First published in Chemistry in Australia, www.chemaust.raci.org.au

The Global Innovation Report 2014 (Cornell University, INSEAD and WIPO) reiterates what has long been well understood – Australia lags behind other countries in terms of protecting and commercialising intellectual property. The report shows that while Australia fairs reasonably well in the funding of research and development, there is a real inability to translate innovation into commercial outcomes. Given universities are at the forefront of Australia’s research, and patenting this research is often the ?rst step to a successful commercial result, the key question arises: how can patenting in Australian universities be incentivised?

Australia was ranked a disappointing 17th in respect of its global innovation index – just fourth in the Asia–Paci?c region. Leading the rankings were Switzerland, the UK, several Scandinavian countries, and the US. In terms of R&D expenditure, Australia is ranked 13th with a gross expenditure of 2.4% of GDP. This falls well behind the rankings leader, the Republic of Korea, with a gross expenditure of 4.4% of GDP. The issue becomes most evident from a direct comparison to the US and UK ?gures; Australia is simply less ef?cient in translating R&D expenditure into commercial outcomes.

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Further compounding the issue, the report also detailed that although Australia published an impressive 48 scienti?c and technical articles per billion dollars of GDP (ranked 12th; USA published 21 and UK 43), Australia had a mere 2.7 patent applications (ranked 40th, with the USA at 16.6 and UK at 6.7). Again, our patenting performance in comparison to our counterparts is, to put it politely, rather dismal.

Where Australian universities are concerned, the patenting story is perhaps unsurprising given the above statistics. In October 2013, IP Australia released its pilot assessment of the patenting activity of Australian universities, as well as the impact of Australian university patents (Research performance of university patenting in Australia: a pilot assessment). The study was based on a cross-section of 12 Australian universities, and identi?ed 4056 university patent applications relating to 1293 inventions over the period of the study (1 January 2006 to 30 June 2012). All in all, Australian university patenting activity averaged just 16 new inventions per university per year. This is most concerning when you consider that the University of California obtained almost 400 granted US patents in 2013

The information suggests that while many Australian universities ?le patent applications, the rate at which they are pursued to grant is low. Given the cost of the patenting process and the current ?nancial pressure on Australian universities, who would be surprised by this?

So how can patenting in universities be incentivised? One approach, as proposed by the Minister for Industry, Ian Macfarlane, is to base university grants on the number of patents that are obtained by researchers, not on the number of scienti?c articles they publish. The statistics show that Australian researchers are consistently publishing world-class research, so it would seem logical that they can patent this research as a means to potentially obtaining commercial outcomes. However, this proposal is ?awed in practice.

It’s not a surprising revelation that patents are expensive. There are substantial costs associated with getting a patent to grant, and these costs increase with every country in which patent rights are sought. Do universities have this ?nancial capacity? As a former university researcher, I can tell you that they simply do not.

Conversely, publications are free. They’re also peer-reviewed, and, most importantly, provide an international standard of measuring research success. Government funding of research is not globally uniform, and so a free system that enables researchers to be ‘ranked’ on the basis of their professional research publications serves as a global indicator of the quality of research being undertaken.

Many would argue that radically reforming the Australian research-grant process to incentivise patenting, as proposed by Minister Macfarlane, with the view of increasing the protection of intellectual property and hopefully commercialisation, is a far more complex issue than he appears to have given credit. Any scheme to increase patenting in Australian universities would require a considerable contribution by the Australian Government to get the ball rolling. That is, Australian universities will need to be in a position where they are exploiting several patented inventions and have commercial outcomes before they can self-fund future patenting ventures.

In view of the Australian Government’s continuing decrease in R&D funding, it seems unlikely that, at least in the short term, Australian universities will receive any contributions of this nature. As such, incentivising university grants based on granted patents is not the solution. So what is an alternative option?

One option would be to adopt a ‘patent box’ scheme. This is a tax incentive in the form of a reduced company tax rate applied to pro?ts made on the commercialisation of patents. It was ?rst introduced in 2000 in Ireland, and shortly thereafter adopted by the French in 2001. Today, the patent box, or a variation of it, is effective in the UK, the Netherlands, Belgium, Switzerland, China and Spain, among others. The US is now considering its own patent box scheme, with legislation introduced into the House of Representatives on 28 June 2013. A patent box scheme was the lone IP-related initiative taken into the most recent federal election. However, Treasurer Joe Hockey appears to have back ?ipped on the issue, recently calling for other countries to amend their own patent box rules in November’s G20 Summit in Brisbane.

How would such a scheme affect Australian universities? Australian companies will no doubt be more willing to support and commercialise patented university research if such an incentive exists. In doing so, they will have the opportunity to receive reduced tax rates of between 5 and 15% on pro?ts attributable to this intellectual property. In essence, if a company invests in university research, in developing and/or commercialising intellectual property that is subject to patent protection, any pro?t attributed to this is eligible for a reduced tax rate. A patent box scheme provides a direct incentive to invest in innovation.

There is a real need to drive revenue from Australia’s intellectual property, though to do this, we must ?rst have it. Offering grants to researchers based solely on their patenting record, without signi?cant initial contributions from the Australian Government, is not a feasible solution. One avenue of incentivising use of the patent system would be to ?nancially support those companies that successfully exploit granted patents – especially those from our proli?c academic sector. A way of doing this may be through the adoption of a patent box scheme, a step which has proven successful in several other jurisdictions. Doing so would incentivise investment in innovation and commercialisation in Australian universities.