EIP's James Seymour and Alex Gardiner share their insight on the updated scheme with Finance Monthly.
The UK Patent Box scheme is set to become an even more valuable tax benefit in the near future. With Chancellor Rishi Sunak’s announcement of higher corporate tax rates from 2023, larger and more profitable companies in the UK will be able to enjoy even greater savings on profits qualifying for Patent Box relief.
Currently, Patent Box allows UK companies to benefit from a reduced 10% corporate tax rate for income derived from qualifying intellectual property, rather than the standard 19%. However, with the corporate tax rate set to increase from 2023, companies with profits over a certain threshold will see even greater reductions in their tax rate using Patent Box, with some seeing up to a 15% drop in tax rates on qualifying profits.
Chancellor Rishi Sunak announced in the latest budget that from April 2023, the corporation tax will increase from the current 19% for businesses with over £50,000 in annual profit. For businesses over this threshold, a tapered rate will apply, such that the tax burden will increase in proportion with profit. Businesses with profits of £250,000 and above will be taxed at the full rate of 25%. Despite this, however, no announcement has been made of any increase in the reduced 10% tax rate enjoyed by Patent Box participants. As such, the UK Patent Box scheme will soon offer even more benefits to participants, with a larger drop in tax rate and corresponding larger savings.
The diagram below shows the potential savings available to Patent Box participants under the new corporate tax rates.
As can be seen from the chart, the savings for companies with profits under £50,000 will remain unchanged – they will be able to benefit from Patent Box to exactly the same extent as previously, lowering their tax rate on qualifying profits by 9%. Businesses over this threshold will benefit to a greater degree; as the tax rate increases in proportion to profit, the drop from corporate to Patent Box rate increases as well. Businesses paying the highest rate of corporate tax, 25% – i.e. those with profits over £250,000 – will be able to reduce their tax burden by 15% on qualifying profits.
To benefit from the Patent Box, a business must fulfil certain criteria relating to the development and use of their intellectual property. Patents are eligible if granted by the UK Intellectual Property Office (UKIPO), the European Patent Office (EPO), or patent offices in selected European countries.
The government has also issued further guidance on electing into Patent Box, including requirements and formalities.
With the announcement of the new corporate tax rates, Patent Box is set to play a much higher profile role for companies looking to reduce their overall tax burden.
Anomi Wanigasekera, LLM (Wales), Attorney-at-Law is the Partner in charge of the Intellectual Property Group at Sir Lankan Julius & Creasy law firm. She holds Diplomas in Intellectual Property Law, International Trade Law, Banking and Insurance Law of Institute of Advanced Legal Studies of the Incorporated Council of Legal Education and has extensive experience in contentious and non-contentious Intellectual Property Law matters. She has extensive experience in the full range of enforcement, management and transactional matters pertaining to intellectual property law, including representing clients before the National Intellectual Property Office, acting for multinationals as well as Sri Lankan conglomerates in respect of infringement actions, applying for injunctions and search and/or seizure orders. She also overlooks the drafting and reviewing of contracts and advises on regulatory compliance matters.
As a thought leader who’s been involved in several complex Trademarks, Designs and Infringement cases, Mrs. Wanigasekera caught up with Finance Monthly to discuss Intellectual Property in Sri Lanka.
What is the most common mistake that companies make in regards to their patenting?
One of the key mistakes that corporation make is delay in filing the patent applications - once the patented products/process is publicised, the novelty is lost.
When it comes to patenting, how has increased use of technology impacted the protection of unique inventions?
The local inventors are more aware of IP protection and we see an increase in the number of patent filings in Sri Lanka.
Moreover, with the globe being more interconnected than ever before, how much easier or difficult does it make to keep on top of updated laws? What other impact has globalisation had for this sector?
Being fully up-to-date is a must. Globalisation has a positive impact with regard to technological development as far as patents are concerned, as it makes it very easy for companies to check if their idea for an invention exists already.
How has the IP sector changed over the years in Sri Lanka?
Sri Lankan IP Law is based on WIPO Model Law. Code of Intellectual Property Act No. 52 of 1979 came into operation in 1980 and thereafter, in 2003, the Intellectual Property Act o. 36 was enacted which is TRIPS compliance and is the current law in operation.
What future developments are you looking forward to? What developments and regulations do you think the island could adopt from other jurisdictions?
Sri Lanka is considering having a separate act for geographical indications and plant varieties, as well as examining the option of acceding to the Madrid Protocol within the next two to three years. We are also considering to introduce the protection of utility models.
Additionally, Sri Lanka’s National Intellectual Property Office has been computerized and the validation process has been completed and expects to be fully automated within the next few years.
Peter Arrowsmith, Partner at Gill Jennings & Every discusses with Finance Monthly the implications of intellectual property in the FinTech world, how to best protect and how to go about the challenges involved.
Getting to grips with intellectual property (IP) can seem daunting for fledgling FinTech companies just pushing off the starting blocks. However, it’s a step that early-stage businesses, looking to disrupt the market with the latest innovation, cannot afford to overlook.
The IP needs of disruptive companies are different from those of the industry incumbent, but are no less important. Having a well-formed IP strategy is not only vital to protecting the technical innovation at the heart of many FinTechs’ disruptive aspirations, it also plays a critical role in helping startups prove themselves worthy of funding, as investors assess the company’s prospects and exactly what they are getting for their money. Moreover, for founders looking towards their eventual exit, a strong IP portfolio will go a long way towards making a company attractive to potential buyers.
What protection is available to FinTech companies?
FinTech companies will likely hold several types of IP that they can and should seek to protect. Trade marks, for example, provide vital security and protection for a company’s name and branding. In terms of protecting innovation itself, if it’s software-based one option is copyright for the relevant code. However, copyright is limited in that it only protects the specific expression of code that underpins a concept and creates an effect; it does nothing to prevent a competitor achieving the same effect using code that has been developed independently. Ultimately, if your innovation is based on a new technology or process, a patent is the best option for providing strong protection of innovation. With a lifetime of 20 years, it allows a company to safeguard their entire invention for the long-term while they gain a foothold in the market.
Patent challenges in FinTech
Securing a patent is often not as easy as FinTech companies would hope, because innovation in the industry is predominantly software-based. A quirk of UK patent law is that, while technical innovation is patentable, the 1977 Patents Act - the most up-to-date legislation - treated computer programs in the same way as works of literature, protectable only by copyright, rather than technical innovations in and of themselves. This old-fashioned definition throws up barriers against a whole host of inventions – from mobile banking apps to online payment methods and even cryptocurrencies, all of which are software-based.
In spite of this, the common claim that it is impossible to patent a software-based innovation is a misconception. The Patents Act states that computer programs and business methods are excluded only “as such”. This key phrase allows leeway in the patentability of solutions, including computer programs, if they can be shown to have a technical effect. With 10,000 European patent applications in computer technology filed in 2016 alone, it is clear that many software companies are successfully patenting their technology.
Securing a patent in FinTech
While a business method itself cannot be patented, by starting with the method and working backward through the technology that makes it possible, IP lawyers can often find a part of a process that can be. For example, the concept of a currency conversion app is non-technical and unlikely to be applicable for a patent, but an inventive use of biometric technology – such as iris scanning - within that app to confirm payment very well could be.
By patenting the underlying technology of the invention, organisations can prevent competitors from copying the innovative part of their business, thus giving “backdoor protection” for their overall idea. A good method for many disruptors is to submit a broad application for the concept, supplemented by a number of narrow applications that protect the technology that makes the concept possible.
The role of inventors/developers
However a product has been developed, it is likely that a team of developers or inventors has been involved. It is critical for all businesses, especially those where the invention has been developed by a team, to make sure that the company has proper rights to the invention. Usually this can be achieved by ensuring that all of the developers are employees of the business, or – if they are independent contractors – that their contract involves an assignment of IP rights. Investors performing due diligence on a company will often look at the ownership of IP first to make sure that the company actually owns what it claims as its core technology. While the inventors themselves should not have any rights to the invention, they are named as inventors in a patent application, and this can provide some much-deserved recognition, and can be a valuable addition to their CVs.
Where to start?
There is no single answer to the question of what a disruptive FinTech should be protecting first; the most important thing is to build an IP strategy around your business plan. Startups naturally don’t have the budget of the big banks, so they should think smartly about what they are trying to achieve, and what they need to protect to achieve it – typically, the core technologies that underpin the company, in the geographies that matter most. Filing a patent for every last idea the company has come up with is not cost-efficient or effective. Before you protect anything, ask yourself what purpose the protection will have for your business, and ensure you are getting the proper IP advice to guide you through your first steps.
