28 July 2021 - IP SPOTLIGHT

IP SPOTLIGHT NEWS FROM AUSTRALIA & NZ

28 July 2021

TRADE MARKS An Amplifier or a Shock Absorber for Exporters?

A recent report 1 from IP Australia’s Office of the Chief Economist has considered the role of trade marks on the export behaviour of 9,000 Australian manufacturers spanning the period 2005 to 2017, when faced with sudden changes to market conditions.

Three export behaviours including entry to an export market, export revenue and the diversification of products offered to the export market were measured in relation to the influence of tariff reduction, changes to real exchange rate, market demand and the incidence of trade mark filings in the countries where the goods were exported. Tar i f f Reduct ion It is generally accepted that tariff reductions typically induce an increase in exports because foreign buyers in the export market may select the cheaper version provided by the exporters over the local goods. But tariff reductions may also encourage rival exporters to commence entry into the market, thereby increasing overall competition and reducing the average profitability of the market.

1 Falk, M.R. 2021. Exporter responses to shocks: The role of trade marks. IP Australia Economic Research Paper Series 11.

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Tariff reductions are also associated with lower export diversity for Australian manufacturers who don’t own trade mark rights in export markets. Export behaviour changes significantly in response to these market shocks if the Australian exporter owns trade marks in the destination countries for their goods. They will tend to increase the diversity of their export goods in response to a reduction in the tariff rate, rather than increase export concentration. This response is thought to reflect the ability of trade mark owners to expand their brand across product categories, identifying and seizing new market opportunities as they arise, and capitalising on their marketing investment amongst their established foreign customer base. The study shows that the tendency to diversify the product offering in response to tariff reductions is more marked for SMEs than large firms. Interestingly, in the face of local real exchange rate appreciation, the ownership of trade marks in the destination country for exports leads to a muted response, where the Australian exporter is less likely to reduce the diversity of goods that it sends to export markets. The study shows that ownership of trade marks in export markets has a number of very positive benefits for Australian exporters. On the one hand, trade mark owners show increased resilience to exchange rate changes and are less likely to diverge from their strategic plans to enter a market or cut back on the range of goods they export. On the other hand, ownership of trade marks in export markets appears to amplify the likelihood of successfully entering a new market, increasing export revenue, and the range of goods that are exported, particularly in response to tariff reductions.

Trade Marks So how does ownership of trade marks in an export market influence the likelihood of entering the export market? Not surprisingly, the recent filing of a trade mark in an export market is a good indicator that the firm will enter that market, at nearly 3 times the average entry rate. In the event of a tariff reduction, a firm that owns trade marks in an export market will be 4 to 5 times more likely to enter that market than a firm with no trade mark ownership in that market. Interestingly, the study showed that owning trade marks may increase the likelihood of entering the export market, even in the face of an exchange rate appreciation. This is in marked contrast to non-trade mark owners where a 10% appreciation of the home real exchange rate will induce a 17% fall in entry likelihood. Consequently, the export strategy of trade mark owners appears to be more resilient to the downsides of exchange rate volatility. With regard to export revenue, the baseline findings of the study showed that export revenue increases the longer a firm is active in the export market. Revenue increases with tariff reductions and with depreciations of the domestic real exchange rate against the export market, although revenue is more sensitive to tariff reductions than movements in the real exchange rate. It’s all good news for export revenue for those firms who have filed trade marks in export markets. Filing a trade mark in an export market is positively associated with increased export revenue (about 30%) in the following year. Trade mark activity also predicts an increase in export revenue in the event of a tariff reduction, becoming more pronounced as the number of recent trade mark filings increases. There is also a negative association between exchange rate appreciation and export revenue, with export revenue increasing with the number of trade marks filed. One hypothesis is that exporters will take advantage of the foreign currency depreciation to invest in marketing to grow their foreign customer base, thereby expanding their exports in comparison to the average exporter with no trade mark rights in that export market. The study also looked at the effects of tariff reductions and exchange rate changes on how Australian exporters diversify their exported goods. Baseline findings showed that manufacturing exporters reduce the diversity of the products they export if there is an appreciation of the home real exchange rate against the destination market.

While tariff reductions may provide a sudden change in market conditions, they generally mark a sustained change, allowing exporters to adapt their mid-term and long-term export strategies. On the one hand, some firms may use tariff reductions as an opportunity to export a more diversified product range. On the other hand, in response to increased competition, more conservative firms may narrow their product range, cutting back on low value and novel products. Exchange Rate Changes Domestic real exchange rate changes, however, are more volatile. Appreciation of domestic real exchange rates against an export market will likely reduce the demand for foreign- produced goods in comparison to locally-produced goods in the export market because of cost increases. Conversely, depreciation of domestic real exchange rates against export markets will reduce the local cost of foreign-produced goods in the export market, encouraging increased demand.

While tariff reductions and exchange rate fluctuations are external events beyond the control of exporters, the registration of trade marks in a destination country by an exporter is a strategic choice, largely indicative of the exporter’s underlying activity to build a customer base in its export market. Registering a trade mark provides the exporter with an exclusive right to use that trade mark in the export market, allowing it to protect the goodwill in its brand and defend against brand dilution. The study’s baseline finding with regard to market entry was that the likelihood of entering a new market increases when tariffs fall and when the domestic real exchange rate depreciates against the destination market. As expected, the influence of tariff reductions on the likelihood to enter a new export market is more significant (3 times more) than the influence of exchange rate depreciation.

MARY TURONEK Principal

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The aim of the Australian Government’s policy is twofold:

All information (including name and address details) contained in submissions will be made available to the public on the Treasury website unless you indicate that you would like all or part of your submission to remain in confidence. Legal requirements, such as those imposed by the Freedom of Information Act 1982, may affect the confidentiality of your submission. Please see the Treasury’s submission guidelines found here for further information.

– To encourage companies to base their medical and biotechnology research and development (R&D) operations, and commercialise innovation, in Australia. R&D investment is mobile and a range of factors influence companies’ decisions. While it usually takes a number of years for innovations to become profitable in the medical and biotechnology sectors, a concessional tax rate on those profits will create an additional incentive to locate R&D in Australia. – To retain the ownership of eligible patented inventions in Australia. Discussion Paper Treasury has now released a Discussion Paper on the design of the patent box system. The objective of the Discussion Paper is to inform the Government’s consideration of the detailed design of the patent box. The Discussion Paper can be downloaded here. – Eligible IP to enter the patent box – Targeting medical and biotechnology – Low emissions technologies – Applying the substantial activity requirement – Definition of R&D – Implementation and start date – Eligible revenue to enter the patent box – Subtraction of related patent expenses from eligible revenue – Treatment of losses and related offsets with the patent box Responding Interested parties are invited to comment on this consultation. Responses to this consultation can be received up until 16 August 2021. The Discussion Paper provides the following areas for feedback:

How To Respond Email patentboxconsultation@treasury.gov.au

Post Address written submissions to:

Paul Fischer Corporate and International Tax Division The Treasury Langton Crescent PARKES ACT 2600 Further Enqui r ies to Treasury Email patentboxconsultation@treasury.gov.au

AUSTRALIAN TREASURY OPENS CONSULATION ON PATENT BOX DESIGN SYSTEM Consultation closes 16 August 2021

Phone Paul Fischer & Simon Winckler +61 2 6263 2832

CRAIG HUMPRIES Principal

In the 2021 Australian Federal Budget, the Treasurer, Josh Frydenberg, announced that the Treasury will introduce a patent box for eligible corporate income associated with new patents in the medical and biotechnology sectors.

The patent box will apply to companies for income years commencing on or after 1 July 2022.

Consultation on the design of the patent box system has now been opened and will close 16 August 2021.

Background ‘Patent box’ is a generic term for regimes that apply a concessional tax treatment to profits derived from eligible intellectual property (IP). Currently, over 20 jurisdictions, including the UK, Singapore and many European countries, have patent boxes or other regimes that offer concessional tax treatments to IP derived profits.

While submissions may be lodged electronically or by post, electronic lodgment is preferred.

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Conception is…..the completion of the mental part of inventions. Conception is the “formation in the mind of the inventor of a definite and permanent idea of the complete and operative invention as it is hereafter to be applied in practice”. It is complete only when the idea is so clearly defined in the inventor’s mind that only ordinary skill would be necessary to reduce the invention to practice without extensive research or experimentation. An inventor need not know that the invention will work for conception to be complete. The inventor need only show that he or she had the idea…. Ident i f icat ion of the invent ive concept On the authorities, the principal source for identifying the inventive concept was the Aunex patent specification, in particular the background prior art, the objects of the invention and features that contribute to overcoming drawbacks and achieving the objects of the invention. The claims could assist in understanding the inventive concept but, relevantly, there was no requirement for correspondence between the claims and the inventive concept. Scalpel blade removal devices were known in the art but had problems associated with them. Q’s evidence showed that he started to develop a new, simpler blade remover in August 2016 as an “antithesis” to some of the Qlicksmart products. Aunex sought a blade remover with fewer moving parts and realised that a problem with scalpel blade detachment using a detachment member could be solved by restricting the direction of flexing of the blade detachment member, for example by including a rigid backing plate in the blade stripper. Whilst the patent was silent as to the specific detachment problem, it did disclose the feature of the backing plate constraining the flexing of the detachment member in one direction during use. The specification therefore sought to provide a tool which addresses “at least some of the problems known in the prior art”. Interestingly, the claims did not explicitly define the nature of the backing plate. Q’s evidence appeared plausible and consistent with the proposition that he conceived the invention of a fixed backing plate constraining the flexible detachment member as a simplified improvement to the more complicated devices disclosed in Qlicksmart’s earlier patents. This conception occurred when he was no longer employed by Qlicksmart. Qlicksmart therefore needed to establish that H was the first to conceive the inventive concept if it was to secure ownership of 3 1 2

the Aunex patent. However, the majority of the evidence was from the requestor, Dr Sinnott, who had not personally been involved in development of the blade remover invention. Qlicksmart design documents, contemporary with Q’s employment formed the bulk of the evidence. This evidence was found to consist of assertions and opinions on what H and Q did or did not invent based on an after the event analysis of drawings from the Qlicksmart design team. These design drawings included annotations purporting to demonstrate correspondence between the drawings and the Patent, including highlighting of the flexible blade detachment member and inclusion of a lightly sketched rectangle said to be the “backing plate”. The Delegate did not accept this. S’ evidence appeared to be entirely from the perspective of seeking to “reverse engineer” the Aunex patent claims onto earlier design documents. This evidence did not show that H had conceived a blade stripper with a flexible detachment member having a rigid backing plate constraining the detachment member to flex in one direction only. Qlicksmart could not succeed by H declaring that “the feature of a flexible detachment member with a backing plate is a concept that I had invented”. There needed to be a narrative of how, when or why H conceived the idea. This was absent. The Decision The Delegate therefore concluded that the inventive concept was conceived, not by H, but by Q after his employment at Qlicksmart had ceased. There was therefore no need to consider Q’s contractual or fiduciary relationships to Qlicksmart. For the same reason, there was no reason to consider further contractual terms requiring Q to assign inventions or improvements made during the course of his employment “or arising therefrom” or not to compete. Disputes over patent entitlement are common. Success requires precise evidence outlining a narrative to entitlement. Conclusory statements such as a cursory claim to inventorship are not acceptable. More is needed. The Patent Office does not provide a forum to agitate contractual questions and where these are pleaded, it appears that they will be shortly dismissed. 1 2 What can we learn from this case?

A SHARP LESSON IN INVENTORSHIP AND ENTITLEMENT Michael Sinnott v Aunex Pty Ltd [2021] APO 23

The recent Australian Patent Office decision of Michael Sinnott v Aunex Pty Ltd [2021] APO 23 provides a reminder that success in establishing ownership requires precise evidence outlining a narrative to the specific entitlement. The following case summary delves into this requirement as it applies to the test for inventorship and ownership in Australia. Background Qlicksmart is an Australian medical device company established by two doctors looking for a better way to remove used scalpel blades. In 2005, Kim Sia Quek (“Q”) was employed as General Manager of Qlicksmart with duties including responsibilities for research and development. After 11 years with the company, Q resigned from Qlicksmart in May 2016 and went on to found Aunex Pty Ltd in August 2016. Aunex subsequently filed a provisional application in February 2017 securing a patent owned by Aunex Pty and listing Q as its sole inventor. Qlicksmart, through its Managing Director, Dr Sinnott (“S”), filed a request for rectification of the Register under s 191A Patents Act 1990 seeking:

– replacement of the patentee, Aunex, with Qlicksmart. What does s 191A do? Subsection 191A(1) of the Act gives the Commissioner power to rectify an error in the Register, i.e. post grant. Subsection 191A(2) of the Act compels the Commissioner to declare entitlement to a patent if that the Register does not correctly record such entitlement. The standard of proof is on the balance of probabilities. The key question, for consideration under s 191A, was whether the inventor of the Patent was Mr Quek or Dr Henry. Test for determinat ion of inventorship The Delegate considered the three step test of University of Western Australia v Gray [2009] FCAFC 116: – identify the “inventive concept” of the invention as defined by the claims – determine inventorship including the person responsible for the inventive concept and the time of conception as distinct from its verification and reduction into practice – determine how contractual or fiduciary relationships give rise to proprietary rights in the invention for determining questions of inventorship and entitlement. Conveniently, this test is consistent with that applied in other cases where inventorship and entitlement arise, e.g. in an opposition. In this case, as Aunex had filed its provisional relatively soon after Q’s departure, from Qlicksmart, “conception” of the invention was in issue. The question of conception of invention was considered in an earlier instalment of University of Western Australia v Gray (No 20) [2008] FCA 498 at [1426], where French J listed the following principles (also used by US appellate courts):

RICHARD BADDELEY Principal

– addition of its Dr Henry (“H”), its R&D Director, as an inventor, and

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Supply Chain Res i l ience Ini t iat ive ($107.2 mi l l ion) The Supply Chain Resilience Initiative will aim to help Australia address identified gaps in critical supply chains. As well as being a part of the Government’s JobMaker plan, the initiative is developed to identify and address vulnerabilities in domestic and international supply chains for critical products. Applications for this initiative is open from 1 July 2021 until 12 August 2021. Manufactur ing Moderni sat ion Fund ($52.8 mi l l ion) To modernise small and medium-sized manufacturers’ manufacturing processes, adopt new technologies, deliver quick action to unlock business investment on shovel ready projects. This funding is particularly aimed toward modern, agile and digitally-enabled manufacturers who can ‘speed up’ Australia’s economic recovery. Applications for this fund is currently closed. Avai lable funding As part of the Supply Chain Resilience Initiative, funding for businesses to invest in capabilities to address supply chain vulnerabilities is open for application until 12 August 2021. The Supply Chain Resilience Initiative provides up to $2 million to establish or scale a manufacturing capability or a related activity. To be eligible, you must be a manufacturing business or a business within the manufacturing supply chain in the following field of critical products: More information on the eligibility and the application process for the Supply Chain Resilience Initiative can be found here. In addition, the Advanced Manufacturing Commercialisation Fund is presently open for application until 30 June 2022. This fund of up to $1 million is for small to medium manufacturing enterprises to commercialise new products and processes. The projects must align with one or more of the 6 National Manufacturing Priorities identified above. Eligible project activities include: – collaboration and networking with other businesses to develop a product and establish market potential – collaborating with research and technology hubs/centres to test ideas and share knowledge – Biopharmaceuticals (medicines) – Agricultural Product Chemicals.

Resources Technology & Critical Minerals Processing

Food & Beverage

Medical Products

Recycling & Clean Energy

Defence

Space

The Australian Government will be investing $1.46 billion, targeting six (6) specific areas of industries named the National Manufacturing Priorities, a combination of Australia’s strengths and growth opportunities: 1 The strategy focuses their investment on projects that will create collaborative environments, encourage the market to invest and partner with businesses, research organisations and governments. The key initiatives through which the funding is provided are: Modern Manufactur ing Ini t iat ive ($1.3 bi l l ion) To transform manufacturing businesses and assist them to scale-up, translate ideas into commercial success, create jobs and, integrate into local and international value chains. There will be annual funding rounds for the Modern Manufacturing Initiative in the first half of each year.

AN UPDATE ON AUSTRALIA’S MODERN MANUFACTURING STRATEGY

The following article provides an update on the Australian Government’s Modern Manufacturing Strategy and how the funding initiatives can aid businesses in this modern manufacturing sector.

What is i t? The Modern Manufacturing Strategy (the Strategy) is the Australian Government’s action plan for Australia to be recognised as a reliable, high-quality and sustainable manufacturing nation. The Strategy is aimed to not only drive economic recovery from the COVID-19 pandemic but to build national resilience.

1 https://www.industry.gov.au/sites/default/files/October%202020/document/make-it-happen-modern-manufacturing-strategy.pdf

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– engaging external professionals to provide commercialisation and market advice, such as identifying market opportunities and developing a market strategy – creating distribution strategies, such as market entry pathway and identifying domestic supply chains – developing a product for commercialisation using high value manufacturing techniques or processes such as rapid prototyping or using state-of-the-art manufacturing plant – acquiring, constructing, installing and commissioning of new machinery and equipment to facilitate the project (limited to 25% of grant funding) – research collaboration as it relates to the validation/viability of later stage commercialisation – approved production and post-production manufacturing activities related to commercialisation More information on the eligibility to apply for the Advanced Manufacturing Commercialisation Fund can be found here. The department of Industry, Science, Energy and resources provides a range of manufacturing funding opportunities under the Modern Manufacturing Strategy. In particular, funding for the Manufacturing Collaboration Stream will be open from 11 August 2021 until 9 September 2021 for very large projects that support business-to-business and business-to-research collaboration, aiming to encourage businesses to work together and leverage the strength of the Australian research sector. The grants range from $20 million to $200 million and again, focuses on the long-term transformation in the 6 National Manufacturing Priority areas identified above. More information of the objectives and eligibilities of the Manufacturing Collaboration Stream can be found here.

How wi l l i t af fect our cl ients? One of the main focus of this Strategy is to align research and innovation capabilities and programs to support the priority areas. With clients in all six National Manufacturing Priorities having strong research and manufacturing capabilities, we highly encourage our clients to explore the opportunities and potential benefits available.

Please contact Wrays if you need further information on the initiatives outlined in this article.

ELLEN CHA Attorney

NEW ZEALAND IP FILING TRENDS

The following article provides an update on IP filing trends in New Zealand over the last 4 calendar years, from CY2016 to CY2020.

Interestingly, total patent applications filed by both foreign and local NZ residents have remained largely steady while patent applications filed by only local NZ residents have actually decreased. New Zealand-based appliance company, Fisher & Paykel and Californian-based medical equipment company, ResMed, dominated the patent opposition scene. Trade mark applications have shown a strong increase in filings. Please see the next page for further information on these trends.

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Patents Figure 1 - Total No. of New Zealand Patent Filings

Trademarks Overall the total number (national and international filings) of New Zealand trademark filings (see Figure 3) have shown strong continued growth over the last 5 years. In fact, when comparing the total number of filings in 2016 and 2020, trademark filings have increased by 24%.

Designs Between 2016 and 2020, the total number of New Zealand design filings has fluctuated, peaking in 2018 with 1,644 filings. Filings dropped in 2019 to 1,343 to an increase of 1,459 filings in 2020. Design filings had an increase of 1.8% in 2020 (1,459) compared to 2016 (1,433).

6220

5997

Figure 3 - Total No. of New Zealand Trademark Filings

Figure 4 - Total No. of New Zealand Design Filings

6403

6145

24385

1330

22039

1433

6495

25250

1459

1644

27381

2016 2017 2018 2019 2020

1343

25756

The total number of New Zealand national phase applications, complete patent applications and provisionals (see Figure 1) has shown some fluctuations over the last 5 years with the average number of 6,252 total patent filings per year over this period. New Zealand filings for the period 2018-2019 showed an increase of 5.7% and a 1.4% drop in filings between 2019 to 2020. There were a total of 6,220 and 6,403 filings in 2016 and 2020 respectively, up by 3%.

2016 2017 2018 2019 2020

2016 2017 2018 2019 2020

New Zealand Patent Of f ice Opposi t ions During the period 2016-2020, there were 62 IPONZ opposition actions (see Figure 5) with Fisher & Paykel and ResMed accounting for 47% of all opposition actions.

Figure 2 - Complete and National Phase Applications by NZ Owners

Figure 5 - Most Active Parties (Total Case Count)

Fisher & Paykel Healthcare (NZ)

ResMed (AU)

463

380

Fonterra Co-Operative Group (NZ)

Bayer New Zealand (NZ)

346

Merial (GB)

315

Zoetis (US)

345

Leprino Foods (US)

Grassianz Technology (NZ)

DELAVAL HOLDING (SE)

2016 2017 2018 2019 2020

Merial (US)

The number of complete and national phase applications filings by New Zealand residents (see Figure 2) shows a decline in filings in 2016, 2017 and 2018 (463, 380 and 315 respectively), with increases in 2019 (345) and 2020 (346).

LOUISA KING IP Search Expert

Data extracted from the New Zealand Intellectual Property Office “Facts and Figures”. Further details can be found here.

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About Wrays

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And when you combine our passion for achieving the best result with our broad capability across the IP spectrum, it’s our clients who enjoy the benefits. In day-to-day reality, this means bringing the right people in the room every time and working together across disciplines to deliver what’s needed.

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