IP for Accountants Companion launch presentation

Intellectual Property for Accountants
A Definitive Guide to IP for the practising accountant
Presenter: Nick Weston
William Buck, Melbourne
25 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
2
Intellectual Property for Accountants
Agenda

• Types of intellectual property
• The levers driving economic value of IP
• Aligning IP with your role and business strategy
3
IP for Accountants - Overview
Intellectual property

• What is intellectual property?
• Patents
• Trade Marks
• Domain Names
• Designs
• Plant Breeder’s Rights
• Copyright
• Trade Secrets
4
Intellectual property

IP for Accountants
What is intellectual 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
5 World Intellectual Property Organization http://www.wipo.int/about-ip/en/

• Patents
• Trade Marks
• Domain Names
• Designs
• Copyright
• Trade Secrets
6
IP for Accountants
Intellectual Property

Types of Intellectual 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
7
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
8
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
9
Patents

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
10

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
11

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
12

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
13

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
14

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

Typical patent process and cost
$200,000
$150,000
$100,000
$50,000
16 QUT-2004
$0
Provisional
Application
PCT
Application
National
Phase
Entry
Cumulative cost
Examination Renewals
Months
0 12 30
Patent granted
Defence
>$1m

Patents
• 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
17

Patents- US Patent System
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
18

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
19
Patents

Idiosyncrasies of protecting biologics- 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
20

Idiosyncrasies of protecting biologics - Patents
• 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
21

Idiosyncrasies of protecting biologics - Myriad decision
• 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
22

Idiosyncrasies of protecting biologics - Data protection
Data protection as a biologic from date of regulatory approval
• 5 years Australia
• 6 years China
• 10 years EU
• 12 years USA
23

Idiosyncrasies of protecting biologics - Hatch-Waxman
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 product
24

• Patents
• Trade Marks
• Domain Names
• Designs
• Copyright
• Trade Secrets
25

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
26
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
27
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
28
Trade Marks

• Patents
• Trade Marks
• Domain Names
• Designs
• Copyright
• Trade Secrets
29

Domain Names
• 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
30

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
31

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
32

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
33

• Patents
• Trade Marks
• Domain Names
• Designs
• Copyright
• Trade Secrets
34

Designs
• 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
35

Designs
• Aesthetical in
nature
• Technical
features not
protected, still
need a patent to
protect the
technology
36

• Patents
• Trade Marks
• Domain Names
• Designs
• Copyright
• Trade Secrets
37

Plant Breeder’s Rights
• 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
38

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
39

Plant Breeder’s Rights - examples
• 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
40

• Patents
• Trade Marks
• Domain Names
• Designs
• Copyright
• Trade Secrets
41

• 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
42
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
43
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
44
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
45
Copyright

• Expression vs. idea
• Expression protected – not ideas
• Your independent creation as you expressed it
• Copyright protection is free and automatic
46
Copyright

• Patents
• Trade Marks
• Domain Names
• Designs
• Copyright
• Trade Secrets
47

Trade Secrets
• 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
48

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
49

Trade Secrets – examples:
• 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
50

Patents v. Trade Secrets
Patents Trade Secrets
Protects against independent discovery
No 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: infringement
Enforcement: breach of confidence, breach of
contract, breach of fiduciary duty
Protection can be broadened beyond
specific discovery/development
Protection specific to particular secret
51

52

The levers driving economic value of IP
Licensing and royalty rates
• 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
53

Licensing and royalty rates
• 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
54

Valuing IP rights
• 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
55

Valuing IP rights
• 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
56

Valuing IP rights
• Cost method
• Market value method
• DCF/NPV models
57

Tax implications and benefits
• 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
58

59

IP for Accountants
Aligning IP and your role with business strategy
• 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
60

IP for Accountants
61
Business
Plan
Product
Methods,
Processes, or
Techniques
Flow Chart,
Source
Codes
Name / Graphics
/ Logos
Algorithms
Marketing /
Product
Launch Time
Table
Designs,
Drawings,
etc.
Trade Secret
Trade Secret
Patent
Copyright
Patent
Trade
Secret
Trade
Secret
Trade Secret
Copyright
Trademark
Copyright
Copyright
Copyright
Trade Secret
Copyright
Patent
Source: Boeing 2011

IP for Accountants
• 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
62

IP for Accountants
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
63

IP for Accountants
• Stamp duty (jurisdiction shopping)
• PPSA (check for security interests)
• FOI (dig deeper)
64

IP for Accountants
• 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
65

IP for Accountants
• 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
66

IP for Accountants
Nick Weston
T: +61 3 8616 0379
mail@nicholasweston.com
White Paper IP for Accountants available for download on the
www.nicholasweston.com website
67
THANK YOU

IP for Accountants Companion launch presentation

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