The Patent Box regime is a tax concession that lowers the corporate tax rate for…
Intellectual Property Considerations for R&D Tax Incentive Recipients and Others Looking to Export
Exporting increases a nation’s wealth, and exporting a nation’s ideas through commercialised products protected by strong international IP laws, is one of the best pathways to long-term wealthy nation status. So let’s see how you can leverage your IP to help grow your business overseas, thereby contributing to growing Australia’s overall wealth.
Great news for companies that have either received or are in the process of receiving a 43.5% tax offset from their R&D expenditure as part of the R&D Tax Incentive: your R&D will produce intellectual property (IP), which could be something tangible or intangible (like a new/improved process or service or software). And this will almost certainly be an eligible product — a physical good, IP or know-how, or software — for Export Market Development Grant (EMDG) assistance.
Once you’ve secured an EMDG agreement to assist with various types of expenditure for promoting your product overseas, one use of the funding can be to cover expenses associated with the granting, registration, or extension of the IP rights for your eligible product in foreign countries. This includes payments to patent and trademark attorneys and the relevant government authorities.
If you have been through the R&D Tax Incentive, at the beginning of your R&D journey you would have likely done searches to establish the state of the art from knowledge freely available, as well as patent searches. To determine if your potential lP isn’t already registered, the IP Australia website lists the following four broad areas to consider to ensure a comprehensive IP search: Australian (AusPat) and International patent databases; Australian and international trademark databases; Australian and international designs; and the Plant Breeder’s database (Australian).
Although IP covers a whole range of items, including patents, trademarks, registered designs, geographical indications, copyright, trade secrets, and other confidential information, in this article we’ll be focusing on two of the main IP protections most associated with Australian businesses benefitting from the R&D Tax Incentive: patents and copyright.
Copyright vs patents, with some software-specific comparisons
An idea or creative concept is automatically protected by copyright in Australia as soon as it is documented on paper or electronically, and this applies to things like drawings, art, literature, music, film, broadcasts, and, most importantly for our illustration here: computer programs (e.g. software / SaaS). The owner’s original expression of ideas is protected, but not the ideas themselves.
Despite the provisions of copyright, a patent is the most comprehensive IP protection for a software-related innovation, because it protects the novel features and processes, not just the underlying source code. The disadvantage of copyright versus patenting for software is that a competitor may in certain circumstances be able to make just some minor changes to the code to avoid infringement. Despite this, the cost and time taken to get a patent granted is often outweighed by the desire for many SaaS creators to be “first to market”, especially for lean startups needing to get their MVP in the marketplace and selling.
Nevertheless, there are also some other additional important factors to consider; for example, having a “patent pending” is a sign to potential investors and/or partners that you have something valuable worth protecting, given that you’re taking steps to protect it, which also improves your competitive advantage and, consequently, your business’s value.
One other way of protecting your product’s IP at various stages, from design to distribution, is the use of non-disclosure agreements (NDAs), especially when you need to protect information that has to be shared, but want to limit the parties who can share it. Use of NDAs may create challenges (when information needs to be shared with investors, for example), but you may want to keep information associated with your product secret instead of having it exposed as part of a patent specification, so the NDA is something to consider.
Specifically in relation to exporting, an NDA could protect confidential information regarding things like the national or international manufacture, sales and distribution, and know-how needed to produce and distribute a product. However, an NDA, like any kind of agreement, won’t actually prevent wrongdoing from occurring, it will just establish the rules to deal with infringements. Therefore, the jurisdiction of the NDA, and how this will affect its enforcement, is a major consideration.
Some global and country-specific considerations
The World Intellectual Property Organization (WIPO), a self-funded agency of the UN with 193 member states, oversees the development of an international IP system that enables effective global innovation and creativity. It has created a number of different IP-protection systems, often with city-themed denominations (e.g., “Madrid System” when referring to its “International Trademark System”, and “Hague System” for its “International Design System”). The WIPO’s Patent Cooperation Treaty (PCT) assists applicants seeking patent protection internationally for their inventions, as well as helping national patent offices with their patent granting decisions, and facilitating public access to the technical information relating to the inventions. By filing one international patent application under the PCT, applicants can simultaneously seek protection for an invention in over 150 countries.
IP registration and protection in the US is very similar to Australia. Applications for patents, trademarks, and designs can be filed electronically on the website of The United States Patent and Trade Mark Office (USPTO). The United States Copyright Office of the Library of Congress is responsible for copyright registrations. The registration of copyright is not compulsory in the USA; however, it is a prerequisite to the filing of a lawsuit for infringement of copyright. For example, statutory damages of up to $150,000 per work infringed and the awarding of payment of your attorneys’ fees by the infringing party are available only to those who have complied with US registration formalities before starting infringement proceedings, or within a short time of first publication of the work.
China has three types of patents: invention patents (equivalent to an Australian standard patent), utility model patents, and design patents. Of the three types, the utility model patent has the most registrations (4.57 million in March 2019). A utility patent does not undergo substantive examination, so it is granted relatively quickly, and can be used to protect physical products, but not processes or chemical compounds. Patent or design protection in mainland China does not provide protection in Hong Kong or Macau.
Although the creator of a work is automatically granted copyright protection in China (as in Australia and the other 170+ Berne Convention countries), unlike Australia, copyright can be registered in China. A copyright registration in China simplifies enforcement and will make it easier for the copyright owner to enforce their rights against infringers through local authorities or the Chinese courts.
China has a specific software copyright registration system (which is optional) that requires disclosing a portion of the source code; however, there are ways to limit the disclosure. Due to China’s software regulations allowing software to be used for the study and research of the concepts and principles underlying the software design without needing the permission from the copyright owner, it is recommended that you carefully draft contracts with licensees (who will often have access to confidential information as part of a license arrangement), in order to protect against reverse engineering.
European Union and UK
The European Union (EU) is the world’s largest trading bloc and second largest economy, and can legislate on IP matters for its 27 member states; however, each member can implement certain IP arrangements at the national level — one notable example is Germany, which treats the IP arising from employer–employee arrangements significantly different than many other countries, including Australia. IP protection can be granted at a national level (as opposed to EU wide), but of course this would then generally only be enforceable in the country in which it is granted. However, the expense and complexity of applying at the EU-level would need to be taken into consideration, especially if you really only wish to target a certain segment of the EU bloc.
Trademarks, designs, and rights for plant varieties can be registered at the European Union Intellectual Property Office (EUIPO), which covers the whole EU. And patent owners can use the centralised European Patent Office (EPO), which generates a bundle of national patents, including for the UK, due to the non-EU European Patent Convention (EPC). So, despite BREXIT, existing European patents covering the UK are also unaffected. Additionally, continued reciprocal protection for copyright works between the UK and the EU is guaranteed by international treaties on copyright.
India is Australia’s fifth largest export market, and with a population of approximately 1.3 billion, and English being one of its official languages, there is plenty of opportunity in this market.
The government entity responsible for the administration of patents, trademarks, and designs in India is The Office of the Controller General of Patents, Designs and Trade. When seeking IP registration in India, a local address and a local agent/attorney is generally required.
Are our IP protections adequate, and how will we enforce them? Should I apply for a worldwide patent? Is the expense worth it? Which markets should we target first? Will the time taken waiting for a patent mean that advances in technology have rendered it obsolete when it is finally issued? There is no one-size fits all solution for protecting your IP in Australia or abroad, but being aware of the considerations discussed in this article will certainly be helpful in forming an idea about the right path forward.
Keep an eye out for Fullstack Advisory’s articles and newsletters so you can leverage our knowledge and expertise to obtain all the grants, R&D Tax incentives, and other good stuff that’ll keep you moving onward and upward!