‘Patent Box’ Update – the Devil is in the Details When it Comes to Dates

I previously reported on the Australian government’s budget announcement that it will be introducing a so-called ‘patent box’ tax incentive for medical and biotech (and, possibly, clean energy) innovations.  Implementation details of the scheme are yet to be worked out, and the government is promising to consult closely with industry on the design of the patent box.  However, while the final form of the scheme – which will not come into effect until 1 July 2022 – may not be known for many months, there is already at least one critical issue that prospective users of the system may need to consider.

The government’s fact sheet on ‘tax incentives to support the recovery’ states that ‘…granted patents, which were applied for after the Budget announcement, will be eligible’.  There is, as yet, no clear indication of what the government means by ‘applied for’, however in its ‘What’s New’ email (to which you can subscribe here), sent on 14 May 2021, IP Australia states that ‘[t]o be eligible, the patent must have a priority date after 11 May 2021…’.  Being unable to find this detail in the budget papers, I sent out a tweet asking whether anybody else had seen it, and tagging @IPAustralia, which responded:

Hi Mark, thanks for your comment. This is our understanding of the announcement. Further details on the patent box will be released in the coming weeks by Treasury as part of the public consultation.

— IP Australia (@IPAustralia) May 14, 2021

There is a big difference between ‘priority date’ and ‘filing date’, which hopefully will be open for discussion during the public consultation.  If the critical date is the priority date, then this means that Australian medical and biotech innovators who have already filed a priority application (e.g. a provisional application) prior to the budget announcement would not be eligible for the patent box tax incentive if they subsequently file a complete application claiming the benefit of the provisional filing date.  On the other hand, if they were now to file the same complete application in Australia without a priority claim, then they would be eligible for the scheme upon grant of any resulting patent.

The risk of dropping a valid claim to priority, of course, is there there may be intervening prior art that could invalidate or limit the scope of the claims, which has been made public after the priority date, but before the subsequent complete filing date.  To minimise this risk, the complete application should be filed as soon as possible. 

Fortunately, the Australian grace period protects an applicant against their own disclosures during the 12 months prior to the complete filing date.  Furthermore, the discovery of intervening prior art would not be fatal, at least up until grant of the patent (see regulation 10.2B(7) of the Patents Regulations 1991), since the patent request could be amended to include the priority claim, with the consequence that the patent box incentive would then be unavailable.

The choice to file in Australia without claiming priority would not affect the applicant’s right to claim priority in other jurisdiction, either through direct applications or via the Patent Cooperation Treaty (PCT).

But, frankly, this seems perverse.  To my mind, the logical choice for the critical date is the filing date of the complete patent application, which commences the patent term of up to 20 years during which the patent box tax incentive could be claimed.  Basing eligibility on the priority date will simply encourage strategies, such as I have outlined above, to engineer eligibility.  This does not serve anybody’s interests.  The government will not make significant savings on the operation of the patent box scheme, while applicants will feel compelled to adapt their patent filing strategies simply to comply with an arbitrary choice of eligibility criteria.

Hopefully, through the consultation process, common sense will prevail.  In the meantime, however, medical and biotech innovators with pending priority applications should probably seek advice from their patent attorneys.

 Read full article ► 

Tags: Australia, Innovation policy, Public policy, Tax incentives

IP Australia Rises to the Challenge of Surging Demand for Innovation Patents

Last month, IP Australia issued a notification informing applicants that, due to a high volume of new filings, they may experience delays in having innovation patents granted.  Innovation patents are issued following a formalities examination only – substantive examination for novelty, innovative step, and other requirements, occurs after grant, and only upon request.  As a result the delay between filing and grant is typically relatively short, and has historically been less than four weeks.  However, with a phasing-out of the innovation patent system now looming, and Chinese applicants in particular using the system to claim government subsidies on foreign granted patents, innovation patent applications are currently being filed at over four times their ‘normal’ historical rates.  This obviously means a lot of extra work for IP Australia to process all of these additional applications.

The good news is that after letting things get a little out-of-hand over summer (when, presumably, many staff were on annual leave), IP Australia now appears to be bringing the situation back under control.  Average pendency (i.e. the delay between filing and grant) peaked at 68 days for innovation patents granted in March, before falling to 52 days in April.  In both March and April, the number of patents granted exceeded the number of new applications filed, and the number of pending applications fell from a peak of 1229 in February to 879 at the end of April.  While this is still much higher than historical levels of about 100-150 innovation patent applications pending at any given time, it is clear that IP Australia has allocated additional resources, and has ramped-up handling of new innovation patent applications to the point where it is now once again processing them faster than they are being filed. 

Up until March, it looked as though delays could continue to grow.  It now seems likely that average pendency will be back below a month by July.  This is, of course, barring any further surge in demand that outstrips processing capacity – which could certainly happen, given that the final date for filing new innovation patent applications before the phase-out begins is 25 August 2021, and a last-minute rush might be expected.  But, for now at least, it looks like IP Australia has the situation in hand.

 Read full article ► 

Tags: Australia, Innovation patent, Patent analytics, Patent Office

Australian Government Announces a (Sort of) ‘Patent Box’ Tax Incentive

This week, the Australian government handed down its annual budget.  At the risk of sounding overly cynical, I am always sceptical about how many of the policy measures announced in the budget will actually come to fruition, given that their funding is often dependent on hazy forecasts of future economic performance, and their implementation may span many years during which future budgets – and potentially new governments – may come and go, bringing their own priorities and revised forecasts.  But even I cannot help sitting up and taking notice when patents get a mention, with all of the ensuing media coverage that brings during the budget frenzy!

So the ‘big news’ is that the government is going to introduce a ‘patent box’ tax incentive scheme in Australia… sort of.  If you are not already familiar with the concept, a ‘patent box’ – the name refers either to an actual box on a form, or to a notional box into which a company allocates a proportion of its income – is a tax incentive scheme under which income that can be directly attributed to the commercialisation of patented technology (as distinct from other attributes, such as branding, know-how, or manufacturing capability) is taxed at a reduced rate.  Other income continues to be taxed at the standard corporate rate.

The Australian patent box scheme is actually going to be somewhat limited, initially applying only to medical and biotech patents, with the possibility that it might also be made available to the clean energy sector.  The incentive will only be available on income generated from patents applied for after the budget announcement (i.e. pre-existing patents and application will not be eligible).  And it will not come into effect until 1 July 2022.  The tax rate on eligible income will be 17%, compared with the normal corporate tax rate of 30% for large companies, or 25% for small and medium enterprises (SMEs).  This discounted rate is higher than other countries that operate a patent box system, e.g. France 15%, Spain 12%, UK 10%, Belgium 6.8%, Luxembourg 5.84%, and Netherlands 5%.  Even taking into account that a number of these countries have a lower corporate tax rate than Australia, equal or larger discounts are also available elsewhere, e.g., in France (where the corporate tax rate is 32.02%), Spain (25%), Belgium (25%), and Luxembourg (24.94%).

So – true to form – the Australian patent box will be a very ‘middle-of-the-road’ affair, with limited eligibility, and relatively modest tax discounts, especially for SMEs that are already subject to a lower tax rate than larger corporates.  As it so often does, the government has decided to limit its exposure by picking winners – this time, medical and biotechnology industries – leaving other sectors (such as IT, where Australian companies such as Atlassian, Canva, Afterpay, Judo Bank, Zip Co, and AirWallex have been punching well above their weight) to fend for themselves.  Or, more likely, to move their R&D activities overseas, into more favourable jurisdictions.

On the other hand, the announcement is something of a turnaround for this government, considering that criticism among G20 finance ministers in 2014, and a 2015 review commissioned by the Office of the Chief Economist in the Department of Industry delivered negative conclusions that seemed to have killed off any prospect a patent box scheme being introduced in Australia.

 Read full article ► 

Tags: Australia, Innovation policy, Public policy, Tax incentives