Intellectual property (IP) rights are intangible assets which protect ideas and brand value. IP rights are dealt with like other forms of property, and can be licenced, sold or mortgaged against. There are several different types of IP, including trade marks, copyright and registered designs, but this article focuses on patents, which are used to protect new products and processes.
According to figures published by the UK Intellectual Property Office, the UK was the 6th largest jurisdiction in the world in terms of the number of patents in force in 2014. However, only 7% of these patents were filed by UK-based applicants. The UK therefore lags far behind other countries, like Germany, the US and South Korea, which have a much higher proportion of domestic applicants.
This leads to the question: why are UK firms so reluctant to protect their inventions using patents? Some potential applicants may be put off by the complexity of the patent system and the costs associated with it (although there are a range of different grants and funding options available for SMEs to help offset the cost of obtaining IP, and cost-effective enforcement is possible through the specialist Intellectual Property Enterprise Court).
Another potential reason could be that many businesses are simply not aware of the less obvious benefits of patents, which are not always well-advertised. We aim to combat that with this article, which explains ten ways that patents can help your business.
1. Protecting your investment in R&D Perhaps the most obvious way that patents can help a business is by preventing competitors from copying their innovations. If you have a patent granted for an invention, third parties will be unable to exploit it and freely benefit from the time and money you have invested in research and development.
2. Securing exclusivity and market position On a related note, stopping competitors from exploiting your invention can allow you to establish a dominant market position and brand reputation.
It isn’t always necessary to wait until a third party starts marketing an infringing product before enforcing your patent right – in some cases the courts can grant an interim injunction to pre-emptively stop a potential infringer from entering the market to begin with. Merely having a patent can also act as a deterrent even without legal action, as the possibility of litigation might be enough to put off more cautious competitors (although care must be taken not to make groundless threats if you wish to make third parties aware of your patent).
Obtaining a portfolio of patents in other countries can also pave the way for entry into international markets, giving your product a head start over local rivals.
3. Creating a positive reputation Having a strong patent portfolio can demonstrate a high level of innovation, expertise and technological capability. The positive reputation that results from this may be valuable in attracting customers as well as investors.
4. Attracting external investment As well as demonstrating a high level of innovation, patents are also attractive to investors because they provide more certainty of a return on their outlay, by ensuring that revenue from a successful product won’t be lost to copycats. The long period of exclusivity granted by a patent (20 years) affords ample time for any investment to be recouped.
5. Improving acquisition offers Some start-up founders might find themselves in a position where they are no longer able to take their business forward and wish to sell the company to or merge with a larger organisation. Strong IP rights can make a start-up more valuable and therefore more commercially attractive to potential buyers, for the reasons given above.
Unlike the physical property of a company, patents are unique assets which cannot be replicated, so in some cases buyers may be more interested in acquiring an IP portfolio than a company per se.
6. Increasing company value ahead of IPOs On the other hand, a start-up may grow to the point of offering shares on the stock market. In this case, again, IP assets can make a significant contribution to the overall financial value of a company, increasing the amount of money that can be raised during an initial public offering. There is a strong correlation between innovation and company value, and a solid patent portfolio provides good evidence of a company’s innovation.
7. Joint ventures and collaborations Sharing expertise and resources with a partner can enable companies to co-develop new advancements using each other’s technologies. Patents can act as a legal scaffolding around which joint ventures and R&D partnership contracts are constructed, to clearly define what is being shared and what is not. Without patent protection, larger partners could take advantage of a smaller innovator by taking the technology and developing it on their own, with the original inventors losing out on any rewards or compensation.
8. Licensing Patent owners may wish to grant permission for a third party to use their invention in return for royalties. Licensing can be great for start-ups who don’t have the money or facilities to manufacture or market a product themselves, while still retaining commercial benefit from the invention. Licensing can also be useful in international markets to take advantage of the knowledge of local distributors.
In some cases, it may be possible to negotiate cross-licences for patents owned by competitors. This is particularly important in cases where patents held by two different companies have overlapping scope, and so neither company has freedom to operate without a licence from the other.
9. Tax relief The UK government operates a tax relief program for patented inventions, called Patent Box. Through this scheme, a lower rate of tax is available for revenue generated directly from a patented invention. This can provide significant savings for businesses selling patented products in high volumes, which can more than offset the cost of obtaining the patent.
10. Defending against attacks from larger rivals Start-up ventures may occasionally be founded on a new development of an existing technology, rather than a brand new technology. This can leave growing companies vulnerable to litigation by larger, corporate owners of patents covering the underlying technology. If a large proprietor seeks an injunction to prevent the use of their patented technology, this will also block the use of any new developments of the technology, which could be fatal for a start-up company relying on being able to exploit their own new developments. By patenting their developments, smaller businesses have some means to defend themselves in such a situation, by counter-suing and negotiating a settlement.
Conclusion: Hopefully you are now convinced that IP should be an integral part of your business plan and must not be neglected! Patents, in particular, can provide substantial benefits to an innovating business, as they can:
- protect your R&D investment;
- secure market position;
- be sold, licensed or borrowed against;
- increase company value;
- create a positive company image;
- form a basis for joint ventures and collaborations;
- reduce your tax bill; and
- defend against attacks from rivals.