Growing companies often rely on equity finance to secure their business plans, but this can be challenging, especially when market demand is difficult to predict.
Adrian Tombling, partner and patent attorney at European intellectual property firm, Withers & Rogers, explains how investing in intellectual property (IP) protection can help businesses to unlock the finance they need.
The Government has recently published a report offering advice to businesses about leveraging IP assets and using online tools. Among the resources featured is a tool offering advice on using IP to secure investment.
A 2019 study, released by the European Patent Office (EPO) and the European Union Intellectual Property Office (EUIPO), found that small and medium-sized businesses which own at least one IP right are 21 percent more likely to experience rapid growth. However, the study found that only nine percent of European SMEs owned registered IP rights, meaning many businesses have been missing out on the benefits they can provide.
Often, lack of awareness is the core reason behind this under investment, but this is not the only cause. Innovation-led businesses might also be more focused on developing early-stage concepts than they are on scaling up their activities for widespread production, both domestically and internationally. As a result, IP protection can be overlooked. Not only could this stop a company reaching its true commercial potential, but it could also undermine the UK’s economic growth.
While IP protection provides considerable benefits to businesses of all sizes, for SMEs it can be the ticket to becoming a high-growth firm. Securing IP rights at each stage of development is vital. At the concept stage, ‘trade secrets’ can be used to protect market-sensitive information and then following investment in an R&D programme, filing patent applications should be considered to protect the innovation from copycat competitors. Once granted, patents provide a 20-year period of exclusivity, enabling the business to reap the commercial benefits of their innovation.
Before bringing the product to market, businesses should consider whether the appearance of the product requires protection. Registered designs are usually granted quickly, enabling quicker market entry, if necessary. Trade mark registration is also crucial for protecting the identity of the brand, from names to packaging.
When a company is starting out, it may seem overly optimistic to think about future expansion plans. However, when it comes to IP protection, it’s always important to consider any markets that the business may want to enter in the future.
When planning to export to other markets for the first time, securing additional funding in advance is vital, and IP assets can help businesses to secure finance on more favourable terms. Filing for protection in a range of territories can also make licensing IP to third parties a much simpler process.
For innovative businesses that aren’t planning to invest in global expansion, licensing deals can be a lucrative alternative, creating a new revenue stream without the company having to divert from their chosen focus. Should a business decide to structure itself around licensing deals, IP rights become even more important, de-risking third-party agreements and boosting investor confidence.
A combination of IP rights can produce a strong portfolio, providing robust and long-lasting commercial benefits. As well as enabling businesses to keep infringers at bay, layering different forms of IP protection can also help to extend the term of protection beyond the usual 20-year period. For example, even if a patent were to expire, trade marks, trade secrets and other IP assets would ensure the product could continue to be protected from competitors.
Bundling rights can also help businesses to achieve high growth. The EPO and EUIPO’s study found that SMEs with a collection of patents, trade marks and registered designs are 33 percent more likely to achieve high growth in the market of their choice.
IP rights are often associated with high-tech companies in sectors such as consumer electronics and telecommunications, where R&D activity is part of everyday activity. However, low-tech businesses can benefit from IP just as much as, if not more than, these technology-focused companies.
According to the study, low-tech businesses that operate in niche areas of manufacturing, including food production and textiles, which own at least one European IP right, are even more likely to evolve into a high-growth firm, compared to those in high-tech fields. This could be caused by the lack of IP ownership in these markets, increasing the potential commercial value of the rights.
No matter what sector a business is in, IP rights should be carefully considered as part of its growth strategy. It is never too soon to create a strong IP portfolio, through bundling rights and seeking protection in other territories. By placing businesses in a better position to secure investment and scale successfully, IP provides them with the opportunity to optimise value from their activities as they progress.