Axing of SME patent regime paves the way for ideas theft, ombudsman warns

Clarke McEwan Accountants

The small business ombudsman is urging the federal government to backtrack on its plan to axe an innovation patent regime used by SMEs amid concern it could result in businesses having their ideas stolen.

Last week a Senate committee gave the all-clear to a government bill which would abolish the innovation patent system, a lower cost intellectual property regime set up in 2001 with the hope of making it easier for SMEs to invest with legal certainty.

Innovation patents have a lower threshold for inventiveness than standard patents and are shorter term, making it easier for small firms to secure approvals, while lower fees and quicker administrative procedures were designed to encourage accessibility.

There have been concerns the scheme is being abused, however, with the Productivity Commission (PC) finding in 2016 the program is actually hurting small business, flooding the market with low-value patents which are creating more uncertainty.

Scrapping the program without a replacement would be a step too far though, Australian small business and family enterprise ombudsman Kate Carnell has argued.

" Abolishing the innovation patent system would effectively leave small business vulnerable to large businesses stealing their ideas and inventions ," Carnell said in a statement circulated Tuesday.

"Many small businesses rely on the innovation patent system to attract funding. Investors won't even look at a company that doesn't have those protections in place."

The ombudsman has acknowledged the current scheme has problems but wants the government to maintain a two-tiered patent system in some form, or if this is not possible, to invest in improving accessibility to the standard system.

The Senate is due to debate the legislation this week, with the government in support, Labor yet to announce its intentions, and Centre Alliance crossbenchers in opposition, planning to move amendments.

Two-tier patent system

While innovation patents carry the same legal protections as standard patents, they don't require an "inventive step" to be taken and are instead intended to be used for innovations which deliver more incremental improvements on existing technology.

Innovation patents also don't last as long, a maximum of eight years compared to two decades for standard patents.

However, innovation patents are much cheaper, with fees of $1,500 for filing compared to $9,000 for standard patents, while the approval timeframe for innovation patents is just a few months, compared to two-five years for standard patents.

Small business advocates are worried the two-five year timeframe on standard payments disadvantages small firms over bigger ones, particularly because many SMEs aren't in a position to invest over such a long time frame, particularly when they need to convince lenders to support them.

When the innovation patent scheme was set up in 2001 it was hoped small businesses would be better able to protect their intellectual property with more reasonable approval timeframes suited to their needs as smaller firms.

But Assistant Minister for Forestry and Fisheries Jonathon Duniam told the Senate in July the system wasn't working as intended.

"It has become clear that the second-tier patent has been more harmful than helpful for SMEs," he said. "There is widespread agreement among stakeholders that the system is not fit-for-purpose. "Some people argue that the second-tier patent should be reformed, but there is no agreement on a workable alternative," he said.

Not working as intended?

The Productivity Commission and the former Advisory Council on Intellectual Property have previously criticised the innovation patent scheme, calling for it to be abolished.

In 2016 there were are about 6,500 active innovation patents in Australia, compared to 130,000 standard patents, PC research has found.

Between 1,300 and 1,800 innovation patents have been granted each year historically, with civil engineering, furniture and games and information technology the most prominent categories in 2015.

The PC argued the lower threshold had resulted in a flood of low-value patents which leave small firms more vulnerable as innovation patents can be used as a litigation tool to target businesses with unscrupulous claims.

Intellectual property lawyer Nicole Murdoch of Eaglegate Lawyers tells SmartCompany the innovation patent system has made it possible for some firms to abuse the system, obtaining patents to lodge legal challenges rather than innovate.

"The whole purpose of a patent is to prove a monopoly to the inventor by way of reward for moving technology forward," Murdoch says.

"The argument is, if it doesn't really move technology forward, why would they want to give that reward."

Murdoch says because innovation patents aren't required to display an inventive step, it can be much more difficult to invalidate them in cases where they are being used by one company to trouble a competitor.

"You don't have to show very much to get an innovation patent," she says.

Murdoch says the government should invest in making the standard patent system more accessible for small businesses, particularly by enabling reforms which reduced the multi-year timeframe for approvals.

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