|Turning Hong Kong into a Regional Innovation and Technology Hub|
The innovation, technology and creative industries have good reasons to celebrate at the start of 2012 as last year has seen some fruitful developments of those industries considering the keen promotion of IP trading, the introduction of an extended tax deduction regime, a comprehensive review of
While the Chief Executive continued to show his support for the innovation and technology as well as cultural and creative industries in his 2009/2010 and 2011/2012 policy addresses, the Financial Secretary has, in his 2010/2011 Budget, also announced the development of Science Park Phase 3 and proposed extending the current tax deduction regime for patent rights and industrial know-how to registered trademarks, copyrights and registered designs (“specified IPRs”) to promote wider application of intellectual property (“IP”) by enterprises and the growth of creative industries.
Promoting IP Trading
After his appointment as the new director of the Intellectual Property Department (“IPD”) on 30 March 2011, Peter Cheung Kam-fai has been an active advocate to foster the development of IP trading in Hong Kong, i.e. the buying, selling and transferring of IP rights under agreement. Several forums on IP trading have been held in 2011, namely IP Management and Business Opportunities - Trademarks and Company Registration, Software Asset Management and IP Trading Seminar (20 September); Mainland, Hong Kong SAR and Macao SAR IP Symposium (15 November) and Business of IP Asia Forum (2 December). IPD is truly sparing no effort to develop Hong Kong into a regional IP exchange hub and this matches Peter Cheung’s vision to utilize IP rights as a driver for the commerce and economic development for Hong Kong.
Review of Hong Kong’s Patent System
“Forum on the Future Development of Patent System in Hong Kong” was held by IPD on 28 February 2011 to collect views of academics, patent practitioners, owners, users and other stakeholders as to whether and, if so, how the existing patent system should be enhanced. In view of the Government’s vision of developing Hong Kong into a regional innovation and technology hub, a public consultation paper was then published in October 2011 and a three-month public consultation was launched. In the consultation paper, a detailed overview of the current patent system is provided and the following reform proposals are discussed:
1. Hong Kong should have its own independent “original grant” patent (“OGP”) system, i.e. patent application can be filed direct with the local patent office without first applying in the three overseas patent offices; any relevant substantive examination can either be done in-house or outsourced.
2. A dual system of “re-registration” and OGP can be adopted; alternatively, “re-registration” system should be refined by expanding number of designated patent offices.
3. For short-term patents, proposed changes are: (a) introducing substantive examination mechanism on an invention’s patentability prior to grant, (b) extending the maximum term of protection, (c) relaxing the number of claims that may be included in an application and (d) lowering the patentability criteria.
4. A regulatory regime for providers of patent agency services including patent attorneys/agents should be established.
Following 2010-2011 Budget initiative in respect of profits tax reduction for specified IPRs, Inland Revenue (Amendment) (No. 3) Ordinance 2011 was passed by the Legislative Council on 7 December 2011 and came into effect on 16 December 2011. The existing provisions would be amended such that:
1. the “use in Hong Kong” condition would be removed (section 16E(1));
2. sale proceeds for patent rights and rights to any know-how (“patent rights”) (or specified IPRs) to be brought to tax would be capped at deductions previously allowed; and
3. legal expenses and valuation fees incurred in connection with patent rights (or specified IPRs) can be allowed for tax deduction (section 16E(1A)).
To qualify for the tax deductions, the following points must be noted:
1. the specified IPRs should be registered (designs and trademarks) and should subsist (copyrights) (sections 16EA(6)(b), (c)&(d));
2. taxpayers must have acquired the “proprietary interest” of the specified IPRs;
3. the specified IPRs must be in use for the production of chargeable profits (section 16EA(6)(a));
4. for specified IPRs partly used in the production of chargeable profits, only a proportionate part of capital expenditure to the extent of use of the specified IPRs in producing such profits is allowed for deduction (section 16EA(7));
5. deductions will not be allowed for specified IPRs purchased wholly or partly from an associated party (section 16EC(2)) or under “sale and licence back” and “leveraged licensing” arrangements (sections 16EC(4) to (7)); and
6. no deduction will be allowed if a taxpayer terminates the licence before its expiry and purchases the specified IPRs at unreasonable consideration (section 16EC(1)).
Hong Kong Science Park Phase 3
In light of the almost saturated leasing rate of Hong Kong Science Park (“HKSP”) Phases 1 and 2, the development of HKSP Phase 3, with an estimated expenditure of HK4.9 billion, was announced in 2010/2011 Budget. The ground breaking ceremony on 15 December 2011 signified a new era for HKSP and a step forward for Hong Kong in becoming a major international centre of innovation and technology development. Focusing on developing environmental and renewable energy technologies, Phase 3 will take up a site area of 6.3 hectares which will increase research and development space at HKSP by some 50 per cent. It can accommodate an additional 150 companies and will be home to some 4000 scientists, engineers and technicians upon its completion in phases between 2013 and 2016. It is estimated that Phase 3 will contribute HK$5.35 billion to Hong Kong’s GDP from 2014 to 2019 and HK$1.9 billion per year from 2020 onwards.
Looking at the statistics of applications for registering trade marks, patents and designs in Hong Kong for 2011, one would notice a trend that most applications are on the rise. With Government’s unfailing support for innovation, technology and creative industries as well as IPD’s concerted efforts in promoting IP trading and implementing various encouraging measures for growth of IP, it is without doubt that Hong Kong is making headway to become a regional innovation and technology hub and the launching pad for research and development operations for local and overseas investors. It is hoped that Hong Kong’s position as Asia’s innovation, technology and creative hub can be maintained and consolidated in year 2012.
The law and procedure on this subject are very specialized and complicated. This article is just a very general outline for reference and cannot be relied upon as legal advice in any individual case. If any advice or assistance is needed, please contact our solicitors.
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