Intangible assets, such as intellectual property (IP) rights in patents, trade marks and copyright have become as, if not more, valuable to companies than their physical assets. But many small and medium-sized enterprises (SMEs) wrongly assume that IP management is the preserve of big pharmaceutical corporations and other giant multinationals.
Most technology SMEs, as well as their investors, are probably looking for an exit strategy from day one. So it is vital they consider the importance of protecting and managing their innovation as early as possible, and crucial that IP advice forms an intrinsic part of an SME’s business model, supporting their commercial aims.
How to protect your IP
First of all, identify your unique product or service differentiators. Consider carefully what to protect, when and how best to do it, being aware that even if the technology looks good and is patentable, it may not be cost effective to do so.
Assess how your innovations contribute to your commercial goals. You want to protect innovations that are both commercially valuable and highly innovative. Your budget will dictate what you choose to do, but ensure your core concepts or crown jewels are protected.
Many SMEs wrongly assume that IP management is the preserve of big pharmaceutical corporations and other giant multinationals
Check that no other company already holds IP rights over the innovation by carrying out a “freedom to operate” analysis and checking relevant databases.
Then register your IP, remembering that IP rights are territorial. So if you have registered protection in the UK, it only applies here.
If you can, build a strong IP portfolio as this is a far more compelling proposition for investors. But keep it under review and prune it from time to time, ditching patents for earlier unused technology that no longer adds value, though it might be wise to hold on to a US patent.
Where to register?
A common mistake is to file patents in too large a number of countries. Only apply in limited jurisdictions and ask yourself, for example, “Do you really need a patent in Vietnam or Greece?”
For tech inventions you can cover most of the economic world by filing in the US and Europe, and these days China.
If the main aim is an exit, it is a fact of life that a US patent may be all you need. Similarly, for tech companies, a US patent can provide a licence position; that is to say it can get you a place at a table from which you might otherwise be excluded.
Of course, it also gives you a weapon to use if your rights are infringed. However, the US is a slow and expensive jurisdiction in which to take action.
By contrast, the UK has one of the most effective and efficient patent court systems in the world. Because of this it would be a big mistake for a company to ignore patent protection in the UK/EU as a critical part of their strategy.
A key method of exploiting protected IP is to license it for use by others. Your company retains the rights to the IP and it can issue licences to other companies in return for royalties. Consider whether this might be something for your company. Three main types of licences can be granted – exclusive, non-exclusive or sole licences, usually justifying different levels of royalties.
Tax relief: The Patent Box
The UK government recognises the importance and value of IP rights to the economy. As such it has, since April 2013, put in place tax relief for those with qualifying protected IP rights. The Patent Box is a preferential tax regime that reduces corporation tax to 10 per cent for income from the exploitation of patents.
To benefit your company must make a profit from exploiting patented inventions and must own or exclusively license the patents, and must have undertaken qualifying research and development on them in the UK. This may be the creation or development of the patented invention or a product incorporating the patented invention.
Qualifying patents must have been granted by the UK Intellectual Property Office, European Patent Office or certain other countries in the European Economic Area.
Anyone seeking to take advantage of this system should note, however, that it ends in its current form in June 2016, after which it is expected to continue, but in a narrower form.
Build the right team
Having the right team of people and good management is essential. The know-how in employees’ heads can be as valuable as your patent portfolio. Your company should have an entrepreneurial management team and specialist marketing teams, ideally with contacts in large multinationals.
A critical issue is to ensure that if any employees leave, the restrictions in their employment contract mean your company is not exposed to them taking trade secrets, IP, customers and other employees with them. At the same time, onerous restrictions can be challenged in the courts for being unreasonable, so a careful balance must be struck.
Marks & Clerk
Marks & Clerk is the UK’s largest firm of patent and trade mark attorneys. Its sister firm, Marks & Clerk Solicitors, is one of the country’s leading IP legal firms. Our specialists advise clients worldwide on all aspects of IP – from protection to commercialisation to litigation – and across all sectors – from electronics and software to mechanical engineering to pharmaceuticals and biotechnology. Founded in Birmingham in 1887 by George Croydon Marks, a colleague of Thomas Edison, and joined later that year by Dugald Clerk, the inventor of the two-stroke engine, Marks & Clerk has its roots in innovation. Internationally, we have 17 offices across North America, Europe and Asia.
For information about how we can help you, see our website www.marks-clerk.com