Principal Karen Sinclair discusses the Australian Government’s proposed patent box scheme, the key role IP strategy will play in the ability of Australian companies to benefit from it, and what needs to be considered to ensure successful implementation.

Announced as an incentive for Australian medical and biotech companies to “undertake their R&D in Australia, keep patents here and manufacture patented technologies onshore1, the proposed patent box scheme is an ideal opportunity for the Australian Government to demonstrate that it really understands that new tech and sovereign manufacturing capacity is the future for Australia – one that extends beyond digging resources out of the ground.

Past reviews of the patent box model, both here2 and overseas3, suggest that introducing a patent box scheme runs several risks, including domination by multinationals, opportunistic patent applications based on R&D performed offshore, and adding little benefit to the local economy.

On the upside, it has been cautiously suggested that businesses using the patent box display an approximate 10% increase in business-level capital investment over the post implementation period4. The design of the incentive needs to be right for the scheme to be successful, and to ensure that future governments are discouraged from tinkering with the rules.

The patent box scheme: A quick refresher

Announced in the Australian Government’s Budget 2021, the patent box scheme aims to encourage businesses to undertake their R&D in Australia and “keep patents in Australia” by reducing taxes on income from innovative patented research.

Specifically, from 1 July 2022, income derived from Australian medical and biotech patents will be taxed at a concessional corporate tax rate of 17%. Only granted patents, which were applied for after the Budget 2021–22 announcement, will be eligible.

Getting the design right

It is vitally important that the patent box scheme benefits Australia by way of increased investment, job opportunities and exports through greater participation in global value chains.

On Budget 2021 night, the Federal Government signalled its intention to consult with the clean energy sector and to comply with OECD standards on patent box regimes, but was otherwise silent on detail.

We suggest that the following key requirements need to be considered in the design of the patent box scheme:

  • A cynic might suggest that by landing on the medical and biotech sector, the Federal Government exposes itself to little downside because of the long path to market of many products in this sector. Through a “COVID-19 lens”, extending the incentive to technologies which Australia will need to rely upon in the future for economic success makes sense. Politics aside, this must include clean and green energy. The defence sector also comes to mind. Although careful definition is required, to rebuild Australia’s manufacturing sector and to take advantage of residual programs set up by the departing car industry, manufacturing technologies are also a must.
  • Relevant IP rights must include both rights created by the beneficiary of the tax concession, and rights exclusively licensed-in by Australian companies. Consistent with policy aims, in both cases there must be an obligation to significantly develop, and even manufacture, the technology in Australia. Australia has demonstrated expertise in the ‘R” of R&D; it’s the Development and commercialisation part of the pathway that needs incentivising. Logically, to monitor and support development activities there would be a connection to the R&D Tax Incentive.
  • If the concessionary rate is to be higher than that of similar programs abroad (e.g 10% in the UK), then as an offset, it must be the case that all profits from commercialisation of the patented technology, no matter where they are made, will qualify. As an extra incentive and given Australia represents a small market, a further concessionary rate might be offered for income from products manufactured in Australia and then exported.
  • It may seem obvious, but the more regulatorily complex the implementation is, the less likely it is that Australian businesses will opt to take part. This may mean, for example, that complex business structures and IP holding companies might be excluded from eligibility. But there needs to be a focus on the policy objectives at all times: building Australia’s technology skillset and making the program accessible and economically successful.
     

The IP nexus

Patent and more generally, IP management and exploitation strategy, will play a key part in the ability of Australian companies to truly benefit from the proposed regime. Alignment between corporate strategy and IP strategy has never been more important to get the best out of the proposed patent box scheme.

What we need in Australia is more of this sentiment:

“The establishment of the patent box has transformed how we see the UK as a place to invest. As a result, last year we announced we were building our first new factory in the UK for 40 years.”

GlaxoSmithKline’s President of Global Manufacturing and Supply in 2013

and less:

“GSK announced … that we will close the Boronia [Melbourne] manufacturing facility at the end of 2022. …This decision aligns with a global focus on innovation…. the new GSK biopharma company needs to become more competitive, so we can spend more on vital investments in innovation, growth and the future success of our business….”

GlaxoSmithKline, press release 22 July 2020

With access to data-backed technology landscaping and analytical tools, deep expertise in securing IP protection for Australian businesses, and with a passion for Australian innovation, Griffith Hack’s team looks forward to making the implementation of the patent box scheme a winner for Australia’s technology future.


Footnotes:

Austrade 

Patent box policies, Department of Industry, Innovation and Science 

Patent box evaluation, HM Revenue and Customs 

Ibid

Australia’s innovation patent system is ending soon. For patent applicants, there’s still time to take advantage of the system – you just need to act quickly. 

The sun is quickly setting on Australia’s innovation patent system, with the 25 August 2021 deadline to file applications fast approaching. 

In this article, we look at the key aspects of the innovation patent phase-out process, what options are still available to you, and provide a refresher on what an innovation patent is. 

What is an innovation patent?

Australia currently has a two-tier patent system: standard patents and innovation patents. Innovation patents were introduced in 2001 to encourage businesses to protect their innovations. We break down the differences between the two systems in this table:

Standard patent Innovation patent
20-year term 8-year term
Must involve inventive step Must involve innovative step
Application > Examination > Grant Application > Grant (streamlined)
Unlimited claims Maximum 5 claims
Enforcement after grant Enforcement after certification

The innovation patent system offers a number of advantages for applicants:

  • Lower threshold for patentability: While standard patents require an inventive step, innovation patents only require an innovative step.
  • Innovation patents can be filed for the same subject matter as standard patents.
  • An innovation patent provides the same rights as a standard patent.
  • Innovation patents and standard patents may coexist for the same invention (as long as there is a difference in respective claim scope).

Innovation patents provide very robust patent protection even for subject matter that would not support a standard patent, and can therefore be a critical part of a successful infringement action.  The innovation patent process (which is streamlined and does not include any pre-grant opposition) is also a very effective mechanism to secure rapid grant for enforcement.

How will the innovation patent phase out work?

The phasing out of Australia’s innovation patent system officially commences on 26 August 2021. For patent applicants, this means there are key dates you need to be aware of:

  • New innovation patent applications, or standard applications on which an innovation patent may be based, must be filed no later than 25 August 2021.
  • New innovation patent applications submitted on or after 26 August 2021 will not be accepted.
  • Existing innovation patents and innovation patent applications filed on or before 25 August 2021 will continue in force until they expire.
  • A standard patent application can be converted to an innovation patent application after 26 August 2021, as long as the standard patent application was filed on or before 25 August 2021.
  • It will also be possible to file a divisional innovation patent application from a standard patent application that was filed on or before 25 August 2021.
  • By 26 August 2029, all innovation patents will have expired.

What the end of innovation patents means for you

Whether you have an existing innovation patent, are considering filing for an innovation patent, or want to keep your options open for filing an innovation patent during the phase out period, there are key deadlines and facts that you need to be aware of. We break it down in this set of FAQs. 

Can I still file an innovation patent application?
Yes, you can file an original innovation patent application until the deadline of Thursday 25 August 2021 (AEST). 

Can I apply for an extension?
No, there are no avenues available to apply for an extension, or to file late applications. 

What if I already have an innovation patent or have previously filed an application?
All innovation patents and innovation patent applications filed on or before 25 August 2021 will continue in force until they expire.

Are there any other options available to me after 26 August 2021?
Yes, there are two alternate options available for you to take advantage of the innovation patent system after 26 August 2021 – but you still need to act before 25 August 2021:

  1. Standard patent application conversion: A standard patent application can be converted to an innovation patent application from 26 August 2021, as long as the standard patent application was filed on or before 25 August 2021.
  2. Divisional innovation patent application: It will also be possible to file a divisional innovation patent application from a standard patent application, so long as that was application was filed on or before 25 August 2021.

Should I file an innovation patent application now? If so, what do I need to do?
You do not need to file the innovation patent before 25 August 2021 provided that you have filed a standard (non provisional) patent application in Australia by that date. By doing so, you will keep your option open to file the innovation patent after 26 August. The standard patent application may be a direct filing in Australia or may be an International (PCT) patent application designating Australia.

The innovation patent filing may be subsequently based on the standard patent application (as a divisional application or by conversion). One of the key strategic advantages of the innovation patent system is to provide rapid grant and robust protection in enforcement proceedings and this advantage will remain whilst the standard patent application remains pending.

If the invention has a short life cycle or is incremental (such that it would not be eligible under a standard patent), then you should consider filing of the innovation patent directly before 25 August 2021. This will simplify the patenting process and be more cost effective.

Can I still maximise my patent term if I accelerate my complete patent filing to meet the deadline?
Yes, by adopting a “dual track” strategy where you file a first standard patent application by 25 August 2021 to form the basis of an innovation patent filing during the phase out period whilst that standard patent application remans pending.

A second standard patent application can be filed subsequently closer to the 12 month priority deadline to ensure the maximum term of the patent is retained. Steps would need to be taken to avoid a “double patenting” objection but these can be managed by keeping the first patent application pending.

Key takeaways

  • If you want to take advantage of Australia’s innovation patent system, you need to act soon.
  • New applications must be submitted by 25 August 2021 (AEST).
  • Existing innovation patents and applications submitted on or before 25 August 2021 will continue in force, expiring at the end of their 8-year term.
  • You should consider accelerating your complete (non-provisional) patent application filing in Australia before 25 August 2021.
  • Griffith Hack is here to help. If you have further questions or are unsure what the best steps to take are, please contact the Griffith Hack team who can take you through your options to ensure that you extract maximum value from the innovation patent system while it lasts.

The federal budget demonstrates a commitment to research, innovation and technology – but to take full advantage, greater utilisation of Australia’s world class intellectual property (IP) system is required.

Treasurer Josh Frydenberg has handed down a 2021-22 federal budget that is focused on bolstering Australia’s economic recovery amid the fallout of the COVID pandemic. 

The broad-ranging budget places a significant emphasis on job creation and essential services, with childcare, aged care, infrastructure, education and training, small business, environment and housing figuring prominently.

But they weren’t the only winners. Technology companies, emerging industries, researchers, and start-ups can also look at last night’s announcement with a sense of optimism. Proactive measures to support innovation and business growth, and to address skills shortages, have been addressed, providing a once in a lifetime opportunity for Australia to technologically reposition itself on the global stage.

Of note, areas such as clean energy, artificial intelligence, digital economy, agribusiness, drone technology and technical skills-based training have all received substantial investment. Generous tax incentives also feature prominently, including the introduction of a “Patent box” aimed at reducing taxes on income from innovative research.

Key highlights in more detail

Patent box: Encouraging Australian medical and biotech innovation
Investment in Australian medical and biotech technologies is being supported by the introduction of a patent box. The patent box will reduce taxes on income from innovative research to encourage businesses to undertake their R&D in Australia and to keep the revenue that patents generate in Australia. 

From 1 July 2022, the patent box will tax income derived from Australian medical and biotech patents at a 17 per cent effective concessional corporate tax rate. Normally corporate income is taxed at 30 per cent or 25 per cent for small and medium companies. Only granted patents, which were applied for after the Budget announcement, will be eligible.

The Government will follow the OECD’s guidelines on patent boxes to ensure the patent box meets internationally accepted standards. The Government will also consult closely with industry on the design of the patent box to determine whether a patent box is also an effective way of supporting the clean energy sector.

This measure complements the Government’s $2 billion investment in the Research and Development Tax Incentive which was announced in the 2020‑21 Budget. The Government has asked the Board of Taxation to review the administrative framework of the R&DTI before the end of 2021.

Stimulating innovation in Australian businesses
The Government will allow taxpayers to self-assess the effective life of certain depreciating intangible assets for tax purposes, rather than being required to use the effective life currently prescribed by statute. This will apply to patents, registered designs, copyrights, in-house software, licenses and telecommunications site access rights.

Taxpayers will be able to bring deductions forward if they self-assess the assets as having a shorter effective life than the current statutory life. This change will reduce the cost of investment for business, and align the tax treatment of these intangible assets with the treatment of tangible assets. Taxpayers will continue to have the option to use the existing statutory effective life when depreciating these assets.

This will apply to eligible assets acquired following the completion of temporary full expensing, which has been extended and will now end on 30 June 2023.

Growing the Australian digital games industry
Australia’s digital games industry has been bolstered by a “digital games tax offset” that will cut the costs related to game development. Digital game developers will receive a 30 per cent refundable tax offset, capped at $20 million per year, for qualifying Australian games expenditure. The global digital games industry provides significant opportunities for Australia and this tax offset will make Australia an attractive destination for digital talent.

Why this budget highlights the value of strategic IP protection

Investment in commercialised sectors such as medical research, biotechnology and clean energy provides a timely reminder of the importance of strategic IP protection to take full advantage of these investments.

Australian governments have long strived to align Australia’s IP protection systems with the most robust in the world. The objective of several significant legislative changes has been to ‘support innovation by encouraging investment in research and technology in Australia and by helping Australian businesses benefit from their good ideas’.

But while Australia now has a world class IP system, not enough Australian businesses are using it. Recent evidence suggests that the Australian patent filings market is experiencing sluggish growth with both locals and foreign filers cutting back on their investment in Australian patents. Australia risks entering the post-pandemic period significantly lagging other countries when it comes to the generation of home-grown IP. Prioritising innovation now is key to assist in our economic recovery.

Summary

Australia’s 2021-22 federal budget presents an opportunity for businesses in Australia to invest in, protect, and maximise the value from R&D and innovation. With the global economy in a fragile state after a tumultuous 12 months, and with a strong knowledge economy, Australia is well-positioned to better establish itself as a major global player in the technology, innovation and commercialisation landscape. 

Our experts will provide ongoing in-depth analysis on specific topics featured in the federal budget. To stay up to date, subscribe to our email list. If you have questions for our team about the impact and opportunities of the federal budget, or strategic IP protection, please contact us at .

Prior to COVID-19, Australia enjoyed an enviable economic record; outperforming much of the world and avoiding recession for 29 years. 

With two quarters of consecutive GDP contraction due to coronavirus-related shutdowns, Australia is now poised to face economic challenges not experienced since 1991. The Australian federal government’s 2020-21 budget incorporates an additional $2 billion ($1.42 billion)for additional R&D incentives, in the hope that homegrown will help on the road to fiscal recovery. 

Pharmaceutical spending down under

Australia’s universal healthcare system comes at a high economic cost. Managing the national purse while providing access to new therapeutics remains a challenge. The Government performs this balancing act via the Pharmaceutical Benefits Scheme (PBS). 

The PBS is a barrier to market entry

Similar to the United States’ Food and Drug Administration (FDA), the Therapeutic Goods Administration (TGA) is Australia’s regulatory authority for therapeutic goods, including prescription pharmaceuticals. Obtaining TGA approval to market and supply pharmaceuticals is a necessary hurdle for therapeutic products new to Australia.

However, acquiring TGA approval is not always enough for many pharmaceuticals to crack the market. The government subsidises pharmaceutical costs so that vital medicines are available and affordable for patients. Typically, at least one treatment for most diseases or conditions is subsidised. Since the retail cost of pharmaceuticals can be prohibitive for some patients, if the first choice of medication is not listed on the PBS, a treating physician usually prescribes an alternative that is subsidised by the PBS. Consequently, securing a PBS listing is considered a major regulatory barrier to market entry.

Some are in, and some are out

Medicines listed on the PBS are often pharmacy-dispensed prescription medication; although some supervised administration medicines (including chemotherapy drugs for hospital use only) are also subsidised. Not all prescription medications are listed on the PBS.

The Pharmaceutical Benefits Advisory Committee (PBAC), an independent expert panel whose members include health professionals and economists, recommends medicines for listing on the PBS. In its assessment of submitted therapeutics, the PBAC considers the condition for treatment, clinical effectiveness, safety and cost-effectiveness compared with other treatments. Most medicines that receive a positive PBAC recommendation are listed on the PBS. However, this can be influenced by the state of the economy, and sometimes political pressure.

Following a PBAC green light 

A recommendation from the PBAC is only the first step in achieving a PBS listing. Once recommended, financial negotiations are undertaken with the government to determine the size of subsidy, which dictates the price at which the therapeutic can be supplied to patients. The current Liberal government claims it is committed to listing all PBAC recommended medicines, appearing progressive than the former Labor government.

In February 2011, Labor’s health minister promoted the new PBS listings at the time in a press release, but deferred listing several other medicines for which existing treatments were already available on the PBS for reconsideration when circumstances permit. 

The only instance where the government previously did not accept the PBAC’s recommendation was in respect of the attempt to list Viagra, due to cost concerns. This decision prompted a slight reform to the PBS listing process, in which drugs expected to cost more than $10 million a year in the first five years, also require Cabinet approval prior to listing.

Good news for pharmaceutical originators 

Australian patent law has one of the more liberal approaches to the patenting of therapeutics in the world. While support for the breadth of claims must be strong, products can be claimed in a variety of forms. Examples include enantiomers, salts or polymorphs, in different morphologies, formulations and compositions; and as methods of treatment, in Swiss-style claims, as second and further medical indications, and even in the form of treatment regimes.

Since taking power in 2013, today’s government has approved more than 2,450 new or amended listings on the PBS at a published spend of $11.8 billion. Their promise to list all PBAC recommended therapeutics, and indeed actions to date which support this claim, are good news for pharmaceutical innovators.

The reasonable expectation that products will reach consumers through PBS listing (including those that are improved over existing treatments, are for second and further medical indications as well as for breakthrough treatments) gives some certainty that Australia is an attractive market to enter. 

With improved market access through the PBS, in addition to a ruling government that appears to be listening to both industry and consumer advice, now is a good time to be a patentee in Australia, with exclusive rights to supply therapeutics.

Recent PBS announcements 

In the 2020 federal budget the ovarian cancer drug Lyn-parza® was announced for inclusion on the PBS. Rather than costing a patient over $140,000 for a course of the drug, it will be available for about $40 a month, or less than $10 for those with an eligible concession. As well as Lynparza®, new and amended PBS listings in this budget include medicines for liver cancer, Parkinson’s disease, eye conditions and high cholesterol at an expected cost of $376 million.

The expanded listing on the PBS of Tecentriq® and Avastin® (atezolizumab and bevacizumab) for combination use in the treatment of advanced unresectable hepatocellular carcinoma is projected to cost over $230 million and is expected to benefit more than 500 patients a year. This is the most common form of liver cancer in Australia and currently has a low survival rate.

Other recent PBS updates include expanded listings for Eylea® (aflibercept) and Apomine® (apomorphine). The anti-VEGF agent Eylea® is now subsidised for patients affected by subfoveal choroidal neovascularisation due to pathologic myopia (mCNV), where previously it was listed only for other ocular conditions, including diabetic macular oedema. The listing for Apomine® was exclusively for the treatment of Parkinson’s disease but is now approved for maintenance therapy through community pharmacies without restriction to hospital treatment. 

The PBS also includes a price disclosure policy, applicable to medicines that are not exclusive and are therefore subject to competition. The policy aims to ensure the price at which the government subsidises multiple-brand medicines reflects the prices charged in the market. As announced in the budget, two high cholesterol medications, ezetimibe and rosuvastatin, will be cheaper under this policy. Around 300,000 Australians buy subsidised rosuvastatin, which will now be $2 less per prescription.

R&D Spending 

RDTI; what and why?

Australia’s Research and Development Tax Incentive (RDTI) is designed to encourage R&D spending in Australia by local and international entities. It provides tax offsets for R&D activities undertaken in Australia by companies liable for Australian income tax, which conduct at least one “defined core R&D activity” that incurs the minimum eligible R&D expenditure. The RDTI provides cash refunds up to 43.5% of spending on eligible R&D activities. Alternatively, entities with an annual turnover more than $20 million may be eligible for a non-refundable tax offset.

The scheme is one reason why Australia has historically been considered an attractive location to conduct clinical trials. When considered in addition to other favourable market characteristics, the opportunity to secure cash refunds for R&D spending makes Australia very competitive for conducting world-class clinical trials. Recently, the (mostly) effective domestic control of COVID-19 has further positioned Australia as an at-tractive choice.

Proposed RDTI changes 

The federal treasurer used the recent budget announcement to reveal that intended changes to the RDTI would not proceed. In September, legislation had been considered by Parliament which would cut $1.8 billion from the scheme. 

The changes were pitched at improving R&D in Australia but were seen by industry as a cost-cutting exercise. One of the most criticised changes was the introduction of a $4 million cap on the amount smaller companies could receive in refunded tax offsets. Also earmarked for introduction was a complex “intensity measure” for larger companies.

The role of R&D in strengthening the economy appears to have been given greater consideration as evidenced by the government’s decision to limit drastic changes proposed to the RDTI. The scheme can greatly assist patentees seeking to bring new drugs to market through the ability to subsidise not just classic R&D spending, but also Australian clinical trials.

Confirmed RDTI changes

Many of the proposed RDTI changes have now been rolled back. The legislation implementing these changes has already passed Parliament, just days after the budget announcement. 

Pleasingly, the $4 million cap has been scrapped. The tax offset rate applicable for refunds available to smaller companies has also been increased. In other good news, the formerly proposed increase in the annual cap in R&D expenditure from $100 million to $150 million has been retained.

However, despite profound concern voiced by some sectors, the “intensity measure” remains, albeit in a simplified two-tier form. The size of tax offsets available to companies with an annual turnover of over $20 million will now be determined by a comparison between their R&D spend and total expenses. 

Modern Manufacturing Strategy

Critics of changes to the RDTI believe the new measures will damage local manufacturing. However, the budget incorporates a $1.3 billion Modern Manufacturing Strategy driven in part by logistical frailties exposed by impacts from COVID-19. The strategy aims at improving Australian self sufficiency in targeted industries, including food and beverage manufacturing and medical products. It will include a grant scheme informed by advice from Industry, Innovation and Science Australia and the Commonwealth Scientific and Industrial Research Organisation (CSIRO). 

“Australian patent law has one of the more liberal approaches to the patenting of therapeutics in the world.”

Though details are still sketchy, part of the strategy includes funding to the SME sector to support manufacturers by co-funding capital investments and associated reskilling. The intent is to assist SMEs in modernising and adopting new technologies, including investing in efficient and transformative manufacturing processes. In short, whereas in recent decades, manufacturing capability in Australia has diminished, fuelled by cheaper costs and greater skills particularly in the Asia-Pacific region, this programme aims to place renewed focus on Australian innovation. 

This will hopefully translate to more intellectual property activity – not only in areas such as freedom to operate, but also in the protection of original ideas and new technologies. Where Australian originating patents have been proportionately decreasing at IP Australia over the last period, this strategy may see a trend reversal. An Australian manufacturing capacity increase should also incentivise offshore patentees to reconsider Australia as a patent destination.

Key considerations 

In these uncertain times, it is difficult to know where to invest for good return. Typical spending on infrastructure and services feels far riskier when the usual income sources are no longer guaranteed. The government’s 2020 Budget provides some assurances however, that Australia is committed to assisting and rewarding innovators, especially in the health and medical sectors. COVID-19 has proven to be an unexpected pivot point for the medical, food and beverage manufacturing sec-tors after struggling for years to attract the government’s attention.

The commitment to listing all medications recommended by the PBAC on the PBS, should encourage the pharmaceutical sector and reduce some of the risk associated with bringing new drugs to the Australian market. The rewarding RDTI further incentivises R&D spending in Australia and continues to position the country well as an ideal location to conduct clinical trials.

It is good to see the government’s recognition of the economic rewards available by investing in innovation; not only future-proofing advanced industry sectors, but for critical economic growth in the short term as well. Very few have been untouched by COVID-19; hopefully Australia’s 2020 Budget will help repair at least some of economic damage caused this year and beyond.

* This article first appeared in MIP winter edition 2020.