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
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
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.
The product which is the subject of the contact is transferred for use
by the buyer i.e. it is supplied.
contrast, in a contract involving the performance of services;
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).
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
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
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
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.