Should Canada Adopt an “Innovation Patent System” to Promote Small to Medium Enterprises?

Should Canada Adopt an “Innovation Patent System” to Promote Small to Medium Enterprises?

The “innovation patent system”, a second-tier patent system unique to Australia, was introduced in 2001 by the Australian Parliament to promote the growth of small-to-medium enterprises (SMEs) by providing a relatively quick and cost-effective process to obtain patent protection for lower-level or incremental inventions. The World Intellectual Property Office refers to Australian-type “second-tier patents” as “utility model patents”. They are available in 90 countries, including most developing countries and some developed countries such as Australia, Denmark, Italy, Germany and Austria. Is such a system successful in driving economic and innovation growth for SMEs?  If so, should Canada consider adopting it?

Patents granted under the Australian innovation patent system deviate from standard patents in a number of significant ways. For example, innovation patents require the invention to have an “innovative step”, a lower threshold than the “inventive step” required for standard patents. In other words, an innovation patent is not required to be non-obvious, but rather must simply differ from the prior art base in a way that makes a “substantial contribution” to the working of the invention.

Other features unique to innovation patents include the following: (i) it is usually granted within 1 to 3 months; (ii) it may be obtained for almost all the same subject matter as standard patents, except for inventions related to plants, animals and the biological processes for their generation; (iii) preparation and application costs are usually lower than for standard patents; (iv) the grant process does not involve pre-grant opposition; (v) both filing and patentability requirements are less stringent; (vi) examination and certification for meeting all requirements of the Patent Act are optional before grant but are required for enforcement purposes and attracting the same rights and remedies as standard patents.

Lastly, innovation patents can be converted to standard patent applications or can be filed as divisional of standard patent applications, thereby providing inventors with strategic advantages in enforcement or litigation. Innovation patents may however include only up to 5 claims and provide eight years of protection, compared to 20 years for standard patents.

Despite these strategic advantages, one wonders whether an innovation patent system would play a significant role in driving innovation and growth for SMEs in Canada. Several empirical studies suggest that second-tier or utility model patents “stimulate innovation and growth in developing countries and in industries that are technologically lagging”. Developed countries such as Australia may benefit from such a system if they are large net importers of new technology.

Thus, one would therefore first have to identify whether Canada fits those criteria or not. Even if it does, a survey by Verve Economics of over 500 innovation patent holders in Australia showed that 40% of the inventions protected by innovation patents failed to be commercialized due to the time required to find applications of new technologies and lack of finance. Patent protection by itself clearly does not guarantee commercialization and economic growth for SMEs. Further, given that these patents are not examined before grant, their value may be undermined. The Verve survey confirms that “there is only minor use of innovation patents for strategic uses such as building a patent thicket”.

An innovation patent system might also be abused by certain industries or larger corporations. For example, the pharmaceutical industry might use the system to protect higher-level innovation for tactical or evergreening purposes, e.g., by extending the monopoly by applying for secondary patents over related products. The system’s less stringent requirements may lead to many weak patents and invalidating them would involve costly litigation, thus sometimes hindering SME growth.

Such concerns have led the Australian government to conduct a series of reviews to reassess the effectiveness of the system. The Advisory Council on Intellectual Property (ACIP) has proposed reforms, such as raising the threshold of the innovation requirement, reducing the remedies available, changing the grant process, and limiting the monopoly and scope of, and access to, the system. If Canada were to consider adopting an innovation patent system to promote SMEs, it should first consider ACIP’s proposals, and further ensure that the system would not be capable of abuse and that its transaction costs did not have the reverse effect of stunting innovation for SMEs.

Sumaiya Sharmeen is a JD Candidate at Osgoode Hall Law School and is enrolled in Osgoode’s Intellectual Property Law Intensive Program. As part of the program requirements, students were asked to write a blog on a topic of their choice.