29 February 2024

Intellectual property for SMEs and start-ups: adding value and encouraging growth

The recent economic uncertainty has presented small and medium-sized businesses (SMEs) and start-ups with a difficult and competitive environment in which to operate but the ongoing need to pay careful attention to intellectual property (IP) remains important for such businesses to grow and remain successful.

Many SMEs and start-ups regularly develop new and innovative products, creative designs and brands. It is important that those companies recognise the potential to obtain intellectual property (IP) protection in their work. IP, particularly registered IP such as patents, trade marks and designs, are an asset associated with a tangible value that can help drive business growth and improve company image and standing in a competitive marketplace. We therefore encourage and assist SMEs and start-ups to take steps to ensure that IP is properly understood and protected to establish or maintain a market presence and safeguard a competitive advantage.

During challenging economic periods, coupled with a lack of awareness or a belief that the process for registration of a patent, trade mark or design is too complex or unaffordable, an SME or start-up may fail to act or adequately protect their IP. There may also be a concern that the cost to enforce intellectual property rights outweighs any benefit in obtaining protection. Whilst the law surrounding the protection of intellectual property can be complex, it is still important for SMEs and start-ups to remember that intellectual property can provide a significant commercial advantage and need not become an unrealistic cost burden when managed effectively. At Venner Shipley we encourage and assist SMEs to establish and prioritise an effective IP strategy.

New products and processes take time and effort to develop. That investment should be secured to prevent or at least deter competitors from essentially copying or otherwise making use of those products and processes to reduce competition and protect profits. A patent provides an SME or start-up with an exclusive monopoly to exploit an invention for a period of up to twenty years. Excluding competitors from the market for such a long period of time means that an SME or start-up can prevent others from commercialising the patented invention and may be able to charge a premium for their products. By reducing competition, a patent may enable an SME or start-up to establish itself as a market leader resulting in a higher return on its investment. The protection of innovation therefore encourages SMEs to invest in further development and drives continuous improvement.

An IP portfolio reduces risk and can help secure funding as it attracts investors and other potential partners who look for innovative companies that have robustly protected their technological developments and ideas which demonstrates that the SME or start-up has a high level of knowledge and expertise and a commitment to innovation. It provides reassurance to investors that their investment is unlikely to be influenced by competitors and increases the expectation that their investment will be safe.

IP can be leveraged in different ways and ownership can provide an SME or start-up with an opportunity to seek revenue from licensing to other companies. Furthermore, IP can be sold to non-competing businesses to generate a new revenue stream.

Patents can be used as a negotiating tool when an SME or start-up is seeking to acquire the right to use a patent belonging to others. For example, an SME or start-up may not have freedom to operate (FTO) due to the presence of an existing patent but FTO issues can often be resolved with a commercial agreement if there is an IP portfolio in place.

Patent databases can also be a valuable tool for SMEs and start-ups. A search of existing patents and patent applications can reveal information relating to competitor activity and may help focus design and development efforts to ensure that time is not being spent ‘inventing’ something that has already been developed and captured in a published patent specification. Reviewing existing patent literature can also assist in the generation of new ideas and act as a catalyst for further improvements to existing technology. Identifying existing patents belonging to others that are still enforceable and guarding against possible infringement of any such patents is also of crucial importance.

Consumers are increasingly brand aware and rely on trade marks to identify the source of a product or service. A trade mark is often a key factor in a consumer’s purchase choice and can create a strong brand identity and differentiate an SME from its competitors. By registration, an SME or start-up may obtain exclusivity to that mark and maintain a competitive edge by preventing competitors from taking advantage of the goodwill and reputation that may have developed in relation to a particular brand name associated with an SME.

The visual appearance of a product can influence consumers into making a purchase and can sometimes even be more important than how well that product fulfils its function.  A registered design is a cost-effective form of protection and provides a monopoly over a distinctive design and visual appearance to prevent or deter others from using the same or overall similar design.

SMEs and start-ups should also be aware of the generous tax incentive provided by the patent box scheme. An SME electing into the patent box scheme may potentially qualify for a reduced corporation tax rate of 10% on profits attributable to innovative products or processes that they have protected by a patent. Over the life of a patent, the saving in corporation tax for a profitable product can be considerable and outweigh the initial costs involved in obtaining protection.

In summary, SMEs and start-ups should understand and recognise the value of their IP and have an effective strategy in place for fostering and protecting it if they are to maintain a competitive edge and secure their market position in a competitive environment.

Venner Shipley have broad experience in helping start-ups and SMEs develop an IP strategy and help them protect their IP in a cost-effective and commercially focussed way.