difficulties of the examiner applying the non-overlapping or distinguishing aspects of the two patent laws?

by Simon Ellis

How can we afford to enforce our patents?

This question is often raised by clients with limited resources to fight an infringement action.

Most patents are never litigated - estimates range from 3 to 5% of patents ever become part of a serious dispute, and that is over the full 20 year life of a patent. For most technologies, serious disputes are most likely to arise 6 to 10 years after filing. This is a long time after the initial product development, reflecting the stage when a product is successful, and hence most likely to be copied by a competitor.

However the statistics hide a number of cases where either there is no dispute because the patentee cannot afforest the fight, or where a dispute begins but is settled on unfavourable terms because the patentee could not afford to take the dispute to trial.

The risk for a small or early stage entity is that early in the lifecycle of the product, or even before commercialisation, infringement will occur. This is often the point at which cash reserves are lowest, and where a company can least afford to spend money, time and management resources on litigation. These risks are highest where a product is quickly on the market, such as software, and lowest where long regulatory hurdles prevent rapid infringement, for example pharmaceuticals.

One tool for risk management is to take out insurance to fund the potential costs of some or all of litigation over a company’s patent portfolio. This type of insurance has recently become available on the Australian market, supported by a specialist underwriter. The insurance covers the cost of litigation to enforce patents, up to a certain limit. To support a claim, there must be a reasonable prospect of success. The insurer recovers their costs, where possible, from the fees and damages recovered from the judgement or settlement. The cost of cover is assessed on a case by case basis, and of course has to be taken out before any infringement occurs. Cover can be for Australia only, or international in scope.

We have recently attended a presentation about cover, and the premiums are within a range which may be affordable for small and start up entities. The existence of such cover could, in itself, assist in resolving disputes, by making it clear that ‘even though we are a small entity, we have insurance and our insurer has accepted the claim’. This is a valuable tool when confronting a large, well funded competitor, who may hope to prevail by sheer size and expense.

Other forms of cover can assist with other costs, such as infringement challenges to a product. Insurance coverage could also be reassuring to investors at an IPO, providing them with confidence that an IP position can be defended. If any of our readers are interested, we are able to provide contact details for providers of IP insurance in Australia.

by Peter Franke

Government Grants

The cost of doing research and development, and of protecting intellectual property may not be as much as you might think.

There are a number of federal and state government funding and/or assistance programs that can compensate your business for its outlay in R&D or market development. The trick is knowing how to find them, and then how to access them.

Some of the programs include:

• The Australian Technology Showcase grant and exposure
• Commercialisation Australia funding and support
• Export market development grants
• Enterprise Connect services and grants
• NSW Innovation Pathways and Technology Vouchers programs
• R&D Tax concession and the new R&D Tax offset

All of these programs are different - in what is offered, who is eligible and how they are accessed. Some are a cash grant, others are a company tax offset, others include in-kind services or access to markets via government contacts. Most require a formal application, which may be a one-off or may require on-going record keeping. There are usually restrictions on the type of activity that is eligible, and often (but not always) restrictions on the type or size of business that is eligible.

Franke Hyland doesn’t access these programs directly for our clients. However, if your accountant or business advisor is not fully up-to-speed with these offerings, we are aware of specialist organisations who identify which grants you may be eligible for, and who also offer assistance in applying for access to the programs.

So please let us know if you think you could use some of these friendly government people’s money to support your IP development!

From papyrus to paperless … why we never have to store another piece of paper

Everyone talks about a paperless office but very few people actually have one, particularly in legal circles. We love our paper. Records going back into the mists of time, files, journals, publications, the list goes on and on … and every piece of paper needs to be recorded, actioned, filed and stored.  An onerous and time-consuming task and, once you take into account the cost of stationery, staff to process the paper, rent for space to have it on hand in the office and later the on-going costs of archival (and retrieval, which invariably happens), each sheet of paper that comes in your front door is costing you so much they may as well be sheets of gold leaf.

So why do so few of us in the legal profession have, or even are attempting to implement, paperless or low-paper offices?  Sometimes, the reason is nothing more solid than tradition – “the firm has operated this way for over 100 years and it isn’t about to change now”. Some firms believe it just can’t be done; some paper will still have to come in and out of the office and they cannot understand that a paperless workplace is a goal and not an absolute. Most often, however, the reason given is “we tried it but we couldn’t make it work”.

It is truly amazing how many companies took up the mantra of working in a more environmentally friendly office over the last decade and “couldn’t make it work”. A large part of why not is simply because being ‘green’ is a by-product of a well-designed paperless environment, not the cause.  Admittedly, working for a young agency that began free of the shackles of parchment, it has been easy to minimise the amount of paper we have to deal with every day.  Not that we’re anti-paper … like the Telex and Cassette Walkman we remember it fondly; we just don’t want to own it in 2011.

What does it take to make an office work without paper? The same thing it does to work with paper – the correct tools, effective processes and committed people.

There are two foundations that need to work in harmony for a paperless office to succeed.  The first is an IT system that takes full advantage of current technologies such as larger monitors, high quality scanners, smart phones, wireless networks and data storage mediums such as portable hard drives and USB memory sticks.

Secondly, you need people who are well trained and understand how to make the most effective use of these new tools; people who see everyone, from senior management down, using the same tools and procedures.  People who think that not handling paper is the ‘norm’ and not the exception.  In short, you need to have everyone ‘reading from the same iPad’.

In the last twelve months we have learnt that clients will happily pay an invoice sent by email, that it is easier to keep files safe and secure when they are electronic rather than in manila folders that you are constantly misplacing (or spilling coffee on) and that stationery can be merely a petty cash issue, not a capital expenditure.

Operating in a paperless environment - it’s a mindset.  We’re already there, when are you taking the first steps?

by Andrew Hunter and Pauline Delaney