Why patents are a virtue

Why patents are a virtue

Andrew Mernin reports on how you and your firm could cash in on impending changes to the patents system aimed at boosting the nation's innovative streak.
AS GOOGLE’S insatiable appetite for intellectual property last year showed, patents are big business, with the search engine’s swoop for 1000 IBM patents among a flurry of major IP acquisitions it has made as it looks to continue its rapid rise to power.

But away from the global patent wars which rage between the world’s technology behemoths, changes are afoot which could help UK SME bosses cash in by joining the patent race.

Faced with the reality that Britain fails dismally in terms of patents when held up against many of our European counterparts, the government is to introduce new legislation that will sweeten the prospect of making patent applications for business leaders.

Not only will the changes theoretically help to keep innovative products and the jobs they create within our borders, they also represent a huge opportunity for SMEs to bolster their books with a little accountancy acumen and forward-planning.

Proposed changes to corporation tax, collectively known as ‘the patent box’, will see tax paid on profits derived from patented products reduced from 24% to 10% by April 2013.

For many business leaders struggling to see further ahead than the end of next quarter, that may seem a long time away – but so too can be the time between a patent’s application and its ultimate approval.

And, according to Martin Vinsome, partner at patent specialists Urquart-Dykes and Lord LLP, patent applications are well worth considering, even for those firms who believe their products have little scope for mass markets at home or abroad.

“In the UK, we compare very unfavourably with the Germans when it comes to the number of patents we file, and most other industrialised European countries do more than us per capita,” he says.

In fact, the latest figures show that UK organisations make less than 5,000 patent applications per year, compared with around 25,000 in Germany and almost 9,000 in France.

“I think the corporation tax changes have been handled quite pragmatically by the government , with the main aim being to keep technology companies in the UK and to encourage more R and D activity here. The changes also act as an incentive against having patents owned by an offshore company.”

Vinsome advises business leaders to consider the fact that their innovations do not have to be game-changing, globally sought-after products in order to take advantage of tax changes.

“Normally companies try to get the broadest patents possible to stop their products being competed against and often leave patent applications by the wayside if they do not cover a wide enough area. But with the patent box, even if your product does not have a broad scope, it could be worth putting in a patent application purely to receive the tax relief on offer.

“The problem we may have here in the North East is that companies may be aware of the corporation tax changes but they don’t appreciate the extent to which it may apply to them. So they don’t necessarily realise that they can take advantage of it.”

After calling on your accountant to calculate the potential savings your firm could make by submitting a patent application, there are number of factors which should be considered according to Vinsome.

Among them are whether or not your product has a green angle which can be exploited. Innovations with environmentally-friendly capabilities are fast-tracked in the often-lengthy patent application process.

Another important consideration is where you make your application. “One of the attractive features is that the tax break is valid on profits made from selling a product worldwide even with just a UK patent.

“This is important because the UK patent office tends to have less of a backlog, and therefore a quicker approvals process, than the European office.

“You can get a UK patent granted relatively quickly, for a relatively modest cost, and you can have your overseas patent applications – which obviously help from a competition point of view – chugging away in the background.

“The new tax regime does not, however, cover patents that have been granted in certain countries where applications do not undergo formal procedures to examine patents for novelty and inventiveness.”

With a typical patent application placed at the UK Intellectual Property Office taking two to three years to be approved, now may be the time to consider your first or next foray in the patent game.

Before you do, here are the need-to-know patent box basics according to Vinsome:

  • Earnings made from overseas sales on products with only UK patents are still eligible for patent box income
  • Companies can claim patent box benefits retrospectively for any income which arose between patent application date and date the patent was granted, for up to four years
  • Patent box will initially be restricted to profits derived from patents granted by the UK and European patent offices plus a number of other offices which are yet to be decided
  • Companies wishing to receive patent income must be actively involved in the patent development cycle and not passive recipients of income-holding patents
  • All royalties or license fees received for the use of an invention covered by a currently valid qualifying patent will be covered by the patent box, regardless of whether the invention is used by the licensee or embedded into patented products as well as the income embedded in patented products