General policy statement

A patent is a right granted over an invention. The grant of a patent gives the patent owner the exclusive right to make, use, and sell a patented invention. This right lasts for a maximum of 20 years from the date that the application was filed. Once the patent has expired anyone may use the invention. In return for the grant of this right, the patent owner must provide a detailed description of the invention. Patents in New Zealand are granted under the authority of the Commissioner of Patents (the Commissioner) after an examination process by the Intellectual Property Office of New Zealand (IPONZ).

The provision of this exclusive right is intended to provide inventors with an opportunity to make a return on their investment in innovation by preventing others from copying the invention. This provides an incentive for innovation and its dissemination that might not otherwise occur. The grant of patent rights also provides an incentive for foreign innovators to transfer their innovations to New Zealand. It is the benefits to society of this incentive effect that provide the main justification for the patent system.

Because the grant of a patent provides a form of monopoly right, the grant of patents can impose costs on society, particularly as most patents granted in New Zealand are granted to applicants from outside New Zealand. In order to minimise these costs and ensure that the patent system provides a net benefit to society, patents should only be granted for “genuine innovations”, that is, innovations that are new, involve an inventive step (ie, are non-obvious), and are useful.

New Zealand’s current patent legislation, the Patents Act 1953, is modelled on the long since repealed United Kingdom Patents Act 1949. The standard of examination required under the Patents Act 1953 is relatively low compared with most other countries. Patent applications in New Zealand are only examined for adequacy of description and novelty. There is no examination for inventive step or usefulness, although lack of inventive step or usefulness are grounds on which third parties can oppose the grant of a patent or apply to revoke a granted patent. Novelty is determined on the basis of what is known or used in New Zealand—information available overseas, but not in New Zealand, is not considered when determining novelty. The courts have determined that, in the event of any dispute as to whether a patent should be granted, the Commissioner must give applicants the benefit of the doubt.

Most other countries examine for both novelty and inventive step, and many examine for usefulness as well. When considering novelty and inventive step, nearly all countries consider information made available anywhere in the world, and applicants are generally not given the benefit of the doubt in any dispute.

A consequence of this is that patent rights granted in New Zealand can be broader than patent rights granted in other countries for the same invention. This has the potential to disadvantage New Zealand businesses and consumers, as technology that may be freely available elsewhere could be covered by patents in New Zealand. Since much innovation is incremental, building on what has gone before, local innovators may be disadvantaged as well.

The Patents Bill will replace the Patents Act 1953 and will update New Zealand’s patent regime to ensure that it continues to provide an appropriate balance between providing adequate incentives for innovation and technology transfer while ensuring that the interests of the public and the interests of Māori in their traditional knowledge and indigenous plants and animals are protected. It also updates the regulatory regime for patent attorneys.

The Bill gives effect to the Government’s decisions to—

• strengthen the criteria for granting a patent by introducing an “absolute novelty” standard, examination for inventive step and usefulness, and a “whole of contents” approach to dealing with conflicting applications:

• provide that the current requirement for the Commissioner to give applicants the benefit of the doubt when deciding whether to grant a patent be replaced by a balance of probabilities approach:

• retain the current definition of patentable subject matter as a “manner of manufacture” and provide specific exclusions from patent protection for human beings and biological processes for their generation, methods of medical treatment of human beings, plant varieties, and inventions whose commercial exploitation would be contrary to public order or morality:

• establish a Māori advisory committee to provide advice to the Commissioner in respect of patent applications for inventions involving indigenous plants and animals:

• introduce a specific experimental use exception into New Zealand’s patent legislation:

• provide for automatic publication of patent applications at 18 months from their earliest priority date:

• provide that where an invention involves a micro-organism, the requirements for disclosure of the invention can be met by depositing a specimen of the micro-organism in a recognised depositary:

• provide that all examiners’ reports and communications relating to a patent application be open to public inspection once the application has been accepted:

• provide that disclosures of an invention, up to 12 months prior to filing of an application, will not destroy novelty if the disclosure was derived from the inventor and disclosed without the inventor’s consent:

• simplify the procedures for granting a patent by—

  • replacing the present “right to apply” requirement with a “right to grant” provision; and

  • providing that the Commissioner may set time limits for responses to examination reports. Failure to meet these limits will result in the application being deemed to be abandoned; and

  • removing the current requirement for local applicants to seek permission to file a foreign patent application if they have not filed an application in New Zealand:

• streamline the procedures for challenging the grant of a patent by—

  • providing for a re-examination that allows third parties to object to the grant of a patent on the grounds that the invention is not novel or lacks an inventive step:

  • removing the current standing requirements for revocation proceedings, while providing safeguards against frivolous or vexatious proceedings:

  • providing an administrative revocation procedure where third parties can, at any time during the term of a patent, apply to the Commissioner to revoke the patent on any of the grounds on which grant could be refused. The existing High Court procedure for revoking a patent will remain:

  • repealing the current pre-grant opposition procedure:

• update the regulatory regime for patent attorneys by—

  • repealing the current age and citizenship requirements for registration as a patent attorney; and

  • allowing a person’s registration as a patent attorney overseas to be recognised for the purposes of registration in New Zealand under specific conditions; and

  • introducing a good character requirement; and

  • establishing a Patent Attorneys’ Standards Board, comprising the Commissioner and representatives of the patent attorney profession, with functions including the administration of the qualifications and disciplinary regimes for patent attorneys; and

  • requiring a code of conduct meeting specified objectives to be developed for and maintained by the patent attorney profession; and

  • specifying the grounds on which a complaint about a patent attorney’s conduct can be made, the procedure for making a complaint, and the orders following any breach of acceptable standards of service.

The Bill also makes a number of other changes to update and simplify the administrative aspects of the patents regime.

Criteria for granting patent

The Bill updates the criteria for granting a patent and more closely aligns them with the criteria applied in most other countries. A patentable invention is defined in the Bill as an invention that—

• is a “manner of manufacture”; and

• is new; and

• involves an inventive step; and

• is useful.

The term “manner of manufacture” is carried over from the Patents Act 1953 and has been interpreted by the courts to exclude such things as “products of nature”, mere discoveries, mathematical algorithms, mere schemes or plans, and methods of medical treatment of humans.

The Bill also requires that patent applications be examined for inventive step and usefulness before a patent can be granted. These criteria are not currently part of the patent examination process.

Under the Patents Act 1953, novelty and inventive step are determined with respect to what was known or used in New Zealand prior to the filing date of the patent application. No notice is taken of information available outside New Zealand. The Bill defines a “prior art base”, which is defined to be all information made available to the public in any form anywhere in the world. Novelty and inventive step are determined with respect to this “prior art base”. This will assist in reducing the risk that patents are granted in New Zealand for inventions that are otherwise known elsewhere and would not be eligible for patent protection in other countries.

For an invention to meet the requirement to be useful, the Bill requires that inventions demonstrate specific, substantial, and credible utility. This requirement is intended to ensure that patents are granted only where the inventor has identified a real world use for the invention. Although all inventions must meet this requirement, it is of particular relevance for inventions involving genetic material where there have been instances of patents being granted for material where no specific use has been disclosed.

The courts have decided that, under the Patents Act 1953, the Commissioner should not refuse to grant a patent unless almost certain that no valid patent could be granted, and that applicants must be given the benefit of any doubt in any dispute. The benefit of the doubt requirement is stricter than the balance of probabilities approach taken by the courts. As a result, the Commissioner may be forced to grant patents that are likely to be held invalid by the courts. Such patents may give the patent owner rights they are not entitled to. Given the costs involved in challenging the grant of a patent, such patents may never be challenged. To deal with this problem, the Bill provides that the Commissioner must use the balance of probabilities approach.

Under the Bill, conflicts between applications that disclose similar inventions will be resolved by comparing the “whole contents” of the applications. This replaces the present, more limited, “prior claiming” approach.

A requirement of the patent system is that a full and complete disclosure of the invention be provided, sufficient to allow a suitably skilled person to replicate the invention. This can be difficult where the invention is, or involves, a micro-organism. In such cases, the Bill allows the disclosure requirements to be met by lodging a specimen of the micro-organism in a recognised depositary.

Disclosure of an invention prior to filing a patent application will destroy the novelty of the invention and prevent grant of a valid patent. There are occasions where inventors may disclose their inventions to third parties (eg, for the purpose of seeking investment capital) who later make the invention public without the inventor’s consent. In such circumstances it would be unfair to the inventors to deny them patent protection. The Bill provides that, in the event of unauthorised disclosure, a valid patent can still be obtained if a patent application is filed within 12 months of the disclosure.

Exclusions to patentability

Exclusions are inventions that would otherwise meet the requirements of a patent, but which are excluded from patent protection for policy reasons. The Bill specifically excludes—

• methods of medical treatment of human beings:

• human beings and biological processes for their generation:

• plant varieties:

• inventions whose commercial exploitation would be contrary to public order or morality.

Methods of medical treatment of human beings are currently not patentable in New Zealand as the courts have long held that they are not a “manner of manufacture”. In more recent times there have been attempts by patent applicants to overturn this ruling. In order to provide certainty, and to remove any doubts, the Bill specifically excludes such methods from patent protection. Most other countries also exclude such methods.

Although it is unlikely that patents including human beings in their scope would be granted under the current legislation, to remove any doubt, the Bill introduces a specific exclusion for human beings. This exclusion was recommended by the Royal Commission on Genetic Modification.

Plant varieties are also excluded. Plant varieties can receive protection under the Plant Variety Rights Act 1987.

The exclusion of inventions whose commercial exploitation would be contrary to public order or morality expands the current “contrary to morality” exclusion. Article 27.2 of the WTO Agreement on Trade Related Aspects of Intellectual Property Rights (the TRIPS Agreement) requires that it is the commercial exploitation of the invention, rather than the nature of the invention itself, which must be objectionable. It is intended that this exclusion would be used infrequently, in relation to inventions where commercial exploitation is likely to be offensive to a significant section of the community, including Māori.

Interests of Māori

The Bill will establish a Māori advisory committee to advise the Commissioner in relation to patent applications for inventions involving traditional knowledge or indigenous plants and animals. The committee’s function will be to provide advice that can be used by the Commissioner to determine whether such inventions are novel, or involve an inventive step, or whether the commercial exploitation of such inventions would be contrary to Māori values.

Challenging grant of patent

No matter how thorough the patent examination process is, patent examiners may not always be able to locate all information that might have a bearing on the decision to grant a patent. As a result some patents may be granted that should not have been granted. Such patents have the potential to impose unnecessary costs on consumers and businesses. The Bill introduces simplified procedures that will reduce the cost and complexity involved in challenging these patents.

A re-examination procedure is introduced that can be invoked at any time after a patent application is published. Any person may request re-examination, on the grounds that the invention concerned is not novel or lacks an inventive step.

The current administrative revocation procedure for revoking a granted patent will be expanded, so that it can be invoked by any person at any time after the grant of a patent (the current procedure is limited to the 12 months after grant). The application will be made to the Commissioner, who will make a decision after hearing the parties concerned if they so wish. This procedure is expected to be simpler and cheaper than the current requirement to apply to the High Court. As is currently the case, applicants for revocation will have the option of applying directly to the High Court.

With the introduction of the procedures described above, the current pre-grant opposition procedure will be repealed. This procedure, which can only be invoked in a narrow 3-month window after acceptance of a patent application, can delay grant of a patent for some years. This can disadvantage patent owners, as a patent cannot be enforced until it is granted.

Procedural and administrative issues

The Bill replaces the current “right to apply” provisions with a “right to grant” regime. At present, only the inventors or their assignees may apply for a patent. This can cause problems for overseas applicants when rights to an invention are assigned and the assignment is not completed before the time limit for filing an application in New Zealand has expired. Due to differing requirements in other countries, the New Zealand application is often filed in the name of the assignee, who, at the time of filing, may not have the right to apply under New Zealand law. To overcome this problem, the Bill will provide that any person may apply for a patent, but only inventors and their assignees have the right to be granted the patent.

Currently, patent applications are published at acceptance, which may be 2 to 4 years after the initial application is made. The Bill provides that applications will be published at 18 months from their earliest priority date, in line with the policy of nearly all other countries. This will make little difference in practice, as most of the patent applications filed in New Zealand are also filed in other countries. This early publication of applications will reduce uncertainty for third parties regarding the scope of patent rights that may be granted.

At present, all communications and other documents produced in connection with a patent application, with the exception of the patent specification, are not available for public inspection and are not subject to the provisions of the Official Information Act 1982. The Bill provides that, once an application has been accepted, all documents connected with an application will be made public. This brings New Zealand practice on this issue into line with the practice of most other countries.

Under the Patents Act 1953, applicants resident in New Zealand must seek permission from the Commissioner if they wish to file a patent application overseas and they have not already filed an application in New Zealand less than 6 weeks earlier. This provision was intended to allow the Commissioner to check whether such applications disclosed material that might be relevant for defence purposes. This imposes unnecessary costs and complexity on applicants, and in recent times permission has never been refused. Consequently, this provision is repealed by the Bill.

The Bill will also allow the Commissioner to set time limits for applicants to respond to examination reports issued by the Commissioner. This will be in addition to the overall time limit for overcoming all objections that currently exist. Failure to meet the time limits will result in applications being deemed to be abandoned. This measure is intended to encourage applicants to prosecute their patent applications promptly, so that third parties who may be affected by the grant of a patent know the fate of patent applications as soon as possible.

The Bill also makes a number of other changes of a minor nature to various procedural and administrative provisions of the Patents Act 1953, with a view to removing or updating obsolete provisions. This is intended to reduce compliance costs and increase certainty for both applicants and third parties.

Patent attorneys

The present regulatory regime for patent attorneys has remained essentially unchanged since 1953 and is now out of step with current practice in the regulation of professional groups. The Bill updates the regulatory regime.

The present age and citizenship requirements are no longer necessary and are inconsistent with the New Zealand Bill of Rights Act 1990 and New Zealand’s international commitments. Instead, any person, regardless of their nationality or place of residence, may be registered as a patent attorney in New Zealand if they meet the requirements for registration. Candidates for registration must be of good character.

A Patent Attorneys’ Standards Board of New Zealand (the Board) is to be established. This Board will include the Commissioner and at least 2 persons nominated by the New Zealand Institute of Patent Attorneys (Incorporated). The Board functions will include setting and running examinations for candidates for registration, assessing the qualifications and experience held by candidates, and certifying whether the candidates meet those requirements where appropriate. The Board will also be responsible for hearing and determining complaints from the public regarding the conduct of patent attorneys.

The Bill will also require patent attorneys to have and adhere to a code of conduct, which is to be developed by the New Zealand Institute of Patent Attorneys (Incorporated). The code is to provide minimum standards of care, competence, and conduct for patent attorneys and is to be approved by the Board.

Transitional provisions

The Bill provides the following transitional provisions:

• the new Patents Act will apply to all applications with a complete specification filing date or, in the case of Treaty applications, the date that the applicant fulfilled its obligations under Article 22(1) or 39(1)(a) of the Patent Cooperation Treaty, that is, or is deemed to be, on or after the date of commencement:

• the provisions of the Patents Act 1953 will continue to apply to all applications with a complete specification filing date or, in the case of Treaty applications, the date that the applicant fulfilled its obligations under Article 22(1) or 39(1)(a) of that Treaty, that is, or is deemed to be, before the date of commencement:

• patents granted under the Patents Act 1953 are continued under the Bill, but with their existing key dates, term, and grounds for revocation.

This will ensure that patent rights already granted or applied for prior to the new Act coming into force are protected. This is necessary because the new Act will provide for stricter criteria for granting a patent than the current Act, which means that some patents granted under the current Act would be found to be invalid under the new Act.

Clause by clause analysis

Clause 1 is the Title clause.

Clause 2 is the commencement clause. Clause 2 provides that—

• certain provisions relating to regulations, qualification-setting and the code of conduct for patent attorneys and patent attorney companies, a Māori advisory committee, and the Commissioner come into force on the day after the date on which the Bill receives the Royal assent. These provisions enable regulations and other preparations to be made to bring the rest of the Bill into force:

• the rest of the Bill comes into force on a date to be appointed by the Governor-General by Order in Council; and 1 or more orders may be made bringing different provisions into force on different dates. This will allow time for regulations that give effect to some parts of the Bill to be made.

Regulatory impact and business compliance cost statement—Review of Patents Act 1953 Stage 2

Statement of policy objective

A patent provides the patent owner with an exclusive right to make, use, and sell an invention. In return for this exclusive right, the patent owner gives to society a new invention, which becomes available for all to use when the patent expires. The limited monopoly provided by the patent gives patent owners an opportunity to make a profit from their inventions and gain a return from their investment in innovation.

The grant of this limited monopoly is justified on the grounds that the benefits to society as a whole, in terms of encouraging innovation and the disclosure of the invention, exceed the costs, such as increased prices and lessened competition. However, there will be a net benefit to society only if patents are granted for real innovations. If patents are granted for things that are not innovations then society is, in effect, granting a valuable property right without receiving something of comparable value in return.

More than 90% of New Zealand patents are granted to overseas owners. If patent rights are granted that ought not to be granted, then much of the financial and social benefits of these patents may flow overseas, increasing the cost to New Zealand without corresponding benefits.

A key objective of the current review of the Patents Act 1953 is to, as far as possible, reduce the possibility that patents will be granted for things that are not innovations and, where such patents are granted, to make it easier and cheaper for the validity of such patents to be challenged.

Statement of problem and need for action

The Patents Act 1953 is nearly 50 years old. It was based on the United Kingdom Patents Act 1949, and reflects practices and attitudes prevailing in the 1940s. The Patents Act 1953 is now out of step with international developments in patent law and practice, and there are doubts about its ability to meet the needs of New Zealand businesses in the twenty-first century. Other aspects of the Act are now superfluous in the light of other legislative changes since the Act was passed.

To address the deficiencies of the Patents Act 1953, Cabinet, in August 2001, agreed to a 3-stage review of the Act. The proposals discussed in this regulatory impact statement are part of Stage 2 of this Review. Cabinet has previously agreed to proposals in Stage 1 (August 2001) and the first part of Stage 2 (September 2001). Contentious issues including Māori and other concerns regarding issues such as the patentability of biotechnological inventions, medical treatments, and computer software and business methods, will be dealt with in Stage 3 of the review.

The criteria for granting a patent contained in the Patents Act 1953 are less stringent than the criteria now applied in most other developed countries, including New Zealand’s major trading partners. This means that patents granted in New Zealand provide a broader monopoly than would be provided for the same invention in other countries. It also means that New Zealand is providing greater patent rights to overseas applicants than other countries would grant to New Zealand applicants. There is no economic advantage to New Zealand in doing this, and, potentially, there is a net economic cost to New Zealand given that more than 90% of patent owners are from overseas.

The procedures contained in the Patents Act 1953 for challenging the validity of a granted patent are complex and expensive. This, together with the inevitable uncertainty involved in taking legal action, may deter local businesses from challenging the validity of a patent, even where it is felt that a good case exists. This may mean that invalid patents, that is, patents that have been granted for things that are not innovations, may remain in force, with consequential costs to the economy in terms of higher prices and reduced competition.

Statement of options for achieving desired objectives

The options available for achieving the desired objectives are limited by New Zealand’s obligations under the Paris Convention and the TRIPS agreement, which set out internationally agreed criteria for determining patentability. It is also desirable that New Zealand’s patent regime be aligned with those of other countries so as to simplify the requirements for those applicants who file applications in other countries.

The proposals that are intended to achieve the desired objectives are—

• introduction of examination for inventive step, or “obviousness”. Currently there is no examination for inventive step, although lack of inventive step is a ground for opposition to grant, and revocation of, a patent. Inventive step is an internationally recognised criterion for determining whether the benefits to society from granting a patent outweigh the costs of granting a patent:

• abolition of the existing pre-grant opposition procedures and replacement with the re-examination procedure mentioned below:

• introduction of a re-examination procedure. This will allow any person to submit evidence to the Commissioner of Patents that the invention claimed in a patent application or granted patent is not novel or is lacking an inventive step:

• requiring applicants to disclose to the Commissioner of Patents all information that they are, or become, aware of that may have a bearing on the patentability of their inventions. This will increase the amount of information available to the Commissioner before deciding whether to grant a patent and will assist in reducing the likelihood that patents will be granted when such a grant is not justified:

• introduction of a definition of infringement so that a patent owner’s rights are clearly defined.

Other proposals are intended to bring the procedures within the Act in line with current international practice and repeal provisions in the Act that are redundant in the light of changes to other legislation since the Patents Act 1953 was passed. These have no compliance cost implications.

The proposals that deal with the criteria for patentability, and procedures, are broadly in line with procedures that are in force, or have been proposed in other developed countries, including Australia, and are consistent with New Zealand’s international obligations.

Statement of net benefit

The proposals set out above will provide benefits to society as a whole that are considered to outweigh the costs discussed later in this statement. These benefits are not easily quantifiable. They include the following:

• the introduction of examination for inventive step will reduce the risk that invalid patents will be granted, although this risk cannot be eliminated entirely. Granted patents will be stronger, and less likely to be challenged. This is likely to result in less litigation, with consequent savings in cost to patent owners and third parties:

• examination for inventive step will also mean that those patents that are granted will be narrower in scope than those granted under the Patents Act 1953. That is, the limited monopoly conferred by the patent will be narrower, which may result in lower prices and increased competition:

• the relatively broad patent rights conferred due to the current absence of examination for inventive step may inhibit innovation by restricting the ideas that are available for others to use. Examination for inventive step will make ideas available for innovators to use and result in a stimulus to innovation:

• more than 90% of New Zealand patents are granted to overseas owners. The relatively broad patent rights conferred by the Patents Act 1953 means that much of the financial benefit of these patents will flow overseas. This effectively increases the costs of these patents to New Zealand without any corresponding benefit. Narrowing the scope of patents granted in New Zealand may reduce the cost of the patent system to New Zealand while retaining the benefits:

• although the changes that are proposed above will reduce the risk that patents are granted when they ought not to be, the resources of the Intellectual Property Office of New Zealand (IPONZ) are limited, so it is impossible to completely eliminate the risk. If invalid patents are granted, then it is essential that there is a means for easily challenging the validity of those patents. The proposed re-examination procedure will make it much easier and cheaper than at present to challenge the validity of a patent:

• the abolition of the existing pre-grant opposition procedure will remove a potential source of costs and delay in obtaining a patent:

• the introduction of a definition of infringement will reduce any uncertainty there may be regarding a patent owner’s rights.

Regulatory costs

Administrative costs

The proposed changes to the Patents Act 1953 will result in some increased costs to IPONZ. As IPONZ recovers all its costs from applicants, there will be no increased costs to the Government. Any increased costs to applicants is discussed in the business cost compliance statement below.

Economic costs

The changes proposed to the Patents Act 1953 will increase the costs involved in obtaining a patent, although the increase will not be substantial. It may be argued that this may inhibit innovation, particularly by smaller enterprises. Smaller businesses currently may apply for assistance with the costs of obtaining intellectual property protection though the Enterprise Awards Scheme established by Industry New Zealand.

Business cost compliance statement

Implementation of the proposals listed above is likely to result in some increased costs to patent applicants. The increased costs cannot be easily quantified and will be different for different applicants depending on such factors as the complexity of the application and whether the applicant has applied for a patent in other countries. The costs are ongoing rather than one-off and add to the cost of each patent application filed.

The increased costs to applicants will arise from 2 sources: the fees charged by IPONZ, and increases in legal costs to applicants, as follows:

• IPONZ operates on a cost recovery basis, that is, all costs are recovered from fees charged to patent applicants. The requirement to examine for inventive step will mean that IPONZ will need to employ more examiners to examine patent applications. This will increase IPONZ’s costs:

• the introduction of examination for inventive step is likely to mean a greater amount of correspondence between patent examiners and applicants. As nearly all patent applicants use the services of a patent attorney, this will mean increased legal costs for applicants:

• the requirement for applicants to provide the Commissioner with all information that they are, or become, aware of that might have a bearing on the patentability of their inventions will also impose extra costs on applicants. In particular, the applicant may be required to supply copies of this information if it is not readily available to IPONZ.

About 4 800 patent applications are filed in New Zealand each year. About 85% of applicants are from overseas, and will have filed patent applications in other countries. Most other countries impose requirements similar to those proposed above. Approximately half of those applicants who are resident in New Zealand will also file applications in other countries. For these applicants, any increase in costs is likely to be confined to any increase in fees charged by IPONZ, as they are in effect already having to comply with the proposed requirements. It is those applicants who only apply for patents in New Zealand who will be most affected by any cost increase associated with the proposals. Approximately 5% (240 per year) of New Zealand applicants file patent applications only in New Zealand.

As noted above, the costs of the proposals are difficult to quantify, as the costs will vary from applicant to applicant. The cost to New Zealand applicants of obtaining a New Zealand patent is typically between $4,000 and $7,000, depending on the complexity of the application. Of this cost, between $300 and $400 (plus GST for New Zealand applicants) is made up of fees charged by IPONZ. The remainder is made up of fees charged by patent attorneys. Approximately one-quarter to one-third of the attorney’s charges will be incurred in dealing with objections made by patent examiners. The remainder arises from the preparation of the patent specification and any initial patentability search.

As noted above, the review of the Patents Act 1953 is being conducted in 3 stages, of which the proposals discussed in this statement are part of Stage 2. It will not be possible to estimate the net effect on compliance costs of changes to the Patents Act 1953 until the review has been completed. Any increase in costs to applicants as a result of the proposals detailed in this statement are estimated to be in the range of $100 to $1,000 per application for most New Zealand applicants.

Consultation

Most of the proposals in the cabinet paper to which this regulatory impact statement is attached were discussed in a discussion document published by the Ministry of Commerce in 1992. Public submissions received at that time indicated general agreement with the proposals. Some new proposals, dealing with matters that have arisen since the publication of the 1992 discussion paper, have been the subject of consultation with the New Zealand Institute of Patent Attorneys.

Regulatory impact statement—Review of Patents Act 1953 Stage 3: Part 1

Statement of nature and magnitude of problem and need for government action

In New Zealand, patents are granted under the Patents Act 1953 (the Act). The grant of a patent provides patent owners with the exclusive right to make, sell, and use their invention for a maximum period of 20 years from the date a patent application is filed. This provides an opportunity for innovators to make a return from their investment in research and development, and acts as an incentive to innovation. In return for the grant of a patent, patent owners must provide a full and complete description of their invention, which is made available to the public. Patents are granted after an examination process by the Intellectual Property Office of New Zealand (IPONZ).

The Act’s definition of a patentable invention as “any manner of new manufacture” does not clearly define the requirements for a patentable invention. This can lead to uncertainty as to just what the requirements are, and just what subject matter is patentable, particularly in relation to new technologies. In addition, no other comparable country now has the same definition of invention, so that court decisions relating to the definition of invention from these countries are no longer useful as a guide to IPONZ or the New Zealand courts.

IPONZ, when deciding whether or not to grant a patent, must give applicants the benefit of the doubt and can only refuse to grant a patent if it is “practically certain” that a court would find the patent invalid. As a result, patents that might be likely (but not almost certain) to be held invalid will be granted. The uncertainties and expense of challenging the validity of a patent mean that few patents are ever challenged. If patents are granted that the courts would find to be invalid, the rights enjoyed by patent owners are greater than they are entitled to. These greater rights have the potential to restrict competition and raise prices to consumers, and may restrict the activities of local businesses that lack the resources to challenge the validity of the patent.

The courts have interpreted the current definition of invention to exclude methods of medical treatment of humans from patent protection. This leads to uncertainty for both IPONZ and applicants over the patentability of these methods, as the courts may, in future, decide that they are patentable.

Statement of public policy objective(s)

To provide an efficient and effective patent system that promotes innovation and economic growth while providing an appropriate balance between the interests of innovators and the interests of society as a whole and that complies with New Zealand’s international obligations.

Statement of feasible options that may constitute viable means for achieving desired objectives

Status quo

A patentable invention is defined as “any manner of new manufacture the subject of letters patent and grant of privilege within section 6 of the Statute of Monopolies and any method or process of testing applicable to the improvement or control of manufacture; and includes an alleged invention”.

When deciding whether or not to grant a patent, IPONZ is required to give applicants the benefit of the doubt.

Methods of medical treatment of humans are excluded from patent protection, but this exclusion can be overturned by a judicial decision.

The status quo is not appropriate, as it does not achieve the policy objectives.

Preferred regulatory option

Define patentable invention as “manner of manufacture”, with additional criteria (preferred option)

Under this option, a patentable invention would be defined as an invention that was a “manner of manufacture” and that additionally met the criteria of novelty, non-obviousness, and usefulness.

Introduce a balance of probabilities test

Amend the Act to require that a patent can only be granted when IPONZ is satisfied, on the balance of probabilities, that the requirements for patentability are met (the balance of probabilities test is the test used in most civil litigation).

Specifically exclude methods of medical treatment of humans from patent protection

The Act would be amended to explicitly exclude methods of medical treatment of humans from patent protection. Such an exclusion is permitted by New Zealand’s international obligations, and most other countries exclude these methods from patent protection.

Alternative option

No definition of invention

Under this option, there would be no formal definition of a patentable invention, and anything that met the criteria of novelty, non-obviousness, and industrial applicability would be granted a patent. The lack of a definition of a patentable invention is likely to lead to uncertainty as to what is patentable subject matter.

Allow methods of medical treatment of humans to be patented

Allowing such methods to be patented could mean that medical practitioners might be constrained in their choice of treatment for fear of infringing a patent. There might also be some additional costs imposed on the health system with no additional benefits.

Statement of net benefit of proposal

Innovators and business

The proposed changes to the Patents Act 1953 will give greater certainty as to what is patentable subject matter. Because the definition of invention will be the same as that in Australia, inventions patentable in Australia will also be patentable in New Zealand and vice-versa. This will assist businesses in making decisions on whether or not they can obtain a patent, and hence on whether or not to invest in the development of a new product.

If patents are only granted when, on the balance of probabilities, the criteria for patentability are met, there will be a much greater presumption that a granted patent is valid. This benefits both patent owners and third parties, as there would be greater certainty that a granted patent would be held to be valid by the courts. It would also reduce the likelihood that third parties will find that their access to existing technologies will be blocked by otherwise invalid patents.

The imposition of a stricter test for granting a patent may impose some extra costs on businesses applying for a New Zealand patent, due to more drawn-out arguments between patent applicants and patent examiners. It is likely, though, that the additional costs will reduce over time as both applicants and patent examiners become accustomed to the new requirements.

Government

The proposed changes to the definition of invention are unlikely to impose additional costs or benefits upon the Government, as the new definition is not greatly different from the current one. The stricter test for granting a patent may lead to more drawn-out arguments between applicants and patent examiners. This could increase the time taken to examine patent applications and may impose some extra costs on IPONZ. It is not possible to quantify these costs, although they are likely to be small. As IPONZ operates on a cost recovery basis, any extra costs will be met from fees charged to patent applicants. Currently, the fees charged by IPONZ for the grant of a patent are in the range $300 to $400.

The economy

The stricter tests for granting a patent will reduce the number of invalid patents granted, and reduce the costs these impose on the economy.

Consultation undertaken

A discussion paper entitled Review of the Patents Act 1953: Boundaries to Patentability in March 2002.

Government departments and ministries consulted were: the Department of the Prime Minister and Cabinet, Te Puni Kokiri, Ministry of Agriculture and Forestry, Ministry of Consumer Affairs, Department for Courts, the New Zealand Customs Service, Ministry of Education, Ministry of Foreign Affairs and Trade, Ministry of Justice, Ministry of Research, Science and Technology, and the Treasury.

No significant concerns were raised with the proposals.

Regulatory impact statement—Review of Patents Act 1953 Stage 3: Part 2

Statement of nature and magnitude of problem and need for government action

In New Zealand, patents are granted under the Patents Act 1953 (the Act). The grant of a patent provides patent owners with the exclusive right to make, sell, and use their invention for a maximum period of 20 years from the date a patent application is filed. This provides an opportunity for innovators to make a return from their investment in research and development, and acts as an incentive to innovation. In return for the grant of a patent, patent owners must provide a full and complete description of their invention, which is made available to the public. Patents are granted after an examination process by the Intellectual Property Office of New Zealand (IPONZ).

At present, IPONZ will grant patents that include claims for plants and non-human animals if they meet the requirements for patent protection. The patenting of plants and animals raises ethical and social issues that are not encountered with non-living inventions. Many groups in society, including many Māori, are opposed to the granting of patents over plants and animals.

Plant varieties can be protected under both the Plant Variety Rights Act 1987 and under the Patents Act 1953. (In this context, a plant means a particular species of plant, such as an apple. A plant variety is a particular variant of that plant species, such as the apple variety known as “Fuji”). Providing both patent protection and plant variety protection for the same variety is not consistent with New Zealand’s obligations under the 1978 Convention of the International Union for the Protection of New Plant Varieties (UPOV 78), to which New Zealand is a party.

Under the Patents Act 1953, an invention does not have to be useful to be granted a patent. The issue of usefulness has become an issue in relation to inventions involving genetic material, where some applicants have obtained patents for large numbers of genes without demonstrating any particular use for them. This means that those researchers who want to find a use for the genes will have to pay a royalty. This increases the cost of research and may discourage innovation in this area. The magnitude of the problem is not known, because although lack of usefulness is a ground for revocation of a granted patent, the costs and uncertainties involved in revoking a patent mean that patents are seldom challenged on this ground.

Statement of public policy objective(s)

To provide an efficient and effective patent system that promotes innovation and economic growth, while providing an appropriate balance between the interests of patent owners and the interests of society as a whole, complies with New Zealand’s international obligations, and is consistent with the Crown’s obligations under the Treaty of Waitangi.

Statement of feasible options that may constitute viable means for achieving desired objectives

Status quo

Plants and non-human animals may be patented if they meet the requirements of the Patents Act 1953. The grant of a patent may be refused if the Commissioner of Patents considers that use of the patented plant or animal would be “contrary to morality”, but there is no requirement for a patent to be refused in such circumstances.

Plant varieties may be granted a patent if they meet the requirements of the Patents Act 1953.

Patent applicants do not have to demonstrate that their inventions are useful before being granted a patent, although lack of usefulness is a ground for revoking a granted patent.

It is not appropriate to maintain the status quo, as it does not meet the policy objectives.

Regulatory options

Preferred option

Plants and animals would be patentable, but inventions, the commercial use of which is contrary to morality or public order, or prejudicial to plant life or animal health, or may cause serious prejudice to the environment will be excluded from patent protection (the morality exclusion). The wording of this exclusion is based on Article 27.2 of the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS), to which New Zealand is a party by virtue of its membership of the WTO.

Plant varieties will be specifically excluded from patent protection but will continue to be protectable under the Plant Variety Rights Act 1987.

The Patents Act 1953 will be amended to specifically require patent applicants to demonstrate that their invention has a credible, specific, and substantial use before a patent will be granted. It would still be possible to revoke a patent on the ground of lack of usefulness.

Alternative option: total exclusion of plants and animals from patent protection

Plants and animals would be specifically excluded from patent protection. This option, while meeting the concerns of those opposed to the grant of such patents, is likely to have an adverse effect on the local biotechnology industry. Such exclusion could reduce the incentive for local investment in biotechnology and make it more difficult for local biotechnology firms to attract foreign investment. It is also possible that overseas biotechnology firms would be unwilling to allow their new plants and animals to be exploited in New Zealand.

Statement of net benefit of proposal

Innovators and businesses

The introduction of the morality exclusion may add to the costs of obtaining a patent where a patent is refused on these grounds. In the event of such a refusal, patent applicants may incur increased costs if they choose to dispute the refusal of the patent application, as further submissions would be required to convince the Commissioner to grant the patent. Since a patent will also be able to be revoked on these grounds, there may also be an increase in costs to patent owners in making submissions to the Commissioner or the courts in defending their patent. Objections, though, are likely to be relatively uncommon, affecting only those patents or patent applications in areas where there is likely to be strong opposition to the commercial use of the invention from a significant section of society.

Making usefulness a criterion for granting a patent may impose additional costs on some patent applicants, particularly where their inventions involve genes or gene sequences. These costs may not be great though, as nearly all applicants in this field also apply for patents in jurisdictions (such as the United States and the European Union) that already impose this requirement. This proposal may reduce the number of excessively broad patents granted, particularly those involving genes or gene sequences. Although such patents may be held to be invalid by a court, there are significant costs and uncertainties involved in challenging their validity. The proposal will reduce the number of possibly invalid patents granted and reduce the costs imposed on researchers and businesses by these patents.

Excluding plant varieties from patent protection will provide greater certainty among both plant breeders and users of new varieties as to what protection breeders may obtain for their new varieties. The rights granted under a patent and a plant variety right are different; some activities may infringe a patent, but not a plant variety right (for example, use of a protected variety for the purpose of breeding another variety would not infringe a plant variety right, but use of a patented variety for the same purpose would infringe a patent).

Government

The proposed changes to the scope of patentable subject matter may impose some extra costs on IPONZ, as IPONZ will have to develop guidelines for determining when it is appropriate to make an objection. Any increased correspondence between patent examiners and applicants may also impose additional costs on IPONZ. As such, objections are likely to involve only a small proportion of patent applications and the cost increase, although not quantifiable, is likely to be small. Any cost increase would be recovered through the fees charged by IPONZ (currently $300 to $400 to grant a patent). Excluding plant varieties from patent protection will ensure that New Zealand meets its international obligations.

Society

This proposal goes some way towards meeting the concerns of those who feel that patenting inventions involving life forms or genetic material is morally wrong, and gives them an opportunity to object to the grant of such patents.

Consultation undertaken

A discussion paper entitled Review of the Patents Act 1953: Boundaries to Patentability was released in March 2002.

Government departments and ministries consulted were: the Department of the Prime Minister and Cabinet, Te Puni Kokiri, Ministry of Agriculture and Forestry, Ministry of Consumer Affairs, Ministry of Foreign Affairs and Trade, Ministry of Justice, Ministry of Research, Science and Technology, and the Treasury.

The Ministry of Health (MOH) expressed concern that requiring inventions to be useful before a patent is granted would not, in itself go far enough to reduce the number of overly broad gene patents being granted. The MOH suggested that the usefulness criterion should be strengthened to require that the “use be credible, substantial and specific”, in line with practice in the US and EU, and this has been done.

Regulatory impact statement—Review of Patents Act 1953 Stage 3: Part 3

Statement of nature and magnitude of problem and need for government action

The Intellectual Property Office of New Zealand (IPONZ) does not have any formal system of consultation with Māori about patent applications it receives. The Royal Commission on Genetic Modification considered that an established system of consultation with Māori is necessary, The Royal Commission on Genetic Modification recommended (Recommendation 10.3)—

• that a Māori Consultative Committee be established by the Intellectual Property Office of New Zealand to develop procedures for assessing applications, and to facilitate consultation with the Māori community where appropriate.

Cabinet has agreed, in its response to the Royal Commission recommendation, that a Māori Consultative Committee be established, but that its scope and role be confirmed following public consultation as part of Stage 3 of the review of the Patents Act 1953.

While it is difficult to estimate the number of patent applications that might be referred to the Committee, it is unlikely to be more than 40 to 50 applications per year. In the year ended 30 June 2002 about 5 700 patent applications were filed.

Statement of public policy objective(s)

To provide an efficient and effective patent system that promotes innovation and economic growth, while providing an appropriate balance between the interests of patent owners and the interests of society as a whole, complies with New Zealand’s international obligations, and is consistent with the Crown’s obligations under the Treaty of Waitangi.

Statement of feasible options that may constitute viable means for achieving desired objectives

Status quo

There is no formal system of consultation between IPONZ and Māori about patent applications it receives.

Preferred regulatory option

The Patents Act 1953 will be amended to require the Commissioner of Patents to establish a Māori Consultative Committee. The functions of the Māori Consultative Committee will be specified in the Act as the following:

• providing advice to the Commissioner of Patents as to whether an invention claimed in a patent application is derived from or appears to be derived from traditional knowledge, or indigenous plants and animals:

• providing advice to the Commissioner of Patents as to whether the commercial exploitation of such an invention is or is likely to be contrary to Māori values.

The advice provided by the Committee will assist the Commissioner of Patents to determine whether or not an invention meets the requirements for the grant of a patent, particularly in relation to inventions derived from Māori traditional knowledge, or that involve indigenous plants and animals.

Statement of net benefit of proposal

Innovators and businesses

It will be less likely that patents would be inappropriately granted for inventions involving traditional knowledge and indigenous plants and animals, and reduce the likelihood that Māori will have to face the costs of challenging such patents. Patent owners would be more certain that if a patent is granted that it will be valid.

Government

The establishment of the Committee will contribute towards meeting the Crown’s obligations under the Treaty of Waitangi.

The Māori Consultative Committee will impose some extra costs on IPONZ. The costs will depend on the number of applications the Committee considers. While this is difficult to estimate, the number of patent applications that might be referred to the Committee, it is unlikely to be more than 40 to 50 applications per year. IPONZ estimates that, on this basis, the cost of the Committee will be approximately $250,000 per annum. As IPONZ operates on a cost recovery basis, any extra costs will be met from fees charged to applicants. The fees charged by IPONZ for the grant of a patent are in the range $300 to $400.

Society

This proposal goes some way towards meeting the concerns of Māori and others regarding the granting of patents over inventions involving traditional knowledge and indigenous plants and animals.

Consultation undertaken

A discussion paper entitled Review of the Patents Act 1953: Boundaries to Patentability was released in March 2002.

Government departments and ministries consulted about the proposal were: the Department of the Prime Minister and Cabinet, Te Puni Kokiri, Ministry of Agriculture and Forestry, Ministry of Consumer Affairs, Ministry of Foreign Affairs and Trade, Ministry of Justice, Ministry of Research, Science and Technology, and the Treasury.

No significant concerns were identified.

Regulatory impact and business compliance cost statement—research or experimental use exception

Statement of nature and magnitude of problem and need for government action

The Patents Act 1953 does not contain a specific research or experimental use exception. The New Zealand courts have ruled that research on a patented invention of an experimental nature would not infringe a patent, while research carried out with a commercial advantage in mind would. The case law, however, offers little guidance as to just where the distinction lies between experimental and commercial research. There is little guidance for researchers to enable them to determine whether research or experimental work that they might wish to conduct on a patented invention would be held to infringe a patent. The status of research work involving a patented invention in New Zealand is therefore uncertain.

There have been few, if any, cases in New Zealand where research or experimental work involving a patented invention has been the subject of infringement litigation, but this does not necessarily mean that there is no problem. In recent years this has become a particular concern in the biotechnology field, although the problem is not confined to this area.

A review of the Patents Act 1953 has recently been completed. The issue of an experimental use exception was not covered in the Patents Act Review, as, at the time, it had not been identified as a significant problem. The issue only came to prominence in 2003 when an Australian firm, Genetic Technologies Limited, sought to enforce 2 New Zealand patents on non-coding DNA analysis and mapping. It appeared that almost anyone undertaking genetic research or testing would be infringing these patents.

The potential for being held liable for patent infringement may make researchers reluctant to consider research in areas that may be the subject of patent rights. There is evidence to suggest that this has happened, although details of the number and nature of such instances is not available.

If uncertainty over the status of research or experimental work involving a patented invention is influencing researchers’ decisions about their research work, this may act as a disincentive to research, and, as a result, innovation in New Zealand could be inhibited.

The Australian Law Reform Commission and the Australian Advisory Council on Intellectual Property have considered whether Australia should introduce a research exemption. Both organisations have recommended that the Australian Patents Act 1990 be amended to include an explicit experimental use exception.

Statement of public policy objective(s)

The objective is to provide that research or experimental work on a patented invention does not infringe a patent, in a manner that is consistent with New Zealand’s international obligations, so as to reduce barriers to innovation in New Zealand.

Statement of feasible options (regulatory and non-regulatory) that may constitute viable means for achieving desired objective(s)

Status quo

The Patents Act 1953 does not contain an experimental use exception. A review of the Patents Act 1953 has recently been completed, and a new Patents Bill to replace the Act has been drafted. The review did not deal with the issue of an experimental use exception. The question of whether or not use of patented inventions in research or experimental work constitutes patent infringement is determined by the courts on a case by case basis. While future court decisions may clarify the issue, there is no guarantee that this will happen. It is also possible that future decisions may have the effect of restricting the use in experiments of patented inventions, which is not desirable. Retaining the status quo is not considered adequate to achieve the public policy objectives.

Regulatory option(s): amend draft patents Bill

The only feasible regulatory option is to incorporate a specific experimental use exception into New Zealand’s patent legislation. Any such exception must be consistent with Article 30 of the WTO Agreement on Trade Related Aspects of Intellectual Property Rights (the TRIPS Agreement). Four options were considered—

Option 1

Provide that the definition of “exploitation” does not include experimental use. Although the simplest solution, it still leaves considerable uncertainty over just what constitutes experimental use. There is also a risk that the courts could adopt a definition of experimental use so narrow that most research or experimental work could fall outside it.

Option 2

Include an exception from infringement would be made for fair experimentation. The exception would include a non-exhaustive list of uses considered to be experimental uses together with guidelines on what constituted fair experimentation. This option provides greater clarity to researchers than the status quo, while providing the courts with flexibility. This flexibility, though, may lead to uncertainty, and the possibility that fair experimentation might be interpreted in a manner that restricts, rather than facilitates, the experimental use of patented inventions. Another problem is that the concept of fair experimentation may not adequately capture the requirements of Article 30 of the TRIPS Agreement.

Option 3

Include an exception for experimentation “on the subject matter of the invention” with a non-exhaustive list of uses considered to be experimental uses. The exception would be available only if experimentation is the sole or dominant purpose of an activity. Like option 2 this option combines greater clarity with flexibility. There may be difficulties, though, in distinguishing between experimentation “with” and experimentation “on” an invention. In any particular case, there may be difficulties in determining what the dominant purpose of an act is.

Option 4: preferred option

Include an experimental use exception to be based on the final proposal of the ACIP:

The rights of a patentee are not infringed by acts done for experimental purposes relating to the subject matter of the invention that do not unreasonably conflict with the normal exploitation of the patent.

Acts done for experimental purposes relating to the subject matter of the invention include—

• determining how the invention works:

• determining the scope of the invention:

• determining the validity of the claims:

• seeking an improvement to the invention.

It is intended that the words “seeking an improvement to the invention” will include determining new properties of, or new uses of, an invention.

This option provides a reasonable degree of clarity and reduced uncertainty compared with the status quo, and is consistent with Article 30 of the TRIPS Agreement. It is similar to the experimental use exceptions available in some other countries, in particular, the EU, which will provide the New Zealand courts with some guidance in interpreting the exception.

Statement of net benefit of proposal, including total regulatory costs (administrative, compliance and economic costs) and benefits (including non-quantifiable benefits) of proposal, and other feasible options

Government

The adoption of the preferred option imposes no costs on government. The main benefit to government is likely to lie in reduced risk that research activities undertaken by government entities such as Crown research institutes or universities will attract liability for patent infringement. It may reduce barriers to innovation and in particular is consistent with the TRIPS Agreement and practices of other countries, including Australia.

Industry

Businesses conducting research and development work will have greater freedom to conduct research in areas covered by patents. They will have greater certainty about whether or not their activities will constitute patent infringement. There may be less need to seek legal advice on this issue.

Adoption of an experimental use exception may mean that some experimental uses of inventions that might currently be considered infringements would, in future, no longer be considered infringements. This has the potential to reduce the income of patent owners, and possibly reduce incentives for innovation. There is, however, little evidence that patent owners currently derive any significant income from experimental use of their inventions, so the exception is unlikely to have any negative effect on innovation. The provision of a specific experimental use exception is unlikely to have any significant negative effect on levels of investment in research and development in New Zealand. The effect is far more likely to be positive, although it is probably not possible to quantify the benefit.

Society

Adoption of an experimental use exception has the potential to benefit society by reducing barriers to innovative activity. The main benefit is likely to be through spill-over benefits from increased economic activity, although it is not possible to quantify this.

Statement of consultation undertaken

Stakeholder consultation

An options paper seeking public submissions on the question of an experimental use exception was released in February 2006. Ten submissions were received, of which all but one expressed support for the adoption by New Zealand of an experimental use exception. Where concerns were expressed, they largely dealt with the potential erosion of the value of patent rights of an experimental use exception. The preferred option includes the proviso that, to qualify for the exception, experimental use must not unreasonably conflict with the normal exploitation of the patent.

Government departments and agencies consultation

The following ministries and agencies have been consulted in the preparation of this statement: Health, Research, Science and Technology, Treasury, Te Puni Kokiri, Foreign Affairs and Trade, Environment, Agriculture and Forestry, and the Department of the Prime Minister and Cabinet.

Regulatory impact statement—patent attorneys

Nature and magnitude of problem and need for government action

There are some 350 registered patent attorneys in New Zealand, including around 240 Australians who are registered as a result of the Trans-Tasman Mutual Recognition Arrangements.

Concerns have arisen, from time to time, about the lack of a mechanism for the public to make complaints about the standards of service provided by patent attorneys. A number of respondents to the Ministry of Economic Development’s discussion paper entitled Review of the Regulatory Regime for the Patent Attorney Profession in New Zealand (published in October 2002) expressed dissatisfaction with the current disciplinary process.

The only statutory rules regarding the conduct of registered patent attorneys in New Zealand are set down in a disciplinary process provided under section 102(1) of the Patents Act 1953. Only the Commissioner of Patents (the Commissioner) or the New Zealand Institute of Patent Attorneys Inc (the NZIPA) may apply to the High Court for an order to remove a person’s name from the register of patent attorneys. A person may be removed where he or she has been convicted of a crime involving dishonesty, or has been guilty of misconduct, or has been guilty of grave impropriety or infamous conduct.

The process is, however, unsatisfactory for a range of reasons. The only disciplinary measure is cancellation of registration by the High Court. A lesser penalty (such as a reprimand or suspension of a patent attorney’s registration) is not available even though this might be more appropriate to the circumstances of the complaint. An aggrieved person is unable to pursue a complaint against the patent attorney. There is no obligation upon the Commissioner nor the NZIPA to take action in respect of any complaint. The circumstances in which a complaint may be made are unclear. Pursuing disciplinary action in the High Court is a lengthy and expensive process.

Because of these reasons, the statutory rules may be operating as a barrier to an aggrieved person pursuing a complaint and may account for why only one application has been to the High Court to cancel a person’s registration as a patent attorney in recent years. It is, however, difficult to determine the extent of any problem concerning the standards of service provided by patent attorneys in the absence of a complaints mechanism that is accessible to the public.

Membership of the NZIPA is voluntary and members are required to adhere to a code of conduct. The Council of the NZIPA has established a disciplinary process. In such cases where the NZIPA determines that disciplinary action is required, but where the circumstances do not warrant pursuing cancellation of the member’s registration, the NZIPA may only censure or expel a member. Neither action, however, will have any effect on that person’s ability to continue practising as a patent attorney. The NZIPA is generally unable to take action in respect of a complaint against those registered patent attorneys who are not members. Further, membership of the NZIPA does not appear to be promoted to the public as a means by which the public can be assured of an acceptable standard of service from NZIPA members.

In Australia, patent attorneys must adhere to a code of conduct and disciplinary process under the Australian Patents Act 1990.

Statement of public policy objective(s)

The objective is to provide a code of conduct that specifies the standards of service to be provided by a patent attorney in New Zealand and to provide an independent disciplinary process for any breach of standards of service. The disciplinary process should—

• be accessible to the public; and

• adhere to the rules of natural justice; and

• deal with matters quickly and efficiently; and

• allow for appeals to the courts; and

• apply a penalty that is commensurate with the extent of any breach of acceptable standards of service.

Statement of feasible options

Status quo

All patent attorneys are subject to the disciplinary procedure provided by section 102 of the Patents Act 1953, and only those patent attorneys who are members of the NZIPA are subject to the NZIPA’s voluntary code of conduct and disciplinary procedures. These regimes do not satisfactorily meet the stated objectives for a disciplinary system for the profession.

Regulatory measures under Patents Act 1953

A. Require all persons registered and practising as patent attorneys to be members of the NZIPA and, therefore, subject to the NZIPA’s code of conduct and disciplinary process.

Currently the NZIPA, while representing the majority of New Zealanders who are registered patent attorneys, does not represent the majority of all persons registered as patent attorneys. Requiring all registered patent attorneys to belong to the NZIPA would raise issues under the New Zealand Bill of Rights Act 1990 about freedom of persons to associate. In addition, in such a small profession, there is a potential risk that the NZIPA may face a conflict of interest in managing a disciplinary process.

B. Require all registered patent attorneys to adhere to the existing Australian code of conduct and provide a disciplinary process for breaches of acceptable standards of service.

This option would require all registered patent attorneys to adopt the Australian code of conduct provided under the Australian Patents Act 1990, with their disciplinary process, including the establishment of a disciplinary tribunal, being replicated in New Zealand. In Australia the Professional Standards Board of Patent and Trade Mark Attorneys, comprising a representative from IP Australia and at least 3 ministerial appointments, is responsible for the development and maintenance of a code of conduct that all patent and trade mark attorneys must adhere to.

While this option would provide clients with the expectation of a consistent standard of service in both New Zealand and Australia, the standard of service would be the Australian standard, but without New Zealand patent attorneys being able to participate in the development and maintenance of the Australian code.

C. Require all registered patent attorneys to adhere to a code of conduct developed and maintained in New Zealand and to provide a disciplinary process for breaches of acceptable standards of services (the preferred option).

The Patents Act would require the patent attorney profession in New Zealand to develop and maintain a New Zealand code of conduct with specified objectives. To ensure that the code so developed by the profession met the specified objectives, the Patent Attorneys’ Standards Board, which is being established to administer the professional qualification examinations, would certify that the code so developed met the specified objectives. The Act would specify the grounds on which a complaint could be made, the procedure for making a complaint, and the orders following any breach of acceptable standards of service. An independent disciplinary tribunal would be responsible for hearing the complaint and for determining the orders following any breach of acceptable standards of service.

This option has the advantage of allowing a New Zealand code of conduct to be developed by the profession, without the need for all registered patent attorneys to belong to a single industry body.

This option would provide for a disciplinary process that met the stated objectives.

Net benefit of proposal

Benefits

The benefits of the preferred option include—

• a more responsive framework for ensuring ongoing quality of service from patent attorneys that is consistent with other regulated professions; and

• certainty for the public about the standards of service they should receive from the patent attorney profession; and

• an increased understanding and acceptance by the profession of the acceptable standards of service they should be providing as a result of the profession being responsible for developing and maintaining the code of conduct; and

• greater public confidence in the patent attorney profession that may lead to increased use of the professional services provided by the profession; and

• an aggrieved member of the public will be able to pursue a complaint about a breach of acceptable standards of service from a patent attorney; and

• a more cost effective and efficient disciplinary process; and

• a flexible penalty regime commensurate with the extent of any breach of standards of service.

Costs

The costs of the preferred option include—

• an increase in the current practising fee of $65 (excluding GST) for patent attorneys to cover the costs of the disciplinary process. While the extent of the increase will depend on the number of complaints determined by the tribunal, experience from Australia suggests that the fee may need to increase to around $370 (excluding GST); and

• a cost to the profession in developing and maintaining the code of conduct (this should be relatively minor given that most patent attorneys are members of the NZIPA, who already operate under a voluntary code of conduct, and that Australian patent attorneys, who make up over half the registered patent attorneys, already operate under a code of conduct); and

• an unknown time cost for an aggrieved person in preparing and taking a complaint to the disciplinary tribunal; and

• an unknown time cost for the respondent patent attorney defending an allegation that he or she had breached an acceptable standard of behaviour.

It is considered that there will be a net benefit arising out of providing a compulsory code of conduct for patent attorneys that defines the acceptable standards of service to be provided by the profession and a disciplinary process that is accessible to the public.

Consultation undertaken

In October 2002 the Ministry of Economic Development published on its website a discussion paper entitled Review of the Regulatory Regime for the Patent Attorney Profession in New Zealand. Notification of the publication of the discussion paper and an invitation to make submissions on the patent attorney profession was sent to around 490 interested parties, including registered patent attorneys and the users of patent attorney services. Copies of the paper were sent to key interested parties. Submissions were received from 17 respondents, of which 7 respondents, including the NZIPA, called for the Act to provide an enhanced disciplinary process that was more accessible to aggrieved persons.

Government departments and ministries consulted were: the Department of the Prime Minister and Cabinet, Te Puni Kokiri, Ministry of Agriculture and Forestry, Ministry of Consumer Affairs, Department for Courts, the New Zealand Customs Service, Ministry of Education, Ministry of Foreign Affairs and Trade, Ministry of Justice, Ministry of Research, Science and Technology, and the Treasury. No concerns were raised with the preferred option.

Regulatory impact and business compliance cost statement—patent attorneys

Executive summary

In 2003 Cabinet agreed to an independent disciplinary tribunal (tribunal) to inquire into and determine complaints about patent attorneys. This change was modelled largely on the then Australian regime for patent attorneys.

The Australian regime for the regulation of patent attorneys has recently been under review. The review identified that the majority of complaints about patent attorneys do not concern matters related to disciplinary issues. Furthermore, the number of complaints about patent attorneys considered by the Australian tribunal was low (averaging about 1 or 2 per year). Setting up and maintaining a similar tribunal in New Zealand on this basis is therefore likely to be an inefficient and ineffective mechanism to resolve most complaints about patent attorneys.

In order to provide a more efficient and effective disciplinary procedure in the Patents Bill, it is proposed to dispense with the tribunal and transfer its functions to the Patent Attorneys’ Professional Standards Board (the Standards Board) to be set up under the Patents Bill, and to give the Standards Board the authority to direct parties to a complaint to explore the possibility of resolving or settling the complaint or issues relating to the complaint that do not raise disciplinary issues by negotiation, conciliation, or mediation.

Adequacy statement

The Ministry of Economic Development has reviewed this regulatory impact statement and considers it to be adequate according to the adequacy criteria.

Status quo and problem

The patent attorney profession is currently regulated under the Patents Act 1953. There are around 511 patent attorneys registered to practice in New Zealand. Around 67% of these are Australian resident patent attorneys who have taken advantage of the provisions in the Trans-Tasman Mutual Recognition Arrangements (TTMRA) to register for practice in New Zealand. Following a review of the regulation of the patent attorney profession under the Patents Act 1953, Cabinet agreed on 31 March 2003 that the licensing regime for patent attorneys should continue to be provided under patent legislation with a number of modifications designed to modernise and more closely align the regulation of the patent attorney profession with Australia. A recent review of the Australian regulatory regime for patent attorneys conducted by the Professional Standards Board for Patent and Trade Mark Attorneys (the PSB) identified 2 areas where changes to the disciplinary regime were considered necessary.

The PSB found that most complaints between patent attorneys and their clients did not involve disciplinary issues, rather, the complaints related to, for example, disputes over costs, unpaid bills, or other related aspects of the relationship. Disputes in which there is evidence that the patent attorney had acted inappropriately are rare (an average of around 1 complaint per year). Anecdotal evidence in New Zealand suggests nearly all disputes fall into the former category.

Furthermore, the PSB considered that the present disciplinary regime did not make any distinction between those complaints that raised issues that are truly disciplinary in nature and those that do not. The result is that a client who wishes to resolve a dispute with a patent attorney not involving a disciplinary issue has to allege that the patent attorney has acted in a way that merits disciplinary action.

Cabinet agreed to the Patents Act 1953 being amended (EDC Min (03) 35 and CAB Min (03) 11/5 refer) to provide for all complaints about patent attorneys to be referred to the tribunal for inquiry and determination. Where the tribunal determines that the patent attorney has breached any acceptable standards of service, it may make orders for his or her registration to be removed or suspended, and for the patent attorney to be censured, fined, required to refund money, return property, or remedy the complaint.

Referring all complaints to the disciplinary tribunal, where the majority (if not all the complaints) do not involve disciplinary issues, is likely to provide an ineffective and inefficient mechanism for settling those complaints. Furthermore, if few complaints involve disciplinary issues, the cost of setting up and maintaining a disciplinary tribunal would not be justified.

Objectives

The objective is to provide a disciplinary regime for patent attorneys that ensures that disputes between patent attorneys and their clients are settled in an efficient and effective manner.

Alternative options

It was not considered feasible or practical to transfer the functions of the disciplinary tribunal to another disciplinary body set up for another occupational group because the knowledge and skills to become a patent attorney are unique to that profession. Furthermore, responsibility for maintaining the reputation of the patent attorney profession should lie with the profession itself, rather than another occupational group.

Preferred option

Amend the Patents Act 1953 so that the function of the tribunal to inquire into and determine complaints becomes the responsibility of the Standards Board (and thereby remove the requirement for a tribunal to be provided).

The proposal to transfer the functions of the tribunal to the Standards Board would eliminate the costs associated with setting up and maintaining the tribunal. While there would be some additional costs to the Standards Board to administer the disciplinary regime, an increase in costs is likely to be small, as the number of complaints arising from disputes involving disciplinary issues are likely to be small and infrequent. The costs incurred by the Standards Boards are, however, to be recovered from the profession though registration and renewal fees payable by patent attorneys in New Zealand. There are no business compliance costs associated with this proposal.

In addition, the Standards Board is to be provided with the authority to first direct parties to a complaint to explore the possibility of resolving the complaint by negotiation, conciliation, or mediation before the Standards Board undertakes to determine the complaint. Providing the Standards Board with such an authority would assist the parties to a complaint to settle their dispute or parts of a dispute without the client needing to allege disciplinary issues. It would also assist to keep expenditure of the Standards Board resources for inquiring into and determining a compliant against the patent attorney to a minimum when disciplinary action is not warranted.

The proposed amendments would therefore create a more efficient and effective regime for settling the range of disputes that are likely to arise between patent attorneys and their clients. These changes to the dispute procedures would also be consistent with recent developments in the regulation of occupational groups in New Zealand such as the passing of the Building Act 2004, Registered Architects Act 2005, and the Lawyers and Conveyancers Act 2006. Governing boards of professional groups are being given more responsibility for maintaining the reputation of their respective professions and the ability to refer parties to a complaint to an independent arbitrator or negotiator to settle the complaint or parts of the complaint that do not raise disciplinary issues.

Implementation and review

Changes to the disciplinary provisions for the patent attorney profession are to be implemented in a Patents Bill currently being prepared for introduction into the House of Representatives later this year. Following enactment of the Patents Bill, regulations will be developed that will include the change in work experience required by a person registering as a patent attorney.

Information about the requirements to register as patent attorneys and changes being introduced under the Patents Bill will be available from the Ministry of Economic Development’s websites, including that of the Intellectual Property Office of New Zealand’s website.

The Ministry of Economic Development will monitor the effectiveness of the changes to the regulation of the patent attorney profession after the new Patents Act comes into force, with the view to conducting a review of the new Patents Act after 5 years.

Consultation

Targeted consultation was undertaken with both the New Zealand Institute of Patent Attorneys Inc and the Institute of Patent and Trade Marks Attorneys of Australia. The proposals were also discussed at the New Zealand Institute’s annual conferences in 2005 and 2006. Both groups support the preferred option.

Government departments and ministries consulted were: Te Puni Kokiri, Ministry of Agriculture and Forestry, Ministry of Consumer Affairs, Department for Courts, the New Zealand Customs Service, Ministry of Education, Ministry of Foreign Affairs and Trade, Ministry of Justice, Ministry of Research, Science and Technology, and the Treasury. No concerns were raised with the preferred option. The Department of the Prime Minister and Cabinet was informed of the proposals.