Patents aren't worth obtaining - right?

The truth is that the minimum cost of enforcing a patent in the UK for an action that runs all the way to trial is probably £200k to £300k, which is more than an order of magnitude greater than the cost of obtaining the patent. And that's the cost of enforcement in the Intellectual Property Enterprise Court (IPEC), which is the UK's cheapest court in which to enforce a patent. 

So why bother? Well, patents are intellectual property (IP) rights that have value, and if your company obtains patents for commercially useful inventions, the company will almost certainly be worth more than it would if the company did not have them. If you plan to seek investment or sell the company, you can be sure that somebody will ask you about your IP rights. The protective moat that patents provide is considered to add value by prospective investors and purchasers. 

But why would patents be worth anything if the patent owner can't afford to enforce them? Well, as an initial point, it's very difficult to know who is monitoring your patents and whether they are intentionally staying out of your market for fear of infringing your patent. Let's face it - most people will stay off your front garden, even without a security guard or a “keep off the grass” sign to deter them.

However, we've all met people that don't give two hoots about other people’s property rights, and are willing to do whatever is required to steal your lunch. What do we do about those guys? 

This is where IP insurance comes in. It's possible to get "before the event" (BTE) insurance and "after the event" (ATE) insurance. BTE insurance policies tend to be much cheaper than ATE insurance policies. It might be possible to get a BTE policy that gives you a few hundred thousand pounds of coverage against infringement of your patents for a fee of a few thousand pounds.

People are offered insurance for all sorts of things nowadays, from electronics costing a hundred quid through to our houses, which are worth much more. Most people wouldn't think about being without home insurance. If your IP adds a lot of value to your company, shouldn't the same logic be applied to that?

One of my clients had IP insurance as an extension to their general business insurance. The client was a small company. The IP insurance enabled the client to sue a much larger multinational company for patent infringement, who resolved the issue by purchasing my client. That was the result they wanted, and it was made possible by the IP insurance. 

As an alternative to IP insurance, it is possible to obtain litigation funding to cover the cost of enforcing a patent. This is an option that might be considered, for example, if the IP insurance doesn't provide enough coverage, or if a BTE policy wasn't obtained and an ATE policy is too expensive or is unobtainable. 

Litigation funding involves an entity providing funding for litigation in exchange for a proportion of the damages paid by the infringer if the litigation succeeds. You'll need to have a very solid case to get this type of funding, and the damages that the infringer is on the hook for will need to be high. Typically a litigation funder will be looking for a return of nine or ten times the funding that is being provided, due to the risk involved. I should also add that this type of funding is not available if there is no infringement claim in the patent litigation. For instance, if you are solely defending the validity of your patent (and there is no infringement counterclaim), litigation funding is not typically available because there are no potential damages to pay for the funding. 

Finally, those who know me will know that I can't get through a conversation about the value of patents without talking about Patent Box! The tax relief provided by Patent Box is hugely beneficial for UK companies that claim it, as it reduces the Corporation Tax on worldwide profits from a patented product from 25% to 10%. The monetary benefit from Patent Box often exceeds the cost of obtaining the patent for commercially successful inventions. We have produced a comprehensive guide on how to make the most of Patent Box tax relief - please feel free to get in touch with me or one of my colleagues if you’d like a copy, and we'll be happy to send one over free of charge. 

So, there it is. In a nutshell: get some patents, add some value to your company and reduce your tax bill in the process, and also get some IP insurance in case that rainy day does come.

Scott Harrison is an IP director at Swindell & Pearson. He has worked with companies of all sizes, from start-ups to multinationals. He specialises in obtaining IP rights that add value to his clients' businesses. You can reach Scott at: [email protected].