A David and Goliath Opportunity for Patent Litigation in Australia

At the end of 2020, we reported on a Government review of the Australian patent system and its accessibility for small and medium sized enterprises (SMEs).  The Patent Accessibility Report prepared from the review (the Report) has now been published and it includes strong recommendations to overhaul the way patent litigation proceeds in Australia.

Background

The Australian patent system review was enacted by an amendment to the Intellectual Property Laws Amendment (Productivity Commission Response Part 2 and Other Measures) Act 2020, as a concession by the Government for the phasing out of the Australian innovation patent system.

The aim of the review was to recommend changes that would improve the accessibility of the Australian patent system for Australian SMEs, and improve the support provided to Australian SMEs applying for IP protection both in Australia and overseas.  The review involved 55 oral consultations with relevant stakeholders, namely representatives of SMEs, finance brokers, academic experts, commercialisation advisers, patent attorneys, solicitors and judges.  The review also considered written submissions from relevant stakeholders and consulted with the Department of Industry, Science, Energy and Resources.

One of the main themes of the Report focuses on the “fear of overwhelming litigation costs”, which the report says needs to be solved if Australia is to have more participants in the IP rights system, and that this is particularly important to encourage, currently deficient, IP export from Australian SMEs.

An Affordable Court System Recommended for Patent Litigation in Australia

The report indicates that the “David and Goliath” issue was raised several times by relevant stakeholders: where a small company feels it cannot win a litigation dispute when the opponent is a large company with seemingly infinite resources.  This results in a fear of litigation and leads some companies to avoid the patent system because it is too costly, and it is too difficult to get a favourable result.

Based on this, the Report recommends:

“that the intellectual property practice of the Federal Court of Australia be enabled to provide a stream for smaller disputes along the general lines of the Intellectual Property Enterprise Court of the UK, in order to provide at least one avenue for expedited and inexpensive trial processes.”

The Report also states that known solutions to litigation that are inexpensive and timely would result in uncertainty being removed from the patent system.  Specific changes that are suggested involve:

1. a specialist IP court, with capped times and capped charges;
2. an arbitration system to be set up by IP Australia;
3. an expert opinion service at an affordable price for those who wish to seek expert advice on their position (with regard to another company infringing a patent, for example); and
4. a change to admissible grounds when there is an appeal against a decision made by the Commissioner of Patents.

Points 1 and 4 are discussed in further detail below.  Points 2 and 3 will form the basis of a future Pearce IP article.

One of the recommendations of a 2016 report by the Productivity Commission (PC) was to implement a specialist intellectual property (IP) list in the Federal Circuit Court (FCC), which would include an expanded patents jurisdiction for the FCC (in addition to its existing copyright, designs, plant breeders’ rights and trademarks jurisdiction).  The IP list would incorporate similar features to the United Kingdom’s Intellectual Property Enterprise Court (IPEC), including limiting trials to two days, caps on costs and damages, and a small claims procedure.

While the FCC closely considered the practices and procedures of the IPEC, there were several features of the IPEC that it did not adopt, including the cap on costs and damages.  Moreover, the Government did not accept that the FCC should have patent jurisdiction, as it considered that patent matters are complex and should be dealt with by judges with the requisite expertise.

The report concludes that the failure to follow up on the IPEC model was a major deficiency and leaves our approach to solving disputes within the patent system “hanging in midair”.

After the PC recommendation, the Federal Court introduced a new IP practice note in 2016, which included measures to “encourage parties to refine the real issues and rein in costs”.  However, the Report identifies that since the IP practice note was introduced:

• filings of patent cases in the Federal Court of Australia have not increased;
• costs of patent litigation have not been reduced; and
• the proportion of cases taking more than a year is unchanged.

This situation contrasts with the significant increase in patent filings when reforms were introduced to the predecessor of the UK’s IPEC.

A Reformed Australian Court Should Be Modelled on UK’s IPEC

The IPEC was founded (under another name) in the United Kingdom in 1990, to provide an accelerated and less costly hearing for intellectual property disputes.  The Report states that the IPEC is generally regarded as a success regarding expedited and low-cost litigation offered by the court, including its small claims track, and is seen as integral to the enterprise culture of Britain.

The court operates along the following lines which, the Report says, could be broadly replicated in an Australian court:

1. All IP cases, including patents, may be heard.
2. There is a two-track system, one involving small claims (including matters involving trade marks or designs for example) and the other, the multitrack system, is for more complicated matters such as patent issues.
3. The emphasis is on speedy resolution, but this requires substantial preparation in advance of the hearing, referred to as “active case management” (ACM). Trials usually last no more than two, or three days at the most.
4. Court fees are low, matching the extent of the claim.
5. Remedies available are similar to those available in the High Court of England and Wales.
6. Parties may self-represent, but are usually represented by a barrister or solicitor and, importantly, they may be represented by a patent attorney, or a trade mark attorney, which the Report says would be a useful innovation for Australia.
7. There is a cap on damages along with a cap on costs that can be awarded against a party.

The introduction of the IPEC resulted in a significant increase in patent cases in England.  For example, from 2007 to 2010 (prior to the reforms) the average annual patent case count was 6.5.  Between 2011 and 2013 the average annual patent case count increased to 23.3.  The Report states that “this is regarded as one of the successes of the IPEC, and while ‘the man in the street’ might be appalled at the idea of more litigation, the increased number of users means that the IP system is being seen as more accessible and user-friendly.  This is the kind of outcome we want for Australia: people coming into the patent system because they are no longer intimidated by it”.

Proposal to Limit the Grounds of Appeal from Oppositions

The Report also considers limiting the grounds of appeal for Australian patent opposition decisions.  In this regard, the Report quotes a recent Federal Court decision in SNF (Australia) Pty Limited v BASF Australia Ltd [2019] FCA 425 at 1784, involving an appeal from a Patent Office Opposition decision as follows:

“The length, complexity and delays involved in these appeals does give cause to reflect on the following questions.  Should appeals of this type be permitted to proceed as re-hearings de novo allowing the parties to run any ground they like, whether raised before the delegate or not, and upon any evidence they choose, whether adduced or available to be adduced before the delegate or not?  Or should they be permitted to proceed only upon the grounds and evidence led before the delegate with truly fresh evidence only being permitted in exceptional circumstances?  Or should there be no appeal at all from the decision of the delegate, but only judicial review permitted demonstrating jurisdictional error?  Or should there be an appeal for error of law only, and perhaps only with leave?”

Currently, leave to the Court is required to file new evidence in the Court in an opposition appeal. Traditionally such leave has been almost inevitably granted, however in more recent times the Court has at least in some cases, kept a closer eye on at least the extent of new evidence (if any) filed, particularly following the comments made by the judge in the above case.  The Report concludes that raising new grounds and simply re-running the whole patent examination process, leads to a long, drawn-out case.  Thus, the report proposes that patent opposition appeals would be restricted to the facts and the grounds available to the Commissioner in the original decision and, if new matters are sought to be raised, the judge’s agreement would be required.

Compelling Reasons to Overhaul Patent Litigation

The Report makes a compelling statement in support of its litigation recommendations namely that, “if we are serious about placing IP rights at the heart of our own enterprise culture, we will seek a quicker and cheaper way of solving IP disputes, in particular for the SME community.  IP rights are potential rights, which have to be established by administrative procedures, and it is not appropriate for the procedures to be allowed to become insurmountable”.  The Industry, Science and Technology Minister said that the Government is carefully considering the recommendations.  Pearce IP will, of course, keep you promptly advised regarding the Government’s response to the Report.