Could A New Patent Grant Be Australia's Patent Box Solution?

October 7th, 2014

Recent research has indicated that 1000 extra patents per year (that otherwise would not have been filed) could add up to $7 Billion extra GDP per year in the Australian economy. It has been proposed that a new type of government endorsed grant program aimed to offset the cost of patent filing, could be Australia’s answer to the recent U.K. Patent Box controversy.

 

Why would a Patent Grant Program be more appropriate than a Patent Box tax incentive?

It has been argued that Australia should adopt the U.K.’s Patent Box model due to its greater compatibility with our taxation system over traditional European models. However given the OECD’s concerns regarding the U.K. model’s long-term economic impact and possible tax erosion, the current Australian Senate would not likely immediately legislate this measure if introduced.

Due to the strong link between general patent production and GDP, it is believed that a grant model would be a much more workable alternative to a tax incentive in the short-term. Grant models are also easier to implement as a Ministerial initiative and where the delivery of the grant program was successful in increasing GDP growth, the Government would likely gain bipartisan support to explore, develop and eventually legislate alternative Patent Box tax models that are supported by the OECD.

 

Service offerings proposed under the Patent Grant Program

It is proposed that the Government introduce an entitlement based Patent Grant Program (PGP), aimed to increase the number of international patent applications originating from Australia.

It is envisaged that the Department of Industry would provide the grant to businesses to offset the cost of preparing and submitting a valid innovation or standard patent application through IP Australia and international patent applications through the Patent Cooperation Treaty (PCT)

Grants would be capped at $50,000 per international patent family and businesses would be permitted to claim indefinitely, for the life of the program.

The PGP would be designed to support businesses in seeking the following services:

  1. Performance of an international novelty search and initial patentability advice;
  2. Preparation and submission of Australian Patent application (including a provisional application if required);
  3. Preparation and submission of international application (under PCT); and
  4. Converting the international patent application into national applications in foreign jurisdictions (national phase entry).

Each of the above services has a funding cap (as per example 1 below).

Service Offering and Application Fees Service Type Funding Cap
Performance of an international novelty search and initial patentability advice Mandatory $5,000
Preparation and submission of an Australian patent application (including provisional application if required) Mandatory $7,500
Preparation and submission of an international patent application (under the PCT) Optional $12,500
Assistance with National Phase Entry Optional $25,000
Total amount available per patent application under the program $50,000

Example 1: Service components available and respective funding cap under the PGP.+Mandatory services must be performed in order to applicant to be eligible for grant funding.

 

Application Process

The PGP is aimed to fund or offset the cost to engage an approved provider to advise, prepare, file and prosecute a patent application as described in Example 1.

An applicant must enter into a funding agreement with the Department of Industry prior to engaging an approved provider.

Businesses will have 18 months to complete all advisory services and submit the patent application as specified in the funding agreement.

 

When would the grant get paid?

The grant will be paid directly to the approved provider on initial submission of the patent application with IP Australia (and where relevant the international patent application under the PCT).

The approved provider must itemise each performed service and provide a timesheet or otherwise demonstrate that the fee is at arm’s length and on normal commercial terms.

Where fees are accumulated due to an objections being raised against a submitted patent application, the approved provider will have an opportunity to claim these fees separately.

 

Who are approved providers and how would they be regulated

In order to be recognised as an approved provider, the provider must:

  • be aged at least 18;
  • be an Australian citizen or permanent resident of Australia;
  • be a registered Australian patent attorney;
  • be a fit and proper person; and
  • by them or by their firm have acted for and submitted at least ten patent applications in the previous financial year.

Additionally, to remain an approved provider, providers must demonstrate that:

  • at any point in time, that no more than 10% of patent applications that were submitted (by them or by their firm) as part of the Patent Grant Program had been ultimately rejected by a Patent Office and then abandoned.

Regulation of the approved provider will be jointly managed between the Department of Industry and IP Australia.

 

Who would be eligible to apply?

To be eligible, a business applying for funding under the PGP must:

  • be a sole trader, company or trust;
  • be solvent;
  • have revenue between $50,000 and $100 million in the current financial year or one of the two preceding financial years;
  • possess an Australian Company Number;
  • engage an approved provider to conduct mandatory services (as per Example 1).
  • have a trading history of at least three years; and
  • demonstrate that by applying under the program, the applicant has increased its three year patent production rolling average (as per Example 2).

 

Introduction of the three year patent production running average

The PGP is intended to drive an increase in patent production over time. It must not fund patent applications that would have otherwise already been filed in any given income year.Therefore, a business applying for a patent under the program must demonstrate the patent application that is subject to the funding increases that business’ average patent production over the last three years in whole numbers.A business will be eligible for PGP funding for all patent applications filed with IP Australia that exceed the running average in the current year i.e. where a business has filed on average two patent applications per year for the last 3 years, the running average is taken to be two. Funding may then be claimed for a third patent application provided two patent applications have already been lodged in the current year. Example 2 illustrates how the running average would work with four scenarios.

Example 2: Incremental patent applications that are eligible for funding under the PGP.

Patent applications  filed by applicant in current year (Y0) Y-1 Y-2 Y-3 Av++ ^^ Patent applications eligible for PGP funding in Y0**
1 0 0 0 0 1
4 3 1 1 2 2
2 2 1 1 2 0
1 0 1 0 1 0

++ The running average is 1/3rd of the sum of the number of filed patents for each of the Y-1, Y-2 and Y-3 years rounded up to the nearest whole number.

** Equals Y0 minus the running average. Negative numbers are substituted for zero.

^^ Rolling average will include all patent applications filed within the applicant’s business and where relevant, any patent applications filed with any member of its consolidated tax group.

 

Conclusion and Next Steps

It is the responsibility of Government to plan and implement appropriate incentives to achieve optimal economic outcomes. The Government must increase patent production so Australia can continue to thrive in a highly competitive global economy.

  • GDP growth is not exclusively due to R&D spending of large enterprise. For every thousand patents registered in Australia, there is a predicted 0.5% growth in domestic GDP.
  • An incentive that adds 1000 extra patents per year may add about $7 Billion extra GDP per year while costing as little as $50 Million.
  • Australia has no grant program aimed at increasing patent production.
  • In the short-term, a well-structured patent grant program is more workable than a tax incentive, modelled on the U.K. Patent Box.
  • The PGP in the form of a Ministerial guideline may increase Australia’s patent production in the short-term.

The Patent Box debate will not be resolved anytime soon.  A patent grant solution is an easy, short-term and lower risk alternative.

Click here to access the full report and modelling.

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