IP Guide for SMEs

How Can IP Enhance the Market Value of Your SME?

By World Intellectual Property Organisation (WIPO)



Intellectual Property as a Business Asset

Intellectual Property Protection as an Investment

The Value of Intellectual Property Assets

Auditing Your Intellectual Property

The value of intellectual property (IP) is often not adequately appreciated and its potential for providing opportunities for future profit is widely underestimated by SMEs. However, when IP is legally protected and there is demand for the IP-protected products and/or services in the marketplace, IP can become a valuable business asset.

  • IP may generate an income for your SME through the licensing, sale, or commercialization of the IP-protected products or services that may significantly improve an enterprise’s market share or raise its profit margins.

  • IP rights can enhance the value or worth of your SME in the eyes of investors and financing institutions.

  • In the event of a sale, merger or acquisition, IP assets may significantly raise the value of your enterprise, and at times may be the primary or only true assets of value.

  • The strategic utilization of IP assets can, therefore, substantially enhance the competitiveness of your SME. SMEs should make sure that they are ready to face the challenge and take measures to exploit their IP and protect it wherever possible. Like physical assets, IP assets must be acquired and maintained, (see “How can Your SME Acquire and Maintain Intellectual Property Protection”), accounted for, valued, monitored closely, and managed carefully in order to extract their full value (see “Managing the Intellectual Property Assets of Your SME). But before this can be done, SMEs must first acknowledge the value of IP and begin to see it as a valuable business asset.

    Intellectual Property as a Business Asset

    An enterprise’s assets may be broadly divided into two categories: physical assets - including buildings, machinery, financial assets and infrastructure - and intangible assets - ranging from human capital and know-how to ideas, brands, designs and other intangible fruits of a company’s creative and innovative capacity. Traditionally, physical assets have been responsible for the bulk of the value of a company, and were considered to be largely responsible for determining the competitiveness of an enterprise in the market place. In recent years, the situation has changed significantly. Increasingly, and largely as a result of the information technologies revolution and the growth of the service economy, companies are realizing that intangible assets are often becoming more valuable than their physical assets.

    In short, large warehouses and factories are increasingly being replaced by powerful software and innovative ideas as the main source of income for a large and growing proportion of enterprises worldwide. And even in sectors where traditional production techniques remain dominant, continuous innovation and endless creativity are becoming the keys to greater competitiveness in fiercely competitive markets, be it domestic or international. Intangible assets are therefore taking center stage and SMEs should seek how to make best use of their intangible assets.

    One crucial way of doing so is by legally protecting intangible assets and, where they meet the criteria for intellectual property protection, acquiring and maintaining IP rights. IP rights may be acquired in particular for the following categories of intangible assets:

  • Innovative products and processes (through patents and utility models);

  • Cultural, artistic and literary works including, in most countries, also for computer software and compilation of data (through copyright and related rights protection);

  • Creative designs, including textile designs (through industrial design rights);

  • Distinctive signs (mostly through protection of trademarks including collective and certification marks, but in some cases through geographical indications; see below);

  • Microchips (through protection of layout-designs or topographies of integrated circuits);

  • Denominations for goods of a given quality or reputation attributable to the geographical origin (through protection of geographical indication; and

  • Trade secrets (through protection of undisclosed information of commercial value).

  • Intellectual Property Protection as an Investment

    Making the right investments is crucial for enhancing the market value of your SME. Investing in equipment, property, product development, marketing and research can strongly enhance your company’s financial situation by expanding its asset base and increasing future productivity. Acquiring intellectual property may have a similar effect. Markets will value your company on the basis of its assets, its current business operations and expectations of future profits. Expectations for future profit may be considerably affected by the acquisition of key patents. There are numerous examples of SMEs that have seen their market value increase overnight as a result of their acquisition of important patents in key technologies.

    Similarly, a good trademark with a good reputation among consumers may also enhance your company’s current value and may decisively contribute to making your company’s products and services more attractive to consumers. Investment in developing a good IP portfolio is, therefore, much more than a defensive act against potential competitors. It is a way of increasing your company’s market value and improving future profitability.

    The Value of Intellectual Property Assets

    A crucial point about legal protection of intellectual property is that it turns intangible assets into exclusive property rights, albeit for a limited period of time. It enables your SME to claim ownership over its intangible assets and exploit them to their maximum potential. In short, IP protection makes intangible assets “a bit more tangible” by turning them into valuable exclusive assets that can often be traded in the market place.

    If the innovative ideas, creative designs and powerful brands of your SME are not legally protected by IP rights, then these may be freely and legally used by any other enterprise without limitation. However, when they are protected by IP rights, they acquire concrete value for your enterprise as they become property rights which cannot be commercialized or used without your authorization.

    Increasingly, investors, stock market brokers and financial advisors are becoming aware of this reality and have begun to value IP assets highly. Enterprises worldwide are also more and more acknowledging the value of their IP assets, and, on occasions, have included them in their balance sheets. Many enterprises, including SMEs, have begun to undertake regular technology and IP audits. In a number of cases, enterprises have realized that their IP assets are in fact worth more than their physical assets. This is often the case for companies operating in knowledge-intensive and highly innovative sectors, or companies with a well-known brand name.

    Auditing Your Intellectual Property

    One way your SME may acquire a better position to capitalize on the potential benefits of its IP assets and extract their full value is by conducting an IP audit. Ideally, this should be done by professional IP auditors, but often a preliminary IP audit may be done within your company. This entails identifying, monitoring, valuing your SME’s IP assets so as to make sure that you are making the most out of them. By doing so, your SME would be able to make informed decisions when it comes to:

  • Acquiring IP assets - Knowledge of your company’s intellectual property and of its value will assist you in deciding which type of IP rights to acquire and maintain, and how best to manage the IP assets of your SME (see “How Can Your SME Acquire and Maintain Intellectual Property Protection?” and “Managing the Assets of Your SME")

  • Mergers and acquisitions - Good knowledge of what IP assets your SME owns can lead to a significant increase in the value of your SME. This is because investors would value a company on the basis of their expectations of future profits, which may, to a considerable extent, be based on the exploitation of IP rights.

  • Licensing - Your SME can increase its cash flow (revenue) by licensing out its IP rights to a third party (see “Licensing of Intellectual Property. A Vital Component of the Business Strategy of Your SME). An IP audit will assist your SME in determining the value of your own IP in order to obtain maximum benefit from license agreements. The revenue resulting therefrom has the potential of increasing the market value of your SME.

  • Collateral - A well-structured IP portfolio can also be used as collateral. In such cases lenders will use your IP assets to determine the credit worthiness of your SME (see “Can Your SME Use Intellectual Property Assets for Financing?”).

  • Enforcement - Knowing the value of your IP assets will assist your SME in taking decisions on whether it is worthwhile taking action against infringement and in what way this may be done on a case by case basis.

  • Cost reduction - A well managed IP register would help you identify obsolete IP assets (thus enabling you to cut-down IP asset maintenance costs), avoid infringing other peoples IP rights, etc. This would undoubtedly lead to a reduction in costs.

  • By establishing a culture of identifying and cultivating IP assets and strategically using them, an enterprise can increase its revenue, have an edge over its competitors and position itself well in the market; these are strategies that may lead to an increased market value of your SME.