8.5 Intellectual Property: Protection, Strategy and Accounting
Key Takeaways
An Australian standard patent lasts up to 20 years from filing, or up to 25 years for some pharmaceutical substances.
Australian trade marks are registered for 10 years from filing and can be renewed every 10 years indefinitely.
Innovation patents were phased out, with no new applications accepted after 25 August 2021.
IP strategy balances value appropriation through protection against market penetration through sharing or licensing.
Internally generated brands and customer lists cannot be recognised as assets under AASB 138, while IP acquired in a business combination is recognised at fair value.
8.5 Intellectual Property: Protection, Strategy and Accounting
Executive Summary: Intellectual property (IP) is intangible property that results from creativity—inventions, brands, designs, creative works and confidential know-how. It can be a decisive source of competitive advantage, but only if it is protected, managed and used strategically. This section explains the main forms of IP protection in Australia, the strategic choice between protecting and sharing IP, how to avoid infringing others' rights, and the accounting treatment of IP.
Forms of IP Protection in Australia
IP Australia administers patents, trade marks, registered designs and plant breeder's rights; copyright and trade secrets arise without registration.
| Right | What it protects | Australian term |
|---|---|---|
| Standard patent | New, useful and inventive products, processes or devices | Up to 20 years from filing; up to 25 years for some pharmaceutical substances |
| Innovation patent | Lower-threshold inventions | Phased out: no new applications after 25 August 2021; existing patents run up to 8 years |
| Trade mark | Words, logos, shapes and other signs that distinguish goods or services | 10 years from filing, renewable every 10 years indefinitely |
| Registered design | The visual appearance of a product | Up to 10 years |
| Copyright | Original literary, artistic, musical and dramatic works, software code and films | Automatic; for most works, the creator's life plus 70 years |
| Plant breeder's rights | New plant varieties | Up to 20 years (25 years for trees and vines) |
| Trade secrets and confidential information | Formulas, processes, customer lists, know-how | No registration; protected by confidentiality agreements, contracts and security for as long as secrecy lasts |
A patent requires public disclosure of the invention in exchange for a limited monopoly, whereas a trade secret can last indefinitely but is lost if it leaks or is independently discovered. The choice between them is itself a strategic decision.
Rights are territorial: an Australian patent or trade mark does not protect the owner in other countries. Before entering foreign markets (Section 12.2), firms usually file through international systems such as the Patent Cooperation Treaty (PCT) for patents and the Madrid Protocol for trade marks, and register trade marks early to prevent squatting by local parties.
Strategic Choices: Protect or Share?
The central strategic tension is between value appropriation (capturing the profits from an innovation by keeping it exclusive) and market penetration (spreading the innovation widely to build an installed base, network effects or an industry standard).
- Protect and appropriate: a firm with a strong, defensible advantage keeps tight control. A closed ecosystem with controlled hardware and software can sacrifice some market share yet capture most of the profit in its segment.
- Share to penetrate: a firm gives part of its technology away to make its format the standard and then earns money elsewhere. Distributing free reader software while charging for the tools that create documents is a classic example, as is licensing technology to rivals to win a standards war.
- License: earn royalties from others' use while retaining ownership; cross-licensing and patent pools allow firms to use each other's technology.
- Backward compatibility: making a new product work with the previous generation's products is an evolutionary strategy that protects customers' past investment, lowers switching costs and speeds adoption of the new standard.
The decision depends on whether the firm can capture value from complementary assets (manufacturing, brand, distribution), how quickly rivals could imitate, and whether network effects make an installed base decisive.
Avoiding Infringement
Protecting your own IP is only half the task. Before launching a product or entering a market, firms should conduct a freedom-to-operate search to check that they will not infringe others' patents, trade marks or designs. Infringement can lead to injunctions that stop sales, damages and the cost of redesign. Employment and contractor agreements should state who owns IP created at work, and confidentiality agreements should be in place before sharing ideas with potential partners.
Accounting for Intellectual Property
| Situation | Accounting treatment |
|---|---|
| Internally generated brands, mastheads and customer lists | Cannot be recognised as assets under AASB 138 |
| Internal research | Expensed as incurred |
| Internal development meeting all AASB 138 criteria | Capitalised as an intangible asset and amortised (or tested for impairment) |
| IP acquired separately | Recognised at cost |
| IP acquired in a business combination | Recognised at fair value under AASB 3, separately from goodwill |
| Licences granted to customers | Revenue under AASB 15, recognised over time for a right to access IP or at a point in time for a right to use IP |
Because most internally generated IP is not on the balance sheet, the finance professional may maintain an IP register recording each asset, its owner, its protection, its expiry date and its strategic importance, so that the board can see value that the statement of financial position does not show.
Worked Illustration: Patent or Trade Secret?
A food manufacturer has developed a new preservation process that extends shelf life without additives. If it patents the process, it gains up to 20 years of exclusive rights but must publish how the process works, and competitors may design around the claims or copy it once the patent expires. If it keeps the process as a trade secret, protection could last indefinitely, but only if the process cannot be reverse-engineered from the finished product and staff, suppliers and contractors are bound by confidentiality. Because the process happens inside the factory and cannot be detected in the product, a trade secret supported by strict access controls may be the stronger choice. If the innovation were visible in the product itself, a patent would usually be preferable.
Leadership and IP
Leaders set the IP culture: encouraging staff to record inventions, budgeting for protection in key markets, deciding when to share technology, and ensuring that partnerships and open innovation projects (Section 8.4) have clear IP terms.
An Australian medical-device company files a standard patent application today. Assuming the patent is granted and maintained, what is the maximum term of protection, and what must the company give in return?
Protection lasts only while the invention is kept secret
Up to 20 years from filing, in exchange for publicly disclosing the invention
The inventor's life plus 70 years, with no disclosure required
Up to 10 years from filing, renewable indefinitely while the device is sold
A company has developed a new digital file format. Rival formats exist and customers value being able to share files widely. Which IP strategy is most likely to help the format become the industry standard?
Giving away free software to read the format while charging for professional tools that create and edit files
Abandoning IP protection completely, so that anyone can copy the format and no revenue is earned
Keeping the format entirely closed and charging every user a licence fee from launch
Registering the format only as a trade mark so that competitors cannot use the name
A New Zealand retailer plans to open stores in Australia under its existing brand next year. What is the most important IP step before entry?
Relying on its New Zealand trade mark, because trade marks protect owners in all trans-Tasman markets automatically
Searching the Australian register and applying to register its trade mark in Australia before launch
Keeping the brand name confidential as a trade secret until the stores open
Filing a standard patent for the brand name, because patents give 20 years of protection
Sections you finish are checked off in the contents.