Introducing Inventiveness into the Patent System: Submission to the Review of the National Innovation System

Because of the potential impact of the patent system on innovation diffusion, particularly on continuous and/or incremental innovation, patent policy should be of central importance to the review of the national innovation system. Substantial empirical evidence shows that most industrial innovations are not induced by the patent system. Even in very large markets, such as the USA, only a minority of patents are likely to be induced by the patent system. To the extent that patents do induce innovations, it is the inventiveness of the innovation which gives rise to possible social benefits (externalities, mainly in the form of knowledge spillovers) which may offset the costs of a patent system and thus give rise to a net economic benefit. On the basis of this evidence about the inducement effect of the patent system, and evidence on the current very low inventiveness standard for patent grant, policy proposals are put forward to re-introduce inventiveness into the patent system, thus making it potentially welfare-enhancing. These proposed changes would also have a major impact in ameliorating the negative impact of the patent system on continuous/incremental innovation

Copyright in the digital environment

This submission briefly reviews the dearth of empirical evidence that copyright policy is either effective or efficient. It then focuses on consumer rights, how these are unnecessarily undermined by copyright policy, and how this lack of balance between producer and consumer rights is radically worsened in a digital environment with legislated monopoly privileges. A poor consumer environment will impede the development of a flourishing digital sector. A range of specific issues are discussed briefly: double-dipping through technological protection measures (TPMs), the right for communities to access cultural material sold using copyright privileges, the excessive strength of copyright privileges, compliance costs and the proportionality of penalties

An inventive step for the patent system?

The inventive step is the critical variable in determining balance between patent costs and patent benefits. Set at the right level it ensures that the knowledge spillovers from new inventions offset the costs of restraining competition. But asking the question "is it obvious?" sets a far lower standard for patent grant than asking "is it inventive?" The author argues that for benefits to offset costs the minimum standard of inventiveness must be a contribution to new knowledge. Without such new knowledge there can be no benefits to justify the cost of the restraint on competition.Copyright Information: Author holds the copyright of the work (From author's email of 3/01/2013

Beyond trade: getting economic integration right

This paper suggests a process for consultation with business, consumers and various levels of government that would enhance outcomes. Introduction Australia has an open economy that is heavily dependent on trade for its wellbeing. Well formulated evidence based trade policy therefore matters greatly, as does the form and content of these economic agreements. Past trade policy practice has been focussed on consultations with industry as a precursor to negotiations, with the aim of rectifying market access issues. Today’s trade treaties go far beyond negotiations about actual trade. They also tackle a wide range of domestic policy issues. These broader ‘economic partnership’ or ‘comprehensive trade’ agreements deal as much, if not more, in regulatory politics as in traditional trade policy. Consequently they affect many nontrading businesses and many segments of the wider community. This article draws on three different perspectives to suggest that consultations on these new generation deals need to be broader and more robust. Input from at least three major sectors of society is essential to identify Australia’s priority ‘demands’ in a negotiation, and those areas of domestic activity that are non-negotiable. Here we suggest a process for consultation with business, consumers and various levels of government that would enhance outcomes. We suggest that the national interest would be better identified in a process that is separate from any particular prospective trade deal (and its politically imposed time constraints) and which fully accounts for our domestic settings. The objective of these agreements should be the maximum benefit to the national interest, rather than achieving specific export successes. Such market entry issues create benefits for only selected businesses. A focus on a broader agenda of prioritised domestic reform would result in a stronger increase in national welfare

Trade treaties and patent policy: searching for a balanced approach

Patents were originally designed to encourage technological innovation, which would not otherwise occur, and which create spillover benefits. Careful design is needed to ensure patents do not provide windfall benefits to inventions which would take place absent patents. Further, for the grant of a patent to be economically rational the patented invention must have a reasonable probability of providing spillover (dynamic growth) benefits that exceed monopoly (static inefficiency) losses. This paper draws on the substantial empirical research on industrial innovation and how patent systems work in practice to develop a first-best set of policy parameters for a balanced (parsimonious) patent system. That is, it attempts to design a set of parameters which maximise dynamic growth benefits while minimising static efficiency losses, thus complying with TRIPS Article 7. These parameters are compared with TRIPS and with the TRIPS-Plus elements which the USA is seeking from bi-lateral and regional trade treaties. The resulting schema allows a clearer view of the cost of patent policy provisions in "trade" treaties

A question of balance

Because the patent system may do substantial harm as well as possible good, balance between the innovation inducement effect and the competition reduction effect has always been important. It has less often been recognised that the patent system attracts the kind of ‘gaming’ behaviour that has been rife in tax policy (Section 1). The current review of patentable subject matter provides the opportunity to return the patent system to the narrow realm in which it belongs—where there is likely to be a benefit to the public. This would be consistent with current empirical evidence—that patents are important in inducing innovation only where technology is highly codified or where the initial investment is very large compared to market size (Section 2). Establishing the boundaries of actual patent policy is challenging, but it can be assumed that the government’s intent is that the overall system not be welfare-reducing. This means that there must be a reasonable consideration in exchange for the monopoly—patent monopolies should not be lightly granted. There has never been any government decision to extend the boundaries of patentable subject matter to new fields such as software, discoveries or methods of medical treatment. These major competition and innovation policy decisions have been made within the patent administration system (Section 3). There is clearly a major gap between patent policy and the actual outcomes as delivered by the patent administration system. These gaps are explored in Section 4, where a series of legal decisions and legal doctrines are considered from an economic viewpoint. The gulf between policy and practice suggests the need for: serious attention to ‘gaming’ behaviour, including ‘anti-avoidance’ provisions and penalties for undermining the patent system; a need to redress the way in which the patent playing field is so substantially sloped in favour of the patent applicant that many uninventive ‘inventions’ are being granted patents: a need for a multi-faceted team to address the gaps between patent policy and practice to design a robust system that will operate to enhance national economic well-being and be resistant to ‘gaming’ behaviour. Besides addressing ‘gaming’ behaviour and the bias against the public interest, this could include: substantially increasing the inventiveness threshold; requiring claims clarity from the point of application/grant; and compensating losers, possibly by limiting the monopoly grant to the prevention of copying; a need for regular evaluation of the patent system overall, and of legal decisions that impact on patent policy in particular; and a need for the collection of proper economic data on the impact of the patent system, including: provision of advice to the patent office whenever a monopoly right is exercised; collection of data through the National Innovation Survey to identify the impact of patents on innocent innovators, and estimate the proportion of innovations induced by the patent system

The evolution of patent policy: redefining inventiveness

Economists assume patented inventions contain new knowledge which creates the spillover benefits providing dynamic efficiency gains to offset the static efficiency losses of the monopoly grant. Unfortunately this assumption is out-of-date. A minor difference in design is now taken as sufficient inventiveness to merit a monopoly. This paper discusses the difference between economic and legal approaches to determining if an 'invention' merits a monopoly. It presents detail on the policy rules determining patent grant and investigates the legal decisions underlying these. The legal focus on whether an invention is 'obvious' - rather than whether it is 'inventive' allows courts to avoid the question of whether the 'invention' embodies any new knowledge or know-how. As a consequence the key economic principle underlying patent policy is ignored in decisions about the grant of patents for specific 'inventions'

Empirical evidence on the inventive step

The height of the inventive step is critical in balancing the costs and benefits of patent systems. This empirical analysis assesses this, using the economic yardstick of how much new knowledge is required for patent grant. But examiners and courts ask a different question - is it obvious? This creates a much lower standard, reinforced by continual amendment, semantic minutiae and the suggestion doctrine for combinations. The result is that many granted patents contribute no new knowledge and therefore no benefits to offset their costs. Such a low inventive step likely impedes rather than encourages innovation

How High is The Inventive Step? Some Empirical Evidence

The inventive step is nowadays generally regarded as the key threshold variable ensuring balance in patent systems, effectively operating as a proxy to ensure benefits exceeding costs. Despite the active debate about the current inventiveness standard, there has been little attempt to measure it. The study reported here uses data from recently granted Australian business method patents, and tests these inventions against an economic rather than a legal yardstick. The 72 cases were assessed for their contribution to knowledge or know-how—none were found. The data are organised here to throw light on the key reasons underlying the monopoly grant to these uninventive patents. The first issue addressed is whether there was a problem identifying existing knowledge. In 12 out of 69 cases no novelty or inventiveness objections were raised, either in Australia or for parallel overseas applications (USPTO or EPO). Lengthy and complex drafting contributes to the few cases where existing knowledge did not lead to inventiveness objections. The cases demonstrate that a range of procedural rules operate to allow grant of a patent monopoly to many ‘inventions’ that do not offer any advances in knowledge or know-how,and so provide no social benefits. The rules and procedures arising from the research are: · the ‘reverse onus of proof’—that the patent office has to prove obviousness, not the applicant inventiveness; · the ‘suggestion’ test for assessing combinations of existing elements; · amendment of specifications to allow narrow differences from the existing knowledge identified by examiners; · acceptance of trivial differences, sometimes simply semantic, to determine inventiveness; · failure to apply the analogous use test to processes, despite its obvious suitability for this purpose; and · policy presumptions that the solution to a trivial problem is inventive, or that ideas themselves merit monopolies. Many of the cases in the dataset have parallel overseas applications and review of the communications between applicants and examiners at the EPO and the USPTO throws light on overseas grant practices. While half the applications that have been assessed by the USPTO have been rejected, the other half have been accepted, and the procedural problems identified in Australia are also evident in the USA. The situation at the EPO is more complex,as rejection is usually based on the lack of a “technical effect”. But three very trivial software systems have been granted patents by the EPO. It is unclear how they managed to pass either the technical effect test or the inventiveness test. As it is a range of rules and procedures which have allowed the grant of these patents, it seems likely that equally trivial patents are being granted in other fields of technology

What are the costs and benefits of patent systems?

There do not appear to be any cost-benefit assessments of the impact of patent systems, nor any data that can be used to directly assess the economic impact of patent systems. Discussions of patent policy therefore tend to be theoretical, and any evidence used is anecdotal rather than scientifically based. A wider search shows, however, that there is substantial empirical material on the costs and benefits of patent systems published in a very diverse range of journals and working papers. While these do not allow a full assessment of the economic impact of patent systems, they do provide useful evidence on many aspects of the impact of patent systems. This evidence is drawn together in this summary overview. The objective is to assist in a move towards an evidence-based discussion of patents as a central issue in innovation policy