This article was first published as an op-ed in The Australian on 13 October 2017

The federal government has an innovation problem.

Having set expectations high with its pro-innovation policy at the last election, it has yet to convince business and the start-up sector that it can match its words with action. This makes it all the more surprising the government is planning to roll back existing protections for innovators, particularly small and medium-sized enterprises, as part of a little publicised but significant policy shift under patent law.

A centrepiece of this policy shift is the decision to abolish the innovation patent system, which sits below the standard patent regime and offers protection for developments that fall short of the inventiveness required for standard patents.

An innovation patent can be granted within weeks, unlike standard patents that can take years. Many SMEs simply cannot wait that long to make investment decisions and face the choice of making the innovation public, thereby losing IP protection, or not pursuing the investment at all. Hence the need for a second-tier system.

Innovation patents were introduced by the Howard government in 2001 following a detailed investigation of the effectiveness of the patent system by the Advisory Council on Intellectual Property. ACIP identified a serious gap in the existing patent system because it failed to protect “incremental innovation” that did not necessarily constitute an invention in the standard patent sense “but nevertheless had commercial potential”.

ACIP backed a second-tier system that would be quick to obtain, cheap, simple, help SMEs, have certainty and encourage investment in innovation. The Howard government saw that a two-tier patent system was being adopted by its trading partners, including China, Japan, Germany and France, with the risk that Australia would be left behind without one.

ACIP conducted a second inquiry and reported in 2015. It recommended maintaining the innovation patent system with some adjustments to improve its effectiveness. ACIP did not recommend abolishing the system.

With an endorsement from two inquiries by ACIP, and evidence of its widespread use, why would the pro-innovation Turnbull government unwind the innovation patent system?

It was advised to make this radical change by the Productivity Commission, which completed its review of Australia’s IP laws just 18 months after ACIP completed its second detailed report.

The commission says innovation patents are too easy to get and that not enough Australians or SMEs are getting them. And yet of the 6500 innovation patents in Australia (compared to 130,000 standard patents), 63 per cent are held by Australians and 55 per cent are held by SMEs.

The commission also suggests there is a likelihood of the development of “patent thickets” of innovation patents which would impede competition in the market. The problem is it could identify only two instances that might support this. Nor was there evidence that it was as a result of the innovation patent system — the majority of the “patent thickets” related to standard patents.

None of this is to say the innovation patent system is perfect. But the decision to throw the whole system out, when it is being used by Australian SMEs, without a replacement will do nothing to advance the innovation policy. It will also leave Australian innovators behind in their own markets, when competing against new market entrants.

The government has said that it “will continue to explore more direct mechanisms to better assist SMEs to understand and leverage their IP, secure and use IP rights and access affordable enforcement”. As the innovation sector knows, innovation patents are the only reliable way for SMEs to protect the commercial value in their innovations. Copyright does not help. Backed by ACIP reviews over a 20-year period, the innovation patent system has delivered cheap and simple patent protection to SMEs without harming investment or innovation. Scrapping it is a bad idea.

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