Now, that decision is less straightforward.
“It adds a whole other layer to it. It becomes a number-crunching exercise now,” Dusi said. “We have a lot of startups in San Diego that are developing their IP. … I think we’re going to see a lot fewer of them moving things.”
For the most part, the changes would affect companies with some revenue stream and value to their patents, rather than startups in the earliest stages.
Kyle Welch, licensing manager for San Diego State University’s technology transfer office, said he had not seen any effect in the startups, licensees and research groups he works with.
“Most startups using university IP are pre- or low-revenue, so the idea of holding IP overseas for a tax break would be more burdensome than it’s worth in most cases,” he wrote in an email. “I suppose it could be a consideration for some of those partners when deciding where to file patents, but I have not yet seen it.”
Will They Move IP Back to U.S.?
While the changes might be enough to deter some companies from moving their IP overseas, Dusi said it’s still not enough of an incentive for most companies to move their patents back to the U.S. For instance, those organizations might still face taxes from the country where they moved the IP.
“For a lot of these where you’ve moved (the patent) and the value’s already grown, there’s a lot of challenge there from an exit tax perspective,” he said. “I don’t think we’re going to see a lot of companies that are bringing it back without doing a lot of modeling.”
Kevin Buckley, founder of Torrey Pines Law Group, said companies might have other, more pressing reasons for filing a patent overseas than taxes. For example, biotech startups might look to establish a corporate vehicle overseas for clinical trials or contract research, in addition to holding their patents.
“You file a patent application in wealthy countries where there’s going to be a market for your goods and where you’re going to block competition,” he said. “You file a patent in the U.S. because this is where the market is.”
U.S. Market Considered Most Important
Shihong Nicolaou, intellectual property manager for UC San Diego’s office of innovation and commercialization, said the policy changes have had little impact on the office’s IP strategies, adding the U.S. market was already considered the most important for their clients to secure business and investment.
“It is critical to have the IP protection in U.S., and to possibly extend to other territories,” Nicolaou wrote in an email. “All of the companies we work with would want to secure U.S. patents right across the board.”
Regulatory uncertainty is another important ingredient in the end decision of whether or not to move IP. Buckley said if tax rates increase under the next administration in 2021, it would become very expensive to move the IP again.
“I think people who have their IP overseas in holding companies are keeping it there. People who have it here are keeping it here,” he said. “I think people are going to take a wait-and-see attitude. Why not wait two years?”
Startups and software reporter Elise Reuter can be reached at firstname.lastname@example.org or at 858-277-6971