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Computer Companies

Following the decision of the full Federal Court in Disktravel v Austrade, particular care must be taken by companies in the computer industry when lodging an export grant claim.

Please contact us to discuss the specific circumstances of your company's export activities, so that you will have the certainty of knowing the company applying for the grant, is the correct entity.

If the claim is on the basis of the export of computer software, then the company claiming the export grant rebate must not only have incurred the expenditure, but also must either own copyright in the software or be granted an exclusive licence in the copyright of the software. Having an exclusive distribution right or an exclusive right to exploit will not be sufficient for a company to claim an export grant rebate, where the export grant claim is for the export of computer software. It is common for the development company within a group of companies to hold copyright, but to grant marketing rights to a related company, who enters into distribution agreements for international markets. This may cause the export grant application by the marketing company to fail. If an assignment of copyright as outlined above is not possible, then the marketing company may qualify for an export grant based on the export of know-how. It is a requirement by Austrade that know-how must be documented, so again care must be taken that copyright in the know-how is owned by the company claiming the grant, even if copyright in the software itself it owned by another company within the group.

Austrade will look at each claim based on its circumstances, but clearly the agreements that have been entered into with overseas distributors, will set out whether the export is an export of the software only and thereby intellectual property or whether it is an export of software and know-how. The provision of after sales service, modifications, updates and adaptations as an ongoing obligation, would suggest that services and/or know-how is being provided. Provided the company claiming the export grant owns the know-how (and any copyright within the know-how), then it will qualify for the grant.

Computer software and programming services would generally be claimable as eligible external services. Where a company is exporting disks produced in Australia, then the export would be an export of goods rather than of intellectual property. 

Although there is no definition of know-how within the Export Market Development Grant Act, definitions can be taken from alternative sources. One is Taxation Ruling IT2660. It talks of know-how being the supply of scientific, technical, industry or commercial knowledge or information. "Know-how is undivulged technical knowledge, information, experience or technique that is necessary for the industrial reproduction of a product or process. Examples of this would include technical data, samples or patterns or details of processing or production methods". 

The words "the supply of knowledge or information" are used in their usual sense and imply the communication or imparting of knowledge or information. 

The definition does not require that any special means of communication be employed. It will be effective whether the information is supplied in a verbal, written, electronic or other form. Know-how could include ancillary and subsidiary services, for example in promoting the transaction by demonstrating and explaining the use of the property or by assisting in the effective implementation of the property transferred or by performing services under a guarantee relating to such effective implementation. 

Two important elements can be the basis for distinguishing between a contract for the supply of know-how and one involving the rendering of services. These are that under a contract for the supply of know-how; 

(a)        A product i.e. knowledge, information, technique, formula, skills, process, plan etc, which has already been created or developed or is already in existence, is transferred.

(b)        The product which is the subject of the contact is transferred for use by the buyer i.e. it is supplied.

By contrast, in a contract involving the performance of services;

(a)        The contractor undertakes to perform services which will result in the creation, development or the bringing into existence of a product (which may or may not be know-how).

(b)        In the course of developing a product, the contractor would apply existing knowledge, skill and expertise. There is not a transfer i.e. supply of know-how from the contractor to the buyer as such, but a use by the contractor of his knowledge for his own purposes, and

(c)        The product created as a result of the services belongs to the buyer for him to use without having to obtain any further rights in respect of the product.

Although each of the factors mentioned above are particularly relevant and must of course be given due weight when examining the nature of any contract, they all point to the one main distinctive feature of know-how - that it is an asset and as such is something which is already in existence and is not something brought into being in pursuant to a particular contract.

In summary, great care must be taken in arriving at the correct approach for an export grant application by a company involved in the export of computer software, computer software services or computer know-how. It must be clearly identified whether intellectual property in the form of copyright or know-how, services or alternatively a good is being supplied. The company incurring the expenditure and claiming the export grant must be the owner of those rights and/or good. If for example a company within the group owns marketing rights to software, but is not the owner or exclusive licensee of the copyright in the software, a claim by this company for an export grant will fail. If on the other hand, the marketing company is the owner of the know-how which is the primary export transaction, then the marketing company's export grant application will succeed.