Productivity Commission Delivers Intellectual Property Report
Extensive Changes Recommended
The Productivity Commission has released a draft report (600 pages) on 29 April 2016 examining Australia’s intellectual property arrangements and making recommendations.
The Productivity Commission is the Australian Government’s independent research and advisory body on economic, social and environmental issues affecting the welfare of Australians.
It’s expressed role is to help governments make better policies, in the long term interest of the Australian community.
In the Commission’s view, intellectual property arrangements should encourage investment in IP that would not otherwise occur, provide the minimum incentives necessary to encourage that investment, and resist impeding follow-on innovation, competition and access to goods and services.
The Commission found that Australia’s IP system is “out of kilter” by favouring rights holders over users and does not align with how people currently use intellectual property:
This hurts all users (consumers and follow-on creators), but particularly Australian users.
The Commission recognised that the role of IP rights is to stimulate creativity and innovation by ensuring through IP rights that creators can recoup their investment.
However, Australia’s IP system is overly generous which is costly for Australia, a significant net importer of IP with a growing trade deficit in IP-intensive goods and services.
The draft report examined the IP system in a wide context including copyright, patents, trademarks, and designs, recommending improvements with a view to allowing intellectual property arrangements to function effectively and efficiently.
The Commission outlined the following bundle of reforms:
The Commission considered that Australia’s patent system grants protection too easily which has allowed a proliferation of low-quality patents which frustrates the efforts of later innovators, impedes competition and raises community costs. The Report said:
- The Australian patent system is failing to meet the principles of a well-functioning intellectual property system.
- The rules and processes for granting patents have led to a non-trivial number of patented inventions that do not benefit the community, which has reduced the system’s effectiveness.
- The strength of rights provided to patent holders is excessive and firms are using the system strategically. These outcomes have reduced the system’s efficiency.
The Report recommends that the Australian Government must improve the patent system by implementing the following reforms:
- increasing the degree of inventive step required to receive a patent
- abolishing the innovation patent system
- redesign extensions of term for pharmaceutical patents
- explicitly exclude business method and software patents from being patentable subject matter, and
- use patent fees more effectively.
The Commission considered that Australia’s copyright system protects work longer than necessary to encourage creativity and consumers bear the cost of that:
- Specifically, Australia’s exceptions for fair dealing are too narrow and prescriptive, do not reflect the way people actually consume and use content in the digital world, and are insufficiently flexible to account for new legitimate uses of copyright material.
- Fair use exceptions operate in other comparable jurisdictions, such as the United States, where it is well established.
The Report recommends that the Australian Government must improve the copyright system by taking the following action:
- amend the Copyright Act to make it clear that it is not an infringement for consumers to circumvent geoblocking technology
- the Australian Government should repeal parallel import restrictions for books
- the introduction of a new broad, principles-based fair use exception to copyright infringement
- better use of digital data and more accessible content as a remedy to reduce online copyright infringement as opposed to increasing enforcement or penalties.
Consumers not breaching copyright by using VPN
The Australian Government should make clear that it is not an infringement of Australia’s copyright system for consumers to circumvent geoblocking technology and should seek to avoid international obligations that would preclude such practices, the report said.
The Australian Government should expand the net of the safe harbour scheme to cover a broader set of online service providers intended in the Copyright Act.
The Commission considered that an effective trade mark system needs to strike a balance so marks are not granted excessively and do not mislead consumers.
A balanced system focuses on the quality of marks and geographical indications granted, as well as their number. Evidence suggests that legislative change has resulted in an imbalance, with a greater number of trade marks being registered than was previously the case.
The Report recommends that the Australian Government must improve the trade mark system by:
- restoring the power of the trade mark registrar to apply mandatory disclaimers to trade mark applications
- amending the Trade Marks Act so that the presumption of registrability does not apply to the registration of trade marks that could be misleading or confusing
- amending the schedule of fees for trade mark registrations so that higher fees apply for marks that register in multiple classes and/or entire classes of goods and services
- requiring the Trade Marks office to routinely challenge trade mark applications that contain contemporary geographical references
- in conjunction with the Australian Securities and Investments Commission (ASIC), link the Australian Trade Mark On-line Search System (ATMOSS) database with the business registration portal to ensure a warning if a registration may infringe an existing trade mark (and to allow for searches of disclaimers and endorsements)
- amending the Trade Marks Act to ensure that parallel imports of marked goods do not infringe an Australian registered trade mark provided that the marked good has been brought to market elsewhere by the owner of the mark or its licensee
- abolishing defensive trade marks.
The Commission noted the various concerns expressed by stakeholders as to Australia’s design rights system:
- low uptake of design rights
- lack of harmonisation with designs laws in other countries
- lack of adaptability to changes in technology and industry practices
- lack of evidence that design rights generate net benefits to Australia.
The Commission considered how the existing design system could be improved including whether it needs to be more adaptable to new technologies and industry practices. The Commission concluded that there was a lack of evidence to support extending design protection to virtual and partial designs. The conclusion of the Commission was that it was not convinced by the arguements of stakeholders to increase the term or scope of design protection in Australia, and neither was there a case for made for Australia joining the Hague Agreement. In sum, the Commission did not propose any material changes to Australia’s design system at this time.
Federal Circuit Court
Reforms are needed to improve the enforcement system for small and medium sized businesses. The Commission is seeking information on whether the Federal Circuit Court could play a greater role in resolving lower value IP disputes. This might require expanding the jurisdiciton of the court to cover all IP matters so that cases involving smaller claims could be heard there.
Intellectual Property Rights and Competition Law
The Competition and Consumer Act exempts licensing or assignment of intellectual property from certain competition provisions of the Act. In the Commission’s view, the rationale for this exemption has fallen away because:
… competition implications arise in those cases where there are few substitutes or where the aggregation of IP rights may create market power.
The Commission noted that the nexus between IP arrangements and competition policy will take on greater significance as the level of licensing and cross licensing increases (particularly, in pharmaceutical and communications markets).
Commercial transactions involving IP rights should therefore be subject to competition law. The current exemptions under the Competition and Consumer Act are outdated and should be repealed.
Instead, distinctive treatment of IP rights is needed under the Competition and Consumer Act.
Institutional and governance arrangements
The three main public institutions that have a role in Australia’s intellectual property system are IP Australia, the Department of Industry, Innovation and Science, and the Department of Communication and the Arts.
The concerns expressed by stakeholders are:
- IP policy-making responsibility is fragmented
- IP policy development often lacks transparency, meaningful consultation and supporting evidence, (particularly, IP negotiations in international trade agreements)
- potential conflicts between IP Australia’s dual roles of regulator and policy adviser
- a lack of independent and integrated policy advice.
The Commission noted that further improvements are needed to better develop the evidence base upon which IP provisions in trade agreements are based:
Model agreements on IP would have the benefit of being fully transparent to Australian industry and the broader community, as well as to foreign governments, so that all stakeholders are aware of what Australia sees as the ideal outcomes from a treaty.
IP and Public Institutions
All Australian, and State and Territory Governments should implement an open access policy for publicly-funded research, as it has the potential to be commercialised and IP arrangements can facilitate commercialisation.
You are invited to examine the draft report and to make submissions by Friday, 3 June 2016.
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Disclaimer. The material in this post represents general information only and should not be taken to be legal advice.