Are You Protecting Your Intellectual Property?

Don’t Overlook One of Your Most Valuable Business Assets

Do you know the difference between a trademark and a copyright? Do you understand the correct tax treatment for your intellectual property (IP)? Whether you’re looking to protect the IP you have created, boost your business’ value for investor funding or create a competitive advantage by identifying, protecting and maximizing the tax benefits from your company’s intellectual property, understanding the different types of IP makes good business sense.

Many business owners don’t understand the tremendous value of intellectual property and the important business, legal and tax considerations for each source of IP.

To shed some light on this complex topic, we co-presented “Kaufman Rossin Presents: Intellectual Property,” a breakfast seminar for business executives on August 22, 2014. The event focused on explaining the different types of intellectual property, identifying legal considerations for protecting it and addressing tax implications and opportunities.

5 ways to protect intellectual property

The first step is to identify the potential sources of intellectual property in your business and understand the different ways you can protect it.

1. Patents: Patents protect methods, devices and compositions for inventions that are new or novel, useful and non-obvious.
2. Trademark: Trademarks cover any and all branding elements. For example, a company’s words, logo, sound, color, scent or image can be protected by trademark.
3. Copyright: A copyright prevents others from copying original works of authorship.
4. Trade Secrets: The protection of a secret formula, practice, process, design, instrument, pattern or compilation of information.
5. Contract law: Legally binding documents that govern the use of trade secrets, copyrights, trademarks and patents.

A simple Coca-Cola can is an excellent example of the different types of IP. Coca-Cola uses trade secrets to protect its formula, trademarks to protect its brand identity, patents to protect the pull tab used to open the aluminum can, and contract law for governing use of IP with  bottlers and distributers.

Understanding and developing patents

Patents provide companies with a limited monopoly on an idea in exchange for sharing that idea with the public.

There are three different types of patents:

1. Plant patents protect living organisms which express a set of characteristics determined by a single genetic makeup that can be duplicated through asexual reproduction.
2. Design patents are granted to the design of a functional item. (For example, the Coca-Cola bottle’s unique shape is protected by a design patent.)
3. Utility patents protect new and useful processes, machines, methods of manufacturing or composing matter or improvements made to existing methods.

Tax implications of intellectual property

If you have intellectual property in your business, you may qualify for tax incentives.

One of the most popular incentives is the federal research credit, also known as the R&D tax credit.  Although, currently expired as of December 31, 2013 conventional wisdom believes it will be retroactively enacted for 2014.

A common misunderstanding is that research performed must be patentable to quality for the R&D tax credit. In fact, it’s easier to qualify than many companies think. Companies in a variety of industries often have qualified research activities.  Examples include manufacturing, healthcare, technology and construction companies.

In general, the qualified research expenses that are eligible for the credit fall under two categories:

• In-House
  • Internal Wages: the cost of persons directly engaging in qualified research, directly supervising qualified research or directly supporting qualified research
  • Supplies:  materials on which research is performed or supplies used in prototyping activities
• Contract Research
  • Includes 65% of regular contracts, 75% of research contracts and 100% of certain energy research contracts

To learn more about the tax implications of intellectual property and if your company has property to protect, contact me or another member of Kaufman Rossin’s tax practice.