Dan Thornton, Associate, Patent Attorney, Mewburn Ellis LLP
Picture the scene – an investor is looking at two SMEs. Each has a strong leadership team, motivated staff, and fresh technology. Both are profitable and have strong business plans to expand, but only the first has any intellectual property rights (IPRs). Only, the first has a pending patent application, with the option open for obtaining patent protection around the world, which protects their key technology innovations. The first also has a trade mark registration protecting their branding that is beginning to gain traction in the market, along with a design registration that protects the unusual look of their primary product line. The second has none of these assets. The first has secured their market, protected a sales premium on their product, and secured their IP into transferable assets. In doing so, the first has significantly improved their investment prospects. Meanwhile the second has shown a good, but comparatively insecure, business proposition.
Evidence for the importance of IP for SMEs is growing. A recent Europe-wide report [REF1] suggests a link between patent and trade mark ownership and success in the SME sector. The central outcome of that report is that:
“[…] ownership of IPRs, specifically patents, trade marks and designs, is strongly associated with improved economic performance at individual firm level. This association is especially strong in the case of SMEs.”
While rightly stopping short of asserting a causal connection between IP ownership and business growth, the report presents several metric boosts for IP-owning SMEs, including revenue and staff salary increases. It’s not difficult to see why this might be.
Why should SMEs prioritise IP?
- Like all business assets, intellectual assets take time and investment to create and develop. Technology, designs, and brands should therefore be protected with IP rights. Specifically, IP can be used to stop or dissuade your competitors from making use of your assets. Secure IP could therefore allow you to enjoy a less competitive field.
- If products or services offer a particular benefit that is not available from any other supplier, then a premium may be charged for that benefit precisely because it cannot be found elsewhere. Without IP, preventing competitors from emulating a benefit at the first signs of commercial success could be impossible. There would be little scope for charging that premium or for standing alone as the sole supplier offering that attractive proposition.
- Many businesses no longer rely so heavily on buildings or inventory for their assets. Their value lies elsewhere – in their ideas, in their technology, and in the minds of the workforce. Though they are difficult to quantify, these assets are what attract investment. An investor will be looking to ensure that they too can capitalise on these assets. To an investor, IP rights give an element of confidence in the assets they are investing in.
- Diversification is a time-tested route to increasing revenue. IP allows one such diversification. For example, licensing IP to non-competing businesses, or selling IP that is no longer of use, are just two examples of directly monetising IP.
- Combining resources through commercial partnerships is increasingly popular. Commercial disagreements also happen from time to time. In a negotiation, adversarial or otherwise, an industry-relevant IP portfolio can be a useful tool. It may put your business in a stronger negotiating position and therefore able to agree preferential terms.
Are SMEs using IP? The latest figures from the European Patent Office (EPO) suggests so [REF2]. In 2020 21% of patent filings at the EPO were from SMEs or individual inventors, up from 18% in 2019. Even in the tough times of 2020, we see that SMEs are increasing their efforts to secure their assets. Furthermore, though there has been a slight decline in total patent filings at the EPO in 2020 (probably attributable to Covid-19), there has been significant 2020 increases in key tech areas. These include many in which SMEs are active, for example medical technology, digital communication, pharmaceuticals, and biotechnology.
Obtaining, maintaining, and growing an IP portfolio is a substantial undertaking. The timescales can be significant, and there is clearly an associated investment required. That said, businesses can take internal steps to ensure they are in the best position to capitalise. One of the most important is creating an IP culture. An IP culture is one that understands that IP is available as a tool and fosters a handful of key principles that support an IP-conscious business.
Critical aspects of an IP culture include the recording and assessment of new ideas. Informed commercial decisions can then be made in respect of obtaining potential IP that is focused on its support of a business model and goals. The importance of confidentiality is also key. It goes without saying that confidentiality is important during the early stages of a business, but a lack of confidentiality can be fatal to IP rights. Understanding this, and particularly the agreements that should be in place prior to disclosing information to third parties, which is of course essential from time to time, is also therefore important.
In summary, most SMEs create new business ideas, technologies, or products. It’s how they bring something different to the marketplace. SMEs also expend significant efforts in seeking, competing for, and retaining customers and investment. IP is therefore an extremely valuable tool to strengthen and support these efforts. It helps an SME to stand out from the crowd and demonstrate that it is the top contender: the one with the transferable assets, the protected market position, and the understanding of the landscape.
[REF1]: View the joint EPO and EUIPO report: Intellectual property rights and firm performance in the European Union]
[REF2]: View the EPO’s 2020 statistics: EPO Patent index 2020]