Proposed Intellectual Property Laws Amendment Bill Released

A draft of the Intellectual Property Laws Amendment Bill has been released for public review.  The Bill, when finalised, is expected to be introduced to Parliament in the near future.

While the proposed amendments include some fairly minor matters, the three key issues are measures to:
- implement the Protocol amending the TRIPS agreement, allowing Australian manufacturers to export pharmaceutical products to least developed and developing countries suffering from a health crisis (under a compulsory license from the Federal Court).

• allow for single trans-Tasman patent application (SAP) and examination (SEP) processes and a joint patent attorney regime for Australia and New Zealand. (See our blog dated 16 May 2011 discussing this initiative)
• extend the jurisdiction of the Federal Circuit Court to included Plant Breeder's Rights.

The inevitable hot topic will be the TRIPS issue.  The TRIPS agreement was amended in recognition of the issue of a health crisis occurring in developing countries, whereby much needed medicine or pharmaceuticals are not only required, but at a low cost.  In the case of a patented pharmaceutical, there is the potential for a patentee to stand in the way of the supply of the much needed pharmaceutical if the patentee is unable or unwilling to provide the pharmaceutical at the required low cost.

The proposed remedy is to allow third parties to apply for a compulsory licence to exploit the patent for the sole purpose of making and exporting the patented pharmaceutical to a country suffering from a health crisis.
While compulsory licence provisions exist in Australian patent legislation, they centre on the fact that, despite a demand, the patented invention is not being exploited, or sufficiently exploited, to meet the demand in the patent jurisdiction (i.e. Australia).  The proposed changes look outside of Australia for the source of the need.

The TRIPS provisions will be likely to operate as a measure for coercing pharmaceutical patent owners to provide low cost aid in times of crisis under threat of allowing someone else to do so.

It will be an interesting spectacle seeing if the pharmaceutical lobbyists will have any effect upon the proposed TRIPS changes.

SIMON ELLIS

Lamborghinis in Jakarta

I am told by an Indonesian colleague that Indonesia is now the biggest marketplace for Lamborghinis in the world, as of 2013. More Lamborghinis were sold in Indonesia than in the USA, or Italy, or even China.

It was also instructive to learn that all of the Mercedes-Benz cars for the ASEAN economies are assembled in Indonesia.

We shouldn’t be surprised after all Indonesia is the fourth most populous country in the world. Yet, even for those of us living on Indonesia’s doorstep, the rise of the Indonesian economy seems somewhat unheralded.

So it was an eye-opener for me to make my first visit to Jakarta in November last year. Ten years ago, our Australian clients almost never nominated Indonesia as a destination for patent, trade mark or design filing. Recently, this has picked up for some clients who are seeing Indonesia as an increasingly important market. Accordingly, Franke Hyland thought it was time to strengthen our network in the great nation to our north.

I am certainly pleased that I made the effort to visit Jakarta. As is the case in many similar developing economies, the juxtaposition of great apparent wealth in gated communities with apparent poverty in makeshift housing is unfamiliar to Australians. Even more arresting though is impression of an advancing economy, pursuing technological advancement and building a distinctly Western-style future.

I see a strong future in Indonesian cities for a number of technologies, including communications, food technology and medical devices. These are some of the areas of business that I expect will be pushed forward as the Indonesian economy advances.

Having seen the potential of the Indonesian economy over the next couple of decades, I will certainly be encouraging our clients to consider protecting their IP rights in Indonesia. It is an economy, a market and a nation that we would be foolish to ignore.

Adam Hyland.

I’m a director of a company; I’ve invented something, who owns the patent rights?

This presents a fairly common and important question. The issue of ownership of or entitlement to a patent is a fundamental aspect of patent validity. A patent issued to a patentee who was not entitled to the patent is a ground for invalidity and can result in the revocation of the patent.

When determining entitlement the starting point is always the inventor(s). An inventor can decide to assign their rights to another party, whereby that other party can claim to be properly entitled to the patent rights due to the assignment. However, there are situations in which the nature of an inventor’s relationship with another party can be sufficient for the other party to be properly entitled to claim ownership of patent rights from the inventor without any need for an assignment.

The most common relationship that establishes entitlement from an inventor is the employee/employer relationship. When an employee devises an invention in the course of their employment duties and either the duties were such that it would be reasonable to expect the invention to be devised or the employee had a special obligation to the employer (such as a valid clause in an employment contract), the employer is entitled to the patent rights for the invention. There are pragmatic exceptions to the rule. For example, the employer of a telecommunications engineer that invented a new skateboard in their spare time should not be eligible to claim patent rights in the invention as the nature of the invention has no realistic correlation with the employee’s duties. Similarly, the employer of a person employed as a cook in a car manufacturing plant cannot reasonably expect that the person would invent something car-related as part of their employment duties and should not be eligible to claim patent rights if it happened that such an invention was devised.

When an inventor is a director of a company the director may not technically be an employee of the company. As a consequence, the employee/employer relationship rules may not necessarily apply when considering entitlement to patent rights in an invention invented by a director. Nevertheless, in the role of director to a company, a director does hold obligations to the company by way of fiduciary duties. The nature of these fiduciary duties and how they impact upon ownership of a patent invented by a director was recently considered in the equity Division of the Supreme Court of New South Wales in Breakout Barrier Release Systems Pty Ltd v Breakout Barrier Release Systems Australasia Pty Ltd [2013] NSWSC 1815.

In the case, Mr Watmough was a director of both the plaintiff and defendant companies. The business interests of both companies was in locks. Relevant to the present discussion, Mr Watmough had invented and applied for a patent in his own name in relation to a lock invention which was intended to be commercialised by the defendant company. Mr Watmough had not revealed the existence of the patent application nor the potential commercialisation of the corresponding lock product to the plaintiff company. In respect of the decision, the exact nature of the new invention was irrelevant. What was more important was the fact that it was of potential commercial interest to the business of the plaintiff company.

What comes from the case is that a director of a company that devises an invention of realistic interest to the company’s business is obliged, according to their fiduciary duties, to offer the right to exploitation of the patent rights to the company. While this does not imply an automatic transfer of ownership of patent rights between the director and the company, it does imply that the director’s ownership of the patent is more akin to a holding of the patent rights on trust for the company. Furthermore, the fiduciary duties allows the company to veto whether the patent rights can be exploited by the director or another party even if the company decides to waive its right to exploit the patent rights.

Ultimately, a patent right is a right to exploit the patented invention. If, in the case of a director invented invention of potential commercial interest to the company, the company waives the right to exploit the invention and vetos the right for the invention to be exploited by anyone else, the patent becomes effectively redundant.

In the case, Mr Watmough was found to have breached his fiduciary duties by not revealing the existence of the patent application or the potential commercialisation of the corresponding lock product to the plaintiff company. As a consequence, and in the interests of equity, Mr Watmough was ordered to assign his patent rights to the plaintiff.

In the decision, it was highlighted that if the invention had no realistic relationship with the company’s business interest, then a director could invent, own and exploit any patent rights without recourse to or any breach of fiduciary duties to the company.

So, a director invents something, who owns the patent?

According to patent legislation, in the absence of assignment or employee/employer relationship, the director does. However, fiduciary duties may mean that the equitable owner of the patent rights is the director’s company unless the company waives these equitable rights and provides fully informed consent to exploit the patent rights to the director.

While it is commonly the case that patent rights in an invention made by a director are intended to be owned by the director’s company, this transfer of rights between the director and the company is not necessarily established by the director/company relationship nor the fiduciary duties owed by the director to the company. Consequently, as a practical matter, the safest approach is to have an executed assignment in place between the director and the company to confirm patent rights ownership to the company.

by Simon Ellis

Best Wishes of the Season - Franke Hyland is on holiday

Once again, Christmas has rolled around. 2013 has been a great year for Franke Hyland and we hope that it has been for you as well. We would like to thank our clients and associates for the support they have shown Franke Hyland over the year and we look forward to continuing our associations with each one of you in 2014.

Our office will be closed from midday on 24 December and will re-open on 2 January 2014. Should an urgent issue arise during this time please contact us via email at: mail@frankehyland.com.au – this address will be monitored throughout the holiday period.

Please also note that IP Australia and IPONZ are closed between the same dates, so any official deadlines falling due during this period have, in effect, been moved to 2 January 2014 and we will ensure they are dealt with upon our return.

We wish you a very happy end to 2013 and we look forward to speaking to you all again when Franke Hyland returns, refreshed and relaxed, in 2014.  If you would like to see Franke Hyland's Christmas message (with thanks to FabZing) please click here.

Resolving Disputes: Certainty and the Sunk Cost Fallacy

IP disputes will inevitably arise from time to time. In a typical process, one party will become aware of circumstances that they consider to infringe their rights. They seek advice, and if positive, proceed to send a letter of demand to the other party. This will set out their rights, the action complained of, and the outcomes which they desire.

In many cases, this leads to a resolution, either by the accused party ceasing their conduct, or a negotiated settlement being reached.

However, in a small number of cases, this is not the end, but the beginning. Formal proceedings are commenced. Early on in litigation within Australia (and in many other jurisdictions), the parties will be directed to undertake mediation. Most disputes will settle at some point before the final decision is reached.

The longer it progresses, the greater the costs for both parties.

I do not propose to address all the fine points of such negotiations, which will try and balance future ups and downs, money, time, prospects and other commercial and emotional factors.

I want to talk about one issue – the value of certainty. Knowing exactly what is going to happen next, even if it is expensive and unpleasant, can be dealt with and planned for much more effectively than the ongoing uncertainty that is inherent in litigation. This is especially true for a start-up or early stage company. The continuing dispute can be concerning to customers and prospects. It also is likely to eat up a lot of management time for the key decision makers; that may be better spent on business development, marketing, operational supervision. Anything that might actually make money.

The problem is that we are all wired to value the time and money we have already spent (or perceive we have spent) more highly than our future returns, even if they are greater. Emotional sunk cost manifests as "we have spent too much money on this to let them get away with this". The real question is, how much more will you have to spend from now to get to a conclusion, what are the chances of getting a conclusion that you want, and how else could we resolve this.

I was recently assisted in a trade mark dispute between an early stage company, and a U.S. based multinational. The multinational was not really in the same business, had no local presence, and it was dubious whether they could succeed. The law in this space is not clearly settled, and will always heavily depend on the facts and the evidence. After a letter of demand, the multinational commenced proceedings. It would have involved a large expenditure of time and money for the early stage company, to fight this in earnest. Even if they won, they would be well out of pocket, and the management time invested would never come back again. There was a risk of substantial damages and costs if they lost.

The client made the wise decision that certainty was more important. They decided to instead change their trading name, and invest the time and money in promotion and business development of the new name instead of legal costs. Particularly at their business stage, certainty was more important than being found to be right.

Walking away like this is by no means always the right course of action, but the value of certainty should not be underestimated.


by Peter Franke

Thoughts from the USA

I recently had the pleasure of attending the AIPLA annual meeting in Washington DC. The main focus of the sessions was, as expected, around the impact of the changes to U.S. patent law brought about by the America Invents Act (AIA). There were also a number of sessions dealing with the practicalities of Chinese patent law. This is an interesting, but not unexpected development as U.S. companies seek to engage with the Chinese IP system more seriously. It also indicates the evolution of the Chinese patent system and the importance of the Chinese market to U.S. businesses.

Some other thoughts from the AIPLA meeting include:
• U.S. attorneys expect to be making much more use of provisional applications as establishing a first-to-file priority disclosure becomes more important.
• A possible increase in requests for Supplemental Examination (basically a re-examination requested by the patentee based on new newly uncovered prior art), including using the process to cure possible instances of ‘inequitable conduct’ where the full range of relevant prior art may not have been notified to the Examiner. However, it is an expensive process to engage in - official fees of USD 21,260 with no small entity discount - meaning it is likely to only be used where a substantial litigation is expected.
• ‘Functional’ patent claims are still valid under the AIA, provided there is sufficient disclosure of the structure to meet the function.
• Most U.S. attorneys I spoke to said their clients are adjusting well to the AIA, and to the first-to-file system. In most cases, U.S. patent applicants who were interested in overseas patent protection were operating to the system in any case.

I am also pleased to report that the mood around the U.S. economy is much more positive than I had encountered in the last 2 to3 years. Many attorneys saw a big spike in new applications in April prior to the AIA being implemented, much as we had seen in Australia preceding the Raising the Bar Act. However, the expected slump afterwards has not eventuated, meaning the rate of filing new applications has taken a consistent step upwards.

I enjoyed catching up with U.S. associates in Minnesota and Colorado. Both of these states’ history is not unlike that of Australia, with their economies being originally built on mining and agriculture. But now as water resources become a significant issue, both regions are looking to technology developers to be the mainstay of future economies. It turns out that both value-added agrifood processing and medical device design & manufacture have found favour in these regions, which fits well with Franke Hyland’s focus and capabilities.



by Adam Hyland

A new way to get faster international grant

IP Australia announces new Global Patent Prosecution Highway pilot

One of the keys to a faster, more efficient and less repetitive international patent system is for various patent offices to better use the work of their peers. The old paradigm is that each patent office is an island, and behaves as if the same invention had never been examined by any other patent office, starting at the beginning and working through to the end,  regardless of the work done elsewhere.

A major change was the first patent prosecution highway (PPH) agreements reached by the USPTO with various patent offices, including IP Australia. In essence, if you had a final decision from IP Australia to allow at least one claim, and the claims in the US matched, you can go to the front of the examination queue. By using this with expedited examination in Australia, we have been able for several clients to achieve grant of a US patent in less than a year from the first Australian filing. While this is not the best strategy for everyone, in the case of a company seeking funding based on its IP, a granted US patent is a lot more valuable than an application.

The new scheme will allow this process to occur with 12 other patent offices, including Japan, Korea, US, Canada, the UK, Spain, Russia, Denmark, Norway, Portugal, Nordic Patent Institute, and Finland. It is likely that other countries and regional offices will join. While at this stage this is a pilot program, it is open to Australian applicants to apply to use the scheme in those patent offices after 6 January 2014.  For countries that are notoriously slow, for example Japan, this could be a very great advantage. This is no guarantee of a patent, or of any preferential treatment in the substantive outcome. However, it is a way to accelerate consideration where that is going to be helpful.

Please contact us for a discussion if you think this program would be of interest.

by Peter Franke