How Money is Made from Ideas

Intellectual Property – placing real value on knowledge

Ideas are free but they can generate value if their role and importance to a business is recognised
and exploited. Ideas, and knowledge arising out of more formal means of their generation,
through research – has a cost to a business, whether in maintaining a research capability (staff
and resources) or by purchasing in a license to use someone else’s knowledge – from for
example, a collaborating university.

Whichever means of production is used – new ideas, knowledge and approachers will always
involve a sunk cost of some degree to their development, so maximising value from knowledge
and ideas becomes of primary importance in order to gain some return on the investment. This is
best achieved through monetising an idea or research as an invention, protecting it as patents or
other intellectual property (IP: trade marks, registered designs or copyright), that then can
generate benefits across a business value chain.

If scientific knowledge generated through research can be used to create an invention which can
be patented, – meaning that it is novel, non-obvious and having utility, then knowledge can be
transformed into value which may be economic, social or environmental. But how might this come
about? How is value realised from a scientifically derived patented invention.

Essentially it comes down to three things – exclusive time limited use, monetary value and
benefits arising by sales to market. Firstly obtaining a patent means the inventor (or their
employer, or assignee) has the right to exclude others from using their invention in products,
services or processes for 20 years, the implication of which is enormous since it allows exclusive
first access to market and time to fully exploit the opportunity.

Secondly a patent has monetary value that can accumulate at a number of different points and for
a range of different players. Firstly the inventor – this is the person who owns or assigns a patent
(an independent individual, an employee or company); they may receive payments as a salary
increase or bonuses from an employer for having successfully patented an invention. If the patent
is then licensed and assigned to a third party there may be upfront payments and royalties
relating to future exploitation. Patents generate revenue for the inventor.

Start-up companies who own even a single patent benefit in a number of ways. Importantly
having a patent increases a start-ups chances of investment by nearly 50% and similarly
investment levels are over 50% greater than those that don’t; such differences can potentially
translate into millions of pounds. Start-ups with a single patent or a patent portfolio also end up
employing more people on average, generate greater sales, greater exports and ultimately the
company will be valued higher than those without patents or a smaller portfolio of patents. Other
forms of protected intellectual property (IP; copyright, trademarks, registered designs) can also
add value. Start-ups applying for both patents and trademarks, have been shown empirically to
secure >35% more funding compared with firms that applied for only one of the two IP rights,
with the difference as high as 61.2% in the initial funding round. The importance of trademarks to
an investor is that it sends the message that the ‘company’ is market aware – which of course is
crucial to later scale-up and sales. In addition, evidence shows that the existence of both patents
and trademarks increases the likelihood of a start-ups longer-term survival as a viable business. A
business that is successful and grows and choses to float the company on a European stock
market can also expect a higher acquisition value of around £1-2 million.

Patents are indicative of value in a business, demonstrate inventiveness and innovation which is
attractive to investors and shareholders alike. Also those companies with patent portfolio’s are
more likely to export products and services, all of which bring economic benefits to a nation. As a
simple monetary measure of knowledge, translated into a patentable invention then there are
numerous ways to demonstrate monetary value, for the inventor, the owners and shareholders of
companies, and ultimately the national economy through corporate and employee taxes, export
revenues.

The key takeaway point here though is by being able to apply a temporal and monetary value to a
patent, it means the patent becomes a protected asset, and having such an asset – having ‘value’
makes it easier for investors to take risks in business that they would otherwise not be inclined to
make. Hence, the patent provides a bridge between a great invention and the means for its
exploitation. In this way published patents are invaluable to a nation, more valuable than
knowledge sitting in a scientific publication. They generate new businesses, jobs, employment,
livelihoods, income that enable payment of taxes and purchase of homes, consumer goods etc.
According to the UK IP office, the three types of IP (excluding copyright) account for 33% of UK
value-added output (excluding financial services), nearly 20% of total UK employment, and nearly
60% of total goods export value. There are many sound business reasons to generate and protect
intellectual property as patents, registered designs and trade marks.

The UK is an attractive consumer market, such that 93% of all patents filed with the UK patent
office cover the UK (50% of which are filed by UK applicants). The reason for this high foreign
patent files is that they wish to protect their invention in the UK so that they can sell their
products, services and processes to UK consumers. This alone demonstrates the value of a
patent in terms of sales.

There is obviously a monetary value for the business from sales of a new product derived from a
patented invention, but there are additional benefits to the business, in terms of stake-holder and
shareholder value, investment and growth opportunities as well as reputational gains for a
company. This is particularly true when the innovation has a significant impact on peoples lives
and livelihoods, the social and environment in which we all live. And this can be achieved in so
many different ways, both small and large, each bringing value to end-users. We too often
underestimate the ways in which small innovative changes can have large impacts.

So while it is possible to place a monetary value on a new patented drug, or surgical equipment,
or procedure, who can really place a value on the benefits it brings to individuals whose health is
improved, those individuals who lives are extended, or have reduced illness or pain, and the value
they gain from time and experience with their family. Putting health aside, the benefits that arise
from enhanced food quality derived from a novel agricultural input, improved safety of materials or
structures through new diagnostics, more effective energy generation and storage, more efficient
manufacturing and data process solutions through AI, the efficiency and effectiveness with which
a service is delivered – all benefits that have direct and indirect impacts on people’s lives and
livelihoods, on the success of business and hence, ultimately – the growth of nations.

Through providing a means to exploitation and the assurance needed for investment, patents and
other protected IP represent the most effective vehicle by which to enable innovation. Whichever
way you may look at it, the greatest value and utility from the generation of knowledge whether
from research or simply from an idea that has merit, is returned when patents or other forms of IP
are secured.

Finally, we need to ask ourselves whether there is more that can be done to maximise the benefits
of our ideas, and our knowledge whether produced in a laboratory, and engineering workshop or
from practical know-how to add value through invention and its protection in order to benefit each
of us, our businesses and the nation?

David is the author of the two volume book on ‘The Nature of Scientific Innovation’ published by
Palgrave Macmillan in December 2024:

Vol I
Vol II

and regularly presents video’s on his YouTube channel

YouTube