Intellectual property rights such as patents, trade marks and registered designs exist to protect the interests of inventors and encourage innovation. In doing so, these IP rights form a vital part of today’s economy.
Though securing IP is a compulsory step for many businesses, the intangible nature of intellectual assets can make it difficult for business owners to put a monetary value on their IP rights. It is therefore possible for the true value of intellectual property to go unrecognised.
So, what is intellectual property worth?
For business owners and managers with no direct experience of IP, it can be easy to ignore or underestimate the value of intellectual assets. In fact, the Financial Times reported in 2012 that a poll of 451 company owners found that 84% valued their IP at zero, and only 6% valued it at any more than 10% of the business worth (to read the article click here).
This under-valuation may be in part the result of a disconnect between the technical and managerial departments within some companies, or a result of the fact that for certain businesses investment in IP rights is simply written off as a necessary expense of research and development.
It is important to remember, however, that intellectual property rights can add value to a business in many ways that are not immediately visible as incoming cash flow.
For many businesses, the main reason to secure intellectual property rights is to prevent the theft of inventions or brand identity by a third party. In this respect, registered IP rights allow rights holders to protect and potentially expand their market share. The risk of infringing may also discourage competitors from launching similar products in the same area of the market. As this allows rights holders to increase sales and profit margins on IP-protected products, it represents an important financial return on IP investment.
Though enforcing IP rights by suing infringers may not be the first priority of small business owners, even the most occasional viewer of the BBC’s Dragons’ Den™ will be aware of the importance of patents to potential investors. Time and time again the Dragons’ decisions hinge on a question regarding intellectual property rights, providing a powerful illustration of how vital IP protection can be for businesses hoping to attract investment.
As well as these benefits, IP investment now yields a measurable financial return through the UK Patent Box. Under current Patent Box rules, qualifying companies are eligible to pay a reduced rate of corporation tax on profits attributable to patented inventions. In many cases this tax break will more than cover the costs of protecting IP, creating a non-contentious way for rights holders to capitalise on their intellectual property.
Of course, IP rights may also be turned into revenue by selling or licensing the rights to a third party. Indeed, as the burgeoning online marketplace for IP continues to grow, opportunities to monetise rights in this way are increasing and becoming ever more accessible to IP rights holders.
As IP becomes ever more important in the global economy, companies of all sizes face an increasing obligation to protect their innovation by investing in IP rights. However rights holders decide to use these intellectual property rights – whether as weapons, deterrents or tradable commodities – it is clear that IP is a business asset that should not be ignored or underestimated.
This article is for general information only. Its content is not a statement of the law on any subject and does not constitute advice. Please contact Reddie & Grose LLP for advice before taking before any action in reliance on it.