Innovating companies need to shine up their patents

7 June 2012

Innovating companies need to shine up their patents Innovation companies need to gear up to maximise the advantageous tax regime that's set to be introduced later this year for patented products. And with the news that protected intellectual property can attract greater investment, the move looks all the more important. The planned move to a 10% corporation tax rate for profits attributable to qualifying patents – the so called 'Patent Box' – was first announced in 2010 and the Government has now released proposals for consultation, with the final legislation set to be introduced in Autumn 2011. The consultation comes as the Intellectual Property Office has reported that research has shown that innovative companies who are protecting their IP – whether through patents, copyright or trade marks – are consistently attracting higher levels of investment. The reduced corporation tax rate is designed to encourage businesses to develop and actively exploit patents, rather than sitting on IP, as often happens. The new regime will be phased in over five years from 1st April 2013, with tax savings gradually rising from 60% of potential benefits in year one to the full 100% in year five. According to the current proposals, the new rate will apply to global profits derived from products patented in the UK or by the European Patent Office, but it has been left open as to whether other national patents may be included in future. The system from 2013 will benefit both pre-existing and new patents, but is available only after a patent has been granted, with a back-dated claim of up to four years to the date of the patent application being currently proposed. The Government is particularly asking for feedback as to whether the four year backdating proposal is fair and reasonable and asking business to look at their historical data. Companies who will be able to claim the reduced rate include both licence owner and exclusive licensees; where the patent is jointly owned, all collaborators will qualify if they can show a significant contribution. Whilst the tax break will apply to both licence income and patent income embedded in sales proceeds of patented products, it does not seem likely that income from products made from a patented process will be included, with the possible exception of pharmaceuticals, and this may lead to a review of strategy for some companies. Explained commercial law expert Neil Ashford of Chelmsford solicitors Gepp & Sons: "There is scope for companies with activities that would not currently fall within the Patent Box to review their strategy. If it is possible to attribute activity to a patented product instead of the process, then they could attract the reduced rate. Although, as with all things, everyone needs to weigh up the admin burden of opting in to such a scheme." He added: "Every company involved in innovation and patenting must now review what they are doing to see where sales and licence agreements can best benefit from the new regime. "The other tactic that should be quickly adopted is to submit narrow focus patent applications at an early stage to enable fastest access to the so-called Patent Box, these can then be backed up by the usual applications for broad protection at a later stage. Speed is of the essence as once the application is in, it opens the door to retrospective tax claims after qualification is awarded." Within the current proposals, there are no plans to include profits generated from copyright or trade marks in the new arrangements. • For additional information please contact: Neil Ashford of Gepp & Sons. The above is not legal advice; it is intended to provide information of general interest about current legal issues.