Patent registration and commercialisation – your questions answered

By Ben Travers, Partner and Head of Intellectual Property at Foot Anstey and Angela Banerjee ATT, Associate Director at ForrestBrown.

Innovative businesses often approach intellectual property (IP) from the wrong angle and may be missing out on opportunities as a result. This is because many overlook IP, considering it as a tool for litigation and questioning whether they would have the budget to be able to enforce their rights.

Instead, businesses should be viewing IP as a tool for value creation since, for many, IP may be their most valuable asset. It is the potential for value creation which makes IP so important for businesses, irrespective of their size or sector.

Businesses should develop an IP strategy to dovetail with their business plan, setting out how IP can be used to help achieve wider business goals. IP should not simply be registered and forgotten about. Active management is key; in the same way that a business would maintain and manage its tangible assets, such as a fleet of vehicles or a building.

The good news is that it is never too early to start thinking about IP.

What are the different IP rights?

There are many different IP rights and they all do different things.

Some rights need to be registered before they come into existence, others are automatic, but either way, they will require careful management if their value is to be maximised.

Here’s a summary of some of the main rights and what they cover:

How do companies determine which one they need?

In practice, businesses will usually require a combination of these rights.

For example, while there might be copyright in software code, the name under which the software is sold should be registered as a trade mark (along with other key brand assets). The software may also qualify for patent protection.

As each of these rights creates value in different ways, it is important that they are all considered.

What are the key reasons for opting for patents?

Patents create a monopoly which enables you to stop other people from copying your invention. They do not stop others from coming up with competing products or services, or even achieving the same end result. They do however stop people achieving the same end result in the same way.

If an invention is innovative enough, a patent can buy you crucial time to create a first to market advantage, building your reputation. Often, the hope is that by the time the competition has developed a relevant competing product (which doesn’t infringe your rights), your trade mark protection will come into its own – people will want your product because of the brand draw.

Businesses frequently overlook this element, focusing too heavily on protecting how their product works - sometimes at the expense of other valuable IP rights. Yet, as consumers, we rarely base our purchasing decisions solely on functionality. What typically attracts us is the assurance that the product works and the reputation behind it. This is where trademark registrations really come into their own, helping to protect the brand identity that builds trust and drives customer choice.

A patent (along with other forms of IP) can also be commercialised. If, for example, you want to licence your innovation to third parties, you will first need to own the IP. A patent registration is one way to do this.

What is the patent registration process?

When filing a patent, you will need to disclose the nature of your innovation in considerable detail. In effect, by filing your claims you are creating an instruction manual which someone could follow to replicate your innovation. For the duration of the patent (typically 20 years) they will not be able to follow this "instruction manual" but once the patent has expired, they will be able to.

The patent office will examine the patent to ensure that it is sufficiently novel. To qualify, your invention needs to not only be new, but to be sufficiently different to the state of the art. Often, you are looking to show that the innovation is a revolution, rather than an evolution.

Before filing it is important to ensure that you own all the underlying IP (e.g. have any third parties assigned ownership of content to you? Or have you unwittingly given IP away through the use of online tools, such as AI?).

It is also important to ensure that you have not disclosed the idea to anyone (other than under a duty of confidence) before you make the application. This requires having effective confidentiality agreements in place (often businesses have defective NDAs of confidentiality provisions and these may need to be addressed).

Do I need to consider a jurisdictional approach?

Patents, along with other registered IP rights are territorial in their scope.

It is important when filing patents (and other IP rights) to consider they key territories for protection. Again, a key focus here is that the patents should be helping to support wider business goals, generating value and not just being seen as a tool for litigation.

Patent Box

Companies that have patents registered in certain countries, might consider commercialising them through Patent Box – an incentive that rewards your intellectual property investment by helping to reduce your Corporation Tax rate on qualifying IP income to 10%.

What falls into the Patent Box regime?

For a company to benefit from Patent Box, it must own or exclusively licence in patents granted by the UK IPO, the European Patent Office and be granted in the following countries within the EEA:

The claimant company (or another within the same group) must also have undertaken the qualifying development of the patent and made a significant contribution to either the creation/development of the patented invention or a product that incorporates the patented invention.

The income that falls into the regime is specific to the exploitation of the patented invention and be from one of the following activities:

• Selling patented products (this can also include bespoke spare parts);
• Licensing out patent rights;
• Selling patented rights;
• Infringement income; or
• Damages, insurance or other compensation related to patent rights.

Further, where a company operates within the manufacturing and services industry, income can qualify for relief where it is generated through:

• Use of a patented process in manufacturing.
• Provision of services using a patented tool.

What is the process for claiming when a patent is pending?

A company cannot claim relief for profits generated until a patent has been granted. However, they can elect into the regime in the years in which a patent is pending. Once the patent has been granted, the company can then claim up to six years’ worth of relief in the year of grant from the date of the application.

The election must be made for each accounting period that a company wishes to include, from the date of application to the day before the date of grant. It will have to track and trace the R&D and any relevant acquisition expenditure.

What considerations are there in relation to group structures?

For the Patent Box regime, the definition of a group is broad and includes joint venture entities and smaller groups that would not generally fall within the definition.

One company within a group can own a patent (or a portfolio of patents) while others within the group exploit it. In this case, the group company exploiting the patent(s) is treated as holding an exclusive licence as if it has been granted exclusive right within an entire national territory and no other company holds these rights. This includes the licensor or the group IP holding company. If a company is a member of a group, it must actively own the patented invention and take a significant role in managing its whole portfolio of eligible patents.

Only companies that are a member of a group must satisfy the active ownership condition. The claimant company must either have developed the IP within its portfolio or be actively managing it. If a company does not pass this test then it will not qualify for relief.

Can companies claim Patent Box if they’re loss-making?

Companies, particularly in their infancy, may not be in a profit position or have taken their IP to market and be generating income from it. In these cases, the relevant IP profits figure will be a negative or as the legislation calls it, a relevant IP loss. This means that the company is not in a position to benefit from making a Patent Box claim, as there is no relevant profit.

So, if a company has not yet elected into the regime, they will likely wait until they are in a position to benefit from it. That said, if a company has already elected in, actual trading losses will be relieved in the normal way (as set out in legislation) but it must still calculate the amount of the relevant IP loss (RIPL) which will then restrict other Patent Box benefits (i.e. future claims or the relevant profits of other group members).

The RIPL is not the same as a normal Corporation Tax loss and Patent Box does not change the way in which a Corporation Tax loss is used by a company.

Even if a company is in a normal trading loss, when the profits are streamed between IP and no IP profits, the IP stream may be in a profit position. A company in these circumstances can make a claim under Patent Box and the result will be increased trade losses to be relieved in the normal way.

Patent Box claims can reduce profits chargeable to Corporation Tax, take a company from a chargeable profit position into a loss position or as stated above increase trade losses.

Do I need to claim each year?    

A company can choose to revoke an election. In these circumstances a company must apply a five-year bar before electing back in to ensure that relevant IP losses, as well as relevant IP profits are included within Patent Box.

There are many reasons a company may choose to revoke an election: they may no longer have exclusivity over the patent or their market/commercial strategy may have changed. Whatever the reason, it is important to consider the effect of the five-year bar on future turnover and potential relief, as this will apply to all trades of the company.

Next steps

Businesses should take advice on how IP can help them to achieve the wider goals set out in their business plan. They should do this as early as possible and should build processes into their product development and expansion plans to ensure that IP keeps up.

If patents are going to form an important part of any strategy, businesses will need to weigh up the risks and benefits, ensuring, for example, that by obtaining a patent they are not giving away valuable information which would be more valuable if it remained confidential. If patents are registered, Patent Box should be explored, since it offers a valuable incentive to qualifying businesses.

Businesses should also consider the wider IP landscape and look to protect their reputation through trade mark registrations.

Angela Banerjee ATT is an Associate Director at ForrestBrown and its Patent Box lead and Ben Travers is a partner and head of IP at Foot Anstey