By Daniel Hunter

Patent applications by UK businesses flatlined in 2012 in a sign that the incoming ‘patent box’ tax break has not yet driven up the number of patent applications by British companies, says City law firm RPC.

The number of patent applications to the UK Intellectual Property Office from within the UK reached 15, 370 in 2012, virtually no increase on the 2011 figure of 15,343.

This was in stark contrast with the increase in UK patent applications by overseas businesses in 2012, which climbed 14% to 7,865 from 6,916 in 2011.

RPC says that the three countries with the most patents filed in the UK in 2012 all saw significant increases on 2011. These were:

1. United States: 26% increase
2. Japan: 19% increase
3. Germany: 27% increase

RPC explains that the ‘patent box’ tax relief announced in the Chancellor’s 2011 Autumn Statement means that businesses can pay a preferential 10% rate of corporation tax on profits derived from patents from April 1. The relief will be available to profits from patents that are already registered, however this hasn’t yet fed through into more patent applications within the UK.

Profits on income not derived from patents will continue to be taxed at 24%, falling to 23% on April 1.

Comments Paul Joseph, Intellectual Property and Technology Partner at RPC: “The patent box means that the UK is now one of the world’s most favourable tax jurisdictions for businesses with profits from research and development. However, the very favourable incoming regime doesn’t appear to have fed through into more British businesses registering patents in anticipation of exploiting the tax break.”

“These figures show that foreign companies, which are unlikely to be able to benefit from the patent box, are being more proactive in registering their patents in Britain. The UK is in danger of falling behind.”

“It’s a shame to see that such a generous tax relief has not had an immediate effect on the number of patents filed, with mere days remaining until it comes into force. The tax break on offer is potentially so valuable, however, that it’s hard to imagine that businesses will ignore it for long.”

“It may be that the patent box has already had an effect on where businesses are locating their R&D departments. It takes time to develop innovations that can be patented, so it might be that we soon see a flurry of applications from within the UK.”

“Quite apart from the tax advantages on offer, a well-stocked ‘war chest’ of protected intellectual property is one of the most valuable weapons a business can have. Whether used aggressively or defensively, patents can give a business a significant advantage over its competitors. They can also add significant value to a company’s balance sheet.”

RPC says that the patent box is likely to change the way businesses approach patent applications, leading to increases in applications in future years.

Explains Paul Joseph: “Traditionally, most businesses have drafted their patent applications with the aim of striking a balance — narrow enough that the application will be accepted, but broad enough that it can be used to file an infringement claim against competitors, should they develop a rival product.”

“With the introduction of the patent box, we expect to see this balance change, and swing towards securing the tax break by making sure the patent application is accepted, rather than seeking a defensive advantage against other businesses.”

“We would expect to see this lead to an increase in the number of patent applications made, and also to feed through into a rise in the number granted, as businesses attempt to patent as many of their products and processes as possible for tax reasons.”

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