2010-08-01|Utility Patents for Technological Advancement in SR&ED

To the Director General of SR&ED Policy

In 2007, I made a submission in Response to "Joint Finance Canada - Canada Revenue Agency Consultation Improving the Scientific Research and Experimental Development Tax Incentives". In my submission, I proposed that CRA accept a "utility patent" as "technological advancement" which is one of the 3 requirements of the SR&ED Tax Incentive Programme.
Since then, I continue to experience violent conflicts again and again with some R&T advisors regarding the definition of "technological advancement" because they regard my projects merely as standard practice of a design change even though it has resulted in a utility patent application (not a design patent application).
I am in an extremely desperate situation after the SR&ED audit and the reassessment project which chopped the SR&ED tax credit so much (by 70 %) that it will be entirely wiped out by the Personal Income Tax, literally turning an incentive into a penalty!!! I wrote a 23-page document to request an administrative second review in order to try to once again justify technological advancement of my projects. Since the Assistant Director of SR&ED denied my request, I am now on the verge of quitting the SR&ED and searching for a different job. Such a dispute, which arises at every SR&ED audit, stems from the following sentence in several of CRA's documents, as listed in the appendix of this message.

Novelty, uniqueness, or innovation alone do not indicate a technological advance.
Some R&T advisors use this sentence as a license to reject patented inventions as merely a design change without technological advancement. Since novelty, uniqueness, or innovation is not a requirement for SR&ED, this sentence actually discriminates against projects having novelty, uniqueness, or innovation. One R&T advisor told me that there must be equations to qualify, even though there was a utility patent application. Moreover, a viewgraph of the SR&ED seminar says "L'innovation ne suffix pas" where "alone" is omitted.
Hence, this particular sentence inadvertently punishes SR&ED projects with innovation content over SR&ED projects without innovation content. I believe that this effect is exactly the opposite of what the creators had intended at the time of inception of the SR&ED Tax Incentive Programme whose mandate was to encourage innovation in Canada. Has the objective of the programme changed over the years, from encouragement for innovation to compliance for the sake of compliance?
Once upon a time, one logical R&T advisor had told me that he regards a utility patent as a "barometer", meaning that any project in which a utility patent application was filed is eligible for SR&ED as long as there are also 2 other requirements for SR&ED, i.e., "technological uncertainty" and "systematic investigation".
I firmly believe that a patent application with 4 criteria (subject matter, novelty, usefulness, non-obviousness) is equivalent to the "technological advancement" of the SR&ED eligibility, as long as the patent application is a "utility patent" and not a "design patent" (which deals with fashion, style, etc.). In order to avoid inconsistent application depending on which R&T advisor audits the project, please accept a "utility patent" (not a design patent) as "technological advancement" by definition for the purpose of eligibility of the SR&ED Tax Incentive Programme.
Case law "Synchrosat Ltd. v. The Queen, 2000 CanLII 476 (T.C.C.)" confirmed the government's intent, explicitly stating: "The purpose of the enactment is clearly to encourage scientific discovery, and invention through research and development. A narrow interpretation of the expression 'carrying on business' would certainly not promote the desired effect."

Here is my concrete proposal to amend CRA's documents. It also corrects an obvious grammatical error in the existing version ("do" -> "does").

PRESENT:

Novelty, uniqueness, or innovation alone do not indicate a technological advance.

PROPOSED:

Novelty, uniqueness, or innovation expressed in an industrial design application (CIPO) or a design patent application (USPTO) does not indicate a technological advance. However, novelty, uniqueness, or innovation expressed in a utility patent application (CIPO, USPTO, etc.) indicates a technological advance.

Incidentally, this minor change may have a beneficial side-effect of increasing utility patent applications by Canadians, especially after the sad demise of Nortel Networks which was by far the largest utility patent applicant in Canada.

PRESENT:
Novelty, uniqueness, or innovation alone do not indicate a technological advance.
PROPOSED:
Novelty, uniqueness, or innovation expressed in an industrial design application (CIPO) or a design patent application (USPTO) does not indicate a technological advance. However, novelty, uniqueness, or innovation expressed in a utility patent application (CIPO, USPTO, etc.) indicates a technological advance.

Such automatic recognition of a "utility patent" as "technological advancement" will not only remove subjectivity by R&T advisors but also streamline the SR&ED Tax Incentive Programme's administration. I would like to point out that NRCC's IRAP and CRA's SR&ED used to have completely different eligibility, completely separate documentation requirement, etc. Now, CRA more or less automatically approves IRAP projects. Also, there used to be a completely separate survey for Research and Development activities by Statistic Canada. Now, Statistic Canada takes data directly from CRA's SR&ED Form (T661). Such consolidations have proven to provide simplicity and consistency for everybody involved. Why not accept a utility patent for technological advancement???

IC-86-4R3 Scientific Research and Experimental Development

Novelty, uniqueness, or innovation alone do not indicate a technological advance.
As noted, novelty or innovation alone in the product or process does not demonstrate that an eligible activity exists.

IC-94-1 Plastics Industry Application Paper

Novelty, uniqueness, or innovation alone do not indicate the existence of a technological advance.

IC-94-2 Machinery and Equipment Industry Application Paper

The paragraph in question continues on to suggest that novelty, uniqueness, or innovation alone does not indicate the existence of a technological advancement.

T4088(E) Rev. 10

Achieving the novelty, innovation, uniqueness, feature enhancement, or increased functionality of the product or process may not in itself demonstrate technological advancement. It is important to describe what advances you made to your existing technology that enabled you to achieve it.
Achieving the novelty, innovation, uniqueness, feature enhancement or increased functionality of the product or the process may not in itself represent technological advancement.

Thank you very much for your attention.

IC-86-4R3 Scientific Research and Experimental Development
Novelty, uniqueness, or innovation alone do not indicate a technological advance. As noted, novelty or innovation alone in the product or process does not demonstrate that an eligible activity exists.
IC-94-1 Plastics Industry Application Paper
Novelty, uniqueness, or innovation alone do not indicate the existence of a technological advance.
IC-94-2 Machinery and Equipment Industry Application Paper
The paragraph in question continues on to suggest that novelty, uniqueness, or innovation alone does not indicate the existence of a technological advancement.
T4088(E) Rev. 10
Achieving the novelty, innovation, uniqueness, feature enhancement, or increased functionality of the product or process may not in itself demonstrate technological advancement. It is important to describe what advances you made to your existing technology that enabled you to achieve it. Achieving the novelty, innovation, uniqueness, feature enhancement or increased functionality of the product or the process may not in itself represent technological advancement.

Go to home page/Aller à la page d'accueil

Go to Weblog/Aller au Weblog

English / Français

Comments/Commentaire

"Sunatori, Go Simon" <GS.Sunatori@HyperInfo.CA>

[Donation/Don, SVP]

Produced in Canada./Produit au Canada.

ISBN 978-0-929105-04-8

2024-12-17T20:37:50.000Z