The Research and Development (R&D) tax credit scheme increases in popularity every year, now with over 43,000 companies making a claim. What doesn’t add up is the poor take up of the Patent Box scheme.This is just as valuable, but still has fewer than 1,000 claims every year. And the really strange thing, the R&D process conducted well should give you an excellent steer on whether or not you have a patent opportunity.
So, the big question – why don’t businesses, particularly SMEs, seek out a patent? In our experience, the answer is simple -lack of certainty, unpredictable costs and unaffordable defence.
A potential solution does exist if we can change the Intellectual Property (IP) conversation so the focus is on value creation and not always about protection. Businesses should not be intimidated by legal and academic jargon as the fundamentals of IP are easily understood and should be part of the monthly agenda for most management teams. The way to create that focus may lie in the R&D process.
As many businesses know, the R&D tax scheme is available to a significant range of companies in different sectors and different sizes. If you’ve answered the questions asked by the R&D tax scheme, then you will have already formed a picture of if the innovations are patent ready. R&D tax is a positive influencer of innovation and companies should consider IP in the very same way.
In order for an innovation to be eligible for patentability the claimed invention must, in the opinion of a patent examiner, satisfy three criteria:
a) it must be novel;
b) it must involve an inventive step; and
c) it must have industrial application.
In R&D language, novel and inventive aligns very closely to an advancement and not readily deducible by a competent professional. The one major difference is the application test, which basically means it must be a successful project.
What should be considered
When a company does start to consider a patent can be distilled into two themes, internal and external views. The phrase to help frame this is, “Do you want to know what field to play on or are you keen to find the single blade of grass?”
1. The blade of grass - Internal view of IP
Based on a company’s focus at that time will tend to dictate if they want to create IP assets for a reason that may have limited competitive value. The common misconception for any IP is that it needs to stand up against all competitive pressures to have true value – this may well be true in high end pharmaceutical companies but not for the 99% of other businesses. The more common value drivers tend to be:
a. A product unique selling point – giving extra kudos and value to a potential buyer of your products on an individual basis
b. Window dressing for funding rounds – a patent pending/protected product may create a more attractive investment proposition and be more appealing to various forms of funding
c. Patent Box – not often utilised by businesses but significant opportunity, attaching a patent to profits to reduce tax liabilities by almost half
If there is no patent opportunity, there may well still be IP value that can be articulated such as trade secrets, trademarks and copyrights and through the question of ‘What value are you trying to create’ decides what in investment should be applied.
2. The field - External view of IP
When that new idea comes to fruition, some businesses want to understand what they look like in the wider market context. Information can be difficult to find when trying to answer the question of do I have the new big thing. The two very first questions must be
i. What is the current landscape – who is on the field?
ii. What’s the freedom to operate – who has claimed what in the territory already?
When these questions start to get addressed, what can be identified is the strength of the IP against 5 core levers that then drives the decision making on how much value can be realised based on what investment in what time frame.
1. What Prior Art is out there and who are the competition?
2. How mature is the market and does it need a refresh?
5. Commercial value
How to get this insight in your next R&D claim
R&D is not a function of tax or accountancy, to get it right it is a function of technical understanding and if done as it should, it should be the most efficient way to identify IP opportunities. You need to challenge your advisor to make sure they are proactive when they interview the relevant people in the business, not only to maximise the claim you currently make but to then help drive the longer-term IP agenda.
Do you think what you are doing is innovative? Do you want to sustainably improve & grow your business? Are you developing new products that represent a scientific or technological advance in their field? Or wanting to create commercial value from your IP? Yes? Join GovGrant and us at our June12th, Funding for Innovation – Unleash a Box of Opportunities event, learn more here
Written By: GovGrant