Implementing the Cutler Review recommendations in the current economic climate

In his blog entry of 12th September 2008, Intellectual Asset Management Editor Joff Wild referred to the report Venturous Australia – Building Strength in Innovation, commissioned by the federal government earlier this year and delivered by Terry Cutler. Wild reported on two recommendations:

• that Australian IP law should be reviewed to ensure that patents are granted only to technologies having a “considerable” level of inventive step (7.2); and 
• that IP policy making should cease to be the domain of professional practitioners and beneficiaries of the IP system only, and should instead form part of economic policy making (7.3).

Wild found that there was much in the report that “other parts of the world could find attractive and persuasive”.

The formation of economic policy has come into sharp relief in the weeks since this blog entry was published. The global financial markets have lurched from one crisis to the next. The Nasdaq stock market, a technology indicator frequently reported in Australian business circles, has dropped by approximately 20% in the last month. The Australian stock market, albeit buffered by a financial system more highly regulated than those in the United States and Europe, has had a rollercoaster ride mirroring offshore rises and falls, and seemingly at the mercy of the failings of foreign economies. At its worst, the Australian dollar dropped approximately 30% from a position of near parity with the US dollar in May 2008. Recently, the Reserve Bank of Australia responded by dropping official interest rates by 1% taking the market - which was expecting only a 0.5% drop - by storm. On 14th October the federal government announced, in a further blow to Friedman’s economic theories, the pump priming of the Australian economy to the tune of A$10 billion, aimed squarely at those most likely to spend their windfall gain – pensioners and new home owners. This represents almost half the government’s budgeted surplus for 2008 to 2009.

Where does this leave the recommendations of the Cutler Review? Somewhat prophetically, in his letter to the minister Cutler wrote, “We are entering an era when the global economy is being transformed before our eyes, with huge local implications.” In essence, Cutler recommended that the Australian innovation economy be “pump primed” in the same way as the government is proposing to do to the general economy. The many recommendations include the following: 

• adopting the principle of fully funding the costs of university research activities and implementing this through more block and competitive grant schemes so as to match similar rates in leading Organisation for Economic Cooperation and Development (OECD) economies (6.1). 
• urgent restoration of funding levels to publicly funded research agencies so as to match similar rates in leading OECD economies (6.3). 
• the opening of current innovation granting programmes to international partners and participants (6.7). 
• the increase and lengthening of funding to postgraduate students (6.8). 
• an increase in research infrastructure funding from A$150 million to A$200 million a year (6.14). 
• the implementation of tax credits as an incentive to investment in research and development to replace the current tax concession system limited to 125% of expenditure for organisations returning a profit (8.2). 
• the introduction of new grants programmes and the extension of existing programmes to assist firms with limited access to capital in the high-risk proof-of-concept and development stages of innovation (8.3). 
• the establishment of new pre-seed funds and the provision of grant assistance to angel investors (8.4).

Taking as an indicator of the potential economic strength of Australia’s global innovation the fact that from 2004 to 2007 (boom years for the Australian economy), the number of Patent Cooperation Treaty (PCT) patent application filings by Australians in Australia increased by 11%, whereas the number of PCT applications in Australia by US applicants increased by 24%, by Koreans by 57% and by Chinese by 250%, the rationale for Cutler’s recommendations can be seen (figures from the Australian Patent Applications Scoreboard 2008, IP Research Institute of Australia, University of Melbourne 2008). However, this begs the following question: if in times of economic boom Australians cannot increase their patent filing rates equivalent to their major trading partners, what effect will the current economic turmoil have on the government's capacity to adopt the Cutler recommendations; and if the recommendations are not adopted, what fate lies in store for the Australian innovation community? The economic philosophies of Friedman may yet prevail insofar as the Australian innovation sector is concerned, unless the government adopts a long-term view of the country’s response to the impact of financial globalisation.