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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 onshore"1, 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

Our Expert Project Lead