IP for Accountants Companion launch presentation

Intellectual Property for AccountantsA Definitive Guide to IP for the practising accountant

Presenter: Nick WestonWilliam Buck, Melbourne25 November, 2014

This launch of the Nicholas Weston White Paper, IP for Accountants provides an overview of intellectual property (IP) and the various types of rights available

We outline of each type of IP protection and the levers that drive the economic value of IP

The session will conclude with a brief overview of how accountants with a basic familiarity with IP can advantage themselves and their clients

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Intellectual Property for Accountants

Agenda

• Types of intellectual property• The levers driving economic value of IP• Aligning IP with your role and business strategy

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IP for Accountants - OverviewIntellectual property

• Types of intellectual property• What is intellectual property?• Patents• Trade Marks• Domain Names• Designs• Plant Breeder’s Rights• Copyright• Trade Secrets

• The levers driving economic value of IP• Aligning IP with your role and business strategy

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IP for Accountants - OverviewIntellectual property

Intellectual property (IP) refers to creations of the mind: inventions, literary and artistic works, and symbols, names, images, and designs used in commerce

IP is often represented in the form of patents, registered designs, trade marks, copyright, circuit layout rights, plant breeder’s rights and trade secrets

Domain names and some forms of data can also be IP

IP for Accountants

5 World Intellectual Property Organization http://www.wipo.int/about-ip/en/

What is intellectual property?



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IP for AccountantsIntellectual Property

A patent is a temporary monopoly (generally 20 years-subject to possible extension for pharmaceutical substances) in a technological innovation granted to the patentee

Not more than 18 months after the lodgement of a patent application, a detailed description of the invention becomes available for public inspection

Types of Intellectual Property

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Patents

Three criteria for a granted patent• It must be novel • It must be non-obvious• It must have commercial utility

In Australia there are two types of patent applications available

• Standard Patents • Innovation Patents


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Patents

A Standard Patent

• Specification consists of a description and claims defining the monopoly conferred by the patent

• There is a need to clearly set out at the filing date how each step of

the invention across the scope of the claims can be carried out and tested

• Claims define novel articles, parts of articles, substances,

compositions, living organisms, methods of therapeutic treatment or other uses of the foregoing, and/or manufacturing processes:

• more than one these claim types may be present in a single

patent


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Patents

A Standard Patent

• Subjected to examination for novelty, inventive step and other matters

• Maximum term (subject to possible extension for pharmaceutical substances) is 20 years from “the effective filing date”

• In addition to a written description, the specification must provide sufficient description to enable a person of skill in the art to practice the invention across the scope of the claims


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Patents

Innovation Patent

• Consists of an abstract, patent request and specification, similar to standard patents

• Specification has the same description requirements as a standard patent but can only contain a maximum of 5 claims; all can be independent

• The novelty test for an innovation patent is the same as for a standard patent, however, a lower “innovative step” test applies

• Maximum term is 8 years from the effective filling date


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Patents

Innovation Patent

Not as commonly used in Biotech Industry, because, unlike relatively simple mechanical inventions, biotechnology inventions

• are difficult to describe and• are inherently unpredictable and • can have up to 200 pages of specifications


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Patents

Patent Cooperation Treaty - PCT application

There is no such thing as an International Patent. A PCT application is a virtual application in every country that is a member of the Patent Cooperation Treaty. Each PCT application then turns into a national application in each country

It reserves a priority date for the invention to give the owner extra time to determine where the invention should be protected. The owner can do additional marketing and/or research to find out where they would have the most success in selling the product


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Patents

Patent Cooperation Treaty - PCT application

• PCT provides for an application in a signatory country to be filed as an international application

• Also provides for a preliminary non-binding examination

• A PCT application can progress as a national application in each designated country

• Signatories include most of Australia’s major trading partners


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Patents


15 http://ipparalegals.com/media/blogs/experts-quill/what-is-a-pct/

Typical PCT process


16 QUT-2004

Typical patent process and cost

$0

$50,000

$100,000

$150,000

$200,000

ProvisionalApplication

PCTApplication

NationalPhase Entry

Examination Renewals

Months0 12 30

Patent granted

Cumulative cost

Defence>$1m

• An Australian patent registration only applies in Australia, it does not apply overseas

• It is common to file in each nation protection is required

• In order to gain a commercial advantage within the Biotech industry, there is a need to market in the U.S.

• There is a need to use the stringent U.S. standard for fully describing the invention


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Patents

In the U.S. there are three types of patent applications• Utility Patents• Design Patents • Plant Patents

In the U.S. the patent will be granted on an application filed by the first inventor of the claimed invention


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Patents- US Patent System

Utility Patent Protects the way in which an invention is made, how it is used or how it functions

- Expires 20 years from the effective filing date

Design Patent Protects new ornamental design for an article of manufacture

- Expires 14 years from the date of grant

Plant Patent Protects distinct and new plant varieties- Expires 20 years from the effective filing date


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Patents

• The biotech/pharmaceutical art is crowded

• Scientists may be aware of non-patent literature• A new generation of scientists is turning to the internet as a

vehicle to post raw experimental results. Such promiscuity with

research data undermines the very integrity of the scientific endeavour

• ‘Publish or perish’ vs. ‘publish and perish’

• Patent literature may be in advance of scientific publications

Types of Intellectual PropertyIdiosyncrasies of protecting biologics- Patents

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• Examination is a different standard to peer review

• Without the rewards provided by the patent system, researchers and inventors would have little incentive to continue producing better and more efficient products for consumers

• Association of Molecular Pathology v Myriad Genetics (2013) • Naturally-occurring DNA is not patent eligible • cDNA is patent eligible because it is not naturally-occurring

• In Australia, business as usual? • APO continues to allow patent applicants to claim genetic

material• Genetic material must have been isolated

Types of Intellectual PropertyIdiosyncrasies of protecting biologics - Patents

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• Gene Patent Eligibility Before Myriad (USPTO Utility Examination

Guidelines) – 2001

• An inventor’s discovery of a gene can be the basis for a patent on the genetic composition isolated from its natural state and

processed through purifying steps that separate the gene from

other molecules naturally associated with it• Patent Eligibility of DNA Fragments – Post Myriad decision (2013)

• Fragments of genomic DNA are ineligible

• Fragments of cDNA also found in genomic sequence are ineligible

• Fragments of cDNA not found in genomic sequence are eligible

Types of Intellectual PropertyIdiosyncrasies of protecting biologics - Myriad deci sion

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Data protection as a biologic from date of regulatory approval

• 5 years Australia• 6 years China

• 10 years EU

• 12 years USA

Intellectual PropertyIdiosyncrasies of protecting biologics - Data protec tion

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Types of Intellectual PropertyIdiosyncrasies of protecting biologics - Hatch-Waxma n Act extension (U.S.)

• Provides a patent term extension for patents covering human drug products that are subject to FDA approval effectively a credit for the time the FDA spent reviewing the first drug application• extension is for a maximum of five years or 14 years of effective

patent life, whichever is less• must be for a patent that claims either a:

– drug product, which means the active ingredient and any

– approved drug using that active ingredient

– method of using a drug product

– method of manufacturing a drug product24



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IP for Accountants - OverviewIntellectual Property

A trade mark is a sign used, or intended to be used, to distinguish goods or services dealt with or provided in the course of trade by a person from goods or services so dealt with or provided by any other person


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Trade Marks

• A trade mark can be a phrase, word, letter, name, signature, numeric device, logo, colour, symbol, picture, aspect of packaging or shape, and even a scent or sound

• It can consist of words or images alone or any combination of the above signs

• A mark must not be ‘deceptively similar’ to a registered trade mark:• Trade mark infringement• Schedule 2 of the CCA 2010

• A good trade mark is more distinctive than descriptive, and is not defamatory, not a geographical name, not a common surname, not scandalous, not contrary to law


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Trade Marks

• Scope of Protection – Common law and Registration• Common law rights rely on reputation• Registration of a trade mark provides the right to

exclusively use, license, or sell goods and services under the mark

• 45 classes of goods and services with a fee payable per class – ask attorney for a fee schedule

• Broadly worded applications make render the registration vulnerable to attack for “non-use”

• No maximum term for which a trade mark can be registered but must be renewed every 10 years


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Trade Marks



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• A domain name is an internet address that typically comprises a name followed by a domain. As an example, our domain name comprises our law firm’s name <nicholasweston> followed by the ‘.com’ generic Top Level Domain or gTLD suffix

• Many Australian businesses prefer to use the country code (ccTLD) Top-Level Domain ‘ .au’ so that they are more visible to Australia focussed searches

• First come, first served


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Domain Names

• A domain name may be eligible for registration as a trade mark

• Registration of a domain name typically grants the registrant an ‘exclusive right’ to use it rather than outright ownership

• System is administered by ICANN


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Domain Names

• WHOIS searches• Domain name registration agreements contain a term to

abide by ICANN’s Uniform Domain Name Dispute Resolution Policy or UDRP and its procedural rules or the relevant ccTLD dispute policy

• In Australia, the relevant policy for a domain name with the suffix .au is called the .au Dispute Resolution Policy


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Domain Names

• UDRP/.auDRP• Domain name disputes can be resolved by administrative

cancellation or transfer of the disputed domain name by way of a lower cost means than litigation that start at $1,500.00 plus attorney fees


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Domain Names



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• A design is a feature of shape, configuration, pattern or ornamentation of a product

• A design registration is used to protect the visual appearance of manufactured products

• The registration of a design provides that party with the right to exclusively use, license, or sell the design for up to a maximum of 15 years


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Designs

Types of Intellectual PropertyDesigns

• Aesthetical in nature

• Technical features not protected, still need a patent to protect the technology

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• To be eligible for protection, a plant variety must adhere to three broad criteria• Distinctiveness• Uniformity• Stability

• Commercial novelty• the variety must not have been sold in Australia for

more than one year before the application


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Plant Breeder’s Rights

• Plant Breeder’s Rights provide commercial rights for 20-25 years to market a new variety or its reproductive material

• Selection from nature or discoveries naturally occurring are not eligible

• The variety must not have been sold in Australia more than one year before the application

• Must not have been sold overseas for more than 6 years before the application


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Plant Breeder’s Rights

• Plant-made pharmaceuticals – growing medicines in plants

• Modifying algae to produce biofuels, or grow on salt lakes- reduction of environmental footprint and minimises pollution (climate change)

• Increasing farming efficiency through high yield crops

• Reducing natural toxins in plants


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Plant Breeder’s Rights - examples



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• No system of Copyright registration in Australia

• Many different types of Copyright protection• Literary works• Artistic works• Dramatic works• Musical works• Cinematography films• Sound recordings and• Broadcasts• Performance rights


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Copyright

Protects: • textual material (“literary works”) such as journal articles,

novels, screenplays, poems, song lyrics, laboratory workbooks and reports

• computer programs (a sub-category of “literary works”)• compilations (another sub-category of “literary works”)

such as anthologies – the selection and arrangement of material may be protected separately from the individual items contained in the compilation


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Copyright

Protects: • artistic works such as paintings, drawings, cartoons,

sculpture, craft work, architectural plans, buildings, photographs, maps and plans

• dramatic works such as choreography, screenplays, plays and mime pieces

• musical works: that is, the music itself, separately from any lyrics or recording;

• cinematograph films: the visual images and sounds in a film, video or DVD are protected separately from any copyright in works recorded on the film or video, such as scripts and music


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Copyright

Protects: • sound recordings: the particular recording itself is

protected by copyright, in addition to, for example, the music or story that is recorded

• broadcasts: TV and radio broadcasters have a copyright in their broadcasts, which is separate from the copyright in the films, music and other material which they broadcast

• performances: a performer’s consent is generally required to film or record a performance and to broadcast or otherwise communicate a performance


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Copyright

• Expression vs. idea• Expression protected – not ideas• Your independent creation as you expressed it

• Copyright protection is free and automatic


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Copyright



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• Confidential information or ‘trade secrets’ includes information such as a formula, pattern, compilation, program, data, device, method, technique, or process, that• derives independent economic value, actual or

potential, from not being generally known to, and not being readily ascertainable by proper means, by other persons who can obtain economic value from its disclosure or use, and

• is the subject of efforts that are reasonable under the circumstances to maintain its secrecy


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Trade Secrets

• Common law protection of confidential information

• Confidential/proprietary information• that has commercial value to the owner because the

information is not generally available to public, and• owner takes reasonable measures to keep information

secret

• No formal filing needed

• Trade secrets may include inventions not yet patented or portions of a work that are not fully protected by copyright

Intellectual Property

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Trade Secrets

• Essentially 2 types of trade secret categories:• Inventions or manufacturing processes that do not meet

the patentability criteria and therefore can only be protected as trade secrets. • customers lists or manufacturing processes that are

not sufficiently inventive to be granted a patent

• Inventions and manufacturing processes that would fulfil the patentability criteria and could therefore be protected by patents• SME will face a choice to patent the invention or to

protect it under NDAs or CAs


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Trade Secrets – examples:

Patents Trade Secrets

Protects against independent discoveryNo protection against independent discovery or reverse engineering

20 years of protection Protection lasts as long as secret

Scope for publication of development No opportunity for publication

Enforcement: infringementEnforcement: breach of confidence, breach of contract, breach of fiduciary duty

Protection can be broadened beyond specific discovery/development

Protection specific to particular secret


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Patents v. Trade Secrets


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• There are accepted rules of thumb and forms of analysis to arrive at royalty rates

• An annual royalty can be tied to sales, gross profits or a licensee friendly nett revenue basis. One can fix it, cap it (annually or over the term), index it, tie it to a ‘most favoured nation’ type arrangement, or a combination of these and other techniques

• A ‘stacking’ term might be the go to cap a royalty or divide a fixed fee if a licensee is at the early stages of commercialising IP and full commercialisation will require other third party licenses and the number or amount of those third party royalties is unknown

The levers driving economic value of IPLicensing and royalty rates

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• Rates tend to reflect profit margins, ‘runway’ or duration of the profit, as well as risk and is informed by industry norms, exclusivity, non-monetary factors (such as grant backs or off-take agreements) and RoI analysis.

• In turn, royalty rate is invariably a function of the value of the IP assets

The levers driving economic value of IPLicensing and royalty rates

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• Registered rights are easy to identify• Intangible rights such as know how (which can include the

talents, skill and knowledge of the workforce), training systems and methods, designs, technical processes, customer lists, distribution networks, and so on are equally valuable assets but the earnings and profits they generate can be devilishly tricky for accountants to identify and allocate

The levers driving economic value of IPValuing IP rights

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• Intangibles are not generally depreciating or CGT assets

• Treated as income from the supply of a service

• Valuation of intangibles means on disposal money received as capital rather than income


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• Cost method

• Market value method

• DCF/NPV models


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• CGT – cost base = costs incurred in developing or acquiring the IP

• Tax deductions require a clear link between the expenditure related to the IP and producing assessable income

• The cost of developing IP assets such as trade secrets, know-how and confidential information are usually in the form of salaries and wages, which are usually tax deductible

The levers driving economic value of IPTax implications and benefits

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• Most inventions involve small incremental improvements to existing technology

• A successful R&D operation will be directed towards commercial outcomes

• Commercial considerations and IP are the complementary driving forces behind any R&D strategy

IP for AccountantsAligning IP and your role with business strategy

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IP for Accountants

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Product

Methods, Processes, or Techniques

Flow Chart, SourceCodes

Name / Graphics / Logos

Algorithms

Business Plan

Marketing / Product Launch Time Table

Designs, Drawings, etc.

Trade Secret

Trade Secret

Patent

Copyright

Patent

Trade Secret

TradeSecret

Trade SecretTrademark

Copyright

Copyright

Copyright

Trade Secret

Copyright

Copyright

PatentSource: Boeing 2011

Aligning IP and your role with business strategy

• If the principal aim is to maximise profit margins, then the strategy must involve the protection of the products, processes or services which are identified as being most relevant to those margins

• If the goal is to penetrate new markets, then the policy may involve generating new IP, and managing how that product is marketed, produced and protected

• Or the intention may be to realise cash rewards for a significant R&D investment, which can be achieved by licensing


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R&D Tax Incentive

• 43.5% refundable tax offset where aggregated annual turnover (AAT) $ < 20M

• 38.5% where AAT > $20M but < $ 20B• Overseas R&D spend needs to be less than half local R&D

spend but can get advance finding• Core and supporting activities• Apply within 10 months end FY• Guidance products


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• Stamp duty (jurisdiction shopping)

• PPSA (check for security interests)

• FOI (dig deeper)


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• Oppositions• Appeals• Injunctions• Adverse Examinations, Tribunal, AAT (including adverse IP

Australia findings, or ITAA and R&D Tax Incentive assessments), Federal Circuit Court; Federal Court of Australia, High Court


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• Know what IP is and take steps to manage it

• Triage, prioritise, plan for discord

• Monetising IP, calculating royalties and drafting licence agreements is more science than art

• Get professional help


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Nick WestonT: +61 3 8616 [email protected]

White Paper IP for Accountants available for download on the www.nicholasweston.com website

IP for Accountants

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THANK YOU

IP for Accountants Companion launch presentation

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Transcript of IP for Accountants Companion launch presentation