How to determine in which countries to apply for a patent?

How to determine in which countries to apply for a patent?

In the Netherlands, you can apply for a patent at the Netherlands Patent Office. However, the Patent Office can only grant a patent for the Netherlands. If you also want a patent in another country, then in principle you need to apply for one separately in each country; there is no such thing as a worldwide patent.

However, an invention will rarely be limited to a single country. Just think of global supply chains for making products to sell to pretty much everyone in the world who can buy these products. If you are at the stage of wanting to patent your invention, strategically selecting the countries is a must in order to manage the costs. This blog post will help you to make a strategic decision when it comes to countries.

A chain approach

To reach a decision, it is useful to establish the countries where the supply chain is located. First, these are the countries where your own company and your competitors produce the product. Second, the countries where strategic and critical suppliers of your company and your competitors are based. After all, an invention can relate to a part of an end product.

It also provides insight to know the sales market and logistic flows. Insight into logistics hubs, in particular, can lead to strategically choosing a country with a small sales market where the product is not made. In many cases, it is enough to protect part of the sales market in order to make it less attractive for competitors to enter the market.

Using the above information, it is possible to make four lists of candidate countries for applying for a patent:

  • Suppliers: countries where parts of the product are made;
  • Competitors: countries where the product is made;
  • Logistics hubs: countries where there is central transhipment or distribution;
  • Sales markets: countries where the product is distributed and used.

The next step in making a decision is to determine, for each list, the expected influence of patent protection on your own company. As a guideline, a number of focus areas and insights are discussed below for each list.

Suppliers

Suppliers of strategic and bottleneck items can acquire a strong position of power in a supply chain. It may be possible to change this position of power by applying for a patent in a country where such a supplier is based.

Take, for example, a patent that relates to the further development of a part that is supplied by such a supplier. This patent can be seen as a way of preventing the supplier from supplying the invention to competitors. Alternatively, the patent may possibly serve as a bargaining tool for improving the supply conditions in exchange for a licence.

An important prerequisite for a strategy focused on suppliers is that there is a high threshold for relocating the business activities. This threshold is usually high for capital-intensive industries such as the steel industry and the semiconductor industry. If your supplier can relocate relatively easily, this strategy will probably not be very effective.

Competitors

A very common reason to apply for a patent is to block competitors. This is usually focused on preventing the product from being made by the competitors without having recourse to the sales market and suppliers. Of course, this is only possible if you are aware of your competitors and their production sites.

In this case, too, a high threshold for relocating the production site is an important prerequisite for making the most of your patent. Particularly where manufacturing is outsourced in the case of companies such as Foxconn, Flextronics or Jabil Circuit, there may be a relatively low threshold for relocating the production to countries with lower wages. If the manufacturing site is in a relatively small sales market, then your patent will possibly have little value after the manufacturing site is relocated.

If you are not aware of your competitors’ production sites or suppliers, then all that remains is a strategy focused on the sales market and logistics hubs. It usually makes little sense to apply for a patent in a country where your competitor only carries out research. There are, for example, no restrictions on applying patented inventions to research in the Netherlands.

Logistics hubs

The starting point for a strategy focused on goods flows is that a relatively large sales market is served from a fixed logistics hub. This can include ports, airports and distribution centres. Using a Dutch patent, it is thus possible to cover a significant part of the European sales market for goods that enter Europe via the port of Rotterdam.

However, a patent in the Netherlands will not make an impression on a competitor that can easily use several routes and distribution centres. In that case, a patent targeting the production site or sales market will probably be a better investment.

A point to consider in this strategy is that it may be necessary to approach your company’s (potential) customers. Needless to say, distributors who are forced to cease a lucrative trade will not always be keen to switch over to the patent holder.

Sales market

As explained above, a strategy focused on the supply chain is not always readily possible. In that case, the ‘only’ remaining option is to protect the sales market. This is a sound strategy particularly for consumer goods. After all, it is far harder for the population to relocate than a factory.

If everyone in the world is a potential customer, you of course need to have criteria for making a selection. Roughly speaking, there are two approaches: a budget limitation or a desired market share. In the case of a budget limitation, a patent is usually applied for in the countries with the largest sales markets until the budget is reached.

The purpose of an approach based on a desired market share is to make it less attractive for competitors to offer the product in the small sales market that remains. For the European market, such an approach usually means that a patent is required in at least the United Kingdom, Germany and France.

Supply chain prevention

Protection for an invention preferably focuses on the top of the supply chain. After all, addressing one or a couple of competitors or suppliers usually bears no comparison to addressing distributors and customers in many countries.

However, this strategy only works well if the threshold for a producer to move to another country is relatively high. Further prerequisites are that the country has a well-functioning patent system and that the threshold for new producers entering the market is high.

If this condition is not met, then protecting part of the sales market is probably a better option. After all, it is harder for the population of a country to relocate than a competitor.

If you want to patent your invention and have further questions about which route to follow, please don’t hesitate to contact me. 

Also take a look at my previous blog post that helps you decide which countries to choose when applying for a patent. 

If you would like more information about patents, download the (free) Patent Handbook! The Patent Handbook deals with the most frequent questions from business owners on protecting inventions from counterfeiting.

What are the different strategies when applying for a patent?

Apart from the question of “what” needs to be protected with a patent, other essential questions when applying for patents are “where” and “when” this should be done. This blog post will define strategies to help you decide where and when to file your patent application.

It is fairly common for a successful invention to be patented in several countries, for example to protect several sales markets. The patents in these countries usually come after a so-called first filing of a patent application. To choose an organization for a first filing, it is useful to know the countries in which you eventually want to have patent protection.

It is also important to properly estimate potential future changes to your invention. Changes to the invention can lead to a filed patent application becoming less relevant or worthless.

Four strategies

Using the above information, four strategies for filing a patent have been formulated, which will be explained below.

Strategy 1: Early filing 

Applying for a patent at an early stage of an innovation is particularly important if you expect that a competitor could beat you to it. A good indicator of this, for example, is the attention paid to patents in the sector in question. After all, a patent is granted to the first to apply for it, not to the first to create the invention and keep it secret.

A risk of filing a patent application early is that it is no longer relevant at a later stage, for example because the invention has changed or the product does not reach the market. Therefore, if it is not yet clear in which country a patent will be of value in the future, it might be better to keep the costs for a first filing as low as possible.

The costs for a first filing consist of the costs for the organization chosen to deal with the patent application, plus any costs for a patent drafter such as a patent attorney. Given the relatively low costs compared to the EPO and WIPO, the Netherlands Patent Office (OCNL) is an attractive option for a first filing in this case. 

The costs for drafting a patent application are usually much higher than the filing costs. Searching for a patent attorney who is well-acquainted with the subject matter or who works in a country with relatively low labour costs may be an attractive way to keep costs down. 

Strategy 2: Chain development

In the event of a radical innovation or diversification of business activities, it may be the case that the invention is clear before it is known in which countries a patent for the invention could potentially be useful. In particular, if it is not expected that another party will file a patent for the same invention, it may be interesting to delay a first filing of a patent. 

To develop a new supply chain or sales market, it may be necessary to share the invention with third parties. As a result, it is possible to postpone a first filing to a limited extent. Sharing the invention in a supply chain while maintaining secrecy is often possible, but not without risk. However, maintaining secrecy does not offer a solution for a successful patent strategy that focuses on consumer markets. 

If the focus is on developing the chain, it is important to have options for a patent in as many countries as possible at the lowest possible costs. It is possible to obtain an option for more than 150 countries by filing an International patent application via WIPO. This option has a term of at least two and a half years after the first filing. A more limited option for more than 40, mostly European, countries is obtained by filing a European patent application with the EPO. 

As is customary for options, it is necessary to decide whether to exercise the option before the term expires. For an International patent application, this means the actual commencement of procedures in countries or for regions such as Europe. Given the costs of these procedures, it is advisable to develop the chain before the option expires. 

Strategy 3: Product development

A situation where the chain is known but the invention is not yet fully developed is quite common in the case of incremental innovations. This is the case, for example, if existing products are further developed. Applying for a patent at an early stage is attractive in particular if there is strong competition and innovations in rapid succession. 

In contrast to the early filing as explained above, it is possible in the case of product development to choose a country where the invention must be protected in any case. As this is done at a relatively early stage, this is preferably a country with a relatively large impact on the supply chain or sales market, where it is possible to apply for a patent at acceptable costs. 

If the invention is completed within 12 months of the first filing, patent applications can be filed in the selected countries. Alternatively, it is possible to choose a European or International patent application in order to thus reduce the costs over the short term. The costs for the individual countries are then incurred at a later stage. However, the total costs do increase in the case of this latter option. 

Strategy 4: Late filing

Applying for a patent at a late stage of development is by far the most attractive scenario. During the course of development, risks are scaled back and it becomes clear which countries are important for a patent. Unfortunately, in view of the competition, it is not always possible to keep an invention secret for so long. 

Should you find yourself in this fortunate position, the total costs for applying for patents can be reduced by applying for a patent directly in the countries chosen. If there is a relatively high degree of uncertainty regarding market demand, a European or International patent application may still be attractive in order to reduce the costs over the short term. 

An additional advantage of a relatively late first filing is that it is possible to get the maximum benefits from a patent. After all, the life of a patent is limited to a maximum of 20 years. A patent application that is filed too early can drastically shorten the useful period in the absence of market introduction.

Conclusion

It strikes me that the term of two and a half years for an International patent application is often on the short side. Particularly if the supply chain still needs to be developed, the option often expires before even one product is sold. In my opinion, this is often the result of focusing too intently on the invention and therefore leaving it too late to establish a supply chain. 

As is the case with many investments, the costs will come before the benefits. One disadvantage of patent protection that is often mentioned is that the costs come a very long way before the benefits. It is possible that one of the above scenarios will be able to soften the blow.

If you want to patent your invention and have further questions about which route to follow, please don’t hesitate to contact me. 

Also take a look at my previous blog post that helps you decide which countries to choose when applying for a patent. 

If you would like more information about patents, download the (free) Patent Handbook! The Patent Handbook deals with the most frequent questions from business owners on protecting inventions from counterfeiting.

Brexit: advantages or disadvantages for the Netherlands?

Brexit has been a hot topic more than once in the last few weeks.  The negotiations over a soft or hard Brexit raise a great deal of questions, also in relation to business here in the Netherlands.


Brexit’s influence on the Stock Exchange 
For the Dutch Stock Exchange, Brexit can turn out to be a good thing.  After all, a recent study carried out by the Financial Markets Authority (AFM) shows a remarkable increase in the number of London stock exchange companies seeking, and being granted, permission to trade here.  It is estimated that approximately 30-40% of the European capital market will move to the Netherlands.  Because of this, the Netherlands, and the Randstad in particular, is well on the way to becoming the centre of the financial trade centre of the reformed Europe. 

The influence of Brexit on the Economy
According to the Financial Times, the central location and the business-friendly climate are the biggest attraction factors in the Netherlands.  Thus, along with leading stock exchange companies such as London Stock Exchange and Chicago Board Options, a number of flash traders and banks have their eye on the Randstad.  Similarly, American, Japanese and British companies trading in “own risk”, or deductibles, are coming to our shores.  The whole Dutch economy can benefit from this positive vibe, because the demand for knowledge-intensive and service-providing companies is also increasing as a result.  More international companies in particular are looking for more capacity, expertise, and IT systems.  

Can the advantages outweigh the risks?
Nevertheless, critics are warning against possible risks, such as an escalation in the increase in the price of property in Amsterdam, for example.  Above all, the possibility of a new economic crisis is making critics nervous.  The question then, precisely, is whether the advantages of the financial sector can offset the costs.         

 

Administrative obligations not fulfilled

Entrepreneurs have administrative obligations. This basically means that they must keep sufficient records of their and their company’s financial situation, from which their rights, obligations and other details important for the purposes of the levying of taxation can at any time be established. Records must be kept for seven years. Supporting documentation also pertains to the records. Administrative details may be saved on a data carrier that is not the original, provided that complete details remain during the retention period and that they can be read within a reasonable period of time. The nature, extent and complexity of a company all determine the requirements imposed on records.

The inspector can, if a decision is open to appeal, establish that an entrepreneur has not fulfilled his administrative obligations. During an audit of an entrepreneur in the catering industry, the Tax Authorities concluded that there were shortcomings in the paperwork. The Tax Authorities established these deficiencies in an information decision. Later, it was found in court that this decision had been justified: the entrepreneur had indeed not fulfilled his administrative obligations. Although a large part of his turnover was received in cash, his cash accounting was not auditable. The entrepreneur had not kept such details as till and debit card receipts and rough drafts.

Such primary documents form an essential part of the records of a company. By not keeping these, it could not be verified if the details had been transferred correctly and fully to the ledger. Thus, the required connection between turnover in cash and goods could not be made. The Tax Authorities found themselves in the position where they were simply unable to verify the accuracy and comprehensiveness of the turnover.

Non-commercially viable guarantee

The provision of assets by a significant interest holder to his private company (bv) falls under the product from other activities in Box 1 of income taxation. Having a claim on the bv is a form of provision of assets. This also applies to recourse against the significant interest holder, which arose when they stood as guarantor for one of the bv’s debts. The obligation to make a payment to a creditor of the bv comes about upon entering into the guarantee and, from that moment, pertains to assets from activities. The difference between the paying of a creditor of the bv and the value of the recourse against the bv is offset against the product of the activities. This is not the case, however, if the guarantee is not commercially-viable.

Regarding the question whether the guarantee is commercially viable or not, it must first be examined if reimbursement, that is not dependent on the profit of the bv, can be fixed, against which an independent third-party would have been willing to stand guarantor.

According to the Court of Arnhem-Leeuwarden it is not important, when considering the commerciality of the guarantee, that the loan to which the guarantee relates has been supplied by a third party. When assessing the commerciality of the guarantee, the court did not take into account the fact that the person providing funds was willing to provide more finance because there was little chance of paying back the earlier loan without it. The court did not find it plausible that an independent third-party, given the negative personal capital and the negative results of the bv, would – for whatever fixed reimbursement – be willing, to stand guarantor without any certainty whatsoever.

Do you have questions about the article? Please contact us for more information. 

Anonymizing assets via limited partnerships

The State Secretary for Finance has recently answered queries in the Dutch Lower House concerning the anonymization of assets by means of limited partnerships (cv). Since the adoption of the fourth anti-money-laundering directive in 2015, the Dutch Tax Authorities are no longer conducting pre-conciliation regarding structures intended to anonymize assets. Since the fourth anti-money-laundering directive has not brought about any change in Dutch legislative and regulatory provisions, rulings issued before that time have not been revoked or amended.

The Code of Commerce requires associations such as general and limited partnerships to function as a business. This obligation is generally fulfilled if there is participation in the course of trade for financial gain in order to obtain income. However, that does not necessarily mean that there is a company for taxation purposes. Certainly, trade in goods normally qualifies as a business for taxation purposes, but the mere possession of shares does not.

If a limited partnership is running a business for taxation purposes, the Supreme Court has determined that a general partner breaching the management prohibition is treated as a managing partner and, along with that, as an entrepreneur for income taxation purposes. The legal form of the limited partnership does not change because of this. If the limited partnership qualifies as an open limited partnership, it is obliged to pay corporate tax. When filing its corporate tax returns, the open limited partnership must deduct the managing partners’ dividends from its profits. This must also be done in the case of the dividend of the limited partner who, because of breaching the management prohibition, is now treated as a managing partner.

The State Secretary cannot rule out continued use of the limited partnership in order to anonymize assets in the future. The Tax Authorities still, on request, issue orders for a fiscally-silent share merger. These anonymization structures have not been set up in order to pay less income taxation or to put assets out of the grasp of the Tax Authorities. Thus, there is no reason not to put such structures in place.

 

Please feel free to contact us for more information. 

Highly Skilled Migrants 2019: New salary thresholds applicable for Highly Skilled Migrants and Blue Card holders in 2019

The new 2019 salary thresholds for foreign employees- e.g. Highly Skilled Migrants, Graduates, Blue Card holders- have been announced.

These amounts are applicable for new applications for local hires, assignees (when outside the scope of the EU ICT Directive 2014/66/EU) or extension applications, received by the Immigration Authorities (IND) on or after 1 January 2019:

  • The monthly gross salary threshold for applicants of 30 years and older is currently set at € 4.404 excluding holiday allowance, and will be indexed to € 4.500;
  •  The monthly gross salary threshold for applicants younger than 30 years is currently set at € 3.229 excluding holiday allowance, and will be indexed to € 3299;
  • The monthly gross salary threshold for graduates from a higher Dutch educational institution, or from an international educational institution listed in the top 200 of one of the ranking lists, taking up employment within three years after graduation is currently set at € 2314  excluding holiday allowance, and will be indexed to € 2.364;
  • The monthly gross salary threshold for Blue Card applications is currently set at € 5.160 excluding holiday allowance, and will be indexed to € 5.272.

 

As a reminder, all amounts are calculated on a monthly gross basis, excluding holiday allowance, and will need to be received directly on the bank account of the individual. Allowances/benefits can only be included provided that the following cumulative requirements are met: specified, fixed/ guaranteed, paid structural on a monthly basis in money (not in kind)

This blog was written by DBi-member Dominique Coenen of Expat Management Group.

Please feel free to contact the EMG team in case of questions or comments in this respect.

Debate of fiscal unity emergency repairs bill

In a letter to the Lower House, the State Secretary for Finance writes that debating of the fiscal unity emergency repairs bill will have been completed in the first quarter of 2019.  The reason for this is the retrospective force incorporated in the bill up to and including January 1, 2018.  Timely debate of the bill must prevent thattax payers must file their 2018 corporate tax returns prior to completion of the legislative process. 

In his letter, the State Secretary points to the complexity of the legislation for fiscal unity.  Due to provisions contained in the bill, the legislation has become even more complicated.  The debate in the Lower House has been delayed by rulings in the two cases which led to the presentation of this bill.    

In the meantime, we will keep you up-to-date.  Have you further queries regarding emergency repairs or debating of fiscal unities?  If so,get in touch with us.          

Conversion of a negative capital account into debt

The Supreme Court has quashed a judgement made by Den Bosch Court regarding the implications of the conversion of negative capital account in a general partnership into debt owed by the partner to the general partnership.

The general partnership was composed of a married couple and the husband’s father. Upon leaving the general partnership, the father’s negative capital account was converted into debt of 116,603 EUR.In 2011, the father had paid off part of his debt with the proceeds of the sale of his private residence. The remaining debt of 60,555 EUR was irrecoverable and was written off against profits of 2011. The Court in Den Bosch did not allow this, as there was evidence of a non-commercially viable loan. By providing the father with the loan, the remaining partners took the risk of default that an independent third party would not have taken. According to the Court, that very risk was accepted due to the family relationship. 

The Supreme Court assumed, in appeal, that the mutual legal relationships between the partners in the general partnership were founded on commercial grounds. The claim on an outgoing partner due to the discharge of his negative capital account is a direct consequence of the partnership relationships. This claim cannot be compared to a loan to an outgoing partner. The loss of capital on a deficient claim on the outgoing partner has not been caused by accepting an uncommercial risk. As long as the nominal value of the claim, when it came into existence, is higher than the value in the course of trade, the loss on the claim is borne by the profits of the remaining partners. That does not apply for a possible further loss on the claim subsequent to leaving the partnership. In relation to that loss, there can certainly be evidence of a loss on a non-commercial loan.

Arnhem-Leeuwarden Court must deal with the case further. Feel free to contact us for more information. 

Saving on VAT as of January 2019: issue and/or pay your invoice today

The increase in the lowered VAT rate from 6% to 9% as of January 1,2019 may lead to queries regarding deliveries and services carried out just before that date.  You will find a little more clarity on this issue in the Note in response to the Tax Plan 2019 report.  

Goods and services currently under the lowered VAT rate of 6% (tool), will, as of January 1, 2019, be subject to a rate of 9%.  The Note in response to the Tax Plan 2019 provides extra information in order to determine which rate is applicable around January 1.  Here a distinction has been made between entrepreneurs applying the VAT cash accounting and invoice schemes respectively.

Entrepreneurs applying the cash accounting scheme
For entrepreneurs using the cash accounting scheme, the moment that they receive payment determines the tariff that they must apply.  The rate of 6% may thus be used if an invoice is issued, and payment is received, in 2018.  If an entrepreneur receives payment in 2019 (but the invoice is from 2018), he must then use the 9% rate. 

Entrepreneurs using the invoice scheme
Those using the invoice scheme must assess whether the recipient is an entrepreneur/legal entity or an individual.  An invoice must be issued for deliveries and services to another entrepreneur.  The date of issue of this invoice is decisive.  If the invoice for a delivery or service is issued while still in 2018, a VAT rate of 6% may be imposed on this.  For a delivery made in December 2018, but for which an invoice is only issued in January 2019, the entrepreneur must use the 9% rate.  In order to be sure of being able to charge 6%, an entrepreneur that uses the invoice scheme will thus, for services still in 2018, have to issue the invoice this year.  On invoices that have been drawn up for deliveries and services that have taken place before December 1, 2018, the entrepreneur will, in any case, have to impose the 6% rate. 

Deliveries to individuals
For deliveries and services to individuals, the time oftransaction is decisive for the application of the rate.  Forexample:  an entrepreneur provides an individual with a product on December 11, 2018.  She receives the invoice on January 6, 2019.  The entrepreneur must charge 6% VAT on the invoice.    

 

Please feel free to contact us for more information.