It’s not often that cases involving intellectual property and manufacturing are heard in the highest court in the land, but that was the situation in March when a ruling was made in the Supreme Court on Schütz versus Werit.
The ruling delivered by the Supreme Court on the long-running dispute, that had been heard in various legal arenas since 2008, found in favour of Werit, which had been accused of illegally remanufacturing elements of an intermediate bulk container designed by Schütz. The latter company had subsequently taken legal action. The court found, however, that Werit’s actions were not an infringement of Schütz’s IP, as Werit was replacing a bottle inside the container, and that patented technology relating to the design and construction of the cage was not being touched.
The result of the court’s decision, according to patent attorneys, is that it could become much easier for the aftermarket to remanufacture an OEM’s product without the risk
of being sued.
The implications for engineering companies could be considerable, believes Paul Foot, a patent attorney and partner at Withers & Rogers. “This decision comes as a real blow for component manufacturers in the automotive, aerospace and oil and gas industries. Many of them will have invested in securing commercial patent protection for their inventions and will find it more difficult to enforce their rights against unauthorised remanufacturing as a result of this decision,” he says.
“Basically, OEMs won’t be able to rely on a patent-hold for a technology applied in part of their product to provide commercial protection for the product in its entirety.”
The repercussions of the ruling are likely to be felt across the legal system. “Previously there had been uncertainty about aspects of what you can do in terms of aftermarket repair and remanufacture. This ruling clarifies and answers a lot of those questions,” says Foot.
It is unlikely, he says, that the court’s decision will change any time soon. “I think it is one of those decisions that is good for 20 years. The Supreme Court took the case on because there was an issue that needed to be addressed. Now the court has settled it, it is unlikely to look at it again.”
In the wake of the Supreme Court ruling, OEMs will probably still get some joy in pursuing aftermarket remanufacturers that have clearly violated patents, but will not be able to attack every single aftermarket supplier that makes parts or whole products. “And there’s a danger that purchasers of their products will be dissuaded from buying the original kit, because they know they are going to be tied to having to spend a lot to maintain their products by using only authorised replacement parts,” says Foot.
This means manufacturers “cannot be too extreme in their policing of the aftermarket”, he says. “On the other hand, they don’t want to lose too many sales of replacement products. When the aftermarket oversteps a certain line, they are likely to step in where they can see it eating into revenues.”
Patents have also been in the news with the launch of the government’s Patent Box scheme, which promises to reduce corporation tax for companies exploiting innovation in the form of patents. It will enable a company to apply a lower rate of corporation tax – 10% – to profits earned from its patents. Worryingly, however, a survey of engineers carried out exclusively by PE found that most (40%) thought the Patent Box would not encourage innovation among engineering companies, with just 24% thinking it would. Thirty-six per cent of engineers surveyed by PE were undecided.
The government would be disappointed by the survey’s findings, says Gary Moss, head of EIP Legal. “One of the concepts behind this is to persuade companies of all kinds to retain high-value jobs within the UK,” he says. “That includes innovation, not only in terms of coming up with new inventions, but also in the subsequent development and design of the product that incorporates those developments, and the exploitation of IP. This forms part of the government’s desire to revamp the economy so manufacturing firms have a larger share.” He describes the scheme as “generous”. “It’s the first time the tax system has given special treatment to such a broad class of IP.”
While larger engineering firms appear to be aware of Patent Box, small and medium-sized enterprises are less interested, claims Moss. “I’ve spoken to a lot of accountants and they say they can’t get their clients interested in it. It may be that the rewards of Patent Box are too far in the future, when a lot of small firms are focused on getting through the next year.”
The danger is that companies leave it too late to get involved and miss the opportunity to file a patent and claim corporation tax relief, he adds. He says that the work required to take advantage of the scheme is relatively simple and inexpensive.
“It is not a vast amount of work, and costs tens of thousands of pounds. The thing you have to remember is that we’re talking about savings, unless the tax regime changes over perhaps 10-15 years. If you save £100,000 in tax one year and multiply that over 10, it’s a lot of money.”
Paul Foot says he has several clients who are interested in filing for patents to take advantage of the Patent Box. “I saw that filings to the UK IP Office this year were up 20%. My experience on the ground is that engineering companies are more inclined to file, because they know that there is this in the background and they can benefit. We’re doing our best to publicise it, but I don’t think we have the reach of accountants. It would be great if everyone heard about it. I think it is a good move. It wasn’t introduced specifically to benefit the engineering sector, but it will.”
Moss of EIP adds: “The message we’ve been trying to get over to companies is that the Patent Box is a game-changer, because getting a patent is your ticket into the show of being able to claim tax relief.”