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

Griffith Hack has maintained its status as a Tier 1 firm for patent prosecution in the IP STARS 2021 rankings, with principals Amanda Stark and Janelle Borham named as Patent Stars.

The results highlight Griffith Hack’s standing as a leader in patent work both within Australia and internationally.

Earlier in 2021, Griffith Hack was also named as a Tier 1 firm for trade mark prosecution by IP STARS, with Anne Makrigiorgos recognised as a Trade Mark Star.

Published by Managing IP, IP STARS recognises firms and senior practitioners who have been identified as leaders in their fields and is considered one the most comprehensive and widely respected guides in the IP profession.

Malcolm Lyons looks at the recent Federal Court decision in Ono Pharmaceutical Co, Ltd v Commissioner of Patents [2021] FCA 643 which has provided long needed clarity on requests for patent term extension.

In a readily digested, well written decision dated 11 June 2021, Beach J of the Federal Court of Australia has provided long needed clarity on requests for patent term extension (PTE). In particular, Beach J has provided a logically consistent interpretation of the statutory term “earliest first regulatory approval date”, which had caused difficulty for many patentees.

As made clear in the decision, PTE aims to provide an effective patent life for a patent covering a new and inventive pharmaceutical substance by compensating for the delay between grant of the patent and regulatory approval when the patent may be exploited. In Australia, regulatory approval is listing of the pharmaceutical substance on the Australian Register of Therapeutic Goods (ARTG).

The decision was a Judicial Review of an earlier decision of a Delegate of the Commissioner of Patents refusing PTE of a patent based on nivolumab marketed as OPDIVO. Based on an earlier decision of the Federal Court of Australia, Pfizer Corporation v Commissioner of Patents (No 2) (2006) 69 IPR 525 (Pfizer), the Delegate had interpreted “earliest first regulatory approval date” as applying to a pharmaceutical substance listed on the ARTG by any party, irrespective of whether the pharmaceutical substance was that of the patentee or a competitor. In this instance, the Delegate found that the earliest first regulatory approval date was that of pembrolizumab marketed as KEYTRUDA by another party.

In contrast, Beach J held that the PTE legislative provisions required beneficial and remedial construction. In doing so, Beach J was able to distinguish Pfizer. Reasons that were persuasive included:

  • determining whether a competitor product falls within the claims of a patent (to determine its first regulatory approval date is the “earliest”) may require information which can only be provided by the competitor if the Court were to order discovery of relevant documents, which is a non-trivial task to say the least
  • products may be removed from the ARTG in certain circumstances, including upon request by the sponsor, and therefore the ARTG is not necessarily a complete database of all the possible “first regulatory approval dates” in existence.

Beach J concluded that the construction advanced by the Delegate and maintained upon judicial review resulted in manifest absurdity or unreasonableness. Consequently, the appeal was allowed, and the PTE was granted based on nivolumab / OPDIVO.

It will be interesting to see if the Commissioner of Patents appeals this decision to the Full Court of the Federal Court of Australia. If so, leave to appeal must be sought by 25 June 2021. However, given Beach J’s grounds for distinguishing Pfizer, this seems unlikely. In which case it will be interesting to see also if patentees seek reconsideration of PTEs refused by the Commissioner of Patents on the basis of Pfizer.

Although this decision has simplified PTE requests for patentees and provided a degree of certainty by allowing a patentee to ignore third party pharmaceutical substances listed on the ARTG, there remain issues regarding a patent covering two or more pharmaceutical substances listed on the ARTG by the patentee. At [174] to [178], Beach J explained that a patentee will not be permitted to wait and elect to apply for PTE based on a good that may be second, third, or last on the ARTG, nor to pick and choose which of its products to nominate as the pharmaceutical substance for the purposes of requesting PTE. In these circumstances, the latest ARTG listing would provide the greatest PTE. Consequently, it remains best practice to pursue multiple pharmaceutical substances likely to be listed on the ARTG in separate divisional applications.

For more information, please contact Malcolm Lyons

Griffith Hack is pleased to congratulate Janelle Borham on being named president of the Institute of Patent and Trade Mark Attorneys of Australia (IPTA).

Janelle, a principal in Griffith Hack’s ChemLife group, has been a member of IPTA’s Council for 15 years and previously held the position of vice president.

As Australia’s peak professional body for patent and trade mark attorneys, IPTA aims to promote improvements in patent, trade mark, design and plant breeder’s rights laws and regulations; maintain by-laws and a code of ethics for patent and trade mark attorneys; and to encourage communication and knowledge sharing between members.

Janelle steps into the presidency with the aim of supporting and uniting the IP profession, and progressing IPTA’s core mission.

“An objective of my presidency is to restore harmony and balance to the profession, and help all individual members feel supported and proud of their profession,” said Janelle.

“I look forward to taking on an enhanced management role within the organisation, including responding to more sensitive member questions and concerns, working with IP Australia to improve IP laws and their administration, working with IPTA staff, and engaging with Council members and IP Australia.”

Janelle has introduced several progressive initiatives into IPTA’s framework, including an industry-leading program of continuing professional development webinars that are available to the organisation’s membership base of over 900 practitioners.

“IPTA members rely on our Institute for high-quality education and training, so ensuring they have access to frequent and wide-ranging professional development opportunities is an important objective for me.”

Janelle originally started at Griffith Hack in 1994. She provides strategic IP advice to large corporations locally and overseas with a particular focus on food sciences, pharmaceuticals, energy technology and polymers. She is recognised as a leading practitioner by World IP Review, World Trade Mark Review, IAM Patent 100 and IP Stars.

Griffith Hack managing director Aaron LePoidevin commented, “On behalf of everyone at Griffith Hack, we are delighted to see Janelle named president of IPTA. As our industry’s peak professional body, IPTA plays an exceptionally important role in enhancing collaboration, communication and knowledge sharing amongst IP professionals. Janelle’s elevation to president is recognition of her significant contribution to IPTA and the confidence her fellow council members have in her ability to unify and advance the profession.”

Freedom Foods Pty Ltd v Blue Diamond Growers offers important lessons and guidance for all drafters of IP licence agreements.

On 28 May 2021, the Full Federal Court of Appeal in Freedom Foods Pty Ltd v Blue Diamond Growers [2021] FCAFC 86 (Freedom Foods v Blue Diamond) delivered instructive reasons why an intellectual property licence agreement was not a franchise agreement. The decision contains useful guidance for practitioners, in-house counsel, and organisations who licence IP assets and seek to ensure IP licence agreements are not unintentionally made subject to the substantial obligations under the Franchising Code of Conduct

Background

Californian company Blue Diamond Growers (Blue Diamond) licensed Australian company Freedom Foods Pty Ltd (Freedom Foods) to manufacture and sell almond milk products under certain trade marks (Licence Agreement). A dispute arose and Blue Diamond sought to rely upon a clause in the Licence Agreement requiring arbitration of the dispute in California. Freedom Foods sought to avoid that clause on the basis that the Licence Agreement was a franchise agreement and regulated by the Franchising Code of Conduct (Code). The Code provides that a clause requiring a party to bring proceedings in any jurisdiction outside Australia “is of no effect”.

What are key implications for licensors if the Code applies?

If the Code applies, it imposes costs and administrative burdens on licensors as it is designed to protect franchisees.

For example, in addition to jurisdictional limitations, the Code sets out several obligations on licensors, including to:

  • prepare an extensive disclosure document in a prescribed form containing among other things financial and business experience information, and mandatory prescribed wording (such as warnings and cooling off notices);
  • provide information about arrangements that apply on termination of the agreement;
  • ensure dispute resolution and termination procedures align with those set out in the Code;
  • act towards the franchisee with “good faith“.

Licensors who do not comply with the Code, including inadvertently because they did not intend the licence agreement to be a franchise agreement, may be fined up to $AUD66,600.1

Why was Blue Diamond’s Licence Agreement not a franchise agreement?

The Court determined that the most distinctive feature of the definition of franchise agreement in the Code was paragraph (b) of the definition being “the grant by the agreement of a right to carry on business under a system or marketing plan that comes from the licensor” (Element B).

In line with earlier authorities, the Court found that:2

  1. Element B should be broken into three sub-elements that work together and must be met being:
    i.  the grant of the right to carry on the specified business; 
    ii. the business to be carried on under a system or marketing plan; and 
    iii. the system or marketing plan to be substantially determined, controlled or suggested by the alleged franchisor;
  2. ”substantially controlled” means the power to direct or restrain the content of the business plan on any substantial issue;
  3. the agreement can relate to a discrete part of the franchisee’s business (rather than the franchisee’s entire business);
  4. a system or marketing plan is a ”co-ordinated method or procedure, or scheme whereby goods or services are sold” or “a method of operation under which a business is to be conducted”.

The Court held:

““the three cumulative elements of [Element B] describe a distinctive aspect of a franchise agreement, namely that instead of the ongoing conduct of the business being dependent on the business acumen and skill of the grantee as the operator of the business, the system or plan for the business is substantially a matter for the grantor. ….. the grantor has the business concept and confers on the grantee the right to carry on the grantor’s business concept under the trade mark, advertising or commercial symbol of the grantor for a fee. …  [Element B] is not concerned with agreements made by a grantor with a grantee where, after the making of the agreement, the manner of the future operation of the business of the grantee is to be determined by the grantee.”

The following features of the Licence Agreement (among others) were relevant to the Court’s finding that it was not a franchise agreement:

  • the recitals indicated that Freedom Foods would continue its own business as a manufacturer and distributor of products and did not indicate Freedom Foods would be granted a right to carry on a business in a particular manner;
  • marketing plans would be developed and implemented by Blue Diamond (including by spending 5% of product sales on such activities), but reviewed by Freedom Foods. The marketing plans were not “directed to the manner in which Freedom Foods” would sell or distribute products;
  • Freedom Foods were responsible for the development and implementation of trade promotion and account specific promotional plans (with Freedom Foods to expend 5% of product sales on such activities). Blue Diamond was permitted to meet with Freedom Foods about these plans. The Court considered that these plans were to affect product sales. Distinct from the marketing plans, the promotional plans were about business activities that Freedom Foods were licensed to undertake. Blue Diamond had no mechanism of control over such promotional plans, even if they could meet with Freedom Foods about them;
  • Blue Diamond’s right to change packaging and product formulations was to protect Blue Diamond’s IP and ongoing business interest.

This meant the Court did not restrain Blue Diamond from proceeding with arbitration in California.

Five key lessons from Blue Diamond v Freedom Foods

Blue Diamond v Freedom Foods serves as a warning to drafters of IP licence agreements (that the parties do not intend are franchise agreements) that licensors should not (and should not be given rights to):

  1. direct or suggest a marketing plan or scheme for how the licensee may advertise, sell, or promote its business or the sale of products and services comprising that business;
  2. control manufacturing or distribution of products in such a way that could permit control of the licensee’s business operations and methods. However, the licensor can enforce specifications about how the products are made or packaged, provided it’s necessary to protect the licensor’s business interests in connection with the activities the licensee is permitted to undertake;
  3. require a licensee to develop its promotional and marketing systems within a system or marketing plan that is created by the licensor;
  4. control the strategy for promotional materials. However, the licensor can have rights to approve packaging or promotional materials in respect of matters that affect the reputation of the licensor (e.g. how the licensor’s trade mark is presented); or
  5. compel the licensee to do certain things that appear to give the licensor control over the licensee’s business operations. However, the licensor can have some controls over non-operational aspects to protect the licensor’s reputation or the value of the intellectual property being licensed.

The line between protecting the licensor’s reputation and intellectual property by placing obligations on the licensee to do certain things, and controlling how the licensee conducts its business, can be difficult to find.

Drafters should be mindful of this line and the other issues above, to mitigate the risk their licence agreement attracts costs, administrative burdens and potential fines under the Code.


  


Footnotes

1 The Australian Government has recently introduced laws to double these penalties and increase obligations on franchisors as of 1 July 2021.

2Rafferty v Madgwicks [2012] FCAFC 37; (2012) 203 FCR 1; Workplace Safety Australia Pty Ltd v Simple OHS Solutions Pty Ltd [2015] NSWCA 84; (2015) 89 NSWLR 594.

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 .

Nearly three years ago, we reported on a decision of the Australian Designs Office that suggested that the automatically generated ‘Confidentiality Notice’ in the footer to your email may not always be effective.

The decision was appealed and last month the Federal Court handed down its reasons for judgment allowing the appeal and setting aside the decision of the Delegate of the Registrar of Designs.

To recap, in the original proceeding before the Australian Designs Office, Sun-Wizard made a third‑party request for examination of Key Logic’s registered and certified design for a “Solar bollard”. Sun-Wizard relied on two emails with attached images as invalidating prior publications of the design. Key Logic conceded that the images attached to the emails were of the design. Therefore, the decision turned on whether the emails were publications, that is, made available to member(s) of the public without any restriction as to secrecy or confidentiality.

Key Logic submitted that the contents of the emails and the attachments “were confidential and received in circumstances importing an equitable obligation of confidence”. Each of the emails was sent to “All EXlites Associates”. In the proceeding before the Australian Designs Office, it was unclear exactly how many recipients this constituted, but it was apparent that most of the recipients were sellers of Key Logic’s products. Each of the emails included after the signature block, in a smaller font size, a confidentiality notice in the following terms:

Confidentiality: This E-Mail is from EXlites. The contents are confidential and are intended only for the named recipient. The recipient is hereby notified that any use, copying, disclosure or distribution of the information contained in the E-Mail is strictly prohibited. If you have received this E-Mail in error, please reply to us immediately at . Please delete the document from your E-Mail system.

In relation to Key Logic’s attempt to rely on the confidentiality notice at the end of each email, in the original proceeding the Delegate of Registrar of Designs found as follows (at [46]):

I am not persuaded that the confidentiality notice at the bottom of the email has the effect submitted by the Owner. Case law on the effectiveness of such notices is scant to say the least. Nevertheless, it is apparent that notices of that type are added almost universally by businesses as a matter of course beneath the signature blocks of their emails regardless of the content of the email to which they are appended. It is unlikely that any recipient of an email in a business setting reads beyond the signature block every time they receive an email. It is far more likely that they never read beyond the signature block. While a recipient is likely aware that there is probably such a notice lurking there—should they happen to turn their mind to the question—the ubiquitous presence of such notices means that they are unlikely to have the effect asserted by the Owner, regardless of the nature of the material either in the email or attached to it. It seems to me that in cases where what is contained in emails is truly confidential, and a sender wishes to make that known, a confidentiality notice at the beginning of an email is far more likely to be effective in importing an obligation of confidence to the recipient.

The appeal of this decision to the Federal Court was in the nature of a rehearing. It is apparent from the lengthy reasons for judgment, some 285 paragraphs long, that a considerable volume of fresh evidence was adduced as to the circumstances surrounding the emails in dispute. In the end the appeal was successful as Justice Greenwood found that in all the circumstances the relevant disclosures in the emails were made under an obligation of confidence.

Despite the somewhat dramatic foreshadowing of Justice Greenwood in stating (at [282]) that a matter that “loomed large in the proceeding was the significance of the text of a footer at the end of each email”, there is unfortunately almost no discussion of this issue in the decision. The only relevant finding by Justice Greenwood on this point was (at [284](16)) that the confidentiality notice in the footer to the relevant email “operated as a cognitive cue of some importance […] but by itself it was not determinative of the character of the information communicated by the emails.”

The due date to seek leave to appeal to the Full Court of the Federal Court has now passed so it seems as though this is where the story ends.

Accordingly, even though the appeal was successful the usefulness of a confidentiality notice in your email footer still appears to be limited. In any event, there does not appear to be any need to go and delete the confidentiality notice in your email footer.

If you have any questions or require expert advice, please don’t hesitate to contact us.

There have been several significant developments internationally in trade secret protections over recent years. This rise in prominence is potentially explained by many factors, including increased employee mobility and improvements in document storage technology that have arguably increased the risks of misappropriation of trade secrets.

Another contributing factor is ongoing uncertainty around the ability to protect computer-implemented technology with patents making the trade secret alternative more appealing than it has been in the past.

USA

Back in 2016, we reported President Obama signing the Defend Trade Secrets Act (DTSA) into law on 11 May 2016. The DTSA provides a federal private right of action for trade secret protection creating a uniform standard for trade secret misappropriation. Existing US state laws on trade secrets are nonetheless still in place.

As a result, trade secret case filings increased 30% between 2015 and 2017, and remained steady at that increased level between 2017 and 2019 (Lex Machina 2020 Trade Secret Litigation Report).

More recently, district courts have held that liability under the DTSA can extend to extraterritorial defendants if an act in furtherance of the misappropriation of the trade secret(s) occurred in the USA. This may mean more protection is available under the DTSA than in alternative jurisdictions as long as there is some nexus to the USA. 

European Union

About two weeks after the DTSA became law in the US, the European Council approved Directive 2016/943 on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure. Member States of the European Union had until 9 June 2018 to implement the Directive into national law.

The Directive is a minimal harmonising legislation, which means that Member States are permitted to provide for a higher level of protection for trade secrets, so long as at least the same level of protection and minimum standards for measures, procedures and remedies are ensured for trade secret holders.

Notwithstanding Brexit, the Directive was implemented into UK law on 9 June 2018. Prior to this, trade secrets in the UK were protected by the law of confidence derived from principles of equity (as is the case in Australia). Now the two systems operate in parallel.

China

The Anti-Unfair Competition Law of the People’s Republic of China was revised with effect from January 2018 and again in April 2019.

Under the revised law a trade secret is defined as “technical information, business operation information, and other commercial information that are not known to the public and have commercial value”, whereas prior to 2018 the definition required “economic benefits and practical value”. A third party with actual or constructive knowledge of the theft of a trade secret can now also violate the law.

The penalty for violation now ranges up to RMB 5 million (approx. AU$1 million), compared to the previous limit of RMB 0.2 million (approx. AU$40,000). Also, punitive damages are available which can be one to five times the actual loss or illegal gains.

Where to for Australia?

Although the topic was essentially overlooked in The Productivity Commission report into Australia’s Intellectual Property Arrangements in 2016, it was apparent from the report that use of secrecy or confidentiality arrangements was significant in Australian innovation-active businesses relative to more formal IP rights.

While there is currently no trade secrets legislation in Australia, there is an established cause of action for breach of confidence, which includes trade secrets, similar to that in the United Kingdom. Codification of trade secret protection in Australia could potentially streamline enforcement procedures, further legitimize what is sometimes seen as an ‘informal’ IP right and would, at least, make us consistent with many of our major trading partners. However, it seems unlikely that there will be any legislative push for codification in the medium term in the absence of some external factor, such as, for example, as part of a free trade agreement.

Getting on the front foot

In any event, the enforceability of any rights in relation to a trade secret will almost always depend on how well it has been documented and protected. A documented inventory of trade secrets, along with standard protective measures which might include access control, confidentiality agreements and/or document labelling, will help prepare your business to enforce its rights if it becomes necessary. A systematic approach to these issues can also create a culture of careful management of sensitive information in your business, and hopefully prevent any future need for enforcement.

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.