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Patents in Australia

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Patent laws in Australia play a significant role in determining the rights and obligations of a business and to its technological output. Duncan (2005) says that Patent Law in Australia is governed by the Patents Act 1990 (Cth). The patent protection under this Act has a wide application in the country. Patent protection can also be obtained in most other industrialized countries. Duncan (2005) also indicated that “the grant of a patent confers on the patentee the exclusive right to exploit the invention and to authorize another person to exploit the invention” (p. 416). In order to be patentable an invention must be a manner of manufacture within the meaning of s 6 of the statute of monopolies. This implies that the essence that it has not been published used or sold anywhere in the world before the patent application was filed. Duncan (2005) noted that “the Patents Act specifies that an invention must be useful in order to be patentable but this requires only that the results promised in the patent specification can all be achieved if the instructions in the specification are followed” (p. 416).

The Australian patent law is aligned with international standards and on the other hand Australia adheres to the Paris convention for the protection of industrial property Caenegem (2010).  The country’s Patents act 1990 provides two main categories of patents which include standard patents and innovation patents. Caenegem (2010) says that the Australian Law does not have a separate statute covering so called utility models and therefore to some extent the innovation patent fulfils that function. This confers protection for a shorter term on the basis of a simplified application procedure which does not require substantive examination prior to sealing for inventions consisting of a limited number of claims (Caenegem, 2010).

In Australia the Advisory Council on Intellectual Property entails no change to the law which does not bar patents for business methods staying in line with Japan and New Zealand (Colston & Middleton, 2005). It states that there is little evidence to suggest that business method patents either stimulate or inhibit innovation in Australia. Colston & Middleton (2005) indicated that this calls for IP Australia to maintain records of the number of business system patents and their significance and to report annually.

The Australian Patent Law is therefore intended to encourage inventive ingenuity and the industrial progress of society under the public policy and it is through the  reward of invention that this will be achieved ( Clark,, 2010). Clark, (2010) noted that “it is appropriate that patents be used wherever possible to protect the interests and rights of those utilizing electronic commerce as a means of doing business” (p. 129). It is required that a business system shows novelty and inventiveness for a standard patent which is measured against prior disclosures officially recorded anywhere in the world. They continue to say that most patents do not involve major breakthroughs but involve improvements on existing technology. Clark, (2010) noted that in Australia a patent should not be given for something that is obvious.

The Australian Patent Act provides that an invention is patentable if it is a manner of manufacture which compared to the prior art base existing before the claim. Clark, (2010) says that “what is not patentable includes business schemes such as methods of office management and product promotion” (p. 130). It is important to note that the standard patent provides a legal monopoly for twenty years duration from the date of complete specification. Clark, (2010) commented that the first step involved in acquiring a patent involves the lodging of an application with the Patent Office in Canberra by the inventor, an assignee, or legal representative of the inventor. The patent application must be for one invention only and include either a complete or a provisional specification describing the invention.

According to Clark, (2010) an advantage of electing to proceed with a provisional specification is that it allows the owner of an invention to gain protection at the earliest possible date while giving the inventor further time to work on the invention (p. 131). Another advantage of patenting is that it is designed to provide an incentive to small business to invest in innovation and is already considered to provide a relatively cheap patent right that is quick and easy to obtain.

Business system or method patents

Clark, (2010) says that though patent law is much in flux there has been a recent trend by patent authorities in Australia as in the US, toward awarding patents for methods of doing business. In addition, these methods of doing business patents have been described as soft patents because in contrast to conventional and long standing patent law requirements, no physical invention is involved (Clark,, 2010). However, studies show that these are among the most controversial forms of legal protection for some businesses both in the bricks and mortar world and in cyberspace. They are known to be the most important assets that why they are known as Patents for Business schemes in Australia.

The subject matters that may be patented under this category are extremely broad for example those covering hardware devices, software programs, internet applications, electronic commerce products, data processing system such as ATMs and card readers and even new financial products. Clark, (2010) says that “a business method patent is in most respects just like any other patent expected that the subject matter relates in some way to a method of doing business” (p. 135). Registering a patent for a business scheme is straightforward, with the usual tests applied by IP Australia, with the added requirement that the scheme gives rise to as physical, artificially created end result.

One of the major examples in Australia is a patent filed by EDS that effectively patents a software application that asks the online customer if they would like fries with their burger. Clark, (2010) determined that a problem which the decision to admit business methods patents has created is that it also has raised a long-debated question of whether patents actually promote or hinder innovation. It is fundamental to realize that unlike the giving of copyright in every eligible publication regardless of its literary merit, it was never the object of patent laws to grant a monopoly for every trifling device that would naturally occur to any skilled mechanic, operator, or computer programmer (Clark,, 2010).

There is a view in Australia that such an indiscriminate creation of exclusive privileges tends to obstruct, not stimulate invention, creating a class of speculative schemers who make it their business to watch the advancing wave of improvement and to use patent monopolies to impose what amounts to a heavy tax upon industry without actually contributing anything to its real advancement. This may not therefore be in the best inter crests of the public to grant them on the scale that is occurring in the US (Clark,, 2010).

Patentable subject matter is to be determined by the application of flexible principles and is not to be fettered by contrived constraints or a strict test. Clark, (2010) says that this is a direct contrast to the difficulties experienced in Europe with explicitly defined exclusions. They further says that the Full Court found that in both the US and Australia, the courts had adopted a broad approach to determining patentable subject matter in order to adapt to new technology and inventions but this did not mean that there were no restrictions on what is patentable (Clark,, 2010). The court said that it did not matter whether an invention was referred to as a business method or business system since all that mattered was that the principle for determining patentable subject matter needed to be applied.     

According to Dodgson, Gann & Salter (2008) patents can provide temporary monopolies for inventors and therefore they should be an incentive to innovate. It has however been noted that patents often work better in theory than in practice. Dodgson, Gann & Salter (2008) further say that they are expensive to acquire and difficult to enforce and trade. In Australia patents of business systems or methods are used by large firms to create thickets slowing down the diffusion of innovations and limiting opportunities or new entrants. Only few patents in Australia have potential financial value and small firms often lack the capabilities and resources necessary for turning their patented technology into a successful business (Dodgson, Gann & Salter, 2008). It is also notable that considerable amounts of social resources are spent on acquiring, defending, and disputing patents, often too little purpose. 

In addition Dodgson, Gann & Salter (2008) noted that “it is also possible to imagine prize based systems running alongside the existing patent system” (p. 291). Currently the patent system does not seek to differentiate between the novelties of different patents. In this context, studies indicate that once an inventor has been able to demonstrate that his or her invention achieves a uniform standard of novelty this can be recognized in a patent. Dodgson, Gann & Salter (2008) says that expert technical assessments performed by patent officers are also used to judge the degree of novelty of an invention. In Australia business system inventions can be excluded from patentability if they are not considered as being within a field of technology. Dodgson, Gann & Salter (2008) indicated that a major fear is that business system patents will become pervasive, creating inefficiencies and dampening initiative without a corresponding increase in innovation.

The Australian data allow some insight into the wider distribution of corporate patents (Haunss & Shadlen, 2009). Businesses in Australia are clearly selective in what they patent in Australia compared with the USA. It is notable that where a business system patents in both USA and Australia, the number of patents taken out in Australia is usually much less. Haunss & Shadlen (2009) noted that “on average the number of Australian patents acquired is less than 6% of those acquired in the US in electronics, information technology, and telecoms” (p. 195). Possible explanations are that only genuinely significant business systems are patented on a global basis or that where Australia lacks industrial depth it is seen as unnecessary to take out patents.

The Patents Act of 1990 governs applications for and the maintenance of patents in Australia. Goldscheider (2002) says that “the business system or method that qualifies for patent is product or process within the field of the useful as opposed to fine arts, one that is economically valuable, is new and involves an inventive or in the case of an innovation patent an innovative step” (p. 430). He further says that patent protection has applicable to all segments of technological development, involving products, processes, or composition. Goldscheider (2002) indicated that the applicability of patent has now extend beyond traditional areas of technology to such things as computer programs, business methods, bacteria, gene sequences, and microorganisms.

Advantages and disadvantages of patenting business methods

One of the advantages of patent systems in Australia is that they are one of the oldest policies to promote innovation (Arup & Caenegem, 2009). Arup & Caenegem (2009) commented that “patent policy is based on a conundrum is designed to increase innovation and that it operates by initially suppressing the dissemination of new patented technologies” (p. 29). Patenting business systems involves significant positive and negative externalities and these externalities need to be added to private costs and benefits in order to estimate the net return to the society. It is also important to note that the anticipated positive externalities are the underlying rationale for the patent protection intervention in the economy. Arup & Caenegem (2009) say  that “business method patents are expected to induce more innovation, generating increased consumer surplus, spillovers of knowledge, enhanced productivity and higher economic growth” (p. 30). One the major disadvantages of patenting business methods is its effects on losses as a result of exercising of monopoly power that is lower output, less competition and reduced consumer surplus.

Patents in business systems results to rise in direct transaction and rent seeking costs and indirect costs due to misallocation of resources. Arup & Caenegem (2009) says that the impacts on innovation, competition, and resource allocation become priority categories, within which benefits and costs should be identified. They also said that if a patent system induces more innovation, which in turn affects resource allocation and through the grant of the patent monopoly, competition. According to Arup & Caenegem (2009) many of the patents owned by such firms may not be used  in the sense of being worked but they used for strategic impacts such as misleading competitors about the key directions of research, making significant patents harder to find, challenging other firms in cross licensing negotiations and preventing entry to a market.

Due to patenting practice in Australia there has been dramatic increase in the number of software patents obtained (Terashima & Altman, 1996). This therefore reflects the size and the importance of the Australian market. As a result of patenting on the noticeable changes especially from the practitioners point of view is that business systems are now simply examined in terms of merit that is whether the invention claimed is sufficiently novel and inventive, and time and money is not wasted on arguments as to whether the subject matter claimed is capable of being protected by patent (Terashima & Altman, 1996).  

Moreover, Arup & Caenegem (2009) noted that effective patent protection helps trade in technology, both domestically and internationally. This implies that an effective patent system, accessible to foreign technology supplier allows Australian firms to import technology that would otherwise be unavailable or would only be available at higher cost (Arup & Caenegem, 2009). This in turn increases productivity and enhances competition in the Australian economy. Arup & Caenegem (2009) says that “the importance of technological imports is demonstrated by over 90% of patents registered in Australia, and which are owned by foreigners” (p. 106). It was discovered that the patent privileges were the best system yet devised to balance the tradeoff between maintain incentives to invest and fostering the diffusion of new technology. It is worth noting that uncertainty as to which of several contending parties will receive patent protection and how much protection patents will afford as an imperfection in the existing patent privilege scheme (Arup & Caenegem, 2009).

Patent privileges can lead to losses in allocate and productive efficiency although for a patent holder, this can rarely act as a pure monopoly because of the availability of alternative and substitute products and processes and also because some scope for imitation almost always exists. Suthersanen, Dutfield & Chow (2007) says that the innovation patent system that was introduced in July 2001 plays a fundamental role of filling the gap that exists with regard to minor and incremental innovations. Suthersanen, Dutfield & Chow (2007) also says that “this type of business method patent in Australia offers a quick, less expensive, and simple form of protection to encourage individuals and small to medium sized businesses to realize their good ideas” (p. 125). It was intended that the innovation patent was to particularly assist SMEs to get patent protection, and protection for a sufficiently long period to encourage investment in innovation within Australia.

In their research, Davison, Monotti & Wiseman (2008) saod that the policy approach to review and change the patent system in Australia should seek to optimize the benefits arising from the operation of the patent system in the national interest to the extent possible and on the other hand having to the particular circumstances of the Australian economy. The Australian patent system should seek to adjust the length, strength and breadth of patent rights so as to maximize the social benefits and to minimize the social costs of Australians (Davison, Monotti & Wiseman, 2008). Patents helps business methods to gain increased benefits for Australians by fostering indigenous innovation and utilizing the international patent system in developing export markets to improve Australia’s international competitive position. Davison, Monotti & Wiseman (2008) also noted that patents in business methods reduces unnecessary social costs including those resulting from undesirable anti-competitive conducting involving patents and also improves the efficiency of the administration of the patent system with consequent  reduction of direct costs.

Patents encourage research and development and simulate innovation to appear to be highly variable across technologies and industries (Merrill, Levin & Myers, 2004). It has also been noted that in many cases patenting activity has departed from its traditional role and has become strategic. Merrill, Levin & Myers (2004) also indicated that firms can build large patents portfolios to gain access to other’s technologies and reduce their vulnerability to infringement litigation. In the non manufacturing part of the economy, it is less clear that patents induce additional investment for example in software advances and business method improvements (Merrill, Levin & Myers, 2004). Researchers however say that the quid pro quo for giving the patent holder the right to exclude others is to compel disclosure of the invention in terms that enable others to replicate, modify, and circumvent it.

In conclusion, Park (2010) noted that the costs of patent systems are closely related to the benefits and thus the attempt to reduce the costs may also minimize the benefits thus increasing the benefits of patent systems. It is also rare that a patent right creates market power thus providing monopoly profits to its owner. Park (2010) also says that most patents fail to create market power in related markets and as a result many competitors are capable of inventing around the patented technology and thus introducing competing products into the market. Therefore, business method patent systems encourage economic entities to participate in inventive activities by providing the incentive to invent based on the fact that inventions are necessary for industrial progress in Australia.

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