Cochlear’s bionic ear, a celebrated Australian success story, is unique because its primary innovation was in software, not hardware.
Cochlear’s journey began with a federal government-funded Public Interest Grant and was further supported by various other grants, including R&D grants, Export Market Development Grant, and Computer Bounty. This crucial funding played a pivotal role in shaping Cochlear’s success story.
What did Cochlear invent?
In developing the bionic ear, Cochlear used existing technology with components. Printed circuit boards, platinum wires, diodes, dice, capacitors, transistors, electrodes, titanium encapsulation (existed in pacemakers), silicon, and integrated circuits all existed over 35 years ago. Cochlear cannot be credited for the invention or development of any of these components.
Software, a crucial but often overlooked component, was the missing link that made Cochlear’s unique configuration of components revolutionary.
The software allowed the unique configuration of components to interact and process sound and convert it into electrical impulses, providing sound simulation when applied to auditory nerves within the cochlea.
Would the development of only the software aspect have been considered R&D and eligible for the R&D Tax Incentive under the current AusIndustry policy and ATO software guidelines?
Software claims, due to their intangible nature and incremental development, present a unique challenge for AusIndustry’s approval process.
Was there an eligible core activity?
The definition of core R&D activities is listed in section 355-25(1) of the Income Tax Assessment Act 1997. It may involve developing new ways to overcome specific technical or scientific challenges. Eligible core R&D is not learning how to use existing products, technologies, or techniques in their design. Eligible R&D is not using such products, technologies, or methods in a specific application.
Was the outcome able to be known or determined in advance? (based on current knowledge, information or experience, or only able to be determined by applying a systematic progression of work)
- The first extra-auricular electrical stimulation dates back to 1748 by researcher Benjamin Wilson, followed by
- Guillaume-Benjamin-Amand Duchenne de Boulogne in France in 1855
- Rudolf Brenner in Germany in 1868
- American La Forest Potter patented an electrical stimulating system applicable to the mastoid bone in 1905
- André Djourno and Charles Eyriès invented a cochlear implant in 1957.
- William House invented a cochlear implant in 1961. This first accurate cochlear implant was implanted by the American otologist William House of the House Clinic and the neurosurgeon John Doyle of Los Angeles on 9 January 1961
- Professor Graeme Clarke and his team at the University of Melbourne’s Department of Otolaryngology created their cochlear implant in 1970 and conducted trials that proved the concept.
Cochlear Ltd. was not incorporated until 1983. So, the concept was familiar.
Was their development conducted to generate new knowledge?
- The product had not been developed previously.
- The activities were undertaken through a software development lifecycle.
- Software development activities involve a regime of testing, and for this reason, they are all experimental, with outcomes that cannot be known in advance.
- Existing ways were known to work, but only one would be the most efficient, which could only be known with testing.
The ATO’s current policy advises that none of the above would qualify the project as eligible for the R&D Tax Incentive.
Could a competent professional in the field have done the job?
AusIndustry is currently taking the view that a competent professional could do the job. That is, the company needs to engage more skilled, qualified professionals. To some extent, they are correct.
Unfortunately, it is not up to AusIndustry to provide that person’s name or contact details unless you end up in the AAT. It is up to the claimant to prove that everyone cannot complete the project. The alternative is that they will disallow the R&D claim.
Was the activity conducted for the significant purpose of generating new knowledge?
Like most projects, any project’s primary and significant purpose is to make a profit and return it to shareholders.
Given the number of cochlear implants developed over hundreds of years, was the Cochlear development new technology or just refining previously established technologies?
In summary, the software developed in Cochlear’s R&D project:
- Did not have a core activity
- The outcome was already known.
- It was not unique or new to the world
- Its significant purpose was to generate profits
- It could have been done by a competent individual (yet to be identified)
So why was Cochlear’s bionic ear considered a high-tech success with fantastic innovation?
- There is the emotional influence of restoring hearing.
- It has hardware attached, so it’s easy to understand and see the results
- Internet searches were not as efficient 35 years ago
- The R&D scheme was not under financial pressure
- They presented a compelling compliance application
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