Patent strategies in a low-growth economy
Positive changes

Patent strategies in a low-growth economy

The number of UK-originating patent applications granted in the United Kingdom rose by 29% from 2010 to 2011, the largest increase in a decade. The trend will be welcomed by the government, which has stressed the key role of innovation in returning the United Kingdom to a sustainable economic position. A proportion of the increase is likely to reflect successful research and development in the United Kingdom; another factor is the importance of the UK market to international, IP-dependent businesses, which apply for a UK patent to protect their products from competitors in the United Kingdom.

In total, 2,992 UK-originating applications were granted in 2011. The increase in registrations was driven by patents being granted for:

  • drilling and mining equipment, up 29% to 498 from 387;
  • health and surgical products, up 53% to 480 from 314;
  • vehicles and transport, up 68% to 689 from 490; and
  • electric power, up 58% to 635 from 401.

The good news is tempered by a concerning trend that fewer patent applications are being made in the United Kingdom - the annual figures have fallen from over 20,000 in 2002 to 15,343 in 2011.

A reduction in investment in researching and protecting innovative products and processes will inevitably have an impact on the new development cycle. With the economy underperforming, there may be a reluctance to invest heavily in research and development - the outcome may be uncertain or it may take a long time to deliver a return on investment. However, scaling back on research spending means losing out on potential revenue. The figures may suggest that companies are cutting overall research and development investment as a cautious measure in the current low-growth economy, but spending more money on the most promising projects and patents.

Three changes to the UK patent regime could stimulate greater investment in research and development by UK companies.

Positive changes

Patent Box
The Patent Box tax incentive scheme enables companies to choose to apply a 10% corporation tax rate to all profits attributable to qualifying intellectual property from April 1 2013. The legislation puts in place a clear framework explaining how businesses can calculate the proportion of profits that are attributable to qualifying intellectual property.

The Patent Box was a highlight of the Budget for innovative UK companies. The lower tax rate, in combination with changes to research and development tax relief that will also come into effect in April 2013, will boost the UK's competitiveness as a place to invest in research and development and intellectual property.

Reforms to court system
Changes made in October 2010 to the Patent County Court make it easier for small businesses to protect their intellectual property by providing a streamlined and more cost-effective procedure, including a cap of £50,000 on the costs payable to the other party if unsuccessful. In October 2011 further reforms were introduced which clearly distinguish between claims heard in the Patent County Court (where costs are capped) and the High Court (where they are not). Small companies are particularly likely to be concerned about spiralling patent dispute costs and may decide that the downside of losing is simply too great. These reforms were crucial in removing uncertainty for innovative small and medium-sized enterprises.

Single European patent
Plans for a single European patent are being pushed forward in the European Union, with the exception of Spain and Italy. A unitary European patent system that simplifies the current position of separate patents for each European country would be welcomed by most UK and European businesses, as it would be likely to reduce costs and increase research and development investment in the European Union by making it more competitive with other territories, such as the United States.

The European Commission has claimed that it can cost more than €32,000 to obtain patent protection across the European Union, given patent and translation costs, compared to an average of $1,850 in the United States.

However, the current proposals have been severely criticised by many, including the Parliament's European Scrutiny Committee. One of the key concerns is that the potential benefits at the patent application stage would be outweighed by the additional costs, delays and uncertainties resulting from a new unitary court system.

Traditionally, companies have viewed the United Kingdom's infrastructure for innovation as too costly. Many commentators agree that patent owners have had to pay too much to protect their intellectual property and have not been incentivised through the tax system, while the time and cost of defending patents and other intellectual property in the UK courts have been prohibitive. Although there are encouraging signs that this is changing, more remains to be done.

For further information on this topic please contact David Cran or Paul Joseph at RPC by telephone (+44 20 3060 6000), fax (+44 20 3060 7000) or email ([email protected] or [email protected]).