5.47 A patent holder must pay the prescribed maintenance fees to keep a patent in force. Fees are due annually, commencing on the fifth anniversary of the filing of the complete application for a standard patent.
5.48 For a standard patent, maintenance fees increase incrementally from $180 (payable on the fifth anniversary) to $1,000 (payable on the nineteenth anniversary). A standard patent will cease if the prescribed fees are not paid.
5.49 The actual term of a patent is the period during which a patent remains in force; that is, the period during which the patent holder continues to pay renewal fees. According to IP Australia, the average actual term of standard biotechnology patents in Australia is approximately 12 years. This is higher than the average actual term for standard patents generally, which is approximately eight and a half years. This difference does not appear to create problems. IP Australia informed the ALRC that:
IP Australia is not aware of evidence that the maintenance of gene patents for above average periods has a detrimental effect. In their early stage, other technologies have also experienced rapid advancement, and broad claims have been maintained for up to twenty years.
5.50 The report of the Intellectual Property and Competition Review Committee (IPCRC Report) suggested that the use of more steeply rising renewal fees might reduce ‘the effective length of the patent term’ under Australian law. The IPCRC Report recommended that ‘the scope for, and impact of, implementing more steeply rising renewal fees should be considered by IP Australia’. In 2002, IP Australia increased the annual maintenance fees in 2002, for the first time in nine years.
Patent fees and cost recovery
5.51 Other government policies may affect IP Australia’s patent fee structure. In particular, the guidelines for implementing cost recovery for government agencies (Cost Recovery Guidelines)—which were accepted by the Australian Government in 2002 in response to a Productivity Commission review of this issue—may affect patent fees in the future.
5.52 The Productivity Commission recommended that government charges should be linked as closely as possible to the costs of activities and products provided by government agencies. However, the Commission considered that cost recovery should not be implemented where it would be inconsistent with policy objectives or would unduly stifle competition or industry innovation.
5.53 As discussed in Chapter 8, IP Australia already operates on a cost-recovery basis and funds its activities primarily from revenue raised through charges for its intellectual property services. Nonetheless, a review of IP Australia’s cost recovery arrangements is scheduled to occur in 2004–05 as part of the Australian Government’s implementation of the Cost Recovery Guidelines.
5.54 IP Australia informed the ALRC that patent maintenance fees are currently set at a level that exceeds the cost of collecting them, but that maintenance fees subsidise the cost of examining patent applications. This fee structure is designed ‘to encourage entry into the system at a time when applicant finances are typically low, and discourages patent holders from maintaining rights that lack commercial value’.
5.55 A 2004 study of the economics of patent fees confirms that ‘a social welfare maximising [patent office] will set renewal fees as high as possible and initial patent application fees as low as possible subject to encouraging invention’. However, the study also concluded that if a patent office were subject to a revenue constraint that it be self-funding, there would be a trend towards decreasing maintenance fees over time in order to encourage more patent renewals. Imposing a self-funding (or cost-recovery) requirement may, therefore, result in a distortion of the structure and quantum of patent fees ‘in a way that lowers social welfare’.
Submissions and consultations
5.56 DP 68 suggested that IP Australia should regularly review the schedule of patent fees to assess the impact of fees on the actual term of Australian patents and to ensure that fees are set at a level appropriate to discourage patent holders from maintaining patents that lack commercial value. Such an approach relies on the legislative requirement that a patent holder pay annual maintenance fees to address concerns about patents persisting when a patent holder is no longer gaining a commercial advantage from the patented invention.
5.57 A number of submissions supported the proposal that IP Australia review its fees on a regular basis. Submissions observed that increases in patent maintenance fees might have an impact on patent holders’ decisions to continue to maintain patents.
5.58 However, submissions and consultations also expressed concerns about the proposal. Some indicated that this approach could have a disproportionate impact on smaller entities within the biotechnology sector. Others suggested that increased patent fees would favour inventions with clear commercial potential. Submissions indicated, therefore, that ‘care should be exercised by IP Australia in setting patent fees’.
5.59 A number of submissions and consultations considered that the structure and quantum of maintenance fees might have only a small impact on patent holders’ decisions to keep an Australian patent in force—particularly in the case of large overseas entities. Commercial considerations—not related to patent fees—were likely to be the determining factor in deciding whether to abandon an Australian patent that is part of a worldwide portfolio of inter-related patents.
5.60 The Institute of Patent and Trade Mark Attorneys of Australia also questioned whether review of, and potential increases in, the amount of patent maintenance fees is necessary. In their view, there was ‘no evidence that there are excessive number[s] of patents remaining in force in Australia, or that the existence of any such patents is stifling commercial development’.
5.61 IP Australia indicated that it regularly reviews the schedule of patent fees and that its current fee structure supports the policy objectives of the ALRC’s proposal. However, IP Australia also stated that in order to maintain such an approach and comply with the Cost Recovery Guidelines, a patent must be treated as a single product over its complete term, rather than seeking to recover full costs at each and every stage in the life cycle of a patent.
5.62 The term of protection for gene patents should not be more limited than the term of patent protection available for any other type of invention. The ALRC considers that inventions involving genetic materials and technologies should be eligible for protection by a standard patent or an innovation patent, at an applicant’s election, subject to satisfying the substantive requirements for patentability in the Patents Act.
5.63 However, the ALRC also considers that the Register of Patents generally should not contain patents that are not in use by a patent holder. Users of the patent system may incur substantial costs in conducting prior art searches and in evaluating the relevance of particular patents. These costs, and the cost of patent challenges, may be unnecessarily inflated if patents with no commercial use to a patent holder remain in force. The ALRC supports the approach recommended in the IPCRC Report that, if patent fees are set at an appropriate level, a patent holder will be more inclined to evaluate whether the investment it makes to maintain patent protection over a particular invention is worthwhile.
5.64 The ALRC recognises that the quantum of Australian patent fees is not the only factor relevant to a patent holder’s decision about whether to maintain patent rights. Other considerations, such as the commercial value of a patent or a worldwide patent portfolio, may have a greater impact in some circumstances.
5.65 Government policies may also have an impact on the structure and quantum of patent fees imposed by IP Australia. In particular, the Cost Recovery Guidelines would need to be taken into account when implementing the ALRC’s recommendation. However, those Guidelines are not inconsistent with the ALRC’s recommended approach since they allow for other policy considerations to prevail in appropriate circumstances. The policy goals that underpin both IP Australia’s current practice with respect to patent fees and the ALRC’s recommendation—namely, that patent fees should be structured to encourage innovation—are significant and would justify cost recovery over the entire term of a patent, rather than at each stage in a patent’s lifecycle. Finally, in determining the appropriate structure and quantum of fees, IP Australia should also have regard to the effect of patent fees on small and medium sized enterprises.
Recommendation 5–1 IP Australia should:
(a) assess the impact of patent fees on the actual term of Australian patents; and
(b) periodically review the structure and quantum of patent fees to ensure that fees are set at levels appropriate to discourage patent holders from maintaining patents that lack real commercial value.
Patents Act 1990 (Cth) ss 142–143A, 227. Renewal fees are not payable for a patent of addition unless it becomes an independent patent: Patents Act 1990 (Cth) ss 86–87.
Patents Regulations 1991 (Cth) sch 7 Pt 2. Fees are subject to amendment by the Commissioner of Patents from time to time.
 Ibid sch 7 Pt 2. See also IP Australia, Patent Fees, <www.ipaustralia.gov.au/patents> at 16 June 2004; IP Australia, Submission P56, 4 November 2003. Maintenance fees for pharmaceutical patents during any extended term are $1,200 per year.
Patents Act 1990 (Cth) s 143(a).
 IP Australia, Submission P56, 4 November 2003.
 Intellectual Property and Competition Review Committee, Review of Intellectual Property Legislation under the Competition Principles Agreement (2000), 144.
 Ibid, 157.
 Maintenance fees had previously ranged from $165 (fifth anniversary) to $790 (nineteenth anniversary).
 IP Australia, Submission P86, 16 April 2004.
 Department of Finance and Administration, Cost Recovery Guidelines for Regulatory Agencies (2002).
 Productivity Commission, Cost Recovery by Government Agencies (Report No 15) (2001).
 Ibid, rec 7.10.
 Ibid, rec 7.7, 7.9
 Department of Industry Tourism and Resources, Annual Report (2003).
 Department of Finance and Administration, ‘Cost Recovery by Government Agencies’, Finance Circular No 2002/02, <www.finance.gov.au/finframework/fc_2002_02.html>, attachment A.
 IP Australia, Submission P86, 16 April 2004.
 J Gans, S King and R Lampe, Patent Renewal Fees and Self-Funding Patent Offices (Working Paper No 01/04) (2004) Intellectual Property Research Institute of Australia, 8.
 Ibid, 9–12.
 Ibid, 13. Other studies of the socially optimal structure for patent renewal fees have reached similar conclusions.
 Australian Law Reform Commission, Gene Patenting and Human Health, DP 68 (2004), Proposal 5–1.
 Department of Foreign Affairs and Trade, Submission P29, 2 October 2003; IP Australia, Submission P56, 4 November 2003.
 Commonwealth Department of Health and Ageing, Submission P79, 16 April 2004; IP Australia, Submission P86, 16 April 2004; Department of Industry Tourism and Resources, Submission P97, 19 April 2004; Centre for Law and Genetics, Submission P104, 22 April 2004.
 Caroline Chisholm Centre for Health Ethics Inc, Submission P69, 2 April 2004; Centre for Law and Genetics, Submission P104, 22 April 2004; Institute of Patent and Trade Mark Attorneys of Australia, Submission P106, 27 April 2004.
 Human Genetics Society of Australasia, Submission P76, 16 April 2004; Queensland Government, Submission P103, 22 April 2004; New South Wales Health Department, Submission P112, 30 April 2004.
 Human Genetics Society of Australasia, Submission P76, 16 April 2004. See also Queensland Government, Submission P103, 22 April 2004; Centre for Law and Genetics, Submission P104, 22 April 2004; Institute of Patent and Trade Mark Attorneys of Australia, Submission P106, 27 April 2004.
 AusBiotech Ltd, Submission P94, 16 April 2004; Centre for Law and Genetics, Submission P104, 22 April 2004.
 Queensland Government, Submission P103, 22 April 2004. See also Centre for Law and Genetics, Submission P104, 22 April 2004.
 IP Australia, Submission P86, 16 April 2004; Institute of Patent and Trade Mark Attorneys of Australia, Submission P106, 27 April 2004; Garvan Institute of Medical Research, Consultation, Sydney, 17 March 2004; Institute of Patent and Trade Mark Attorneys of Australia, Consultation, Melbourne, 31 March 2004.
 Institute of Patent and Trade Mark Attorneys of Australia, Submission P106, 27 April 2004; Garvan Institute of Medical Research, Consultation, Sydney, 17 March 2004; Institute of Patent and Trade Mark Attorneys of Australia, Consultation, Melbourne, 31 March 2004.
 Institute of Patent and Trade Mark Attorneys of Australia, Submission P106, 27 April 2004.
 IP Australia, Submission P86, 16 April 2004.
 Use of a patent may be ‘active’—that is, provide a source of revenue for a patent holder—or ‘passive’—that is, although not earning revenue, a patent may operate defensively to stake a claim to an area of technology and protect a patent holder from third party allegations of infringement.