Patent Box — four considerations to secure tax relief on profits from patented products
You might be entitled to tax relief on profits earned from your patented inventions.
Patent ownership can get confusing when it comes to identifying applicants, inventors and owners. If you’re unsure about the rights you have or who to list where on your patent application, here’s a quick guide which should help you to clarify what these terms mean.
A named patent applicant is the legal owner of a patent application or granted patent. This may be an individual or, more commonly, a company, university or other legal entity. An applicant is named as part of the patent application process and is the legal holder of the rights to any resulting granted patent.
There may be more than one applicant named on a patent. These are typically referred to as co-applicants (if the application is still pending) or co-owners (if a patent is granted). In most territories, there are some limitations on what a co-owner may do both with and without the consent of the other co-owners. This may include the decision to start infringement proceedings against a competitor or license the patent to an interested third party. For these reasons, it’s often advisable to avoid joint ownership by reaching an agreement that the rights are held by a single legal entity, which has complete autonomy to make effective and efficient decisions.
Patent applications and granted patents may be assigned (transferred) between co-applicants and co-owners as and when an agreement is reached. As with most official procedures, any change in ownership must be recorded at the respective official office.
Generally, the naming of an inventor is a legal requirement as part of a patent application in most territories around the world. However, the identification of the inventor(s) is more significant than that, as in fact, it can (and does) underpin ownership.
An inventor has no legal right to exploit or commercialise an invention covered by a patent. An invention is solely the property of the applicant/proprietor, meaning they can exercise their rights independently of an inventor. Being a named inventor can however be beneficial for your CV, peer recognition and in some cases, monetary reward. That is, some larger companies may incentivise employees to invent by offering a financial sum for the hard work, effort and intellect associated with obtaining a commercially valuable patent.
Any natural person (individual) may file a patent application in their name. Applications may also be filed jointly if the individuals are all inventors and there is no agreement between them to file an application in only one name. As indicated, in these situations, the rights to any resulting granted patent would be owned jointly, which imposes potential restrictions on commercial decisions and actions that must be agreed between all parties.
In these situations, it may be preferable for the individuals to form a company and file the application in the company name. A patent owned by an individual may be transferred to a company or to another individual via an assignment or even probate.
A patent application filed and granted in the name of a company would typically identify an inventor or inventors that are employees. In most territories, including the UK, the rights to the invention transfer from the employee to the employer under statutory provisions (in the UK, the UK Patents Act 1977). Additionally, it’s conventional for an employee to have a contract of employment that would include IP provisions that are supplementary to the legislation. As a general guide, and under UK law, an invention belongs to an employer if it was made:
The first situation covers the majority of employer-employee relationships. The second is more focused on senior management and directors, who have a responsibility to further the interest of the company. Both provisions may be considered to ‘protect’ the position of the employer and avoid employees taking advantage of their employed status (exposure to knowledge, information and practices that may otherwise not be encountered were the employee not employed) by effectively taking IP from the company.
Employer-employee situations are relatively straightforward. However, matters can be more complicated where the company is, say, a larger organisation and includes subsidiaries, holding companies and so on. Here, it’s important to ensure that the rights are transferred appropriately between company entities.
Where an employee is employed by a subsidiary, and a patent application filed in a different legal entity within the company group, internal assignments may be needed to provide an effective transfer of rights. Company structure documents may also be useful and relevant. It’s generally advisable to investigate and resolve these matters as early as possible in the patent application process. As indicated, the applicant named in the patent application or granted patent may be changed at any time by virtue of an assignment, recorded at the relevant patent office.
A further complication can be the involvement of third party collaborators. For example, it’s not uncommon for a company to commission development work to one or more specialist companies. The employees of the collaborating company may then be regarded as inventors — and this raises the question of which applicants should be included when filing the patent application. That is, the rights would transfer from the collaborator employee to the collaborator company and as such, the commissioning company may not be in a position to be named as the applicant unless an assignment agreement is executed and/or if there are employees within the commissioning company that are inventors.
Collaboration between academic research groups at different higher education institutions is very common and this can lead to patent ownership problems if it isn’t assessed and resolved, preferably at an initial stage of the patenting process.
Again, it’s always advisable to have these matters investigated and addressed as early as possible in the patenting process.
The criteria for assessing who should be considered an ‘inventor’ are different to those typically applied for when it comes to the authorship of scientific/academic research papers. The correct identification of the inventor involves considering the contribution made by an individual to the development of the invention.
This may be illustrated with reference to the approach applied generally in the UK.
As a first stage, it’s necessary to define the invention. An invention may be a new apparatus, device, method of manufacture or processing, use of an existing device or system that could be said to include apparatus components and method steps.
As a second stage, and once the invention is defined, it’s then possible to assess the contribution made by the one or more individuals to the ‘heart of the invention’. In general, a contribution to the ‘heart of the invention’ may include any individual that:
In general, an individual would not be regarded an inventor if they:
Once the inventors are identified, the next stage is to identify the legal applicants by the above chain of transfer of rights (i.e. the rights transferred to the employer by virtue of legislation and possibly an employment contract, or to a university where the inventors are staff or otherwise employed to undertake research). Typically, the associated status of an undergraduate student would not be sufficient to trigger the legislative automatic transfer of rights. In these situations, the undergraduate may be entitled to be named as an applicant if a specific assignment isn’t put in place.
In some territories, national law requires the ‘first filing’ of patent applications in the country where the inventor is domiciled, is a citizen, or where the invention was created. For example, if an invention is developed in the US (i.e. at a research facility) despite the parent company being based in Europe, it would typically be required to first file a patent application at the US Patent and Trademark Office.
A foreign filing license would then be obtained from the US office before filing in other countries. Other notable countries where similar provisions apply include China, South Korea, Spain, France and Germany. Other territories prohibit first filing abroad where the subject matter of the patent application is regarded as ‘in the interests of national defence’ (this typically relates to military technologies).
My recommendation is always to identify the inventive concept, then identify the inventors, which will lead to the correct determination of the applicants and the highlighting of any local filing provisions.
If you have any questions about inventorship and ownership relating to patent applications, or if you have any further queries relating to patents and patent applications, please contact me at firstname.lastname@example.org.
This information is for guidance only, has been simplified and must not be relied on to make commercial decisions. Law and practice is specific to the law of a territory and local advice should always be taken by someone who is authorised to provide advice under the relevant national law.
You may also be interested in these...
You might be entitled to tax relief on profits earned from your patented inventions.
A guide to the patent process for individuals, start-ups, small companies and universities.
Here's how you can fast-track your green tech patents, bringing your products to market quicker.