A new study released by the European Patent Office (EPO) and the European Union Intellectual Property Office (EUIPO) has found that small and medium-sized businesses, which own at least one intellectual property (IP) right, are 21 percent more likely to experience a growth spurt. They are also 10 percent more likely to become a high-growth firm. So why aren’t more early-stage businesses protecting their IP?
According to the study, only nine percent of SMEs in Europe own registered IP rights, compared to 40 percent of larger companies, which is disappointing considering the potential commercial benefits they could be missing out on. The latest statistics from the EUIPO about the origin of patent applications made in 2018 has revealed that UK businesses filed fewer than their counterparts in the US, Germany and Japan. In fact, the UK came only ninth in the list of top-filing nations.
Lack of awareness is often cited as a key reason for this under investment in IP by SMEs. However, it is also possible that some innovation-led businesses are more focused on developing early-stage concepts than they are on scaling their activities and placing them in large-scale production. This focus on innovation could be causing them to overlook the benefits of IP protection especially in bigger, international markets. Either way, failing to protect their IP assets could have serious commercial consequences, as well as undermining the UK’s economic growth.
Realising growth potential
For SMEs the benefits of IP protection are considerable. Small businesses can use IP rights to protect their business model at different stages of development and to support them in realising their growth potential. At concept stage for example, the business can rely on ‘trade secrets’ to protect any market-sensitive formulas or recipes. After investing in an R&D programme, the business should consider filing patent applications to protect their innovation – once granted, each will give them a 20-year period of exclusivity during which to leverage the value of their innovation to the full. It is also important to seek protection for the invention before disclosing it to any third parties or bringing it to market, as such disclosure could render it unpatentable.
Preferably prior to market launch, the business should consider whether the aesthetics of their innovation require protection to prevent rivals from copying the appearance of their product. Registered designs are generally granted more quickly than patents, so this type of IP right could be used to facilitate a speedy market entry where necessary. Trade mark registration is also vitally important and should be obtained at an early stage to protect the brand name and identity of the business. Depending on the success of the company’s product or service offering after market entry, these assets could increase in value significantly.
Using your IP rights
As an owner of IP rights, SMEs can use them to prevent rivals from copying their innovation or its design, and to protect their brand. It is important when seeking any form of IP protection to think ahead and consider any markets where the business might seek to expand in the future. Even if the business is focused solely on its domestic market for example, it may be worth considering filing for protection in other territories, in case a decision is taken to license its IP to third parties overseas in the future.
Licensing deals can be a lucrative option for lean, innovative businesses that want to avoid the need to invest in global expansion. Instead, they can stay focused on what they do best whilst benefiting from a new revenue stream of royalty payments. Some businesses may choose to structure their business model around such licensing deals, in which case, IP rights ownership has a vital role to play in de-risking agreements with third parties and strengthening investor confidence.
Bundling makes sense
Rather than just relying on one form of IP protection, businesses should consider building a multi-faceted portfolio of rights, giving them robust commercial protection, for as long as possible.
Many businesses have found that bundling IP rights together in this way has allowed them to fend off infringers seeking to exploit their innovations in the same markets or overseas. By layering different forms of IP protection, it may also be possible to extend the term of commercial protection well beyond the typical 20-year period, which typically accompanies a granted patent, for example. Taking this approach, even if the original patent or patents expire, the business is likely to have other IP assets, such as trade marks, trade secrets and other know-how to defend their market position.
Interestingly, the study confirms the value of bundling for SMEs, as accumulating a portfolio of different IP assets indicates they are more likely to achieve high growth. In fact, the findings show that SMEs with a collection of patents, trade marks and registered designs are 33 percent more likely to achieve high growth in their chosen market.
Benefits for hi-tech and low-tech
Some small and medium-sized businesses may think that IP rights are only intended for hi-tech companies operating in dynamic fields of R&D such as consumer electronics and telecommunications, where global competition is intense. Whilst IP is certainly very important to businesses in these sectors, in some ways low-tech companies could benefit more.
The study’s findings reveal that low-tech businesses, operating in fields such as food production, textiles and other niche areas of manufacturing, which own at least one European IP right, are even more likely than their hi-tech counterparts to evolve into a high-growth firm. This could be because low-tech businesses tend to be operating in markets where ownership of IP rights is less prevalent and therefore its potential commercial value is accentuated.
Based on this study, it is clear that all SMEs should consider IP protection a core part of their growth strategy. By bundling rights together and seeking protection in the relevant geographies from the start, businesses will be better placed to secure investment and scale successfully, optimising value from their activities as they go.
Karl Barnfather is chairman at European intellectual property firm, Withers & Rogers. Karl has been recognised as ‘one of the UK’s top strategists’ in the latest Strategy 300 report, published by IAM magazine.