1

I need an in-house lawyer's perspective on why some patents are sometimes re-assigned to subsidiaries, but still technically owned by the parent company. For example, Company A may re-assign ownership of a particular patent 3,333,333 to Company A subsidiary 1. I've seen some patent assignment documents in which firms do this. Is there an economic or legal reason/incentive for doing this?

2

Yes, there are economic reasons for this. I can give a few, but it really is impossible to answer completely.

Tax

The ultimate aim can be unrelated to the IP at all, but simply for tax avoidance.

Broadly, companies are taxed on their profits. Expenses reduce profits, and therefore reduce the tax due. But if the expense comes from within the corporate group, the corporate group is not worse off as a whole: it is just shuffling money around.

So, say a group has two companies, Company A (in a high tax jurisdiction) and Company B (in a low tax jurisdiction). All the IP is transferred to Company B. Company A pays a licence fee to company B for use of the IP. This reduces the taxable profits for company A, so company A pays less tax to the high tax jurisidiction. The licence fee is income for Company B, so it may be taxed in company B's jurisdiction, but at a much lower rate. But the group as a whole is still better off.

This is the basic concept, but in reality it will be much more complex.

Hiding assets

Competitors may want to know your IP portfolio, to work out what your future plans are. This is because patent applications are published at 18 months from filing, whereas the official announcement may still be years down the line. So by transferring the IP to one or more subsidiaries which are not obviously linked to the parent company, it can make the job much more difficult for competitors than a simple name search.

Encapsulation

Each subsidiary may be generally standalone. So it makes sense for the IP to be held by that subsidiary, rather than the parent company. This is so that if the subsidiary is ever spun out or sold off, the IP goes with it. This is quite a simple reason, and is generally for ease of administration than anything else.

  • Thanks, Maca. Is there a source I can cite that briefly discusses this? – kurofune Jan 8 '16 at 18:36
  • The Wikipedia page on the Double Irish arrangement gives some background on the tax one. I could not find a source for the rest, as they are based on my anecdotal experience (which, I admit, makes this answer sub-optimal). – Maca Jan 9 '16 at 13:00

Your Answer

By clicking "Post Your Answer", you acknowledge that you have read our updated terms of service, privacy policy and cookie policy, and that your continued use of the website is subject to these policies.

Not the answer you're looking for? Browse other questions tagged or ask your own question.