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Chapter CIRD220325

Document Cited in Related
Vincent
Published date11 March 2016
Record NumberCIRD220325
Example 3A: Licence of software

Company Y holds a patent that includes a claim to a computer program. It licences to a distributor the right to copy, reproduce and sell software corresponding to the computer program, and in return receives a royalty from the distributor. The income under the licence agreement will be relevant IP income under Head 2.

The licence agreement also provides for Company Y to run a training course for the distributor’s salesmen. Since this is a supply of services, the income will not be relevant IP income.

The company must therefore apportion the total income in accordance with the mixed sources of income rules(S357CF, CIRD220290).

Example 3B: Maintenance and updates relating to licensed software

Extending example 3A, under the same licence agreement, Company Y also grants the distributor the right to sell maintenance contracts under which the end users will receive software updates and a support service. Company Y would provide the software updates and perform the support services. The right to sell software updates is not granted in respect of qualifying IP rights but is granted for the same purpose as the licence over the qualifying IP right in respect of the main software product so the royalty income is relevant IP income under Head 2 (S357CC(6)).

However, the income derived from the commitment to provide support services to the end user would not be relevant IP income. Company Y must therefore apportion its income in accordance with the mixed sources of income rules.

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Example 3C: Licence of software via a distributor where no IP rights are granted to the distributor

Company Z holds a patent that includes a claim to a computer program. It appoints a distributor for the distribution of software corresponding to the computer program but no IP rights are granted under the distribution agreement. The distributor is remunerated by retaining a percentage of the...

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