In one of the Australian government’s largest announcements of 2015, nine different ministers yesterday launched a wide-ranging program of policy and budgetary measures designed to encourage innovation in Australian businesses. The four year package involves approximately $1.1bn worth of spending pledges, as well as a series of changes to business regulation to encourage greater risk-taking in pursuit of innovation.
Many of these initiatives could have important consequences for our clients and their IP strategies, as well as all businesses who hold IP rights in Australia or who are looking to create new IP in the future. We explore some of these implications below.
IP rights to be treated the same as other depreciating assets for taxation purposes
The most immediate impact for IP holders is likely to be changes to the accounting treatment of IP rights like patents. The Government intends to remove rules that limit depreciation deductions for intangible assets, specifically listing patents among others. The changes will eliminate the rule that patents must be linearly depreciated over their 20 year statutory life, and instead allow patents to be depreciated faster over their economic life, exactly as other assets.
This change should allow companies to recoup a greater percentage of the costs of intellectual property protection, and allow greater flexibility in how and when these deductions are calculated and applied.
Increases in university research funding, and financial encouragement of the commercialisation of university research
Universities are of course a critical source of innovative ideas in Australia, and many businesses already benefit from collaboration with universities in developing and exploiting new intellectual property. The Government’s package includes a number of measures specifically designed to provide financial support for this process. Overall, the previously threatened National Collaborative Research Infrastructure Strategy will receive $1.5bn over ten years.
Current research block grant funding for university research will be changed to replace (following consultation) six existing schemes with a simpler two streamed approach, while allocating an additional $127m in funding. The Government also intends to modify the funding system to incentivise and to fast-track research funding applications that include collaboration with industry by giving equal weight to research excellence and income from industry when making funding decisions. No doubt, the track record of universities in generating patented technologies, licensing incomes and commercial successes from their research will be favourably looked upon in these funding processes.
The new funding approach would include the Linkage Projects Scheme allowing for year round applications, rather than a single annual funding round. This should ensure that researchers and businesses are more able to respond to changing market conditions and new commercial opportunities by applying immediately for co-funding, rather than awaiting the next annual process.
In addition a new $200m ‘Innovation Fund’ will be set up to co-invest in businesses which develop and commercialise technology developed by CSIRO (the Commonwealth Scientific & Industrial Research Organisation), while a new $250m fund would invest in new Australian biomedical discoveries (though this last project appears to represent the first allocation of funds from the previously announced Medical Research Future Fund). These funds should ensure that a greater proportion of new technologies generated and patented by universities are able to be commercialised and generate a return on investment.
Overall, these changes should ensure not only that more government funding is available for university research and the commercialisation of new research ideas than was previously going to be the case, but also that this funding is more available to and responsive to the needs of business and commercial operations.
New incentives to invest early in start-ups
For start-up businesses and inventors with innovative new ideas, gathering enough funding in the first three years to survive and flourish can be an all-consuming task. In particular, the cost of protecting intellectual property with patents, trade marks and designs at the critical earliest stages before public disclosure can be difficult to meet without outside investment.
The Government plans to introduce a 20% tax offset for early stage investors (first three years) in start-up businesses, as well as a capital gains tax exemption for those who hold the investment for three years. They also plan to introduce a 10% offset for those investing in new early stage venture capital partnerships.
These changes will ensure that investors generate greater returns on their investment in successful start-ups, and should encourage more willingness to risk investment in these types of businesses. Innovative start-ups should be able to draw attention to these incentives in arguing for their businesses as an investment opportunity, and potentially secure more funding to support the protection and exploitation of their intellectual property not only in Australia, but also overseas.
Equally, the Government plans to relax the ‘same business test’ which currently can result in tax penalties if a start-up business seeks to shift its focus to new opportunities and bring in a new equity partner. Instead a more flexible ‘predominantly similar business’ standard would be applied in these cases, making it easier for struggling start-ups to respond to the market and exploit other opportunities.
New encouragements for businesses to try new ideas and new products and expand into new countries – reduced risk for innovators
The Government is planning to take actions both to provide additional resources for businesses that are trying new things or expanding into new markets, and also to reduce the risks of failure.
In terms of actively encouraging the trial of new ideas, the Government has allocated $8m for the setting up of incubators where businesses could get access to knowledge, networks and support when trying to launch a new business idea. It also plans to spend $15m creating a new digital market place for government procurement which aims to make it less costly for start-ups and innovative small businesses to compete for government contracts.
The Government also plans to invest more than $100m in education programs to encourage digital skills as well as the advanced study of Science, Technology, Engineering and Mathematics (STEM) subjects among Australians, and a modification of visa rules to make it easier for skilled graduates and inventors from other countries to come to Australia. These changes should, over time, increase the talent base available to innovative businesses, and make it easier for them to develop ideas into commercially viable products.
In terms of international expansion, the Government is planning on spending $36m on a ‘Global Innovation Strategy’ which would help Australian businesses to launch overseas in foreign innovation centres. This would take the form of ‘Landing Pads’ in Silicon Valley, Tel Aviv and other centres to be announced which would provide ‘collaborative workspace and facilities including office space and meeting rooms for up to two months, as well as accelerated access to international business networks, entrepreneurial talent, business development and investment opportunities’.
These landing pads may help to reduce business costs when expanding operations into key markets like the U.S., helping to ensure that intellectual property rights which have been secured by Australian businesses at an up-front cost in these international markets can be fully exploited as quickly as possible.
Perhaps more significantly in this area however, the Government plans on taking substantial measures to reduce risk for businesses that try out new ideas. Some new ideas of course fail, leading to bankruptcy and the potential for personal liability for company directors. The Government plans to reduce the default bankruptcy period from three years to one year, and to legally protect directors from personal liability for insolvent trading if they appoint a restructuring adviser to help to turn the business around. The Government also plans to ban contractual clauses that allow an agreement to be terminated solely due to insolvency if a restructure is being undertaken.
Creating new intellectual property, and protecting it with patents, trade marks and designs involves up-front costs – both in R&D, new infrastructure and in legal costs, especially if the business has ambitions to exploit this IP internationally. These new measures would reduce the risk inherent in taking on those sorts of costs and give businesses greater freedom to innovate and be ambitious.
New data available for research
Though not widely reported, the government also plans to make it compulsory for government agencies to make appropriate data openly available to businesses and the public in machine readable form through the government’s data.gov.au. This data, including so-called spatial data, is of great utility in a number of research sectors, and can be a valuable resource in generating and evaluating new business ideas. The Government has particularly drawn attention to its plan to release the Public Sector Mapping Agencies’ (PSMA’s) Geocoded National Address File as well as their Administrative Boundaries datasets.
For our clients, as well as all businesses who hold IP rights in Australia or who are looking to create new IP in the future, these announcements represent the most comprehensive and far-reaching package of government incentives to the creation and exploitation of intellectual property for many years. In the areas of generating taxation benefits from IP rights; securing funding for R&D that will generate intellectual property and investment in its commercialisation; securing the talent and support to make the most of IP rights; and reducing risks in the up-front spend on IP rights at home and overseas, these measures could impact your IP strategy for the better.
Though many of these measures will require new legislation to be passed by the Government in order to be enacted, and some question marks remain as to how much additional spending the plan represents, it currently seems likely that these should not pose an insurmountable obstacle. The initial reaction of the business community, universities and the Opposition parties in Parliament has been cautiously positive and we would expect that most of these changes will not face significant obstruction.