Why should SMEs invest in IP?

The intellectual property (IP) system plays an important role in helping businesses. A study published by the European Patent Office [1] in 2019 shows that SMEs with prior IPR activities are 21% more likely to experience a subsequent growth period and 10% more likely to become a high-growth firm.

Yet, too often young SMEs think of IP as an unnecessary investment and prefer to postpone IP protection to a later stage when higher revenue will be available, or completely neglect their IP portfolios. Here are a number of reasons why SMEs should invest in IP and should do it early.

Generating IP assets

IP rights, and in particular patents, registered designs and registered trade marks, constitute valuable assets. When the moment comes to sell a business, the IP protected by patents or registered trade marks and other nonregistered IP assets may constitute a significant proportion of the value of the company. In some cases IP may even be more valuable than any physical assets owned by the company. IP assets can also act as an insurance for capital investment. It is a well-known fact that many start-ups fail within a short time from launch. IP assets can be used to attract new investors in times of hardship and if the worst comes, can be liquidated in case a business fails.

Some SMEs may regard IP protection as an unnecessary cost and tend to worry about it at a later stage rather than at the beginning. But on the contrary IP should be seen as a form of insurance and should be dealt with as early as possible.

Building reputation

Filing for a patent application can also be used to enhance a company’s profile, by indicating that the company is capable of innovation and development. Large companies are more likely to interact with SMEs who own IP showing that the company has developed a unique technology and have the potential of becoming leader in their sector.

But this is not all of it. A good marketing strategy is key to building a successful brand. Protecting a brand will be much harder if the company does not have a registered trade mark for it. The same goes for counterfeits: it is much easier to stop copycats and avoid bad replicas of a company’s products tarnishing the company’s reputation if they are protected by a registered design.

Securing funding

Having a robust IP portfolio can help to attract more investors. Even if an SME may not be able to file multiple patents straight away, it should be kept in mind that a prior art search and patentability assessment can be obtained at a much lower cost compared to a patent application. Patentability assessments can be used to prove to investors that the company is in a position to patent one or more features of their technology and can help securing  funding which can then be used towards filing a patent or other registered IP rights.

Blocking competitors

Many successful companies have become the highest grossing in their field thanks to a successful patent mining and patent blocking strategy. Patents can be used to prevent competitors from selling products which are key to a company’s activities or to induce them into a licensing deal. Moreover, patent mining can be used to anticipate what will become the technology of the future and seek to obtain protection for it. This is key to having success on the market: if customers cannot find a company’s products or services anywhere else, then the company sales will likely increase.

Patents and in general all registered IP rights can also be a very powerful tool for negotiation in infringement scenarios and for obtaining cross licensing deals. The more patents, registered designs and registered trade marks you have, the more likely it is that someone will be infringing them. Therefore, large patent portfolios can often be used as a leverage to reach cross-licensing deals in infringement scenarios.

Increasing revenue

Considerable revenue can be generated by licensing patents, trade marks or designs. Even copyright can lead to profitable licensing deals. Disney for example generate 40% of their revenue [2] just from merchandising, which is nothing but an ancillary economic right to copyright. This may seem like a far-fetched example, however no matter how small a company is and how big its competitors are, if a company is the rightful owner of a patented technology, trade mark, design or copyright that is indispensable to them, they should not be afraid of seeking a licensing agreement. IP rights can be sold to third parties for very competitive prices and still generate lots of revenue if applied widely.

Obtaining tax relief

IP portfolios may also help SMEs get access to some forms of tax relief. In 2013 the UK Government introduced the “Patent Box” scheme [3], which enables companies to pay only 10% corporation tax on patent related profits. The profits can be made anywhere in the world, not just the UK. Granted patents in the UK and various other European countries qualify for the Patent Box scheme regardless of when they were granted. The qualifying income can come from various activities such as selling patented products, licensing out patent rights, selling patented rights, and so on.

SMEs who own IP assets in the form or designs, trade secrets or patents are also likely to be eligible for R&D tax relief, a special form of relief which is available to businesses  which carry out research and development. SMEs can claim R&D tax relief under the SME or Research and Development Expenditure Credit (RDEC) scheme [4], depending on whether the R&D was subcontracted and various other conditions. Under the SME scheme, loss-making companies can in certain circumstances surrender their losses in return for a payable tax credit. Although having a patent is not a requirement in order to get access to R&D tax relief,  if a company owns a patent then it is likely that R&D was carried out.


It is important that SMEs think of IP at an early stage and that they take action to protect it. They should speak with a patent and trade mark attorney who can advise on what is the best strategy. Even when budgets are tight and an SME can not afford the costs of filing a patent or trade mark application straight away, showing to investors that you have the potential to register multiple IP rights will help attract more funding and in turn build stronger portfolios.

If you want to find out more on the exploitation of IP and how to build a strong portfolio do not hesitate to get in touch with us. You can contact us at hello[@] scintilla-ip[.]com, via the form on our website or by phoning us on +44 (0) 141 255 0295.


Please note that this blog is for information only, the content of this post represents the opinion of the author and does not constitute legal or commercial advice. Scintilla make no guarantees as to the accuracy of the content of the post or of the webpages which are linked in the post. If you require IP-related or other sort of legal and commercial advice please contact us or consult a suitably qualified legal representative.