That’s the opening line of the most recent Innovation and Growth Report (2020/21) from the Intellectual Property Office (operating name of the Patent Office).

The report outlines what the IPO is doing to support innovation and growth, and more interestingly highlights some of the challenges that they, and businesses investing in IP, face.

Let’s explore.

Why are intellectual property rights important?

In order to drive change, there needs to be confidence. But innovation is intrinsically linked with risk.

Protecting intellectual property – the building blocks of innovation – by giving rights to those who create it allows innovators to invest time, money, and knowledge with the confidence that if successful, they’ll see a return on their investment.

This protection and subsequence confidence opens the doors to fear-free discussion, creating an ecosystem that encourages and enables all UK businesses to innovate.

How much IP is there in the UK?

A lot!

The report states that the IPO received the highest ever number of applications for trademarks, designs, and patents during the last reporting period (2020 – 21).

Why? Well, they’re not really saying.

Research into this is ongoing but there is a very real possibility that it’s linked to Brexit.

The government ‘The Benefits of Brexit’ paper suggests that exiting the European Union has freed Britain up to look at everything from allocation of innovation finance to regulatory frameworks – potentially removing big perceived barriers to innovation in one hit.

Arguably there is also increased awareness of the value of intellectual property and harnessing the rights to it through Patent Box due to ongoing messaging from the IPO and its partners like Innovate UK. The impact of Covid-19 saw many businesses forced to innovate, too.

International IP

The IPO has been focused on negotiating and implementing the UK-EU Trade and Cooperation Agreement (TCA) since the transition period for EU exit ended.

The agreement, for now, reiterates what was set out in the original Withdrawal Agreement – that existing international treaty obligations should be maintained.

IP rights surrounding import and export are also covered as part of trade agreements, and the IPO has so far negotiated chapters in trade agreements covering 63% of the UK’s bilateral trade.

This excellent blog from Innovate UK Edge goes into more detail about changes to IP rights since the end of the EU exit transition period.

Valuing and funding IP

Using IP as funding collateral

The IPO commissioned a joint report with HM Treasury and British Business Bank in 2018 called Using Intellectual Property to Access Growth Funding. It outlines the obstacles to, and potential for, using IP to access finance.

One of the key issues of using intellectual property as collateral for financing like traditional loans comes down to lenders’ inability to see intangible assets in the same way.

There are tried and tested ways for lenders to assess the value of tangible assets like land, for example, but they struggle to see intellectual property and its importance to the economy in the same way. There are also issues surrounding banking regulations, lack of liquid second markets, and legal enforceability (pages 15 – 17).

It’s SMEs that suffer

The IPO/BBB report recognises that larger companies are more likely to protect the IP they own through formal registration due to resourcing, and are also more likely to secure access to mainstream finance due to ownership of tangible assets.

It’s smaller, IP-rich businesses that struggle to get the finance they need to grow.

Compounding this issue, the IPO has also found an ‘asymmetric understanding and awareness of the importance of IP across UK government’ and is working to address this.

Concerning, considering ‘innovation is at the heart’ of the UK’s economic growth strategy? You decide.

So how DO you value IP?

Valuing intangible assets is something that MPA can advise on if you’re in doubt, but there are three ways to look at valuing your IP:

• Income method

Commonly used, this looks at the economic income generated or expected to be generated by the IP.

• Market method

This looks at how much would have cost you to purchase the transfer rights to a similar asset under comparable circumstances within your market.

• Cost method

Considers how much it cost you to create the asset, or a similar one.

Being able to value your intellectual property enables you to attract partners and settle infringement disputes more easily, it allows for licensing, and helps you in securing finance.

IP incentives 

Innovation incentives often aren’t actually linked to intellectual property rights as such.

Research and Development tax relief, for example, rewards activities undertaken that may or may not result in ownable intellectual property.

One incentive that is directly linked to IP rights, though, is Patent Box.

Patent Box allows businesses to pay a reduced Corporation Tax rate of 10% on profits from the sale of products or services containing a qualifying patented invention (although you do need to record the R&D that led you to it) for the life of the patent (20 years).

Support is needed

Outside of Patent Box, which is only helpful if you already have IPRs, funding for and through IP remains a challenge.

Our advice for all innovative businesses is to:

• record and reward your R&D
• protect your intellectual property (get in touch if you’d like advice from a patent lawyer)
• value intangible assets
• opt-in to Patent Box when you can

If you’re struggling to understand your funding options, need help with valuing your IP, or would like advice on patents or Patent Box, get in touch today.