Intellectual property (IP) is what defines a business’s unique offering, whether in the form of advice, products or services, setting it apart from its rivals.
Along with client portfolios, businesses’ IP is very often the motivation behind mergers and acquisitions as one company vies to access another’s expertise, branding or product design.
IP must therefore be properly protected if a business is to develop and grow in value. SMEs must look to protect their IP as early as possible to lay the foundations for future success. This is regularly overlooked in smaller companies because the IP often does not translate into immediate revenue, so is woefully undervalued. There is also a widespread lack of understanding about the role of Intellectual Property Rights (IPRs) and other intangible assets.
Unprotected IP leaves the door open to copycats stealing ideas with no means of recourse, undermining the value of the business.
Intellectual Property (IP) applies to expertise and creations of the human mind that the law protects from unauthorised use by others. There are several different forms of IP and each requires a slightly different approach to protection. Some are automatic while others require applications.
Automatic protection applies to:
Copyright – Writing and literary works, art, photography, films, TV, music, web content, sound recordings
Design Right – Shape of objects
Trade secrets – Secrets that add value to a business
Good will – The established reputation of a business regarded as a quantifiable asset
Protection requiring applications:
Trade marks – Product names, logos, jingles
Registered Designs – Appearance of a product including, shape, packaging, patterns, colours, decoration
Patents – Inventions and products, eg machines and machine parts, tools, medicines
Businesses should carry out an IP audit as early as possible and ensure any IP that needs protecting is covered. Once protection is in place, businesses must be careful to monitor their registrations.
A common error is for a small business to register a trademark for branding then fail to notice and report upon another company’s infringement. Registered trademarks last ten years, however if no action is taken to renew them, the company will lose the right to challenge the infringement resulting in the brand being devalued.
IP protection post-Brexit
Much IP is geographically specific, meaning businesses must ensure they are protected when moving into new markets.
Brexit is causing widespread concern among businesses over whether their IP will remain protected overseas after the UK’s departure from the EU. However, patents secured via the UK Intellectual Property Office will not be affected by the UK’s exit from the EU and, perhaps more surprising, patents obtained through the European Patent Office (EPO) will be unaffected too. This is because the EPO is not an EU organisation.
So companies holding patents registered via the UK IPO or the EPO can relax, safe in the knowledge that their patents are still protected and are still eligible for the Patent Box tax relief, which we will come on to shortly.
UK businesses that are seeking to submit new patent applications to the EPO will still be able to do so, since the UK will continue to be a contracting state to the European Patent Convention after exiting the EU.
Where IP rights originate from EU legislation, such as supplementary protection certificates for medicinal products and plant protection products, Brexit will not invalidate these rights as they will remain protected by the Taxes (Amendments) (EU Exit) (No 2) Regulations 2019.
Patent applications will still need to be considered for each country where a product is to be sold in order to provide a business with commercial protection in that country.
Realising the value of IP
Once IP is protected, there are several ways to exploit IP beyond selling products, including licence agreements and licence fees, royalty payments and an outright sale.
In addition, the UK Patent Box tax relief rewards companies on any profits made from the exploitation of its patents with a reduced rate of corporation tax of just 10 per cent. This represents a near halving of the rate of corporation tax payable on IP related income.
Provided a patent is secured through the UK IPO or EPO, businesses can claim Patent Box tax relief on overall sales of that patent all over the world.
Since obtaining a patent can be a significant expenditure for a start-up, the Patent Box offers an effective way to recoup this investment. Funds from the Patent Box can also be used to fund further patent applications.
Any company involved in R&D activity should consult with a patent attorney and an expert in the Patent Box as early as possible to carry out a full IP audit. This will identify existing or developing IP and help shape IP and patenting strategy, which may be affected by the best routes to tax relief on IP profits.
The reduced rate applies to income resulting from the sales of patented products, products incorporating patented components, spare parts where the principal purpose is incorporation into a patented product or a product containing a patented component. It also covers sales income arising from patent disposal, licence income and royalties arising from the grant of a licence or income received as compensation or damages for patent infringement.
Exploitation of a patented invention in-house to boost revenue, such as a patented process or piece of equipment helping generate more income, could also be classified as IP income for the Patent Box.
All this can amount to a saving of tens or even hundreds of thousands of pounds every year.
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Protecting and Maximising the true value of your Intellectual Property