Offshoring IP: You need skilled IP management in your holding company
Multinational companies are coming under increasing scrutiny both in Ireland and abroad for the ways in which they use group structures to shift profits to low tax jurisdictions in order to reduce group effective tax rates. Intellectual property (IP) is often used as a way to create intra-group licensing structures to achieve this.
Companies that have little or only nominal substance in IP holding companies are running a real risk of adverse tax consequences and of having their offshore holding subsidiaries disregarded for tax purposes.
We offer a cost effective solution to this problem.
Many large firms including eBay, Google, Amazon, Starbucks and Accenture (also here) have been in the news lately. However this is not only the domain of large corporations and indeed many companies large and small hold and manage IP in various jurisdictions, including Ireland, for the purposes of tax and operational structuring. We are aware of several companies in Ireland who hold significant IP but where there is little evidence that the staff of those companies have the requisite skill to manage the IP. Indications include registered offices at professional services firms and locally resident directors with no track record in IP management.
Corporations are increasingly being criticised for recognizing profits in jurisdictions where they have little or no activity, business or presence. While there have been no claims of illegality in the reports to date, it is clear that authorities are paying careful attention to the global tax affairs of many corporations and will increasingly seek to identify opportunities for claiming taxation rights over profits that are artificially shifted from their jurisdictions. The requirement to have substance in IP holding companies is not new but the scrutiny that aggressive tax structures are attracting is.
Therefore now, more than ever, it is essential that IP holding companies function as real business and actively manage and exploit the IP over which they have legal ownership and therefore do not present opportunities for foreign tax authorities to gain jurisdiction over their profits. Where licensing is internal (ie intra-group) it is essential to have active management by skilled employees or service providers.
Often a small growing company does not have the capacity to staff an IP operation overseas due to the cost and disruption of seconding staff or the difficulty in sourcing skilled IP managers in some of the more attractive IP holding jurisdictions. However there is an alternative that can provide the necessary substance in a less disruptive, lower cost and lower risk fashion.
That alternative is outsourced IP management.
In Ireland companies can outsource IP management to a specialised firm such as New Morning IP who offer IP management as a service. This is not a new concept and with the increasing sophistication of IP management and exploitation generally many companies are turning to outsourcers and other partners for their IP management needs.
If you are moving IP into Ireland then you need to have skilled local IP managers. But deploying IP management activities can be more cost effective than you think if you use our Managed IP Service. This service involves engaging us as a specialist service provider to provide part of the intellectual property management function that would normally be carried out by one or more employees.
If you wish to learn more please download our whitepaper “Strategic IP offshoring through outsourcing” or contact us for a confidential consultation.
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Intellectual Property in China
I was in China last week to give a presentation at IPBC China. I was privileged to share the stage with Laure van Oudheusden, head of IP for Philips in China and INTIPSA board member, Ian Harvey in a session on the EU IP marketplace chaired by Haseltine Lake partner Phil Davies.
It was an interesting session well attended by Chinese and visiting delegates alike and covered the new Community Patent, the benefits of collaborating in EU framework projects and the advantages to Chinese companies of locating IP management in Europe.
Here are the slides that I presented at the conference.
Who was actively patenting in Ireland in November?
In November 197 patent applications and patents were published or issued to Irish applicants at the USPTO, EPO and WIPO. We analysed these publications to get a glimpse of the type of applicant and the range of technology which is being invented by Irish based applicants. Given the benefits of foreign direct investment in Ireland a large proportion of the invention owned by Irish applicants comes from this sector and we can see clearly a range of both overseas and domestic inventions being assigned to Irish based applicants.
In summary for November 2012:
- 197 published applications or patents issued to Irish applicants through USPTO, EPO and PCT
- The top three assignees: Zamtec, Accenture Global Services and Skype
- Main technology sectors (57% of total): Medical/Veterinary Science, Computing and Electric Communication
- Academic institutions accounted for 25% of Irish invention published this month
- 44% of publications were Irish originating inventions
Download “Analysis of Patenting Activity by Irish Applicants in November 2012″
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Global Patent Strategies: Ireland as a Case Study
The dynamics of patenting activity by Irish companies and Irish inventors provides an interesting insight into research and development activity in Ireland and the connection with government incentives. It also lets us look at the IP health of the various sectors in our technology economy.
Our findings show that multinationals appear to be making full use of government incentives to establish R&D activity in Ireland and indeed to acquire and hold IP in Irish holding companies. On the other hand there is no evidence to suggest that R&D tax credits are leading to increased patent filings by indigenous Irish companies.
In the indigenous sector the universities and other research performing organisations are responsible for much of the domestic US patent filing activity in the last five years, presumably as a result of the Enterprise Ireland TTO strengthening initiative.
We analysed U.S. patent publication data by Irish resident applicants and Irish resident inventors to see where the outputs of R&D activity in Ireland are sourced and held.
The figure shows the annual publication rate for patents and pending applications for three categories of applicant and inventor along with arrows pointing to the date of introduction of government incentives for R&D and IP acquisition (click to enlarge).
- Irish invented but foreign owned;
- Irish owned but foreign invented; and
- Irish owned and Irish invented.
With this dynamic and further investigating the key assignees in each category allows us to probe the dynamics of patent flows into and out of Ireland.
Our results show the overall there has been strong growth in the number of patent applications made by Irish resident companies and inventors.
Digging deeper we find some interesting dynamics under each of the three categories.
Irish invented but foreign owned
In this case the R&D activity takes place in Ireland since at least one of the inventors is an Irish-resident, however the resulting patents are owned by an overseas company indicating that the R&D activity is taking place in a foreign owned subsidiary of a multinational company.
Here we find a steady increase in the number of patent publications since 2000.
Up until the turn of the century, the Irish government had incentivised the establishment of manufacturing operations in Ireland however in 2000 it introduced a new incentive offering grant aid to companies already in Ireland to undertake significant R&D projects.
The data shows a steady rise since 200 in the annual number of patent applications by foreign companies naming Irish inventors. This supports the assertion that the R&D grant scheme does incentivise R&D activity in Ireland and that multinationals who already have a corporate IP policy are investing in patent applications to protect the results of this activity which takes place in their Irish subsidiaries.
Irish owned but foreign invented
In this case an Irish company is filing patents resulting from R&D activity which takes place outside of Ireland. Up to 2009 there was a relatively small number of patent applications in this category however after 2009 there has been a sharp increase in the filing rate by Irish companies in respect of inventions which have been created outside of Ireland.
Looking at the identities of applicants in this category reveals a significant number of large multinationals who have incorporated global or local headquarters operations in Ireland and have used those operations as platforms for the acquisition and holding of patents.
In 2009 the Irish government introduced a new tax scheme to incentivise the acquisition of intellectual property assets. A capital allowance is now available to Irish companies which acquire intangible assets and can be used to write off the capital and interest costs of such acquisitions against corporation tax.
We can see from the data that around the same time that this incentive was introduced a striking increase in the rate of patent applications by Irish companies holding patents sourced from overseas occurred.
Irish owned and Irish invented
In this category both the assignee and at least one inventor are resident in Ireland. This category includes indigenous Irish companies, the third level sector and Irish holding companies which have been created through acquisitions.
The data shows that again there has been traditionally a small amount of activity in this category with a gradual increase since 2008.
In the last five years the increase has been almost exclusively made up of a single assignee that was formed when an Irish startup was acquired by a large multinational with a strong patent licensing business model.
The secondary cause of the increase in this category is increased patenting activity from the academic third level sector which is reflective of the government’s investment in strengthening technology transfer offices and providing budgets for patent filing and the hiring of technology transfer staff in the universities and other third level institutions.
Apart from one or two notable exceptions there are very few indigenous Irish companies in this category. This is despite a significant R&D tax credit being available since 2004. This credit allows companies to deduct a further 25% of their R&D expenses from their taxable income.
Our analysis does not show any link between the introduction of the R&D tax credit and increased patenting activity by indigenous Irish companies.
In fact in our experience this tax credit has been used as a way of getting “free money” without any real attempt to protect the R&D results through patenting or other IP strategies. In fact the R&D tax credit scheme is widely promoted by tax advisers and is primarily seen as part of a tax reduction strategy rather than as a foundation to build an IP strategy.
There is little recent data available regarding to take up of the R&D tax credit scheme. The latest available data that we were able to find shows that in the year 2006 there are 162 claims. Even this small number of cases is not reflected in the data which is dominated by a small number of foreign owned firms and the third level sector and it is almost certain that the number of R&D tax credit claims has risen since 2006.
Conclusion
Taking U.S. patent publications as the proxy for R&D activity and IP strategy shows that the incentives offered by the Irish government are generating tangible intellectual property assets primarily for overseas firms who hold their IP overseas and those who have established holding companies or HQs in Ireland.
The domestic economy’s patenting output is concentrated in the third level sector which accounts for the recent increase in the number of U.S. Patent filings and there is scant evidence to suggest that Ireland’s fabled indigenous technology sector is adopting sophisticated global IP strategies when compared with their foreign peers or indeed with the Irish third level sector.
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Design and User Interfaces
We have been thinking out loud on Twitter lately about the use or lack thereof of registered designs by software companies who produce products where the user interface plays a strong role in distinguishing the product from other competing products.
We pointed out that although Ireland prides itself as a centre for on-line, mobile and other forms of software development, its IT industry is completely overlooking the use of registered design rights in its IP strategy
Design protection of user interfaces and icons underutilised by Irish IT firms lnkd.in/BKV7x4
— New Morning IP (@newmorningip) November 15, 2012
Why are Irish IT companies so poor at protecting their GUI designs? lnkd.in/BKV7x4
— New Morning IP (@newmorningip) November 14, 2012
Contrast that with Apple who recently made headlines for winning a design patent for an animated page turn.
Apple wins US design protection for animated page turn on a GUI. Shows relevance of design rights for interface design…lnkd.in/nQHx-Z
— New Morning IP (@newmorningip) November 13, 2012
During our investigation we came across a really useful resource for those considering the relevance of design registration in their IP strategy. A full set of conference presentations is now available from the Oxford Design Conference which took place at the Indiana University Mauer School of Law earlier this month.
There is a lot to digest here but notably David Genk, an adviser to the USPTO, showed some interesting statistics concerning US design patents generally and GUI and icon patents specifically.
According to Genk, filings in the design class that covers GUIs and icons are growing faster than any other class with over 1,000 applications filed in the 12 months up to August this year.
This is an interesting development since it shows that design elements are coming to the forefront for products that have GUIs and icons.
If the trend is real it represents a key insight into the maturity of this sector of the software industry.
Digging further into the data one finds that the greatest number of granted US design patents in the “Generated Image” class belong to Microsoft. In the last 12 months alone, MS has been granted 44% of GUI and icon design patents by the USPTO.
In fact since 2005 Microsoft has out-filed rivals Samsung, Apple and Google to a point where it is the dominant holder of GUI and icon US registered design rights.
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Establishing an in-house IP department
A recent article by specialised UK recruiters Sacco Mann has pointed towards a trend where firms are taking the first step to deploying in-house IP resources by hiring an IP manager rather than a qualified attorney.
Presumably these firms do not have the throughput of patent applications to justify the cost of an in-house attorney and further are likely to be looking for a skill set that is broader and more business focused than the typical profile of an attorney.
This is a good sign.
In Ireland we are seeing more and more companies taking the first steps to deploying in-house IP resources too. However in Ireland many companies are also considering part time and interim solutions to keep costs down but at the same time to be able to strategically manage their IP.
New Morning IP provides interim and outsourced IP management solutions to a broad range of companies, why not give us a call to find out just how easy it is to begin building your IP team.
Is the Irish IT industry a design free zone?
That’s the question I asked myself this week after spending some time thinking about the use of registered design rights for a prospective client in the software business.
Registered design rights (known as design patents in the USA) are a form of intellectual property that protect the ”appearance of the whole or a part of a product resulting from the features of, in particular, the lines, contours, colours, shape, texture and/or materials of the product itself and/or its ornamentation.”
As such they offer a designer the right to control the use of their design or a design which creates the same overall impression on an informed user.
Many innovative products are attractive because of their design as much as their functionality. Indeed in a 2007 survey, the Centre for Design Ireland found that
Irish companies that use design strategically within all business activities are more successful in terms of increased sales and are more likely to be developing new products and services.
It is not hard to see this. For example Apple has thousands of registered Community designs and has 928 alone in the class of designs that covers graphical user interfaces and icons. Similarly in the USA the most innovative software companies where design is an essential element of their differentiation have registered hundreds of design patents.
I tweeted an example of this yesterday when a new design patent was granted to Apple covering an animated page turn in iBooks
Apple wins US design protection for animated page turn on a GUI. Shows relevance of design rights for interface design…lnkd.in/nQHx-Z
— New Morning IP (@newmorningip) November 13, 2012
While there are some notable exceptions to the use of design rights in Ireland particularly in the jewellery and beverage industry, there is only one Community design right in the class covering user interfaces registered to an indigenous Irish company listed on the European register. In the UK design registration of user interfaces is widely used by media, gaming and games companies to name only a few sectors.
Turning to the US, Irish companies are listed as owning a mere 159 US design patents whereas Samsung alone has over 3000. In fact the entire Irish design output as measured by US design patents would not place the country in the top 100 of owners of US design patents.
It is hard to believe that there are so few Irish companies who rely on the appearance of their user interface or icon for elements of their distinctiveness. We consider ourselves to be a centre of innovation for mobile apps, social media, games, gambling, media and so on yet these companies are missing a major opportunity to protect the distinctiveness of their products through registered design rights because of lack of capacity, lack of support and risk aversion.
Indeed, the lack of design output has been identified by the Irish government policy agency ForFas in its recently published “Key Skills for Enterprise to Trade Internationally“. Citing the 2007 survey they conclude:
Ireland should seek to position itself as a global design centre and build up a design capability to help enterprises gain wider business opportunities in the global market. Companies should develop a capability for design/innovation at all levels of the business to improve their processes, products and services. This should be integrated into their strategic export business plan with the aim of offering their customers a unique selling proposition. An awareness of international design standards and codes and an ability to review and assess these should be built up
We will continue to work with our clients to help them make the fullest strategic use of the intellectual property system including the use of design patents in order to build an IP assets in their business, reduce risk and enable them to exert control.
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What is the Problem with Patents?
If Homer Simpson was a patent attorney I have no doubt that he would salute patents as the cause of and the solution to all of life’s problems. Of course Homer is an operator at a nuclear power plant and instead of turning to the patent system to solve his problems more often not turns to his favourite tipple, Duff Beer.
But all joking aside patents are about life’s problems and in many ways can be just as good as beer at solving them.
At the core of a patent is a new solution to a problem. The inventors are the problem solvers and the patent describes their solution in a way that offers them a limited monopoly. The new invention is a solution to a problem that was solved less well or not at all by previous inventors.
Therefore it is in an inventor’s best interest to disclose her invention in a way that gives her the greatest protection possible given the investment that is required to file and prosecute a patent to grant.
The standard path that inventors are advised to take is to describe the problem and their solution in an invention disclosure form that sets out the elements that are required to draft a patent specification. In this way the information can be provided to a patent attorney in a coherent template that more or less follows the structure of a patent. This makes it easier for the attorney to convert the inventors description into a patent specification. The invention disclosure form contains seemingly familiar phrases such as “your solution”, “the invention” and “alternative solutions”.
All rather straightforward it would seem for an inventor to document his invention and instruct an attorney.
But as with beer, patenting an invention is never as straightforward as it seems!
In the past we would have proceeded along the lines above in documenting an invention but since reading the excellent “Invention Analysis and Claiming: A Patent Lawyer’s Guide” by Ronald D. Slusky we have completely changed how we capture inventions. If an inventor follows the traditional path she is likely to end up with a patent that covers her solution to the problem rather than the solution to the problem. 99% of the time the former is far narrower than the latter and hence less valuable from a patent point of view and much easier for competitors to work around. Of course if you are lucky to have an attorney like Ron or his and my former Lucent Colleagues then that won’t be a problem, they will take the time to learn and craft an invention disclosure that captures an invention in its broadest terms while maximizing the likelihood of being valid. But if you don’t then you need to take care to draft a comprehensive disclosure and to make sure that you provide coherent instructions to your attorney.
Slusky’s thesis is quite simple and is aimed at getting to the essence of the invention rather than the solution. According to him an invention is a concept rather than something tangible and is best expressed in the form:
“The problem(s) of is(are) solved by ”
So far so simple you might think.
Think again.
In Ron’s view it is better to get a more expansive piece of intellectual property even though it is harder to get than a limited portion albeit easier to obtain. We agree with this. Too often we see clients settling for a patent rather for the patent that meets their needs. Of course it may be more expensive and require more work but normally that is an investment well spent.
In the Slusky approach one starts with defining the problem rather than the solution since an inventor is more often than not focused on their embodiment of a solution and there is a risk that a patent that is limited to a particularly embodiment will be easy to work around and will not take account of new technology developments in the future.
After defining the problem and the essence of the solution one can proceed to narrow or broaden the inventive concept in ways that maximise the solution coverage.
Finally fallback solutions to related and subsidiary problems are generated in a structured way in order to provide limitations that may come into play if validity is in question but that do not overly limit the scope of the invention.
The claims and the supporting body of the patent flow naturally after that. As a corollary a well defined problem-solution statement also facilitates more focused prior art searching and landscape analysis.
This is a sophisticated and structured approach to invention disclosure that we now use. Yes it costs more money and takes more time but in the end should produce a stronger valid patent that is less likely to be worked around, more likely to proceed to grant and to survive validity challenges and provides fall back limitations that give up the minimum of territory to maintain validity and value for the rights owner.
It is probably best not to combine beer drinking and invention disclosure but we’ll leave the last word to Homer.
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Who was actively patenting in Ireland in October?
In October 255 patent applications and patents were published or issued to Irish applicants at the USPTO, EPO and WIPO. We analysed these publications to get a glimpse of the type of applicant and the range of technology which is being invented by Irish based applicants. Given the benefits of foreign direct investment in Ireland a large proportion of the invention owned by Irish applicants comes from this sector and we can see clearly a range of both overseas and domestic inventions being assigned to Irish based applicants.
In summary for September 2012:
- 255 published applications or patents issued to Irish applicants through USPTO, EPO and PCT
- The top three assignees: Zamtec, Accenture Global Services and Skype
- Main technology sectors (>50% of total): Medical/Veterinary Science, Computing and Electric Communication
- Academic institutions accounted for 23% of Irish invention published this month
- 53% of publications were Irish originating inventions
- 53% of publications were derived from a US priority filing with 15% having Irish priority
- For overseas invention US, EP and GB are the main priority jurisdictions
Download “Analysis of Patenting Activity by Irish Applicants in October 2012″
Download ”Patent Publications by Irish Applicants in October 2012″
IP Strategy and Productivity
productivity (Photo credit: Sean MacEntee)
What is an IP Strategist and what is their value? These are questions that give rise to debate often in the context of whether or not an IP Strategist should be a lawyer or have a professional qualification.
This misses the point.
I think the important thing in the whole strategist versus lawyer qualification debate is to look at things slightly differently and certainly not to use qualifications as the dimension along which to analyse.
The key difference between strategist and lawyer is that a good strategist figures out what to do next whereas a lawyer advises clients on what they can and cannot do next and sometimes what the risks are in each case.
So what qualifies a person to make decisions about what to do next? That’s the million dollar question. It is certainly not about qualifications or professions, but whatever it is it has value. Seth Godin has a great piece on productivity in the innovation age. In his view the decision about what to do next defines productivity today rather than measures of output and activity that we have become used to during the industrial age.
Godin puts it very well:
According to the economics of the industrial age, it’s simple: Money spent creates output. If you use less labor or your system creates more output, your factory is being more efficient.
Machines can be more productive than people because once they’re set up, they create more output per dollar spent. Lowering labor costs is the goal of the competitive industrialist, because in the short run, cutting wages increases productivity.
This is a race to the bottom, with the goal of cutting costs as low as possible as your competitors work to do the same.
The new high productivity calculation, though, is very different:
Decide what you’re going to do next, and then do it. Make good decisions about what’s next and you thrive.
Innovation drives the connection economy, not low cost.
The decision about what to do next is even more important than the labor spent executing it. A modern productive worker is someone who does a great job in figuring out what to do next.
Are you sure your adviser has the experience and motivation to help you decide what to do next? Are you paying him to figure out your options but expecting him to take decisions? These are totally different things. Is the person who comes up with options and risk analysis the right person to take the decision?
These are life and death issues. It is worth making sure you fully understand what you are buying from your adviser.
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