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Commercial Success through IP

Financial reward from innovation in your business




      Adrian Chettle C.Eng., F.I.Mech.E.
            Withers & Rogers LLP
      Patent and Trade Mark Attorneys
               United Kingdom
How do we create value from
               innovation?
• What is IP?
• Patents, Trade Marks & Designs
• Tax relief for IP

• Q&A
Intellectual Property - what is it?
What it is not
      a bunch of papers
      some legal nonsense
      an inventor's ego
It is
      highly valuable
      a real commercial tool
IP - The Headlines
                              $3billion patent license revenue p.a.
  $6 million patent
  portfolio sold at auction




                                        ECJ boosts Adidas
Texas jury tells Boston Scientific to   in three stripe row
pay inventor $431.8million
Types of IP
   TRADE MARKS                            INVENTIONS


      Registered                              Patents
Common Law                             Utility models

                       Intellectual
                        property



 Copyright                                  Know How
 Database                 Registered
                   Design Designs
  rights                               AESTHETIC
                    Right
                                       CREATIONS
Do you own IP rights?
• Are you the designer/originator?


• Is the designer/originator an employee?
   – Generally speaking, employee creations automatically
      belong to the employer.


• Is the inventor/designer a contractor or consultant?


Any rights arising from inventions created by consultants
  should be assigned as soon as possible.
IP - Strategy and Value
Standard Approach to IP Protection


• Reactive - Inventory approach
• Good Idea - Patent it!
Better approach to IP protection

• Strategic - Visionary
• Set the direction for you own
  innovation based on your
  commercial goals
Decision making
• IP strategic review
  – Are the innovations new?
  – How does each fit with the business goals?
• Could you maintain the idea as a trade
  secret?
• Should you publish and not file for IP
  protection?
Tending to the seedlings
• IP review
   – Periodically check for improvements
   – Standard foreign filing strategy for
     certain categories of invention
   – Good records system
   – keep your patent attorney informed
• Thin out their crop periodically
   – Realise it's not about what you've
     spent, but what the innovation is
     worth to you now and in the future.
Gathering their harvest
• Passively
  – Competitors prevented from
    practising inventions
  – Locking partner company
    into joint venture
  – Increasing company value
• Actively
  – Seeking licensees - risk free
    revenue ?
  – Acting against infringers
A culture of IP awareness
• Invention records system
• Internal IP policy
  – confidentiality notices
  – copyright notices
• Do you have a policy of respecting your
  competitor's IP?
• Inventor reward scheme
Maximising returns
• Exploiting IP
  – Product sales
  – Sale of business
  – Sale of IP
  – Licensing and franchising
     • access to new
        – markets
        – territories
Defend your market


•   Protect new products
•   Make the fact of protection known
•   Consider your export markets
•   Use a mixture of business tools
Will I infringe other IP rights?


• Monitor competitors patent filings
• A very good source of technical information
• Check freedom to operate by making
  infringement searches
• Watch competitor activity
Enforcement
•       Long term protection

•       Significant deterrent effect

•       Litigation is rare

•       Alternative ways to assert your
        rights:
    –      Settlement
    –      Alternative dispute resolution
          •    Mediation
          •    Arbitration
    –      Licensing
Where to now?

• Audit your IP today.

• Is there a suitable level of awareness of IP within your
  business? Do you have systems in place?

• Think long term - align your IP strategy with your
  business goals.
Tax and innovation

• R&D tax credits
• Patent Box (from April 2013)
R&D tax credits

•   an established scheme
•   for UK companies paying Corporation tax
•   giving SMEs 225% relief
•   against proven R&D expenditure
•   claims for past years are permissible
Patent Box

An opportunity for UK companies
   to pay less Corporation Tax
Strategy - reasons for patenting
    1.   To protect your market.
    2.   To gain licence income.
    3.   To obtain a negotiating tool.
    4.   To maximise asset value.
    5.   TO OBTAIN TAX RELIEF.
Patent Box - objectives

• Enhance attractiveness of UK tax system
  (e.g. vs The Netherlands)
• Encourage location and retention of science
  and technology jobs in the UK
• Encourage investment and growth in the
  UK technology sector
How much tax?
• Corporation tax is currently 26% , reducing to
  24%
• Option to elect to HMRC for a reduction in UK
  corporation tax to 10%
• with tapered implementation:
         Year    2013/ 4   2014/ 5   2015/ 6   2016/ 7
          %        60        70        80        90
     effective %  15.2      13.6      12.4      11.2
     (Trade-off to include existing granted patents)
Which profits?
• Profits passing through a UK company
  which is paying Corporation tax.
• Profits relating to qualifying products or
  services covered by a relevant patent
• Worldwide sales
• Patent owner and exclusive licensee
       Key message: the proposals are generous!
Which patent rights?
• UK patents
• EP patents
• Patents granted by some other countries
• Supplementary Protection Certificates
  (pharmaceuticals)
• Plant variety rights
• NOT US patents
Do all profits qualify?
• No - special calculation - less than 100% of
  qualifying profits will be taxed at 10% rate
• HMRC fighting back!
• Deductions:
  – "routine return figure" - the profit a business might
    make if it did not have access to patents
  – "marketing assets return figure" - excludes profits
    generated using established brands
     Key message: number crunching by accountants!
Which profits?
          Key message: 10% will not
          be reached for a few years!
What types of income qualifies?
• Sales revenue
• Royalties and other licence revenue
• Court awards from infringement
  proceedings
• Patent owners & exclusive licensees
  – i.e., if a patent is licensed then both the
    licensor's royalties and the licensee's sales can
    be taxed at the reduced rate
Other requirements
• Opt-in
  - forewarning to HMRC
• Active ownership
  – only applies to group companies
  – defined as performing a significant
    management activity
  – a renewal decision counts as management
    activity
Which products? 1
Which products? 2
• Any product!
• "Complex products" including one patented
  component
• Any spares for the product, even if the
  spares themselves are not patented

     Key message: for single product SMEs, all profits
         will be relevant for only a single patent
What about processes?
What about services?
• Unlikely to apply to entire sales revenue
• Companies which use their patents to
  perform processes or provide services can
  benefit up to the level of an arm's length
  royalty
Can I get tax relief whilst my
  patent application is pending?

• Yes, but relief will be claimable only after
  the patent is granted (up to 6 years)
• Accelerate granting of the patent
Who will benefit?

• Start-ups - a target of the proposals!
• Research and manufacturing businesses
• Local subsidiaries of multinationals with "active
  management" in the UK , and profits washing
  through a UK company
• Existing patent holders get a windfall!
Further information:

• Withers & Rogers website - click on "Patent Box Services"
  button on the home page for detailed Q&A.
  Legislation:
http://www.publications.parliament.uk/pa/bills/cbill/2010-
    2012/0325/2012325.pdf
• "Technical Note":
http://www.hmrc.gov.uk/budget-updates/march2012/patent-box-tech-note.pdf
• "Consultation on the Patent Box":
http://www.hm-treasury.gov.uk/consult_patent_box_stage2.htm
• HMRC HM Revenue presentation:
http://www.hm-treasury.gov.uk/d/patent_box_presentation120112.pdf
Conclusions
• This is a great opportunity
• Tax avoidance with official approval!
• Patenting should be cost negative
• This is already changing our clients'
  patenting strategy
• Act as soon as possible! (at least arrange an
  audit)
Any questions?
       Adrian Chettle
achettle@withersrogers.com
  © 2013 Withers & Rogers
©
        ®

    ™

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Commercial success through ip

  • 1. © ® ™
  • 2. Commercial Success through IP Financial reward from innovation in your business Adrian Chettle C.Eng., F.I.Mech.E. Withers & Rogers LLP Patent and Trade Mark Attorneys United Kingdom
  • 3. How do we create value from innovation? • What is IP? • Patents, Trade Marks & Designs • Tax relief for IP • Q&A
  • 4. Intellectual Property - what is it? What it is not a bunch of papers some legal nonsense an inventor's ego It is highly valuable a real commercial tool
  • 5. IP - The Headlines $3billion patent license revenue p.a. $6 million patent portfolio sold at auction ECJ boosts Adidas Texas jury tells Boston Scientific to in three stripe row pay inventor $431.8million
  • 6. Types of IP TRADE MARKS INVENTIONS Registered Patents Common Law Utility models Intellectual property Copyright Know How Database Registered Design Designs rights AESTHETIC Right CREATIONS
  • 7. Do you own IP rights? • Are you the designer/originator? • Is the designer/originator an employee? – Generally speaking, employee creations automatically belong to the employer. • Is the inventor/designer a contractor or consultant? Any rights arising from inventions created by consultants should be assigned as soon as possible.
  • 8. IP - Strategy and Value
  • 9. Standard Approach to IP Protection • Reactive - Inventory approach • Good Idea - Patent it!
  • 10. Better approach to IP protection • Strategic - Visionary • Set the direction for you own innovation based on your commercial goals
  • 11. Decision making • IP strategic review – Are the innovations new? – How does each fit with the business goals? • Could you maintain the idea as a trade secret? • Should you publish and not file for IP protection?
  • 12. Tending to the seedlings • IP review – Periodically check for improvements – Standard foreign filing strategy for certain categories of invention – Good records system – keep your patent attorney informed • Thin out their crop periodically – Realise it's not about what you've spent, but what the innovation is worth to you now and in the future.
  • 13. Gathering their harvest • Passively – Competitors prevented from practising inventions – Locking partner company into joint venture – Increasing company value • Actively – Seeking licensees - risk free revenue ? – Acting against infringers
  • 14. A culture of IP awareness • Invention records system • Internal IP policy – confidentiality notices – copyright notices • Do you have a policy of respecting your competitor's IP? • Inventor reward scheme
  • 15. Maximising returns • Exploiting IP – Product sales – Sale of business – Sale of IP – Licensing and franchising • access to new – markets – territories
  • 16. Defend your market • Protect new products • Make the fact of protection known • Consider your export markets • Use a mixture of business tools
  • 17. Will I infringe other IP rights? • Monitor competitors patent filings • A very good source of technical information • Check freedom to operate by making infringement searches • Watch competitor activity
  • 18. Enforcement • Long term protection • Significant deterrent effect • Litigation is rare • Alternative ways to assert your rights: – Settlement – Alternative dispute resolution • Mediation • Arbitration – Licensing
  • 19. Where to now? • Audit your IP today. • Is there a suitable level of awareness of IP within your business? Do you have systems in place? • Think long term - align your IP strategy with your business goals.
  • 20. Tax and innovation • R&D tax credits • Patent Box (from April 2013)
  • 21. R&D tax credits • an established scheme • for UK companies paying Corporation tax • giving SMEs 225% relief • against proven R&D expenditure • claims for past years are permissible
  • 22. Patent Box An opportunity for UK companies to pay less Corporation Tax
  • 23. Strategy - reasons for patenting 1. To protect your market. 2. To gain licence income. 3. To obtain a negotiating tool. 4. To maximise asset value. 5. TO OBTAIN TAX RELIEF.
  • 24. Patent Box - objectives • Enhance attractiveness of UK tax system (e.g. vs The Netherlands) • Encourage location and retention of science and technology jobs in the UK • Encourage investment and growth in the UK technology sector
  • 25. How much tax? • Corporation tax is currently 26% , reducing to 24% • Option to elect to HMRC for a reduction in UK corporation tax to 10% • with tapered implementation: Year 2013/ 4 2014/ 5 2015/ 6 2016/ 7 % 60 70 80 90 effective % 15.2 13.6 12.4 11.2 (Trade-off to include existing granted patents)
  • 26. Which profits? • Profits passing through a UK company which is paying Corporation tax. • Profits relating to qualifying products or services covered by a relevant patent • Worldwide sales • Patent owner and exclusive licensee Key message: the proposals are generous!
  • 27. Which patent rights? • UK patents • EP patents • Patents granted by some other countries • Supplementary Protection Certificates (pharmaceuticals) • Plant variety rights • NOT US patents
  • 28. Do all profits qualify? • No - special calculation - less than 100% of qualifying profits will be taxed at 10% rate • HMRC fighting back! • Deductions: – "routine return figure" - the profit a business might make if it did not have access to patents – "marketing assets return figure" - excludes profits generated using established brands Key message: number crunching by accountants!
  • 29. Which profits? Key message: 10% will not be reached for a few years!
  • 30. What types of income qualifies? • Sales revenue • Royalties and other licence revenue • Court awards from infringement proceedings • Patent owners & exclusive licensees – i.e., if a patent is licensed then both the licensor's royalties and the licensee's sales can be taxed at the reduced rate
  • 31. Other requirements • Opt-in - forewarning to HMRC • Active ownership – only applies to group companies – defined as performing a significant management activity – a renewal decision counts as management activity
  • 33. Which products? 2 • Any product! • "Complex products" including one patented component • Any spares for the product, even if the spares themselves are not patented Key message: for single product SMEs, all profits will be relevant for only a single patent
  • 35. What about services? • Unlikely to apply to entire sales revenue • Companies which use their patents to perform processes or provide services can benefit up to the level of an arm's length royalty
  • 36. Can I get tax relief whilst my patent application is pending? • Yes, but relief will be claimable only after the patent is granted (up to 6 years) • Accelerate granting of the patent
  • 37. Who will benefit? • Start-ups - a target of the proposals! • Research and manufacturing businesses • Local subsidiaries of multinationals with "active management" in the UK , and profits washing through a UK company • Existing patent holders get a windfall!
  • 38. Further information: • Withers & Rogers website - click on "Patent Box Services" button on the home page for detailed Q&A. Legislation: http://www.publications.parliament.uk/pa/bills/cbill/2010- 2012/0325/2012325.pdf • "Technical Note": http://www.hmrc.gov.uk/budget-updates/march2012/patent-box-tech-note.pdf • "Consultation on the Patent Box": http://www.hm-treasury.gov.uk/consult_patent_box_stage2.htm • HMRC HM Revenue presentation: http://www.hm-treasury.gov.uk/d/patent_box_presentation120112.pdf
  • 39. Conclusions • This is a great opportunity • Tax avoidance with official approval! • Patenting should be cost negative • This is already changing our clients' patenting strategy • Act as soon as possible! (at least arrange an audit)
  • 40. Any questions? Adrian Chettle achettle@withersrogers.com © 2013 Withers & Rogers
  • 41. © ® ™