If you knew about R&D tax credits saving companies tax, but you weren’t used to thinking of intellectual property in the same way, then you are not alone.
There are less than a thousand Patent Box claims made every year here in the UK, compared with 43,000 R&D tax relief claims.
“If you look at all the patents registered at the European Patents Office, we are number 17 on the list,” says GovGrant CEO Luke Hamm. “So we are way, way down below where we should expect to be, and it just goes to show we don’t really take it seriously as a business community. We’re not really getting on the bandwagon of why intellectual property is an important asset.”
Part of the reason for that, he says, is that awareness among SMEs of how to monetise intellectual property is low. Although any company which has a patent and is making a profit from it stands a good chance of being able to make a claim through the Patent Box scheme, many simply do not know what they are entitled to and how to go about the process.
Perceptions of intellectual property
What it often comes down to, Hamm says, is the perception many have of intellectual property: that getting a patent is prohibitively expensive, risky, and is all about defending your intellectual property in a court of law, rather than seeing it as an asset of the business.
“There are two common things we see,” Hamm says. “People view it as an academic badge which has little commercial value. Or the second thing is ‘it’s too expensive, and I’m never going to be able to do anything with it.’
Cash-strapped SMEs are, understandably, unwilling to invest tens of thousands of pounds through patent attorneys on something which they may not see a return on.
“Most people still think intellectual property, and patents in particular, are a protection mechanism – it’s there to be defended – and it should be thought about as “how do I maximise and exploit these assets?
If you ask a lawyer ‘can you get me a patent?’ they are always going say ‘we can try’. The question should be “is it worth having one in the first place?”
Hamm suggests instead that companies – and the accountants who work for them – should see intellectual property as an asset, much as they would a building or any other tangible asset.
Accounting standards may not be helpful here, as intellectual property is treated differently to more tangible assets.
Yet corporation tax on profits made on intellectual property can be reduced from 19% to 10%. What’s more, that lasts for the entire lifetime of the patent.
“That’s a huge impact to shareholder value,” he says. “As opposed to paying the taxman you are funding your next level of innovation.”
How accountants can help
GovGrant specialises in R&D tax relief, Patent Box incentives and capital allowances tax relief. But Hamm says accountants can help their clients by having a conversation about intellectual property to create that awareness.
“The requirements for a patent are almost exactly the same tests as for R&D tax relief,” Hamm says. “The only real difference between the R&D and patents is that the R&D can fail, and failure is a good thing sometimes in R&D, whereas a patent needs to be successful, it needs to actually generate something of benefit at the end of it.”
As many accountants are now comfortable with the R&D process, Hamm suggests, they could routinely ask questions about the intellectual property potential when there is an inventive step. In other words, it should become a standard agenda item with clients when reviewing the assets of the business.
Part of that means an understanding that most UK businesses are knowledge-based, so their most valuable assets may not be the most tangible ones.
“It’s just as relevant to think about intellectual property as it is to think about your next six months’ forecast,” Hamm says.
One of the products GovGrant offers to help SMEs make the decision about whether or not to apply for a patent is known as an IP Harvest. This is a low-cost assessment tool which will allow businesses to get a straightforward yes or no answer as to whether they have a case for a patent.
“If someone can say, ‘I’m going to put a grand on the table and for that grand I’m going to get a view on whether there is a potential opportunity for us,’ the barrier to entry drops significantly.”
Hamm cites the case of a GovGrant client who had invested £50,000 to secure a patent on an original piece of software, but after making a significant investment in patent attorneys was unlikely to see any return.
“While we were doing their R&D claim the conversation came up about patents. Within a 12-18 month period, they spent just £7,000 with us and we amended the patent, argued the technical case with the examiner, and got the patent granted. They’ve now got an asset that reduces their corporation tax and he has saved himself over £100,000 per year.”
Another service GovGrant offers another service at very reasonable rates – an intellectual property advice line. Clients who are developing their product have someone they can call to run through any intellectual property queries and get immediate, business-focused guidance.
Prior art and other pitfalls
A common error many companies and inventors make is to share their new invention at trade fairs or with others, keen to show off what they have done. This can invalidate any subsequent claim for patents as it will be classified as prior art – meaning that it is out there already and has not been protected.
“The moment an inventor goes to a trade show, it is classified as prior art,” Hamm says. “At that moment in time, it may be the world’s first, but as they have put no protection around it it’s now out there, and someone else can potentially pick up your brand spanking new invention, run away with it, and start making and selling it without having to carry out any R&D whatsoever.”
“Without our involvement he had no idea that the moment he showed his brand-new product on stage he was doomed”
He recalls the dramatic moment GovGrant filed a patent application for an agri-tech client as he was on his way to a tradeshow, ready to share his innovation which limited the possibility of infection during the dairy process.
“Before he got on the plane that night we had drafted and filed his patent, so he could go out there and show off his innovation to the industry. Without our involvement he had no idea that the moment he showed his brand-new product on stage he was doomed.”
Another GovGrant client, long established in their field, had not realised their patents were about to expire after 20 years.
GovGrant was able to advise this multi-million dollar player to register new patents for the products, to reflect the ways in which they had been tweaked and updated in the intervening years.
Without this, the company would have run the risk of competitors moving into their space and patenting products which were based on their original designs.
In some circumstances it is actually possible to secure patent protection for an innovation that is already on the market. GovGrant’s IP Harvest assessment tool can also be used to identify potential ways of getting the horse back into the stable even after the doors were left open.
As Brexit – in whatever form it eventually takes – is fast approaching, the need for the UK to remain competitive when it comes to invention and innovation is critical.
But Hamm says the Government could do more to help. One step they could take is allowing companies to claim back the money they spend developing their intellectual property – this would be a “quick win” for businesses as the Government would share that risk.
“The SMEs would then feel as though they are not standing alone,” he says.
The second idea would be for the Government to help defend smaller companies with patents successfully registered with the Intellectual Property Office against big corporates with extensive legal teams who want to take that idea and exploit the legal system to their advantage.
“It’s a really hard thing for the Government to do, because they’ll alienate some of the big corporates,” he says. “But we are going to be an island again. The competitive landscape is going to change, however Brexit ends up. If we don’t take it seriously, that we need to have something to protect and trade, we are going to fall behind.”
He cites the example of South Korea, who recently released a tax incentive for blockchain technologies, as one to follow.
“This is what we are talking about after Brexit. It’s not about a physical thing going over the border any more – it’s about creativity and innovation which first the UK nurtures, and grows, and then allows to flourish. The UK has a truly great track record for innovation and we have an opportunity now to really secure the future returns for the benefit of UK plc.”