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Harrison, Joshua --- "On the Convergence of US and Australian Patent Law" [2001] MelbJlIntLaw 14; (2001) 2(2) Melbourne Journal of International Law 351

ON THE CONVERGENCE OF US AND AUSTRALIAN PATENT LAW

Joshua Harrison


ON THE CONVERGENCE OF US AND AUSTRALIAN PATENT LAW

JOSHUA HARRISON[*]

[The environment for US–Australian patent law convergence is characterised by old and new influencing factors, structural similarities and differences in national legal systems, and coupling between intellectual property law, competition law and trade policy. Specific observations of contemporary convergence and divergence are surveyed and coarsely categorised to identify trends. Evidently, a shift has occurred in the prevailing Australian attitude towards multilateral agreement obligations that require increased protection of intellectual property rights. The basis and justification for this shift are fallacious; nonetheless there may be examples of recent legal manifestations that serve to undermine patent law convergence.]

I MOTIVATION

The harmonisation of United States and Australian patent law represents only a narrow slice of possible global legal convergence issues. Nevertheless it has a contemporary importance to the general study of legal convergence that extends beyond the obvious significance it has to the practitioners whom it directly affects. Because it is an extreme case, it is valuable as a case study from which to induce more general conclusions about legal convergence, especially in the field of patent law. If there ever existed a set of circumstances on which to base a strong prediction of cross-border legal convergence, the circumstances surrounding United States and Australian patent law might comprise it today.

Indeed, strong forces are driving the convergence of Australian and US patent law. The most obvious of these is the multilateral Agreement on Trade-Related Aspects of Intellectual Property Rights (‘TRIPS’).[1] It is difficult to overstate the significance of TRIPS to the trajectory of international intellectual property (‘IP’) law. However, particular to the relationship between Australia and the US, there are more subtle forces for convergence that have already affected other categories of law.[2] Inveterate factors driving commercial, social and ultimately legal convergence of Australia and the US include: common language, significant reciprocal trade, common trading partners, increasingly convenient trans-Pacific travel and mass media exportation of US popular culture (and now to a lesser extent, Australian popular culture).

A new factor for convergence resulted partially in response to the Asian currency crisis of 1997. Asian and Pacific Rim countries, including Australia, have reviewed and are revising aspects of their corporate law related to investment and shareholder protection in order to remain attractive to the flow of foreign capital. In the case of Australia, such revisions have arguably led to an ‘Americanisation’ of Australian corporate law.[3] Another new factor is the entry of email and e-commerce into mainstream business communication. Twenty-four hour reception and queuing features have diminished the relevance of differences in time zone that hinder Australia–US communications. Lastly, Australia and the US are presently negotiating a free trade agreement that will provide greater reciprocal market access.[4]

However, legal convergence is never a certainty; there are factors working against the convergence of US and Australian law. For example, the vast difference in size between the US and the Australian economies tends to limit the realisation of opportunities for bilateral legal convergence.[5] Moreover, Australians may have adopted a self-image as avid legal innovators.[6] Australian legal originality has emerged in many areas of IP law, including some where Australia is arguably not well positioned to lead.[7] The Innovation Patent is the latest experiment by Australia in patent law. It is also a glaring contemporary example of legal divergence.

Furthermore, physical proximity to and trade with developing Asian countries, and membership in the Asia Pacific Economic Cooperation (‘APEC’), may lead Australia to sympathise partially with an interest that some Asian countries may have in frustrating or delaying TRIPS compliance and associated legal convergence. Nevertheless, for reasons that will be identified in this paper, it is doubtful that alignment with developing Asian countries on the issue of TRIPS compliance would be in Australia’s national interest.

Finally, it seems that there has been a change in Australia’s attitude towards TRIPS that could undermine the convergence of US and Australian patent law in a functional, if not formal, sense. This altered attitude towards TRIPS and its potential legal manifestations will be described further in this paper.

The purpose of this paper is threefold. Firstly, to appraise the environment for convergence of US and Australian patent law. Secondly, to examine contemporary examples of convergence and divergence in the context of this environment. Thirdly, to identify trends, if any, and discuss them in the context of the aforementioned influencing factors and national interest, and in the context of the coupling between IP law, trade policy and competition law.

II THE ENVIRONMENT FOR PATENT LAW CONVERGENCE IN GENERAL

A A Coupled System

The convergence of patent law should not be considered alone. Patent law exists plausibly within a coupled system consisting of IP law, trade policy and competition law. The coupled system is depicted in Figure 1.

Tariffs are anti-competitive. National distribution cartels can frustrate international trade liberalisation.

Trade Policy

(Liberalisation, Protection of National Industries)

‘Free-riding’ as a trade distortion. IP rights as a substitute for tariffs to protect national industry.

Competition Law

(Harmonisation needed for trade liberalisation)

Right to exclude versus monopolisation. Cross licensing of large IP portfolios. Predatory infringement litigation.

IP Law

(Harmonisation needed for protection of national high-tech industries)

Figure 1: The coupled system to be considered when analysing the convergence of different systems of patent law.

1 Link between Trade Policy and Competition Law

The modern goals of national trade policy may be contradictory, including both the protection of national industries and the liberalisation of international trade. The link between competition law and trade policy affects both of these possible goals. Firstly, enforcement of competition law is necessary for trade liberalisation; this remains so even if formal tariffs and import restrictions are removed. Foreign product or service providers will not have practical access to domestic markets if national distribution cartels can exist under (or despite) domestic competition law.[8] Secondly, if the goal of national trade policy is the protection of domestic industry, it must be recognised that tariffs and import restrictions are inherently anti-competitive, and therefore in tension with competition law norms. Finally, if the existence of a link between competition law and trade policy were still in doubt, such doubt could not survive the existence of so-called ‘anti-dumping’ laws which are a feature of the link.[9]

2 Link between Intellectual Property Law and Competition Law

The link between IP law and competition law is characterised by a similar tension. The right to exclude, a characteristic of intellectual property law, is viewed by some as a potential tool for monopolisation that is nevertheless exempted from competition law.[10] Thus tariffs and intellectual property rights (‘IPRs’) are similar in that, but for exemptions, they might both be proscribed under competition law norms.[11] Patent pooling and the cross-licensing of large patent portfolios also raise genuine competition concerns.[12] As Jill Walker observes, ‘[w]hile an individual IPR may have several substitutes and not pose competition problems, the aggregation of IPRs may create market power.’[13]

Ironically, IP law and competition law are also reciprocally related in a mutually supportive way.[14] As the Australian Intellectual Property and Competition Review Committee (‘AIPCRC’) observed, ‘the intellectual property system promotes innovation, which is a key form of competition; and competition policy, by keeping markets open and effective, preserves the primary source of pressure to innovate and diffuse innovations.’[15]

Finally, the enforcement of patent rights and competition law is often related in modern litigation. For example, in high-tech industry, a large firm with a large patent portfolio is frequently able to bring a colourable patent infringement claim against a small industry entrant. In the US, the small entrant often responds with a counterclaim of monopolisation, alleging that the patent infringement claim is frivolous and was intended only to raise the small entrant’s costs.[16] Thus not only does the essence of the patent right implicate competition law, but so can its practical use or misuse.

3 Link between Trade Policy and Intellectual Property Law

The relationship between trade policy and intellectual property law is inherent.[17] Firstly, differences in national levels of patent protection can influence transnational investment and trade flows. As Keith Maskus observes, ‘[e]conometric evidence suggests strongly that countries with effective IPRs and enforcement attract significantly greater amounts of international trade.’[18] For example, if firms in a developed country perceive an increase in the level of intellectual property protection afforded by a developing country, their direct investment in that country is likely to increase.[19] Furthermore, so-called ‘free riding’ constitutes a trade distortion that can reduce profit and investment incentives in high-tech industries that are characterised by high product development costs but low marginal production costs (for example, pharmaceutical and computer software). In providing security against free-riding, international IPR harmonisation may have a pro-trade effect.[20]

Secondly, the protection of national technology based industries in the post-industrial era implicates both trade policy and intellectual property law. Domestic IPR portfolios can serve as a substitute for tariffs or import restrictions to protect national high-tech industries. Conversely, ‘[t]he international character of the patent system makes a [foreign] patent a useful tool in penetrating export markets.’[21]

Compared with tariffs, IPR enforcement may be seen as a less restrictive alternative with an added benefit that tariffs lack: innovation incentive.[22] In fact, intellectual property law provides this innovation incentive in a manner that is arguably more efficient than the alternatives that would remain if IP rights were severely curtailed. For example, relying only on contract based protection, such as that provided by trade secret law, would probably be to society’s overall detriment. First, trade secret law is ineffective for inventions that can be reverse engineered. Second, trade secret law discourages disclosure. Third, industry reliance on trade secret law alone could make technology based markets more concentrated and therefore less competitive.[23]

4 Exclusion of Free Speech Law

Some readers will undoubtedly notice the absence of free speech law in the presented coupled system model. US patent law practitioners might take particular note of the words ‘consisting of’ in the coupled system description and (correctly) infer that free speech law was excluded intentionally. Such an exclusion is justifiable. Calls for the curtailment of patent rights enforcement in the interest of free speech are likely to be based on a misguided definition of what properly constitutes speech. For example, if one first stretches the definition of ‘discourse’ to include software and business method inventions, one might then arrive at the conclusion that software and business method patent rights limit free speech.[24]

However, such a conclusion is unnecessary. Software inventions are characterised by tangible utility beyond mere communication, and therefore resemble other utilitarian goods far more closely than speech. So, even when a class of inventions of ill repute (such as business method inventions) is likened to speech, the resulting arguments are not convincing. For example, one proponent contends:

[T]he ever-increasing number of e-commerce business method software patents, especially those involving fundamental e-commerce architecture is making it impossible to move (speak) in digital space without fear of patent infringement. This is a matter of serious concern, as a method of doing business is a discourse. The way we communicate to transact commercial affairs is a discursive practice. How would one react to a claim that they had to pay a license fee to say, ‘The item costs five dollars; please hand over your money’?[25]

The posited licence fee is admittedly preposterous. However, the licence fee is preposterous precisely because the assumed business method is obvious and not novel, and therefore does not constitute an invention. The requirements of novelty and inventive step already preclude the granting of enforceable exclusive rights for such an ‘invention’ under present-day intellectual property law. If the example chosen had instead been a truly novel and inventive business method, the argument would have lost much of its impact.

Yet, it is not just the cited business method example that is questionable; the entire argument is questionable. Broadening the definition of speech to include otherwise patentable inventions predictably creates tension between patent rights and free speech rights. However, similar tensions could be created for nearly any area of human endeavour that would be erroneously included in the definition of speech. If sport could be considered a type of human discourse, would it follow that the rules of rugby limit free ‘speech’? Even if the definition of speech is broadened only to include particular classes of patentable inventions, there may be no defensible subject matter distinction to limit the resulting fallacy. For example, chemistry is the ‘language’ of chemists, but does it follow that patents for meritorious chemical process inventions should be denied in the interest of free speech? Engineering methods may also be considered as ‘discursive practice’ among engineers. Does this mean that patents for new and non-obvious engineering inventions should be denied in the interest of free speech? Even if proponents of a relationship between free speech rights and patent rights could answer these questions affirmatively, it is still likely that the convergence of national systems of patent law can be adequately analysed today without the contemplation of laws protecting free speech.

B Multilateral Agreements on Patent Law

TRIPS is the most influential multinational treaty on intellectual property, and is probably the most important feature of the international environment for intellectual property law convergence. The US and Australia are among the many contracting states. Like the Paris Convention for the Protection of Industrial Property,[26] TRIPS requires ‘national treatment’ of the patents and patent applications of foreign contracting states.[27] However, unlike the Paris Convention, TRIPS establishes enforceable minimum standards for national patent rights and their duration.[28] Furthermore, TRIPS affords most favoured nation treatment to all contracting states, thereby giving international effect to bilateral agreements related to intellectual property.[29]

Perhaps the most important feature of TRIPS is that it is annexed to the agreement that establishes the World Trade Organization (‘WTO’),[30] making it enforceable against member states through the threat of multilateral trade sanctions.[31] Such potent enforceability is a feature that is unprecedented among previous multilateral agreements on patent law, and gives TRIPS an extraordinary ability to effect global formal patent law convergence. Indeed, WTO panel decisions resolving TRIPS compliance or non-compliance will tend to create a supranational global common law governing the convergence of national systems of patent law.

The destination of the convergence required by TRIPS is clear. TRIPS includes certain new substantive requirements that are intended to raise the level of patent protection available in all member states to a level characteristic of the most industrialised member states.[32] For example, TRIPS compels every WTO member state to have a patent system that confers certain exclusionary rights on inventors for a 20-year term.[33] Additionally, TRIPS limits the ability of member states to maintain national exceptions to subject matter that might be considered for a patent.[34] TRIPS also restricts the compulsory licensing of patents,[35] and reverses the burden of proof in cases where a producer is accused of infringing a patented process.[36] All of these substantive requirements tend to make inventions more valuable to those who seek patent protection from WTO membership.

III THE SPECIFIC ENVIRONMENT FOR US–AUSTRALIAN PATENT LAW CONVERGENCE

A The US Attitude towards TRIPS

Intellectual property producers based in the US were no doubt the primary advocates for, and beneficiaries of, TRIPS. However, developed countries such as the US contain not only the majority of IP producers, but also the majority of IP consumers. Thus despite plausible concerns raised by commentators,[37] it is not entirely clear that the consumers of IP lacked representation during the negotiation of TRIPS.

Peter Drahos provides an interesting perspective on the nature and origins of the US strategy regarding TRIPS:

The problems in intellectual property protection that confronted the United States at the beginning of the 80s were global in nature. Most other sovereign states, particularly developing countries, were not particularly sympathetic to the needs of US business on intellectual property. The US faced a massive free rider problem. The way in which it chose to solve that problem was through forging a link between the international trade regime and the development and enforcement of intellectual property standards. Combining trade with intellectual property gave the US what it had lacked to deal with the problem of copying: leverage.[38]

It is true that the US plainly used the influence afforded by the size of its market to induce the acceptance of TRIPS, including even the use of trade sanction threats under the Trade Act of 1974, 19 USC § 2411 (1999) (‘section 301’).[39] It is also true that the US continues to wield that influence to assure compliance with TRIPS.[40] However, there is an important distinction between influencing international law to reflect an existing rational link between trade and intellectual property, and forging an irrational link to obtain inequitable rents. The coupled system shown in Figure 1 suggests that the link between trade and intellectual property is indeed a rational one, whether arrived at directly or through a common and analogous association with competition law. So, the linkage is not properly characterised as being natural only in so far as it serves US interests, but is also an independently and conceptually defensible combination.

Furthermore, gains from TRIPS to IPR owners in developed countries such as the US may correct an inequity rather than create one. In so far as TRIPS tilted the legal playing field for competing enterprises, it has arguably levelled it. The pre-TRIPS situation in which high-tech enterprises in countries lacking substantial IPR protection could copy innovations, and then sell at a price that ignored the reality of development costs, was arguably an ‘unfair’ business practice (in the more inclusive sense of the word that is characteristic of continental European unfair competition law).

Underestimation of the rational and equitable merits of the pro-TRIPS argument may lead to a corresponding overestimation of the US-piloted accomplishment in persuading other states to agree to TRIPS. Peter Drahos provides a description of the US role:

[T]he story of how the TRIPS Agreement came to have a place in the Final Act … is a story of remarkable achievement. One country, the US, was able to persuade more than 100 other countries that they, as net importers of technological and cultural information, should pay more for the importation of that information. Assuming rational self interest on the part of these other states, their willingness to sign off on TRIPS constitutes a real world puzzle worth studying.[41]

Only one piece seems to be missing from the ‘puzzle’: the fact that the US gave up much in trade negotiations to achieve multilateral assent to TRIPS. It is specious to analyse gains to the US from TRIPS without also factoring in concomitant losses to the US by quid pro quo. Such incomplete analysis creates a striking windfall, seemingly obtained by the US, that begs explanation or perhaps even criticism.[42] The US gains from TRIPS are remarkable only when considered in isolation; they represent only part of the quid pro quo ‘story’ of the bilateral and multilateral trade negotiations leading to the consummation of the TRIPS agreement.

B The Australian Attitude towards TRIPS

1 Inclusive Satisfaction

Initially, the Australian Government was pleased with the outcome of the General Agreement on Tariffs and Trade 1994 (‘GATT’),[43] which included TRIPS.[44] The reason for the Australian Government’s satisfaction was simple: the GATT outcome was seen to represent a net economic gain for Australia when negotiation gains and losses were viewed together.[45] Whereas changes to Australian patent law required by TRIPS would cost Australian users of overseas patents and patented products between AU$50 million and AU$250 million a year, other aspects of the GATT outcome were estimated to increase the Australian GDP by AU$4.4 billion year.[46] TRIPS was recognised as only one ‘quid’ in a multifaceted quid pro quo that was on balance in Australia’s national interest.

2 Exclusive Regret

More recently, there has been abundant debate regarding whether TRIPS, when viewed exclusively from other parts of the GATT, was in Australia’s national interest. Despite a flawed premise that will be discussed below, the debate has gained participants, with some even reaching the conclusion that TRIPS could not be in Australia’s national interest because Australia is today a net importer of intellectual property.[47]

(a) The Flawed Premise of Exclusive Regret

The premise underlying the debate over the exclusive merits of TRIPS is flawed. TRIPS was negotiated as part of the GATT, so whether TRIPS was a ‘good deal’ or a ‘bad deal’ for Australia cannot possibly be determined without simultaneous consideration of all of Australia’s net gains and losses related to the GATT. Assessing TRIPS in isolation is analogous to determining whether the sale of an automobile was prudent based exclusively on the fact that the automobile is gone and without considering that money was received.

(b) The Flawed Conclusion of Exclusive Regret

Even if consideration of TRIPS exclusively were not flawed as a basic premise, the aforementioned conclusion that TRIPS, viewed exclusively, is not in Australia’s national interest would still be an over-simplification for two reasons discussed below.

(i) Assessing Near Term Advantage to Australia

Firstly, the near term advantage of TRIPS to Australia does not simply turn on whether Australia is a net exporter or net importer of intellectual property. The pre-TRIPS level of IPR protection afforded by the countries to which Australia exports, relative to that afforded by Australia, is equally important. In fact, many of the Asian countries, which are actual or potential destinations for Australian IP exports, provided a lower level of IPR protection than Australia did prior to TRIPS. If TRIPS raised the average level of IPR protection in countries to which Australia exports more than it raised the level of IPR protection in Australia, then TRIPS would increase the value of Australia’s IP exports by a larger factor than the factor applied to Australia’s IP imports.[48] The mere fact that Australia is a net importer of IP is then no longer sufficient to determine whether TRIPS was in the Australian national interest.

The following hypothetical example may serve to illustrate the foregoing argument as applied specifically to the patent context. Suppose TRIPS lengthened patent terms in Asia so that the average patent term enjoyed by Australian exports increased by approximately eight years.[49] Since TRIPS requires only a four year increase in the Australian domestic patent term, it would then have increased the value of Australia’s patentable exports by a factor roughly twice that applied to Australia’s patentable imports. In such a situation, TRIPS could have a positive effect on the balance of Australia’s transnational patent royalty receipts and payments, even if Australia were to import nearly twice the quantity of IP that it exports.

(ii) Assessing Long Term Advantage to Australia

Secondly, the long term advantage of TRIPS to Australia cannot be determined by a static assessment of present transnational trade in IP. Australia’s IP exports are growing much faster than its IP imports.[50] Moreover, developing Asian countries are among the countries to which Australia’s IP exports are growing fastest.[51] TRIPS will serve to protect the value of increased future Australian IP exports to those countries most dramatically. Therefore a progressive Australian response to the post-industrial economic era (the era that brought IPR harmonisation and TRIPS) should position Australia among developed countries for a future role as a net exporter of IP to the developing world. Calls for a restrained attempt by Australia to roll back IPR protection within the margin of TRIPS prohibitions, or for Australia to identify itself with developing countries opposed to IPR harmonisation,[52] are not forward-looking.

3 Legal Manifestations of Australia’s Changed Attitude towards TRIPS

Despite the flaws in both premise and logic, the idea that TRIPS is not in Australia’s national interest simply because Australia is a net importer of IP is gaining in popularity and influence.[53] Worse, it may be causing a shift in the prevailing Australian attitude towards TRIPS which threatens to affect future Australian Government policy on IP, and which could undermine the convergence of US and Australian patent law in a functional if not formal sense. For example, one Australian commentator suggests that Australia’s policy on parallel imports should be shaped so as to compensate for Australia’s purportedly ill-considered decision to agree to TRIPS.[54] There are indeed good reasons to legalise parallel imports,[55] but a belated attempt to ‘fix up’ a tenuously related policy decision, which is now speciously perceived as a mistake, is not among them.

The shifted Australian attitude towards TRIPS may also have subtly encouraged certain Australian initiatives such as the new Innovation Patent scheme and the proposal to raise standard patent maintenance fees. Both of these initiatives are at least partially in response to the perceived social cost of the TRIPS-mandated Australian patent term increase from 16 to 20 years. For example, consider this excerpt from the AIPCRC Legislative Review:

TRIPS sets the term of the standard patent at no less than 20 years. The Committee does not believe that a case has been made for further extending the maximum patent term, and therefore takes it as given. There may be some scope for reducing the effective length of the patent term, so that less innovative patents are likely to extract lower economic rent, by using more steeply rising renewal fees. The Committee recommends that the scope for, and impact of, implementing more steeply rising renewal fees should be considered by IP Australia. The proposed ‘innovation patent’ offers another means of balancing the benefits to society with the costs to society by trading-off lower levels of innovation with a shorter maximum term.[56]

Inflating patent maintenance fees may well be in Australia’s narrow national interest, since most standard Australian patents are granted to overseas applicants.[57] However, for reasons that will be discussed later in this paper, the Innovation Patent scheme is ill-conceived and is likely to run counter to Australia’s national interests.[58]

C Relevant Australian and US Competition Law Convergence

The aspect of competition law that is perhaps most relevant to patent law is the extent to which the exercise or licensing of patent rights is exempted from competition law’s scrutiny or enforcement. In Australia this extent is defined by a statutory provision, s 51(3) of the Trade Practices Act 1995 (Cth) (‘TPA’).[59] In the US there is no equivalent statutory exemption. Instead, restrictive conditions related to patent rights are generally subject to antitrust scrutiny.[60] However, since the exercise and licensing of patent rights is considered to be generally pro-competitive in the US,[61] such conduct is normally lawful under US antitrust law. Illegality of conduct related to patent rights under US antitrust law (eg cross-licensing) depends on ordinary jurisprudential analysis, including consideration of such factors as market power and any association of the conduct in question with an illegal corollary such as horizontal price fixing or predation.[62]

Section 51(3) of the TPA has recently been reviewed by both the ANCC and the AIPCRC. Both the ANCC and the AIPCRC legislative reviews cite US antitrust policy and were arguably influenced by it.[63] The ANCC recommends curtailing the statutory exemption of s 51(3) so that Australian competition law will be less limited in its application to IP-related practices.[64] The ANCC’s recommendation was at least partially motivated by the modern pervasiveness of transnational licensing of IP and a desire for greater competition law convergence. The ANCC considered that increased transnational IP licensing, coupled with the general applicability of US and European competition law to IP -related conduct, would diminish the utility of the s 51(3) exemption to Australian IP licensors and licensees engaged in transnational commerce.[65]

The AIPCRC regards its recommendation to change s 51(3) as somewhat less drastic than the ANCC’s.[66] Nevertheless the AIPCRC recommendation would still subject certain IP-related conduct to more scrutiny under Australian competition law norms.[67] Therefore both the ANCC and the AIPCRC’s recommendations to modify s 51(3) would lead to the increasing convergence of a key aspect of US and Australian competition law that is relevant to patent law.

The extent to which competition law norms are brought to bear upon private parties who are exercising or licensing patent rights also depends upon more universal aspects of competition law, such as its purpose and enforcement. Unlike intellectual property law, which protects the innovations of competitors, modern US antitrust law focuses on protecting competition for the benefit of consumers.[68] Therefore antitrust legitimacy in the US is largely determined according to economic analysis. As evidenced by the case of Queensland Wire Ind Pty Ltd v The Broken Hill Pty Co Ltd,[69] the High Court of Australia has embraced some of the economic rationales of modern US antitrust jurisprudence.[70] A further sign that the more universal aspects of US and Australian competition law may be converging is the recent increase in bilateral cooperation in competition law enforcement.[71]

D Relevant Structural Aspects of the US and Australian Legal Systems

1 Constitutional Purview for Federal Patent Laws

The Constitution of the United States grants limited power to the legislature to create IP rights for a utilitarian outcome. Article I, s 8(8) provides the Congress with the power to ‘promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.’ The equivalent clause in the Australian Constitution is found in s 51(xviii) and grants a broader legislative power: ‘The Parliament shall, subject to this Constitution, have power to make laws for the peace, order, and good government of the Commonwealth with respect to … copyrights, patents of inventions and designs, and trade marks.’

The absence in the Australian Constitution of an explicit utilitarian scope for IP rights does not seem to have significantly affected the generally convergent path of patent law development in the two countries. However, commentators disagree on this point. At least one writer understands Australian IP law to have developed, in the absence of such a constitutional constraint, to a compromise position between representative legal systems of utilitarian and moral purpose.[72] However, the AIPCRC views contemporary Australian IP law ideology in a way that is more characteristic of pure common law (and US) utilitarianism.[73] Establishing the practical importance of this interesting question of comparative constitutional jurisprudence to Australian–US patent law convergence would require study beyond the scope of this paper.

2 Courts Exercising Jurisdiction over Questions of Patent Law

The Australian court system, although similar to the US court system in that it pertains to a legal system characterised by federalism, has structural dissimilarities that are relevant to the development of patent law jurisprudence. Mary Crock and Ronald McCallum observe that, ‘unlike the United States of America, upon federation the Commonwealth Parliament did not establish a separate network of Australian courts. Rather, it reposed federal jurisdiction in state courts.’[74]

In Australia, the Federal Court exercises jurisdiction to resolve issues arising under a limited number of categories of federal law, including intellectual property law and competition law.[75] For example, the Federal Court can exercise original jurisdiction to try cases arising under s 154 of the Patent Act 1990 (Cth) (‘Patent Act’). In contrast, the Federal Court’s closest US counterpart from the viewpoint of patent law jurisprudence, the Court of Appeals of the Federal Circuit (‘CAFC’), cannot exercise original jurisdiction to try patent cases.[76]

The two courts’ key similarity is more important. Both the Federal Court and the CAFC have exclusive and nationwide appellate jurisdiction over questions of patent law.[77] This fact is significant to the meaningful convergence of US and Australian patent law for two reasons. Firstly, the nationwide scope of the precedents set by decisions of Australia’s Federal Court and the CAFC ensures interstate uniformity of patent law jurisprudence. Interstate uniformity, in turn, simplifies international convergence because harmonisation of the jurisprudence of a dozen US appellate circuits with seven Australian states would be convoluted. Secondly, exclusive appellate jurisdiction fosters judicial specialisation and associated expertise in questions of patent law. Such expertise plausibly enhances consistency in judicial precedent, rendering more cognisable the trends in national patent law jurisprudence.

IV SOME CONTEMPORARY OBSERVATIONS OF THE CONVERGENCE OF US AND AUSTRALIAN PATENT LAW

A In Response to TRIPS

It is not surprising that some convergence of Australian and US patent law is directly attributable to the TRIPS agreement. For example, on 8 December 1994 the US Congress enacted the Uruguay Round Agreements Act (‘URA Act’).[78] The URA Act allowed actual reduction to practice in any WTO country to establish a date of invention,[79] in compliance with the TRIPS article 3 national treatment requirement, and the article 4 most favoured nation requirement (in light of the same privilege having been extended by the US to North American Free Trade Agreement countries exactly one year earlier).[80] The URA Act also extended the patent term in the US from 17 years after issue to 20 years after filing,[81] in compliance with TRIPS article 33. Additionally, the URA Act included ‘offers to sell’ in the definition of infringement,[82] in compliance with TRIPS article 28(1).

Less than one week later, on 13 December 1994, the Australian Parliament enacted the Patents (World Trade Organization Amendments) Act 1994 (Cth) (‘WTO Amendment Act’). This extended the Australian patent term from 16 years to 20 years[83] to comply with TRIPS article 33. It also changed the burden of proof for producers accused of infringing a patented process,[84] in compliance with TRIPS article 34. Additionally, the WTO Amendments Act changed Australian law regarding compulsory licences and working requirements[85] in order to comply with TRIPS article 31. Consequently, for several years both US and Australian patent law have been in substantial and continuing compliance with all TRIPS requirements.

B Not in Response to Multilateral Treaty Obligations

However, many of the contemporary examples of the convergence of Australian and US patent law are not in response to multilateral treaty obligations. Many examples of convergence precede TRIPS. For example, the Australian Patents Act allowed publicly available information from outside Australia to constitute ‘prior art’ in assessing novelty and inventive step.[86] This change exemplifies convergence because US patent law also considers foreign publications to be prior art when assessing novelty and obviousness.[87] Another example is the considerable pre-TRIPS convergence of patentable subject matter categories in the US and Australia. For example, courts in both countries recognised computer software as patentable subject matter in the 1991 case of IBM v Smith in Australia and in the 1994 case of Re Alappat in the US.[88] Similarly, court opinions in both the 1980 US case of Diamond, Commissioner of Patents and Trademarks v Chakrabarty,[89] and the 1995 Australian case of Kiren-Amgen Inc v Board of Regents of the University of Washington,[90] supported the proposition that micro-organisms could be patented.[91] In fact, the Australian Parliament reached the conclusion that genes and life forms could constitute patentable subject matter as early as 1989.[92]

Significant convergence of Australian and US patent law, not in response to multilateral treaty obligations, has continued after TRIPS. For example, the American Inventors Protection Act of 1999 (‘AIPA’)[93] established (in Subtitle C) a first user defence to patent infringement that somewhat converges with s 119 of the Australian Patents Act.[94] Subtitle E of the AIPA provides for the publication of US patent applications, which converges with the international practice of publishing patent applications, including the Australian practice.[95] Subtitle E of the AIPA also provides for provisional rights after publication — tending to converge with s 57 of the Patents Act.[96] Another example can be found in the Australian Intellectual Property Laws Amendment Act 1998 (Cth), which provides for patent term extensions for pharmaceutical products taking more than five years to gain regulatory approval.[97] US patent law also provides patent term extensions for pharmaceutical products stalled by regulatory approval delays.[98]

The extent to which US and Australian patent law have converged is further revealed by some common aspects that are not typical among most other nations. For example, while the patent law of most developed countries does not include a ‘best mode’ requirement, the patent law of both the US and Australia does.[99] Additionally, both US and Australian patent laws have provisions atypical of international agreements, allowing the secret commercial use of an invention to prevent the later award of a patent.[100]

Even very recently, further convergence of Australian and US patent law not in response to multilateral treaty obligations has been proposed. For example, in September 2000 the AIPCRC recommended that the standard for inventive step be modified to consider as prior art the combination of two or more documents ‘where such a combination would have been obvious to the person skilled in the art’.[101] Furthermore, in May 2001 the Patents Amendment Bill 2001 was introduced into the Australian House of Representatives, in part to effect that change. If adopted, this recommendation would cause the prior art base that is used for Australian inventive step determination to converge with that which characterises 35 USC § 103 jurisprudence in the US. The AIPCRC also recommended that Australia introduce ‘a grace period for public disclosure affecting the prior art base for novelty and inventive step.’[102] If followed by the Australian Parliament, this recommendation would lead to convergence towards the present US practice of providing a one year grace period during which disclosures by the inventor do not have a patent defeating effect.[103] Additionally, the AIPCRC recommended that the Patents Act be amended to create an ongoing disclosure requirement for Australian patent applicants.[104] This ongoing disclosure requirement[105] would significantly resemble the US requirement except with regard to the consequences of non-compliance. Finally, the AIPCRC explicitly recommended convergence of Australian and US interpretations of the utility requirement for patentability.[106]

Thus we see that many, and perhaps most, of the contemporary examples of the convergence of Australian and US patent law have occurred on the strength of unilateral and bilateral law making initiatives, rather than in response to multilateral treaty obligations. Why? Candidate explanations include the aforementioned inveterate factors driving commercial, social and legal convergence of Australia and the US, and the new ease of trans-Pacific electronic communication which has contributed to the globalisation of patentable science and technology.

V SOME CONTEMPORARY OBSERVATIONS OF THE DIVERGENCE OF US AND AUSTRALIAN PATENT LAW

A Standard Patents

Despite the significant convergence that has occurred, there remain several differences between US and Australian patent law. Some of these differences relate to the ownership of patents. One of the most conspicuous relates to the US priority of invention system. The US awards patents to the first person to invent even if that person was not the first to file the patent application, whereas Australia, like most other nations in the world, awards priority to the first to file.[107] Additionally, US patents must always be applied for in the name of the inventor(s), whereas Australian patent law allows for direct filing by an assignee.[108]

Another difference relates to the prosecution of patent applications. Australian applicants still enjoy a ‘benefit of the doubt’[109] that US applicants do not, although the Australian Parliament is now acting to curb that benefit.[110] In fact, typically in the US most or all claims are initially rejected by the patent examiner — effectively shifting the burden of persuasion onto the applicant. Absence of a ‘benefit of the doubt’ doctrine in US patent prosecution practice may help with the enforceability of US patents, as evidenced by the fact that they are ‘presumed valid’ in infringement litigation. In Australia, patents are not presumed valid.[111]

Declaratory relief is obtained from the court in the US differently than in Australia. Under Australian law a potentially infringing party may make an application to the courts for a ‘non-infringement declaration’.[112] The non-infringement declaration differs from a US declaratory judgment action in two ways. First, the non-infringement declaration can be applied for even if no assertion of infringement has ever been made by the patent owner. Second, the applicant for a non-infringement declaration may not contest the validity of the patent at issue.[113]

The US and Australia also provide successful infringement plaintiffs with contrasting sets of available remedies. Although courts in both countries may award injunctions and compensatory damages, there are important differences in the other options available for the determination of damages. Firstly, US damages may be trebled (typically in cases of wilful infringement).[114] This fact leads potential infringing parties in the US to demand a niche legal service more frequently: the provision of legal opinions regarding the invalidity or non-infringement of patents. Also, the possibility of treble damages provides a questionable strong incentive to allege intentional wrongdoing during litigation. Secondly, damages for infringing standard US utility patents are calculated only to be compensatory or to reflect a reasonable royalty.[115] In contrast, there is a statutory provision in Australian patent law for infringement damages to be determined based on an account of profits made by the infringing party.[116] The option of an account of profits remedy has advantages in the patent infringement context.[117] Consequently (and considering that treble damages in the US provides questionable incentives to seek court awards beyond a level that is already internationally aberrant), remedies may be the aspect of patent law where the US has the most to gain by convergence with the Australian model.

B Australian Innovation Patent Scheme

On 24 November 2000 the Australian Parliament amended the Patents Act to repeal the petty patent scheme and provide for a new second tier patent scheme called Innovation Patents.[118] The new scheme, which has been convincingly criticised,[119] is a glaring example of divergence between Australian and US patent law. Small to medium sized enterprises (‘SMEs’), despite being the primary intended beneficiaries of the new scheme, may incur higher costs for meaningful patent protection via the Innovation Patent scheme than via a standard patent. Although the burden on SMEs to acquire ‘patent’ rights is reduced by acquiring an innovation patent rather than a standard patent, the burden to use the rights may be even more greatly increased.[120] Infringement litigation may not even be threatened by the holder of an Innovation Patent unless and until a more costly full patent examination is requested and received by the patentee.[121] Therefore the usefulness of what the SME gains by merely acquiring an Innovation Patent is questionable, and the cost to the SME of converting the Innovation Patent into something useful may be comparable to a standard patent.

The Innovation Patent scheme also burdens the public at large (including SMEs). This is because it grants exclusive rights under a lowered inventive step standard.[122] Private parties doing business in an environment where Innovation Patents are awarded under a reduced inventive step standard will suffer higher transaction costs for two reasons. First, the proliferation of new patent rights for low inventive step inventions makes the initial determination of which patents must be licensed a more complex problem for the would-be licensee. Furthermore, the increased number of parties to the licensing negotiation may prohibitively raise the transaction costs associated with the licence.[123] Second, the proliferation of new patent rights for low inventive step inventions will increase the costs to businesses of determining whether contemplated new products or services will infringe rights held by third parties (ie ‘clearance costs’).[124] Such increased costs might even reduce the incentive for incremental innovation rather than increasing it.

A compelling argument can be made that a direct acquisition cost discount, like that provided by the US ‘small entity’ fee distinction, could provide SMEs with a comparable reduction in acquisition costs to the Innovation Patent scheme, but without a concomitant increase in the cost or difficulty of enforcing the patent rights acquired,[125] and without an increased burden upon all SMEs in terms of clearance costs and licensing transaction costs. Therefore Australian SMEs would probably be better served by a convergence of Australian patent regulation to provide small entity fee discounts directly to SMEs, rather than by a divergence of Australian patent law to provide the option of an inferior level of patent protection to all via the Innovation Patent scheme.

The Innovation Patent scheme cannot even be properly justified as a backlash against TRIPS. For the many reasons given in this paper, mere status as a net consumer of IP does not align Australia’s interests with regard to TRIPS with those of developing countries. Yet, even if Australia were a developing country, it would still be doubtful that the Innovation Patent scheme could be in Australia’s national interest. Firstly, the argument that a developing country should adopt a second tier patent protection scheme in order to create a ‘hedge’ against the regular patent protection required by TRIPS is questionable.[126] Secondly, Australia is threatened by such ‘hedges’ more than it is served by them. After all, TRIPS has increased the patent protection afforded to Australia’s exports more than to Australia’s imports.

VI CONCLUSION

Although many aspects of the modern environment for US–Australian patent law convergence are remarkably favourable, there has evidently been a shift in the prevailing Australian attitude towards TRIPS. A survey of recent Australian literature and legislative reviews indicates that this shift is based on two fallacious grounds: first, the assessment of TRIPS exclusively from the rest of the GATT; and second, an assumption that the advantage to Australia of TRIPS (even viewed exclusively) would depend simply upon whether Australia is a net exporter or importer of IP. The GATT, viewed inclusively with TRIPS, unquestionably benefited Australia. Similarly, it is specious to analyse gains to the US from TRIPS without also factoring in concomitant losses to the US by quid pro quo. Such an incomplete analysis creates a striking windfall seemingly obtained by the US that begs explanation or even criticism. Moreover, even if TRIPS is viewed exclusively from the GATT as an academic exercise, the short and long term advantage to Australia of TRIPS does not simply turn on whether Australia is a net exporter, or net importer of intellectual property. The fact that TRIPS raised the level of IPR protection to a greater degree in the countries to which Australia exports than within Australia, is equally important in the near term. The growth in Australia’s IP exports, relative to imports, is pivotal in the long term.

Convergence of national systems of patent law is better understood in the context of the plausible coupled system consisting of intellectual property law, trade policy and competition law. In this context, the link between trade and intellectual property is natural, not merely in so far as it serves US interests, but rather as an independently and conceptually defensible combination.

Most of the contemporary examples of the convergence of Australian and US patent law are not in response to multilateral treaty obligations, and several divergent aspects remain. Infringement remedies may be the presently divergent aspect of US–Australian patent law that promises the greatest return for American convergence with an Australian model.

A few examples of recent divergence by Australia may have been encouraged by dissatisfaction with TRIPS, since they were recommended as options to offset TRIPS’s paramount impact on Australian patent law (the patent term increase). Such examples include the Australian initiative to raise standard patent maintenance fees and Australia’s new Innovation Patent scheme. Ironically, the Innovation Patent scheme does not seem to benefit Australians. A compelling argument can be made that Australian legal convergence with a US-style ‘small entity’ patent acquisition cost discount, could provide Australian businesses with a reduction in acquisition costs comparable to the Innovation Patent scheme, but without a concomitant increase in the cost or difficulty involved in enforcing the patent rights acquired, and without an increased burden upon all businesses in terms of clearance costs and licensing transaction costs.


[*] BS (Southern California), MS, PhD (University of California, San Diego), JD (expected 2002, Stanford); Registered Patent Agent (US); Major, United States Army Reserve. The author is grateful to Stanford Law School professors Thomas Heller and Ronald Gilson for their broad and insightful introduction to the topic of international legal convergence.

[1] Opened for signature 15 April 1994, 1869 UNTS 299, 33 ILM 81 (entered into force 1 January 1995).

[2] Australia has adopted US practices in various commercial regulations: see Paul von Nessen, ‘The Americanisation of Australian Corporate Law’ (1999) 26 Syracuse Journal of International Law & Commerce 239, 239 (antitrust law), 239 (contract law), 242 (securities law), 245 (bankruptcy law), 264–5 (corporate law). Australian and US unfair competition laws are also developing along similar lines: Chris Reed, ‘Controlling World Wide Web Links: Property Rights, Access Rights and Unfair Competition’ (1998) 6 Indiana Journal of Global Legal Studies 167, 202–3.

[3] Von Nessen, above n 2, 265:

Best practice in both shareholder protection and non-corporate investment is necessary to assure Australia’s continuing ability to attract foreign capital. In order to meet these objectives, Australia has adopted many of the practices applicable under United States corporate law. … These developments may help Australia to avoid the impact of the Asian economic crisis.

[4] ‘We are pursuing the concept of a Free Trade Agreement with the United States because we see an opportunity to open better opportunities for Australian exporters in the world’s largest and most dynamic economy.’: Mark Vaile, Australian Minister for Trade, Australia and Trade: Our Nation’s Strength, Our Nation’s Future (speech delivered at the launch of the Trade Outcomes and Objectives Statement, Canberra, 3 April 2001) <http://www.dfat.gov.au/media/speeches/trade/2001/mvt003s_01.html> at 6 September 2001.

[5] By virtue of economic size alone, one might hypothesise that the US is more likely to influence Australia than Australia is to influence the US. Consequently, in areas where Australia firmly rejects a weakly held US position, an opportunity for bilateral legal convergence may be missed despite a likelihood of convergence if the economies were of equal size. However, such a difference in size should not significantly affect legal convergence that responds to global influences, since both countries must react to the same external pressures and consider the same multilateral agreements. Nevertheless, in a David and Goliath relationship such as that between Australia and the US, as few as half of the potential bilateral convergence opportunities may be realised in the first instance.

[6] Samuel Murumba, ‘The Emerging Law of the Digital Domain and the Contract/IP Interface: An Antipodean Perspective’ (2000) 26 Brooklyn Journal of International Law 91, 94:

Australia presents a contrasting image to both Europe and the United States as a smaller but highly developed country with a dynamic and responsive legal system that has pushed it to the forefront of international norm-creation and domestic incorporation of those norms in its legal system.

[7] Eg, consider Australia’s digital agenda: ‘Australia has embarked on one of the most ambitious legislative programs in its history; this program is aimed at creating norms for life in the digital domain’: ibid 97. Yet Australia is arguably less experienced than countries such as the US in the digital domain, and so is perhaps not the optimum country to lead in the creation of associated norms: see ibid 103:

According to the Australian Bureau of Statistics, 5.5 million adults accessed the Internet in the 12 months ending in May 1999, but only 650, 000 of them used the Internet to purchase products or services for their private use. In the United States, on the other hand, 38 percent of households connected to the Internet are engaging in online shopping.

Such numbers do not necessarily signify Australian reluctance to engage in e-commerce, but rather may indicate a greater pervasiveness in US commerce of products and services available online. Such pervasive online commercial experience would seem to be invaluable in creating appropriate legal norms for the digital domain.

[8] This facet of the relationship between trade and competition policy has been well described by commentators: see Allan Fels, ‘Competition Policy and Law Reform in the Asia Pacific Region’ (1996) 6 Australian Journal of Corporate Law 143, 143–4:

An important new international dimension to competition policy is unfolding now, partly from the GATT (General Agreement on Tariffs and Trade) round and partly from the OECD (Organisation for Economic Co-operation and Development). This concerns the interrelationship of trade and competition policy. If trade barriers are lowered and it is easier for imports to enter a country, the effects of this liberalisation can be defeated if there are anti-competitive arrangements in domestic markets, especially in distribution sectors, which prevent the imports from reaching consumers or result in significant increases in their prices to consumers. Hence trade policy needs to be complemented by an effective domestic competition policy.

See also Christopher Arup, ‘Competition over Competition Policy for International Trade and Intellectual Property’ (1998) 16 Prometheus 367, 370:

When the most obvious official regulatory barriers to trade are removed, the traders often encounter further layers of resistance to their goods and services. These layers are thought to lie deep in the private sector of the domestic economy, indeed in the structures and cultures of civil society. For instance, entrenched and intricate relationships between domestic producers, financiers, and distributors may loom as a barrier to the foreign supplier who wants to sell goods in local shops or provide services through local businesses. Non-discrimination carries some potential to require governments to act on these relationships.

[9] For perspectives on the role of anti-dumping law in relation to trade policy and competition law, see, eg, Raj Bhala, ‘Rethinking Antidumping Law’ (1995) 29 George Washington Journal of International Law & Economics 1; Terence Stewart and Timothy Brightbill, ‘Some Heretical Observations on the Interaction of US Trade and Competition Laws: A Defence of US Antidumping and Countervailing Duties’ (1996) 4 US–Mexico Law Journal 35.

[10] It is clear that there is some tension between IP rights and competition law. ‘The problem of reconciling patent and antitrust law, of course, arises primarily from the fact that a patent is a legal monopoly.’: Thomas Morgan, Cases and Materials on Modern Antitrust Law and Its Origins (1994) 158. However, according to the Australian National Competition Council (‘ANCC’), the tension between IP rights and competition law is not elemental: see ANCC, Review of Sections 51(2) and 51(3) of the Trade Practices Act, Final Report (March 1999) 149 (‘ANCC Legislative Review’):

It is now accepted that intellectual property laws do not create legal or economic monopolies. Intellectual property laws create property rights and the goods and services produced using intellectual property rights compete in the marketplace with other goods and services. Only in special cases will intellectual property owners be in a position to exert substantial market power or engage in anti-competitive conduct.

[11] Eg, the US Congress’ concern that cooperative industry innovation arrangements might be inhibited by US antitrust law motivated legislation to limit antitrust liability for such arrangements, explicitly including arrangements leading to patents or the transfer or licensing of patents: see National Cooperative Production Amendments of 1993 Public L No 103–42 § 2, 107 Stat 117 (1993).

[12] Standard Oil Co Ind v United States, [1931] USSC 102; 283 US 163, 174 (1931):

If combining patent owners effectively dominate an industry, the power to fix and maintain royalties is tantamount to the power to fix prices. Where domination exists, a pooling of competing process patents, or an exchange of licenses for the purpose of curtailing the manufacture and supply of an unpatented product, is beyond the privileges conferred by the patents and constitutes a violation of the Sherman Act.

[13] Jill Walker, ‘The Interface between Intellectual Property Rights and Competition Law and Policy: An Australian Perspective’ (1998) 16 Prometheus 383, 384.

[14] Norgle J noted in Atari Games Corp v Nintendo of America Inc, [1990] USCAFED 174; 897 F2d 1572, 1576 (Fed Cir, 1990) that ‘the aims and objectives of patent and antitrust laws may seem, at first glance, wholly at odds. However, the two bodies of law are actually complementary, as both are aimed at encouraging innovation, industry and competition.’

[15] AIPCRC, Review of Intellectual Property Legislation Under the Competition Principles Agreement, Final Report (September 2000) 26 <http://www.ipcr.gov.au/ipcr/ IPAustralia.pdf> at 29 August 2001 (‘AIPCRC Legislative Review’). There is also US authority for this view: see, eg, Loctite Corp v Ultraseal Ltd, 781 F2d 861, 876–7 (Fed Cir, 1985):

The patent system … serves a very positive function in our system of competition, ie, the encouragement of investment based risk. … [T]herefore, … the patent and antitrust laws are complementary. Consequently, the treble damage threat of antitrust liability should not be used to thwart good faith efforts at patent enforcement.

[16] There have been many cases in the US where patent infringement claims have been met with antitrust counterclaims: see, eg, Loctite Corp v Ultraseal Ltd, 781 F2d 861, 876–7 (Fed Cir, 1985).

[17] ‘There is, of course, a natural linkage between intellectual property and trade in that property.’: Sir Anthony Mason, ‘Trade and Intellectual Property: Some Observations’ (1998) 16 Prometheus 249, 249. Accepting this self-evident truth, it seems we must also accept as natural the link between international trade and international IP regimes such as TRIPS. ‘For common lawyers at least, the intersection of intellectual property law and trade policy has been virtually ever present, even if not always recognised.’: Warwick Rothnie, ‘Trade, Competition and Intellectual Property’ (1998) 16 Prometheus 351, 351.

[18] Keith Maskus, ‘Strengthening Intellectual Property Rights in Asia: Implications for Australia’ (1998) 37 Australian Economic Papers 346, 355. Maskus also comments, at 347, that

[r]egional trade agreements now routinely include provisions for protection of intellectual property rights, with distinctive approaches adopted that may have implications for regional trade and investment flows, an issue that is completely unstudied in the literature.

See also Keith Maskus and Mohan Penubarti, ‘How Trade-Related are Intellectual Property Rights?’ (1995) 39 Journal of International Economics 227.

[19] See Jeong-Yeon Lee and Edwin Mansfield, ‘Intellectual Property Protection and US Foreign Direct Investment’ (1996) 78 Review of Economics & Statistics 181, 181.

[20] Arup, above n 8, 373–4:

In requiring member countries to regulate to provide a high level of substantive protection for intellectual property, the Round was saying that intellectual property was pro-trade rather than a necessary evil which was to be tolerated because it promised its own benefits. Failure to provide adequate and effective protection for intellectual property was a barrier to free trade or rather perhaps a form of unfair trade.

[21] Commonwealth of Australia, ‘Patents Bill 1990 — Second Reading Speech’, Parliamentary Debates, House of Representatives, 10 October 1990, 2565 (Simon Crean, Minister for Science and Technology).

[22] The true economic incentive to innovate provided by the patent system may not justify the power of its popular perception, but it does exist. For an interesting and simple application of game theory to the economics of patents, see Roger McCain, ‘Game Theory: An Introductory Sketch: Nash Equilibrium and the Economics of Patents’ <http://william-king.www.drexel.edu/top/eco/game/game.html> at 20 April 2001.

[23] AIPCRC Legislative Review, above n 15, 26:

Large incumbents would be especially well placed in seeking to keep information confidential, and would overcome the difficulties [a contract-based innovation protection] system would pose for technology licensing through international diversification. Small and new firms, by contrast, would find it difficult to innovate profitably, as imitation of their efforts by incumbents reduced or even eliminated their ability to appropriate the gains innovation can provide. The resulting trend towards concentration in a few firms of the gains from innovation would create both static and dynamic inefficiencies.

[24] Brian Fitzgerald notes, ‘as software increasingly facilitates our living, we are drawn more and more to conceptualise software as discourse’: Brian Fitzgerald, ‘Software as Discourse: The Power of Intellectual Property in Digital Architecture’ (2000) 18 Cardozo Arts & Entertainment Law Journal 337, 337. Fitzgerald further states: ‘[w]e aspire to the patent monopoly in order to reward inventors for the public good, but the patent monopoly is troubling where the basic building blocks of action or speech are patented’: at 366.

[25] Ibid 369–70.

[26] Paris Convention for the Protection of Industrial Property, opened for signature 14 July 1967, 828 UNTS 305, art 2 (entered into force 26 April 1970) (‘Paris Convention’).

[27] See TRIPS, above n 1, art 1(3).

[28] Ibid art 28.

[29] Ibid art 4.

[30] Marrakesh Agreement Establishing the World Trade Organization, opened for signature

15 April 1994, 1867–9 UNTS 1, 33 ILM 1125 (entered into force 1 January 1995).

[31] Ibid art 50.

[32] Michael Trebilock and Robert Howse, The Regulation of International Trade (2nd ed, 1999) 320.

[33] The required 20 year patent term under TRIPS runs from the filing date of the patent application: TRIPS, above n 1, art 33.

[34] Ibid art 27.

[35] Ibid art 31.

[36] Ibid art 34.

[37] ‘Global harmonisation of intellectual property rights is both desirable and inevitable. It is in the interests of creators, owners, and consumers. But it is necessary to ensure that the interests of owners are not predominant.’: Mason, above n 17, 253.

[38] Peter Drahos, ‘Global Law Reform and Rent-Seeking: The Case of Intellectual Property’ (1996) 7 Australian Journal of Corporate Law 45, 49.

[39] Michael Blakeney, ‘Intellectual Property Law Reform in the Asia Pacific Region’ (1996) 7 Australian Journal of Corporate Law 23, 29: ‘The threat of US trade retaliation has played a key role both in securing acceptance of the TRIPS principles in Asia and in having those principles enshrined in domestic legislation.’ See also ibid 52:

The 301 process played a crucial role in the US’s success on intellectual property at the GATT. Once the US had persuaded a sufficient number of countries to act on the intellectual property issue at a bilateral level, it could expect little resistance in the multilateral forum to the TRIPS proposal.

The US also provided foreign assistance to countries that were strengthening IP laws and regulations: see Jobs Through Trade Expansion Act of 1994 Public L No 103–392 § 501, 108 Stat 4098 (1994).

[40] Eg, recent US legislation conditions designation as a ‘beneficiary country’, in part, with the ‘extent to which the country provides protection of intellectual property rights afforded under [TRIPS]’: Trade and Development Act of 2000 Public L No 106–200 § 211, 114 Stat 251, 284 (2000).

[41] Drahos, above n 38, 8.

[42] Peter Drahos is not alone in incongruously judging TRIPS exclusively from the rest of the WTO agreements, and consequently ending up with an inflated view of the US achievement. Consider the following excerpt from David Forman, ‘Australia’s Costly Deal on Patents’, Business Review Weekly (Sydney, Australia), 10 June 1996, 14 (emphasis added):

An Industry Commission study … demonstrates the trade-negotiating strength of the United States, which it finds is the only nation that benefited from the agreement. The study looks at the economic impact of the 1994 agreement within the General Agreement on Tariffs and Trade to increase the level of protection around the world for intellectual property by increasing patent terms to 20 years … [The study] points out that Australia is a net importer of intellectual property.

[43] Opened for signature 15 April 1994, 1869 UNTS 190, 33 ILM 1154 (entered into force

1 January 1995).

[44] ‘“We’re locking away the gains as we go and now we’re after the icing on the cake,” Senator Cook said before faxing Mr Keating his report on the Uruguay Round of negotiations, calling the deal “the biggest and best Australia has ever achieved” under the GATT’: Tony Wright, ‘GATT a $2.5BN Boost to Exports, Says PM’, Sydney Morning Herald (Sydney, Australia), 16 December 1993, 1.

[45] Australia’s satisfaction with the GATT outcome was not based on a miscalculation of future gains from TRIPS, but rather was based on the reality that the GATT was a package deal which brought net gains to Australia that had nothing to do with TRIPS: see ibid:

The Prime Minister has hailed the world’s biggest trade deal as a “tip-top outcome” that will create 50, 000 new jobs in Australia, and each year boost the nation’s export income by $2.5 billion and add $3.5 billion to the gross domestic product (GDP). … Australia is in line for an estimated $900 million in extra exports of agriculture each year, with substantially increased access in major markets for beef, dairy products, sugar, sheep meat, coal, horticultural products, and rice.

[46] ‘Patents to Cost Billions Extra’, Scitech: Monthly Round-up of Science (Sydney, Australia), 1 June 1996, 12:

Existing local users of overseas patents and patented products would face extra costs of between $58 million and $233 million this year and a total increase over the next 30 years of between $1.5 billion and $7.4 billion. … But the report then added that other changes resulting from the Uruguay Round of the GATT had been estimated to boost the nation’s GDP by at least $4.4 billion a year, swamping any potentially negative impacts from the changes to patents.

Citing numbers given in Nicholas Gruen, Ian Bruce and Gerard Prior, Industry Commission, Extending Patent Life: Is it in Australia’s Economic Interests?, June 1996, Canberra, Australia <http://www.pc.gov.au/research/other/patents/index.html> .

[47] See Gruen, Bruce and Prior, above n 46; Theresa Fels and Jason Soon, ‘IP Audit Should Innovate’, Australian Financial Review (Sydney, Australia) 12 April 2000, 20; Mason, above n 17, 249.

[48] This seems likely, since TRIPS affected many countries to which Australia exports more than it affected Australia. This is acknowledged in John Revesz, Trade-Related Aspects of Intellectual Property Rights (Staff Research Paper, Australian Productivity Commission,

28 May 1999) 13 <http://www.pc.gov.au/research/staffres/trips/> at 6 September 2001:

The adoption of TRIPS in 1995 did not necessitate significant changes to Australian IPR laws, with the exception of raising the standard patent term from 16 to 20 years. … TRIPS also had little effect on IPR protection in other developed market economies, which have had strong IPR systems for many decades. The main effect of TRIPS has been on developing countries, in terms of imposing minimum legal protection standards and requiring the implementation of appropriate enforcement.

[49] The hypothetical assumption is quantitatively arbitrary, but qualitatively not so far fetched. Australia’s top 10 export markets in 1999 included seven Asian countries: Japan, Korea, Taiwan, China, Singapore, Hong Kong, and Indonesia: Australian Department of Foreign Affairs and Trade, Fact Sheets: Australia’s Trade <http://www.dfat.gov.au/facts/trade.html> at 6 September 2001.

[50] Maskus, above n 18, 350 observes:

In three of the four categories of IP-intensive manufactures, [Australian] imports continue to exceed exports. However, exports have grown at significantly faster rates than imports, suggesting a shift in comparative advantage toward Australian production.

Furthermore, the debit to credit ratio characterising Australia’s trade in intellectual property decreased by 20% from 1990 to 1995, indicating that Australia is tending to become a net exporter of IP: at 350.

[51] Ibid 350:

Australia’s growing export strength in high-technology products and services, including elaborately transformed manufactures, computer software, and pharmaceutical, has attracted considerable attention. Much of this rising trade is with East Asia. Over the period 1990–1996, the highest growth rates of Australian exports were to China, Korea, Hong Kong, New Zealand, and Taiwan, while exports to ASEAN as a group doubled.

Ibid 358:

Further, to the extent that Australia’s comparative advantage lies in its intellectual property with respect to Asia, its position will strengthen with additional Asian compliance and enforcement of the TRIPs standards. An Australian firm’s contribution to a joint venture is likely to be knowledge-based technology, design, and services, while the Asian firm’s contribution is more likely to be labor, capital, and land. Evidence noted earlier suggests that stronger IPRs should expand Australian firm’s willingness to share technologies in this manner because of the additional certainty of retaining proprietary control over them.

[52] The following quotation, from ibid 351, may contain questionable advice:

Indeed, Australia could be in the vanguard of nations that maintain a pro-competitive counterweight to emerging over-protection of intellectual property in the United States and Europe. In this regard, it is positioned to be a leader in subsequent multilateral negotiations over IPRs.

Whether and how Australia is so ‘positioned’ is debatable in light of the benefit that Australia derives from TRIPS motivated IPR protection in Asia and in light of the projected growth in Australian IP exports. Fortunately, not all commentators on Australia’s national interest express a similar strategy: see, eg, Revesz, above n 48, 95:

Given [Australia’s] relatively strong expertise in biotechnology, it seems likely that this is an area where Australian industry will want access to IPR protection in as many markets as possible. Consequently, it might be in Australia’s interest to support the United States position in favour of mandatory IPR protection for biotech innovations around the world.

[53] The following quotations are exemplary of the unwarranted respect given to the aforementioned flawed logic. First, Fels and Soon, above n 47, 20:

[T]he optimal patent term for Australia differs from the optimal patent term in other countries which are net exporters of IP. One of the outcomes of TRIPS was the uniform extension of the standard patent term from 16 to 20 years for all WTO member countries. A 1999 research paper by the Productivity Commission argued that this extension is unlikely to have maximised benefits for Australian consumers. This is because Australia remains a net technology importing country.

Second, Mason, above n 17, 249: ‘The linkage that was made between intellectual property and reform of international trade across the board has serious consequences for developing countries and for countries like Australia that are net importers of intellectual property.’

[54] Peter Urban, ‘Paying for Curbing Imports’, Canberra Times (Canberra, Australia),

20 January 2000, 9:

The bottom line of the above is that we have been pursuing many wrong-headed trade policies on IP. We are a net consumer of IP, not a net producer, yet we have aligned ourselves with the US/European approach to IP, to our economic cost and that of many of our major trading partners. Our decision to free up parallel imports of IP is a good first step in fixing up our past IP policy mistakes but we need to do more.

[55] See generally ‘The Wrongs of Copyright Law’, Australian Financial Review (Sydney, Australia), 21 May 1998, 20.

[56] AIPCRC Legislative Review, above n 15, 144.

[57] Ibid 139: ‘[T]he majority of applications for standard patents made in Australia are from overseas. … The importance of technological imports is illustrated by the more than 90 percent of patents registered in Australia, which are owned by foreigners.’

[58] For an insightful and persuasive criticism of second tier patent schemes such as the new Australian Innovation Patent scheme, see Mark Janis, ‘Second Tier Patent Protection’ (1999) 40 Harvard International Law Journal 151.

[59] ANCC Legislative Review, above n 10, 13:

Section 51(3) exempts restrictive conditions in licenses and assignments of intellectual property to the extent they ‘relate to’ the subject matter of intellectual property rights or goods and services produced using intellectual property rights. In the absence of section 51(3), these licensing and assignment conditions would be subject to all the competition law provisions in Part IV of the TPA, and some of these conditions may be in breach of those provisions.

[60] US Department of Justice and the US Federal Trade Commission, Antitrust Guidelines for the Licensing of Intellectual Property, 6 April 1995, s 2.1 <http://www.usdoj.gov/atr/public/guidelines/ipguide.htm> at 18 September 2001 (‘FTC Guidelines’):

An intellectual property owner’s rights to exclude are similar to the rights enjoyed by owners of other forms of property. As with other forms of property, certain types of conduct with respect to intellectual property may have anticompetitive effects against which the antitrust laws can and do protect. Intellectual property is thus neither particularly free from scrutiny under the antitrust laws, nor particularly suspect under them.

[61] The US Department of Justice and US Federal Trade Commission ‘recognise that intellectual property licensing allows firms to combine complementary factors of production and is generally procompetitive.’: ibid s 2.0c. The US Supreme Court similarly recognised in Standard Oil Co Ind v United States, [1931] USSC 102; 283 US 163, 171 (1931):

An interchange of patent rights and a division of royalties according to the value attributed by the parties to their respective patent claims is frequently necessary if technical advancement is not to be blocked by threatened litigation. If the available advantages are open on reasonable terms to all manufacturers desiring to participate, such interchange may promote rather than restrain competition.

[62] See, eg, Standard Oil Co Ind v United States, [1931] USSC 102; 283 US 163, 175 (1931): ‘an agreement for cross-licensing and division of royalties violates the [Sherman] Act only when used to effect a monopoly, or to fix prices, or to impose otherwise an unreasonable restraint upon interstate commerce.’

[63] The language of the FTC Guidelines was twice cited and quoted in the ANCC Legislative Review, above n 10, 150, 159–60. The ANCC Legislative Review also expresses agreement with the US competition law approach to IP: ‘The Council agrees with the view of the US competition law authorities about the nature of intellectual property rights and their status under competition law.’: at 159. The AIPCRC Legislative Review, above n 15, 204–5, also cites and summarises the FTC Guidelines.

[64] ‘The [ANCC] considers that narrowing the [TPA s 51(3)] exemption to remove protection of price and quantity restrictions, and horizontal agreements, is the best approach’: ANCC Legislative Review, above n 10, 14.

[65] Ibid 219–20:

Where intellectual property licenses contain restrictive conditions exempted under section 51(3) but not exempted under foreign competition laws, the overseas exploitation of these licenses will not be protected by section 51(3). … The US and EU regimes give their competition authorities greater freedom to examine intellectual property licensing practices than Australia. … Given the small size of the Australian market, increasing international licensing of intellectual property rights, trade in intellectual property rights, and increasing trade in goods and services produced using intellectual property rights, the Council expects the domestic reach of section 51(3) will reduce its relevance over time.

[66] AIPCRC Legislative Review, above n 15, 213:

We are not clear what content would be left in [TPA s 51(3)] if (in line with the ANCC’s recommendations) all horizontal arrangements and all price and quantity restrictions were removed from its scope.

As the vast majority of intellectual property licenses could be said to fall within these categories, we believe that adoption of the ANCC’s proposals would amount to a repeal of the section. By eliminating the protection the [AIPCRC] believes is desirable, such a move would impose unnecessary costs on the innovation process.

[67] Ibid 215:

The [AIPCRC] recommends that intellectual property rights continue to be accorded distinctive treatment under the Trade Practices Act (TPA). This should be achieved by: … [amending s 51(3) and related provisions] to give effect to ensuring that a contravention of … the TPA … shall not be taken to have been committed by reason of the imposing of conditions in a license … that relate to the subject matter of [an] intellectual property statute, so long as those conditions do not result, or are not likely to result in a substantial lessening of competition. The term ‘substantial lessening of competition’ is to be interpreted in a manner consistent with the case law under the TPA more generally.

[68] US antitrust laws are concerned ‘with the protection of competition, not competitors’: Brown Shoe Co v United States, [1962] USSC 112; 370 US 294, 320 (1962).

[69] [1989] HCA 6; (1989) 167 CLR 177 (‘Queensland Wire’).

[70] Peter Prince, ‘Queensland Wire and Efficiency — What Can Australia Learn from US and New Zealand Refusal to Deal Cases?’ (1998) 5 Competition and Consumer Law Journal 237, 256:

It is of more than passing interest to note that the Australian High Court in Queensland Wire drew heavily on Judge Posner’s reasoning in [the US case of Olympia Equipment Leasing Co v Western Union Telegraph Co, [1986] USCA7 794; 797 F2d 370 (1986)]. Importantly, this was not for some side issue in the case, but for the key analysis behind the High Court’s approach to s 46 violations. In their joint judgment, Mason CJ and Wilson J borrowed directly from Judge Posner to explain why intent was not relevant in the “statutory tort” of a s 46 infringement, why competition had in any case never been a tort, and even to explain what the fundamental purpose of s 46 was. That the High Court in Queensland Wire was prepared to use the reasoning of Judge Posner — a leading exponent of Chicago School economics — seems to suggest a great deal, not only about the similarity between s 46 infringements under the Trade Practices Act and s 2 violations of the Sherman Act, but also about the underlying philosophy which the High Court applied.

[71] ‘News from the ACCC: Global Enforcement Co-operation’, Australian Trade Practice Law Bulletin, 1 May 1999:

Australia and the US have signed an agreement that will allow the two countries’ anti-trust organisations to assist each other. The agreement was signed in Washington on 28 April [1999] by US Attorney-General, Ms Janet Reno, the US Federal Trade Commission Chairman, Mr Robert Pitofsky, and Australian Treasurer, Mr Peter Costello. … It is the first time the US has signed such an agreement.

[72] Murumba, above n 6, 113:

[U]nlike its United States’ counterpart, the Australian Constitution does not impose any teleological constraint or utilitarian calculus on the rights the legislature may create under the intellectual property power. Outside the constitution, the rationale for Anglo-Australian intellectual property rights has always been understood to be a mixture of the more flexible utilitarian calculus similar to that which underpins US intellectual property rights and the more robust deontological or natural right ideology more familiar on the European continent.

[73] AIPCRC Legislative Review, above n 15, 22:

The general objective of the system of intellectual property law in Australia is utilitarian, and more specifically economic, rather than moral in character. It serves to (and, in the Committee’s view, should aim to) maximise the difference between the social value of intellectual property created and used, and the social cost of its creation, including the cost of administering the system.

[74] Mary Crock and Ronald McCallum, ‘Australia’s Federal Court: The Origins, Structure, and Jurisdiction’ (1995) 46 South Carolina Law Review 719, 720.

[75] Ibid 770:

Notwithstanding its jurisdiction is conferred on it by more than a hundred acts of Parliament, the Federal Court exercises jurisdiction in only eight principle areas of federal law, namely trade practices [competition law], consumer protection, intellectual property, taxation, administrative review, corporations, admiralty, and bankruptcy.

[76] Original jurisdiction over cases relating to patents rests exclusively with the US district courts, not with state courts nor with the CAFC: District Court Jurisdiction Act, 28 USC § 1338(a) (1993):

The [US] district courts shall have original jurisdiction of any civil action arising under any Act of Congress relating to patents, plant variety protection, copyrights and trade-marks. Such jurisdiction shall be exclusive of the courts of the states in patent, plant variety protection and copyright cases.

[77] In Australia, the Federal Court has exclusive jurisdiction to hear appeals on questions of patent law: Brian Opeskin, ‘Federal Jurisdiction in Australian Courts: Policies and Prospects’ (1995) 46 South Carolina Law Review 765, 777–8. In the United States, the District Court Jurisdiction Act, 28 USC § 1295(a)(1) (1993) confers exclusive jurisdiction on the CAFC to hear appeals from the final decisions of all district courts in civil actions relating to patents.

[78] Public L No 103–465, 108 Stat 4809 (1994).

[79] Public L No 103–465, 108 Stat 4809, 4817 (1994).

[80] North American Free Trade Agreement Implementation Act Public L No 103–182, 107 Stat 2057, 2067 (1993).

[81] URA Act Public L No 103–465, 108 Stat 4809, 5320 (1994).

[82] URA Act Public L No 103–465, 108 Stat 4809 (1994).

[83] WTO Amendments Act s 4 amending Patents Act s 67.

[84] WTO Amendments Act s 9 amending Patents Act s 121.

[85] WTO Amendments Act s 11 amending Patents Act s 133.

[86] See the definition of ‘prior art base’ in Patents Act sch 1.

[87] Patentability of Inventions Act, 35 USC § 102 (1984).

[88] In the Australian case of IBM v Smith [1991] FCA 625; (1991) 105 ALR 388, Burchett J of the Federal Court applied National Research Development Corp v Commissioner of Patents [1959] HCA 67; (1959) 102 CLR 252, holding that computer software leading to a commercially useful effect was properly considered a ‘manner of manufacture’ for the purposes of patentability under Australian patent law. In the US case of Re Alappat, [1994] USCAFED 665; 33 F3d 1526 (1994), the Court of Appeals of the Federal Circuit held that computer software leading to a tangible result, including the rendering of a general purpose computer into a special purpose computer, was potentially patentable subject matter under the Patentability of Inventions Act, 35 USC § 101 (1984).

[89] [1980] USSC 119; 447 US 303 (1980) (‘Diamond v Chakrabarty’).

[90] [1995] APO 61; (1995) 33 IPR 557.

[91] In the landmark case of Diamond v Chakrabarty, [1980] USSC 119; 447 US 303 (1980), the US Supreme Court declared that a genetically engineered bacterium was patentable subject matter. In Australia, genetic material can be considered as a ‘manner of manufacture’ for purposes of patentability so long as it is purified and isolated, or changed from its naturally occurring form, in order to constitute an ‘artificially created state of affairs’: Kiren-Amgen Inc v Board of Regents of University of Washington [1995] APO 61; (1995) 33 IPR 557, 569.

[92] Revesz, above n 48, 93:

The issue of whether genes and life forms should be excluded from the patent system was considered during the parliamentary debate of the [Patents Act] in 1989. The result of the debate was a single exclusion — human beings and biological processes for their generation are not patentable.

[93] See American Inventors Protection Act of 1999 Pub L No 106-113, 113 Stat 1501 (1999).

[94] Compare AIPA Pub L No 106–113, sub-t C, § 4302 (1999) with Patents Act s 119.

[95] Compare AIPA Pub L No 106–113, sub-t E, § 4502 (1999) with Patents Act ss 53–6.

[96] Compare AIPA Pub L No 106–113, sub-t E, § 4504 (1999) with Patents Act s 57.

[97] See Intellectual Property Laws Amendment Act 1998 (Cth) sch 1, s 3 amending the Patents Act.

[98] See Rules of Practice in Patents Cases, 37 CFR §§ 1.701–1.720 (2001).

[99] The US best mode requirement is embodied in the Patentability of Inventions Act, 35 USC § 102(b), and the Australian best mode requirement is embodied in the Patents Act s 40(2)(a).

[100] The US ‘public use’ bar that is embodied in the Patentability of Inventions Act, 35 USC § 102(b) (1984) also covers secret commercial use, and Australian law includes secret use provisions in the Patents Act ss 9, 18(1)(d).

[101] AIPCRC Legislative Review, above n 15, 16.

[102] AIPCRC Legislative Review, above n 15, 17.

[103] Patentability of Inventions Act, 35 USC § 102 (1984).

[104] AIPCRC Legislative Review, above n 15, 170.

[105] The Patents Amendment Bill 2001 (Cth) s 8 seeks to amend the Patents Act to require disclosure of prior art searches by the applicant.

[106] AIPCRC Legislative Review, above n 15, 152–3.

[107] Compare Patents Act s 43(2), with Patentability of Inventions Act, 35 USC § 102(a), (g) (1984).

[108] Compare Patents Act s 15(1), with Patentability of Inventions Act, 35 USC § 111(a)(1) (1984).

[109] Commissioner of Patents v Microcell Ltd [1959] HCA 71; (1959) 102 CLR 232.

[110] The Australian Parliament is now acting to replace the benefit of the doubt doctrine with a more stringent test: see Patents Amendment Bill 2001 (Cth).

[111] Compare the Patentability of Inventions Act, 35 USC § 282 (1984) with the Patents Act, s 20(1). ‘In addition, it has been the practice of the [Australian] Courts, particularly when the validity of a patent is questioned … to effectively re-examine the patent de-novo’: AIPCRC Legislative Review, above n 15, 175 referring to the Australian Federal Court case of Acushnet Co v Spalding Australia Pty Ltd [1989] FCA 509; (1989) 17 IPR 136.

[112] Patents Act ss 125–6.

[113] Patents Act ss 125–6.

[114] Patentability of Inventions Act, 35 USC § 284 (1984).

[115] Patentability of Inventions Act, 35 USC § 284 (1984). Cf Patentability of Inventions Act, 35 USC § 289 (an account of profits made by the infringing party can be the basis for damages calculations when US design patents are infringed).

[116] Patents Act s 122(1).

[117] Peter Hastie, ‘Restitution and Remedy in Intellectual Property Law’ (1996) 14 Australian Bar Review 6, 31–2:

In some cases, the loss to the owner may be more difficult to calculate than the gain to the infringer, so an account may be a more exact and easier remedy than damages. Particularly, in the case of a plaintiff with few resources and a restricted capacity to exploit the intellectual property, the remedy may secure larger benefits than a mere damages award representing the loss.

[118] Patents Amendment (Innovation Patents) Act 2000 (Cth) amending the Patents Act.

[119] See generally Janis, above n 58.

[120] Ibid 182:

[S]econd tier patent regimes, if anything, place the second tier patent owner in a far worse position with regard to the cost of enforcing rights. Fundamentally, because a second tier patent regime shifts responsibility for the determination of “soft” obviousness to the judicial process, each trial of a second tier patent, invariably involving an exhaustive validity attack, is potentially more complicated than a corresponding trial of a regular patent.

[121] Patents Act s 129A.

[122] Inventions are evaluated under a lesser requirement for ‘innovative step’ (rather than the standard inventive step requirement) when they are the subject of innovation patent applications: Patents Act s 7(4).

[123] ‘[G]iven the complexities of claim construction, it will undoubtedly require expertise even to identify the various second tier patent rights that must be assembled in order to clear the way for the marketing of a given commercial product.’: Janis, above n 58, 204. Janis further states that the ‘[SMEs,] the supposed beneficiaries of the second tier patent regime … may well lack the resources and/or sophistication to participate in the complex bargaining that would be necessary to re-aggregate patent rights in an economically sensible fashion’: at 206.

[124] ‘Having a lower [inventive step] threshold is likely to lead to patents being granted too readily, imposing unnecessary costs on the Australian economy’: AIPCRC Legislative Review, above n 15, 10. See also Janis, above n 58, 215:

[I]t is important that the line between the patented and the unpatented be clearly demarcated in the patent itself, rather than being left to future litigation, so that a green light is given to R & D beyond that line. … In this respect the nonobviousness requirement plays an important prophylactic role. It sharply limits littering of the innovation landscape with land mines consisting of patents on what those skilled in the trade would assume to be in the public domain. Second tier protection deliberately disables the obviousness requirement from fully carrying out this role.

[125] Janis, above n 58, 180.

[126] Janis, ibid 196, states that the argument is tied to the perception that developing countries gain little or nothing by compliance with the patent provisions of the TRIPs agreement. According to this argument, a developing country might be well served by creating both a regular patent system and a second tier patent system, establishing such strict patentability standards for regular patent protection that most inventions would be relegated to the relatively limited protection offered under the second tier system. In such a case, a second tier patent protection regime is not being created for its own merits, but rather as a hedge against regular patent protection.

Whether this amounts to a sensible justification for creating a second tier regime depends on the accuracy of the underlying assumption that regular patent protection disadvantages developing countries. … [G]iven the inherent flaws of second tier regimes, it would require a particularly strong showing of adverse consequences flowing from the regular patent system to justify erecting a second tier system as a hedge.


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