Using IP to add value to a business

Many people see IP protection as an expense they can't afford: but will not investing prove the costliest decision of all?

The traditional role of a company’s Intellectual Property, or IP, has primarily been the provision of a security blanket against copying by a third party. Some consider it to be too costly to pursue, so it is commonly under-utilised. However, IP is much more than a security blanket.

As discussed below it can create additional income for companies, and it can also provide tax benefits. As a result, failure to secure your IP rights for your innovations could be costing you money.

Patents and other IP rights, such as trade marks and design rights, registered or otherwise, are clearly there to protect your innovations and commercial activities, but they are also saleable, transferable and mortgageable assets. They can be licensed to third parties, additionally allowing a company to achieve income from the activities of willing third parties. They can also serve as leverage in that they might allow a company to cross-licence themselves out of trouble in the event that they accidentally infringe a third party’s IP.

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As mentioned above, they can also provide tax benefits: since April 2013 UK Companies have been able to elect to use the UK Government’s Patent Box scheme, permitting them to claim a potential benefit of a reduced effective rate of corporation tax in respect of all taxable profits that are attributable to a qualifying patent directly tied to research and innovation in the UK.

This can include profits from a wide range of activities, including global sales of a patented product, proceeds from licensing, sale or disposal of a patent, or income received due to third party infringements of a patent, e.g. settlement or royalty income.

Further information on the Patent Box scheme can be found here.

In order to make use of the Patent Box scheme there are certain qualification hurdles to cross, such as a requirement for the company to have created the patented product, or to have significantly contributed to its creation, and for them to own the patent, or be an exclusive licensee under the patent. For many companies, however, these hurdles are rarely a problem.

The Patent Box scheme therefore provides a tremendous incentive for innovative companies in the UK to file patent applications for all their innovative products, and to then potentially benefit from tax savings from any profits derived from the commercialisation of those products or patent assets once the relevant patent applications have been granted.

Companies should also note that both old and new patents can offer access to this Patent Box tax benefit. However, it is only available from patents that have been granted, and which are both valid and still in force.

Given the breadth of the availability of this Patent Box benefit, companies need to reassess their IP portfolios, as well as their ongoing IP strategy. For example, in relation to sales of a new product, is there already scope to claim the Patent Box benefit from an old granted patent, or will a new application be needed, remembering that it can only be validly filed before the launch/publication of the invention.

>Related: Top five reasons why start-ups fail

Alternatively could changes in a company’s IP policy, or patent prosecution strategy, enable a wider or earlier adoption of the benefit? For example, does the company have an older patent application that is still pending and which might be amended to cover the latest product, or a pending application that might want to be divided and accelerated towards grant so as to allow the earlier adoption of the tax benefit? These earlier applications might have even been filed for covering a different product, but may have been drafted broadly enough to encompass the newer product.

Remember too that the tax benefit is not just for profits stemming from product sales. It also extends to profits coming from the licensing, sale or disposal of a patent, so older or disused patents might want to be offered for sale or licence, especially those where the company’s own product from that patent is now discontinued. Careful consideration should therefore be taken before any potentially qualifying patent is abandoned.

A broad IP portfolio is also an important asset for a company that is looking for investment, or that is contemplating a sale or merger. Investors often want to know what IP assets the company has, particularly any patents, registered designs or trademarks, and in any sale the patents, registered designs and trade marks should be listed as they can boost the sale price.

IP also is potentially useful as a bargaining tool. What do you do when a third party approaches you alleging an infringement of their IP? Clearly there is a need to be defensive, but with an effective IP portfolio in place, you might also find that the accuser is himself infringing one of your own IP rights. This can turn the situation on its head, or at least it may enable a resolution to the problem by way of a cross-licence.

This hopefully puts some perspective on the overall value of protecting your innovations. The cost may be significant, but the rewards can greatly outweigh those costs down the line.

Robert Carpmael is a Partner at Marks & Clerk LLP, in their mechanical inventions team. Marks & Clerk LLP is one of Europe’s largest IP firms, and they offer a uniquely comprehensive Intellectual Property advice service, including drafting, prosecution, litigation, valuation and transactional services. Robert is based in their London office.

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Praseeda Nair

Kellen Rempel

Praseeda was Editor for GrowthBusiness.co.uk from 2016 to 2018.

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