Strong correlation between companies’ growth and their strategical protection and use of intellectual property

A joint EPO & EUIPO study measures the correlation between the IP activities of small and medium-sized enterprises (SMEs) and the likelihood that they will experience a high growth period. The study finds that SMEs applying for patents, trademarks or designs have a greater probability of experiencing growth compared to SMEs that do not. In the process of reaching these conclusions further results are found of particular interest for innovators and IP portfolio managers as well as potential investors- and business partners.

SMEs & IPRs

SMEs are often said to be the backbone of the European economy and understandably so, considering that SMEs constitute 99 % of EU businesses, employ two out of every three employees and produce 57 %     of the EU’s gross domestic product (GDP). However, a small proportion of the SME cluster accounts for a disproportionate large share of employment and turnover growth. These SMEs are referred to as high growth SMEs. Their success often stems from innovation and IPR and they are often poised for international expansion. Against this background, the EPO & EUIPO study aims to determine the importance of IPR activities for high growth SMEs in Europe and whether more frequent use of IPRs increases a SMEs chances of high growth.

Main conclusions

The assertions listed below highlight the main conclusions of the study. It is generally found that IPR activities are indicative of future success, in so far that the degree of such indication varies depending on the type of IPR.

1. SMEs with prior IPR activities are more inclined to growth compared to other SMEs.

2. The likelihood of becoming a high growth SME is even higher for SMEs that have filed a European IPR compared to a national IPR.

3. SMEs that use bundles of trademarks, patents and designs (instead of a single category of IPR) are most likely to achieve high growth.

4. Prior patent filings perform best as indicators of future high growth SMEs in high-tech and low- tech industries.

5. Prior trade mark filings perform best as indicators of future high growth SMEs in consumer-oriented industries.

To gain more insight about these conclusions, including the supporting statistics, see the EPO & EUIPO study here.

Using IPR’s strategically

IPRs are a key factor in enabling innovative businesses to manifest the value of their ideas and creations and to exploit them commercially. Patents, trademarks, industrial designs etc. allow SMEs to place their ideas on the market with legal remedies made available in case of infringements. Surveys of European patent applications show that the two most important motives for filing a patent are “commercial exploitation” and the “prevention of imitation”.

Besides these well-known functions, IPR strategies have the potential to generate a wider range of benefits, such as creating licensing arrangements, securing investment and facilitating technology transactions. The findings of the study show that IPR strategies are generally adopted by SMEs prior to experiencing high growth. The adoption of an IPR strategy is particularly significant for innovative SMEs. This cluster of SMEs are typically engaged in turbulent markets that are subject to rapid technological evolution. Such an environment is befitting for an innovative SME, but it also requires substantial investment which can stretch an SMEs (often) limited resources to the limits. However, the protection conferred by IPRs allows them to exploit  the value of their innovations and, thereby, compensate them for their resource constraints by leveraging the IPR in question.

The licensing-out of IPRs is similarly an effective means for SMEs looking to expand  their  activities by e.g. reaching out to new markets and generating additional revenues. Licensing is often conducted for the purpose of generating revenue, however, this does not exclude it from being a strategic activity at the same time. For instance, one approach could be   to restrict licensing to an industry’s major players and thereby earn higher fees per license while at the same time avoiding burdensome and cost-consuming administrative work. Another approach could be taking a less exclusive approach, issuing numerous licenses, but still excluding companies viewed as direct competitors from such licensing.

Accura comments

The findings of the joint EPO & EUIPO study should be of interest to a wide range of market actors, in particular to SMEs. Beyond highlighting a stronger reliance of  high growth SMEs on IPRs, the study demonstrates that registered IPRs provide a rich and relevant source of information to identify potential high growth SMEs in the making. As the referred to IPR activities of a company can be used as indicators of potential success, the findings are of particular interest to actors such as investors wishing to identify future high growth SMEs at an early development stage.

It is also worth noticing that the indicators in the study further suggest that there is much to be gained from an effective IP strategy seeking to harness the value from a given IPR. This highlights an area of IPR law that deserves more attention: The ability to proactively exploit an IPR portfolio to capture and develop value in the market. It is not an easy task to develop an IPR strategy and it is especially challenging for smaller firms that are scaling up their activities beyond their domestic market due to the resources to be spent as part of this process.

Companies should take these findings as a friendly reminder that IPRs should not just be kept in a IP portfolio and set aside. Instead, they should be deployed in a strategic manner as most market actors would naturally do when dealing with tangible assets.