When most people think of patents, they immediately associate them with the right to exclude others from using their invention. This focus on exclusivity often drives patent holders to strategically file applications in countries with significant markets and respected, robust IP enforcement systems. However, importantly, even in jurisdictions known for active patent litigation, such as the United States, only a very small percentage of granted patents ever end up in court.
Despite this reality, some inventors choose not to pursue patent protection, reasoning, “What is the value of a patent if I don’t plan to enforce it?” While enforceability is often the first aspect that comes to mind when considering a patent’s value, this perspective overlooks the broader strategic importance of patents. Patents can unlock opportunities and advantages that businesses might overlook when focused solely on the ability to exclude competitors.
Beyond their use as litigation tools, patents can create value in numerous ways – from securing licensing deals and strengthening negotiation positions to attracting investment and enhancing market differentiation. In fact, their true worth often lies in the competitive and commercial advantages they provide, even without the need for enforcement.
This article explores the often-overlooked benefits of patents, with a particular focus on Australia.
Royalty Rates and Transfer Pricing
Patents play a significant role in structuring royalty payments and transfer pricing arrangements within multinational companies. Australian tax authorities apply strict guidelines to ensure that intercompany transactions reflect an arm’s-length standard, particularly when royalties flow between local subsidiaries and their foreign parent companies.
A granted Australian patent provides solid evidence that a licensed technology is unique, justifying higher royalty rates paid by a local subsidiary to a foreign parent company. It also adds credibility in international tax contexts, allowing Australian companies to defend their royalty structures when operating within complex global tax frameworks.
For businesses licensing patented technologies, having patent protection in Australia also simplifies negotiations with licensees. A local patent demonstrates that the licensor has tangible, protected rights within the jurisdiction, helping to set terms that reflect the invention’s true value.
Enhancing Tax Benefits for R&D Activities
Australia’s commitment to fostering innovation is evident in its tax incentives for research and development (R&D). Under the R&D Tax Incentive (R&DTI) scheme, companies can claim a tax offset for eligible R&D expenditures, supporting their efforts to develop new or improved products, processes, or technologies.
This link between innovation and protection aligns with the Australian government’s objective of rewarding substantial technical contributions.
Additionally, patents can signal the commercial success of an R&D program, reassuring stakeholders, such as investors and grant providers, that the company’s innovation efforts have real-world impact and value.
Procurement with Government Bodies
In certain circumstances, holding a patent can streamline dealings with Australian government entities. While government procurement processes generally involve competitive tenders, patented technologies can sometimes enable a sole-supplier arrangement.
Consider a patented technology aimed at emission reduction—a critical area of interest in Australia, given the country’s focus on sustainability and climate resilience. If such a technology were patented locally, government agencies would need to engage with the patent holder directly, bypassing tender processes for exclusive procurement. This approach ensures faster access to innovative solutions while rewarding inventors with favourable contract terms for products and services covered by the patent
Mitigating Competition Law Risks
Australian competition law is rigorous, with regulators such as the Australian Competition and Consumer Commission (ACCC) actively monitoring market practices to prevent anti-competitive behaviour. For companies operating in Australia, patents can act as a valuable shield against potential liability under these laws.
For example, practices like bundling or tying arrangements (where the purchase of one product requires buying another) might raise red flags under competition law. However, if both products are protected by Australian patents and are bundled under a single license agreement, the arrangement may be deemed justifiable.
Similarly, a refusal to provide access to a technology to competitors could be considered anti-competitive. However, if the technology is the subject of a patent, the existence of patent protection can justify such decisions as an exercise of exclusive rights granted by law. By clarifying the boundaries of permissible conduct, patents help businesses avoid hefty fines and legal challenges.
Supporting Business Negotiations
In Australia’s competitive and innovation-driven economy, patents often serve as strategic assets during business negotiations. Whether securing funding, forging partnerships, or entering into mergers and acquisitions, the presence of patents can be a decisive factor.
Investors and partners view patents as indicators of a company’s technological edge and its potential for sustained profitability. An Australian patent demonstrates that the company has invested in protecting its innovations within a stable and transparent legal system, increasing confidence in the company’s market position.
Moreover, patents enable businesses to expand their licensing strategies. Licensing agreements based on patented technologies offer revenue streams that extend beyond the domestic market, particularly in industries like biotechnology, mining, and advanced manufacturing, where Australian companies are global leaders.
Building Brand Value and Market Credibility
While patents are primarily legal tools, they also have significant marketing value. In Australia, where consumers and businesses value innovation, owning patents can bolster a company’s reputation as a market leader.
For example, advertising a product as “patented” conveys that the technology is novel and exclusive, differentiating it from competitors. This branding effect not only attracts customers but also deters potential infringers who might otherwise copy the product.
Conclusion
Australia’s patent system offers inventors and businesses a reliable framework for protecting their innovations. But beyond their enforceability, patents hold untapped potential as strategic assets that drive business success.
From supporting royalty negotiations to simplifying government procurement, shielding companies from competition law risks, enhancing R&D incentives, and building brand value, patents provide multilayered benefits.
Whether you’re a startup aiming to attract investment or an established player seeking to expand your market presence, investing in patent protection in Australia is more than a defensive move, it is a strategic decision with potential long-term commercial rewards.
If you have an innovation you’re considering patent protection for in Australia or other markets across the world, get in touch with us at Michael Buck IP and a member of our patents team will contact you to discuss your IP situation and options.
