Intellectual Property Update June 2009

Innovation Patents: The Australian Full Federal Court rules on Innovative Step

Innovation patents are second tier patents similar to utility models, having a lower threshold for patentability and a relatively short term of eight years compared to standard patents.

A recent appeal court decision confirms that inventions that include features that are known and obvious can still sustain valid innovation patent protection in Australia.

The decision: 

• encourages the filing of applications for innovation patents, as many new products and methods will qualify for innovation patent protection in Australia, and
• confirms that when faced with an allegation of infringement of an innovation patent, it is difficult to successfully challenge the validity of the innovation patent.

The decision

On 30 June 2009, three Judges of the Federal Court handed down their decision in Dura-Post (Aust) Pty Ltd v Delnorth Pty Ltd [2009] FCAFC 81.

In this decision, their Honours upheld the validity of three innovation patents relating to roadside posts. A consistent feature of the patent claims was the formation of the posts from sheet spring steel so as to make them ‘elastically bendable’ and the specification as filed asserted this to be a development of the invention over the prior art. A similar post formed from laminated sheet spring steel was found in a prior art document and Dura-Post asserted that the claims of the innovation patent were invalid over this prior art document.

However, the patents also claimed in combination with the use of spring steel, a number of other features that were not described in the prior art document:

1. a marker hole to help install the post at the correct depth
2. a barb serving to anchor the post into the ground
3. a tapered end to help with driving the post into the ground
4. ribs to resist buckling, and
5. certain specific dimensions.

These additional features were all separately known features of prior art roadside posts made from materials other than sheet spring steel. In issue was whether the threshold for a valid innovation patent of an ‘innovative step’ was satisfied by a spring steel roadside post with any of these features.

The Australian Patents Act 1990 (Cth) provides that an invention is taken to have an innovative step if it has a point of difference over the prior art that makes a ‘substantial contribution to the working of the invention’. Their Honours rejected the contention by Dura-Post that this inquiry involved first identifying the purported advance in the field of the invention and then asking whether the differences between the claims and the prior art make a substantial contribution to that advance. Instead, the Court said that the invention is defined by the claims alone and falls to be determined on a claim by claim basis.

In the context of the claimed roadside post, this meant the question was whether the claimed features (1 to 5 above) made a substantial contribution to the way the roadside post functions. The question was not whether the claimed features contributed to the claimed function of the roadside post of being elastically bendable.

Their Honours therefore affirmed the first instance decision that each of features 1 to 5 above made a substantial contribution to the working of the post and therefore were each sufficiently innovative to sustain valid patent protection.

What does this mean?

The Full Court has confirmed that it is difficult to successfully challenge the validity of an innovation patent on the basis of a lack of innovative step. Even though all of the features of a claim may be known and obvious to combine together, this alone will not invalidate a claim for lack of innovative step. This places the owner of an innovation patent in a powerful position when seeking to assert its patent rights. Combined with the accelerated grant and examination procedure for innovation patents, there should be a strong incentive to file applications for innovation patents.

Overall, the decision of the Full Federal Court confirms that innovation patents are a powerful tool to rapidly obtain and enforce exclusive rights to an invention.

This article was written by Ben Mott, Patent Attorney, Patrick Sands, Senior Associate, Melbourne and Carl Harrap, Senior Associate, Sydney.

Malt Balls will not be confused with Maltesers

Introduction

Composite trade marks are trade marks which include word marks, together with one or more designs and/or logos. The limits to the protection afforded composite trade marks consisting of a product’s entire packaging were demonstrated in Mars Australia Pty Ltd v Sweet Rewards Pty Ltd [2009] FCA 606. Mars failed to convince the Federal Court that the labels used by a competitor, Sweet Rewards, on its ‘Malt Balls’ product constituted passing off, misleading and deceptive conduct or trade mark infringement in relation to Mars’ ‘Maltesers’ product.

The decision of the Federal Court in relation to the passing off and misleading and deceptive conduct claims is uncontroversial. In essence, these claims will not be established where a clear, alternative branding is used that eliminates the potential for confusion that may otherwise arise.

However, this case serves as a timely reminder that, while complex, composite marks can be a useful tool in preventing clear ‘knock-off’ style infringement but they may have limited use in the absence of clear copying.

The background

Maltesers have been marketed in Australia since approximately 1953. Both parties accepted that Maltesers is a ‘famous’ product on account of Mars’ extensive advertising, reputation and use.

Since 2005, Sweet Rewards had imported and distributed ‘Malt Balls’ to discount department and other stores. The Malt Balls are sold in jars with either a red or orange label depending on the store in which they were sold.¹     

No passing off or misleading and deceptive conduct

Mars alleged Sweet Rewards had engaged in passing off and misleading and deceptive conduct on the basis that both the red and orange Malt Balls label represented that:

• there was a connection between Maltesers and Malt Balls 
• Malt Balls contained the same ingredients or tasted the same as Maltesers, and 
• that a Malt Ball was a Malteser.

Not surprisingly, Justice Perram dismissed each of these claims, on the basis that it was unlikely (or in the case of the orange label, highly unlikely) that an ordinary consumer of chocolate confectionary could possibly mistake the Malt Balls for Maltesers, or be misled or confused in relation to a connection between the two.

Critically, in the absence of the use of the word ‘Maltesers’, in Justice Perram’s view, consumers would not be confused despite the similarities between the two products. To know that one is eating a ‘Malt Ball’ is to know that one is not eating a Malteser.’

No trade mark infringement

Mars alleged that the label used by Sweet Rewards infringed a number of its registered trade marks. The relevant composite trade marks were effectively the Maltesers packaging. To succeed, given the products in question were the same, Mars needed to establish that:

• Sweet Rewards was using the Malt Balls label as a trade mark, and 
• The Malt Balls label was deceptively similar to the trade marks owned by Mars.

Interestingly, it appears that Mars had attempted to rely on the use of the colour red by Sweet Rewards as a basis for infringement. In advancing this argument, Mars appears to be asserting exclusivity in the use of the colour red in relation to confectionery. However, it is not clear that Mars has such exclusive rights and it would be difficult for Mars to establish that it does, since the colour red in relation to Maltesers is almost always used in conjunction with the word ‘Maltesers’.

Was the use of the Malt Balls label use as a trade mark?

In short, no. Justice Perram held that Sweet Rewards intended to, and did in fact, use the ‘Delfi’ name and skier logo as trade marks: that is, as signs distinguishing Sweet Rewards’ products from those of others.

In contrast, the words ‘Malt Balls’ were simply descriptive of the product and therefore were not being used by Sweet Rewards as a trade mark. Similarly, his Honour did not consider that the balance of the Malt Balls label was being used as a trade mark by Sweet Rewards and the evidence did not establish that the balance was intended to be so used.

Although there may be cases where two (or more) trade marks are used simultaneously, Justice Perram did not consider that this was such a case. In his view, the clear use of the ‘Delfi’ brand as a trade mark reduced the possibility that the rest of the label, or the label as a whole, was also being used as a trade mark. Accordingly, Mars fell at the first hurdle in establishing trade mark infringement.

This case demonstrates that registrations for composite marks will be ineffective where it is clear that an alternative brand is being used as a trade mark. As a result, composite marks necessarily provide trade mark owners with a ‘thin’ layer of trade mark protection.

Was the Malt Balls label deceptively similar to the Maltesers trade marks?

Although not strictly necessary given his conclusion that Sweet Rewards had not used the label as a trade mark, in the event that this conclusion was wrong, Justice Perram nevertheless considered whether the Malt Balls label was deceptively similar to the Maltesers trade marks.

The applicable principles

In considering this issue, Justice Perram provided a useful summary of the principles relevant to assessing deceptive similarity. These principles are as follows:

1. Deceptive similarity is assessed by comparing the impression of the registered mark and the allegedly infringing mark, based on the recollection that persons of ordinary intelligence would have. 
2. Aural similarity may be important. 
3. The risk of deception must be tangible, it is enough if an ordinary person entertains a reasonable doubt. 
4. Allowances must be made for imperfect recollections in considering whether a mark so nearly resembles another mark that it is likely to cause confusion or deception. 
5. The reputation of a trade mark is generally not relevant (in contrast to passing off and section 52 actions). However if a trade mark is particularly well known, this will be relevant in assessing a consumer’s imperfect recollection of the trade mark, since consumers will generally be taken to be familiar with the trade mark and its use.

Application of the principles

Applying these principles, Justice Perram concluded, correctly in our view, that the Malt Balls label was not deceptively similar to the Maltesers trade marks, on the basis that:

• the Maltesers trade marks were famous and consumers generally must be taken to be familiar with them 
• in light of this high level of familiarity, the chances of a consumer forgetting or imperfectly recollecting the Maltesers mark were ‘vanishingly small’ 
• the aural similarity between ‘Malt Balls’ and ‘Maltesers’ was negligible at best, and 
• the use of the colour red was unlikely to cause confusion and, in any event, any such risk was ameliorated by the effect of the differences between the words ‘Malt Balls’ and ‘Maltesers’ and the use of the Delfi marks. 

As a result, even if the use by Sweet Rewards of the Malt Balls label was use as a trade mark, consumers could not possibly be confused by the Malt Balls label.

Take away note

Composite trade marks, despite their limitations, may still have a place in your stable of registered marks. What a brand owner chooses to register should be determined based on the key brand identifiers for the relevant product. However, you should always bear in mind that it will be the factual comparison between what is used as a trade mark on the allegedly infringing product and the mark that is protected that will determine whether any infringement has occurred.

If you would like to discuss your overall brand protection further please contact a member of our Trade Marks team.

This article was written by Anna Vandervliet, Solicitor and Georgina Hey, Senior Associate, Sydney.

Real discounts only please

We reported earlier on the decision of a single judge of the Federal Court in ACCC v Ascot Four Pty Ltd.²

Justice Mansfield found that Ascot Four Pty Ltd (Ascot Four) falsely represented to a significant section of ordinary and reasonable consumers that, by purchasing certain jewellery items during the sale period, customers would save the difference between the ‘sale price’ and ‘the strike-through price’.

The evidence presented at the trial showed that, although Ascot Four did offer each of the jewellery items in question for sale at the ‘strike-through’ price before the sale period, it, in fact, never sold these jewellery items at the offered price due to the discount culture prevalent in the jewellery retail market. Consequently by purchasing the jewellery at the sale price, consumers were not making the savings advertised by Ascot Four (the difference between the sale price and the strike-through price).

Ascot Four appealed this decision to the Full Federal Court, asserting, among other grounds, that the primary judge should have found that both the ‘strike-through price’ and the ‘sale price’ represented an offer price only and not the price at which the items were to be eventually sold.

Ascot Four argued that customers, aware of the discount culture, would have used the ‘strike-through’ price as a starting point for the negotiations.

The Full Federal Court consisting of Chief Justice Black and Justices Ryan and Jagot unanimously dismissed Ascot Four’s appeal.

In brief, their Honours agreed with the findings of Justice Mansfield and ruled as follows:

1. Ascot Four’s jewellery items were offered for sale at the ‘strike-through’ prices before the sale period. 
2. Ascot Four jewellery items were never sold at the ‘strike-through’ prices before the sale period. 
3. The sale catalogue conveyed a representation that purchasers of the relevant jewellery items would make a saving of the difference between the ‘sale price’ and the ‘strike-through’ price if they purchased the jewellery during the sale time.
4. These representations were false because no consumer ever paid the ‘strike-through’ price before the sale period.
   Further, their Honours commented that the purchasers aware of the discount culture of the jewellery market would have known that they could negotiate a price lower than the ticketed or offer price both before and during a sale. However, a significant section of ordinary and reasonable consumers would not have been aware of this and, therefore, would have had a false belief that, by buying jewellery items during the sale period, they were making a saving.

What does this all mean for you?

The law in the area of dual-pricing is strict and can be summarised by the following well-known quote: truth, whole truth, nothing but the truth, so help me God!

Even if the items were offered for sale at the advertised price but were not actually sold at that price before the discount period, this is a contravention of the Trade Practices Act 1974 (Cth), and the ACCC is watching

Commenting on this case, ACCC Chairman Mr Graeme Samuel said: ‘The Full Federal Court’s judgment reinforces the ACCC’s message to retailers who use two price advertising that the represented savings must be legitimate. The ACCC seeks truth in advertising and consumers have every right to expect it’.³

China change

On 1 October 2009 amendments to Chinese patent and design laws will be adopted. These changes may well have ramifications for Australian companies conducting business in China.

A brief summary of the changes is below. Most notable is the introduction of absolute novelty (that is, that novelty is to be assessed against publications anywhere in the world rather than just in the Chinese jurisdiction). This will bring Chinese patent and design law, in this regard, in line with the majority of other countries in the world. This is a positive change for companies who manufacture in China, of who may be faced with a Chinese manufacturer filing a patent for their products, even though the company has already released their product elsewhere in the world.

A further new requirement is that approval must be obtained in certain circumstances to file outside China. This may have a negative impact on those who develop inventions in China. We are currently corresponding with our Chinese associates to clarify the term ‘completed’, and gauge the likely practical and commercial effects of these changes, and in particular the risks and opportunities they present.

By way of a very brief overview, the reported changes to China’s patent laws include:

• The introduction of a more stringent novelty requirement for validity. Under the amendments a valid patent will need to be new over prior art published, publicly used or known anywhere in the world (absolute novelty). This is in contrast to the current requirement that a patent must be new over publications anywhere in the world but publicly used or known in China only (relative novelty).
• If an invention depends on access to and use of genetic material, the source of the genetic material must be disclosed.
• The establishment of new grounds for the grant of a compulsory licence
• An increase to the potential award amounts in the event of infringement
• Where an invention is ‘completed’ in China the applicant (whether foreign or national) must request the Chinese Patent Office to carry out a security and secrecy examination and obtain approval to file patent applications outside China.

In relation to designs, the reported changes include:

• The introduction of absolute novelty for the purposes of design validity. As with patents, the result of this is that Chinese designs will now need to be new over designs that were made public (by publication or use) anywhere in the world before the priority date of the design.
• The requirement that, in order to be valid, a design must be distinguishable from obvious combinations of existing designs.
• That two-dimensional designs consisting only of patterns, colours, or combinations thereof will not be registrable. 
• The requirement for design applications to be accompanied by a brief description of the product to which the design is to be applied. 
• The introduction of multiple design applications whereby a single design application can cover multiple designs in relation to a single product or a set of products. 
• That offering to sell products which are the subject of design protection without permission of the design owner will be considered infringement.

We will be liaising with our Chinese associates to gauge the practical and commercial effects of these changes, and in particular the risks and opportunities they present.

If any of the changes mentioned above are of concern or interest to you please contact a member of the Patents team and we can provide you with further information.

Customs Notices – a way to optimise your registered trademark protection

Introduction

Customs Notices are an under utilised tool available to registered trade mark owners. They are a simple and inexpensive means by which trade mark owners can make it clear they are:

• monitoring the marketplace, and 
• serious about enforcing their trade mark rights.

The Australian Trade Marks Act 1995 (Cth) creates a ‘Notices of Objection’ system designed to assist trade mark owners to protect their registered Australian trade marks through what we commonly refer to as Customs Notices. Under this system, Australian Customs can, upon the request of the owner of a registered trade mark, intercept imported counterfeit goods before they reach the Australian market.

The system is designed to provide protection to any Australian trade mark registered in relation to goods, be it a trade mark for a designer handbag or for a refrigerator. Although the system has its shortcomings, it is a relatively uncomplicated and inexpensive means by which trade mark owners can seek to prevent the reputation of their registered trade marks from being tarnished by fakes. Currently, many of the Customs Notices in place belong to famous fashion and luxury goods houses.

The Customs Notice System

After the registration of a trade mark in Australia, the owner may obtain relief if the trade mark has been infringed. In order to enjoy the additional protection afforded by a Customs Notices through the ‘Notices of Objection’ system, it is also necessary to:

• notify Australian Customs of your registered trade mark by lodging a Notice of Objection (which is valid for four years, unless revoked by the trade mark owner in writing) 
• undertake to repay Customs’ expenses of seizing (storing and potentially destroying) any counterfeit goods, and 
• document the particulars of the registered trade mark.

Only trade marks registered in relation to goods (not services), can be notified to Customs.

Previously, it was necessary to provide a substantial bond to Customs for the Notice to be in place. However, this requirement has now been removed making the system more attractive to trade mark owners.

To be considered counterfeit, the imported goods must have applied to them, or in relation to them, a sign that is substantially identical with or deceptively similar to a registered trade mark and must be goods in respect of which the trade mark is registered. Where a Customs Notice is in place, Customs will seize counterfeit goods if they hold a reasonable belief that a registered trade mark is infringed by the importation of these goods. The inferior quality of the goods seized, errors in spelling or deliberately misspelled trade marks can form the basis of a reasonable belief that goods are counterfeit.

When Customs seizes what it considers to be counterfeit goods, Customs contacts both the owner of the counterfeit goods and the owner of the registered trade mark.

What happens next?

After being notified of Customs’ seizure of the counterfeit goods, the owner of the counterfeit goods may at any time, before proceedings for trade mark infringement are started, consent to the goods being forfeited and disposed of.

If the owner of the counterfeit goods does not consent to the forfeiture, the trade mark owner must bring court proceedings for trade mark infringement. Otherwise, Customs releases the counterfeit goods to their owner.

Court proceedings for trade mark infringement must be brought in the Federal Court of Australia within 10 working days of being notified of the counterfeit goods (or within 20 working days, if an extension is applied for and granted by the Customs). In such court proceedings, the trade mark owner must also seek a court order restraining Customs from releasing the goods. If, after 20 working days from the day on which court proceedings were started, there is not a court order in force preventing the goods from being released, Customs must release the goods to their owner.

Trade mark infringement cases involving counterfeit goods routinely involve counterfeit goods with marks that are either identical or substantially identical to the registered trade mark. The result is often the court finding that the registered trade mark has been infringed. In many cases, the owner of the counterfeit goods is unrepresented or does not take part in the proceedings.

When a court finds that the counterfeit goods infringe a registered trade mark, the court can make the usual types of orders made in any trade mark infringement case. This includes:

• injunctions restraining the owner of the counterfeit goods from manufacturing, importing, selling or offering for sale, advertising or promoting counterfeit goods bearing the registered trade mark or any mark which is substantially identical with or deceptively similar to the registered trade mark 
• declarations of trade mark infringement 
• forfeiture of the counterfeit goods to Customs and their destruction, and 
• damages or account of profits.

Conclusion

The Customs Notice system is simple and inexpensive and yet can be a powerful means by which trade mark owners can send the message that they are serious about enforcing their trade mark rights. Once in place, they provide trade mark owners with advance notice from Customs of any attempts to import counterfeit goods before those goods become dispersed in the marketplace.

If you would like to discuss the possibility of putting a Customs Notice in place for your brand please contact a member of our Trade Marks team.

This article was written by Helen Macpherson, Senior Associate and Mindaugas Skavronskas, Paralegal, Sydney.

United Kingdom awards inventors in Kelly and another v GE Healthcare Limited

A recent United Kingdom case has illustrated an international shift to greater recognition of the interests of employees with respect to successful inventions. Compensation for successful inventions is not currently part of the Australian patent regime as it is in the United Kingdom. However, courts in Australia have demonstrated a willingness to find employees, and not employers, are entitled to inventions. While the Australian situation can be dealt with by clear employment contracts, Australian employers should be aware they cannot contract out of the English employee compensation legislation if it is relevant to their international business.

Employee compensation for successful inventions in England

The English Patents Act 1977 (UK) (English Patents Act) provides for the compensation of employees where the employee is an inventor of a patented invention that has been of ‘outstanding benefit’ to the employer. An employee may also receive compensation where the employee has assigned or exclusively licensed a patent to the employer and in light of the success of the invention the benefit derived by the employee from the assignment or licence is ‘inadequate’.

Compensation is awarded where it is ‘just’ to do so. The rationale for compensating is to provide the employee with a ‘fair share’ of the benefit the employer has derived from the invention. This establishes a curious case for compensation where the employee has not suffered loss in the traditional sense.

GE Healthcare – an historic English case

His Honour Mr Justice Floyd of the English Patents Court made the first award of compensation to employee inventors in Kelly and another v GE Healthcare Limited [2009] EWHC 181 (GE Healthcare case). In that case Amersham International Plc (now GE Healthcare Limited) employed Duncan Kelly and Kwok Wai Chiu. Kelly and Chiu were research scientists involved in the first synthesis of P53 which was patented as a radioactive imaging agent and became a highly successful commercial product called Myoview. Kelly and Chiu sought and were awarded employee compensation for the invention under section 40 of the English Patents Act.

The patents were held to be of ‘outstanding benefit’ because they provided:

• protection from generic competition in an environment where the loss of revenue due to a generic competitor was a major concern of the company
• protection of a highly successful invention which recovered research and development costs in the first year of sales and was responsible for a large proportion of the company’s profits, and
• ownership of a blockbuster radiopharmaceutical which was a major factor in achieving several corporate deals that transformed the company.

Dr Kelly was awarded two per cent (£1 million) and Dr Chui one per cen (£500,000) of the £50 million of Myoview profit that the court attributed to patent protection.

Future awards may be larger as the legislation has been amended to provide compensation based on the benefit of the invention itself rather than the benefit of the patents protecting the invention.

Employee compensation in Australia

There is no employee compensation regime in the Australian Patents Act 1990 (Cth) (Australian Patents Act). Unless an Australian company has employees located in the United Kingdom who can sue under the English Patents Act it will not be liable for employee compensation claims.

However, the first award of compensation under this regime is part of an international shift to greater recognition of the interests of employee inventors. In Australia, as illustrated by the recent case University of Western Australia v Gray [2008] FCA 49, the increase in recognition is in the form of a greater willingness to find that the employee and not the employer is entitled to an invention the employee made during employment.

The advantage of the Australian situation is that clear contracts will overcome any uncertainty as to the ownership of inventions. On the other hand, employers cannot contract out of the English employee compensation legislation.

Problems for quantifying liability

One of the difficulties with the English employee compensation legislation is the uncertainty it creates regarding a company’s liability. If compensation is claimed it is difficult to predict whether the employee is eligible for compensation—that is, whether the benefit of the invention was sufficiently ‘outstanding’. It is also difficult to determine the amount of compensation the employee is entitled to.

Liability for potential employee compensation claims should be considered when acquiring an interest in an English company as it now appears any blockbuster drug developed by skilled and imaginative employees leading to patents and high profit margins could result in a claim for employee compensation.

Collaborations with English researchers

Under the English employee compensation legislation collaborative inventors may not be able to claim compensation if their employer was, for example, a university collaborating with the company marketing the invention. In such cases, the employer would potentially not be deriving the outstanding benefit of the invention.

Responding to the new legal climate

For further information regarding the entitlements of employee inventors or contracting advice please contact either Irene Zeitler or James Cherry.

Endnotes

1. Maltesers and Malt Balls – images
2. [2008] FCA 1295
3. ACCC News Release dated 28 May 2009

More information

For information regarding possible implications for your business, contact