Intellectual Property from the Land Down Under, 2010 Part 1

Any list is inherently subjective and potentially controversial, and so when Gene invited me to write an article nominating my top IP stories for 2010, I naturally gave considerable thought to the criteria I might apply for selecting my list of choices.

While 2010 was quite an eventful year for IP in Australia and New Zealand, this still does not equate to dozens of potential stories to pick from, given the relatively small populations involved.  So in the end it was not hard to come up with a “top eight.”  As for my selection criteria, I have simply chosen those cases, events and themes that seemed significant to me from a professional perspective, or that captured the attention – and even the imagination – of the broader public.

If I have missed one of your favorites, or you disagree with my rankings, feel free to add your opinion in the comments below!

So, without further ado, here is the countdown of my top eight (subjective) picks for 2010.

8. Innovation Patents Lose A Little Shine

What? Innovation patents, which had started to seem almost unassailable, finally fail to capture alleged infringement.

Why does it rate #8? If this decision is upheld on appeal, it will be a sign that while innovation patents may be difficult to invalidate on the basis of prior art, they are also liable to be construed narrowly, and to be held up to stringent standards on other grounds of invalidity.

An Australian patent attorney once dubbed the second-tier Innovation Patent ‘the strongest patent in the world’.  An Australian innovation patent is not unlike the utility models, and similar protections, that are available in some other countries.  There are some additional restrictions on innovation patents, as compared with standard patents, the most notable being the maximum eight-year term.  However, the main benefit to patentees is the lower innovation threshold, which is the source of the innovation patent’s strength.

In particular, the standard of ‘innovative step’ (which substitutes for inventive step) is relatively easy to satisfy.  In a series of earlier court decisions, relating to patents covering a simple roadside marker post, it was established that the innovative step enquiry is no more than a modified novelty test requiring nothing more than the presence of at least one meaningfully functional novel feature when a claim is compared to each individual item of prior art separately.  Whether or not the novel feature has any inventive ‘merit’ is completely irrelevant to the test.  In essence, if a claim is novel, and a novelty-conferring element of the claim at least satisfies some utilitarian purpose, then the claim will be valid.  It matters not that the element in question might be well-known in the relevant art, or can be identified in one or more further documents or other items of prior art information, or might have been completely obvious.

Innovation patents were intended to provide a shorter-term form of protection for developments that might not satisfy the more stringent inventive step test, in the hope of fostering innovative activity by small-to-medium sized Australian businesses.  No doubt they do perform this function.  However in many of the cases that have been litigated to date, innovation patents have been used strategically in relation to inventions which the inventors believe are worthy of standard patent protection.  Specifically, the strategy involves filing a divisional innovation patent from a pending standard patent application for the purposes of litigation.  The innovation patent may have claims that directly target a prospective infringer, and is far more difficult to invalidate than a standard patent.  Meanwhile, the standard patent application may be kept pending with a view to replacing the innovation patent at around the end of its eight-year term.  With an innovation patent, it truly is possible to achieve the simultaneous possession and consumption of one’s cake!

In 2010, the first signs of the limitations of the innovation patent – and the above-described strategy – started to appear.  While innovation patent claims remain relatively immune to attack on grounds of lack on innovative step, the Federal Court in Seafood Innovations Pty Ltd v Richard Bass Pty Ltd [2010] FCA 723 found against the patentee on two alternative grounds, one relating to infringement the other to validity.

In this case, the patentee Seafood Innovations had filed two divisional innovation patent application as the basis for action against alleged infringement by Richard Bass.  The first had claims that were similar to those of the parent application.  However, the patentee apparently felt that its position could be strengthened, because the second divisional innovation patent had claims of different scope that were clearly intended to better capture the infringing products.

In the event, the court held that the first innovation patent (the validity of which was not challenged) was not infringed, on the basis of a very narrow construction of the claims.  As for the second innovation patent, the court held that it was invalid because the claims did not define an invention disclosed in the original description ‘because they do not disclose elements of the invention that are necessary to make it work.’  The defendant, Richard Bass, therefore avoided infringement of any valid patent claim.

Considering the strength of an innovation patent, despite (or rather, because of) its low innovation threshold, there is a certain logic to the court’s decision in this case.  From a policy perspective, it makes sense that a right granted for a relatively small advance should be narrower in scope than one granted for a greater contribution to the art.  Similarly, it is not unreasonable to require that the invention claimed in an innovation patent be derivable very clearly from the original disclosure, to prevent the possible abuse of a monopoly right by crafting claims with hindsight knowledge of a targeted ‘infringement’.  The only difficulty with this justification is that there is nothing in the Australian Patents Act, or the Regulations, to authorise treating innovation patent claims any differently from standard patent claims in either of these respects.

This could be a case of a court reaching a just result for unjustifiable reasons.  Seafood Innovations has appealed the decision to the Full Bench of the Federal Court, and a hearing is currently scheduled for 2 March 2011.  A decision should therefore issue in good time for the 2011 Year in Review!

To read more on the Patentology blog, click here.

7.            Australian Federal Court Crackdown on Patentee Amendments

What? The Federal Court of Australia gets tough on patentees wanting to amend during the course of litigation.

Why does it rank #7? The evolving approach of the court to amendment has the potential to significantly impact the strategies adopted by patentees in preparing for, and initiating, patent infringement litigation.

The Australian Patents Act 1990 affords patent owners a fairly broad right to amend a granted patent.  Any patentee may request amendment at the Patent Office and, if the request meets the requirements of the Act, the Office must grant the request.  Significantly, there is no discretion in this regard, although third parties may oppose a favorable decision of the Patent Office on limited grounds.  However, the Patent Office cannot consider an amendment request once litigation involving the patent has commenced.  In this case, the patentee may apply to the court for an order directing amendment of the patent.  The court applies the same provisions of the Act in determining whether the amendment is allowable, but unlike the Patent Office has a discretion to refuse an otherwise allowable request.

You might think that a court would treat a request to amend a patent after commencing litigation to be inherently suspect.  However, this has not historically been the case, and amending during the initial stages of infringement litigation has been considered to be a legitimate strategy.  Under the Australian law, amendments must generally be narrowing or clarifying in nature (i.e. they cannot broaden the scope of the claims), and they are therefore not re-examined for novelty and inventive step, and do not result in any loss of the patentee’s rights to damages for infringement occurring prior to the date of amendment.  Amendments may often be useful to clarify or simplify the issues to be considered during the main trial, and Australian courts have repeatedly indicated that they are not hostile or antipathetic to amendment, although the patentee bears the onus of satisfying the court that it is appropriate to exercise the discretion favorably.

It was therefore quite normal for courts to grant applications to amend patents.  However, with hindsight it is clear that the tide turned back in 2009 when the Federal Court of Australia issued its decision in Apotex Pty Ltd v Les Laboratoires Servier (No 2) [2009] FCA 1019.  In that case, the patentee (Servier) sought to add narrower claims to its patent, without deleting any of the existing claims.  It gave its reasons as being, in effect, to provide a more precise definition of its invention.  However, Apotex put a spotlight on Servier’s actions, though its own evidence and discovery, and the court concluded that Servier had not been entirely forthcoming with its true reasons for amending.  In particular Servier failed initially to disclose to the court the outcome of proceedings in the UK, in which all of the original claims had been found hopelessly invalid, and apparently resisted discovery of documents which showed that the UK proceedings had significantly influenced Servier’s decision to amend its Australian patent.  As a result, the court refused to exercise its discretion to allow Servier’s amendments.

In 2010, patentees applying to the Federal Court to amend their patents found the task to be much more difficult – and expensive – than might have been the case in the past:

  • In two decisions involving CSL Limited with Monash University (the patentees) and Novo Nordisk Phamaceuticals Pty Ltd, the patentees sought to amend the patent to incorporate a sub-feature of a dependent claim into the independent claim, an amendment which is prima facie allowable.  In CSL Limited v Novo Nordisk Pharmaceuticals Pty Ltd [2010] FCA 671 the Federal Court ordered CSL to provide discovery of certain documents pertaining to its decision to amend the patent, and in CSL Limited v Novo Nordisk Pharmaceuticals Pty Ltd (No 2) [2010] FCA 1251 the court exercised its discretion to refuse the amendment request, in part due to the content of the discovered documents.
  • Zetco Pty Ltd received a more favorable hearing from the court in Zetco Pty Ltd v Austworld Commodities Pty Ltd [2010] FCA 235.  Its request to amend was granted but only after, in light of the Servier decision, waiving privilege in communications with its patent attorney in order to provide a full and frank account of the circumstances leading to the amendment request.
  • Patentee Otsuka Pharmaceutical Co Ltd and licensee Bristol-Myers Sqibb (BMS) had the easiest run of the year, when the Federal Court allowed its amendment application in Bristol-Myers Squibb Company v Apotex Pty Ltd [2010] FCA 814.  However, this was a case in which the amendment had originally been requested – and allowed – before the Patent Office, prior to commencing litigation, but frustrated by a last-minute opposition by Apotex.  Indeed, if the conduct of either party in this case was questionable, it might be that of Apotex.
  • In the meantime, Servier had appealed the original decision in its case to the Full Bench of the Federal Court.  On 11 November 2010 the court issued its decision upholding the original ruling, in Les Laboratoires Servier v Apotex Pty Limited [2010] FCAFC 131.

This last appeal court decision could be the final nail in the coffin for ‘easy’ amendments before the Federal Court.  But with amendment in the Patent Office being subject to opposition, this is not always an effective alternative (as Otsuka and BMS learned).  Accused infringers are finding that the ‘discretion’ element of the amendment provisions has real teeth, particularly if they are prepared to aggressively fight an amendment application and pursue discovery of documents relating to the patentee’s decision to amend.  Patentees desiring to amend as part of a litigation strategy may need to rethink their approach.

To read more on the Patentology blog, click here, here and here.

6.            Prison Terms for UGG Infringers

What? Three men jailed for contempt of court.

Why does it rate #6? The contempt in question was ignoring a court’s orders to cease various activities that infringed a competitor’s intellectual property rights.  In effect, people went to prison for something that started out as a civil matter.

As Wikipedia will tell you:

Ugg boots … are unisex sheepskin boots, made of twin-faced sheepskin with fleece on the inside and with a tanned outer surface, often with a synthetic sole.  Ugg boots are believed to have been first developed in New Zealand or Australia, although the exact date is uncertain.

There has been a dispute between manufacturers of ugg boots, as to whether ‘ugg’ is a generic term and thus ineligible for trademark protection, especially in the region of origin.  Deckers Outdoor Corporation holds the UGG trademark in more than 100 countries worldwide.  Notable exceptions are Australia and New Zealand where the term is considered generic.

There is a slang term in Australia and New Zealand – ‘bogan’ – to describe the kind of person for whom sheepskin boots were, more traditionally, a chosen fashion item.  The US equivalent would be, perhaps, ‘redneck’ or ‘white trash’.  However, in recent years that has all changed, with Deckers somehow managing to transform its woolly footwear, sold under the UGG AUSTRALIA brand, into a celebrity trend.  This has made the UGG name, and associated UGG AUSTRALIA trademarks and get-up, incredibly valuable.

Over a number of years, Deckers has been engaged in litigation to prevent ongoing infringement of its trademarks, copyrights, and other elements of brand identity.  During this time, the Federal Court has issued a number of injunctions restraining various parties from continuing infringement.  Due to the lucrative trade in sheepskin boots, a number of those parties have flagrantly ignored the court’s orders.

As a result, back in June 2010 the Federal Court has now sentenced three of the restrained parties to terms of imprisonment, in one case for three years!  The penalties were imposed for contempt of court, on the basis of disobedience of the earlier injunctions.

Most infringements of intellectual property rights are civil, rather than criminal, matters.  But we learnt in 2010 that when the Federal Court orders you to stop infringing someone’s IP rights, you had better do as you are told.  It should go without saying that three years in prison is a pretty harsh penalty – people get less for manslaughter!

To read more on the Patentology blog, click here.

5.            IP Australia Drives Patent Reform

What? The first steps in substantive reform of the Australian patent system initiated by IP Australia.

Why does it rate #5? If an activist Patent Office is not reason enough to take notice, IP Australia’s reform agenda is quite widely believed to have the momentum and political support necessary for implementation.  This is just the beginning of some significant changes to Australian patent law and practice over the next year or two.

Over past two years, IP Australia (the government agency comprising the Patent, Trade Marks and Designs Offices) has produced a series of reports, and engaged in public consultations, as part of its ongoing reform agenda.  Readers in other countries, and perhaps especially the United States, might be surprised at the extent of the proposed reforms that are being promoted by IP Australia.  They might be even more surprised by the fact that it is presently considered highly likely that the majority of these reforms will be implemented, including changes in practice, rulemaking and amendments to legislation.

By way of contrast, the last time the USPTO attempted to engage in any substantive rulemaking, it ended up in court and was ultimately compelled to drop its proposed changes.  And as far as legislative change is concerned, the US Congress and Senate have repeatedly tried, and failed, to reach consensus on patent reform over a number of years.

It would be difficult to find fault with IP Australia’s general reform objectives.  It wishes to strengthen the patent system by making a number of changes to bring Australian law more into line with a number of the country’s major trading partners.  It also wishes to improve the fairness and efficiency of the system by restricting various practices that it perceives to result in unnecessary delays in proceedings, increased costs, and/or greater uncertainty.

In 2010, IP Australia commenced the actual reform process.  Drafting instructions for amendments to legislation have been prepared and forwarded to the parliamentary draftsman, and it is anticipated that an Amendments Bill may emerge in 2011.  Where IP Australia believes that its reform objectives may be met by changes in practice, within the existing legislative and regulatory framework, it has started to introduce its new practices.

The two main practice changes in 2010 were: introducing an ‘obvious to try’ test into examination for inventive step (despite there being some doubt as to whether the new test is actually supported by High Court authority); and altering examination practice for divisional applications in an effort to limit their effectiveness as a means for maintaining pending rights and/or as ‘insurance’ against patent oppositions.

IP Australia is serious about reform of the IP rights system, and significant changes are anticipated over the next year or two, as it implements its agenda.

>>> Continue Reading Part 2 <<<

To read more on the Patentology blog, click here.


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