Intellectual Property

Patent boxes can jump-start U.S. innovation. The Netherlands corporate tax rate is less than half of the U.S. rate. Income from patented products and services is taxed at just five percent.

Eight countries have adopted patent boxes in recent years. The UK is slated to implement its own patent box next year. Under a patent box, corporate income attributable to patented products gets taxed a lower rate, sometimes a significantly lower rate. This policy goes beyond providing incentives for R&D and encourages commercialization of new products. It is among the tools more and more countries are using to stay competitive in today's innovation-driven global economy. The U.S. has the infrastructure to have perhaps the most effective patent box in the world. Read more »

Patent Boxes: Innovation in Tax Policy and Tax Policy for Innovation

October 4, 2011
| Reports
This report explains a tax device known as a patent box is being adopted by many countries seeking to enhance their competitiveness and why it would be a good policy for the United State to implement. A patent box significantly reduces the corporate tax rate on revenue from qualifying IP, based in part on the extent to which corresponding R&D and production is conducted domestically. The report survey the experience other countries have had with patent boxes and explains that a special, low rate would provide firms with a much stronger incentive not only to innovate but also to produce in the United States.

Download FAQs about Patent Boxes (PDF)

An effective corporate tax system reflects current economic realities. As such, the U.S. corporate tax system is in need of reform, for it reflects economic realities of a generation ago. Today, the U.S. economy faces intense global competition for economic advantage, particularly in innovation-based, higher wage industries. Moreover, the economy is based more on innovation and intellectual property (IP). IP is also more mobile, as companies can perform R&D and patent in countries around the world. Therefore, nations that hope to grow and attract innovation-based business establishments need tax policies that promote both the conduct of research and its commercialization.

Toward that end, a number of countries recently have adopted or expanded R&D tax incentives as well as developed new tax incentives to spur the commercialization of that R&D. These incentives or “patent boxes” (so-called because there is a box to tick on the tax form) allow corporate income from the sale of patented products to be taxed at a lower rate than other income. Eight nations (seven in Europe) have enacted patent box regimes that incentivize firms to patent or produce other related innovations. And a ninth, the UK, is set to put in place the incentive in 2013.

Proponents of patent boxes argue that they increase country competitiveness not only by spurring firms to invest more in innovation but also by providing a more competitive corporate tax climate for increasingly innovation-based firms. Skeptics claim that patent boxes do not actually address market failure because firms already have all the incentives they need to commercialize innovation in the marketplace.

This report seeks to inform the debate on whether patent boxes can help promote R&D and commercialization and if a patent box is appropriate for the United States. It articulates two economic rationales for why the United States should follow our European and Asian competitors and institute a patent box system. First, a patent box reduces the financial risk involved in innovation, better matching firm rewards with societal benefits, including the creation of high-wage jobs. If a patent box is designed in a way that links the incentive to the conduct of R&D and production of the patented product in the United States, it would go even further in spurring the creation and location of more innovation-based jobs in the United States. Second, a patent box would lower the effective corporate tax rate for knowledge-based establishments located in the United States, making it easier for them to compete against establishments in nations providing robust innovation incentives.

A patent box that significantly reduces the corporate tax rate on revenue from qualifying IP, based in part on the extent to which corresponding R&D and production is conducted domestically, would provide firms with a much stronger incentive to innovate and produce in the United States.

As such, Congress should establish a patent box regime modeled after those of other nations, allowing companies in the United States to pay a significantly lower rate on corporate income from patented products where the share of profits that are taxed at the lower rate depends on the extent to which related R&D and production is conducted within the United States.

Patent Boxes: Innovation in Tax Policy and Tax Policy for Innovation

October 4, 2011
A patent box reduces corporate tax rate on revenue from qualifying IP, based in part on corresponding R&D and production conducted domestically.

One of the most interesting policy developments in the global innovation race is known as a patent box, which provides preferential tax treatment for corporate income that comes from patented products. The goal is to encourage commercialization of R&D. Read more »

See video

Congress should establish a patent box regime modeled after those of other nations, allowing companies in the U.S. to pay a rate of 17.5 percent on corporate income from patented products.

One of the most interesting developments in the race for global competitiveness are what as known as patent boxes. If a patent box is designed in a way that links the incentive to the conduct of R&D and/or production of the patented product in the United States it would go even further in spurring the creation and location of more innovation-based jobs in the United States. Second, a patent box would lower the effective corporate tax rate for knowledge-based firms located in the United States, making it easier for them to compete against other firms in nations providing robust innovation incentives.

Copyright Technology 101

September 19, 2011
| Presentations

On September 19, 2011, ITIF Senior Analyst Daniel Castro spoke on a panel at the Global IP Academy’s “Copyright in the Digital Age” program sponsored by the United States Copyright Office and the Patent and Trademark Office (USPTO). His panel was entitled “Copyright Technology 101” and he discussed the various controls that can be used to protect intellectual property in different parts of the Internet ecosystem. The program was held at the USPTO in Alexandria, Virginia and included approximately 50 foreign government officials working on copyright issues.

Chinese theft of U.S. intellectual property costs almost one million U.S. jobs and caused $48 billion in U.S. economic losses in 2009 alone.

Last week, the U.S. International Trade Commission released a report that once again confirmed what most people know - China's mercantilist economic practices continue to inflict significant damage on the U.S. economy. The report quantifies the substantially deleterious effects of Chinese IPR infringement and indigenous innovation policies that largely block U.S. firms from China's enormous government procurement market. These policies cost the U.S. Read more »

Seventy-nine percent of the software installed on Chinese computers in 2009, valued at $7.6 billion, was not paid for.

As the U.S. International Trade Commission's report, China: Effects of Intellectual Property Infringement and Indigenous Innovation Policies on the U.S. Economy, found, widespread infringement of music, films, entertainment software, books, and other copyrighted materials continues unabated in China, despite repeated government promises that China's government will curtail these practices. Likewise, in his report, Suttmeier cites evidence that 79 percent of the software installed on Chinese computers in 2009, valued at $7.6 billion, was not paid for. Read more »

ITIF Welcomes Copyright Alert System

WASHINGTON, D.C. - Statement by Information Technology and Innovation Foundation President Rob Atkinson on the Copyright Alert System announced today by Internet Service Providers and creators of movies, music, and other content susceptible to unlawful downloading and use. Read more »

Stopping the Pirates Who Roam the Web

The New York Times
In a Letter to the Editor, Rob Atkinson argues that the fact that some advanced users will be able to evade IP piracy countermeasures is no reason to drop those countermeasures from the Protect IP Act.