The UK Government’s Department for Business, Innovation, and Skills (now for Business, Energy and Industrial Strategy) recently published the results of its 2015 UK Innovation Survey, which show that whilst the number of innovative businesses in the UK has increased, surprisingly few of these entities are seeking to formally protect their innovations.

In 2012-2014, more UK businesses were innovative than in 2010-2012 (53 per cent versus 45 per cent). An enterprise was considered “innovation-active” if, during the three-year survey period of 2012-2014, it did any of the following (excluding expenditure and activities linked to innovation):

  • introduced a new or significantly improved product or process;
  • engaged in innovation projects not yet complete or abandoned; or
  • acquired new and significantly improved forms of organisation, business structures or practices and marketing concepts or strategies.

Unsurprisingly, the proportion of innovation active large companies was greater than the proportion of innovation active SMEs (61 per cent versus 53 per cent). The production sector was the most innovation-active, with all industries in this sector showing significant increases since the previous survey in 2013. For example, 71 per cent of businesses manufacturing electrical and optical equipment were innovation active, compared to just 62 per cent in the 2013 survey. Innovative businesses were also found to be more likely to export, with 27 per cent of innovators reporting being involved in exportation compared to only nine per cent of non-innovators.

Respondents of the survey, which sampled 15,091 UK businesses with 10 or more employees, were also asked to consider the main factors driving and constraining innovation. Top factors driving innovation included “improving quality of goods or services” (33 per cent), “replacing outdated products or processes” (32 per cent), “increasing range of goods or services” (29 per cent) and “increasing market share” (26 per cent). The main factors constraining innovation included “availability of finance” (17 per cent) and “direct innovation cost too high” (15 per cent).

Despite clear indications that more UK businesses are now innovation-active, it is concerning that a corresponding increase in the number of innovations being formally protected by way of patents, design registrations etc. has not been observed (although, admittedly, the response rate to survey questions relating to protection of innovations was quite low). Rather, it seems that businesses are choosing to protect their innovations by keeping them secret or relying on their complexity. This means that a growing number of new UK inventions are vulnerable to exploitation by third parties. Furthermore, innovators are missing out on the opportunity to grow the value of their companies due to this failure to protect their intangible assets.

It is noteworthy that as many as 10 per cent of businesses considered “market dominated by established businesses” to be the most important factor constraining their innovation. How is it, then, that some businesses have become so established? Does intellectual property have a key role to play in the growth of a business?

A topical example of a UK company that invests in patents and other forms of intellectual property to protect its innovations is the Cambridge-based company ARM, which designs microchips that are used in numerous electronic devices, including over 90 per cent of the mobile phones worldwide. The key to ARM’s success is simple: it designs state-of-the-art microchips, protects the intellectual property arising from these innovations, and then secures licensing deals with vast numbers of microchip manufacturers across the world. ARM, which is soon to be bought by the Japanese company Softbank, was recently valued at £24.3 billion. Even though ARM does not manufacture or sell microchips itself, it has grown into a company of considerable value and it is quite clear that patent protection has played a huge role in achieving this outcome.

There is no doubt that the current economic climate is a tough one with significant uncertainty. Despite this, the BIS survey has shown that innovation is clearly on the increase in the UK. Innovators need to think carefully, however, about protecting key inventions if they want to maximise the commercial benefit of their innovations and prevent their advances being copied by competitors.