Thinking | 28 November 2019
Technology and the Digital Economy – issue one
Commercialising biotechnology: challenges and opportunities
Biotechnology – essentially biology-based technology – has enormous potential to heal, fuel and feed us. But how do we take this beyond the laboratory and out into society?
One of the ways to achieve this is to successfully commercialise research results. At a recent seminar, we gathered together experts to discuss the way forward with commercialising biotechnology in Australia. Partner Ben Hamilton, the leader of our Technology & Digital Economy industry group, outlines some key issues and observations.
Commercialisation and biotech
Beyond the obvious benefit of obtaining a financial return, commercialising biotechnology can substantially benefit the Australian community, industry and the environment. Bringing biotech out of the laboratory and into industry can mean more sustainable funding for producing products or processes that improve crops, medical treatments and biofuels.
Patents can clearly be of fundamental importance for biotech companies as the sector is incredibly research-intensive. The costs for the development of new products and processes is high, while the cost of imitation is relatively low. For some biotech companies, robust IP rights are not just part of the pathway to market; they represent the final product. Those companies may not sell a ‘product’ in the traditional sense. They will instead base their revenues on their ability to develop and exploit their IP, often through licensing arrangements.
Academics have compared the process of commercialising a new product or technology to ‘crossing a chasm’. Just because you have an exciting innovation, it doesn’t mean that the market will adopt it. Obtaining IP protection itself clearly does not guarantee market success. Essentially, IP rights are negative as they merely provide the legal tools to prevent others from exploiting those rights. If the IP is to be commercialised through licensing, then an ongoing legal and commercial relationship with the licensee should be expected.
Barriers to commercialisation
Long timeframes to bring medical products to market, combined with a shallow venture capital market, create particular challenges for Australian companies. Many Australian biotech companies rely on collaborative deals with overseas companies to gain skills, intellectual property and capital for different stages of development.
While Australia ranks near the top of the Organisation for Economic Co-operation and Development (OECD) for research excellence, it is less effective at driving the economic benefits of that research. There is a view that, for this to happen, industry and academics need to collaborate more and that tax reform is required to incentive research and development to better reward industry-university collaboration.
As noted in a recent Productivity Commission report, regimes protecting intellectual property rights may be one of the major barriers to the development of innovation, including in the biotechnology sector, in Australia. The Commission concluded that Australia’s patent system grants exclusivity too easily, allowing applicants to obtain too many low-quality patents, frustrating follow-on innovators and hindering competition.
A further challenge lies in finding the right balance between:
- publishing the research – making it available to all; and
- protecting inventions which may have arisen out of the research.
Speaking at our seminar, Dr Noel Chambers, CEO of the National Foundation for Medical Research & Innovation, spoke about the well-known ‘publish or perish’ conundrum - the need for academics to publish their research which can have a detrimental impact on subsequently obtaining IP protection. Even so, Dr Chambers expressed a view that the two outcomes (of publishing and obtaining IP protection) need not be mutually exclusive.
Exploiting IP rights
To commercialise biotechnology, a key step is to have an IP protection strategy in place. There are likely to be many factors which inform that strategy, including overall commercial objectives and whether particular geographic markets or fields of use are more significant than others to the venture. Perhaps ironically, an IP protection strategy may also involve assessing when registered IP protection ought not be taken out, such as where costs may outweigh any potential benefits associated with filing for patent protection, including where filing in a particular jurisdiction may not be commercially viable. If data and algorithms are a key part of a commercialisation strategy, then traditional concepts of ‘ownership’, ‘background IP’ and ‘foreground IP’ may need to be considered critically.
Another key step is to develop an IP commercialisation strategy: ‘How will those rights be taken to market?’ ‘What is the structure of the commercial venture?’ ‘Will the rights be sold or licenced to others?’ One of the key benefits which licensing brings is flexibility. A licence agreement can therefore be tailored to fit a particular commercialisation strategy. For example, a licensor may wish to contractually restrict the licensee from taking infringement action or may be very comfortable with the licensee taking action, provided that adequate contractual mechanisms are in place in the licence agreement.
A licence agreement may also contractually ‘carve up’ the exclusive rights which are the subject of the IP which is being licensed. This can include licensing to specific fields of use, territories or customers.
While Australia ranks highly when it comes to research output per capita among OECD nations, it ranks very low in terms of businesses collaborating with universities on innovation. If that bridge can be crossed, then the pathway to market may no longer be such a chasm.
Consumer Data Right
The roll out of the new Consumer Data Right regime has been gathering momentum, with the Consumer Data Right currently being implemented in the banking sector and proposals to extend the regime to the energy, telecommunications and superannuation sectors. Partner James Deady reports.
The Consumer Data Right (CDR) is a recently created statutory right, brought into law in August 2019 under the new Part IVD of the Competition and Consumer Act 2010 (Cth) (CCA).
Broadly speaking, the CDR provides consumers (both individuals and businesses) with the right to:
- access specific data, including data about their use of goods or services, which is held by a service provider at the request of the consumer; and
- direct service providers that hold certain data to share that data with other service providers (who are authorised data recipients under the CDR regime).
The CDR also imposes a number of obligations on organisations that hold data subject to the CDR regime, including obligations regarding providing access to that data, sharing the data with authorised data recipients and privacy and data security obligations.
The Government’s expectation is that the CDR will encourage consumers to shop-around, with the effect of improving competition.
It is proposed that the CDR will be implemented on an industry sector by industry sector basis, with the Treasurer empowered to designate which industry sector will be subject to the CDR regime on advice from the Australian Competition and Consumer Commission (ACCC).
Regulatory supervision of the CDR regime will primarily be shared between the ACCC and the Office of the Australian Information Commissioner (OAIC). In summary, the roles of the ACCC and OAIC will be:
- the ACCC has the authority to make Consumer Data Rules regarding the rights and obligations of participants in the CDR regime. The ACCC also accredits data recipients who will have the authority to receive CDR data; and
- the OAIC advises the ACCC and the ACCC’s Data Standards Body (the CSIRO’s Data61) about the privacy implications of designating an industry sector and the proposed Consumer Data Rules and Consumer Data Standards which will apply to that industry sector.
The CSIRO’s Data61 has also been appointed by the Treasurer as the Data Standards Body, who have the responsibility to set Consumer Data Standards, being the technical standards for the transmission, format and security of CDR data in each industry that the CDR regime applies in.
The introduction and roll out of the Consumer Data Right reflects the increased government and regulator action regarding data portability. In addition to the Consumer Data Right, the Government has recently announced proposed mandatory data sharing laws for motor vehicle service and repair information. In addition, the ACCC noted data portability as being a significant issue in its recent Digital Platforms Inquiry.
Roll out of the CDR
The first industry sector in which the CDR will be implemented is the banking sector.
The introduction of a CDR in the banking sector, commonly referred to as open banking, is being phased in over the next two years. The first stage will take effect from February 2020 when the big four banks are required to make their customers’ credit and debit card data, deposit and transaction account data and mortgage accounts’ data, available for their customers to access and share with accredited data recipients. Other banks are required to follow by February 2021.
The second stage will take effect from July 2020 when the big four banks are required to make product data for all other customer accounts available for their customers to access and share with accredited data recipients. Other banks are required to follow by July 2021.
In August 2019 the ACCC released the draft Consumer Data Rules which will apply to relevant participants in the banking sector. The ACCC has also been assessing data recipients in the banking sector, including banks and Fintech firms for the purposes of accrediting data recipients. In September the ACCC chose 10 businesses to participate in the testing of the CDR ecosystem ahead of launch of the first stage of open banking in February 2020.
In September 2019, Data61 released version 1.0.0 of the Consumer Data Standards, being the initial binding data standards for the CDR regime which is set to apply to participants in the banking sector.
The OAIC has also released draft CDR Privacy Safeguard Guidelines, with public consultation on those guidelines open until 20 November 2019.
Planning for the introduction of the CDR regime in the energy sector is well underway. In August 2019 the ACCC chose a preferred data access model for implementing a CDR regime in the energy sector.
The ACCC is currently in the process of developing consumer data rules for the energy sector to enable household’s current energy deal and consumption pattern to be accessed and shared with other energy service providers.
The ACCC is expected to release a timetable for the implementation of the CDR in the energy sector later this year.
The ACCC has stated that it is proposed to implement a CDR regime for the telecommunications sector following the completion of implementation in the energy sector.
In October 2019 the Senate Committee on Financial Technology and Regulatory Technology published an issues paper suggesting the CDR regime should be extended to super funds.
This issues paper is currently out for public consultation (with submissions due 31 December 2019).
Organisations in the banking, Fintech, energy, telecommunications and superannuation sectors should be aware of these, and future, developments in the implementation of the CDR regime across their respective industry sectors.
The CDR regime will create new data security and privacy compliance obligations for participants in industries subject to the CDR.
It will also mean that participants in industries subject to the CDR will need to consider their third party contracting arrangements and requirements with suppliers who provide consumer data handling and data security services.
We will continue to monitor developments in the roll out of the CDR regime.
Biometric technologies in the workplace
The increasing use of fingerprint scanning and other biometric technologies in the workplace is raising important privacy and employment law issues for employers.
A recent landmark Fair Work Commission case raised ‘important, novel and emerging issues’ about the collection of employee data in the workplace, after the FWC ruled an employee was unfairly dismissed for refusing to use a fingerprint scanner to record on-site attendance.
Esports and sporting integrity laws
The esports industry has grown rapidly in popularity, prize money and commercial opportunities, with corresponding increased demand for betting on esports tournaments and matches.
Recent arrests regarding alleged match fixing at esports events also indicates that more ‘traditional’ sporting integrity laws are equally relevant to esports events.
In the news
ACCC institutes proceedings against Google
In late October 2019, the Australian consumer watchdog, the Australian Competition and Consumer Commission (ACCC), instituted proceedings against Google LLC and its Australian subsidiary (Google) alleging that the multinational tech giant had engaged in misleading conduct and made false or misleading representations to consumers in relation to how it collects, keeps and uses the personal location data of Google users.
The crux of the ACCC’s claim is an allegation that Google’s conduct may have allowed it to collect location data from Android users even after a user had disabled their ‘Location History’ account setting.
This case has attracted huge attention and we will keep you posted on developments.
Australia-Singapore Digital Economy Agreement
The Minister for Trade, Tourism and Investment, Simon Birmingham, and the Singaporean Minister for Trade and Industry, Chan Chun Sing, have begun discussions on a major proposed digital economy trade agreement.
The agreement is proposed to cover digital trade rules and facilitate cooperation between Australia and Singapore regarding topics such as digital trade facilitation, e‑invoicing, e-payments, FinTech and cooperation on the digitisation of trade documents, artificial intelligence, digital identities, and e-certification for exports. It is also anticipated that the agreement would cover cross-border data flows and data security.
Formal negotiations will be launched shortly.
The RBA’s Payment Systems Board has recently announced that the first version of its digital identity framework, known as ‘TrustID’, has been completed.
The TrustID framework allows individuals to establish their digital identity and to use the digital credentials as proof of identity when interacting online. It is intended that TrustID will improve the convenience and security of online interactions and reduce costs and the administrative steps associated with ‘know-your-customer’ processes.
The RBA anticipates that the digital credentials will be able to be used across a range of services, including for myGov access, as well as for online card payments and internet banking.
Banks and other similar institutions are yet to announce whether they will integrate TrustID into their customer onboarding and security processes.
Fallout 76, the most recent instalment in a popular videogame franchise, has caused some difficulties for ZeniMax Media Inc and its European and Australian subsidiaries.
Following an ACCC investigation, on 31 October 2019, ZeniMax made a court-enforceable undertaking regarding alleged misleading representations made by ZeniMax in respect of the rights of consumers who experienced faults with the Fallout 76 game. In particular, the ACCC alleged that ZeniMax had misled or deceived consumers regarding their consumer guarantee rights.
The Fallout 76 case is another example of the increasing enforcement activity the ACCC has been taking against global, online businesses regarding non-compliance with Australian Consumer Laws.
Hall & Wilcox news
After the success of the 2019 program (see media release for further information), Hall & Wilcox, through its Frank startup practice, has opened applications for its 2020 Frank Lab accelerator program, a six-month program focused on ensuring that startups have the right business structure and legal foundations to grow their business.
If you’re preparing for a capital raise, have a regulatory issue you need advice on or could just do with some help getting your legal docs in order, you can apply here.
We recently teamed up with our friends at Right Click Partners to host a breakfast in Sydney and a lunch in Melbourne with a number of our technology industry clients to discuss valuation multiples for technology companies and key M&A metrics.
The discussion was led by Benjamin Chong and James Whalley from Right-Click, who also provided an overview of venture debt and why it should be considered by companies looking to raise funds.
For more information on this event, or M&A issues in the technology industry, please contact James Bull.
Ben specialises in technology law, intellectual property and commercial contracts, trade marks and commercialisation.
More about Ben
James is an commercial lawyer specialising in technology procurement, privacy, data security and intellectual property matters.
More about James
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