Life Sciences A to Z - R is for research and development

Life Sciences A to Z - R is for research and development

Life Sciences A to Z - R is for research and development

Research and Development (R&D) refers to a specific project aimed at developing new products or processes that make an advance in science or technology. Commonly, carrying out a full R&D project is beyond the capabilities of a single entity, either because it does not have the capital investment required or because it lacks sufficient technical expertise. Consequently, R&D projects often involve a collaboration between two or more enterprises that together enter into an R&D agreement.

Successful R&D projects can generate substantial rewards for both commercial and academic organisations, not least because the UK government has made available various tax reliefs and capital allowances for R&D projects with the intention of encouraging innovation. However, there are considerable risks involved in R&D projects, which should be mitigated in a carefully-drafted R&D agreement.

Some of the key issues that collaborators should consider when entering into an R&D agreement are discussed below.

Objectives

Although R&D collaborations are most common among organisations within a particular sector, links between industry and higher education institutions have grown in recent years. Where R&D agreements are entered into between universities and industry, the parties are especially likely to have differing objectives throughout the process.

It is important to consider each party’s objectives before entering into an R&D agreement. In this context, a university is typically primarily concerned with securing financial support for high quality research, the results of which can subsequently be published to raise its profile and attract increased public funding and prospective students/staff.

On the other hand, industrial collaborators’ primary focus usually relates to accelerating innovation through access to external expertise, particularly in fields outside the experience of its own research staff, and generating valuable intellectual property (IP) rights capable of commercial exploitation.

Ownership and exploitation of IP rights

Where both parties are industrial collaborators, ownership of resulting IP rights will be determined by the participants' respective businesses and bargaining power, as well as the nature of the project.

Likewise, there are no set rules on the ownership and exploitation of IP rights arising from R&D collaborations between industry and academic institutions. To address this, the Lambert Review of Business-University Collaboration (2003) proposed an IP protocol for negotiations between such parties, the main features of which were as follows:

  • As a starting point, universities should own any resulting IP, with industry free to negotiate licence terms to exploit it. However, an industrial partner could own the IP if it makes a significant contribution.
  • Regardless of who owns the IP, the following conditions should be met:
    • The university is not restricted in its future research capability
    • All applications are developed by the company in a timely manner
    • The substantive results of the research are published within an agreed period

In 2016 the UK Intellectual Property Office published an enhanced version of its Lambert Toolkit, a set of model agreements and decision-making tools designed for collaborative projects involving industry and research institutions, to help overcome barriers to the commercialisation of intellectual property generated by universities.

In reality, provided that each party obtains the necessary rights it needs under licence, ownership of rights may not be a crucial issue. However, it is crucial at the outset of any R&D project to ensure that all IP rights will belong to the commissioner of any third party works.

Confidentiality

The R&D agreement should also deal carefully with confidentiality obligations relating to technical information generated both before and in the course of the R&D project. This can be a particularly challenging issue during negotiations between universities and industry as conflicts often arise between the need for commercial confidentiality and the university or individual scientist’s objective of publication.

Parties should ensure that no confidential information is disclosed without an appropriate confidentiality agreement having been signed. Where work commences before a formal R&D agreement is signed, an interim confidentiality agreement should be in place to bind the parties until the main agreement is signed.

Critically, the commercial collaborator should consider incorporating a publication reporting provision in the R&D agreement. This allows the business to file patent applications in respect of an invention prior to its publication by the university, and prevent premature public disclosure in order for the invention to remain patentable.

Incentives

Though R&D projects can be complex and therefore expensive, R&D tax reliefs play a key role in incentivising investment by reducing the costs of innovation. There are two key tax reliefs available for such expenditure in the UK:

  • Corporation tax relief for expenditure on R&D, of which there are two categories:
    • Relief for small and medium-sized enterprises
    • Expenditure credit, primarily for large companies
  • R&D capital allowances for capital expenditure

The UK government recently announced a review of these tax reliefs in the 2021 Budget. This consultation will explore the nature of private-sector R&D investment in the UK, how that is supported or otherwise influenced by the R&D relief schemes, and where changes may be appropriate. It is hoped that changes resulting from the review will ensure that the reliefs remain up-to-date, competitive and well-targeted.

Along with the tax reliefs above, companies can elect into the Patent Box to apply a lower rate of corporation tax, which is 10%, to profits earned from its patented inventions. As the standard UK corporation tax rate is set to rise from 19% to 25% from 1 April 2023, the Patent Box will effectively provide an even greater tax relief benefit to qualifying companies.

For more information on the Patent Box and UK R&D tax reliefs consultation please see our recent article here.

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