Concert pianist Suzanne Pillinger thought she had a world-beating product when she invented a device that helps young children to operate hard-to-reach piano pedals.

She patented her A-Leg-Grow PED-but only in Britain-and sold it through a firm she ran with her husband. But the device was copied by pirate manufacturers, first in South Korea, then in the US.

She says: "I think the problem is that when you're not sure how something will go-and a bit short of cash-you try and do everything as cheaply as you can. We thought we'd just take out a patent in the UK and see how it went."

Pillinger's experience underscores how important intellectual property can be for the success of a business. Yet Richard Stannard, an IP adviser with Business Link Birmingham and Solihull, says many directors at small and medium-sized firms are muddled about IP. "They get confused between patents, design registrations, trademarks and copyright," he says.

Adds David Wilkinson, head of IP at law firm Stevens & Bolton: "The real problem is that most small companies simply don't know what IP rights they have, let alone how best to exploit or enforce them. Yet the value can be substantial."

IP can also include a bewildering array of other knowledge assets including brands, licences, design rights, customer information, management methodologies and mailing lists.

One way directors will recognise IP's importance is if it allows them to charge a premium over their competitors. That extra margin will often be the result of unique IP, says Thayne Forbes, joint managing director of Intangible Business, a brand valuation specialist.

Whatever form the IP comes in, firms ought to build in plans to protect and exploit it from the outset, says Melvyn Ingelson, chief executive of consultancy MJI Business Solutions. "The business model needs to start with the level of IP protection that will allow the company to grow," he says.

"Your intellectual assets should have a business plan of their own to help with their commercialisation," adds Mike Herd, chief executive of the Sussex Innovation Centre. "Viewing your IP as an asset can be a useful way of investigating alternative commercial avenues."

But because of its growing value, many firms find IP defence is the new business battleground.

When Gayna Hart, managing director of software company Quicksilva, found that the firm's trademarked healthcare IT product, Spinal Tap, was under attack from a product with a similar name, she fought back. "We found ourselves going through arbitration," she says, "which took six months and cost between £3,000 and £5,000."

Chris Barling, chief executive of Actinic e-commerce systems, takes a tough line with cowboys who seek to rip off his company's IP. "We have trademarked all of our principal products," he says. "We defend abuse of our trademarks on Google. We contact sellers of our software on eBay to ensure the licence terms are being followed. We have managed to close down at least one consistent rogue vendor."

Stannard points out a strong financial reason for defending IP. "Nobody is going to invest in a business unless they are sure that it owns it own IP."