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COMMERCE COMMITTEE

SUBMISSION ON THE PATENTS BILL 2009

TO THE COMMERCE COMMITTEE

BY

FISHER & PAYKEL APPLIANCES LIMITED

To: Clerk of the CommitteeCommerce CommitteeSelect Committee OfficeRoom 10.04Bowen HouseParliament BuildingsWellington

PATENTS BILL 2009

SUBMISSION BY

FISHER & PAYKEL APPLIANCES LIMITED

A J Park, solicitors and patent attorneys have been instructed to make these submissions

on behalf of Fisher & Paykel Appliances Limited (FPA). AJ Park has advised FPA onpatent matters for over 50 years FPA through their appointed agents wish to appearbefore the Committee to speak to this submission. This submission has been prepared by

Ken Moon who can be contacted at AJ Park, PO Box 565, Auckland 1140; Phone No. 09

356 6996; Ken.Moon@ajpark.com

Fisher & Paykel Appliances Limited wishes to express support for a number of

provisions in the Bill relevant to its business and express concern about three aspects.

Fisher & Paykel Appliances Limited and the Patents System

Fisher & Paykel Appliances Limited (FPA) is a New Zealand headquartered multinational

manufacturer of whiteware products, namely, clothes washers, clothes driers, dishwashers,

refrigerators, freezers, and ranges and cookers. FPA has manufacturing plants in New

Zealand; the United States, Mexico, Thailand and Italy. FPA exports its products to anumber of countries and export sales considerably exceed sales in New Zealand.

FPA became a manufacturer in 1938. At that time it manufactured products developed by

US and UK manufacturers. It licensed in the technology it required from companies such asKelvinator, Bendix, Hoover, Frigidaire, Leonard and Hot Point. While FPA had undertaken

some development of its own products (for example a tumble drier which was designed and

patented in 1956) it was not until the mid 1980s that it determined to design and develop all

of its products.

FPA is New Zealand's only whiteware manufacturer. FPA's main competitors are located

in the United States, Japan, Europe, Korea, and China. Electrolux of Europe manufactures alimited range of products in Australia and imports the balance of its product range for that

country. These competitors are all much larger than FPA (based on any criteria). Some of

FPA's competitors are: USA − Whirlpool, General Electric; Europe − Electrolux (which also

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owns AEG and Zanussi), Bosch, Miele, Arcelik; Japan − Hitachi, Toshiba, Matsushita;

Korea − LG Electronics, Samsung. FPA now operates in an alliance with Haier of China,

which holds a 20% shareholding in FPA.

4~ It is an essential and integral part of FPA's business strategy to make internationally

marketable products using innovative, proprietary technology and to defend its proprietary

technology using the patent system. In relation to the latter FPA does not shrink from

embarking upon international patent infringement litigation. FPA competes successfully

against its much larger foreign rivals by being innovative. It is only through innovation and

the allocation of capital and resources to product development and its associated patentportfolio that FPA is able to conduct its business from New Zealand and survive on the

international market.

FPA strongly supports and is a large user of the international patent system. It relies on the

patent system to protect its innovation. It primarily needs patents in the jurisdictions of its

competitors and/or in the world's largest markets for whiteware. FPA therefore applies for

and obtains patents in many countries other than New Zealand. Nevertheless it is companypolicy to also obtain New Zealand patents for its patentable inventions.

FPA is a substantial user of the New Zealand patent system. It has a significant and

legitimate interest in New Zealand patents legislation. Currently FPA holds a 98 granted

and live New Zealand patents.

As an indication of the degree of innovation and associated patenting in relation to FPA

products the following statistics are cited. For the SMART DRIVE® washer family there

are at least 35 separate patentable inventions. Patents have been obtained for each of these

in up to 18 countries, including New Zealand. FPA's DISHDRA WER® dishwasher

incorporates some 20 patentable inventions with patents filed in up to 27 countries,

including New Zealand.

Background to Submission on the Patents Bill

° FPA has long been concerned that the Patents Act 1953 allows or has the potential to allow

its foreign competitors to obtain patents in New Zealand which they might not be able to

obtain in their own or other countries. It believes patents have been too easy to obtain in

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New Zealand and, further, those patents may not be challenged in the way that its ownpatents in other countries may be challenged. It seeks a level playing field on a worldwide

basis.

2. It also wishes to see fewer patents granted to nuisance individuals for trivial inventions.

Support for the Bill

Granting Better Quality Patents

1. FPA especially welcomes and supports the following provisions in the Bill:−

(a) Clauses 3(a) and (b) as setting the objective of ensuring most granted patents should

be valid on an absolute basis;

(b) Clause 60(1)(b) when read with clause 13(b)(ii) requiring examiners to examine for

inventive step;

(c) The adoption of a "balance of probabilities" test in assessing patentability criteria in

place of giving applicants the benefit of the doubt;

(d) The adoption through clauses 6 and 8 of an absolute novelty standard in place of the

long outdated requirernent of mere local novelty.

Patentable Subject Matter − Software

FPA supports the retention (by clause 13) of the existing test for determining

patentable subject matter, namely "manner of manufacture with in the meaning of

clause 6 of the Statute of Monopolies" as interpreted by the considerable body of

associated case law. In relation to the subject matter excluded from patentability

under clause 15 it specifically supports the absence of "computer software related

inventions" from the listed exclusions.

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° FPA is aware that there is a growing worldwide lobby against the patenting of softwareinventions. It anticipates the Committee will receive submissions from this lobby

advocating the addition of software as an exclusion under clause 15.

A significant proportion of FPA's inventions are software related inventions. Much of what

it once achieved using dedicated hardware circuitry is achieved using software controlled

microprocessors. Many FPA product development engineers are software engineers.

FPA does not merely use programmed microprocessors to control the various operational

phases of a clothes washer or a dishwasher, for example, but also the basic running of the

electric motors used in such appliances. The motors in FPA's SMART DRIVE® and

DISHDRA WER® products are electronically commutated motors. These are motors which

will not rotate merely by connecting them to the electricity supply. Such motors are fed

with voltage (usually three phase) from a controller which determines the speed, direction of

rotation, acceleration, deceleration and torque. The heart of such controllers is aprogrammed microprocessor. The software required to operate such microprocessors is asextensive as software used with general purpose computers such as PCs. FPA has been

seeking such software related patents since 1985 (see NZ Patent 213489/213490).

Concern about some Aspects of the Bill

Pre−Grant Opposition

FPA is concerned, that one of the stated purposes of the Act, namely, to provide

"procedures that allow the validity of a patent to be tested" (clause 3(a)(ii)) and

"provide greater certainty for patent owners and the users of patented inventions that

patents will be valid after they have been granted" (clause 3(b)) cannot be met so long

as there is no provision for full pre−grant opposition proceedings as has been available

under the 1953 Act, section 21.

° While patents of dubious validity hopefully will be less likely to survive examination under

the Bill when enacted, there may nevertheless be some that do emerge which are notpatentable inventions (clause 13) or which have complete specifications which do not meet

adequately all the requirements (clause 37).

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o FPA believes it is essential that the current pre−grant opposition proceedings be retained.Although it would prefer never to have to incur the expense and employee time in such

proceedings it believes it is essential third parties with valid concerns should have the right

to be heard before IPONZ grants patents. It is important that all of the grounds available for

post−grant revocation (clause106) should be available for third party involvement pre−grant.It is better that patent applications can be challenged before a patent is granted rather than

merely provide an opportunity for revocations after grant. This is even more the case nowthat there will be some presumption of validity in respect of granted patents.

FPA is aware that fewer countries offer pre−grant opposition proceedings than in the pastalthough, significantly, Australia does do so. FPA would urge that such proceedings be

retained in New Zealand. FPA has considerable experience with post−grant opposition

procedure in other jurisdictions − especially the European Patent Office − and is notconvinced that post−grant opponents' arguments receive equal weight to those of patenteesby a patent office which has already decided an invention is patentable and seen fit to grant

a patent.

10. Under the Bill post−grant revocation proceedings are available in either the Court or before

the Commissioner. The latter avenue is not available under the 1953 Act. One traditional

advantage of proceedings before the Commissioner has been lower costs than would be

faced in a Court. This would remain the case with pre−grant opposition since the forum

would be the Commissioner. It is doubted there will be a cost advantage in post−grantrevocation before the Commissioner because unless there are to be different standards of

justice, revocation before the Commissioner is likely to become as complex and asexpensive as in the Court. Furthermore, because revocation will often be sought as adefence to infringement proceedings (in the High Court), the predominant forum for

challenging a dubious patent will usually be the Court. There is therefore a cost advantage

to New Zealand businesses in allowing pre−grant opposition.

11. FPA notes the provisions for third party assertions under clause 86. It frequently avails

itself of the similar European Patent Office third party observation procedure. It also notesthe procedure for re−examination before grant available to third parties established by

clauses 88 to 91. But neither of these procedures can be considered to fill the gap created

by the Bill's removal of the current pre−grant opposition available under the 1953 Act.

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12. The grounds for re−examination (clause 90) are limited to novelty and inventive step and aprior art base which is limited to prior publications and ignores prior use. These limited

grounds are inadequate. Perhaps more importantly, pre−grant re−examination denies the

opposing party any role in the proceeding once re−examination has been requested. An

adversarial process ensures a more stringent testing of the validity of patents and while morecomplex, the proceedings are funded by the parties and not the taxpayer.

"Benefits may Flow Overseas"

13. While in favour of more stringent requirements for examination of patent applications filed

by its foreign competitors, FPA does not see that the fact that foreign companies apply for

and allegedly receive up to 90% of patents in New Zealand ("Statement of Policy

Objective", page 51, Explanatory Note) should itself be a driver for reform − provided they

are granted for truly patentable inventions. Certainly, this statistical inevitability for all

smaller but developed countries should not in itself shape New Zealand's patent legislation.

New Zealand manufacturers need to import technology at various stages of their growth.

FPA did so for many years as mentioned in paragraph 2 above. It is not unreasonable for

foreign originators of that technology to seek the comfort of having patents in New Zealand

in a fair and strong patent system before being prepared to transfer (license) their

technology to New Zealand. Indeed, the growth of manufacturing in Japan after World War

II was contingent on Japan establishing a strong patent system before the required

technology transfer (largely from the USA) could take place.

Now, as an exporter of technology, FPA is conscious of the negative impacts somecountries' protectionist laws have on potential licensing or business arrangements. Brazil is

such a country where FPA has experienced problems of this type. FPA would not like tothink that the Bill itself reflects the counter productive protectionist expressed in parts of the

Explanatory Note.

14. "Purposes "

Clause 3 expresses the purposes of the Act in a rather negative manner − especially the first

purpose recited in sub clause (a). The purpose of any legislation codifying the granting of

patents for inventions is surely to promote economic growth by encouraging technological

innovation. Patents do this by providing temporary monopolies to inventors and for their

investors to allow research and development expenditure to be recovered at a profit. This

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would be far more difficult if competitors could simply copy expensive innovation by

freeloading off the R&D of the innovator. FPA supports a proper patents system for this

very reason. It is able to compete with far larger international competitors through being

innovative and being able to control its innovations through its patents, whether by licensing

or otherwise.

This "incentive" purpose of patents is rightly set out in the Explanatory Note to the Bill

(pages 1 and 51) as the essential rationale for patents and this policy statement should be

reflected in clause 3 of the Bill itself.

FISH1 APPLIANCES LIMITED

By their authorised agentsA J PARK

1 July 2009

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