IP advice: Are you ready for the Patent Box?

After considerable debate, revision and fanfare, the Government will shortly launch the Patent Box tax initiative. Are you ready to take advantage? In his March 2012 budget, the Chancellor confirmed his commitment to a UK 'Patent Box'. As of 1 April 2013, it will provide for a reduction in the tax on intellectual property based profits from 23% to 10%. Here's what the CEO of pharmaceutical giant GlaxoSmithKline says. "The introduction of the patent box has transformed the way in which we view the UK as a location for new investments." But the Patent Box scheme is not just for the big companies; it might also be of significant value to your company. During the last year, a number of significant changes have been made to the Patent Box legislation. The most significant change is that the legislation now includes income from licences for a patented invention in a country that is not covered by the qualifying patent. As a law firm which pointed this discrepancy out to the Treasury, D Young is delighted to see that it has been corrected. Hence, it is now possible for a UK company to include income from licencing an invention in the US, providing it has a UK or European patent. This is in contrast to the original legislation, that appeared to limit licencing to just the qualifying patents themselves. Clearly, this is excellent news for UK firms whose business receives income on licencing overseas. Other notable points in the final legislation include the confirmation that, in addition to patents, the Patent Box extends to Supplementary Protection Certificates, granted secret applications, UK and European plant breeders' rights and, for products, also extends to certain marketing protection rights for medicines and data protection. The Government has also extended the patents qualifying for the Patent Box to those from a number of European states, the most notable being Germany. In practice, it is unlikely for a UK company to have a German national patent and not to have a UK or European patent, so the advantages of this provision may be limited. Nevertheless, it still expands the scope of the scheme. Finally, further changes to the legislation include a simplified profit calculation for small businesses and an increase in the threshold on total profits from £1million to £3m. The provisions are intended to make the system additionally attractive to small businesses and the maths seems to back this up, as shown in the following example. If you assume a 10 year product life and are conservative with the cost of filing, granting and maintaining a patent, if you make a profit of more than £1000 per month from a patented product or licence, you are likely to be comfortably better off under the Patent Box scheme. These numbers make interesting reading. Moreover, the scheme is generous with which products are eligible. For example, a patent for a printer cartridge will make eligible profits from the sale of a printer incorporating that cartridge. Perhaps more importantly, a patent for the printer makes eligible profits from the sale of a cartridge for that printer. As a result, the scope for identifying patentable products and subsequent profits is very broad. First, look carefully at your products and identify the technical features that distinguish them over what is known – most products will have some kind of distinguishing aspect or feature. If you focus a patent application narrowly on these features, it is likely the patent will grant quickly and easily. Importantly, getting it to grant will cost you less. It is also worth noting that the UK Patent Office has remarkably low government fees, so the overall cost of obtaining a UK patent need not be significant and should not therefore eat into the savings. Consequently, in parallel with a strategy of broad patents designed to prevent competitors entering your market, it is now worth looking at narrow patents that protect specific features. Many companies are now looking at their income stream and products and are seeking advice on narrow patents solely for the purpose of exploiting the Patent Box. The corporation tax savings are potentially considerable; particularly so if you make money from overseas sales. It is a simple calculation; does the corporation tax saving outweigh the cost of obtaining a UK patent? For a 10% corporation tax rate, I'd say it is worth doing the maths. Further detailed information is available in the Knowledge Bank or by contacting a Partner at D Young & Co LLP. Both can be found at www.dyoung.com.