The UK Government’s Patent Box scheme could lead to a rise in patent filings from UK companies, according to a new report from international patent and trade mark attorney firm Marks & Clerk and innovative technology and design consultancy Cambridge Design Partnership. The report, ‘Patent Box: An industry report on incentivising UK innovation’, which explores the Patent Box scheme and its impact on UK innovation, has revealed that the initiative is likely to encourage big business to remain in the UK, but that SMEs feel the Government should provide more incentives to SMEs to encourage innovation.

Statistical research also revealed that in countries where schemes similar to Patent Box had been introduced in 2007 and 2008 (e.g. Belgium, The Netherlands and Luxembourg), numbers of patent applications increased over the following three years, despite a decrease in patent numbers in the UK, the USA and Japan during the same period (widely attributed to the financial crisis).

Interviews gathering views on the Patent Box scheme were carried out with managing directors and heads of R&D of SMEs, as well as R&D experts, IP managers and tax directors in senior roles at techMark firms and MNEs.

The research revealed a knowledge gap between SMEs and multinational organisations when it came to patenting their innovations, with one in three SMEs missing out on big financial rewards by failing to fully protect their work. There was also a huge polarisation among SMEs in terms of product patent coverage: in approximately half of the firms interviewed, patents covered less than 10% of products, whilst the remainder had patent coverage of over 90%.

Traditionally, numbers of patent applications in the UK have been lower than in other developed countries. The Patent Box scheme aims to address this shortfall and reward R&D in UK business by offering companies lower tax rates on worldwide profits made from products with qualifying patents covering them. HMRC predicts that the scheme will provide £1.1 billion in tax relief by 2019, equalling that provided by the well-established R&D Tax Credits.

The new report provides a framework for future assessment of the success of the Government’s Patent Box initiative, which was implemented in April 2013. By establishing a set of key metrics against which patent output can be measured, it will be possible to evaluate the potential commercial impact of R&D within a company to help inform future decisions. It also provides worked scenarios that illustrate the potential benefits to SMEs of participating in the scheme.

Philip Martin, Partner and Patent Attorney at Marks & Clerk, commented:

“Although UK companies understand that they have to innovate to stay ahead in a competitive market, many do not realise the need to protect those ideas from the competition in order to take full commercial advantage of their work. Particularly concerning is the knowledge gap between large companies and many SMEs as to the importance of patenting inventions. The Patent Box scheme will hopefully help to redress what has often been considered a national weakness, by offering businesses extra incentives to apply for patents.”

David Lewis, Technology Business Development Manager, Cambridge Design Partnership, added:

“Our research has revealed that the Patent Box has the potential to deliver significant benefits for companies participating in the scheme. By financially incentivising patent filing it should also encourage creativity and innovation, increasing the focus on technology development to enhance the UK’s competitive advantage. Our work has, however, highlighted that the UK Government needs to work harder to ensure SMEs are aware of the scheme as larger corporations seize the opportunity.”