The Oft Missed Energy: Patents and SR&ED

May 12 2015
By: boastcapital
Categories: Business Resources, SRED Resources
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Andrew Currier PCKGuest post written by Andrew Currier, Co-founder, PCK for “Your Intellectual Property Primer” webinar that was hosted June 4, 2015.

Technology innovators know that success depends on getting a quality product to market quickly and efficiently. Revenue is key, and you don’t generate revenue without a product. In today’s world, technological innovation moves so fast that it makes sense to keep your head down and focused on the end goal. This kind of “goal driven management” has very practical consequences, as development teams need to stick closely to product development schedules, or risk being beaten by the competition.

It is therefore natural to push aside ancillary initiatives of lesser importance during the development cycle. Patenting and SR&ED filings are two examples of ancillary initiatives; however, completely ignoring these initiatives can lead to giving away the underlying value of all of that product development work.

By way of background, patents are legal documents that can provide a twenty year monopoly for noteworthy technological innovations in exchange for a full and frank public disclosure of how to build and practice the innovation. In contrast, the Scientific Research and Experimental Development (SR&ED) program is a Canadian federal tax incentive program that is “designed to encourage Canadian businesses of all sizes and in all sectors to conduct research and development (R&D) in Canada.”[i]

From a business perspective, a patent has the potential to protect the “long view” by providing a barrier to entry for other competitors who may rip off, or later develop, the same innovation. On the other hand, the SR&ED program may be considered more of a “short view” endeavour, quickly improving cashflow on an annual basis.

Both patents and SR&ED filings can be very complicated and time consuming to do properly and generally require professional advisors. So once again, one can understand the desire to avoid the distractions and uncertainty of engaging in these programs in favour of focusing on product development. A “lean” startup faces this dilemma even more than a well-funded SME or large enterprise.

However, flat-out ignoring patents and SR&ED can result in leaving A LOT of value on the table. Whatever one may think of patents, it is a fact that they can provide enormous value to a technology company if they are done correctly. By the same token, a successful SR&ED claim can lead to a significant short term financial boost for cash conscious companies.

The trick, of course, is to efficiently resource patent and SR&ED initiatives while keeping product development on track. Here are a few tips that can help you do that:

1. Innovative professional service firms in the Patent and SR&ED space are increasingly structuring their services to be startup friendly, offering services that require minimal and predictable upfront investment from the company. Connect with the right ones and they will know how to get patent and SR&ED applications going without the traditional (i.e. scary) endless billable hour model.

2. The subject matter and criteria for getting a patent and qualifying for SR&ED incentives are much closer in substance than many people realize. For an SR&ED claim it is generally necessary to show an advancement of technology, technological uncertainty, and activity undertaken pursuant with the scientific method, whereas the the tests for patentability are the presence of novelty, usefulness, non-obviousness, and statutory subject-matter.

3. A provisional patent application costs almost nothing to file, and has none of the scary formalities of a formal patent application, meaning almost anyone with some technical understanding and basic writing skills can craft one. That means that it may be possible to tweak the contents of an SR&ED application into a provisional patent application with minimal effort, or vice-versa. A challenge here is that the timing for such efforts are different, in that SR&ED claims are typically filed at the same time each year as part of tax filings, whereas patents must, with some tricky exceptions, be filed before public disclosure, so you need to plan carefully.

These tips can help you take advantage of patents and SR&ED credits to unlock the value in your innovation straight away. In the future, there may be additional federal programs that promote Canadian innovation further. One such idea is for Canada to adopt a “patent box” in its tax code that would lower tax rates applied to income derived from innovation.[ii] Recent reports suggest the U.S. might be considering just such an idea of its own.[iii]

I have often wondered why the Canadian Government does not more directly link the SR&ED program with incentivizing patent filings. When a Canadian company gets an SR&ED credit but does not protect its invention through patent, it is essentially giving away its technology while the Canadian tax payer is effectively subsidizing foreign innovation. But that is for a separate article.


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Check out the recap slides from Your Intellectual Property Primer webinar co-hosted by Jeff Christie and Andrew Currier on Thursday, June 4, 2015: http://www.slideshare.net/Boastcapital/your-sred-and-intellectual-property-primer

Andrew Currier is the co-founder of PCK (www.pckip.com; @pckip) a combined firm of patent and trademark agents and lawyers, and Andrew is the co-author of “Canadian Patent Law”, the leading legal text on patent law in Canada.


 

[i] Canada Revenue Agency, “Claiming SR&ED tax incentives”, online: <http://www.cra-arc.gc.ca/txcrdt/sred-rsde/clmng/clmngsrd-eng.html >.

[ii] Nick Pantaleo, “Why Canada Should Adopt an ‘Innovation Box’ Approach to Promote Innovation” C.D. Howe Institute (25 April 2013), online: <https://www.cdhowe.org/why-canada-should-adopt-an-innovation-box-approach-to-promote-innovation/21469>.

[iii] John D. McKinnon, “U.S. Lawmakers Embracing Tax Breaks for Patent Profit” Dow Jones Business News (5 May 2015), online: <http://www.nasdaq.com/article/us-lawmakers-embracing-tax-breaks-for-patent-profit-20150505-01312>.

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