How Intellectual Property Can Make Your Clients Money
Protecting IP - and generating a healthy income from it - is a key priority for many companies. See how your clients could benefit.
Making IP work harder
Intellectual Property (IP) is a crucial business asset. But businesses can only truly benefit from their IP when they understand how best to make money from it.
IP can include everything from a company’s logo and website content to any new products it designs or processes it creates. Of course, these new products will make money when sold, but here we look a little more deeply at the more passive income IP can generate for your clients.
How to protect intellectual property
IP needs to be protected so that it can’t be stolen and used by a company’s competitors. The protection must be written in law, either by trademark, copyright, design right or patent.
The Intellectual Property Office's (IPO) offers a handy intellectual property health check tool that’s designed to help businesses identify and protect their IP. It can also offer advice about how a company’s IP can work harder, for example through selling, franchising or licensing.
A patented invention or copyrighted material that is licenced can be used by someone else legally and they then pay the licensee a royalty in return. Article publications and drinks formulas would be two common examples here.
A point to note is that licensing your IP tends to make a smaller amount per year than a patent might, however patents only last up to 20 years. So a licensing agreement that offers the licensee 20p per sale for example may well be better than making no money at all from it after the 20 years is up.
Different kinds of licences can be drawn up depending on the business and the type of trade it does. For instance, a company’s IP could be licenced so that other businesses can sell a product in a part of the world where the licensee agrees not to compete. Alternatively, a business may grant a sole licence, allowing other companies to exploit the IP in the same region but with no further licences offered to any other businesses in the market.
Most firms don’t sell their IP until the firm itself is sold, because their IP is at the heart of their business. The exception however is if the purpose of their business is purely to create things for other entities. So for instance, a business might sell its IP if it creates web content, but not if it’s engaged in manufacturing.
Legal advice is absolutely vital if your clients are considering selling their intellectual property, whether or not they plan to sell the business itself. Business negotiations must be kept confidential, and a lawyer specialising in trademarking or patenting will be required.
Becoming a franchise
Franchising is where a third party sets up and runs their own business under a franchisor’s name. The franchisor offers practical support and mentoring and also oversees marketing and branding activities. In return, the franchisee pays a fee which is typically a set percentage of turnover. Franchising arrangements are common in the developed world, particularly with restaurant chains and takeaway outlets.
The big thing a franchisor needs to be sure of is that their product can be replicated potentially millions of times over without any change in quality or appearance. Everything must be exactly the same at every outlet. Clients of yours that may be considering the route of franchising should think about their own product and whether it’s actually suitable. For example, products that only have short-term sales potential or that can only be sold in certain geographical locations aren’t ideal candidates for the franchising model.
Strict rules must be applied here. Any changes in the product could irreparably damage a brand’s reputation, with franchising itself requiring hands-on management.
Patent Box tax relief
First unveiled in April 2013, Patent Box relief is designed to encourage companies to commercialise their intellectual property. It essentially means that companies can benefit from a reduced Corporation Tax rate of 10% in respect of profits it makes from its patented inventions.
Since 2016, the amount of profit resulting from IP that will qualify for the reduced 10% rate is linked directly to the company’s investment in developing the asset, particularly subcontracted R&D.
Who can benefit?
To be able to benefit from the Patent Box, companies must have generated profit from their patented inventions, and be subject to UK Corporation Tax. It is vital that companies also own or hold the exclusive licence(s) to commercially exploit the patents and have spent money on creating or developing these patents.
Patents that have been granted by the UK Intellectual Property Office, most EEA member states or the European Patent Office can all attract the relief. It’s worth remembering however that any patents granted by Japan, the USA, Spain, Italy or France are not eligible. Note too that many companies tend to benefit from both R&D Tax Credits and Patent Box relief at the same time.
Which income types are eligible for the Patent Box?
The main type of qualifying income is that which comes about when a patented product is sold. However, other income streams such as infringement income and money generated from licensing or selling patent rights are also likely to be eligible.
Patent Box relief relates to income generated by the patent anywhere in the world - not just in the UK. This makes it a very attractive relief indeed for companies that make large amounts of income from their intellectual property.
For more information about Patent Box relief, please do take a look at our Guide to The UK Patent Box.
Speak to the R&D tax and funding experts at Myriad Associates
Alongside R&D Tax Credits, income from qualifying IP is a ready source of finance for businesses across the UK. If any of your clients have engaged in innovative projects recently that may attract either R&D Tax Credits or Patent Box relief, why not see how your firm can partner with us in offering a more complete service.
Call us on 0207 118 6045 or use our contact form.