I am pleased to present the Knowledge Development Box (Certification of Inventions) Bill 2016 to this House for its consideration. The main purpose of this Bill is to establish a certification scheme to allow small and medium-sized companies to avail of the knowledge development box. This Bill, when implemented, will allow companies with intellectual property assets that are non-obvious, useful and novel to qualify for the knowledge development box. The Bill will establish a certification scheme to be administered by the Controller of Patents, Designs and Trade Marks. The controller will issue certificates to companies if applications under the scheme meet the criteria of being non-obvious, useful and novel.
The knowledge development box, KDB, was introduced in the Finance Act 2015 as a tax incentive to encourage innovation and boost research and development. Under this initiative, a corporate tax rate of 6.25% will apply to profits on intellectual property assets that result from research and development carried out in Ireland. The Finance Act provides that three distinct categories of intellectual property qualify for the KDB. These are patents, copyrighted software and inventions that share the characteristics of patents in that they are novel, non-obvious and useful. It is the third category of intellectual property assets that the current Bill is concerned with and for which a new certification scheme is proposed. The KDB is already operational for the first two categories, patents and copyrighted software since 1 January 2016. This third category of assets is targeted at small and medium-sized companies with a view to ensuring that they too can qualify for the KDB. The Finance Act imposes certain financial limitations on the definition of companies that qualify in this category. The limitations are for companies with income arising from intellectual property of less than €7.5 million and with global income of less than €50 million. This legislation will, when enacted, be of direct benefit to companies of a relatively smaller economic scale. Ireland has almost 2,000 companies performing research and development activities in Ireland with turnover under €50 million and they will be able to access the KDB through this proposed new scheme.
A secondary purpose of the Bill is to reintroduce in legislation substantive patent examination for Irish patents. Under the Patents Act 1992, the activity of substantive patent examination was discontinued at the Irish Patents Office. The Finance Act provides that in order for patents to qualify for the KDB they must be granted only after following a process of substantive patent examination. This is designed to ensure that only high-quality patents qualify for the KDB. The amendments in the Bill have the effect of reintroducing substantive patent examination in Ireland. This will result in higher-quality Irish patents in line with best international practice. Moreover, the intention is to ensure that Irish patents will continue to qualify for the KDB. Evidence shows that investment in research and development increases economic productivity, competitiveness and improves health, social and environmental outcomes. Firms with a persistent research and development strategy outperform those with an irregular or no research and development investment program. Research and development is crucial for creating and maintaining high-value jobs and for attracting new business. It is the case, however, that depending on the product or process, research and development can be very expensive and not all research and development is successful. A company may experience many failed attempts before it sees results from investment of time, money and resources. These costs can be considerable. The extension of the KDB to indigenous small and medium-sized companies is expected to incentivise greater levels of creativity, through which I hope to see increased job creation, a key concern for me in my role as Minister for Jobs, Enterprise and Innovation. By way of background, I should say that the KDB was introduced in response to the OECD’s consideration of harmful tax practices. Ireland claims to have the first fully compliant knowledge development box that meets the new OECD guidelines.
I will now turn to the specifics of the Bill and I shall set out what each section of the Bill is intended to do. As I have already said, the intention of the Bill is to introduce a certification scheme for SMEs in respect of their intellectual property assets in the nature of inventions. This scheme involves the Controller of Patent, Designs and Trade Marks as the designated State authority to certify the assets as being novel, non-obvious and useful. When examining applications under the scheme, the controller will apply the same criteria used to establish novelty and inventiveness as those which currently apply to patents. Unlike patent holders, companies granted a KDB certificate will not have to publicly disclose the nature of their invention. Nor will they have a monopoly or market exclusivity rights for that asset. The certificate will qualify the company to apply for the application of the lower rate of corporate tax of 6.25% on profits arising from the intellectual property asset.
This is half the normal corporate tax rate of 12.5%. To be clear, the KDB certificate will not of itself automatically mean a company qualifies for the tax relief. The Revenue Commissioners will be entitled to carry out their own assessments to ensure that a valid basis exists for the company to claim the lower rate of corporate tax. This practice already exists in the context of the research and development tax credit scheme where Revenue can randomly undertake assessments or audits. Companies that can qualify for this certification scheme are those with income of less than €7.5 million arising from intellectual property. Their global turnover from intellectual property must be less than €50 million. The profits must result from research and development activities carried out in Ireland.
The second purpose of the Bill is to amend the Patents Act 1992 by requiring that in the future all Irish patents granted will be on the basis of substantive patent examination only. Under the current system, it is possible to grant Irish patent on the strength of evidence of novelty in the form of a search report. These amendments will ensure that all Irish patents granted after this Bill is enacted will be of a high quality in line with best international practice. Moreover, it will ensure that all patents granted by the Irish Patents Office will continue to qualify for the KDB scheme. I propose in this Bill to introduce a substantive patent examination regime for Irish patents. These changes will take effect as soon as this Bill is enacted. The changes signal a change in the manner in which the Patents Office will examine patent applications in the future. The Irish Patents Office has a long-standing arrangement with the UK Intellectual Property Office to provide evidence of novelty in the form of a search report. When the Bill is enacted, a search report alone will no longer satisfy the evidence-of-novelty requirements but will, in addition, require a written opinion as to patentability. This additional service is also being acquired from the UK office.
Turning to the detail of the Bill, I note that Part 1 includes sections 1 to 3, which are standard legislative provisions relating to Title, citation, definitions and expenses. Section 1 also contains commencement provisions. I intend to table technical amendments to sections 1 and 26 on Committee Stage in this House. These amendments will reflect the fact that I do not expect the Bill to be enacted by year end. Therefore Part 6 cannot come into operation on 1 January 2017 as provided for in the Bill as published. Part 2 contains sections 4 to 6, inclusive, and sets out the mandatory criteria that applications for inventions under the scheme must meet. This Part sets out also the mandatory exceptions and these are common also to the exceptions that apply in patent law. Section 4 sets out the criteria that an invention must meet in order to qualify for a KDB certificate. Put simply, the invention must be novel, non-obvious and useful. This section also lists those inventions that are not considered to be inventions for the purposes of KDB. For example, the invention cannot be granted a certificate if it is a discovery or a scientific theory. Section 5 defines specific inventions that are excluded for reasons such as that the commercial exploitation of the invention would be contrary to public order or morality or that the invention is a plant or animal variety derived from a biological process. Section 6 provides that a KDB certificate will typically issue for one distinct invention.
Part 3, containing sections 7 to 15, deals with the specific and detailed application requirements under the scheme, including an outline of the controller's decision-making and review process. Section 7 sets out the qualifying criteria and financial limits for companies that can apply under the KDB certification scheme and establishes the information requirements for applications under the scheme. Essentially, an application will have to contain the title and a clear, concise detailed description of the invention; the date on which the invention began to be used, produced or marketed; the novel features or improvements of the invention that did not previously exist along with a description of its advantageous effects; and be accompanied by an opinion from a patent agent attesting that the invention is novel, non-obvious and useful. Section 8 deals with applications that are submitted but do not initially meet all the requirements laid out in section 7. The controller can write to the applicant identifying the requirements that were not met. The controller can defer consideration of the application until the revised application is submitted. If no response is made to the controller's notice, the application will be deemed to be withdrawn after a period of time.
Section 9 provides for the treatment of applications in respect of two or more inventions. A certificate can, typically, be issued in respect of a single invention only. Under section 9, the controller can invite the applicant to choose which element of the invention should be considered for certification purposes. The applicant can make a separate application or applications for the other inventive elements of the application. Section 10 allows the applicant to withdraw an application at any time before the issue of a KDB certificate. Section 11 provides that an applicant who initially withdrew an application is not prevented from lodging the same application again. Section 12 provides that the controller can issue a KDB certificate if he or she is satisfied that the invention meets all requirements set out in Part 2. It also outlines the particulars that will be included on the KDB certificate.
Section 13 outlines the procedures to be adhered to if the controller refuses to issue a KDB certificate. In this situation, the controller must clearly set out the reasons in writing for the refusal. Section 14 offers the applicant a review of the original decision. This involves an internal appeals process in which the reviewer will be of a grade senior to the original deciding officer. The reviewer will confirm or cancel the original decision. Under section 15, an application containing new information may be made in respect of an invention for which a certificate has been refused.
Part 4, containing sections 16 to 24, deals with the administration of the KDB certification scheme. Section 16 allows the controller to authorise officers of the Patents Office to carry out functions under this Bill on his or her behalf. This is typically to allow the patent examiners at the office to examine applications under the scheme. Section 17 deals with the confidential nature of KDB certification applications. As applications will contain commercially-sensitive information, it is essential that they be kept confidential. The controller will not disclose the invention publicly or advertise it in any way. This section also provides that anyone dealing with an application on behalf of the controller will be guilty of an offence if he or she discloses any information submitted in support of the application.
Section 18 provides for an annual report containing statistical information to be provided for the Minister for Jobs, Enterprise and Innovation.
Section 19 is a standard indemnity provision protecting the controller and his staff from legal proceedings as long as they have acted in good faith in the course of their official duties.
Part 5 contains sections 20 to 24, inclusive. Section 20 creates an offence for the forging and use of forged documentation under the Bill. Section 21 enables the Minister to make rules providing for fees and time periods referred to in the Bill. Section 22 creates an offence, whereby an officer of a corporate body that commits an offence is also guilty of that offence. Section 23 is the standard provision concerning the disposal of fees to the Exchequer. Section 24 enables the controller to specify the form of any document referred to in the Bill.
Part 6, containing sections 25 to 30, inclusive, amends a small number of provisions in the Patents Act 1992. The amendments have the effect of reintroducing a substantive patent examination for Irish patent applications. A substantive examination involves the detailed examination of a patent application to assess novelty and the inventive step.
Section 26 is a transitional provision intended to cover the position of patent applications filed under the Patents Act 1992 but before the coming into effect of the amended provisions in the Bill. It clarifies that the new regime will apply to patent applications made after the Bill is enacted. Applications made prior to this date will continue to be processed under the provisions of the Patents Act 1992.
Section 27 amends section 29 of the Patents Act which requires that a report and a written opinion on patentability must be filed with the Patents Office. It is against this evidence that the office will substantially examine the application.
Section 28 which amends section 30 of the Patents Act enables the submission of similar evidence of novelty from a foreign patents office. Section 29 allows the controller to consider observations from third parties on the issue of patentability of an invention.
Section 30 amends section 31 of the Patents Act. It empowers the controller to refuse a patent application that does not comply with the requirements as to novelty, inventive step and industrial application.
I am pleased to commend this Bill to the House. I look forward with interest to the contributions of Members on this and subsequent Stages of the Bill.