Intellectual property (IP) plays a pivotal role in driving innovation, fostering economic growth, and securing the competitive edge for companies.
In the United Kingdom, IP intensive industries account for more than a quarter of the country's output – around £300 billion a year – while intangible assets, including IP, may make up around 70 to 80% of a company's overall value 1.
However, SMEs face unique challenges and opportunities when it comes to the realm of IP.
In this article, Nathaniel Taylor sheds light on how SMEs (small and medium-sized enterprises) can mitigate cost issues to capitalise on their IP.
In general, the value of patents and IP is quite clear to SMEs, who outperform large corporations when it comes to putting patents to productive use and licensing their technology.
Additionally, for high-tech SMEs, patents increasingly play a crucial role in obtaining financial support from investors. For example, the European Union Intellectual Property Office (EUIPO) and the European Patent Office (EPO) recently found that, on average, startups that apply for trade marks and patent rights prior to their initial seed, or early growth stages, are up to 10.2 times more likely to successfully secure subsequent VC funding2.
Even so, whilst SMEs have been found to be equally likely to create patentable innovations, they are far less likely to pursue patent protection3.
In part, this could be attributed to the perceived intricacy and complexity of the patent process (which can be quite daunting!). In our experience, it is also common for SMEs to have significant misconceptions about the threshold for patentability, which is more attainable than they realize.
Our attorneys are well-practised at demystifying the process, and we are able to draw upon experience supporting the full range of SMEs, from initial startup stage through to initial public offering, and beyond.
However, cost barriers persist as the main obstacle to SMEs pursuing patent protection, as they face relatively high costs and capacity constraints.
In recognition of this, there are a growing number of funding options and tax relief schemes available to empower and incentivise SMEs to protect their innovations and leverage their IP assets for growth. A few examples are discussed below.
1. Patent Box Scheme
The Patent Box is an initiative in the UK (though similar schemes exist elsewhere) providing tax relief on profits made from the exploitation of products or processes that incorporate patented technology.
The UK corporation tax payable on qualifying profits is reduced from the headline rate of 25% to just 10%.
The potential tax savings are therefore typically capable of paying for the cost of obtaining patent protection many times over, whilst also providing SMEs with valuable patent protection.
For example, in the tax year 2021-2022, around 1,510 companies elected into the Patent Box, claiming a total relief of £1,363 million4.
However, the scheme remains heavily underutilised, in part, due to a lack of awareness.
To be eligible to claim relief using the Patent Box, a company must:
(i) be liable to UK corporation tax;
(ii) make a profit from exploiting inventions covered by granted patents, e.g. by selling products or providing services that are covered by a UK patent or which incorporate a patented invention in the UK;
(iii) own, or have an exclusive license for, the relevant patents; and
(iv) have undertaken qualifying development on the relevant patents*.
For more information and guidance on the Patent Box scheme, please contact one of our attorneys or visit: https://www.gov.uk/guidance/corporation-tax-the-patent-box.
2. UK Government Initiatives
The UK Intellectual Property Office (UKIPO) is committed to supporting SMEs through various initiatives.
An 'IP Audit Grant' of up to £2,500 is available for assessing a company's IP needs (e.g. identifying existing and potential IP assets) through Innovate UK EDGE, in collaboration with the UKIPO, and we have found that clients benefit enormously from this evaluation, at a cost of just £500 to the company.
An 'IP Access fund' of up to £5,000 was previously also available for funding follow-up work, such as registering IP or conducting searches. The IP Access fund was able to cover a significant proportion of the costs associated with drafting a patent application, and we have assisted all types of SMEs in registering their IP in this manner.
Unfortunately, the 'IP Access fund' recently expired (31 March 2024) but is expected to be replaced by a new pilot scheme (Summer 2024).
Under the New Financial Support Pilot Scheme, it is expected that SMEs will have options to:
- Engage in a discussion with an IP professional for specific IP issues;
- Undergo a part-funded full IP audit for in-depth reviews; and/or
- Receive funding for IP strategy implementation, such as managing an IP portfolio or commercialization.
We expect that more information and guidance on the new pilot scheme will be announced shortly, and we will be watching this space closely to provide our clients with relevant advice.
3. SME Fund 2024 by EUIPO
The SME Fund administered by the EUIPO offers funding to SMEs established within the EU, and will be active from 22 January 2024 until 6 December 2024.
SMEs can claim reimbursement (in the form of vouchers) for IP-related activities, including applications for trademarks, designs, and drafting and filing European patent applications.
Depending on the country or region, SMEs can save up to:
(i) 75% on IP right applications (official fees); and
(ii) 50% on legal costs for drafting a European patent application.
The trademark and design voucher can be used for registering trade marks and/or designs to protect them at a national, regional, EU and/or international level.
Meanwhile, the Patents voucher can be used for registering national patents in a national IP office of an EU Member State and/or European patents filed at the EPO.
The application for the voucher can be submitted directly to the EUIPO or by Keltie on behalf of the Applicant, and the vouchers are awarded within 15 working days.
After receiving the vouchers, the SME may proceed with the respective IP services and claim reimbursement within two months of the grant of the voucher (extension is available on request). The EUIPO will send the payment within one month of receiving the claim.
For more information and guidance on the SME Fund, please contact one of our attorneys or visit: https://www.euipo.europa.eu/en/discover-ip/sme-fund.
4. IP-Backed Lending
A recent collaboration between the World Intellectual Property Organization (WIPO) and the UKIPO has highlighted the growing availability of IP-backed lending for UK businesses[5].
Firms with registered IP are considered better lending candidates and, while IP-backed lending is already well-established in countries like the US, the UK is now catching up.
The UKIPO is taking steps to raise the profile of IP financing and has already established an advisory working group with experts from the financial sector, IP profession, and academia to shape policy in this evolving area of business finance.
NatWest and HSBC UK have recently led the way in this area, and launched IP-backed loan products that use IP assets (such as patents, trademarks, and copyrights) as collateral to facilitate business expansion.
For example, NatWest's offering could release funding ranging from £250,000 to £10 million for eligible high-growth businesses, even if they don't meet traditional security criteria (such as tangible assets)5.
IP-backed lending is gaining traction in the UK and could be a game-changer for innovative companies, as we expect significant progress to make IP finance a mainstream option for businesses.
Looking Ahead
Protecting IP is essential for SMEs, and we are encouraged by the growing number of funding options and tax relief schemes that will mitigate some of the cost barriers and allow SMEs to protect their innovations and leverage their IP assets for growth.
Footnotes
*In order to satisfy the 'qualifying development' requirement, the company must have made a significant contribution to either: the creation or development of the patented invention; or, a product or process incorporating the patented invention.
1. https://www.gov.uk/government/news/report-launched-into-uks-ip-backed-finance-landscape
3. https://link.springer.com/article/10.1007/s11187-020-00323-1
5. wipo-pub-rn2023-42-en-country-perspectives-the-united-kingdom-s-journey.pdf
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