The questions regarding small businesses and intellectual property are frankly difficult for many small businesses. As is usually the case there are tradeoffs between benefits and the cost of getting those benefits. Protecting intellectual property is not free!
Since obtaining and working with patents is one of the more expensive aspects of small business intellectual property, let’s talk about patents. We can start with some reasons why small businesses might consider actively patenting their inventions.
A stronger market position – the right normally attributed to a patent is the right to exclude. A patent can give you the right to exclude others from practicing that same invention, thereby reducing competition and establishing yourself in the market as a pre-eminent player.
Higher returns on investments - Having invested a considerable amount of money and time in developing innovative products, your small business could, under the umbrella of these exclusive rights, commercialize the invention enabling your small business to obtain higher returns on investments. Opportunity to license or sell the invention - If you chose not to exploit the patent yourself, you may sell it or license the rights to commercialize it to another enterprise which will be a source of income for your small business. Cross licensing - If your small business is in the process of acquiring the rights to use the patents of another enterprise, through a licensing contract, your patent portfolio will enhance your bargaining power. That is to say, your patents may prove to be of considerable interest to the enterprise with whom you are negotiating, and you could enter into a cross licensing arrangement where, simply put, the patent rights could be exchanged between your enterprise and the other.
Positive image for your small business - Business partners, investors and shareholders may perceive patent portfolios as a demonstration of a high level of expertise, specialization and technological capacity within your small business. This may prove useful for raising funds, finding business partners and raising your company’s market value.
Some of these things may seem subjective and arbitrary but they are real.
So let’s ask a different question - what happens if your small business does not Patent their Inventions?
Somebody else might patent them - In many countries, the first person or company to apply for a patent for an invention will have the right to the patent. And if you have not already commercialized the invention this could mean that someone else may patent and commercialize and legitimately exclude your small business from the market, or ask your small business to pay a licensing fee for using the invention.
Possibilities to license, sell or transfer technology if you decide to sell your business will be severely hindered without intellectual property rights. Transfer of technology presupposes ownership of a technology which can only be effectively obtained through appropriate IP protection. Patent protection, is crucial for acquiring technology through its licensing.
Competitors will take advantage of your invention - If the product is successful, many other competitor firms will be tempted to make the same product by using your invention but without having to pay for such use. Larger enterprises may take advantage of scale economies to produce the product more cheaply and compete at a more favorable market price. This may considerably reduce your company’s market share for that product. Even small competing enterprises can produce the same product and often sell it at a lower price as they do not have to recoup research and development costs incurred by your small business.
Think about these things. We believe these considerations should be taken into account by any small business in thinking through how they intend to use intellectual property. The considerations are not trivial and sometimes it can be useful to consult with skilled people who have been down this road before.