1. The Present Patent System and Its Rationale
What Is a Patent?
1. The Patents Act 1953 is one of several New Zealand statutes providing rights in "intellectual property", that is, products of the mind. The other statutes include the Designs Act 1953, the Trade Marks Act 1953, the Plant Variety Rights Act 1987, and the Copyright Act 1994.
2. Under the Patents Act 1953, a patent may be granted for any invention that is a "manner of new manufacture". The grant of a patent for an invention provides the patent owner with a right to exclude others from making, using or selling the patented invention during the term of the patent. A New Zealand patent can have a maximum term of twenty years from the date of filing of the patent application. In return for the grant of a patent, the owner must make public a complete description of the invention. Patents are granted after an examination process by the Intellectual Property Office of New Zealand (IPONZ, the business name of the New Zealand Patent Office).
3. Effectively, a patent is a limited form of monopoly right. In other spheres, monopolies may not be in the public interest because of the reduced choice and higher prices that may result. These factors impose economic costs on society. The grant of a patent, however, is considered to be justified, because, in return for granting this temporary monopoly, society benefits from something that it did not have before: the disclosure of an invention that is new and innovative.
4. This does not mean that the costs associated with monopolistic behaviour are not present, rather a well designed patent system should maximise the net benefits that society achieves from innovations that are occurring both inside and outside that society.
Why Should Patents Be Granted?
5. If there were no patent system, it would be possible for anyone to copy a new invention and profit from it without having to bear the costs of developing the invention. Since the costs of copying many inventions can be substantially less than the development costs, this would allow the copier to sell the invention at a lower price than the original inventor, which may make it difficult or impossible for the inventor to profit from the invention. This could mean that businesses or individuals would have little incentive to invest in research and development, or would only invest in those inventions that could be kept secret. If businesses are not provided with adequate incentive to invest in research and development, economic growth may be inhibited.
6. The grant of a patent, by providing the owner with a limited monopoly, gives the owner an opportunity to make a profit from the invention. The possibility of a return on the patent owner's investment in developing the invention provides the incentive that is the main justification for the granting of patents. It is this incentive for research and development that is the main justification for the patent system.
7. In most countries, an invention will be considered to be a "genuine innovation" which may be eligible for patent protection if it meets the following criteria:
- it is new - an invention is considered to be new if a description of the invention has not been published, or the invention has not been publicly used before the filing date of an application to patent the invention;
- it involves an inventive step - an invention is considered to involve an inventive step if the invention would not have been obvious to an appropriately skilled person;
- it has to be "useful"1 - an invention is considered to be useful if the inventor has identified a practical use for the invention.
These three criteria are now recognised internationally to be the minimum requirements for the grant of a patent.
8. If patents are granted for inventions that are not genuine innovations, society is giving away a valuable property right without receiving anything of comparable value in return. That is, the cost to society of such patents would exceed the benefits.
9. The grant of patents for inventions that are not innovations could also mean that technologies that would otherwise be free for anyone to use and exploit would no longer be freely available. This could discourage research and development in those technologies, as it would not be possible to commercially exploit any new developments arising from the research and development without infringing a patent. This could severely limit the ability of New Zealand researchers to develop new products and technologies, which would impose a further cost on New Zealand.
10. This is particularly important as New Zealand is a net importer of technology, with most New Zealand patents being granted to non-residents, as the table below shows:
Grants of New Zealand Patents (2001)
| Residents | Non-residents | Total |
|---|
| 376 | 4351 | 4727 |
11. The grant of a patent gives the patent owner an opportunity to charge a higher price for the patented invention than would be the case if a patent had not been granted. As most New Zealand patents are granted to non-residents, much of any extra revenue that patent owners might earn would flow overseas. This would increase the economic cost to New Zealand of granting patents for things that are not innovations.
12. Since most of the benefits of New Zealand's patent system flow overseas, or would occur even if New Zealand did not have a patent system, the patent system may provide little net benefit to New Zealand. This makes it all the more important that patents are only granted for inventions that are real innovations. This suggests that the criteria for granting a patent should be as strict as possible, and applied rigorously by IPONZ.
13. If, however, New Zealand does not provide adequate levels of patent protection, innovators in other countries may be unwilling to allow their inventions to be exploited here. This means that New Zealand businesses may not have access to new technologies that they need to become internationally competitive. Lack of adequate protection in New Zealand may also mean that other countries may be unwilling to provide protection for inventions developed by New Zealanders.
14. As discussed previously, the main benefits to society of granting patents are the incentive to innovate, and the incentive to disclose new inventions. As most New Zealand patents are granted to non-residents, most of these benefits will flow overseas. Further, New Zealand patents granted to non-residents will also be the subject of patent applications overseas. As a consequence, details of the inventions involved will be published by overseas patent offices. New Zealand will get the benefit of the disclosure of the inventions even if no patent is granted (or applied for) in New Zealand.
International Obligations
15. New Zealand is a party to the Paris Convention for the Protection of Industrial Property and the WTO TRIPS2 agreement, which require New Zealand to have a patent system that provides certain minimum levels of patent protection. Both the Paris Convention and the TRIPS agreement require parties to provide the same level of patent protection to residents of other parties as they provide for their own nationals. This means that New Zealand cannot discriminate against non-residents, for example by making it easier for New Zealand applicants to be granted patents than for non-residents. Conversely, other countries cannot discriminate against New Zealand applicants.
16. New Zealand has signed a Memorandum of Understanding with Australia on Business Law Co-ordination. This recognises that co-ordination of business law may help to minimise impediments to trans-Tasman business activity. The Work Programme for Co-ordination of Business Law listed in the Annex to the Memorandum includes:
Exploring the potential for more closely co-ordinating the granting and recognition of registered intellectual property rights.
This does not mean that New Zealand and Australia are required to adopt identical laws. Nevertheless, when considering changes to the Patents Act 1953, the possibility of harmonising New Zealand's law with that of Australia should be borne in mind.
17. The World Intellectual Property Organisation (WIPO), of which New Zealand is a member, has begun work on drafting a Substantive Patent Law Treaty. The aim is to harmonise substantive patent law world-wide (substantive patent law deals with such things as the threshold tests for patentability, rather than administrative requirements for filing applications).
18. The justification for harmonising substantive patent law is that this will make it easier and cheaper for innovators in one country to obtain patents in other countries. The negotiations on this draft Treaty are still in their early stages, and no final text has been decided. New Zealand would be under no obligation to ratify any Treaty that might eventually be concluded. There may, however, be benefits to New Zealand applicants from harmonising New Zealand's substantive patent law with that of New Zealand's major trading partners, whether or not New Zealand ratifies any Substantive Patent Law Treaty.
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