Opening the Patent Box - Pharmaceutical Executive


Opening the Patent Box

Pharmaceutical Executive

Pandora's Box?

Further details regarding the workings of the Patent Box has drawn criticism, however. Latham & Watkins add that it is "over complicated, subject to numerous limitations and...unlikely to result in a significant influx of intellectual property into the UK." They point out that the regime will not cover any patents registered in non-EU jurisdictions, for example, the United States, claiming that this "makes it a poor tool for a worldwide licensing program." And compared with tax arrangements in countries such as the Netherlands, Belgium, and Ireland, the Patent Box is "less beneficial." The firm explains that the "flat 12.5 percent corporation tax rate in Ireland (which can be reduced further) for IP-based companies looks more enticing."

Tony McKenna of the New Statesman (February 13) questions, from an admittedly anti-corporate perspective, the theory that the Patent Box will provide impetus for companies to conceive "fabulous new technologies, and give a spurt to growth and development." Instead, he points out, companies do not actually have to own the patent in order to attain the tax break, they can simply lease it from the original patent owner. As a result, there is no real incentive to innovate "in house."

McKenna's biggest gripe is that the Patent Box is just a dressed-up tax avoidance scheme, an "opportunity for corporations to achieve massive, unwarranted tax slashes on their products." Such "tax dodge" accusations are unlikely to upset the major drugmakers, of course. There is concern over the Patent Box's dubious appeal to small enterprises, but its benefits to Big Pharma are taken as read.

But taking for granted the scheme's potential for boosting the growth of the UK pharma sector may prove to be complacent. According to The Independent (March 25), overseas firms have been "stealing a march" on the UK since the Patent Box was confirmed. The overall number of patents filed in the UK by overseas firms rose last year by 14 percent (patent applications from US firms went up by 26 percent on 2011, from Japanese companies 19 percent, and from German pharma and other R&D businesses 26 percent). But the number of domestic applications to the UK Intellectual Property Office's (UKIPO) remained around the same as 2011. Says Paul Joseph of legal services firm RPC, the UK "is in danger of falling behind."

And the fact remains that cuts and increased globalization are still contributing to the weakening of the UK industry. The Financial Times (FT; April 21) suggests that, while tax incentives are welcome, "governments can only tinker around the edges" by providing tax breaks, pointing to warnings that, without more active intervention, UK drugmakers "risk decline akin to that of the car industry in the 1980s."

The car industry comparison refers to an open letter to the FT (April 17), penned by representatives from a number of industry-related bodies, such as the British Pharmacological Society. The letter laments that news of AstraZeneca's re-organization and reduction followed closures by Merck Sharp & Dohme, GSK, Roche, and Pfizer, and expresses "real concern" for the contraction of pharmaceutical R&D in the UK. The authors go on to explain that there are some useful lessons to be taken from the UK automotive sector; when this sector was faced with decline, "industry and government began to work together, creating the Automotive Council to ensure that critical capabilities were not lost." However, the letter warns, the revival of the automotive sector's fortunes did not start "until the industry was in serious jeopardy." In order to "revive pharmaceutical R&D at an earlier stage," concerted action is necessary "to keep us at the cutting edge of skills, expertise, and innovation."


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