The aim of this paper is to show the importance of patent protection in small and medium-sized enterprises and to identify the major challenges for intellectual property management faced by this group of companies. The study provides a literature review on patent activity in small and medium-sized enterprises. On this basis, it can be concluded that small firms may be disadvantaged by their size in the use of patent protection. Consequently, most companies prefer informal appropriation mechanisms, such as secrecy, lead time advantage or complexity of product design. The reasons for the relatively low patent activity of small and medium-sized enterprises is the lack of sufficient funds and knowledge on the management, as well as the limited capacity of exercising their intellectual property. The article also identifies the most promising directions of further research and articulates a number of recommendations both for managers as well as for policy makers.