Thinking outside the box

In his recent Budget the Chancellor confirmed plans for a tax break on income derived from patents known as a 'patent box'. Adrian Samuels, a partner at Dehns, the Patent and Trade Mark Attorneys, thinks this is a good opportunity for engineering firms to take stock of whether they are getting the most out of their intellectual property.

Virtually all engineering firms are likely to possess some form of intellectual property (IP): copyright in software or data; know-how and other confidential information; the designs of products, components or interfaces; or technical innovations and brands. However for those firms where IP contributes to their success it is usually because they recognise, value and protect their IP.

Recognising the IP that exists within a business is the first step to getting the most out of it. Some IP, like copyright, can be easy to recognise but other types of IP can be overlooked. A professional adviser such as a Patent Attorney can help identify the IP you didn't realise you had. For example it's not uncommon for valuable technical innovations to leak out because protection was not considered or because it was assumed not to warrant a patent. But patents are awarded for a wide variety of technical innovations and by no means require fundamental breakthroughs: if it is new and gives an advantage it is likely to be patentable.

There are various ways to protect IP. Some things can simply be kept secret. However for many technical innovations this is not an option or too risky and the best form of protection is through the patent system. Patents are sometimes seen as very complex and the preserve of big business but ordinary SMEs should not be put off. Even one well targeted UK patent can give a valuable commercial edge.

The Chancellor's patent box scheme recognises this and aims to encourage innovation in the UK by levying a reduced 10% rate of corporation tax on income received from patents. This has been seen as being directed at large pharmaceutical and other companies in a bid to persuade them to keep or locate their R&D operations in the UK; however it is a good opportunity for smaller companies to take a look at the benefit they can get from patenting their inventions. Although the main motivation for seeking patent protection is often the exclusivity it can bring in a particular area, there can be other benefits. One is the opportunity to create a revenue stream by licensing. This can be useful where a firm makes innovations that have applications outside its core area.

For start-ups or other companies looking for investment, holding patents is a good way to boost the company's value in the eyes of potential investors. Whilst start-ups may consider that they would never have the resources to enforce a patent against a large company, it could well be that a few years down the line, they are bought by a large company and their patents could be key to that. Also in these days of increasing public awareness of intellectual property, a patent portfolio can even be a marketing tool as demonstrated by companies like Audi and Dyson who have both advertised products in recent years on the basis of the number of patents on them.

In many cases patenting will make sense anyway; however the patent box scheme should allow more of the benefit to be kept. The scheme will include any UK patents granted after 1st April 2011 and will apply to income received after April 2013. It is therefore a long-term scheme, and this fits in with investment in IP being a long term investment, but companies can take action now to benefit by filing patent applications since these will qualify when they are granted.

Several details of the scheme have yet to be worked out, particularly how the qualifing income will be calculated. Whilst this is relatively straightforward in the case of a licensing income stream, it is less clear how income from sales of patented products will be treated, especially where the patented element is only a part of the overall product. Consultations are planned to take place during this year.

So take a look at the intellectual assets you may have and ask yourself  whether they are being exploited fully. If not, then now may be the time to take action; and if this leads to getting some UK patents which generate income, there could even be a welcome bonus in a few years time.

Adrian Samuels, Partner
First published in The Engineer, April 2010