Irish firms need to realise they are part of the R&D story, too

18 Nov 2010

History has it that in the sixth century, St Columcille copied a book by another saint called Finnian and a holy row erupted.

Interceding in the row, the wise King Diarmuid made his famous decision: “To every cow its calf and to every book its copy”. This, says Richard O’Connor, a partner at Irish patent attorneys Cruickshank, might be regarded as the first copyright case in history!

So if anyone has any questions about why innovation can find a natural home in Ireland, you can see we started early. Now we just need to keep our focus.

What is R&D?

O’Connor has one of the most interesting jobs in Ireland. If he’s not flying off to Silicon Valley or Singapore to check out some invention or patent, he is managing the intellectual property affairs of many owner-managers of Irish SMEs, not to mention the odd back garden inventor.

He says many businesses here don’t realise that what they do continuously constitutes research and development (R&D).

“The one common feature of most firms I have worked with is they tend to be owner-manager firms, and typically it is the owner and ordinary individuals who usually drive innovation in the company.

“As a consequence, it tends to be easy to dismiss innovation as nothing more than market research or product development. Many don’t realise that what they are doing is R&D.”

O’Connor says that innovation, when it is discussed in Ireland, is usually centred on the activities at third level and of Science Foundation Ireland. “But we don’t necessarily value our own indigenous-based R&D that has been going on forever.”

R&D tax credits

O’Connor points out that many firms don’t grasp how they actually qualify for R&D tax credits. “Many don’t realise that what they are doing might qualify for that relief. Buying a new warehouse management package won’t qualify. However, if you are a food firm that experiments with temperature controls in a refrigerated storage area to see if you can get longer shelf life, that is classic R&D firms do instinctively on a daily basis. They just don’t realise it.”

Under tax rules, firms can get tax relief on the increase in the amount of money they spend on R&D. In addition, patent royalty exemption rules means that income derived from patent royalties remains tax free.

“In business, if you are developing products and services – that’s innovation.

“Work needs to be done to ensure that firms link these activities with innovation. Firms will do everything they can to retain customers but they don’t consider that as a value of itself. That’s innovation,” O’Connor says.

GDP focus

O’Connor thinks that while the €500m Innovation Fund Ireland will help attract venture capital investors, the real focus should be a national objective of 3pc of GDP going into R&D.

“Look at Israel, a country that has a small population and yet punches above its weight in terms of innovation.

“Israel has reached 5pc of GDP going into R&D. It has 125 companies on the Nasdaq stock exchange, Ireland has only three.

“Small countries with a lack of natural resources have to innovate, they have no choice. Ireland is ahead of the curve in terms of tax breaks but we fell behind the curve in investing in innovation.

“The only way to create real wealth is to create new products and sell them. The Innovation Fund Ireland is a good development, but let’s not forget we were behind the curve to begin with and we need a real commitment to a 3pc GDP target for investing in R&D,” O’Connor urges.

“The reality is small businesses are being starved of cash and, as a country, we’ve got to get behind the businesses that have a chance by getting rid of red tape and making it easier to support them. I’ve heard of one company that was turned down for grants because it provided a monthly cash flow statement instead of a quarterly cash flow statement. Surely that would have been better? It’s bureaucratic nonsense and red tape.

“We need to make sure people can innovate. The €5,000 Innovation Voucher Scheme is fantastic but it’s the other things that are not being done that will trip businesses up,” he adds.

John Kennedy is a journalist who served as editor of Silicon Republic for 17 years