Patents and Patent Box relief for the life sciences industry: five common myths debunked

Businesses in the life sciences sector often spend years developing new medical products or processes – typically at significant expense. To protect them from immediate commercial benefit by other companies, it’s important for businesses to protect their intellectual property (IP).

One way of achieving this is through patent protection, which provides a period of market exclusivity for the business. This allows it to recoup investment and pay back investors.

Another mechanism to support commercialisation is to claim Patent Box relief – a Corporation Tax (CT) relief on patented products or processes, that reduces the CT rate on qualifying IP income to 10%.

Our experience suggests, however, that despite the value of the relief, it is underutilised by businesses in the life science sector (with the exception of the largest multinational pharma companies). In part, this is likely owing to a lack of understanding about how and why businesses should claim.

Here, we demystify that process and debunk five key myths on registering patents and claiming Patent Box relief in the life sciences sector.

Patents for the life sciences industry

Before debunking the myths, we explore the fundamentals: what are patents, how do they operate, who is eligible and why are they particularly important in the life sciences industry?

What are patents? And how do they operate?

Patents are legal documents providing a 20-year monopoly right to the patent owner for an invention in the life sciences covered by the patent. In some cases this can extend to 25 years if a Supplementary Protection Certificate (SPC) is granted for medicinal products due to the time it can take to gain regulatory approval and run clinical trials.

Patents are granted by the patent offices in the countries where the application for a patent is filed. In the UK, this is the Intellectual Property Office.

Why are they particularly important in the life sciences industry?

While the process of registration can be lengthy, patents are crucial for protecting innovations in the life sciences industry. They provide a significant period of market exclusivity and the right to stop others benefiting from the invention for that period.

They are the basis on which investments can be raised and license deals made to recoup investments and make profits. Medical breakthroughs are happening all the time, and in such a competitive market, patents provide the differentiation and validation of a product for monetisation.

Who is eligible?

Anyone can file a patent, but the inventor is the first owner unless they are an employee or they have assigned the rights in the patent to another entity. In these instances, the employer or the other entity will be the owner.

Patent grant and renewal process

Once an innovation is made, a technically detailed specification needs to be drafted, usually by a qualified regulated patent attorney with a technical background in life sciences. They will then file the application in the various patent offices in the countries of interest and complete the legal work necessary for the patent to be granted. Once granted, the patent owner can take legal action against anyone infringing the patent.

Annual renewal fees will need to be paid to keep the patent in force up to expiry. In the UK, these are from the fourth anniversary of the patent filing date. But in other jurisdictions such as Europe, annual renewal fees are payable from the application stage.

Patent Box relief: what is it and how does it work?

Patent Box relief is designed to reward qualifying companies with a lower effective rate of tax on profits that are subject to UK CT earned on patents granted by the UK IPO, EPO or specific EEA patent offices. The claimant company must have undertaken and been properly involved in the R&D behind the patent.

While a company holds the rights to a patent, whether within a renewal period or under an extended period, it can claim Patent Box relief for profits generated from that patent. There is no time limit to elect into the scheme. The election can be made at any time within these periods. Exclusivity over the patent is key to the process.

(For more on how the Patent Box regime works, see ForrestBrown’s Patent Box explained page).

Five common myths debunked

Despite the benefits of patent protection and Patent Box relief, misconceptions on how it operates remain, inhibiting uptake. Here, we debunk five key myths.

Myth 1: Life sciences processes can’t be registered as a patent.

This is incorrect. A patent can be granted for a process or a product as long as it is new and not obvious from what is already in the public domain. Sufficient information also needs to be provided in the patent specification for the process to be carried out or the product to be made.

Myth 2: A patent can’t be registered in the UK if it is already registered in the US.

Once a patent application is first filed in the US, it is still possible to file in the UK, or in any other country party to the Patent Cooperation Treaty (PCT) within 12 months of filing in the US and vice versa. If someone else has already registered an invention in the US that rightfully belongs to another, then the rightful owner will need to start proceedings at the United States Patent and Trademark Office to establish that they are the rightful owner and to have the patent transferred.

Myth 3: Patent Box relief must be claimed from the accounting period in which the patent is granted.

The date at which a company can elect into the regime is only defined by exclusivity over the patent. Claims for relief can begin at any point during the life of the patent but must be made within two years after the end of the accounting period in which relevant profits are made.

Myth 4: Patent Box relief can’t be claimed beyond 20 years on granted patents for pharmaceuticals and plant protection products.

As noted above, within the life sciences industry, companies can apply for an SPC on medicinal products or plant protection products, which extends the rights over the patent held by the company. An SPC is within the scope of the Patent Box regime, so it is possible to claim relief beyond the 20-year life of a patent.

Myth 5: A small pharmaceutical company can’t claim Patent Box relief when licencing its product to a large pharmaceutical company.

Provided a company meets the qualifying conditions, there is no reason why they cannot claim Patent Box relief on licensing income of any kind.

Contracting out R&D within the pharmaceutical industry is very common. Companies often do this to access specialist skills and facilities they do not have themselves. It can also be more cost effective as it avoids committing to ongoing long-term costs such as employees and capital expenditure on advanced technologies. In these situations, under the new R&D merged scheme, relief can be claimed by the company that decides to initiate the R&D.

R&D expenditure and Patent Box relief are intrinsically linked through the R&D nexus fraction. This ensures that the lower 10% tax rate is only applicable to R&D activities undertaken by the claimant company, either in house or through unconnected subcontractors.

What next?

The benefits to life sciences businesses of protecting IP and registering life sciences patents are vast. To have a period of commercial exclusivity – potentially across multiple jurisdictions – after a significant period of R&D speaks for itself.

Yet too often those businesses miss out on realising the full value of their patented invention by not claiming Patent Box relief. With a little forward planning, innovators in the life sciences sector can benefit from this generous relief, enabling investments to be recouped faster and profitability to grow quicker.

Angela Banerjee ATT is an associate director and Patent Box lead at innovation incentives consultancy, ForrestBrown and Joeeta Murphy CPA, EPA is a director and head of life sciences at patent and trade mark attorneys, ip21.