Landscape for Marathon and others is changing favorably…from the Patent Investor newsletter.
Patent box tax regime seen getting support from
new Trump administration and new GOP Congress
Public policy interest in the concept of a patent or innovation box, which
provides favorable tax rates for U.S. companies that invest heavily in research
and development and patents to spur innovation, is likely to be re-ignited in
the opening days of the Donald J. Trump administration.
A patent box tax regime in the U.S. would provide a lower rate on corporate
income from the exploitation of patented goods in the U.S. It also would
hopefully increase the likelihood that follow-on innovation from those
patented products will be developed in the U.S.
The patent box concept was part of legislation introduced by Senator Dianne
Feinstein, Democrat of California, a member of the Senate Finance Committee
and Representatives Charles Boustany, Republican of Louisiana and Richard
Neal, Democrat of Massachusetts, both members of the House Ways and
Means Committee in July 28, 2015.
The bills were shelved in the last Congress “because of the lack of a tax
vehicle,” said David Pratt, a managing director of M-CAM International, the
Charlottesville, Virginia-based IP asset management and advisory firm
“Talk of the patent box will be re-ignited in the new administration and
Congress. It will be front and center. It will pop up in the House Ways and
Means Committee and the Senate Finance Committee,” Pratt said.
Neither the Trump transition staff nor the staff of Rep. Boustany returned
several requests for comment.
President-elect Trump has made it clear that tax code simplification and lower
rates for business are key to his plans for jumpstarting growth in the U.S. He
also has talked about providing a deemed repatriation of corporate profits
held offshore at a one-time tax rate of 10 percent. U.S. corporations currently
have about $2.5 trillion in profits overseas, based on a report from Capital
Economics.
The revised tax bill will be “a white hot” legislative vehicle and “a super-priority" for Trump and the
Republican Congress, he said.
“I don’t know how many bells and whistles they’ll be able to attach to the planned tax bill,” he said.
As such, he said it’s quite possible the patent box concept gets attached to the tax bill. It’s equally
possible, however, that if things get too complicated, too quickly, that the patent box bill will be
jettisoned and have to be brought back later.
The patent box concept has been around for a few years in the U.S. and written about extensively
by patent market observers including Bernard Knight, a partner with McDermott Will & Emery in
Washington, D.C. and Jason Osborn and Ken Klein, partners with Mayer Brown in Washington,
D.C.
The Mayer Brown analysis was co-authored by Warren Payne, a senior adviser in the firm’s tax,
government relations and international trade practices, and Elena Khripounova, director of the
firm’s transfer pricing and valuation services.
“The real plus about the patent box is that IP has been devalued over the past few years because
of the U.S. Supreme Court’s rulings on patent eligibility, which have affected the software and
medical diagnostics industries,” Knight said in an interview.
“We need something to better manage and promote the value of IP as it relates to improving
innovation,” he said.
Knight noted that the current economy does not appear to be creating sufficient job opportunities
for Americans to join and rise in the middle class. As such he said a strategy that devalues patents
and creates business uncertainty seems like the wrong approach to increasing the number of
higher-wage jobs for Americans.
The U.S. would not be the first nation to try the patent box approach. The U.K., the Netherlands
and China have all enacted their own patent boxes. GlaxoSmithKline PLC took advantage of the
U.K.’s patent box by investing $330 million to build a factory in the U.K.
Representatives of GlaxoSmithKline declined comment.
“If you had a patent box that taxed corporate profits from patented goods at a lower rate, it would
very quickly make patents more valuable,” Knight said.
Knight conceded that the concept of the patent box might be attractive to the incoming Trump
administration.
“He’s stated he’s in favor of lower corporate tax rates. A patent box would be one way to get those
lower rates efficiently.”
Burford Capital is looking for opportunities to invest in patent
assertion companies, litigations
Burford Capital Ltd. (BRFRF), the litigation financing and funding company run by CEO
Christopher Bogart, expects to play an increasing role in providing patent enforcement action
financing in the U.S., according to Justin Daniels, a managing director and head of IP litigation
financing.
London-based Burford Capital has a market value of $1.33 billion. The stock currently trades at
around $6.31 cents.
Daniels, who joined Burford Capital from the law firm Proskauer Rose LLP in February, said the firm
has many hundreds of millions of dollars to deploy in investing and financing IP litigation.
The company so far has been involved in only two IP related investments including a $45 million
investment in litigation by British Telecom and a 30 million euro investment in litigation by
Hausfeld, a global claimants’ law firm, that is pursuing claims against Volkswagen AG, related to
the car maker's emissions scandal.
Daniels said Burford Capital is making a push into the market for financing IP litigation to
compete with firms including Juridica Asset Management, Gerchen Keller Capital, and Techquity
Capital Management.
Recently, Juridica's Brickell Key Investment LP provided $13.5 million to Document Security
Systems Inc. (DSS) to recapitalize the failed licensing company and help it acquire a portfolio of
126 LED lighting patents from Intellectual Discovery Co. Ltd. of South Korea.
Daniels said in an interview that Burford Capital hadn't done a lot of IP investing in the past and
only decided to move into the area because of demand from clients.
He said Burford Capital could be making similar investments in the near future. He said a typical
investment would be in the $1.5 million to $2 million range. He said Burford Capital would be
interested in portfolios of patents as well as individual cases. In addition, he said the firm also is
interested in becoming involved on the defense side.
"We might invest in companies and become involved in IP litigation," he said. "We are not focused
on patent ownership unless there's a compelling case. We know about winning cases."
Daniels leads a team of about 12 underwriters who have experience with intellectual property,
antitrust and contract matters.
