Just prior to Christmas, IP Australia announced that it is seeking feedback on its draft Cost Recovery Implementation Statement (CRIS), which outlines proposed fee changes that would take effect from October 2020. It is also taking the opportunity to review the hearing costs that may be awarded for Patents, Trade Marks and Designs. The public consultation process closes this Sunday, 16 February 2020. In this article I will look briefly at proposed fee changes in relation to patents, none of which strike me as unreasonable or contentious. I am, however, more concerned about proposed increases in the costs that may be awarded in relation to contested hearings, and most particularly patent oppositions.
IP Australia conducts its regulatory role in administering Australia’s system of registered rights (patents, trade marks, designs, and plant breeder’s rights) on a cost recovery basis, i.e. it seeks to cover the costs of these aspects of its activities from the fees charged to users of the system (which these days, for better or worse, it calls ‘customers’). To do this, it uses various financial and economic systems and models to forecast expected demand and cost of service delivery, and reviews and adjusts fees on this basis every few years. IP Australia last undertook a fee review in the 2015-16 financial year.
Cost recovery does not require each individual fee to reflect the cost of the nominally associated service. The fee for requesting examination of a standard patent, for example, is (and will remain, under the proposed fee structure) A$490, which doubtless falls far short of the actual cost of examining an application. Patent maintenance fees, on the other hand, correspond with minimal and highly automated administrative tasks, and currently rise as high as A$2550 annually, for pharmaceutical patents extended beyond the standard 20 year term. This reflects the fact that fee setting can serve broader policy purposes, such as providing an incentive for patentees not to maintain patents that no longer hold corresponding commercial value, thus freeing up the patented technology for public use.
Costs in contested hearings, on the other hand, have nothing to do with the operations of IP Australia. They are amounts, set by regulation, that can be awarded by designated officers of IP Australia against unsuccessful parties in administrative proceedings such as patent oppositions. They are paid directly by the ‘loser’ to the ‘winner’, and are intended to offset the actual costs of the proceedings incurred by the successful party. IP Australia is proposing to increase the costs that may be awarded significantly (by more than four times in some cases), on the basis that this will ‘better reflect the actual costs incurred’, and that the proposed costs ‘are based on the practice of the Federal Court’. Both of these justifications may be true, though that does not automatically make them relevant!
Proposed Patent Fee Changes
According to the draft CRIS, anticipated increases in operating costs over the four-year forward estimates period are modest, and are substantially offset by anticipated increases in demand for trade marks and designs. (Notably, IP Australia appears to be predicting a decline in demand for Australian patents, which is consistent with my own recent observations.) Accordingly, significant changes in fees on the basis of cost recovery are not necessary.
However, IP Australia has noted recommendations of the Productivity Commission in its 2016 Inquiry Report into Intellectual Property Arrangements that ‘the Australian Government and IP Australia should set patent fees to promote broader intellectual property policy objectives’ by ‘restructur[ing] patent renewal fees such that they rise each year at an increasing rate’ and ‘reducing] the initial threshold for claim fees, and increas[ing] claim fees for applications with a large number of claims’.
Accordingly, IP Australia is proposing to abolish the current excess claim fee of A$110 for each additional claim over 20, and replace it with a stepped fee structure of A$125 for every claim over 20 claims but less than or equal to 30 claims, and $250 for every claim over 30 claims. It is also proposing a restructure of maintenance fees in line with the Productivity Commission’s recommendation, as illustrated in the following chart (reproduced from the draft CRIS).
Maintenance fees for pharmaceutical patents extended beyond 20 years, not shown in the chart above, would range from A$4000 for the 20th year, up to A$8000 for the 24th year.
Other proposed patents fee changes are:
- to reduce the fee for a preliminary search and opinion (which I imagine nobody currently uses, since it is by far the most expensive way to obtain a preliminary review from IP Australia) from A$2200 to A$950; and
- to increase fees for filing applications by ‘non-preferred means’ (i.e. other than via the online system), which is entirely reasonable since these fees are completely avoidable, and using other means of filing genuinely results in additional manual processing by IP Australia.
Proposed Increases to Costs Awards
IP Australia has provided very little information to explain why it has decided to review the hearing costs that may be awarded, saying only that it has ‘taken the opportunity’ to do so. I can only suppose, however, that someone has been lobbying for this.
The proposed increases would be significant. In substantive patent opposition proceedings, for example, the maximum costs that might be awarded against an unsuccessful patent applicant in an opposition having a hearing lasting a single day would rise (if I have done my sums correctly) from A$7,200 to A$24,800, while the maximum costs that might be awarded against an unsuccessful opponent in the same circumstances would rise from A$6,550 to A$24,100.
To put this another way, the financial uncertainty (i.e. the difference in costs depending upon the outcome) faced by a party to patent opposition proceedings, in addition to its own actual costs (over which it can at least exercise some control), would rise from around $14,000 to nearly $50,000. If the hearing runs for additional days, the disparity would grow by up to $8000 per day!
Now, maybe I am missing something here, but I have always been under the impression that the opposition process is intended to be relatively inexpensive, compared to Federal Court proceedings, and has a broader public-interest purpose, in that it enables third parties with superior knowledge of a market and technology to that in the patent office, to come forward and challenge accepted claims before a patent is granted. To increase the potential costs of opposition – and, more to the point, the financial risk to any party to an opposition – by the degree being proposed by IP Australia seems, to me, to be entirely antithetical to these objectives.
And it is actually even worse than it looks if you happen to be a patent applicant – most particularly an applicant faced with an opponent that has far deeper pockets than you do (not an uncommon situation – I have been there with a client myself). Because under IP Australia’s current practice, an award of costs is generally an ‘all or nothing’ proposition. An opponent can raise, adduce evidence, and argue every available ground of opposition against every single claim in an application, forcing the applicant to defend the full gamut of objections. But if the opponent is successful on just one ground, against just one claim, then the hearing officer will normally deem the applicant to be the ‘unsuccessful party’, and costs will ‘follow the event’, being awarded entirely against the applicant. On the other hand, the applicant has to successfully defend all of its claims against all asserted grounds of opposition in order to be ‘successful’ and win an award of costs.
The risk profile is, ultimately, profoundly asymmetrical, and strongly favours well-heeled opponents that can afford to press every available ground of objection. IP Australia’s proposed changes would just hand such opponents an even bigger gun to put to patent applicants’ heads.
Conclusion – Tell IP Australia What You Think
With everything going on over summer, I have left it a little late to turn my attention to IP Australia’s fee and costs proposals (although I always feel that one should be a little suspicious of consultations that are commenced shortly before Christmas). But, in case it is not apparent from the above, I do intend to make a brief submission in relation to the costs issue, which I think probably requires further and more proactive consultation prior to a final decision.
If you have any views on this, or other matters relating to the proposed changes – and whether you agree or disagree with me – I would encourage you to do likewise. I am sure IP Australia will value the input.