Patents are a powerful tool for protecting your intellectual property (IP). They give you the legal right to prevent others from making, using, or selling your invention without permission. But before you can secure a patent, your invention must meet specific criteria, something many businesses find confusing. Understanding the difference between what can and cannot be patented is crucial. Here’s a detailed breakdown.
Do you make money from a patent?
The value of a patent largely depends on how it’s used. If you actively commercialise the invention, enforce your rights, or leverage it in commercial negotiations, then it can generate substantial income. Many businesses earn royalties by licensing their patented product, while others use it to increase the valuation of their business or block competitors out of their market to fully capitalise.
While global giants like Philips have over 50,000 patents earning them millions, SMEs can also generate substantial revenue. Lumora’s patented DNA testing technology led to a very lucrative deal worth millions which may not have been possible with out patenting their invention. However, research suggests that only 5% of patents generate money, which proves its the strategy behind the patent that’s key to success. Companies can get caught out by targeting niche markets with limited demand, filing without a commercial plan, or underestimating the cost of maintaining a patent. Securing your patent is only the first step. To capitalise on your innovation, you need a clear, well-executed strategy in place.
How many patents are worthless?
Successfully generating revenue from a patent can be a challenging prospect. In fact, research shows that roughly 97% of all patents never recoup the cost of filing them. This is often due to several factors:
No commercial use
The invention may be clever, but if there’s no option to apply it in the real world or it lacks market demand, there is little opportunity for revenue.
Filed too early
A patent without a proven business model might deter investors and reduce chances of investment.
Too narrow or too broad
If a patent is too narrow, it’s easy to design around and companies may alter a couple of aspects of your invention to bring an alternative to market. By contrast, if your claims are too broad, you patent may be invalidated for lack of inventive step.
No budget for enforcement
Maintaining a patent can be costly as the UK requires annual fees which increase over time. Additional costs could be incurred by using patent attorney or specialised patent services.
Can you lose a patent if you don’t use it?
While you generally won’t lose a patent through lack of use, there are situations where it can create issues. Failure to pay renewal fees will cause a patent to lapse, meaning it will expire prematurely. Additionally, certain jurisdictions may allow compulsory licensing if a patent is not being used or licensed to meet public demand. For instance, if you’ve patented a life-saving medical device but you’re not producing it or allowing others to license it, a competitor could petition for the right to use that patent in the public interest.
To avoid any chance of losing your invention, the best approach is to commercialise your patent. By licensing it, enforcing it, and combining it with R&D tax credits and the Patent Box scheme, you can maximise financial return.
What are the benefits of having a patent?
Legal protection for your invention
Once your patent is granted, it’s published and legally enforceable, meaning if someone tries to copy or commercially exploit your invention, you can take legal action against them. This legal protection means you can stop them or claim any damages inflicted on your company. A patent also discourages competitors from entering your market and if they do, you’ve got legal grounds to fight back. However, the existence of a patent doesn’t automatically stop infringement. As the patent holder, you are responsible for monitoring the market and enforcing your rights. For instance, Kodak held key patents around digital image capture but didn’t enforce them for years. When they finally did, the market had already moved on, and enforcement was far more difficult and less lucrative.
Licensing your patent to earn royalties
Licensing your patent allows you to earn royalties by granting others the right to use, make, or sell your invention without having to commercialise it yourself. You can structure the licence as exclusive which means one licensee has sole rights to use the patent. An exclusive license provides an opportunity for higher royalties, but you lose flexibility over your patent. Another route is a non-exclusive license, which allows you to grant rights to multiple companies. You can gain more reach but you’ll have less control over your patent. A well-drafted licensing agreement will set out the terms, which includes rights, restrictions and payment structure. With the right partner and legal safeguards, licensing can turn your patent into a reliable revenue stream while you focus on innovation.
Increased investor confidence
Patenting your invention shows investors that your business has something legally protected, making it a far more attractive investment. It shows you’ve taken steps to safeguard your innovation, making it harder for competitors to replicate your invention. Investors will recognise this as a way to secure your market position and improve credibility. A granted patent also adds tangible value to your balance sheet and can be licensed or sold, offering investors clear return on investment (ROI). It also reflects strategic thinking and long-term planning which is exactly the kind of foresight that builds investor confidence.
Accessing Government incentives
Combining Patent Box with R&D tax relief can be highly effective. Companies invest in R&D activities, reducing their tax liability through R&D tax relief. The financial benefit not only offsets the cost of innovation but also reinforces R&D as a critical component of long-term value creation and corporate strategy
By effectively combining these incentives, companies can:
- Enhance cash flow and profitability
- Reinvest savings into further R&D activities
- Strengthen their competitive position in the market
When these government schemes are used together, they have the potential to fund innovation and business growth.
The verdict: is it worth it?
A patent alone cannot guarantee income and business growth. Its success is often determined by how it’s utilised. When commercialised and supported by Patent Box, a patent can deliver significant financial returns.
However, companies should carefully consider the reality that most patents fail to generate revenue. This is not down to a poor invention, but the lack of an effective plan to exploit their patent. Be wary of poor market fit, lack of enforcement and failure to integrate IP into your overall growth strategy, which can all make patents worthless. However, it’s worth noting that some people get a patent to simply protect their idea and not make profit. The reality is that most people will go through the hard work of acquiring a patent and want a return.
If you’re considering pursuing a patent, make sure you gave reviewed these factors before moving forwards. Only then will you see a return on your innovation.
