IP Australia is Seeking Feedback on Proposed Fee Changes

IP Australia has published a draft of its four-yearly Cost Recovery Implementation Statement (CRIS), which outlines proposed fee changes that would take effect from October 2024.  It is also taking the opportunity to review the hearing costs that may be awarded for Patents, Trade Marks and Designs.  Feedback on the proposals may be provided via submissions to IP Australia’s public consultation page.  Consultation is open until Sunday, 21 January 2024. 

In this article I will be looking in greater detail at some of the changes relating to patents in particular.  Stakeholders with an interest in any of the rights administered by IP Australia (patents, trade marks, registered designs and plant breeder’s rights) should take the opportunity to review the draft CRIS and submit any comments or concerns during the consultation period.  Briefly, on non-patent matters, I note that there are significant changes proposed to the fee structure associated with trade mark opposition hearings, with fees that increase with the number of grounds, beyond the first three, raised in a Statement of Grounds and Particulars (SGP), and with the number of prior trade marks, beyond the first ten, cited under section 44.  For designs, it is proposed to reduce application fees, while the fees for requesting examination will be slightly increased.  For Plant Breeder’s Rights, modest increases to application fees are proposed, however there will be more substantial increases in examination fees, and a doubling of renewal fees.

Registered trans-Tasman attorneys will want to take note that IP Australia is also proposing to increase registration renewal fees by A$50 across the board, which it says is required ‘to assist in covering the cost of administering the Trans-Tasman IP Attorney system.’

In the patents area, the headline changes, discussed in greater detail below, are: modest increases to most filing, examination and renewal fees; a doubling of opposition and hearing fees; a change in the timing (but not amount) of excess claim fees, from being charged at acceptance to (also) being charged at the time of requesting examination; a surprising (and perhaps unintentional) removal of innovation patent filing fees; and significant increases to the level of costs that can be awarded in contested proceedings, including patent oppositions.

Background – Cost Recovery and Awards of Costs

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 (a.k.a. ‘customers’).  To do this, every four years it endeavours to forecast expected demand and cost of service delivery, and uses the forecast to review and adjust fees.  IP Australia last undertook a fee review in the 2019-20 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 currently 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$8000 annually, for pharmaceutical patents granted the maximum term extension up to 25 years.  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 proceedings, 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 significant increases to the costs that may be awarded on the basis that ‘current levels have not changed in many years and stakeholders have communicated that these costs are too low in relation to actual costs incurred by the parties involved’.

Modest Rises to Various Patent Fees

With inflation currently running at over five per cent, and a number of patent fees not having increased in a decade or more, it is unsurprising that the CRIS proposes modest rises across many fees.  Standard and PCT application filing, search and examination fees are all proposed to increase by around 10%. 

Changes to annual renewal fees are a little more nuanced, with the aim of maintaining affordability during earlier years, subsidised by larger increases in later years.  Under the current CRIS proposal, 4^th and 5^th year renewal fees will remain unchanged (at A$300 and A$315 respectively), with cumulative A$10 per year increases across 6^th to 14^th years, and further cumulative A$15 per year increases across 15^th to 19^th years.  Thus, for example, the total increase in the 19^th year annuity would be A$165 (i.e. 9xA$10+5xA$15).  Annual fees to maintain extended term pharmaceutical patents for the 20^th year and beyond will be unchanged, however these are already set at a level (rising to A$8000 at the 24^th anniversary) commensurate with the value of such patents.

Slightly larger increases, on the order of 20%, are proposed to the fees for requesting an International Type Search (under article 15(5) of the Patent Cooperation Treaty), and for requesting a preliminary search and opinion (which would thus become even more expensive that simply requesting expedited examination).

Opposition and Hearing Fees to Double

It is proposed to double all fees relating to oppositions and hearings.  The fees for filing a notice of opposition, and for requesting a hearing (of any kind, either in person or on the written record) would increase from A$600 to A$1200.  The fee for appearing at a hearing (per day, or part thereof) would increase from A$1000 to A$2000.  If I understand the proposed fees correctly, the current fee structure, under which the hearing request fee is offset against the first day’s appearance fee, would be retained, so that the balance actually payable for the first day would be A$800.

These are significant increases, which the CRIS states ‘reflects the increased cost of providing these services over the last 10-years and the period up to the next fee review.’  I am not at all surprised.  During this period the number of hearings, and associated resources, has increased significantly over historical levels.  Notably, ex parte hearings resulting from examination objections to computer implemented inventions on grounds of lack of patentable subject matter (i.e. ‘manner of manufacture’) have made a major contribution to the growing workload. 

To quantify this a little, in 2009 (i.e. the year prior to the Invention Pathways decision that initiated a deluge of objections to computer implemented subject matter) there were 26 hearing office decisions published.  Only one of those decisions was ex parte, and that related to a request for an extension of pharmaceutical patent term.  Indeed, one has to go back to the Peter Szabo decision in 2005 to find an earlier hearing office ruling on manner of manufacture (and that case involved a pure financial scheme with no computer implementation).  By contrast, in 2022 there were 83 decisions published, of which nearly half (41) were ex parte.  And of those, 29 decisions related wholly or primarily to examiner objections of lack of patentable subject matter.

Acceptance and Excess Claim Fees

Under the CRIS proposal, the basic fee payable at acceptance of a standard patent application will increase from A$250 to A$300.  In addition, excess claim fees are also currently payable at acceptance: A$125 for each claim between 21 and 30; and A$250 for each claim over 30.  It is not proposed to change the value of these fees, however the CRIS proposes changing the timing of their payment.

Specifically, excess claim fees would be payable at the time of requesting examination.  Further, if the number of claims is higher (and above the excess claims thresholds) at acceptance, then the difference in excess claim fees would be payable at acceptance.

I note, however, that this would not prevent an applicant from filing fewer than 20 claims prior to requesting examination, subsequently increasing the number of claims via a preliminary amendment, and then reducing the number of claims again prior to acceptance.  If it is IP Australia’s intention to ensure that the fees reflect the number of claims actually examined, then it might be better to adopt the approach taken by the US Patent and Trade Mark Office (USPTO), which requires an applicant to pay any additional fees due whenever an amendment results in any increase in claims above the maximum number for which they have already paid.

Free Innovation Patents with Cut-Price Examination?

I was surprised to see that the CRIS proposes the removal of filing fees for innovation patent applications.  As most readers will be aware, the second-tier innovation patents system is being phased out, and it has not been possible to file ‘all new’ innovation patent applications since 26 August 2021.  However, it is still possible to obtain an innovation patent as a divisional, or conversion, of an existing application with an effective filing date prior to 26 August 2021.  It is therefore not apparent to me why fees for filing such applications would be removed from October 2024.

The number of new innovation patents being filed has dwindled to a trickle of around ten applications each month.  However, there remains a significant number of pending standard patent applications that could, in principle, be used as the basis for further divisional innovation patents.  At the time of writing, there are nearly 70,000 pending applications with an effective filing date within the past eight years and prior to 26 August 2021.  In addition, an innovation patent can be divided into one or more further innovation patents during examination, and there are currently nearly 9,000 live innovation patents that are yet to be examined and certified, any of which might spawn divisional children. 

Abolition of the innovation patent was a drawn-out and contested process, driven in no small part by IP Australia itself.  It would be a perverse outcome if, now that it is finally on the way out, the early removal of filing fees resulted in a new rise in the number of innovation patents.  I would have expected the fees to be retained until the bitter end (25 August 2029), and that they should increase by an amount (at least) commensurate with the increase in standard patent filing fees, i.e. around 10%.

Even more perversely, a fee for conversion of an innovation patent application to a standard application will be retained, rising from A$190 to A$220.  Historically, this fee has simply reflected the difference between the two corresponding filing fees (currently A$180 for an innovation patent application versus A$370 for a standard application).  However, if no fee is charged for filing an innovation patent application, it will be cheaper to file for a divisional innovation patent and immediately convert to a standard application rather than filing a standard divisional application directly!  It is clear, on this basis, that the application fee for an innovation patent should be retained at least at the current level of A$180.

There is no mention whatsoever of innovation patent examination fees in the CRIS, which I take to mean that no change is proposed.  Currently, the fee to request examination of an innovation patent is A$500, which is slightly higher than the existing standard patent examination fee (A$490).  With the latter fee proposed to increase to A$550, it would become cheaper to request examination of an innovation patent than of a standard patent.  There has presumably been a reason for charging a higher fee for innovation patent examination, so it again seems surprising that no increase in this fee has been proposed.

Proposed Doubling of Costs Awards

Costs in contested proceedings before the Patent Office – most commonly patent oppositions – are awarded against a losing party in accordance with a scale set out in Schedule 8 of the Patents Regulations 1991.  IP Australia is proposing to double most of the costs set out in the scale, with the exception of the rates payable for attendance of attorneys, solicitors and/or counsel at hearings, which would increase by 50%.

If my calculations are correct, the scale costs and expenses that could be awarded to a successful opponent against an applicant following a complete patent opposition including a one-day hearing attended by counsel instructed by a patent attorney (but assuming no travel or meal allowances) would increase under this proposal from A$8,800 to A$16,475.  In the same scenario, costs awarded to an applicant against an unsuccessful opponent would increase from A$7,550 to A$13,975.

To understand the impact of this, I find it helpful to compare the budget that must be considered by a prospective opponent, or defending patent applicant.  Supposing that the actual costs incurred by a reasonably budget-conscious opponent are around A$40,000, under the current scale the opponent would need plan for between A$31,200 (if successful and awarded costs) and A$47,500 (if unsuccessful and ordered to pay costs).  Under the proposed scale, the range becomes A$23,525 to A$53,975.  Assuming an applicant does not need to spend quite as much on a defence – say A$30,000 – the current range is between A$22,450 (if successful and awarded costs) and A$38,800 (if unsuccessful and ordered to pay costs).  Under the proposed scale, this range becomes A$16,025 to A$46,475.

To look at it another way (and independently of the actual costs), the difference between success and failure is currently around A$16,000, and would become around A$30,000 under the proposed scale.  I doubt that this change would be sufficient to influence the behaviour of an opponent or applicant in any genuine contentious case.  Nor is the proposed scale of costs high enough that it is likely to exceed the actual costs in any realistic case.  On these criteria, then, IP Australia’s proposal does not seem unreasonable.

There is, however, an asymmetry in the normal practice for awarding costs that has long been of some concern to me.  This arises from the fact that IP Australia hearing officers almost invariably award costs on an ‘all or nothing’ basis.  That is to say, costs typically ‘follow the event’, with full costs in accordance with the scale being awarded to a ‘successful’ party against an ‘unsuccessful’ party.  For an opponent, it is sufficient to succeed on a single ground against a single claim in order to be deemed ‘successful’, even if the opposition was run on half a dozen grounds against all claims in the application.  On the other hand, an applicant is only deemed ‘successful’ if they manage to defend against every ground raised against every claim, without exception.  Arguably, this encourages (and certainly does not discourage) opponents to adopt a ‘kitchen sink’ approach to opposition.

My concern is that a A$30,000 difference in the financial consequences to each party can turn on such an imbalance in the requirements for ‘success’.  The higher the costs in the scale are set, the more significant this imbalance becomes.  For this reason, I would like to see IP Australia consider a change of practice such that a partial awards of costs become more common.  It would not be necessary for this to be very finely quantised.  With a doubling of costs in the scale, it might be reasonable to award costs at 50% of the scale where an opponent has succeeded on below 50% of the grounds and/or claims opposed.  This could have the added advantage of incentivising opponents to limit their grounds of opposition to those with the most realistic prospects of success, potentially simplifying and reducing the costs of opposition proceedings for all parties involved – including IP Australia.

Conclusion – Overall a Reasonable Set of Proposals

The proposed fee increases are, for the most part, modest, especially considering how many of these fees have not risen significantly over the past 10-15 years.

The removal of innovation patent filing fees is surprising, and appears premature.  I suspect that someone has simply overlooked the ongoing potential for divisional innovation patents to be filed.  The innovation-to-standard conversion fee is being retained, and increased in line with the standard patent application fee, which would make no sense if innovation patents could no longer be filed, since such a conversion is only permissible in the few weeks between filing and grant.

The doubling of hearing-related fees is probably also reasonable, given that this is one of the more resource-intensive of IP Australia’s responsibilities.  Of course, the cost of running the hearings area of the Patent Office could be reduced significantly were it not for the ongoing uncertainty and disagreement between applicants and IP Australia over the legal standards for patent-eligibility of computer implemented inventions.

The proposed increase to the scale of costs that can be awarded in contested proceedings, while substantial, does not appear unreasonable or likely to have an undue influence on the behaviour of opponents or applicants.  It is important, in my view, that the opposition process remains less expensive and more accessible than court proceedings, which will not be the case if the level of costs that can be awarded is raised too far.  However, with higher awards of costs available, I would suggest that there is scope for IP Australia to consider adapting its practice to allow for partial awards of costs in appropriate circumstances.

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