IP encompasses a number of different legal rights which protect intellectual, as opposed to physical, creations. These include patents (protection for a technical invention), trade marks (protection for a sign used to distinguish goods or services from others, eg a brand name), design rights (protection for the appearance of all or part of a product) and copyright (protection for the expression of a work).
Securing strong IP protection is often considered to be expensive for small businesses – a factor which can dissuade a company in the early stages of its growth from properly investing in IP. However, a strong well-constructed IP portfolio will allow a small company to compete with larger better resourced competitors. Without strong IP rights in place, an intellectual creation can be quickly exploited by a bigger, better resourced player in the marketplace. In the long run, the benefits of IP protection can far outweigh the upfront cost.
One of the reasons it is so important to consider a company’s IP position at an early stage is that once an idea has been disclosed to the public (eg exhibiting it at a trade show), it is often too late to obtain strong IP protection that can prevent others from using the same idea.
Because of the protection they afford, IP rights can also be vital for securing investment. Investors are very often keen to know the details of IP protection in place and normally conduct due diligence to check its quality before any transaction. Valuations of a company will include an assessment of its IP, which can often be one of its most valuable assets.
IP, just like any other form of property, can be sold, transferred, mortgaged and licensed to others. This means it can be used to generate income through a variety of different streams. For example, a small company owning a patent covering technology underlying a product, but lacking the necessary resource to bring it to mass market, can license the patent to others and receive royalties from its sales. Licensing revenue is often reinvested into new R&D to create the next generation of products from which further revenue can be generated, or used to grow a company’s resources, allowing future products to be taken directly to market.
IP can also be used to claim tax relief on profits generated through products protected by an intellectual property right. A good example of this is the UK’s Patent Box scheme, which allows organisations paying corporation tax in the UK to apply for tax relief on worldwide profits from patented products or products with patented components for which the R&D took place in the UK. This can include profits generated in a variety of different ways such as licensing revenues, sales of a patented product and sale of a patent itself. Importantly, tax relief can be claimed on all profits generated by a product, even if only a single component of the product is covered by the patent in question. A patent covering a component part, which can be included in multiple products, can therefore be used to claim tax relief on profits derived from a range of different products which include the component.
Nick King, Patent Attorney, Marks & Clerk
