At Shorts, we provide business support and tax advice to a number of innovative companies that have protected their Intellectual Property. It is clear from working with these businesses, and their owners, that there are several key benefits to having patent protection. However, some businesses are reluctant to incur the cost of applying for a patent, for what they perceive to be the disclosure of valuable trade secrets into the public domain.
Whilst these issues require careful consideration, this article seeks to explore some of the key benefits of patent protection.
- Patent box tax relief – Profits generated from the sale of patented products, or products which contain a patented item, can qualify for a valuable tax relief known as Patent Box. This relief provides for a rate of corporation tax of 10% in respect of qualifying profits, and can significantly reduce a company’s corporation tax bill over a number of years. Please click here to see our previous article on to Patent Box. Whilst the commercial implications of obtaining a patent should not be overlooked, this valuable relief can make patents particularly attractive.
- Increased value of the business on sale – Our experience is that patents can support or enhance the value of a business at the time of a sale. A potential purchaser may well seek assurances that future revenue is protected, and one way in which this can be achieved is through patents. Where business owners are seeking an exit in the short / medium term, they may wish to seek advice to determine whether any commercial ideas or know-how can be protected through patents.
- Use to obtain funding – If know-how is a key element of your business, then any equity investor will want to be assured that this is legally protected before providing funding. In early stage equity fundraising know-how is often the key business asset and funders need it secured. In some cases, businesses may be able to seek finance using patents as security against which to lend. This could provide a valuable source of alternative funding for businesses where traditional sources funding are not available.
- Protect IP and market position – Perhaps the most commonly thought of benefit arising from a patent is the protection of valuable knowledge. By patenting a product or process, a business is able to prevent their competitors from copying them, by challenging them through the courts. Although protection is only available to the extent a business is willing to pursue any infringement through the courts, a patent can act as a deterrent to stop companies copying valuable ideas in the first place. The cost of enforcing a patent and challenging those that infringe on them can be costly, but the benefit of the deterrent can often outweigh this.
- Allows the business to licence it to others – Having a patent in place to protect the underlying knowledge or idea would allow a business to licence it out to third parties. This can potentially generate a new source of income for a business, generating a new avenue for growth which would require limited investment costs.
- Protect against people leaving to join a competitor – Innovative businesses often cite the loss of a key member of staff as one of the key risks to their business. Many companies will have experienced a member of the team leaving to take up employment with a competitor, or to set up on their own, taking unprotected trade secrets with them. Patents can protect valuable ideas such that outgoing employees cannot utilise them in future.
- Marketing strength and company image – Some industries thrive on innovation. Where this is the case, the strength of a company’s image in the market place can be the difference between success or failure. The number of patents held by a business can be seen as a kind of barometer to how innovative they are. Innovative companies with patents can advertise their innovation, and strengthen their position in the market place.
There are a number of key benefits that arise from patenting an idea or know-how. It is our view that business owners should consider applying for patent protection to take advantage of these potential benefits, as they could outweigh the perceived disadvantages. However, each case should be considered on its own merits, and appropriate advice taken.
If you would like to discuss the benefits of patents in more detail, please get in touch with us and we will be happy to assist further.
David Robinson
As a Tax Partner, I advise clients on all aspects of UK tax, ranging from business taxes, transactions and private client matters, helping to achieve the objectives and aspirations of businesses and their owners.
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