Intellectual property considerations for SMEs Intellectual property considerations for SMEs

Here, Martin Hyden, partner at Finnegan Europe LLP, discusses why it is important for small businesses to protect their intellectual property.

 Intellectual property considerations for SMEs

For many SMEs, intellectual property matters often fall into the categories of ‘too complicated’, ‘not understood’, and most commonly ‘too expensive’ to address. By failing to properly address IP, many SMEs also fail to properly secure the value in their business. Those SMEs that do manage IP matters effectively are often in a better position to manage risks, grow their business or put it in a better position for collaborations, investment, or acquisition.

IP crops up in a number of different areas of a business. For example, patents owned by a business can affect tax payable on profits depending on application of the ‘patent box’ scheme in the UK (and other countries); employment contracts can affect issues such as ownership of IP rights or the disclosure of trade secrets by leaving employees; marketing activities can bring into play trademark issues; etc. In contrast, a better understanding of IP rights can help to understand the potential risks arising from IP rights owned by others.

IP rights are business tools; their value to a company is to supports its business strategy. When developing a business strategy, it is also possible to identify where ownership or control of IP rights could add value. For many people IP equates to patents, but this is far from the truth. For many SMEs, the most important IP rights are trade secrets, trademarks, and copyright. It is important to understand which IP rights could apply, and the relative benefit that addressing each could bring to the business.

IP protection

An undue focus on one type of IP protection, such as patents, might mask the fact that protection of trademarks, or the use of effective contracts to preserve trade secrets might be a better way to advance the values of the business.

Many SMEs are put off by the perceived cost of IP matters. It is undoubtedly true that matters such as obtaining broad international patent protection, or any form of litigation will involve a significant expenditure, many IP matters have costs that are comparable to other business costs. The cost of registering a trademark or design in the UK are relatively modest. Managing trade secrets effectively is as much a part of managing the internal and external behaviour of a business as it is paying for advice or representation when handling contracts. Whatever the cost of taking any particular action, the consequence of failing to address IP matters can leave a business open to expensive risks.

Protecting IP costs money. IP spend, particularly patent spend, can be one of the largest line items in a budget after salaries and facility costs for an SME. Consequently, it can be difficult, or even impossible, to properly manage IP spend if it has not been called out in an identifiable way in the operating account of a company.

IP spend can and should be budgeted. Merely having an IP budget is the first step to addressing this issue. Having an appropriate IP budget is the goal, but merely recognising it as something that needs proper management is the key.

Even when a business has an appropriate IP budget and has aligned its IP strategy with its business strategy, it is still common that spend on IP activities is not in the most productive areas. Spending on patents, especially on wide international filing, at the expense of filing new patent applications, or spending on preparation and filing of patents at the expense of proper legal advice on handling trade secrets or IP in contracts are common issues. Also, spending on patents, where effective protection can be achieved by way of utility models, or not spending to protect trademarks are often encountered.

Trade secrets can be one of the most valuable assets. While they appear to be free, failing to spend on proper advice and infrastructure such as proper contracts and record systems to support trade secret protection can be one way in which a company fails to get the best from its IP.

As SMEs rarely have the expertise in-house to manage all of its IP activities, the use of external advisers is both necessary and desirable. Going outside for IP advice is in many ways similar to selecting any other business advice. Businesses that fail to select advisers who are properly aligned with its objectives rarely get the best advice. Selecting advisers only on factors such as geographical location, or cost does not guarantee of good advice.

While these factors may be important, they are not indicators that these advisers are the best ones for your business. In many cases, businesses fail to look at a number of possible advisers before making a choice, or consider the use of multiple advisers for different areas of law or technology.

While the cost of advice may be off-putting, any adviser should be able to explain what value you might get from the advice. In many cases, a relatively modest spend on advice can be far more valuable in the long run than spending the corresponding amount on a specific IP matter such as a patent application. There are sources of free advice, such as clinics run by various professional and business organisations. These can often be useful to get an initial understanding of the IP issues that might be relevant to a business.

It is rare that an early-stage business can deal with its IP effectively without the use of advisers. The appeal of going it alone so as to reduce cost may appear appealing at first, the problems that can result are rarely simple or cheap to solve. Appointing appropriate advisers may be important when seeking further investment based on the value of IP in a business.

IP needs to be considered regularly to be managed effectively. For many SMEs already facing more management issues than they have capacity to handle at any one time, this can often be overlooked. However, even a small IP activity benefits from regular review. In particular, promptly addressing third party IP issues is important to manage risk.

In conclusion, proper management of IP matters is well within the capabilities of SMEs provided that the business management follows a few well-established guidelines. Active management of IP and taking appropriate advice are keys to success.

Martin Hyden is partner at Finnegan Europe LLP

Further reading on intellectual property

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