“Unlike a mining boom, an innovation boom is a boom that can continue forever, … limited only by our imagination.” – Prime Minister, Malcolm Turnbull

Earlier this month Australia paused to dissect and digest the Federal Government’s 2017/18 Budget – to gain an understanding of what it does, or doesn’t deliver for Australia’s future. For many there was great anticipation to discover what funding would be allocated to support Australia’s vision to ‘help create the modern, dynamic 21st Century economy Australia needs’ – a vision led by the Government as part of its National Innovation and Science Agenda (NISA) released in December 2015.

The Budget did deliver some benefits towards the delivery of NISA and other initiatives which will positively impact the IP landscape in Australia, and some cutbacks anticipated with trepidation by the Australian innovation community failed to materialise. Whether these new measures, together with the other NISA initiatives, are able to achieve their long term objective – to launch Australia into a new era and culture of innovation – remains open to debate. For now, we provide a summary of the key new initiatives impacting the IP landscape.

Fintech

One of the foci in the 2017 Budget (and indeed flagged in the 2016 Budget) was an increased investment in increasing Australia’s fintech capability and attractiveness.

In the 2017 Budget this has resulted in a range of initiatives including:

  • Potentially relaxing the 15 per cent ownership cap for innovative new entrants into the banking sector.
  • Lifting the prohibition on the use of the term ‘bank’ by ADIs with less than $50 million in capital.
  • Introducing a world-leading legislative financial services regulatory ‘sandbox’ to enable new and innovative FinTech products and services to be tested in Australia without a licence (but with “robust consumer protections and disclosure requirements” etc in place).

If successful, the measures are posited to attract fintech innovators and investors to Australia by reducing regulatory hurdles which have traditionally suffocated new businesses trying to develop innovative financial products or services, and caused Australian talent go offshore.

Advanced Manufacturing

Just over $100 million in new funding is allocated to boost innovation, skills and employment in advanced manufacturing to continue the transition to a new economy. The funds will be allocated to a range of initiatives including:

  • $47.5 million for a new Advanced Manufacturing Growth Fund, to help industry adjust to the wind-down of car manufacturing, to provide matched funds of up to a third of the project cost to South Australian and Victorian manufacturers for capital upgrades to make their businesses more competitive through innovative processes and equipment.
  • $4 million for the Advanced Manufacturing Growth Centre to support small scale and pilot research projects in advanced manufacturing, benefiting small firms and early stage researchers, allowing them to quickly move to larger scale research or commercialisation.
  • $20 million under the Cooperative Research Centre – Projects initiative for larger scale advanced manufacturing research projects of up to $3 million in funding over three years.
  • $10 million to establish Innovation Labs in South Australia and Victoria to serve industry in a variety of roles including test centre facilities and business capability development, delivered through existing government services like Entrepreneurs’ Programme, Industry Growth Centres and Austrade.
  • $5 million to maintain engineering excellence by investing in student research at universities, technology institutions and in industry to maintain the flow of highly trained engineers to the automotive design and engineering sector.
  • Removing tariffs on imported vehicle prototypes and components used by Australian motor vehicle design and engineering services that operates in a global network.

Space

In keeping with the increased global focus on ‘space’, $26.1 million in new funding was earmarked for optical astronomical research and instrumentation development and a commitment for ongoing average annual funding of $12 million, indexed, to 2027-28. This includes entering a 10-year strategic partnership with the European Southern Observatory (ESO) from 2018, although it also redirects $12.6M of existing funding for the Australian Astronomical Observatory.

Innovation Minister Sinodinos said that this “…offers Australia’s astronomers long-term access to front-line astronomical facilities, with opportunities for Australian influence and technical and scientific input, to stimulate research and industry collaboration.”

Medical Research

The Government will provide $65.9 million over four years from 2016 17 from the Medical Research Future Fund (MRFF) to invest in medical research in Australia, such as preventive health and translating research, clinical trials, accelerating research investments (CanTeen) and breakthrough research investments.

MRFF disbursements are expected to reach $642.9 million by 2020- 21 and will provide a sustainable funding stream for medical research.

Reginal Incubator Support

The Government will refocus the existing Incubator Support element of the Entrepreneurs’ Programme to provide additional support for regional businesses. This will include additional regional incubator facilitators and provide grants to support the establishment of regional business incubators.

Business Support for Indigenous Entrepreneurs

The Government will redirect $146.9 million over four years from 2017 18 from Indigenous Business Australia to the Department of the Prime Minister and Cabinet to facilitate the delivery of innovative and effective support for Indigenous businesses and entrepreneurs including workshops, business planning and training, tailored loan products, and capital assistance for Indigenous entrepreneurs who would like to establish or grow their business.

PBS Changes & Patent Litigation

The Budget announced changes to the current Pharmaceutical Benefits Scheme (PBS) statutory price reduction arrangements which are directed at improving access to affordable medicines. Although they are not implemented to foster innovation in Australia, they may nevertheless affect the IP landscape. Key changes, which may affect the way patentees of registered medicines litigate potential infringements, include:

  • Extending the current 5 per cent reduction for Formulary 1 (F1) medicines by two years to 2022.
  • Increasing the price reduction for medicines moving from F1 to Formulary 2 from 16 per cent to 25 per cent from 1 October 2018 until 30 June 2022.
  • A one off 10 per cent statutory price reduction for F1 medicines listed on the PBS for 10 14 years, to commence on 1 June 2018, with subsequent reductions each year as medicines reach their 10 year anniversary, through to 2021.
  • A one off 5 per cent statutory price reduction for F1 medicines listed on the PBS for 15 years or more to commence on 1 June 2018, with subsequent reductions each year as medicines reach their 15 year anniversary, through to 2021.

When the PBS price drop on generic entry increases from 16% to 25%, this will increase the potential quantum of liability to the Commonwealth for a patentee who obtains an interlocutory injunction preventing earlier generic entry. On the other hand it may arguably also strengthen that patentee’s ability to obtain an interlocutory injunction, as the loss to the patentee if the status quo is not maintained pending the outcome of infringement proceedings (and also the potential damages payable by an infringer) is greater.

For example, the Government has flagged as contingent assets in the Budget the compensation that it is seeking from three separate pharmaceutical patentees in respect of the drugs rosuvastatin, clopidogrel and venlafaxine.

The Government says that those companies were reimbursed for their respective drugs under the PBS at a higher price than they would have otherwise received were the first generic version of their respective drugs listed earlier. Presumably in these cases it is the Government’s position that but for the patents allegedly covering those drugs, the first generic would have listed sooner and the PBS price dropped sooner.

Another contingent asset is the money that CSIRO stands to receive if it succeeds in its ongoing patent infringement proceedings in the USA and Europe. The patents cover CSIRO’s invention of a wireless local area network.

National Research Infrastructure Roadmap

The Government mentioned that it has commissioned a 2030 Strategic Plan and a Research Infrastructure Investment Plan to guide future investment in innovation, science and research. The Research Infrastructure Investment Plan will be will be informed by the 2016 National Research Infrastructure Roadmap (Roadmap).

The Roadmap was released at the same time as the Budget and has identified nine focus areas for infrastructure investment:

  • Digital data and e research platforms
  • Platforms for humanities arts and social sciences
  • Characterisation (techniques for understanding the properties of materials)
  • Advanced fabrication and manufacturing
  • Advanced physics and astronomy
  • Earth and environmental systems
  • Complex biology
  • Therapeutic development.

We will wait and see how this affects Government investment.

Attracting Investment

Other measures aimed at making Australia a more attractive place to invest include:

  • Removing GST from purchase of digital currencies (such as Bitcoin)
  • A new framework to enable proprietary companies to obtain crowd-sourced equity funding (CSEF)
  • $300 million of funding over two years under the new National Partnership on Regulatory Reform to incentivise the States and local governments to lessen the regulatory burden on small businesses and remove other restrictions that hinder economic growth and competition

Happily for Australian innovation, the R&D tax incentive was not the subject of any cuts.

Time will tell whether these incentives and new frameworks, together with the raft of measures already in place to support delivery of the National Innovation Science Agenda, will be sufficient to stimulate an innovation boom, to lift Australia’s presence on the world innovation stage and drive further investment in Australian creativity and imagination.

For now, it appears that this budget delivers further steps in the right direction – toward that 21st century innovation economy that Australia needs.