Special Feature

Alexandra Pygall & Mark Kramer - Stephenson Harwood SMEs and the UK Patent System

The fundamental purpose of the patent system is to encourage and reward innovation. Patents grant the inventor a monopoly right over the invention claimed in the patent for twenty years. This allows the owner to commercialise and exploit the protected invention without direct competition and therefore to recoup its R&D and commercialisation costs. The ability of enterprises, especially SMEs, to cost-effectively obtain and enforce patents is a key measure of the success of a patent system. The UK has made significant progress in this area in recent years.

O

ne area of progress is the effort the Intellectual Property Office, the government body which administers patents in the UK, is making to help SMEs to understand the patent

system and to get the most from it and also to consult them regarding changes to the system. A further reflection of the UK's progress is the re-invigoration of the Patents County Court, which now offers fast cost-effective patent litigation specifically designed with SMEs in mind. In addition, the introduction of IP specific tax relief, such as the Patent Box and the revitalised R&D tax breaks, enables SMEs to offset the cost of obtaining patents.

The UK Patents County Court has been increasingly popular with its target market since the introduction of procedural rules designed to streamline litigation and the appointment of HHJ Birss QC as the judge. The court takes a robust approach to case management helping to ensure that the costs of litigation are proportionate to what is at stake and both damages awards and liability for the winning party's costs are capped (at £500,000 and £50,000 respectively) and often less is awarded. This means that an SME has certainty over the financial impact of litigation before deciding to commence it.

Whilst the debate continues about the appropriate level of these damages and costs caps (which in many ways reflects the diversity of entities covered by the term SME), in our experience the financial certainty of the caps, together with the court's power to grant an injunction (i.e. an order that the infringer

must stop infringing, which for most patent owners is the key remedy sought), has led to the revitalised Patents County Court being an undoubted success in facilitating SMEs' ability to enforce their patents and other IP rights. This success will hopefully be built upon with the introduction of a small claims track by the end of 2012 for claims under £5,000.

In addition to the revitalised Patents County Court, the UK has introduced tax measures such as the patent box and the revitalised R&D tax breaks to help innovating SMEs to save tax, and thus to offset patent costs. The patent box, which is being introduced from April 2013, reduces the tax on profits of UK companies from qualifying patents to 10% and a single qualifying patent is sufficient for the break to apply. The patent box has been criticised as still not going far enough. For example, patent relief under the patent box regime is not available until the patent is granted (although it is then back-dated to the date of application) and the method of calculation has been criticised as too complex. There is also suggestion that the rate should be reduced to zero rather than 10%. R&D tax breaks are perhaps even more attractive to innovating SMEs as they apply in year one and the benefits include 225% tax deductibility for 'qualifying' R&D expenditure.

The UK's efforts and specifically the positive impact of the Patents County Court and the tax measures discussed above may be supplemented by the anticipated introduction of the Unitary Patent. This will be a single

patent right covering all EU member states which will be enforceable centrally in a single court thereby avoiding the current situation where an SME may have to commence litigation in several different EU jurisdictions, each with disparate rules of litigation, to enforce its rights. The Unitary Patent has been discussed for approximately forty years but its introduction now looks imminent.

However, there are significant concerns that the current proposals for the Unitary Patent are ill conceived and that lawyers' and industry's concerns are not being listened to or addressed. Significant concerns include the delays and uncertainty that are likely to be created by making the non-specialised and under-resourced Court of Justice of the Europe Union the ultimate arbiter of legal issues and the fact that the procedural rules have not been properly thought through. Indeed one senior UK barrister has commented that the results of impact assessments are "very poor and quite alarming from the perspective of SMEs".

It remains to be seen whether the progress that the UK has made in recent years to help SMEs outlined above will be undermined by the EU's implementation of the Unitary Patent.

Alexandra Pygall - Partner, in the Intellectual Property Practice

Mark Kramer - Associate, in the Intellectual Property practice.

Stephenson Harwood LLP