Are patents worthwhile for small businesses?
As much as we’d like to answer a straight ‘yes’ to this question, the truth is patents aren’t the right option for every small business. When we talk to patent sceptics, they often talk about spending lots of money securing these legal rights. Money they never made back by putting the protected invention on the market.
In the worst cases, SMEs have been caught up in extended, expensive litigation against big corporations that have infringed their rights. Sometimes SMEs simply take a view that they would never be able to afford to litigate - so what’s the point in getting a patent at all?
It’s understandable that these experiences put small businesses off securing new patents. However, if considered carefully and used in the right way, patents can be a valuable asset for SMEs.
Challenges for SMEs
Whether you’re an SME owner or technical director, your time and money is precious. So everything you do has to be justified commercially. This can throw up some challenges when you’re considering whether to apply for a patent or not.
Costly and time-consuming applications
There are lots of factors that can affect the cost of a patent application, such as whether you opt for searches, how complicated your invention is and where you’re filing your application.
However, most businesses need to have several thousand pounds available to complete the patent process. For example, getting a patent for a simple mechanical invention to grant in the UK will cost between £4,000 and £5,000 (ex. VAT).
The process to get a patent granted can also take a long time, often three to four years in the UK. For certain people in the business, the process is also very involved. For example, the inventor or technical director will need to supply information and review drafts.
In short, the patent process takes up significant resources upfront. Many SMEs worry about getting a return on this investment.
Expensive litigation
One of the main benefits of having a granted patent is the ability to enforce it against infringers. However, litigation can incur huge costs, into the hundreds of thousands of pounds in many cases. If the infringer is a large business with lots of cash to pay for legal fees, this can leave SMEs on the back foot, even if their case is strong.
That said, there are ways to level the playing field. If litigation is the only option, then the UK’s IPEC (Intellectual Property Enterprise Court) limits cost exposure to £60k (that is the amount of the other side’s costs you would be liable for if you lose). The IPEC is a court specifically designed for SME litigation, and offers a highly streamlined process, removing a lot of the “bells and whistles” from full-blown high court litigation.
The relatively new Unified Patent Court also provides a great forum for SMEs to litigate in Europe. It relies on a heavily managed and primarily written process to keep costs and complexity down.
We also advise clients to seriously consider litigation insurance- this can put some serious financial clout in your corner and help overcome any fears of being bullied by a larger company with deeper pockets.
Regardless, it is important for SMEs to have a budget available to enforce their intellectual property (IP) rights effectively.
Commercial viability
Your product or process is great, it’s clever, it’s genuinely inventive and therefore can have a patent granted on it. However, no customers want to buy it. This means you’ve spent a huge amount of money to get protection for something that has no market value.
So before going ahead and securing IP rights for a product, it’s important that you understand whether it is commercially viable or not. Otherwise, you might spend huge amounts of money on an invention that won’t generate revenue.
A lot of our clients find themselves in a situation where they want to test the market prior to spending a fortune on patents. There are ways to do this. Sometimes carrying out such research under strict conditions of confidentiality can be appropriate. Other times, filing a single UK application to establish a “priority date” and undertaking market research before the deadline for filing overseas can really keep the cost exposure to a minimum.
By mapping the deadlines inherent in the patent process to your business plan, you can set yourself up to gain maximum competitive advantage and commercial value.
When are patents useful for small businesses?
In some circumstances, it might not be appropriate for an SME to apply for a patent. Getting realistic, commercially-focused advice is essential to understanding whether it’s the best option for your business. Below are some conditions where a patent would be useful for an SME.
The product is inventive
It might seem obvious, but businesses can get caught out by filing drafts for products or processes that aren’t considered actually patentable. So it’s essential that businesses check their ideas against the legal definition of an invention and run searches to ensure there are no existing patents which are similar and could be considered ‘prior art’.
Without these checks, businesses could waste money and time filing a patent that won’t be granted. Once this preparation has been completed, businesses might consider alternative IP rights which might be more appropriate, such as trade secrets or registered designs.
There’s a commercial strategy
Just as with any other business asset, your patents need to fit into your commercial strategy. Otherwise, you won’t be able to fully leverage its value. This means you need to map patents (alongside any other IP rights) to your business plan by considering questions such as:
How do you want to leverage your patents’ value? For example, do you want to take your invention to market, license the rights or use them as intangible assets to raise investment?
What is the timescale? Patent rights last around 20 years if they’re renewed annually, so this needs to map to your commercial plans
Will the way you use your patents change over time? Now, you might want to take a product to market. Later, you may want to use them as an asset ready for the sale of your business. These changes need to be considered and mapped
By setting out these plans, you’ll be clear how the commercial value of your patent is going to be leveraged. This helps you make the business case for filing your patent and ensures you get maximum return on investment.
They’re part of an IP plan
After you’ve established your commercial strategy and how your patents fit into it, you can set out your IP plan based on this context. This means working out:
The best time to file your patent, based on your required timescale
The scope of protections you need, based on how you’ll use your patent
Which jurisdictions you want to file in, based on the target markets
The plan for enforcing your rights, so you can mitigate this risk
By approaching your patent application strategically, you’ll put your business in the best possible position to get the most value from your IP rights.