The jury is out on the impact of tax incentives incorporated in the government’s Patent Box. Patent attorney Ilya Kazi adjudicates
The UK has long been recognised as a nation of innovators, bringing the world inventions ranging from steam power to the jet engine, but we have had limited success in commercialising our ideas.
Our history is full of innovators taking their ideas to America. More recently Japan, Korea, and now China and India, are spawning globally successful technology-based companies.
Anyone who has spent time in Silicon Valley, where technology start-ups are commonplace, will appreciate the cultural difference: questions around intellectual property (IP) protection are addressed at the outset, not as an afterthought. In the UK, the Patent Box, with its offer of lower corporation tax, may help change IP culture.
It has been said that UK companies are more likely to be run by risk-averse finance directors than by entrepreneurs and innovators. The Patent Box has certainly grabbed the attention of finance directors and businesses are developing a greater appreciation of IP and its commercial value.
The government is to be applauded for helping UK companies wake up to the fact that any business which aspires to be successful on a reasonable scale has to take its IP strategy seriously.
The Patent Box was developed to encourage big business to innovate in the UK, bringing high-value jobs and revenue, and to make the UK a more attractive base for research and development (R&D).
Although there has been some criticism of the government providing a tax break for big business, a reasonable view is that it is better for a multinational to be incentivised to employ innovative people in the UK rather than move their talented staff and research activities elsewhere.
Increased R&D and emphasis on IP protection in larger businesses tends to foster exactly the background culture which helps educate smaller businesses and spawn new ones. The positive effects of the measure are not merely hypothetical. Before the tax break has even come into force, the Patent Box seems to be working: many small and medium-sized enterprises (SMEs) are prioritising innovation and approaching IP protection more strategically.
Companies are re-examining whether the technology they have been “leaking” might be protectable. They are not filing patents merely to take advantage of tax breaks, but the spur to take proper advice has led them to look more strategically at how IP can be used to add value to all parts of their business.
It is not just larger companies who are benefitting. SMEs that have protected past innovation will benefit and some have been motivated to innovate the next generation of their product primarily because of this measure. This innovation will benefit their businesses, their customers and the UK economy.
For larger businesses, the Patent Box is an open invitation to re-establish the UK as a centre for R&D and small businesses can use it as an opportunity to think more like their larger competitors. The Patent Box looks set to be an important move in the right direction for the UK to regain its financial feet and build a competitive economy for the future.
Ilya Kazi, senior partner in Mathys & Squire LLP, is a chartered and European patent attorney whose practice is commercially targeted with particular focus on the Patent Box.