3 Reasons Why you Should Develop a Patent Portfolio as an SME

Patents are one tool, among trademarks, copyright and trade secrets to protect “creations of the mind”. Due to their costs and long-term prosecution, which contrasts with fast-paced environment of Small or Medium-sized Enterprises (SMEs), patents are sometimes overlooked by those organizations. 

However, patents are now widely leveraged by SMEs: for example, around 20% of patents filled at the European Patent Office by European applicants are filled by SMEs. 

Following our article 5 Reasons for Startups to Invest in a Patent Portfolio, you will find below other opportunities that patents offer and why SMEs want them.

Here are the main reasons why SMEs should seek patent protection:

1. Deter Competitors from Commercializing Copied Products 

Whether you are an SME or an industrial group, patents can be used as a tool for leveraging Research and Development (R&D) activities by protecting your investments from copy-cats. A granted patent gives you the exclusive right of making, using or selling an invention claimed by the patent. In other words, a granted patent sets the boundaries of a technological landscape belonging to the patent owner by introducing legal barriers. Thus, patent protection may serve as a deterrence against competitors that seek to imitate a protected product, thereby benefiting from R&D activities of others, by exposing them to potential patent infringement lawsuits. This enables patent owners to protect their investments in R&D and allows them to enjoy the full economic benefits of their invention.

It is important to bear in mind that patent owners can prohibit others from making, using, or selling their products, but does not make them immune from infringement. This means that although a patent has been granted in relation to a product, this product may still infringe other patents. Many SMEs choose to build patent portfolios for defensive purposes because they deter competitors from initiating lawsuits altogether. Indeed, competitors of companies having robust patent portfolios are often inclined to keep the status quo for avoiding expensive retaliatory legal battles.

The financial benefit to SMEs of deterring others from initiating patent infringement lawsuits cannot be understated. In the U.S., patent litigation for a claim worth less than one million USD has a median cost of about USD 700,000 per party. High value cases are even more expensive, where the median cost may reach USD 4,000,000 per party. Although the cost of such lawsuits is comparatively lower in Canada, a proactive investment into a patent portfolio is a considerably less expensive option, especially if you are on the losing side of an infringement lawsuit.

2. Foster Collaboration Between Entities for Jointly Developing New Products and Services

Licencing Patents in Exchange for Royalties

For example, patent owners can monetize their patents by licensing them to one or more companies, generally in exchange for royalties. The famous case of the MP3 patented technology generated a steady double-digit number of millions of euros as a revenue stream to Fraunhofer IIS when the technology was licensed to Thomson (now Technicolor). “The intellectual property generated royalties and the royalties generated R&D” highlights Karlheinz Brandenburg, Director of Fraunhofer. Having a valuable patent portfolio may also yield cross-licensing agreements allowing companies to enjoy the technology of others, and vice versa, without litigation.

Strengthening Collaboration  

Joint patents may strengthen collaboration between entities. As an example, ESKPLA, a Lithuanian SME providing laser systems for scientific research and industrial applications, has a special agreement with its contract manufacturers: a joint patent application is filled without any exclusivity clause for each co-developed technology. This creates a “win-win” situation between ESKPLA and its manufacturer resulting in boosting long-term co-operation, which may be crucial for the longevity of an SME.

Over half of surveyed SMEs (56%) cite “joint innovation” as a motive for developing a patent portfolio.

Without patents, such collaboration would be difficult as patents help in setting boundaries on who owns what.

3. Marketing & funding

Patents can also serve as a financial leverage for attracting investors and during negotiations for acquisition. Indeed, patents help secure investment by showcasing the company’s value creation potential and justifying investors’ long-term commitment. As Jacques Lewiner, nominated for the EPO Inventor of the Year Award 2018, states: “I could not have commercialized my inventions without patents. It is very hard to convince an investor if you do not have a patent.”

A recent study shows that U.S. start-ups that filed at least one patent application prior to applying for VC funding obtained 51.7% more funds than start-ups that did not file patent applications.

This is also true during acquisition. Mobeewave is a Montreal-based company that chose BCF for orchestrating the establishment of their patent portfolio. The company initially received an investment from Samsung and was acquired, along with its patent portfolio, by Apple for, reportedly over 100 million dollars.        

In a more general aspect, the terms “patented” or “patent pending” themselves are valuable marketing tools that Aerogen, a European company providing aerosol technology, made great use of. Aerogen highlighted presence of patent protection for its products. Its patent portfolio has been an efficient marketing advantage for promoting integrity, confidence and the uniqueness of its technology and product in front of clients and investors. B. Hogan, Senior VP Engineering at Aerogen stated, “Our partners expect strong IP and that the company is prepared to defend it. They performed a thorough due diligence investigation of our IP during negotiations”.

Either for offensive purposes, defensive purposes, or for status quo, patents can be used as a tool for:

• establishing legal barriers and deterring your competitors from copying your products while also avoiding investment into corresponding R&D activities.
• fostering collaboration with partners across the industry resulting in a non-zero-sum game for all parties involved.
• marketing tool or a valuable bargaining chip during negotiations.

Irrespective of the specific tool your SME needs, tailoring a patent portfolio to your SME’s needs will give you a competitive advantage over players that are yet to realize the benefits and rewards of patent protection.

BCF’s Patents team can help optimize the value of your innovations. Should you have any questions regarding this article or patents in general, please do not hesitate to contact our team.