The ambit of a patent is determined by reference to its claims, properly interpreted in light of the description and any drawings. Patents have multiple claims, varying in their degree of particularity. Narrower claims can be relied on, in an infringement action, as a fallback position, if the broader claims are at risk of being found to be invalid over prior art. The legendry IP judge Hugh Laddie put it this way[1]:-
“Someone invents a new form of tin whistle. With the aid of his patent agent he obtains a patent. Regrettably, but as is now common, the patent ends with claims of ever greater particularity and narrowness. … Claim 1 is for the tin whistle. Claim 10 is for a funnel to which the new tin whistle is connected. Claim 15 is for a battleship with a funnel to which the tin whistle is connected.”
Whatever the hopes of the patent attorney, who drafts such broad subsidiary claims, they are very unlikely to be independently valid over claim 1. If the tin whistle of claim 1 isn’t worthy of a patent then neither will the idea be of connecting such a whistle to a funnel or putting the whistle/funnel combination onto a battleship.
Neither will such broad claims enable the patentee to obtain an injunction over the whole battleship (as opposed to the whistle alone) nor claim damages or an account of profits in respect of an infringer’s sale of the whole of the competing battleship. The patentee hasn’t invented the whole battleship but only the tin whistle: his claim for a financial remedy won’t be determined by reference to all the items included in any one of the broader claims but rather by reference to what he has actually invented – i.e. the inventive concept embodied in the narrower claims, which will often be very much narrower in scope than the broader subsidiary claims[2].
Nowadays it is often said that an advantage of such broad claims is that they allow patent box relief to be claimed for the battleship and not just the whistle. But is that really true?
Patent Box
Patent Box is a statutory regime, introduced with effect from 2013, which enables qualifying companies to apply an extra deduction to their relevant IP income – basically the income that comes from the exploitation of patented technology – so as achieve an effective rate of corporation tax on that income of 10%, which is considerably lower than the current main UK corporation tax rate of 25%. Patent Box can be claimed both by patent owners and also by exclusive licensees in relation to their income generated on the sale of licensed products[3], providing that certain conditions are met.
The Question
So the question boils down to this: can a shipbuilder, who has only invented a new whistle, claim patent box relief on the profits he makes from selling a whole battleship containing the new whistle? Further if a whistle maker obtains a patent on a new whistle can his grant of an exclusive licence to a shipbuilder entitle the shipbuilder to claim patent box relief on the income earned from the sale of the whole battleship?
The Development Condition
To obtain patent box relief it is not sufficient to merely own or be an exclusive licensee of a patent. A claimant for patent box relief (or certain group companies) must satisfy the development condition[4]. In essence a company (or the relevant group company) must (to quote the legislation[5]) have either:-
(a) created, or significantly contributed to the creation of the invention, or
(b) performed a significant amount of activity for the purposes of developing the invention or any item or process incorporating the invention.
Merely putting a new whistle into a known battleship is very unlikely, by itself, to amount to the performance of a significant amount of activity for the purposes of developing the battleship. So, in this example, the claim to patent box relief for the whole battleship is very likely to fail.
However things won’t always be so clear cut. There will be many cases where incorporating a patented invention into a larger item will require very considerable further work: the inclusion of a patented active into a pharmaceutical product is an obvious example. In such cases, patent box relief can be claimed for the item incorporating the patented invention[6]. It is worth noting that in such cases the larger item does not itself need to be the subject of a patent claim: in other words claim 1 to the tin whistle is sufficient by itself and claim 15 (to the battleship containing the tin whistle) is not necessary to obtain patent box relief.
Caution Required
Would be patent box claimants should note that there are some important anti-avoidance provisions in the patent box legislation: specifically patent box relief can’t be properly claimed on the income, arising from the sale of a larger item containing a patented invention, if the main purpose, or indeed even one of the main purposes, of incorporating the patented invention into the larger item was to secure patent box relief[7]. There needs to be some significant commercial rationale for including the patented invention into the larger item[8]. Accordingly those seeking to obtain patent box relief for larger items, containing a patented invention, should contemporaneously document the commercial rationale for its inclusion and ensure that it is real rather than fanciful.
What Sonder & Clay can do for you?
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[1] Celanese International Corp v BP Chemicals Ltd [1999] RPC 203 at [51]:
[2] See for example Design & Display Limited v OOO Abott & Anr [2016] EWCA Civ 95.
[3] See section 357BH of the CTA 2010.
[4] Section 357BC CTA 2010.
[5] Section 357BD CTA 2010.
[6] Section 357BH(2) CTA 2010.
[7] Section 357FA CTA 2010.
[8] See https://www.gov.uk/hmrc-internal-manuals/corporate-intangibles-research-and-development-manual/cird250120
