Intellectual Assets and Innovation OECD Studies on SMEs ...biblio.upmx.mx/textos/120555.pdf · Sergio Arzeni Director, OECD Centre for Entrepreneurship Head, OECD LEED Programm. TABLE

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OECD (2011), Intellectual Assets and Innovation: The SME Dimension, OECD Studies on SMEs and Entrepreneurship , OECD Publishing.http://dx.doi.org/10.1787/9789264118263-en

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OECD Studies on SMEs and Entrepreneurship

Intellectual Assets and InnovationTHE SME DIMENSION

This series offers policy guidance for governments to foster entrepreneurship and strengthen the performance of SMEs and their contribution to growth and development. It provides evidence-based analysis and policy recommendations on thematic issues such as access to fi nance for SMEs and entrepreneurs, SME participation in global markets, intellectual assets and innovation, high-growth SMEs and women’s entrepreneurship. It also includes country reviews of key SME and entrepreneurship issues and policies in OECD member and non-member countries.

Contents

Chapter 1. Intellectual asset management, innovation and SMEs

Chapter 2. Australia: Intellectual property solutions for innovative SMEs

Chapter 3. Italy: Channeling creativity into competitiveness

Chapter 4. Nordic countries: Matching exceptional design and creativity with progressive policy

Chapter 5. The United Kingdom: Intellectual asset management strategies for diverse innovations

Chapter 6. The United States: Balancing robust protection with rapid innovation

ISBN 978-92-64-11823-285 2011 02 1 P -:HSTCQE=VV]WXW:

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Intellectual Assets and Innovation

THE SME DIMENSION

This work is published on the responsibility of the Secretary-General of the OECD. The

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This document and any map included herein are without prejudice to the status of or

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Series: OECD Studies on SMEs and EntrepreneurshipISSN 2078-0982 (print)ISSN 2078-0990 (online)

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FOREWORD

Foreword

Investment in intellectual assets is growing rapidly in the global economy, as firms, industries and

national economies develop new modes of innovation and search for new sources of growth. The

management of intellectual assets is critical for turning the innovation potential of firms into a real

engine for growth and job creation. Channelling new ideas and creativity into competitiveness is a

challenge, in particular for new businesses and small and medium-size enterprises (SMEs), which

rely strongly on the exploitation of intellectual capital in their business models. However innovative

SMEs develop strategies to manage their intangible assets, including access to Intellectual Property

(IP) systems, to a much smaller extent than large firms. This is a critical concern for policy makers

responsible for strengthening SMEs’ contribution to high-wage employment creation and economic

growth. In order to develop appropriate policy responses, there must be greater knowledge of SME

practices to manage intellectual assets in a rapidly changing market and technological environment.

Improved understanding of the impact of IP regulation is also needed.

This report examines the relationship between SMEs’ management of intellectual assets,

innovation and competitiveness. It is the result of analysis carried out by the OECD Working Party

on SMEs and Entrepreneurship (WPSMEE), as part of the follow up to the OECD Innovation Strategy.

Looking at different national contexts, the study provides insights into the methods used by SMEs for

managing intellectual assets and their ability to access and utilise the IP system. The report

highlights recent and ongoing reforms in regulatory frameworks and investigates the effectiveness of

programmes and policy measures to support SMEs’ access to IPRs. Policy recommendations are

proposed to support national efforts aimed at reducing barriers to SME growth which are related to

intellectual property regulation and management. These include making the IPR system overall more

“SME-friendly”; raising awareness among the broad SME population about the strategic

opportunities offered by IPRs; addressing SMEs’ financial constraints while bringing services and

expertise closer to their working environment; improving cross-border IP co-ordination; and

strengthening enforcement for SMEs operating internationally.

The study covers selected manufacturing and service industries in nine countries: Australia,

Italy, the Nordic Group (Denmark, Finland, Iceland, Norway and Sweden), the United Kingdom and

the United States. Each country study has a sectoral focus, in which the role of SMEs is relevant for

innovation, employment creation and growth, and in which the management of intellectual assets is

a key strategic issue.

The country studies were articulated in three steps: i) analysis of IP regulations, supported by

interviews of IP experts (legal professionals, policy makers, other groups of interest); ii) in-depth case

studies of selected SMEs; and iii) surveys of SMEs in some of the participating countries.

The study benefited from the collaboration and substantive contributions of several national

teams comprised of researchers and experts. Chapter 2 (Australia) was prepared by Dr. Richard

Seymour, Mr. Jarrod Ormiston and Dr. Maria Rumyantseva (University of Sydney Business School).

Chapter 3 (Italy) by Dr. Daniela Carosi and Dr. Massimo Marnetto (Italian Ministry of Economic

Development); the following experts also contributed to the chapter: Mario Barbuto, Pierpaola

INTELLECTUAL ASSETS AND INNOVATION © OECD 2011 3

FOREWORD

D’Alessandro, Daniela Della Rosa, Fabrizio De Benedetti, Sara Giordani, Andrea Granelli, Marcella

Panucci, Antonio Paris and Alberto Piantoni; Chapter 4 (Nordic Countries) by Dr. Christina Wainikka

(Swedish Patent Office); Chapter 5 (United Kingdom) by Prof. Birgitte Andersen (Big Innovation

Centre at the Work Foundation, London) and Dr. Federica Rossi (Birkbeck College, University of

London); and Chapter 6 (United States) by Mr. Rohit Shukla, Dr. Don Oparah and Ms. Tanya

Kiatkulpiboone (Larta Institute, Los Angeles). We also acknowledge the kind support of the Merck

Foundation in funding Chapter 5 of this study, as well as the general support of the European Union.

This report was prepared under the supervision of Ms. Miriam Koreen, Deputy Director of the

OECD Centre for Entrepreneurship, SMEs and Local Development (CFE). Chapter 1 was prepared by

Ms. Lucia Cusmano (Senior Economist, SMEs and Entrepreneurship Division, CFE, OECD) and

Mr. Benjamin Dean (Consultant, SMEs and Entrepreneurship Division, CFE, OECD).

I would like to express sincere appreciation to Mr. Guriqbal Jaiya (World Intellectual Property

Organisation) for his extensive inputs during the course of this study; Mme. Marie-Florence Estimé,

former Deputy Director of the OECD Centre for Entrepreneurship, SMEs and Local Development, for

her support and dedication to this study; and Ms. Mariarosa Lunati (Head of the Business,

Entrepreneurship and Globalisation Section, Statistics Directorate, OECD) for her role in launching

the study.

Sergio Arzeni

Director, OECD Centre for Entrepreneurship

Head, OECD LEED Programm

INTELLECTUAL ASSETS AND INNOVATION © OECD 20114

TABLE OF CONTENTS


Table of ContentsTable of Contents

Executive Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Chapter 1. Intellectual Asset Management, Innovation and SMEs . . . . . . . . . . . . . . . . . 15

Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Objective and method of the study . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Summary of key findings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

SME intellectual asset management practices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Policy recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

Chapter 2. Australia: Intellectual Property Solutions for Innovative SMEs. . . . . . . . . . . 37

Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

Intellectual property regulation in Australia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

Empirical evidence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

Policy implications and recommendations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60

Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60

Annex 2.A1. Clean Technology and Appropriability Regime . . . . . . . . . . . . . . . . . . . . 62

Chapter 3. Italy: Channelling Creativity into Competitiveness . . . . . . . . . . . . . . . . . . . . . 65

Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66

Intellectual property regulation in Italy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67



Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80

Annex 3.A1. Statistical Tables for Innovaton in Italy . . . . . . . . . . . . . . . . . . . . . . . . . . 81

Chapter 4. Nordic Countries: Matching Exceptional Design and Creativity with Progressive Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87

Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88

Intellectual property regulations in Nordic countries . . . . . . . . . . . . . . . . . . . . . . . . . 89

SME issues and challenges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91



Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105

Annex 4.A1. Survey Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106

TABLE OF CONTENTS


Chapter 5. United Kingdom: Intellectual Asset Management Strategies for Diverse Innovations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111

Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112

Intellectual property regulation system in the United Kingdom. . . . . . . . . . . . . . . . 117



Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139

Chapter 6. The United States: Balancing Robust Protection with Rapid Innovation. . . 141

Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142

Intellectual property regulation in the United States . . . . . . . . . . . . . . . . . . . . . . . . . 143



References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166

Annex A. SME Case Studies: Template . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169

Annex B. Survey Questionnaire . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172

Box

1.1. Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Tables

1.1. Profile of case studies across participating countries . . . . . . . . . . . . . . . . . . . . . 20

2.1. Australian intellectual property institutional framework . . . . . . . . . . . . . . . . . . 40

2.2. Intellectual property rights available in Australia and their characteristics. . . 41

2.3. Innovation patent with regard to standard patent . . . . . . . . . . . . . . . . . . . . . . . . 43

2.4. Fees for selected intellectual property protection in Australia . . . . . . . . . . . . . . 44

2.5. Summary of innovative activity in Australian business, key indicators,

2007-08 and 2008-09 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

2.6. Summary of innovative activity in Australian business,

by employment size, 2008-09 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

2.7. Barriers to innovation, by innovation status, 2007-08 and 2008-09 . . . . . . . . . . 48

2.8. Innovation active businesses: barriers to innovation,

by employment size 2008-09 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

2.9. Innovation active businesses: barriers to innovation, by

employment size, 2008-09 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

2.10. Innovation active businesses: intellectual property protection methods,

by employment size, 2008-09 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

2.11. Types of expenditure for innovation purposes, by employment size, 2008-09 . 50

3.1. Italy: Profile of case studies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75

4.1. Nordic countries: Profile of case studies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97

5.1. Types of intellectual property and governance forms investigated

through the UKNOW questionnaire . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114

5.2. Benefits from intellectual property exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115

5.3. Obstacles to intellectual property exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116

5.4. Details of companies interviewed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117

5.5. Size distribution of population and interviewed firms . . . . . . . . . . . . . . . . . . . . 124

TABLE OF CONTENTS


5.6. Firms’ exchange of different types of intellectual property . . . . . . . . . . . . . . . . 124

5.7. Combinations of intellectual property protection mechanisms. . . . . . . . . . . . . 125

5.8. Engagement in intellectual property governance forms . . . . . . . . . . . . . . . . . . . 126

5.9. Strategic benefits derived from engagement in different forms

of intellectual property rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127

5.10. Strategic benefits from the exchange of different forms of intellectual

property rights (SMEs only) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129

5.11. Obstacles encountered when exchanging different forms of intellectual

property rights (SMEs only) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130

5.12. Use of intellectual property and firm performance (average turnover

per employee, in thousand GBP) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132

5.13. Use of intellectual property and internationalisation . . . . . . . . . . . . . . . . . . . . . 134

6.1. Timing: from patent filing to issue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145

6.2. Costs: From filing and prosecution fees to litigation . . . . . . . . . . . . . . . . . . . . . . 146

6.3. Public disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147

6.4. Effective enforcement: combating infringement and infringement allegations . . 148

6.5. Clarity of patentable subject matter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149

6.6. Competing and Industry-specific considerations . . . . . . . . . . . . . . . . . . . . . . . . . 150

6.7. Summary of case studies in the United States report . . . . . . . . . . . . . . . . . . . . . 158

6.8. SME best and worst practices identified in the case studies. . . . . . . . . . . . . . . . 164

6.9. Summary of major intellectual property issues and key corresponding

recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165


The SME Dimension

© OECD 2011

Executive Summary

The management of intellectual assets has become key to coping with market

competition in the knowledge-based economy. Intellectual property rights (IPRs) can

facilitate the process of value creation from intellectual assets. The acquisition and

management of IPRs are critical for firms to turn their innovation potential and creativity

into market value and competitiveness. This is particularly the case for new enterprises

and SMEs that rely heavily on exploiting intellectual capital in their business models.

The variety of IPRs reflects the multidimensional nature of innovation and intangibles.

IPRs are instrumental for SMEs for a number of reasons: to protect and build on their

innovations; position themselves competitively vis-à-vis larger enterprises in global

markets; gain access to revenues; signal current and prospective value to investors,

competitors and partners; access knowledge markets and networks; open up new

commercial pathways; or segment existing markets.

While the significance of IPRs and appropriate intellectual asset management for SMEs

across OECD countries are increasingly recognised, there are few regulatory frameworks or

specific instruments directed to SMEs. This is in part due to the pace of technological

innovation, which often exceeds the time it takes for policy makers to create appropriate

responses to the changing landscape of intellectual property. However, it also relates to the

lack of information among governments and policy makers about SMEs’ practices in

managing intellectual assets, the impact of laws and regulations on SMEs, and SMEs’

evolving needs in the framework of rapidly changing markets.

This study explores the relations between SME intellectual asset management, innovation

and competitiveness in different national and sectoral contexts. It provides insights on the

ability of SMEs to access and utilise the protection systems available to them and identifies

key challenges for SMEs in appropriating full value from IPRs. In particular, the study

addresses the following questions:

● What kinds of intellectual asset management methods are most frequently used by

SMEs in (selected) industries where IPRs are especially relevant, and how do SMEs

choose their protection methods?

● Do the asset management methods differ significantly across sectors, and the type of

innovation they support (i.e. technological versus non-technological)?

● How do different IP regulations support the exploitation by SMEs of their innovative and

creative capacity, and how may these better serve the development of globally

competitive firms?

The study explores the intellectual property (IP) regulatory landscapes and SME intellectual

asset management practices and challenges in nine countries: Australia, Italy, the Nordic

Group (Denmark, Finland, Iceland, Norway and Sweden), the United Kingdom and the

9

EXECUTIVE SUMMARY

United States. It covers a range of industries, in which the role of SMEs is relevant for

innovation, employment creation and growth, and in which the management of

intellectual capital is a key strategic issue. These include creative industries (e.g. film

production, publishing, architecture, design and crafts), knowledge intensive business

services (e.g. Information and Communication Technology, R&D services) and

manufacturing sectors, both in high-tech industries (e.g. biomedical devices) and in design-

intensive traditional industries (e.g. fashion and luxury goods, jewellery, ceramics,

equipment). The study is based on country-level analysis of IP regulation and recent reform

trends, IP expert interviews (including legal professionals, policy makers, and other groups

of interest), in-depth case studies in selected industries and SME surveys.

Key findings

Regulatory reforms are underway

The regulatory debate on IP has come to a critical point, and broad reforms are under way

within countries and at the international level. In 2001, Australia introduced an

“Innovation Patent System”, an alternative option for patent filing with less stringent

requirements and simplified procedures; Italy reformed the IP code in 2005, introducing

measures to increase quality of applications and expertise in the judicial system; Nordic

countries are particularly active in the field of copyrights and are reforming dispute

mechanisms; in the United Kingdom procedures for application and litigation have been

streamlined significantly; the United States undertook the biggest overhaul to patent law

since the 1950s and is devising additional ways to combat IPRs’ infringement. Some of

these reforms are expected to have implications for SMEs, affecting their access to and use

of IP instruments. Furthermore, across countries several “SME-friendly” initiatives have

been launched, to address some of the main challenges that SMEs encounter in accessing

and enforcing IPRs, as highlighted in the study, but most of them are at an early stage of

implementation or pilot stage, and will require careful assessment in the future.

IPRs create value in different ways

The way that SMEs appropriate value from IPRs depends on the sector in which and the

competitive conditions under which they operate. With the exception of high-tech

manufacturing segments, overall, SMEs use strategic methods (i.e. secrecy, trust) and

confidentiality agreements to a greater extent than formal IPRs, such as patents,

trademarks and copyright. In Australia for instance, 28.3% of SMEs use secrecy or

confidentiality agreements and 23% use copyright or trademarks. By contrast, only 8.2% of

SMEs use patents. In the United Kingdom, lead time advantage and secrecy are the most

popular appropriation mechanisms, and even in the knowledge intensive ICT sector,

exchange of proprietary IP concerns only a small share of firms. In particular, SMEs in

creative industries tend not to be patent-intensive and, when IP-aware, tend to use a mix

of registered designs, trademarks and copyright.

However SMEs often have neither IPR awareness nor an IPR strategy

Lack of awareness and of a coherent IPR strategy is a common limitation in SME internal

management practices. Although innovative SMEs are increasingly approaching

knowledge markets and experimenting with strategic use of IP instruments, the large


EXECUTIVE SUMMARY

majority of SMEs in the industries studied do not have an IPR strategy in place, nor do they

integrate IPRs into their overall business strategy or model. The limited use of IPRs is

essentially due to a lack of knowledge and expertise in SMEs, which rarely have staff

properly trained in the area. For instance, in the United Kingdom it is estimated that less

than 30% of SMEs have the internal competences to manage IPRs and even fewer (about

10%) have an explicit IPR strategy. Of the firms surveyed in the Nordic region, 71% do not

provide any IPR training to staff. The access to external services is constrained by resources

and is often ad hoc, driven by specific short-term needs rather than serving a broader,

strategic set of goals.

Additional external obstacles to SMEs’ use of IPR exist

External obstacles to SMEs’ access and use of IPRs stem from the regulatory and legal

framework, particularly in the application and enforcement stages. Cost and time for

application can be a deterrent in some cases, though the highly critical stage for SMEs

seems to be enforcement. A number of innovative SMEs are discouraged from using the IP

system due to a lack of confidence in enforcement mechanisms and the perception of high

costs of monitoring and litigating.

Obstacles to IPR use are particularly acute when SMEs operate internationally

SMEs encounter a unique set of challenges using IPRs when operating internationally.

These relate mainly to cost, in particular legal overheads; multiple filings, regulatory and

technical differences across countries, which often meet with expertise deficiencies; and

the robustness of local IP enforcement. Particularly in the creative industries, as semi-

formal protection methods, such as contracts, are often used, differences in legal systems

increase transaction costs and create further complexity in enforcement.

Policy recommendations

Policies to strengthen SMEs’ participation in innovation, value creation and productivity

growth should target both the internal and external obstacles affecting the SMEs’ access to

the IP system. This study suggests that policy makers should consider an overarching

approach that encompasses the following elements:

Raise awareness about the strategic opportunities offered by IPRs

By and large, SMEs lack a strategic approach to IPRs, missing opportunities to build value

from their intangible assets and strengthen their competitive position. As SMEs often

perceive IPRs solely as defensive tools, the information and training programmes should

aim to increase awareness of the “pro-active” use of IPRs, that is, as a strategic asset around

which innovative business strategies can be developed.

Diffuse knowledge about the variety of IP instruments and the strategic objectives they serve

Policies to increase IPR knowledge should embrace the variety of IP instruments, including

semi-formal protection methods (i.e. contracts) and the interplay between different

instruments, thereby supporting SMEs in developing their own individual strategy.


EXECUTIVE SUMMARY

Standards and best practices, contextualized for the industry at hand, should be collated

and distributed more widely.

Foster IP education and training, bringing services and expertise closer to SMEs

Policies should address SMEs’ lack of expertise in the IP field. IP training should be brought

closer to the actual SME operating field and based on a sound assessment of the target SME

population and its business environment. IP education programmes should address a

broader set of professional profiles. Expertise should be built in the market for professional

services that SMEs typically access. Accordingly, higher education courses in fields like

science, engineering, design and the creative arts should include some education on IPRs,

their strategic uses and implications.

Address SMEs’ financial constraints in the access to IPRs

Policies should address the financial constraints which limit SMEs’ use of formal IPRs,

especially among micro-firms and in traditional sectors. Programmes should particularly

address the obstacles related to their first contact with the IP system, favouring learning

about strategic options and development of routines to handle application and manage

intangible assets. The financing support, per se, however, might not be sufficient to create

incentives to engage with the IP system. To increase their effectiveness, these types of

initiatives should be combined with adequate information and service support.

Make the IPR system overall more “SME-friendly”

Streamlining procedures and reducing application time: particularly in industries where

innovation occurs at a rapid rate, governments should consider creating application fast

tracks and accelerating the granting process. However, in order to limit examination

backlog and enforcement difficulties, these should be implemented with strict guidelines.

This objective should also be pursued by increasing the “quality” of applications, through,

for instance, patent search services. Early experience suggests that “innovation patents”,

which have a shorter lifespan and undergo a simpler examination, should be carefully

evaluated. The evaluation should take into account their cost and time advantages but also

the risk of excessive filing and inconsistency at the international level.

Adequately structuring fees and costs: the costs involved in IPR application should be

addressed and adequately structured. A balance should be sought between, on the one

hand, the desirability of a reduced cost burden on financially constrained SMEs and, on the

other hand, the function of fees which are intended to induce self-selection by potential

applicants and discourage frivolous filing.

Improving litigation and enforcement mechanisms: to reduce time and cost of the IP

enforcement procedures and to increase firms’ confidence in the enforcement

mechanisms, policies should address the problem of a shortage of expertise in IPR in the

judicial system. Transparency should also be increased and procedures streamlined.

Furthermore, policies should explore alternative dispute mechanisms, such as

administrative procedures to arbitrate disputes and decentralised mediation mechanisms.

These are more easily accessed by SMEs and would result in greater prevention of

infringement and easier settlement of disputes.


EXECUTIVE SUMMARY

Improve cross-border IP information, co-ordination and enforcement for SMEs operating internationally

More comprehensive information on IP systems in foreign countries should be provided by

national IP bodies to better inform and assist SMEs seeking to internationalise.

Inconsistencies and variations across IP regimes should be considered and highlighted in

international contexts. Membership of international treaties can facilitate enforceability,

but SMEs should be given broader information and support to access the protection

mechanisms provided by these treaties. Simplification and standardisation of the rules

pertaining to semi-formal protection (i.e. contracts) across countries would be particularly

helpful for the creative industries that rely on such protection.

Improve the metrics for measuring SMEs’ intellectual assets and evaluating their management

Policies to support SMEs’ access to and use of the IP system should be supported by a

measurement framework that takes into account the specific characteristics of SME

innovation processes and outcomes and the nature of innovation and competition in

specific industries. Especially in creative industries and the ICT sector, current patent-

based metrics capture SMEs’ innovation and intellectual assets to a limited degree. In

particular, measures for these industries should adequately consider trademarks and

copyright, but also confidentiality agreements, semi-formal methods and “soft” strategies

(i.e. secrecy and trust), which are the protection mechanisms most widely employed

by SMEs.



The SME Dimension

© OECD 2011

Chapter 1

Intellectual Asset Management, Innovation and SMEs

By Dr. Lucia Cusmano and Mr. Benjamin Dean

OECD Centre for Entrepreneurship

This chapter illustrates the background and methodology of the study,highlighting the importance of intellectual asset management in the process ofSME innovation and growth and the role intellectual property rights (IPRs) playin this process. It presents a synthesis of the findings from country studies,commenting, in a comparative perspective, reforms in intellectual propertyregulation, how SMEs use IPR to generate and appropriate value from theirinnovation, as well as obstacles to SMEs’ effective use of IPRs. It concludes withpolicy recommendations.

15

1. INTELLECTUAL ASSET MANAGEMENT, INNOVATION AND SMEs

IntroductionIn the knowledge-based economy, innovation is a key driver of firm creation,

employment generation and, more broadly, economic growth. New business ventures and

small and medium-size enterprises (SMEs) play a critical role in supporting innovation and

its diffusion across the economy, contributing to the creation of high-wage employment

and enhancing productivity growth. SMEs play an important role in the flow of knowledge

within innovation systems, not just as knowledge exploiters, but also as knowledge

sources, and, increasingly, as “bridges of innovation”, which interact with other players as

knowledge purchasers, providers and partners.

Indeed, the importance of SMEs to innovation dynamics has increased, as income

growth, more niched market demand and changing technologies have reduced the

structural disadvantages of SMEs stemming from their more limited economies of scale

and resource constraints (OECD, 2010). Small firms are active players and often drive new

innovation models, based on intangibles, more open and distributed modes of knowledge

creation, networking and interactive learning.

However, there is an uneven distribution of small firm innovation, between a few

highly innovative firms with high growth potential, and the great majority of SMEs that

innovate very little compared to their large counterparts. In certain high-technology

sectors (e.g. semiconductors, biotechnology), emerging sectors (e.g. green industries) and

creative industries (e.g. film production, publishing, architecture, etc.), innovative SMEs

and start-ups are key players and drivers of innovation, largely based on the combination

of intangibles, new technologies and design skills. Even in traditional sectors, SMEs in

OECD countries represent between 33-50% of innovative firms. These sectors include

household appliances, food industry, paper, wood, furniture, metallurgy and plastics,

which may not invest highly in formal R&D, but rather adopt incremental modes of change,

and where SMEs continuously create product, process, marketing and organisational

innovations (OECD, 2010).

Intellectual asset management is critical for turning SMEs’ innovation potential into market value

The management of intellectual and intangible assets is critical for turning the

innovation potential of SMEs into market value, competitiveness and growth, particularly

for new enterprises and SMEs that rely strongly on the exploitation of intellectual capital

in their business models.

The terms “intellectual assets”, “intellectual capital”, “intangibles” and “knowledge

capital” are sometimes used interchangeably across numerous disciplines. What all these

terms refer to is non-physical assets with three core characteristics: i) they are viewed as

sources of probable future economic profits; ii) they lack physical substance; and iii) to

some extent, they can be retained and traded by a firm.



In the past, intellectual assets were defined as including R&D as well as intellectual

property rights, such as patents and trademarks, which capture the value of innovative

efforts. However, as the modes of innovation and their outcomes have been evolving, this

understanding has been expanded to include other value drivers, such as strong

managerial capabilities and successful business models and strategies (OECD, 2008).

Intellectual assets, however, require other factors to create commercial value

(Bismuth, 2006; Bismuth and Tojo, 2006). In particular, knowledge capital needs to take a

form that other economic players can recognise and assess for its value to be appropriated

by the firm through market mechanisms. The process of “appropriation” of value from

intellectual assets poses various challenges. Generating new ideas, concepts, products and

services entails significant sunk costs in terms of research and/or development efforts.

This raises the problem of appropriability, since intellectual assets are prone to imitation at

a considerably lower cost than that required to develop them, due to their intangible nature

(WIPO, 2004). If knowledge is expensive to produce but cheap to reproduce, in the absence

of specific protection mechanisms it will be under-supplied in the market (Arrow, 1962).

Intellectual property rights (IPRs) are intended to facilitate the process of value

creation from intellectual assets. IPRs provide a mechanism by which knowledge is

converted into a property right and the owner is given the exclusive rights to “exclude all

others from the commercial exploitation of a given invention, new/original design,

trademark, literary and artistic work and/or new variety of plant” (WIPO, 2004). IPRs

therefore give firms, in theory, exclusivity and control of their intellectual assets and, as

such, provide an incentive for investing in their creation and an instrument for their

management within the firm’s business model. At the same time, IPRs favour the diffusion

of knowledge, since they require the public disclosure of details about the innovation

process and outcome.

To address the large number of different forms of intellectual assets, reflecting the

multidimensional nature of innovation, several IPR instruments have been developed to

codify and provide exclusivity to this knowledge. While differences exist across countries,

in most jurisdictions the following formal IPRs are available: patents, trademarks, copyright,

utility models, registered designs, lay-out designs of integrated circuits, new plant

varieties, geographical indications and non-original database rights (WIPO, 2004). A

number of “soft” or “semi-formal” strategies are also employed by firms to manage their

intellectual assets, possibly in combination with formal IPRs. They include secrecy,

confidentiality agreements, lead-time, complexity of design, building-in of specialist

know-how and open source.

There are many ways in which IPRs and “soft” strategies can be used by SMEs to create

value and to position themselves competitively vis-à-vis larger enterprises. IPRs serve the

objective of protecting intellectual assets, thereby preventing others from using the assets

and recouping the innovation investment. However, firms may also use IPRs to access

knowledge markets, as they provide a mechanism by which to buy and sell intellectual assets

(i.e. through licensing). IPRs can provide SMEs with a revenue stream via licensing, sale,

joint-ventures and other commercial pathways for registered products or services. Firms

may use IPRs to open up or segment markets through product and design differentiation or to

build brands and reputation. IPRs can also serve signalling purposes, as they make the

firm’s knowledge capital visible to partners, competitors and investors and allow these

players to value the firm’s innovation achievements and potential. Collaboration and



partnerships between firms can be facilitated by IPRs, which can also be leveraged to gain

access to finance from financial institutions, banks or other investors (WIPO, 2004). IPRs can

also serve SMEs to better understand, discipline and structure their innovation process, as the

steps generally implied by formal registration demand that the often implicit and tacit

innovation processes and outcomes be made explicit and visible.

However, earlier studies show that SMEs use IPRs to a much smaller extent than large

firms. The World Intellectual Property Organization (WIPO) recognises that SMEs’

“innovative and creative capacity [...] is not always fully exploited, as many SMEs are not

aware of the intellectual property system or the protection it can provide for their

inventions, brands and designs”.1 This is a critical concern for policy makers tasked with

developing and expanding the innovation capacity of SMEs and their contribution to high-

wage employment creation and economic growth.

Although the role of intangibles in SMEs’ contribution to innovation and growth is

increasingly recognised across OECD countries, there are few regulatory frameworks or

specific instruments directed at SMEs. This is due to:

● firstly, the pace of technological innovation, which often exceeds the time it takes for policy

makers to create appropriate responses to the changing landscape of intellectual

property; and

● secondly, the lack of information among governments and policy makers about SMEs’

practices in managing intellectual assets, impact of laws and regulations on SMEs, and

SMEs’ evolving needs in the framework of rapidly changing markets.

Objective and method of the study This study aims at improving the understanding of the relationship between SME

intellectual asset management, innovation and competitiveness. It also aims at providing

insights, in different national contexts, into the ability of SMEs to access and utilise the

intellectual property system. In particular, the study examines the following questions:

● What kinds of intellectual asset management methods are most frequently used by

SMEs in (selected) industries where the issue of IP is especially relevant, and how do

SMEs choose intellectual property instruments?

● Do SMEs’ intellectual asset management methods differ significantly across sectors, and

what types of innovation do they support (i.e. technological versus non-technological)?

● How do different intellectual property regulations support SMEs’ exploitation of their

own innovative and creative capacity, and how can IP policy serve the development of

globally competitive firms?

On the basis of analysis of these issues across selected countries and sectors, the

study provides:

● Insights into the legal and regulatory landscape surrounding IPRs, focusing on the

differences in the regulatory regimes across selected countries.

● Comparative assessment of systems and methods used by SMEs for managing

intellectual assets and evaluation of the challenges faced in cross-border activities.

● Policy recommendations to inform national efforts to reduce barriers to SME growth

related to Intellectual Property regulation and management.



Box 1.1. Methodology

Country and sectoral focus

The study covers nine countries: Australia, Italy, the Nordic Group (Denmark, Finland,Iceland, Norway and Sweden), the United Kingdom and the United States.

The following sectors were focussed on by the participating countries:

● Australia: Creative (publishing and film) and manufacturing (clean-tech);

● Italy: Manufacturing and crafts (design-based and equipment manufacturing);

● Nordic region (Denmark, Finland Iceland, Norway and Sweden): Creative (filmproduction, design) with expert interviews and surveys covering a broader industryperspective;

● United Kingdom: Knowledge intensive business services and manufacturing(Information and Communications Technology sector);

● United States: Knowledge intensive business services (including R&D) andmanufacturing (biomedical devices and Information and Communications Technologysector).

These are industries in which the role of SMEs is relevant for innovation, employmentcreation and growth, and in which the management of intellectual assets is a key strategicissue. They have a strong presence across OECD countries and allow examination of theentire spectrum of intellectual property rights.

Research method

The country studies are articulated in three steps: i) analysis of IP regulations, supportedby interviews of IP experts (legal professionals, policy makers, other groups of interest); ii)in-depth case studies of selected SMEs; and iii) surveys of SMEs in some of the participatingcountries.

IP expert interviews have been based on a common interview protocol across countries,involving legal professionals, policy makers and other groups of interest. This was an openprocess in the course of the study, and, in many cases, IP experts were asked for theiropinion and feedback at different stages of the work.

In-depth case studies of SMEs were structured around interviews with principal officers/management at selected SMEs, based on a common interview protocol across countries(see Annex 1). The selection of case studies was based on their ability to provide illustrativeexamples (including diversity across industry sectors) from which key issues for SMEs IPmanagement can be highlighted and valuable best practices learned. The variety of thecases across the different countries provides a rich base of material for assessing IPRpractices among SMEs across different industries, under different policies frameworks.

SME surveys have been conducted in some participating countries (Nordic group andUS), on the basis of a common survey questionnaire (see Annex 2). The SME surveyinvestigated the innovation activities of the responding firms, their IP strategy or rights,the benefits and obstacles to IP use, the litigation and enforcement experience of the firm,and its interaction with the other players in the system, including public and privateservice providers. In the case of the United Kingdom, a different survey questionnaire wasused as it had previously been completed as part of a separate initiative whose goalsoverlap with the goals of this project.

Table 1 outlines the profiles of firms on which the case studies are based in each country.



Summary of key findings

The intellectual property regulatory landscape

Reforms in the intellectual property regulatory framework are underway across all countries

The role of IP has received increasing government attention across OECD countries,

and administrations have become more sensitive to the challenges for SMEs in the current

IP regulatory system. Across the countries investigated, the regulatory debate has come to

a critical point and several reforms have recently been proposed or implemented.

In the United States, an “IP Czar” was appointed by the Obama administration in 2009,

the first White House Intellectual Property Enforcement Coordinator, and a patent reform

bill was passed in 2011, the biggest overhaul to US patent law since the 1950s. Italy, over the

last decade, has undertaken a major rationalisation of its IP system, resulting in a new code

issued in 2005. Australia has created IP Australia, the government organisation

administering statutes relating to IP, with broad-based responsibilities for outreach. The

Nordic countries have developed close co-ordination among themselves in the area and

introduced reforms particularly in dispute mechanisms. The United Kingdom has adopted

several measures to improve the user-friendliness of its IP environment.

International co-operation has accelerated the pace of change. IP international

agreements to which the countries examined participate (e.g. the Patent Cooperation

Treaty administered by the World Intellectual Property Organization) have been the object

Table 1.1. Profile of case studies across participating countries

Case Industry/sector

Australia Educational publisher Publishing

Literary agent Publishing

Author Publishing

Production company A Film

Production company B Film

Clean-tech SME Manufacturing

Italy Electronic tool and equipment manufacturer Manufacturing

Ceramics designer Design

5 gold jewellers Jewellery

Luxury goods designer Design

Doors and windows manufacturer Manufacturing

Clothing manufacturer Manufacturing

Nordic Countries(Denmark, Iceland, Finland, Norway and Sweden)

Television production company (Sweden) Film

Production company (Finland) Film

Television production company (Norway) Film

Television production company (Denmark) Film

Fashion designer (Sweden) Design

Design company (Finland) Design

Industrial design company (Norway) Design

Furniture design company (Denmark) Design

United Kingdom Company 1: Delivering video to PC platforms Information and communications technology

Company 2: Software development Information and communications technology

Company 3: Delivering video to mobiles Information and communications technology

Company 4: Delivery of web-based services Information and communications technology

United States Contract research and development company Commercial physical and biological research

Manufacturer of “lab-on-a-chip” technologies Micro-fluidics



of important reforms in recent years, and are expected to be further reformed as policy

makers and other stakeholders debate how to improve the capacity of the IP system to

respond to needs and opportunities emerging from a rapidly changing technological and

competitive landscape. In Europe, for instance, discussion is underway on an EU patent,

which would have unitary effect in the territory of the European Union, and the

establishment of a European and EU Patents Court, as well as on software patentability.

The IP landscape is therefore expected to change substantially in the coming years.

Some reforms are expected to have implications for SMEs

Although SMEs are generally not identified as a category requiring special treatment

within the IP regulatory framework, several “SME-friendly” initiatives have been launched

within countries. Furthermore, although most of the recent developments in IP regulation

are not specifically targeted at SMEs, they are nevertheless expected to have a far-reaching

impact for small businesses, affecting their access and use of IP instruments.

Australia introduced an “Innovation Patent System” in 2001, as an alternative option

for patent filing, specifically designed to protect inventions that do not meet the inventive

threshold required for standard patents. Simplified procedures, lower cost and shorter

filing time, to match a shorter life span of the protection, are expected to stimulate

adoption among the SME population. However, the implications of this new instrument for

SMEs are still a matter of debate. In early 2011 the Australian Minister for Innovation,

Science and Technology requested the Advisory Council on Intellectual Property to

undertake a process to review the system. One matter that requires evaluation is whether

larger companies are able to use such innovation patents to broaden their competitive

position to the detriment of SMEs. Furthermore, “Innovation Patents” raise the problem of

consistency with the international IP system, which is currently moving towards

standardisation and tighter patent processing.

In Italy, under the new 2005 IP code, measures were introduced to increase the quality

of patents and the capacity of firms to defend them in Courts, including a patent search

service performed by the European Patent Office (EPO), on a bilateral agreement basis, and

a new system of fees, proportional to the claims, intended to improve the balance between

protection and disclosure. In addition, several measures have been implemented to

improve IPR enforceability: new institutional tasks have been assigned to the Italian Patent

and Trademark Office, strengthening its role in combating counterfeiting as a fundamental

tool to enhance intellectual property; IP litigation special sections were created within

ordinary and appellate courts, introducing specific expertise in the field of IP protection.

The Nordic countries have a long tradition of co-operation in the field of IP regulation.

However, consistency across systems has changed to some degree, as only some of these

countries are members of the European Union (Denmark, Sweden, Finland), whereas the

others (Iceland and Norway) are part of the European Economic Area. Since the European

Union has been very active in the field of IP regulation, this has created differences

between the two groups. In addition, even in the group of EU members, some EU directives

have been implemented differently at the national level. In particular, the Nordic EU

members have taken active part in the European initiatives aimed at improving diffusion

of information and training mechanisms for IP users. Across the Nordic Group, recent

debate has focussed on reforming IP tools that are particularly relevant to creative

industries, such as trademarks and copyrights. Administrative procedures to handle

trademark disputes have been introduced in Denmark, and their implementation is also



being discussed in the other Nordic countries. In the field of copyrights, collective licences

which grant the copyright holders revenues any time their work is used have been adopted,

also in combination with other work protected by copyright.

In the United Kingdom, reforms have intended to make the IP system more user

friendly, and are therefore expected to benefit SMEs in particular, though the evidence

about SME access to the new tools or procedures is mixed. Procedures for patent

application and litigation have been streamlined, through institutional and regulatory

changes, as well as by injecting expertise in the system. In 1989, a Patent County Court

(PCC) was set up in London, to make patent litigation more accessible to SMEs. In 2003, the

option for a streamlined procedure intended to solve disputes more rapidly was

introduced. A patent opinion service was launched in 2005 by the United Kingdom Patent

Office to provide key information to potential patent applicants and improve the quality of

applications. And in 2010, new procedures aimed at further simplifying and reducing the

cost of the patent litigation process were introduced by the PCC.

In the United States, the Unites States Patent and Trademark Office (USPTO) has

implemented several measures to fast track selected patent applications from the backlog,

including an accelerated examination process with strict guidelines, inventor age and

health considerations, bilateral arrangements with other countries’ patent offices (“Patent

Prosecution Highway”), and has even created an Ombudsman program to resolve

breakdowns in the normal prosecution process, with senior examiners supporting

applicants with unresolved issues. Furthermore, recent judiciary cases are expected to

have far-reaching impact in the field. The landmark KSR case (KSR vs. Teleflex), with the

decision by the US Supreme Court to essentially relax the legal standard for finding an

innovation “obvious” in patent examinations and disputes, and the Bilski case, dealing

with method patents, are reshaping the patent landscape. Broad change is expected from

the 2011 reform bill. This intends to align the US with international practice by granting

patents to the first person to file, rather than the first to invent, as traditionally in the

United States system. The bill also addresses the concern about the US patent backlog and

the need to increase the capacity to respond rapidly to applicants, giving the patent office

the right to set its own fees and keep the proceeds to hire more examiners.

SME intellectual asset management practices

Use of formal intellectual property rights is directly related to firm size

SMEs make less use of formal IP instruments than large firms, even when active in

innovation. In Australia, the proportion of innovative SMEs2 that use some form of IPR is

45% compared to 67.4% of large firms. For micro enterprises (0-4 employees), this share

falls to 32.9%. In Italy, where their presence is skewed towards traditional sectors, SMEs

exhibit a low propensity to make use of formal IPR instruments, although their increasing

participation in international technology transactions, as registered by the cumulative

value of payments and earnings in the country’s Technology Balance of Payments,

indicates greater capacity to manage formal knowledge rights. In the United Kingdom,

according to the country’s Innovation Survey, larger enterprises attach greater importance

than smaller enterprises to all methods for protecting intellectual property, in the ratio of

2:1 (Robson and Haigh, 2008). Across all firm sizes, lead time advantage is the most popular

appropriation mechanism, closely followed by secrecy (Hughes and Mina, 2010), and, even



in knowledge intensive sectors, such as ICT, exchange of proprietary IP concerns only a

minor share of firms.

When SMEs adopt formal IPRs, they have a clear tendency to use confidentiality

agreements, copyright or trademarks above all other instruments, particularly patents

(with the exception of some high-tech sectors). In Australia, 28.3% of SMEs use secrecy or

confidentiality agreements and 23% apply for copyright or trademarks. This is well in

excess of the 8.2% of SMEs that use patents. Confidentiality agreements are the most used

type of IPR by SMEs also in the creative industries of the Nordic countries (71.3% of

surveyed firms), although trademarks (52.8%) and patents (30.6%) are also common. Even

in the patent-intensive high tech segments surveyed in the United States, the large

majority of SMEs (91%) adopt confidentiality agreements.

SMEs tend to adopt strategic methods, such as trust and secrecy, more than formal rights

The relatively limited use of formal IPRs by SMEs in the majority of countries studied

does not imply, per se, that SMEs lack a strategy for managing their intellectual assets.

Rather, the decision not to adopt any formal IPR tool can be consistent with the firm’s

overall business strategy and the nature of the innovation processes and outcomes in the

industry. In fact, the adoption of strategic methods, such as trust and secrecy, is common

across sectors, although highly innovative SMEs tend to combine strategic methods with

selected IPRs and, largely, with confidentiality agreements.

In certain industries, characterised by rapid innovation cycles, formal IPRs are simply

not suitable or required. For instance, in Italy, in the fast-changing fashion clothing

industry, firms are not particularly concerned about applying for IPRs, as their business

model rests on the creation of new collections at such rapid intervals that old ones quickly

become obsolete. In the Nordic region, among the creative SMEs surveyed that do not use

IPRs, the main argument is that this is not needed or relevant to the firm’s business model.

In the United Kingdom, across all firm sizes, lead time advantage is the most popular

appropriation mechanism, closely followed by secrecy (Hughes and Mina, 2010), and, even

in knowledge intensive sectors, such as ICT, exchange of proprietary IP concerns only a

minor share of firms. In this respect, differences across industries can be more important

than differences between SMEs and large firms in the same industry, although, ceteris

paribus, SMEs generally lag behind larger firms in their tendency to obtain formal rights.

The use of intellectual property rights by SMEs differs widely across industries

SMEs’ use of IPRs depends on the competitive characteristics of their industry and the

nature of the innovation processes. In high technology manufacturing industries,

innovative SMEs rely strongly on patents, in much the same way as their larger

competitors. In the United States, in high-tech and high-growth industries, SMEs are

highly patent-intensive and, indeed, the smallest firms (those with fewer than

25 employees) produce the greatest number of patents per employee. In the United States

industries surveyed, patents are the most often used form of IPR (76%), followed by

trademarks (66%) and, to a lesser extent, copyright (53%). Indeed, in the case of the most

dynamic firms, navigating the patent filing process (including close interaction with

examiners and handling of claims rejection) has become part of the organisation’s

routines.



In many start-up companies in high-tech fields, patents are often the firm’s single

most valuable asset. The clean-tech case study in Australia shows how investment in

patenting can represent a crucial step for entering the high-tech business, and the main

asset on which financing and commercial strategies are built. The involvement of venture

capitalists, who are attracted by the intellectual asset, can prove critical for supporting IP

management in the early stages, when inventors lack expertise in this area.

In the high-tech industry landscape, the ICT sector exhibits specific features with

respect to IPR relevance and management. In the United Kingdom, the ICT industry

appears to have a much lower average patent use than most technology-intensive

industries. This is no doubt related to the fact that much of the output in this industry

cannot be patented, but it is also linked with the emergence of new innovation modes,

based on the exchange of non-proprietary IP, as in the open source model. Patenting is not

an issue when the business model is built around content and branding, rather than

technology, as a product, or when the value of the products resides in the quality of the

service and the user experience, both of which are difficult to imitate. Overall, the small

ICT firms instead opt for copyright, General Public Licenses and trademarks. In particular,

small firm size does not appear to be a particular constraint to the use of copyright.

In the creative industries, different IPRs are typically used depending on the segment.

In the publishing, television and film segments, copyright and trademarks dominate the

formal IPRs, and patents are among the least used IP tools. In Australia, patents are used

by only 1.6% of innovative SMEs in the Arts and Recreation Services industry (including film,

video, radio, television and arts). Instead, the most used formal IPRs are copyright and

trademarks (25.2% of innovative SMEs). Similarly, in the Nordic region, trademarks and

copyright are seen as vital for firms in the film industry, whereas firms in the design

segment use a mix of registered designs, trademarks or copyright depending on their

business strategy.

In the design-based traditional manufacturing industries discussed in the Italian

report, propensity to patent is relatively low and, following a problem-solving approach,

patenting itself is often the outcome of a process intended to solve specific technical

hurdles. In some instances, a formal IP strategy can result from collaboration with other

research actors, such as universities, as the research interaction itself induces a more

explicit structuring of the innovation activity and codification of its outcomes.

SMEs appropriate value from intellectual property rights in different ways

... protecting

IPRs are a way for SMEs to appropriate value from their innovations and intellectual

assets, but the benefits perceived are closely related with the firm business strategy and

context. IPRs firstly serve a protection purpose, giving firms the exclusive right over an

intellectual asset and, in this way, allow them to recoup their investment in innovation.

IPRs are therefore used as a deterrent to would-be imitators and provide a legal basis upon

which to launch infringement litigation. This is a particularly strong motivation in high-

tech manufacturing industries, where the sunk costs of R&D are high, as well as in low and

mid-tech industries in which functional and aesthetic improvements can be easily

imitated. The defensive motivation is also strong, however, in some creative industries. In

the Nordic region, the survival of the film production industry is seen as resting on the

copyright protection of films. In the publishing industry, the displaying of copyright on all



published works is meant to signal to the general public the implications of unauthorised

reproduction of content.

... trading

SMEs increasingly pursue IPRs to gain access to knowledge markets, although IP

choices are still not frequently embedded in a coherent long-term strategy. The

opportunity to trade intellectual assets opens up new sources of revenue, but can be also a

strategy to build value on existing assets or to combine complementary assets. In the

United Kingdom ICT study, the survey suggests that the large majority (67%) of SMEs that

exchange patents do so because they hope to obtain direct income from market

transactions. The trend is also emerging in creative industries. In the media production

industry, the licensing of “program formats” has become a potentially lucrative way to

generate value. In Australia, digitisation is emerging as an opportunity to “monetise more

IP”, as production companies can derive their revenues from the proceeds of Digital Media

Rights for online and mobile content. For film production companies, as examined in the

Nordic countries, the acquisition of rights from other holders and the capacity to combine

them, by adopting adequate contract structures, can be at the core of the business model.

A potential challenge as IP markets develop relates to “patent blocking”, which is the

practice of acquiring patents and holding them, not for use but simply to prevent rivals

from patenting related inventions. This appears to be an issue particularly in the case of

patenting by large firms, whereas the marginal cost of such patenting for SMEs might be

too high. In the United Kingdom, in 2006, 40% of large firm patents and 18% of small firm

patents were left unused (Gambardella et al., 2007).The appearance in recent years of so-

called “patent trolls” – firms whose entire business model is built around acquiring IP and

then using it to seek aggressive licensing regimes or to litigate against companies in

“adjacent” or similar areas – has been controversial. On the one hand, by acting as

intermediaries, buying patents rights from innovators and licensing technologies to

producers, these firms can provide SMEs a unique channel to sell or transfer their rights.

On the other hand, this development has the potential to stifle innovation, as novelties

may remain unexploited and litigation in the system increases.

... collaborating

SMEs can use IPRs as a way to increase collaboration and knowledge sharing with

other firms and actors. One trend observed in Australia and the United Kingdom is the

growing use by SMEs of open source technologies to this end, with firms increasingly

constructing business models that allow a part of their technology to be adopted, built on

and improved by the open source community. This allows them to harness its collaborative

power and create value for the firm at the same time. On the other hand, the adoption of

open source is still relatively limited in the sectors surveyed in the United States

(biomedical and ICT) and the Nordic creative industries.

... signalling to investors

SMEs may use IPRs, particularly in patent-intensive industries, to secure access to

finance. Firms in the United Kingdom ICT case studies suggested that their motivations for

patent filing were primarily financial and related to competitive signalling rather than the

actual protection from innovation conferred by the patent. However, according to the



survey of SMEs, the objective of using patents to raise venture capital concerns only a

certain number (22%) of SMEs that exchange patents.

... opening up and segmenting markets

SMEs use IPRs, particularly trademarks and copyright, as a part of their branding

strategies and for market segmenting. Branding can serve to create or access new markets,

and this strategy is increasingly used by SMEs that manage high-value intangibles. In up-

market segments, business strategies are built on leveraging globally known brand names

and exclusive devotion to the evolution of the brand and the commercialisation of related

luxury goods, while selling physical production assets. This is the case for an Italian former

luxury car designer and manufacturer, which completely changed its business by building

value out of the brand. Similarly, a film production company in the Nordic region extended

the use of its trademarks from the films produced to the merchandising, thus building

substantial value on its protected intangible assets. In Australia, production companies are

considering the possibility to trademark and license their brands globally as a part of their

business strategy for expansion.

Obstacles and challenges to SMEs’ use of intellectual property

In the access and use of IP instruments, SMEs suffer from a number of internal and

external obstacles, which preclude them from fully benefiting from their intellectual

assets, and creating and appropriating value from intangibles.

SMEs lack awareness and a coherent intellectual property right strategy

Although innovative SMEs are increasingly approaching knowledge markets and

experimenting with strategic use of IP instruments, the large majority of SMEs do not have

an IPR strategy in place, nor do they integrate IPRs into their overall business strategy or

model. Entrepreneurs or SME managers, even when oriented towards innovation, are often

not well aware of the benefits they might accrue by adopting an IPR strategy. Often, when

IPRs are required, they are the outcome of a set of actions, responding to short-term needs

or opportunities, rather than a well-defined long-term strategy.

This limitation emerges strongly across the country surveys and case studies,

although differences exist between the internal capability to handle IP matters in the high-

tech industries, such as the United States biomedical case, and SMEs in creative industries

or design-based traditional manufacturing. In the former, the majority of firms have clear

procedures and strategies to access or use the IPR system and, indeed, the acquisition of

IPRs can represent a necessary first step to enter the market. By contrast, SMEs in creative

industries are likely to be unaware of the full range of potential benefits of IPRs and to have

limited knowledge about how to access and use IPR instruments. To illustrate, in Australia,

one case study refers to an author who has no interest in any form of IPR, and has no

knowledge about the system, despite its widely perceived importance in the publishing

industry. A film company in the Nordic countries does not use trademarks, because “no

one had explained the benefits of trademark protection”. A design company, adopting a

strategy whereby its customers retain control of the rights to the designs, openly

recognises that this has led to “bad experiences”, but had never considered the benefits of

copyright to mitigate these problems.

Even in pursuing and deriving advantages from single IP tools, SMEs are often driven

more by immediate commercial advantage, and are less concerned with the strategic use



of their intellectual assets. In such cases, there seem to be a lack of knowledge about the

strategies guiding timely development of formal protection and “soft” (sometimes less

formal) methods. Lack of understanding of the competitive landscape and lack of strategic

focus on the direction of the technological innovations are part of such thinking. In other

instances, however, such as the United Kingdom study on the ICT sector, the findings do

not give rise to such concerns.

In general, where SMEs do have an IP strategy in place, it is often underdeveloped and

does not have a lot of effort put into it. Intellectual Property Office (IPO) experts in the

United Kingdom estimate that less than 30% of SMEs have the internal competences to

manage IPRs, and even fewer (about 10%) have an explicit IPR strategy.

The Italian study highlights how SMEs in traditional design-based manufacturing

largely lack a strategic approach to IPRs and mainly perceive IP tools solely as a defensive

instrument, whose benefits do not match the (actual and perceived) costs. A greater

awareness of the benefits of industrial protection, and its relevance for the firm

performance and growth, is observed in the case of “global” SMEs, which operate in

overseas markets. These global companies are more aware of the opportunities provided

by the IPR system and are willing to invest significantly in reliable professional services, for

preparing and filing IPRs, especially patents, to defend the ownership of their inventions.

This lack of strategy and expertise often goes hand in hand with an ad hoc approach to

the practice of IP management and lack of appropriate monetary assessment of the firm’s

IP portfolio. A majority of surveyed firms in the United States (55%) and in the Nordic

countries (80%) have never actually assessed the value of their IP.

Limitations in SMEs’ IPR strategies can also be seen in the weak monitoring of the

firm’s IPRs. Of the SMEs surveyed in the Nordic region, 76.5% of respondents do not actively

check for potential infringement of their IPRs. When firms do find out about infringement,

it is often through customers or sometimes employees. In this sense, staff training in IP can

also serve the purpose of raising attention and improving monitoring against

infringement. This is the case of an Italian manufacturing firm that has adopted a

“preventive intelligence” strategy, which involves raising employees’ awareness and

training them to recognize imitation, especially at trade fairs. The strategy aims to promote

preventive extra-judicial solutions to infringement.

SMEs’ lack of knowledge and expertise results in inadequate management practices

The lack of awareness of IP essentially derives from a lack of knowledge and expertise

in SMEs. These firms rarely have staff properly trained in IPRs or even staff with an

elementary understanding of the field, particularly in the creative industries. In the Nordic

region, 71% of the firms surveyed do not provide any IPR training to staff. In the publishing

industry in Australia, employees within the SMEs studied simply have no staff training in

IPRs. Even in the patent-intensive firms studied in the United States report, only 50% of the

firms surveyed have an individual dedicated to IPRs.

The lack of IP knowledge and training is linked to the resource constraints typical in

SMEs. SMEs often do not have the financial resources to implement training strategies or

to look outside for expertise. SMEs in the creative industries rarely seek out advice on IPRs

and when they do, this information is sought in an ad hoc manner. The Nordic report finds

that most SMEs will only consult IPR lawyers or patent attorneys when they themselves see

the need, which is often related to specific questions about patentability, rather than a



broad IPR strategy. Furthermore, given the high price associated with legal services or

strategic consultancy, when SMEs do seek advice, it is not always from IPR specialists,

raising questions about the quality of the advice. In some Australian cases, film companies

only occasionally seek advice from legal counsel, and this is mainly when dealing with

high-profile or complex IPR-related contracts.

The services provided by national offices or agencies seem to reach the SME target

only to a limited degree. For instance, in the Nordic countries, surveys indicate that

external legal professionals are the group most likely to be contacted by SMEs seeking

advice, while the National IP Office (32%) is only slightly more likely to be contacted than a

colleague/friend (24%) or the Internet (28%).

Digitalisation poses new challenges to the intellectual property right system

A contemporary issue in the creative industries with respect to IP management

concerns digitisation, driven by the ongoing digital and Internet revolution. While certain

segments of the creative industries are embracing this shift by adjusting their business

models to reap its benefits, the challenges associated with effectively protecting the

intellectual property that underlies digital content currently outweighs the perceived

benefits for SMEs in these industries.

Digitalisation presents several potential benefits for SMEs that embrace it.

Digitalisation enables firms to monetise more IP, to lower unit costs of production and

distribution and to reach new audiences. These benefits however seem to be outweighed

by several perceived costs in the current IPR framework. The firms studied cited the

complexity of IP protection and the additional costs of digital rights management software.

In these industries, the main concern relates to increased piracy due to greater ease of file

copying/sharing and problems ensuring authors retain appropriate rights.

The intellectual property right system is not “SME-friendly”

External obstacles to SMEs’ access and use of IPRs exist and stem from the

configuration of the regulatory and legal framework. Even when a firm does possess the

requisite knowledge of IPRs and a clear strategy on how to use IP to appropriate value from

its intellectual assets, like some of the SMEs studied in the manufacturing and high-tech

industries, obstacles arise in the application and enforcement stages, related mainly to

cost and time. More generally, the system itself appears to be “unfriendly” towards SMEs,

in that the configuration and procedures combine with the SMEs’ internal constraints to

place them at disadvantage vis-à-vis larger competitors.

The cost and time taken for IPR applications, particularly patents, appear to be

obstacles to SMEs’ effective use of the IPR system, although cost itself is not always seen to

be the greatest challenge. In the Nordic region, of those firms that use IPRs, over half

(53.3%) feel that the cost of application is an obstacle to their use of IPRs, but the share is

lower (31%) among firms that do not use IPRs, suggesting that cost of application itself is

not so frequently the main barrier to SME entry into the formal IP system.

The findings from the US suggest that time is a major concern in patent procedures,

as firms have to wait about two years for the patent application to be processed, although

companies seem to be prepared for this. In the United Kingdom as well, IP experts suggest

that the amount of time taken to process a patent application is excessive and particularly

burdensome for SMEs.



SMEs encounter severe problems at the stages of IP monitoring, litigation of

infringement and enforcement. Lack of confidence in the enforceability, at sustainable

cost, of IPRs deters SMEs from accessing the system in the first place. The US survey reveals

that cost of enforcement is the most important obstacle that inhibits firms from using IP

protection. Furthermore, while 57% of the surveyed firms monitor potential infringement

of their IPRs, they generally hold back on actual enforcement, unless it is deemed

strategically imperative, due to cost concerns. The threat of litigation is often a strategic

tool used by more resourceful (and often larger) firms to intimidate SMEs.

More disconcertingly, SMEs do not trust the enforcement process to uphold their

rights. Beside cost and time, courts are not seen to possess the required knowledge and

experience in IPRs, most notably in those dealing with patents and design. It is a common

complaint by innovative SMEs, especially in creative industries, that courts are ill prepared

to handle their cases, as they possess little knowledge about the firm’s industry and its

innovation processes. As a result, SMEs often resort to out-of-court settlements or other

means to resolve IPR disputes.

Some countries have introduced measures that specifically address this concern about

lack of expertise at the enforcement stage, creating IP special sections within courts (Italy)

or patent courts and streamlined procedures to make patent litigation more accessible to

SMEs (United Kingdom).

Using intellectual property rights when operating internationally is troublesome

A unique set of IP-related issues and challenges are faced by SMEs when they

internationalise. These relate mainly to cost, in particular legal overheads, multiple filings,

regulatory and technical differences across countries, which often meet with expertise

deficiencies, and the robustness of local IP enforcement.

The price of obtaining registered rights in different countries is affected by transaction

costs. One driving factor in this regard is the cost of lawyers to write different kinds of

contracts and agreements that are needed when engaging in cross-border commerce. For

firms using semi-formal protection (i.e. contracts), these costs can be significant, due to the

regulatory differences between different countries.

One key determinant for SMEs’ entry into foreign markets, regardless of cost, is the

size of the potential market opportunity or commercial viability of a business. Many SMEs

engage in semi-formal protection, such as non-disclosure agreements, non-competition

agreements and other contracts acting under the belief that semi-formal protection is

easier to obtain and allows the business to enter the market quickly. However, semi-formal

protection relies on the legal system for its enforcement, and the rules vary between

different countries and are often difficult to compare.

The problems posed by IPR enforcement for SMEs become compounded when they

operate across borders. In the publishing industry, for instance, complexities and costs

arise in the translation process. In an Australian case, difficulties arose in the exporting of

translated works, as the international publisher and the translator often own the IPR of the

translation. Exporting to Europe has also become quite expensive, as translators also

demand a royalty and contend that they retain copyright over the work translated. Another

Australian company indicated that copyright enforcement in China remains a problem.

In the manufacturing sector, difficulties and uncertainties in the enforcement process

also prove to be an important barrier to SME market expansion in foreign markets. This is



the case of an Italian producer of electronic tools and equipment, whose negative

experiences with patent infringements by Asian competitors has led to a lack of

confidence in its strategy of expansion towards new markets and slowed its process of

internationalisation.

Policy recommendationsThe IP landscape is changing rapidly, as reforms are implemented across countries

and co-ordination is enhanced through international treaties and institutions. Although

SMEs are not generally identified as the main beneficiaries of the broad reforms, the

challenges for SMEs in the regulatory system are increasingly taken into account in the

policy debate. Furthermore, “SME-friendly” initiatives have been launched in different

countries to reduce the gap that currently exists between the opportunities for SMEs to

create value from their intellectual assets and their capacity to access and use the existing

instruments.

Policies to strengthen SME participation in innovation, value creation and productivity

growth should target both the internal obstacles, related to a lack of knowledge and

strategic perspective, and the hurdles which affect the accessibility of the IP system

for SMEs.

Raise awareness about the strategic opportunities offered by intellectual property rights

SMEs largely lack a strategic approach to IPRs, missing opportunities to build value

from their intangible assets and strengthen their competitive position. The strategic

weakness is mainly related to a lack of information and knowledge, as SMEs often have

only a partial perception of the benefits and costs implied by access to IP instruments. As

SMEs often perceive these solely as defensive tools, the information and training

programmes should aim at increasing awareness of the “pro-active” use of IPRs, as an asset

around which innovative business strategies can be developed, as a tool for opening up

new markets or segmenting existing ones, and as a key to access knowledge markets, gain

revenues or combine with complementary assets to generate new value, and as a signal to

competitors, customers, potential partners or investors.

Diffuse knowledge about the variety of intellectual property rights and the strategic objectives they serve

Policies aimed at increasing SMEs’ awareness and knowledge about the relevance of

IPRs to their value creation process should embrace the variety of IP instruments, helping

SMEs to develop their own strategy. Currently, national patent and trademark offices are

often assigned responsibility to diffuse information on IPRs. However, the information

programmes are mainly focused on registered rights, particularly patents, and generally

concern the normative and technical side, rather than the strategic dimension in the firm

business environment. More comprehensive information on the range of IP instruments

should be provided, including on relevance and mechanisms for semi-formal protection

methods (i.e. contracts) and “soft strategies” (i.e. secrecy, confidentiality agreements, lead-

time, complexity of design and building-in of specialist know-how, open source, etc.), and

the interplay between different instruments. Broadening the service to the full range of

IPRs and “soft” strategies would be particularly beneficial for SMEs in creative industries,

knowledge intensive services and ICT. Industry standards and best practices,



contextualized for the industry at hand, should be collated by national IP agencies and

distributed more widely.

It is important for SMEs that information on IPR be easily accessible. For this purpose,

governments should ensure that information is provided through adequate formats and

channels, such as on the web, but also that it can be sourced at institutions at the territorial

level (e.g. Chambers of Commerce), where SMEs typically demand information and

services. Several advanced programmes exist in this area (e.g. the web service of the

Swedish Patent Office, the United Kingdom IP Help Desk and IP Healthcheck, the Australian

IP toolbox), and their experience could be shared to learn about best practices.

Foster intellectual property education and training, bringing services and expertise closer to SMEs

SMEs generally lack expertise in the IP field. Across countries, a large number of

publicly supported education and training programmes have been created in recent years

to address this deficiency. The assessment of their impact on SME access to IP and strategic

use of intellectual assets should be promoted, as it would improve training schemes and

allow institutional learning. Early evaluations suggest that, for these initiatives to impact

SMEs, education programmes should address a broader set of professional profiles, and IP

training experiences should be brought closer to the SME operating field, in the context of

their industry, competitive and innovation environment.

Expertise can be built in the labour market and the market for professional services

that SMEs typically access. This includes professional profiles that tend to work close to

SMEs, especially in high-tech and creative industries, such as: lawyers and accountants,

engineers, architects, designers and other technical specialists. Accordingly, higher

education courses in fields like science, engineering, design and the creative arts should

include some education on IPRs, their strategic uses and implications, contextualised to

the specific needs of the field at hand. Multi-disciplinary educational institutions that

bridge the technology and creative/design fields, like Alvar Aalto University in Finland,

could also be considered.

To encourage participation and increase effectiveness, IPR training directed at

entrepreneurs and SME employees should be based on a sound assessment of the target

SME population and its business environment. Support through “peer” networks, business

associations, small business development centres and other intermediate institutions

should be further encouraged by governments, involving these players in the

dissemination of information and training initiatives.

Address SMEs’ financial constraints in accessing intellectual property rights and provide strategic support

Financial constraints significantly limit SMEs’ use of formal IPRs, especially among

micro-firms and in traditional sectors. By discouraging access, the financial hurdle turns

into an obstacle for innovative SMEs to become familiar with the IP system, learn about

strategic options and develop routines to handle application and manage intangible assets.

To date, countries have implemented several measures to assist SMEs in this respect,

including “IP vouchers”, government-sponsored IP consultants and IP funds, which, as in

Italy, assist SMEs (and Public Research Organisations) to prepare and file quality patents.

These experiences would need full assessment, in order to consider diffusion and scaling

up, taking into account policy effectiveness and additionality.



Financing support, per se, might not be sufficient to create incentives for innovative

SMEs to approach the IP system. As SMEs often find it difficult to navigate the IP landscape,

to increase their effectiveness, these types of initiatives should be combined with adequate

information support and, possibly, business consultancy services. In this respect, so-called

“IP angel” initiatives could be considered and promoted through public-private

partnerships, with professionals supporting the innovative start-up or SMEs in accessing

the IP system for the first time or in articulating their IPR strategy.

Make the intellectual property right system overall more “SME-friendly”

The configuration of the IP regulatory system is largely perceived to be “unfriendly” to

SMEs, as access and use are significantly constrained by complexity, lengthy procedures

and costs that SMEs are less able to handle with respect to larger counterparts. These

limitations emerge in particular at the stage of litigation and enforcement, and discourage

SMEs from using IPR in the first place.

... by streamlining procedures and reducing application time

Particularly in industries where innovation occurs at a rapid rate, the application time

is often too slow, especially for patenting, and does not effectively meet the needs of

innovative SMEs and start-ups, for which lengthy processes are generally less sustainable

than for large firms, due to resource constraints and greater dependence on the successful

processing of a single application. Governments should consider creating a fast track for

small business (e.g. as in the United States for “green” technologies). At the same time, the

granting process could be accelerated by increasing the “quality” of applications, through,

for instance, patent search services, as in Italy, or a peer-to-patent system, in which

community reviewers support the Patent Office in finding the information relevant to

assessing the claims of pending patent applications, as well as through faster examination

processes with strict guidelines, as experimented on in the United States.

The introduction of “innovation patents”, which, as in Australia, undergo a formalities

checklist as opposed to a full examination, should be carefully evaluated. If, on the one

hand, this mechanism reduces time and cost of application, and provides a patent with

shorter lifespan, which could be more appropriate in fast-changing environments, on the

other hand, it goes counter to the international trend towards standardisation and tighter

patent processing. It might therefore generate excessive filing and create problems of

inconsistency at the international level, and, in the end, be appropriated by large firms.

... by adequately structuring fees and costs

The costs involved in IPR application are widely perceived by SMEs to be an obstacle to

the effective use of the IP system, although it is generally not the main concern, especially

in the case of trademarks and copyright. The issue should be tackled taking into

consideration both the desirability of a reduced cost burden on financially constrained

SMEs and the function of fees, which are intended to induce self-selection by potential

applicants and discourage frivolous filing, limiting in this way the examination backlog. In

Italy, for instance, the patent fee structure has been reformed with the objective of

reaching a balance between accessibility and application quality, imposing fees that are

proportional to claims.



... by improving litigation and enforcement mechanisms

Litigation and enforcement are broadly perceived by SMEs to be complex, costly and

time consuming, often discouraging IPR defence, or even application for formal IPRs in the

first place. In order to increase entrepreneurs’ confidence in the enforcement mechanisms,

transparency should be increased and procedures streamlined. It is also important that

expertise on the broad range of IPRs be built in the judicial system. It is a common

complaint by innovative SMEs, especially in creative industries, that courts are ill prepared

to handle their cases, as they possess little knowledge about the firm’s industry and its

innovation processes. Reforms to the judicial system and hiring of specialists have been

implemented in several countries, and these experiences should be carefully assessed.

Italy, for instance, has introduced specific expertise in the system, through IP litigation

specialised sections in ordinary and appellate courts. In the United Kingdom, a Patent

County Court was set up for this purpose and litigation procedures have been simplified.

Furthermore, in order to reduce time and cost, policies should explore alternative

dispute mechanisms, such as administrative procedures to arbitrate disputes, as

introduced in Denmark. Mediation schemes that favour extra-judicial settlements should

be investigated. The WIPO Mediation and Arbitration Centre for the resolution of

international commercial disputes represents an interesting model in this respect.

Mediation opportunities should be brought closer to the SME playground, diffusing

information on mediation itself and considering, for instance, the creation of more

decentralised mediation mechanisms, which can be more easily accessed by SMEs to

prevent infringement and settle disputes.

Improve cross-border information, co-ordination and enforcement

Inconsistencies and variations across IP regimes in different countries represent a

critical obstacle to SMEs operating internationally, as they must first understand the

foreign IPR system, then apply and pay for additional IPRs in those countries. The problem

arises in particular with patents, whereas trademarks are easier to negotiate and enforce

across systems. Regional IPR arrangements can potentially reduce complexity and costs.

For instance, in the EU, the community trademark and the community design, and possibly

the EU patent under debate, simplify many aspects of IPRs for SMEs involved in cross-

border commerce and investment in EU member states. However, a counter argument is

that regional or global patents reduce flexibility and do not always fit local needs. Further

evidence on this should be consulted.

Simplification of the rules pertaining to semi-formal protection (i.e. contracts) across

countries would be particularly helpful for the creative industries that rely on such

protection. Membership of international treaties could facilitate enforceability. However,

SMEs often lack the information and support to access the protection mechanisms

provided by these treaties, thus the performance of such instruments is questionable for

SMEs, unless specific mechanisms to diffuse information and raise awareness are

developed.

More comprehensive information on IPR systems in other countries should be

provided by national IP bodies to better inform and assist SMEs when internationalising.

For instance, IP Australia has developed a range of factsheets on key foreign markets to

assist local businesses in making informed decisions as they engage in cross-border

activities. In Italy, a pilot initiative was launched, involving the creation of a network of



support centres in foreign markets deemed particularly relevant for Italian SMEs, to

encourage their IP protection and enforcement.

Improve the metrics for measuring SME intellectual assets and evaluating their management

Policy design, implementation and assessment require measures of SME access to IP

instruments and management of IPRs. Current metrics are largely centred on patents and

financial flows capturing knowledge transactions. However, especially in creative

industries, these capture SME innovation and intellectual assets only to a limited degree.

Measures concerning these industries should include in particular trademarks and

copyright, but the assessment framework should also take into account that

confidentiality agreements and strategic methods (i.e. secrecy and trust) are the protection

mechanisms most widely employed by SMEs, and that their management of intellectual

assets often responds to non-financial objectives, such as competitive signalling and

strategic partnership. Similar findings apply to the ICT sector where firms heavily use open

source and exchange technologies without patent protection for non-financial objectives.

Areas for further studyThe IP landscape is undergoing profound changes, as broad reforms continue across

countries. The debate on the international IP regulatory framework reflects the challenges

of a rapidly changing technological and competitive environment. As reforms of IP systems

are implemented at different levels, there are a number of areas that warrant further

examination.

● Several “SME-friendly” initiatives have been launched across countries to raise

awareness and provide training and services for IPR application, monitoring and

enforcement. Most of these initiatives, however, are still on a small scale or at a pilot

stage. Further experimentation and evaluation are needed in due time to understand

their effectiveness and their opportunities to be scaled up.

● Evidence suggests that the enforcement stage is a highly critical one for SMEs and

entrepreneurs when dealing with IPRs, especially when international activities are

involved. Further study of this issue would be desirable in order to evaluate policies and

programmes that might be implemented to strengthen enforcement of SMEs’ IPRs across

borders. This would also promote discussion among the main international players

about enforcement mechanisms and international co-operation in this area.

● Future analysis should be underpinned by a deeper understanding of the emerging new

models of innovation, knowledge development and diffusion (e.g. digitalisation),

particularly in those industries (e.g. ICT, creative sectors) where business models are

largely based on intangibles, and SMEs are leading the development of these open and

collaborative modes of innovation.

Notes

1. WIPO, Intellectual Property and Small and Medium-Sized Enterprises, www.wipo.int/about-ip/en/studies/publications/ip_smes.htm.

2. Firms with 20-199 employees.


http://www.wipo.int/about-ip/en/studies/publications/ip_smes.htm

http://www.wipo.int/about-ip/en/studies/publications/ip_smes.htm


References

Arrow, K.J. (1962), “Economic Welfare and the Allocation of Resources for Invention”. In Nelson, R.R.(ed.) The Rate and Direction of Inventive Activity. Princeton: Princeton University Press.

Bismuth, A. (2006), Intellectual Assets and Value Creation, Implications for Corporate Reporting, OECD, Paris.

Bismuth, A. and Tojo Y. (2006), Creating Value from Intellectual Assets, OECD, Paris.

Gambardella, A., Giuri, P., and A. Luzzi (2007), The Market for Patents in Europe, Research Policy, Vol. 36 (8),pp. 1163-1183.

Hughes, A., Mina, A. (2010) The impact of the patent system on SMEs, UK Intellectual Property OfficeReport.

OECD (2008), Intellectual Assets and Value Creation, OECD, Paris.

OECD (2010), SMEs, Entrepreneurship and Innovation, OECD, Paris

Robson, S., Haigh, G. (2008), “First findings from the UK Innovation Survey 2007”, Economic and LabourMarket Review, Vol. 2, No. 4, April.

WIPO (2004), Intellectual property rights and innovation in small and medium enterprises, World IntellectualProperty Organisation, Geneva.



The SME Dimension

© OECD 2011

Chapter 2

Australia: Intellectual Property Solutions for Innovative SMEs

By Dr. Richard Seymour, Mr. Jarrod Ormiston and Dr. Maria Rumyantseva

The University of Sydney Business School

The importance of SMEs’ use of intellectual property rights (IPRs) has beenrecognised by policy makers in Australia over the past decades. Over thistime, Australian SMEs have had some of their needs met by several innovativepolicies aimed at providing better access to the IPR system. This chapter presentsan overview of the IP landscape in Australia and SME-IPR practices. Data havebeen gathered from appropriate secondary data, as well as from expertinterviews and multiple case studies (SMEs in the creative industries and clean-tech sector). From these data, the chapter presents issues confronting SMEs andthe obstacles preventing them from creating and capturing value associated withthe IPRs. Insights and implications for policy makers are presented in theconclusion.

37

2. AUSTRALIA: INTELLECTUAL PROPERTY SOLUTIONS FOR INNOVATIVE SMEs

IntroductionThis chapter gives an overview of the IP landscape in Australia and its relationship

with SMEs of particular sectors of interest. It introduces existing IP studies in the SME

context, and highlights gaps in understanding and research. In order to describe the

incidence of innovation and related practices by Australian businesses, the chapter

presents evidence from a survey conducted by the Australian Bureau of Statistics (ABS) in

2008-09. In addition to secondary data, the empirical part of our study involves two primary

data collections: interviews with experts, and secondly, a number of case studies

conducted over 2010 in Sydney, Australia, through interviews with founders or senior

management of corporate ventures. The findings from the direct investigation are

preliminary as they do not include any related quantitative survey data and so should be

considered with that limitation in mind.

Methodology

Four expert interviews were conducted with the following groups of individuals:

● three IP patent attorneys from a firm specialising in patents for manufacturing firms, IT

and software developers and the life sciences – hereafter referred to as IP Patent Attorneys

Group 1;

● two IP patent attorneys from a Sydney-based advisory firm. These interviewees included

a patent attorney with over 10 years expertise in SMEs, an inventor turned patent-

attorney, and a research scientist turned patent attorney turned patent development

manager for an investment private equity company. This group is hereafter referred to

as IP Patent Attorneys Group 2;

● one senior Government bureaucrat based in Canberra and responsible for the

engagement with SMEs and policy settings, hereafter referred to as Government

Bureaucrat; and

● one CEO of an incubating fund supporting high-tech spin-offs principally from

university research hereafter referred to as Incubating CEO.

Five case studies in the creative industries and one case in the cleantech industry were

conducted through a semi-structured interview format. The following individuals were

interviewed.

● a founder of a publishing house in the education sector, hereafter referred to as

Educational Publisher;

● a senior executive within an Australian literary agency, hereafter referred to as Literary

Agency;

● the author of a successful book, published by an international publishing house,

hereafter referred to as Author;

● a senior manager within two production companies producing documentary films and

other films, hereafter referred to as Production Company A, and B; and



● the entrepreneur associated with a company producing renewable energy, hereafter

referred to as Cleantech Company.

Intellectual property regulation in AustraliaIn Australia, intellectual property (IP) represents the property of an individual’s mind

or intellect, or proprietary knowledge in business terms. According to the Department of

Innovation, Industry, Science and Research, Australia has one of the most effective IP rights

protection systems in the world with Australia being ranked eighth in the world in terms

of IP enforcement (World Competitiveness Yearbook, 2009).

i) Australian institutional framework

IP Australia is the Commonwealth agency responsible for granting patents,

trademarks, designs and plant breeder’s rights (PBRs) through dedicated offices. Although

a prescribed agency within the Department of Innovation, Industry, Science and Research

(DIISR), it operates independently of the Department on financial matters and with some

degree of autonomy on other matters. By charging fees for services, IP Australia recovers

more than 95% of its costs.

Recognised as one of the leading IP offices in the world, IP Australia has a role to

provide an IP system that promotes innovation, investment and trade. Its strategic focus is

to continuously enhance the efficiency of the IP rights system in the country, focussing

strongly on customer service and the business needs of Australian firms, complying in

terms of response times and consistency of decisions.

Through its communication programme IP Australia provides individuals and

organisations with general information on how to obtain IP rights and how to take

advantage of their IP. Further, the agency provides general guidance on how organisations

can use IPRs to innovate and develop a distinctive identity.

IP Australia also manages programmes that promote awareness and education on IP.

The agency has funded a number of units of study aimed at improving IP understanding

among Australian businesses. The units were developed by Innovations and Business Skills

Australia (ISBA) and include 8 IP units of competence and six IP skill sets and revisions to

other packages. Some of these units relate specifically to small businesses and their use of

intangible assets. These units are available to Registered Training Organisations (RTOs),

which provide, within stringent government standards, training and assessment services

within a national system of quality assurance. RTOs include TAFEs (technical and further

education institutions), private companies, not-for-profit training services and adult and

community education institutions. Also, some businesses or industry organisations are

recognized as RTOs. As at November 2010, 18 RTOs had taken up these programmes, which

are promoted actively by IP Australia through its Marketing and Customer Engagement

section.

IP Australia also supports the Master of Intellectual Property Law programme offered

jointly by the Queensland University of Technology and the World Intellectual Property

Organisation (WIPO). The course is taught by industry experts from WIPO, IP Australia and

the legal profession as well as leading academics in the field. A large amount of the course

material relates to SMEs and in particular there is a unit dedicated to IP and SMEs.

Providing services to SMEs operating internationally, or considering protecting their

intellectual property in foreign markets, is an important element of the agency’s work.



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endent hts Act

IP Australia, however, does not adopt a prescriptive approach but rather encourages

businesses to engage in further research in the international markets into which they are

considering entering. The resources include a list of worldwide IP offices, international IP

professionals, international IP search services and international websites related to IP. A

reference section on multilateral and bilateral agreements that Australia is party to and a

list of “Paris Convention for the Protection of Industrial Property” countries are also

provided.

In addition to these more passive resources, IP Australia has developed a range of

Importing and Exporting Factsheets for China, the European Union, India, Indonesia, Japan,

South Korea, New Zealand, Singapore and the United States of America. These factsheets

assist Australian businesses in making more informed decisions before they decide to

engage in exporting.

In addition to serving as an information resource and engaging with IP offices in other

countries, and with international and regional organisations, so as to enhance Australia’s

role in developing IP systems and processes around the world, IP Australia is involved in

what they describe as a ’modest’ Development Cooperation Programme. This focuses on IP

capacity building in the Asia-Pacific region and includes public education and awareness

programs, leadership skills workshops and training related to specific types of IP.

In addition to IP Australia, the following institutions comprise the IP institutional

framework in Australia.

Table 2.1. Australian intellectual property institutional framework

Institution Area of IP Role

Advisory Council on Intellectual Property (ACIP)

All The Advisory Council on Intellectual Property (ACIP) is an independbody appointed by the government, and advises the Federal Ministefor Innovation, Industry, Science and Research on intellectual propmatters and the strategic administration of IP Australia.

AMPICTA (Australian Manufacturers’ Patents, Industrial Designs, Copyright and Trade Mark Association)

All Representing owners of Intellectual Property in Australia.

Licensing Executive Society of Australia and New Zealand (LES)

Patents;Trade marks;Designs; Plant Breeder’s Rights

LES is an international community of innovation and commercialisaprofessionals whose is to create an environment for effective and successful commercialisation using open exchange ideas, idenbest practice and encouraging innovation through both networkingand education in all areas of intellectual property.

The Institute of Patent and Trade Mark Attorneys of Australia (IPTA)


The Institute of Patent and Trade Mark Attorneys of Australia (IPTAthe peak professional body representing Australian patent and tradattorneys.

Professional Standards Board for Patent and Trade Mark Attorneys


The Professional Standards Board administers the regulatory and disciplinary regimes for Patent and Trade Mark attorneys in Au

Patent and Trade Marks Attorneys Disciplinary Tribunal


The tribunal is a statutory body established under the Patents ReguIts function is to deal with complaints against patent and trade marattorneys of unsatisfactory and unprofessional conduct.

The Plant Breeder’s Rights Advisory Committee

Plant Breeder’s Rights The Plant Breeder’s Rights Advisory Committee (PBRAC) is an indepstatutory committee established under Part 7 the Plant Breeder’s Rig1994 (PBR Act). PBRAC advises the Minister and PBR Registrar on technical and administrative matters relating to PBR and acts as an industry advisory forum.

Commonwealth Copyright Administration (CCA)

Copyright Commonwealth Copyright Administration (CCA) is responsible for the management of copyright in published materials on behalf of Commonwealth agencies and processes requests for permissionto reproduce Commonwealth of Australia copyright material.



isation stralia. s

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ii) Types of intellectual property rights in Australia

The types of IPRs that are set out by IP Australia, which administers statutes relating

to IP, are: patents for new or improved products or processes; trade marks for letters, words,

phrases, sounds, smells, shapes, logos, pictures, aspects of packaging or a combination of

these, to distinguish the goods and services of one trader from those of another; designs for

the shape or appearance of manufactured goods; plant breeder’s rights for new plant

varieties; and copyright for original material in literary, artistic, dramatic or musical works,

films, broadcasts, multimedia and computer programs; circuit layout rights for the three-

dimensional configuration of electronic circuits in integrated circuit products or layout

designs; and confidentiality/trade secrets including know-how and other confidential or

proprietary information.

Copyright and circuit layout rights are automatically protected whereas all other

forms require formal steps to register the IP and obtain legal rights of ownership.

The Australian Copyright Council Copyright The Australian Copyright Council is an independent non-profit organthat provides information, advice and training about copyright in AuThey also produce publications, do research, and make submissionon copyright policy issues.

Copyright Agency Limited (CAL) Copyright CAL is a copyright management company whose role is to provide abetween creators and users of copyright material. CAL represents ajournalists, visual artists, surveyors, photographers and newspapemagazine and book publishers as their non-exclusive agent to licenthe copying of their works to the general community.

Attorney General’s Department Copyright The Australian Government Attorney General's Department providesupport to the Government in the maintenance and improvement of Australia's system of law and justice and its national security and emergency management systems. It deals with a variety of copissues including, among others, AUSFTA free trade agreement, CopAmendment Act 2006, Digital Agenda reforms, enforcement, fair usgovernment use of copyright material, management of IP by goveragencies, IP and competition, moral rights, music and small busineparallel importation and technological protection measures.

Table 2.1. Australian intellectual property institutional framework (cont.)

Institution Area of IP Role

Table 2.2. Intellectual property rights available in Australia and their characteristics

Type of IP What it covers What it does not cover What it provides Application process Duration

Patents Any device, substance, method or process, which is new, inventive and useful.

Artistic creation, mathematical models, plans, schemes or other purely mental processes.

It gives the owner the right to commercially exploit the invention for the life of the patent and it is legally enforceable.

Patents must be applied for from IP Australia and are assessed to ensure they meet appropriate legal requirements. Applications are generally assessed with one month for an innovation patent and it takes up to 4 years for a standard patent.

8 years for an innopatent and 20 yeastandard patent. Astandard patent carenewed for up to for certain humanpharmaceutical supatents.

Trade marks A word, phrase, letter, number, sound, smell, shape, logo, picture, aspect of packaging or a combination of these. A trade mark can also protect a brand name.

Registration of a business, company or domain name does not in itself give any proprietary rights which are provided by a trade mark.

A registered trade mark gives the legal right to use, license or sell it within Australia for the goods and services for which it is registered.

A trade mark must be applied for from IP Australia and applications are generally assessed within three months from the time of application.

Trade mark registrlasts for 10 years abe renewed for successive 10 yeaperiods.



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rom the ation eath. and lasts year in ade.

sible is year of layout.

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iii) Innovation with regard to standard patents

There are two “types” of patents in Australia:

● A standard patent, which lasts for 20 years with annual maintenance fees payable from

the fifth year.

Design Features of shape, configuration, pattern or ornamentation which, when applied to a product, give the product a unique appearance. To be able to be registered, a design must be new and distinctive.

Artistic works. Exclusive and legally enforceable right to use, license or sell the design.

A registered design must be applied for from IP Australia and applications are generally assessed with 6 months of application.

Registration protedesign for five yeacan be renewed fofurther five years.

Plant breeder’s Rights New varieties of plants. Use of a grower’s crop or the use of the variety in plant breeding or retention by growers of seed for the production of another crop on their land.

Exclusive commercial rights to market a new variety or its reproductive material.

Applications should be filed with IP Australia. There is a registration and examination process which generally takes 2.5 years.

Protection lasts fo25 years for trees oand 20 years for ospecies.

Copyright Original works of art and literature, music, films, sound recording, broadcasts and computer programmes.

Copyright protects original expression of ideas, not the ideas themselves.

Safeguards from copying and certain other uses. Copyright material will also enjoy protection under the laws of other countries who are signatories to the international treaties, of which Australia is a member.

It is free and automatic. Material is protected from the time it is first written down, painted or drawn, filmed or taped.

Varies according tnature of the workwhether or not it hpublished. Dependthe material, copyrliterary, dramatic, and artistic worksgenerally lasts 70 from the year of thauthor’s death or fyear of first publicafter the author’s dCopyright for filmssound recordings 70 years from thewhich they were m

Circuit layout rights Three-dimensional configuration of electronic circuits in integrated circuit products or layout designs.

n/a Circuit layout rights automatically protect original layout designs for integrated circuits and computer chips. They provide the exclusive right to copy the layout in a material form; make integrated circuits from the layout; and exploit it commercially in Australia.

There is no requirement for registration for the granting of rights to the owner of a layout design.

The maximum posprotection period 20 years from themaking an eligible

Confidentiality/trade secrets A trade secret is both a type of IP and a strategy for protecting your IP. It can provide effective protection for some technologies, proprietary knowledge (know-how), confidential information and other forms of IP.

n/a Confidentiality agreement is often used to stop employees from revealing secret or proprietary knowledge during and after their employment or association with a business. If an agreement is breached, evidence of what was agreed and protection through the law is required.

Trade secret must be backed up by signed confidentiality agreements with every person who has knowledge of the secret.

Varies according tconfidentiality agreements.

Table 2.2. Intellectual property rights available in Australia and their characteristics (con

Type of IP What it covers What it does not cover What it provides Application process Duration



● An innovation patent, which lasts for a maximum of 8 years with annual maintenance

fees and acts as a relatively fast and inexpensive protection option. The innovation

patent system is designed to provide protection for those inventions which have a lower

inventive threshold than that required for a standard patent

Table 2.3 provides a simple overview of the differences between the two patents

The main benefits of the innovation patent are claimed to be as follows:

● it provides quick protection and it only needs to be examined if requested by the

applicant or a third party;

● it has a lower inventive threshold than a standard patent;

● it reduces financial and commercial risks in research and development; and

● it involves a quick application process (minutes) and is generally granted within one

month whereas a standard patent can take up to four years.

There are, however, limitations to the innovation patent:

● it has a shorter protection term, 8 years compared to 20 years;

● one cannot enforce the patent until it has been examined;

● it may be more difficult to sell an unexamined patent;

● it cannot relate to plants or animals, biological processes for their generation, or

humans;

● it can only be applied for in Australia whereas standard patents can be applied for in

separate countries; and

● innovation patents can only be converted to a standard patent in the period before it is

granted, which is usually within one month of application.

Table 2.3. Innovation patent with regard to standard patent

Innovation Patent Standard Patent

To apply for a patent your invention must Be new, useful and involve an innovative step. Be new, useful and involve an inventive step.

Application should include A specification including title, description, up to 5 claims, drawings (if applicable) and an abstract, and forms.

A specification including title, description, no limit to the number of claims, drawings and an abstract, and forms.

Examination After grant but only if requested by the applicant, a third party or the Commissioner of Patents, and a fee is paid.

It is compulsory for an applicant to request examination, and pay a fee.

Acceptance After passing formalities check. After passing examination.

Grant/sealing Granted after acceptance. After acceptance and opposition period.

Certification After passing examination. N/A

Enforcement After Certification. After Sealing.

Filing of opposition At grant and again at certification.

18 months from priority date and again after acceptance.

Time from filing to grant Approx. 1 month (Note – this does not include examination).

Up to 4 years.

Protection period 8 years max, if annual fees paid.

20 years max, if annual fees paid (up to 25 for pharmaceuticals.

Source: IP Australia.



v) Schedule of fees

Table 2.4 details a rough estimate of the costs involved in the two types of intellectual

property that need to be applied for through IP Australia.

Due to the importance of “getting things right”, the professional fees are far higher. At

the early stage, firms are often unwilling to incur these costs and undertake the

protections “in house”. The implications of this are significant, particularly if the

documentation is not appropriate, or the strategy for protection is incorrect – the firm will

not discover this until it is too late. In the view of an expert, reality is firms will just have to

incur the costs:

“There is certainly room for a greater level of knowledge within the companies,

whether it needs to be about formal IP or just generally being able to think through

innovation and knowing what the options are. I’d almost say: Well, the IP system’s the

IP system… it costs what it costs. Deal with it and make a considered judgement about

it. I do not think patents are going to halve in cost (Government Bureaucrat).”

SME issues and challenges

Insights into the legal and regulatory landscape impacting Australian SMEs can be

found in Jensen and Webster (2009): 1) SMEs do not appear to have a problem using the IP

system vis-à-vis large firms; and 2) enforcement costs are the most important inhibiting

factor, but it is not clear whether these are more (or less) of a barrier than for large firms.

Wilson (2008) reviewed SMEs and IP protection, concluding that SMEs apply for patents

and trademarks at roughly the same rate as large enterprises, implying resources may not

be critical to the IP decision. Furthermore, he found that SMEs have incentives to use IP

protection to build strategic alliances and ensure certainty in business transactions. This

finding was also discussed (see below) in the expert interviews.

With respect to SMEs and IP, research by Noonan (2009) suggests SMEs are typically:

● too busy managing other areas of the business to consider IP;

● lacking basic understanding of IP identification, protection and commercialisation (they

do not know what they do not know);

● lacking awareness of where to go for assistance;

● fearful that IP can be infringed;

● lacking knowledge on enforcement;

● nervous of perceived costs of protecting IP; and

● only considering IP when “in trouble.”

These conclusions are generally supported by the in-depth interviews conducted for

this research project, with the findings set out in the following section. Note, however, the

in-depth interviews cannot be generalised across the population of firms or even advisors.

Table 2.4. Fees for selected intellectual property protection in Australia

Standard patents The average estimated cost of an Australian standard patent, including attorney fees, is between AUD 6 000 to AUD 10 000, depending on the complexity of the application. Maintenance fees of the standard patent over a 20 year term would be a further AUD 8 600.

Other IP requiring registration Minimal outlays for application fees, however sometimes quite significant associated advisory fees.



Recent developments and emerging trends

Currently there is a gap in the legislation: What happens between “discovering” the IP

and talking to others about the IP? Though there have been several attempts at rectifying

these issues (see below), it could be argued that there is an ongoing gap (perhaps a

necessary one) in the regulatory system. The main issue is how an SME, after discovering

their IP, starts using it as a way of engaging with collaborators. The main question is

whether collaborators will value an SME who has attained IP rights more than an SME that

is built around a technology, people or a market.

From the expert interviews conducted, and the secondary data reviewed, there are a

number of significant developments and emerging trends in Australia:

a) Innovation patents – In the context of SMEs, perhaps the most significant recent

development is the innovation patent: The innovation patent system is intended to

encourage and stimulate innovation by providing a means through which SMEs (in

particular) can seek rights to exclude their competitors from copying inventions in

which the owners of the rights have invested money and effort (IP Australia 2005, p. 3).

There have been criticisms of the innovation patent, including (IP Patent Attorneys

Group 1): 1) the rigour of the tests, as it is relatively easily argued that it is new, and the

term “incremental” is not a high hurdle; 2) the bigger companies appear to be using it to

broaden their competitive position, often to the detriment of SMEs; and 3) this Patent

could be seen to be going against the international trends to standardise and tighten

Patents. Other interviews however did not mention or criticise these Innovation Patents.

b) Growing significance of Asian markets and associated IP considerations – Asian, in

particular the Chinese and Indian (in addition to the tiger economies of Asia), markets

are increasingly significant for Australian business. Although the most significant

market for the majority of Australian firms seeking to internationalise is the USA, there

is a quantum shift to the new economies. The need for a global focus is ever increasing

in many sectors, particularly for the high-tech companies (Incubator CEO).

c) Enforcement regimes remain complex and expensive – At the national level, the main

issues concern the patent dispute process and the opposition process to patents. The

need is identified for more streamlined opportunities for patent disputes and resolving

patent disputes. In this respect, the United Kingdom’s attempt to streamline the process

by opening up Patent Courts is seen as a reference. The Patent office has a lot with

respect to the opposition procedure which is meant to be a low cost option prior to a

grant or dispute. The opposition process is considered to be tedious, but there is no way

of enforcing a company’s own rights other than it being a full court case. Particularly for

small cases, there is no easy way (other than private negotiation) to resolve these issues,

leaving the door open for aggressive behaviour by large predators.

d) Open innovation is top of mind (even if not well executed) – SMEs are aware that

collaboration can be a rich source of value creation. Smaller firms have struggled to

participate in the practice, as many of the collaborators are large multinational firms.

Furthermore, Universities are continually encouraged to collaborate with a mix of open

and closed innovation. Open innovation has become more common in recent years as

firms are seeing the power of providing part of their technology so that it can be adopted,

improved and built upon. The issue is how you layer over the right business models that

can take advantage of this trend.



e) Education, a major focus of IP Australia and the Copyright Council, is having some impact– Though the education efforts of IP Australia are recognised as world”s best practice,

and it appears they have been effective in raising awareness of IP and informing the

public (IP Patent Attorneys Group 2), there still seems to be little impact on changing SMEs’

behaviour or improving their strategic knowledge of the IP system.

Toolkits such as the IP Toolbox and information kit from the Copyright Council are very

well regarded, however it was thought that information could also be addressed at

individuals rather than organisations.

In the context of the creative industries, experts believe that the work to educate

designers and the like is definitely having an impact on individual/firm behaviour. There

are examples of illustrators, designers and web designers who are extremely competent

in IP rights management and who are developing strict contracts with authors and other

entities that strictly detail for which uses the IP is authorised.

It appears that the copyright industries are well advanced and relatively sophisticated

with respect to their IP management. The creative industries are also characterised by

standardised practices between different players that assumes standard IP rights.

Empirical evidence

Survey data

The survey data that we present on the incidence of innovation and related practices

by Australian businesses is drawn from a selection of data from the 2008-09 Business

Characteristics Survey (BCS) conducted by the Australian Bureau of Statistics (ABS1) and

presented in 2008-09 (Catalogue number 8158.0 – Innovation in Australian Business).2

The scope of the survey consists of all employing business entities in the Australian

economy except for the following: general government; agriculture, forestry and fishing;

public administration and safety; education and training; financial asset investing;

superannuation funds; religious service; civic, professional and other interest group

services; and private households employing staff.

The data collection was undertaken through a mail out questionnaire with a random

sample of approximately 9 500 businesses that was stratified by industry and employment

sizes. The survey was begun in late October 2009 and the reference period was for the

financial year ending 20 June 2009.

The data presented comprises: types of innovation; barriers to and drivers of

innovation; sources of ideas for innovation; innovation-active businesses and

collaboration; sources of labour for innovation; innovation-active businesses and

intellectual property; sources of development and degree of novelty of innovations; types

of innovation-related expenditure.

The key indicators of innovation included: measures of business innovation

(innovating, innovation-active); types of innovation (goods and/or services, operational

processes, organisational/managerial processes, marketing methods); and status of

innovation (introduced, still in development, abandoned).

Types of innovation

To establish whether businesses were innovation active the survey covered four types

of innovation (goods and/or services, operational processes, organisational/managerial



processes and marketing methods) and three types of innovation statuses (introduced, still

in development and abandoned).

In 2008-09, 40% of Australian businesses reported that they were innovation-active

(i.e. those which undertook any innovative activity) and 35% of businesses had introduced

at least one type of innovation. The figures had fallen by 5% and 4% respectively from those

reported in 2007-08. The frequency of the different types of innovation was similar with

each recording around 16-19%.

Across the three types of innovation statutes, SMEs were less likely to have

undertaken innovative activity than larger businesses.

In terms of industries, the Wholesale trade, Manufacturing, and Information media

and telecommunications industries had the highest proportion of innovation active

businesses. (approx. 50%). The Construction and Transport, postal and warehousing

industries recorded the lowest proportion of innovation-active businesses (approx. 31%).

Table 2.5. Summary of innovative activity in Australian business, key indicators, 2007-08 and 2008-09

2007-08 2008-09

Estimated number of businesses ’000 711 713

Businesses which introduced any new or significantly improved:

goods and/or services % 21.9 18.2

operational processes % 17.6 16.3

organisational/managerial processes % 19.0 19.4

marketing methods % 14.6 17.2

Businesses which introduced innovation (innovating businesses) % 39.1 35.1

Businesses with innovative activity which was:

still in development % 22.5 17.6

Abandoned % 6.9 6.5

Businesses with any innovation activity (innovation-active businesses) % 44.9 39.8

Source: Australian Bureau of Statistics, Innovation in Australian Business, 2008-09.

Table 2.6. Summary of innovative activity in Australian business1, by employment size, 2008-09

0-4 persons

5-19 persons

20-199 persons

200 or more persons

Total

Estimated number of businesses2 ’000 433 217 60 3 713

Businesses which introduced innovation (innovating businesses) % 28.1 43.9 51.8 60.9 35.0

Businesses with innovative activity which was:

still in development % 14.3 21.5 26.7 36.0 17.6

abandoned % 5.8 7.5 7.7 7.8 6.5

Businesses with any innovative activity (innovation-active businesses) % 32.8 48.4 58.2 66.7 39.8

1. Proportions are of all businesses in each employment size category.2. As at the end of the reference period, i.e. at 30 June 2009.Source: Australian Bureau of Statistics, Innovation in Australian Business, 2008-09.



Barriers to innovation

All businesses that participated in the survey were asked whether any factor/s

hampered their ability to develop innovation. 43% of business reported having at least one

barrier to innovation. Innovation active businesses were twice as likely to report barriers as

non-innovation active businesses. The most reported barriers to innovation were lack of

access to additional funding and lack of skilled persons.

For micro-businesses (0-4 employed persons) lack of access to additional funds was

the greatest barrier to innovation. For SMEs and large businesses, lack of skilled persons

was the common barrier to innovation. The least reported barriers to innovation were lack

of access to knowledge or technology to enable development or introduction/

implementation and adherence to standards. On the whole, SMEs reported more barriers

to innovation than larger businesses.

Table 2.7. Barriers to innovation1, 2, by innovation status, 2007-08 and 2008-09As a percentage3

2007-08 2008-09

Innovation – active

businesses

Noninnovation –

active businesses

All businesses

Innovation – active

businesses

Noninnovation –

active businesses

All businesses

Lack of access to additional funds 24.7 9.0 16.0 29.5 12.9 19.5

Cost of development or introduction/implementation 17.6 5.2 10.8 20.7 7.1 12.5

Lack of skilled persons:

Within the business 22.0 8.9 14.8 20.3 8.6 13.2

Within the labour market 22.7 11.5 16.6 16.6 10.3 12.8

In any location4 32.6 15.2 23.0 27.1 14.3 19.4

Lack of access to knowledge or technology 5.0 1.8 3.2 3.9 2.5 3.0

Government regulations or compliance 14.9 7.1 10.6 15.0 9.9 11.9

Adherence to standards – – – 5.1 3.4 4.1

Uncertain demand for new goods and/or services 16.8 6.6 11.2 17.6 10.0 13.0

Other barriers to innovation 3.2 2.1 2.6 – – –

Any barrier to innovation 61.3 29.4 43.7 59.6 32.4 43.2

No barriers to innovation 38.7 70.6 56.3 40.4 67.6 56.8

1. Barriers to innovation are those factors which significantly hampered the development or introduction of anynew or significantly improved goods, services, processes or methods.

2. Businesses could identify more than one barrier and were not asked to rank barriers in order of significance.3. Proportion are of all businesses in each category.4. Includes businesses that reported lack of skilled persons within the business and/or within the labour market.Source: Australian Bureau of Statistics, Innovation in Australian Business, 2008-09.

Table 2.8. Innovation active businesses: barriers to innovation, by employment size 2008-09

As a percentage

0-4 persons

5-19persons

20-199 persons

200 or more persons

Total

Lack of access to additional funds 29.9 30.4 26.3 18.1 29.5

Cost of development or introduction/implementation 19.1 23.7 18.5 19.0 20.7

Lack of skilled persons:

Within the business 18.3 22.9 20.4 17.2 20.3

Within the labour market 13.6 18.8 22.2 13.7 16.6

In any location 23.7 30.5 30.8 21.4 27.1



Sources of ideas and information for innovation

The survey asked innovation-active businesses from which source/s they had gained

their ideas and information for innovation.

The most frequently cited sources of ideas and information were from within the

business and from clients, customers or buyers.

The frequency of businesses which source ideas and information for innovation from

within the business increased with size. Similarly the use of consultants was more

common in larger businesses than in SMEs. The sources of ideas and information which

were least cited were from universities or other higher education institutions, government

agencies, private non-profit research institutions and commercial laboratories/research

and development enterprises.

Intellectual property protection methods

The survey asked innovation-active businesses which types of intellectual property

protection methods they had utilised. This research found that 38% of innovation-active

businesses reported utilising some form of IP protection. Secrecy (24%) and copyright and

trademarks (18%) were the most commonly reported types of IP protection used by businesses.

Lack of access to knowledge or technology 4.1 3.7 3.6 4.0 3.9

Government regulations or compliance 15.9 12.6 18.5 13.1 15.0

Adherence to standards 4.1 6.0 6.2 3.6 5.1

Uncertain demand for new goods and/or services 19.2 16.7 14.3 12.5 17.6

Any barrier to innovation 58.7 61.6 57.6 45.0 59.6

No barriers to innovation 41.3 38.4 42.4 55.0 40.4


Table 2.9. Innovation active businesses: barriers to innovation, by employment size, 2008-09

As a percentage

0-4 persons

5-19persons

20-199 persons

200 or more persons

Total

Within the business or related company 57.4 61.7 69.8 82.6 60.7

Clients, customers or buyers 38.9 39.5 39.0 39.8 39.2

Suppliers 32.2 27.2 31.5 23.1 30.2

Competitors and other businesses from the same industry 29.9 29.9 33.6 36.0 30.4

Consultants 12.7 20.1 27.3 46.1 17.5

Universities or other higher education institutions 2.9 2.2 2.2 6.4 2.6

Government agencies 3.8 4.6 3.6 8.3 4.1

Private non-profit research institutions 0.9 1.1 1.1 3.5 1.0

Commercial laboratories/research and development enterprises 1.4 2.0 0.5 3.3 1.5

Websites, journals, research papers, publications 28.1 29.3 22.6 17.3 27.8

Professional conferences, seminars, meetings, trade shows 19.3 23.5 25.1 23.9 21.6

Industry associations 15.4 19.7 24.7 20.2 18.1


Table 2.8. Innovation active businesses: barriers to innovation, by employment size 2008-09 (cont.)

As a percentage

0-4 persons

5-19persons

20-199 persons

200 or more persons

Total



Complexity of product design was utilised by 8% of businesses. The use of patents or

registrations of design were less significant, with 4% or less utilising the protections.

Micro-businesses with 0-4 persons employed were least likely to use any of the

protection methods. SMEs utilised significantly less IP protection methods compared to

large enterprises.

The statistics revealed that innovation-active businesses were more than three times as

likely to use any intellectual property protection methods as non innovation-active businesses.

Almost two-thirds of the Information media and telecommunications businesses

reported using some form of intellectual property protection, whilst only 21% of businesses

within the construction industries utilised any form of IP protection.

Financial indicators

Businesses in the survey that described themselves as innovation-active were asked to

report which types of expenditures they had incurred in the development of innovation.

Nearly 30% of businesses reported nil expenditure on developing innovation and SMEs

were more likely to have no expenditure than were large businesses. Acquisition of

machinery, equipment or technology, training and marketing activities related to

innovation were the most highly reported types of expenditure.

SMEs were less likely to report expenditure on design, planning and testing than larger

businesses.

Table 2.10. Innovation active businesses: intellectual property protection methods1, 2, by employment size, 2008-09

As a percentage

0-4 persons

5-19persons

20-199persons

200 or more persons

Total

Patents 2.5 4.3 8.2 20.2 4.0

Registration of design 4.5 4.1 7.2 16.2 4.8

Copyright or trademark 14.4 19.1 23.0 46.7 17.5

Secrecy/confidentiality agreements3 21.4 25.3 28.3 44.4 23.9

Complexity of product design 10.2 5.2 6.7 9.2 7.9

Any intellectual property protection methods used 32.9 39.9 45.0 67.4 37.2

No intellectual property protection methods used 67.1 60.1 55.0 32.6 62.8

1. Proportions are of innovation-active businesses in each employment size category.2. Businesses could identify more than one type of intellectual property protection method.3. Secrecy includes electronic protection methods.Source: Australian Bureau of Statistics, Innovation in Australian Business, 2008-09.

Table 2.11. Types of expenditure for innovation purposes, by employment size, 2008-091, 2

As a percentage

0-4persons

5-19persons

20-199persons

200or more persons

Total

Acquisition of machinery, equipment or technology 39.8 50.3 51.9 63.9 45.4

Training 24.6 31.5 45.2 57.6 30.0

Marketing activities undertaken to introduce new goods and/or services to the market 23.9 31.9 29.9 37.8 27.7



Case studies – creative industries

The following section provides a cross-case analysis of five creative industries in-

depth case studies from the publishing and filmmaking industries in Australia. The case

studies are intended to support the review of IP regulation and the expert interviews by

providing an in-depth analysis of IP management SME firms in the creative industries.

Within the three publishing industry case studies, the Educational Publisher, Literary

Agent, and Author did not have any relationship with each other, and are relating different

books, engagement and undertakings. Each (unrelated) case relates the story from

different perspectives. Within the two filmmaking industry case studies, the case studies

are informed from the perspective of the CEO.

Background information

Case Study 1 – Educational Publisher – This proprietary limited SME, “Educational

Publisher”, has one full-time employee and 20 casual employees. The core business of

Educational Publisher is secondary education textbooks and tutoring. The company was

founded as a private company in 1992, was taken over by a major publisher in 2004 and

again in 2008. The company was then sold to a not-for-profit organisation in 2009, though

it still operates as a for-profit private company. Educational Publisher’s target markets

include senior secondary-school teachers and students. They distribute their products

directly to the consumer. Educational publisher has engaged in exporting within the Asia-

Pacific region yet has not focused its marketing heavily on international expansion.

Case Study 2 – Literary Agency – This proprietary limited SME, “Literary Agent”, has

8 full time agents and represents over 800 Australian and New Zealand authors, the

majority of whom are represented on multiple projects. The core business of Literary Agent

Research and experimental development for purposes of introducing innovation only:3

Acquired from other businesses 4.2 3.2 4.6 7.8 3.9

Undertaken by the business 9.3 9.8 10.9 24.4 9.8

Any expenditure on Research and Experimental Development 10.6 11.7 12.4 26.9 11.4

Design, planning or testing 11.5 14.6 18.8 34.4 13.7

Acquisition of licences, rights, patents or other intellectual property 9.8 8.6 10.6 18.1 9.5

Other activities related to the development or introduction of new or significantly improved:

Goods and/or services 12.5 11.3 11.9 13.9 12.0

Operational processes 8.3 13.0 12.1 23.4 10.6

Organisational/managerial processes 7.7 12.5 12.3 17.2 10.1

Marketing methods 16.0 14.8 11.2 10.7 14.9

No expenditure on any activities related to the development or introduction of new or significantly improved goods, services, processes or methods 34.8 23.2 23.4 13.5 28.9

1. Proportions are of innovation-active businesses in each employment size category.2. Businesses were asked if they had incurred any expenditure during the reference period for activities related to

innovation only. Businesses were not asked to report actual dollar expenditure for the items or activities includedin this table.

3. A definition of Research and Experimental Development was not provided. No interpretation checks were made.Source: Australian Bureau of Statistics, Innovation in Australian Business, 2008-09.

Table 2.11. Types of expenditure for innovation purposes, by employment size, 2008-091, 2 (cont.)

As a percentage

0-4persons

5-19persons

20-199persons

200or more persons

Total



is publishing in Australia and internationally, however it is also representing writers for

film, theatre and television. Literary Agent was originally the subsidiary of a United

Kingdom operation, however it became independent in 2003 after acquiring an Australian

competitor. Since independence, the company has grown client numbers significantly,

with a team of 2 agents now grown to 8.

Literary Agent acts as an intermediary in the value chain between the publisher and

the author as the author’s representative. Literary Agent has sub-agents in the United

Kingdom and the United States and also occasionally sells directly. They have an affiliated

foreign rights team who sells all translation rights. Literary Agent is selling translation

rights in approximately 50 languages with the Asian market showing the strongest growth

in translation sales as it opens up. Spanish language is another large market for the agency.

Case Study 3 – Author – The third case is a sole trader with zero employees who is both

a journalist and an author (“Author”). The case focuses on IP issues surrounding Author’s

book that was published in 2004 and to date has sold 20 000 copies, which is considered a

success in the Australian market. Prior to approaching the (ultimate) Publishing House,

Author had been contacted by a rival house that had proposed a book around a particular

theme. He had created a piece in response to that proposal, which received a very positive

response from colleagues and the rival publishing house. Author did not feel comfortable

with the (rival) publishing house, and his wife (also an author) suggested he contact her

commissioning editor at the ultimate Publisher.

The book sets out the experiences of the author as an Australian journalist living and

working in South Asia culminating in the chaos of the fall of the Taliban regime in

Afghanistan. The book has also been published in the United Kingdom, by a subsidiary of

the Australian publisher.

Case Study 4 – Production Company A – Established in 1998 by two producers,

Production Company A has produced over 30 hours of international prime-time television

for major networks. It is a successful company, and focuses on producing multiple formats

and genres across various platforms. Production Company A’s core business is

documentary filmmaking, however it also produces some drama, cross-media, interactive,

and mobile productions. It has a service arm that provides corporate video production or

productions that are sponsored documentaries by NGOs or NPOs. Production Company A

includes the two founding partners and two other full-time staff. Production Company A

employs approximately 100 additional people per year on a contract basis depending on

their production slate. It is a highly internationalised production company. The majority of

projects are co-funded and since their inception, only rarely have they undertaken solely

domestic projects.

Production Company A collaborates with a variety of international partners and funds

its projects through international presales and deals with distributors. With respect to the

production of digital content, Production Company A generally works with the domestic

branches of international companies, rather than local companies.

Case Study 5 – Production Company B – Production Company B is a successful film

production company in Sydney, Australia, with two international offices, 20 employees on

a full-time basis including the directors, and 300 individual contractors per year. It partners

with many of the world’s most recognised television networks. Production Company B

produces content across all platforms and all genres including drama series, lifestyle

programs and documentaries.



Production Company B typically raises funding offshore and the company is

internationally focused. Around 40% of its turnover comes from overseas presales or

distribution internationally. Documentary filmmaking is its core business, and will

continue to be so in the future even if its production shifts to more drama-based

programming.

Intellectual asset management

Business strategies and perception about relevance of intellectual asset management

are detailed below.

Importance of intellectual asset management

The educational publisher, the literary agent and the two production companies

considered intellectual property management as part of their core business. For

Educational Publisher protection of copyright is key in signalling to the competitors the

implications of unauthorised production of their content. Literary Agent considered

maximising value and protecting the IP rights of the authors as part of its core

responsibilities. At Production Company A, maximising the value from IP and devising

recoupment strategies are considered the most critical roles of senior management.

Production Company B views IP as the main asset of the company and the continual

creation and protection of IP ensures the companies sustainability.

In contrast to the views of the established companies, Author provided an insight that

reveals a lack of understanding, a lack of interest and confusion in IP issues with respect to

his book. Author’s comments with respect to IP reflect his emphasis on ethics and morals

rather than the legal implications of IP protection. Whilst Author revealed his perception of

the importance of IP, he explained that he feels his previous employer may have been able

to lay claim to the book’s IP. He did, however, seek an informal release of his IP from the

employer. The following comment from Author reveals a sentiment that we feel is

common among creative individuals; that initial consideration of IP only occurs once it is

breached: “It’s a real labyrinth and ultimately whose IP is it? Well, it only really becomes an

issue when it becomes an issue.” The case of the Author illustrates how some creative

individuals place little emphasis or consideration on protecting their IP and place their

trust in others.

Intellectual property policies and training

Despite their emphasis on the importance of IP management none of the cases had a

formal IP policy, nor did they engage in staff training with respect to IP. Literary Agent and

the Production Companies adhered to generally accepted industry standards regarding

copyright and the structure of contracts. Rather than formal policies the four companies

relied on the implicit knowledge of management to manage IP.

The previous owner of Educational Publisher did, however, have a formal IP policy that

was disseminated to management. And this previous policy is effectively the continuing

policy under the new ownership. Management did not however receive training on this IP

policy; rather they received the formal documentation of the policy.

Protection methods adopted by the SME (and how they have been changing over time)

The case study of the Author provided the only example of unawareness with respect

to protecting IP. Author was of the opinion that the Publisher owned the copyright to his



text, yet this is at odds with industry norms. There was an assumption on the part of the

Author that the Publisher would protect his IP. Author concedes that he is uncertain how

his Publisher is protecting his IP and notes that IP management is not one his main

concerns. He does, however, claim that this may be due to his existing working relationship

with the commissioning editor, a relationship with a high degree of trust.

The other case, the four companies, showed a solid understanding and considered

approach to IP management. The companies used a combination of copyright ownership,

formal non-disclosure agreements, and informal methods based on secrecy and trust.

For Educational Publisher, industry standards dictate that the company owns any

intellectual property produced (note this differs to non-educational publishing where the

copyright generally remains that of the author). This ownership is supported by

nondisclosure agreements that prevent discussion of IP to other parties in the publishing

industry. The company noted however that they rely more on their informal approach of

secrecy that is based on high levels of trust for casual employees. This informal agreement

includes non-disclosure of information to other people in the publishing industry. It also

ensures that any work done by employees for the Publisher remains the IP of the Publisher.

Employees appear to be also aware that information should not be provided to anyone

unless they are paying customers.

The one complication for Educational Publisher arises in that they supply content to

another publisher, which becomes the other publisher’s intellectual property. Educational

Publisher does, however, reserve the right to use that intellectual property in its tutoring

activities. This arrangement is not entirely transparent and the manager of Educational

Publisher claims that neither of the parties have a solid grasp of the IP arrangement.

Whilst management feel they could be doing more, they believe that doing so would

have a negative effect on the business culture that is built on trust. Management feels that

if employees are not given that level of trust this could damage the business culture

significantly. Additionally, given that a lot of the company’s IP becomes quickly outdated,

management feels they do not need to be doing more to protect IP, though they are aware

that they could be.

In contrast to Educational Publisher, Literary Agent stresses that it ensures that their

authors retain their IP in line with standard industry practice in non-education publishing.

The IP of the author becomes the right of the publishers for a limited period of time;

copyright would never be assigned to a publisher. Literary Agent does not own any of the

intellectual property, yet it is entitled to royalties from any deal that it negotiated with

publishers (even if an author leaves the agent). IP is further protected by the client

agreements, which ensure a 75-day period in which a defecting author cannot sign with

another agent.

At Production Company A the management of IP forms part of the company’s

fundamental strategy. The approach involves taking a strong stance in what could be

considered lop-sided negotiations with multinational organisation over IP rights. The

major issue in protecting and retaining copyright for Production Company A is cash flow

and timeliness of negotiation process. Despite Production Company A’s strong reputation

in the industry, management claims that this does not assist in the negotiating process as

Production Company A is a relatively small player in the industry. Whilst Production

Company A is generally concerned with the management of copyright, it has been recently

exploring the possibilities of licensing brand rights and trade marking its brands globally.



Proceeds from Digital Media Rights for online and mobile content forms a significant part

of Production Company A’s revenue, and it has focused on developing multi-platform

production capabilities and maintaining control over this IP.

Production Company B has numerous template contracts that ensure appropriate

protection of IP. It contends that licensing “program formats” is a strategy that is lucrative

for exporting IP and has been employed widely from the United Kingdom to the United

States. This is a strategy they hope to pursue in the future. The CEO considers that these

opportunities are yet to happen for Australian production companies, as there is little

support for innovation in Australian content. Australian Broadcasters are alleged to rely on

formats that have already proved successful in other territories.

Intellectual property and digitisation in the creative industries

For the four companies, the greatest contemporary issue with respect to IP

management concerns digitisation in the creative industries. Both the publishing industry

and filmmaking industries are beginning to rapidly embrace digital content. All cases

recognised that the digital paradigm is the future for their industry yet were at varying

stages of development with respect to their own venturing into digital content provision.

All the companies maintain that there are multiple additional obstacles with respect to the

protecting of digital content. Educational Publisher was the only company to have not

begun to supply digital content.

For Educational Publisher the complexity of IP protection is a barrier for publishers,

preventing them from embracing the new digital paradigm. The company is exploring

entering the digital publishing market; however they continue to ponder the practicalities

of protecting their IP online. There is a realisation that it is the future of the industry, yet

the challenges of effectively protecting IP of digital content outweighs the perceived

benefits at this stage, as discussed further below. The digitisation of educational content is

considered a positive development for publishers as it: a) addresses the requirement for

annual updates (content is often outdated within 12-18 months because of the changing

“real world” and shifting pedagogical requirements), b) provides an opportunity for

education publishers to reach more readers with more specifically targeted works, and c)

assists lowering unit costs of production and distribution. Digitisation is also negatively

impacting the sector, particularly the educational publishing sector, as content can

potentially be easily replicated by users (students), and illegal copying by other parties is

also simplified. The obstacles to protecting digital IP appear to be impacting the growth of

Educational Publisher, despite growing consumer demand. The costs of digital rights

management software and the ease of file sharing are the greatest deterrents. Digitising

the content itself however would actually provide a cost saving for the business, as it would

reduce the current labour intensive printing and postage methods.

Literary Agent notes that digitisation of the publishing industry presents additional

obstacles, and whilst the company is aware of the mechanisms for protecting this IP they

are relying on publishers to effectively protect the electronic IP through digital rights

management (DRM). The company is engaging with digitisation in the publishing industry,

despite its challenges. Whilst the move to digital publishing is perceived as exciting, it is

also viewed as confusing and frustrating. Literary Agent recognises the difficulty of

ensuring appropriate rights are retained by their authors. Literary Agent feels that as the

digitisation of the industry continues the landscape of IP management will shift as some

publishers will desire world rights as opposed to solely the rights for their home territory.



Production Company A contends that it has been proactive with respect to the

protection of digital IP rights. This is considered the result of a progressive and at times

complex rights management structure that resulted from a strong understanding of IP

management in the digital arena. Digitisation of creative content is providing an

opportunity for Production Company A. It views digitisation as an opportunity to monetise

more IP and is pushing very hard in that arena. The opportunities presented through

Google, YouTube, iTunes and Amazon are perceived as financial opportunities and a space

currently devoid of competitors. In the coming years, Production Company A considers

success will come to those that are able to own and control IP, and that control will feed

revenues through social networking and other new marketing opportunities. Those in the

strongest positions will be those that take their contact directly to the audience. Production

Company A indicated there are enough people willing to legally obtain their content, and

that as a result they should be able to monetise any increased awareness which comes as

a result of IP theft.

For Production Company B, the main dilemma posed by digitisation is the aggressive

behaviour of broadcasters in their attempts to secure digital rights to IP.

Advice relating to intellectual property

Education Publisher was the only company to not have sought advice with respect to

IP protection or management. The three other companies had sought varying degrees of

formal and informal advice on IP.

Literary Agent has sought advice on IP management from copyright lawyers when the

intellectual property of authors they represent has been breached.

Production Company A receives formal advice from legal counsel on occasion and also

seeks informal advice through the Screen Producers Association (an industry association)

membership and other professional colleagues. A strong awareness of legal IP issues was

considered part of the job as a producer or executive producer.

Production Company B employs a lawyer full-time who is involved in negotiating with

upstream and downstream organisations and uses exterior legal counsel on a regular basis

to take advantage of specialist knowledge for contracts that are more complex and high

stakes. Production Company B feels that the outside lawyers are better equipped to

negotiate these deals then the internal counsel.

Enforcement and litigation

None of the cases involved in our study had experienced any litigation with respect to

IP. The four companies felt confident they could enforce their IP rights should the situation

arise, given that Australian Copyright Law is relatively clear and provides sufficient

protection and there are solid industry standards and accepted practices. The cases also

cited belief in their own ability to avoid litigation and resolve any disputes outside of court;

Production Company B cited examples of disputes that were settled through negotiation.

Educational Publisher questioned however whether the cost of pursuing IP litigation

would be worthwhile, whilst Production Company A considered protecting copyright a

relatively easy task. The protection of trademarks is considered a much more difficult task

yet they are only just beginning to explore this avenue of IP protection.



Benefits and costs of intellectual property management

For all the cases the benefits of protecting IP were seen to be invaluable in terms of

competitiveness as all cases were in the core business of creating IP. For the majority of

firms the cost related to protecting IP were relatively little considering that they relied on

industry standards regarding copyright law, and informal policies of trust and secrecy.

Production Company B was the only case which viewed protection of IP as a significant

cost as they employ a lawyer in-house to deal with these issues, and additionally an IT

professional to create and maintain a rights management database. Furthermore, the

company employs IP consultants on a regular basis.

Intellectual property management and the global context

Author and Educational Publisher had not engaged in the international market place

to enough of an extent to consider IP issues in the global context.

Both the Production Companies believed that the issues involved in protecting IP, in

particular copyright, are similar in the global context. They considered some nations as

having lackadaisical copyright protection (e.g. China) and cited examples of them having

been taken advantage of in international contracts. As opposed to viewing these as issues

however they perceived these incidences as having a greater positive impact on brand

awareness and exposing content to a wider audience, which outweighs any costs of

pursuing international legal action over IP infringements.

Literary Agent noted that the exportation of translated works posed the greatest

complexities for IP management, as the international publisher and often the translator

own the IP of the translation. In Germany for example, translation has become quite an

expensive exercise because translators also demand a royalty and contend that their

translation of the work is their copyright.

Intellectual property management and the government

The majority of the firms interviewed were indifferent towards the level of

government support for IP as they felt they were able to operate within the legal framework

and did not have the need to engage with government bodies with relation to IP.

Production Company B however considered that there is relatively little support from

the government to assist SMEs in the creative industries in protecting their IP.

Intellectual asset management and competitiveness

For all the cases involved in our study, intellectual asset management is vital to their

competitiveness. The complexity of internationalisation and an increasingly global

industry is clear with digitisation in the creative industries.

For Educational Publisher, the strong emphasis on secrecy and trust has assisted the

company in protecting its IP with minimal costs and also assisted in building a strong

business culture. The firm’s approach to IP management is purported to be similar to other

firms in educational publishing. The case highlights the reliance on informal IP

management by SMEs and confirms the lackadaisical approach to IP management in the

creative industries.

The study of Literary Agent suggests that its direct involvement ensures better

protection of authors’ rights given their awareness of industry standards with respect to IP.



The case study of the Author revealed IP issues were not perceived to be of high

importance. It would seem that Author is unaware of standard industry practice with

respect to copyright (that it remains the property of the author) and thus raises potentially

competitive threats down the value chain. This case highlights the typical creative

individual’s lack of awareness of, and interest in, IP management and rights.

For Production Company A, theft of digital content is considered inevitable. However

this was not seen as impacting legitimate customers or revenues. Though IP management

is considered essential, legal advice was obtained in an ad hoc fashion.

Production Company B has ensured the IP management is central to its competitive

performance. There are significant costs incurred from internal and external legal counsel,

with a global marketplace further complicating the business.

Case studies – Cleantech Company

The following section details one case study in the renewable and clean energy

industries. This case offers insights into the impact of IP management at an early stage,

entrepreneurial cleantech venture and reflects on IP management in the context of seeking

venture capital funding. “Cleantech Company” was investigated in its early phases, at a

time when the entrepreneurial firm had received two rounds of investment by the venture

capitalist.


The founder of Cleantech Company is an engineer and academic at a major University.

He has business experience in research and development for a start-up firm in the

renewable energy sector. Before he was able to share his business idea (a new and

innovative renewable energy technology) he invested his own money to protect the

intellectual property behind it. He then established a firm, got informal investment from

family and friends and applied for government funding (which he was granted). He also

secured funding from a venture capital fund.

This young entrepreneurial firm is a renewable energy systems company that intends

to commercialise its innovative technology through sales on a global platform. Originally,

the firm consisted of its founder who concurrently was the chief executive officer (CEO),

chief operations officer (COO), chief financial officer (CFO) and Chairman as well as the

head engineer. However, shortly after the firm’s foundation, the entrepreneur approached

an experienced businessman (especially with regards to Greenfield ventures) and a finance

expert to join him on his exciting yet risky journey by becoming part of the entrepreneurial

venture’s executive team in the positions of COO and CFO respectively. Furthermore,

several engineers were contracted out, with the number of engineers depending on the

need for their work and assistance.

Cleantech Company has two core technologies, which puts it in a unique position

compared to most cleantech firms that rely on one core technology. The two technologies

are in the prototype stage with the next step being the design and scale-up to pilot for scale

testing.




Business strategies and perception about relevance of intellectual asset management

Cleantech Company faced a common issue in its early stages where the founder is an

inventor who lacks management expertise but becomes the CEO and runs the company for

a while. The company was able to operate at the beginning but eventually faced

limitations, especially with respect to managing IP.

The entrepreneur considered the involvement of the venture capitalist as of

paramount importance for supporting IP management. This is compounded by the fact

that the venture capitalist was federally backed. This added credibility, as well as its strong

network both at the national and international level.

Protection methods adopted by the SME (and how they have been changing over time)

A lack of IP protection presented the first hurdles for Cleantech Company. A great deal

of preliminary research had been undertaken yet total secrecy was required as there was

no formal protection in place. This lack of protection created difficulties in raising venture

capital as the idea could not be shared with potential investors.

The entrepreneur was initially unable to raise sufficient funds to cover the legal fees

(approx. AUS 3-4 000) or the application fees for 4 provisional patents. The entrepreneur

therefore was forced to work up the original patent documents himself, and raise

preliminary funding for filing the application from friends and family. The founders of the

firm therefore consist of the entrepreneur and the early entrants who helped to cover the

cost of the patent.

IP management and the global context

The process of growth for the firm was based on a strategy of rapidly increasing value

through placing a value on the IP. If Cleantech Company is to succeed, it must succeed in a

global market.

Enforcement and litigation

Issues have arisen between the University and Cleantech Company with respect to IP.

This related to the fact that the company’s IP existed in an early form at the University. The

entrepreneur explained that the University is very rigid about IP because in the past

companies have found a way to get it out of the university and profit from university

supported research.


The case highlights the significance of intellectual property for a start-up cleantech

company. It also highlights how a technology’s early life can confuse ownership, with

success bringing out the multiple parties often involved in a technology’s incubation. The

company has secured significant Government funding, which has helped increase the

other commercial stakeholders in the venture.



Policy implications and recommendations

Evaluate the innovation patent initiative

The introduction of the innovation patent marks a positive step forward in

government efforts to evolve the IPR system to better suit the needs of firms, including

SMEs, in the contemporary, knowledge economy. However, it is important that the

implications and results of new and innovative measures such as this are tracked,

evaluated and the results widely disseminated. The decision by the Minister for

Innovation, Science and Research in February 2011 to request the Advisory Council on

Intellectual Property to begin a process to review the innovation patent system is a positive

development. The evaluation should take into account not just the domestic-level impacts

but also international-level impacts as the ease with which firms in other countries are

using these new instruments is also of concern.

Increase awareness of intellectual property among SMEs through communication and education

In the creative industry cases studied, there is a lack of awareness not so much of what

IPRs are but more of how to use IPRs strategically i.e. how to integrate IPR into a long-term,

business strategy and in this way appropriate greater value from intellectual assets. IP

Australia’s efforts to communicate with firms on IPR have been effective in increasing

general awareness over time. Efforts by IP Australia to provide IPR-modules in the

vocational education and training sector as well as in universities should continue and be

built on.

Address the issues for SMEs operating internationally through greater information and efforts to improve enforcement of intellectual property rights

Asian, in particular the Chinese and Indian, markets are increasingly significant for

Australian business. However, the widespread feeling from the interviews and case studies

is that, even when IPRs are obtained in international markets, the enforcement regime is

not robust enough. Improving enforcement of IPR internationally will eventually have to be

dealt with through co-ordinated action at the international-level. Governments should be

aware of this issue and make addressing it a priority.

Notes

1. www.abs.gov.au/ausstats/[email protected]/Latestproducts/8158.0Contents2008-09?opendocument&tabname=Summary&prodno=8158.0&issue=2008-09&num=&view=.

2. The “Oslo Manual, Guidelines for Collecting and Interpreting Innovation Data”, which wasdeveloped jointly by Eurostat and the Organisation for Economic Co-operation and Development(OECD) to aid in measuring the process of innovation, forms the basis of concepts and definitionsused by the ABS to measure the incidence of innovation in Australian business through theBusiness Characteristics Survey (BCS).

References

Bessen, J. (2004), “Holdup and licensing of cumulative innovations with private information”, EconomicsLetters, 82(3): 321-326.

Bessen, J. And E. Maskin (2000), “Sequential innovation, patents and imitation”, Working Paper, MITDepartment of Economics.


http://www.abs.gov.au/ausstats/[email protected]/Latestproducts/8158.0Contents2008-09?opendocument&tabname=Summary&prodno=8158.0&issue=2008-09&num=&view

http://www.abs.gov.au/ausstats/[email protected]/Latestproducts/8158.0Contents2008-09?opendocument&tabname=Summary&prodno=8158.0&issue=2008-09&num=&view


Dosi, G., Marengo, L. and C. Pasquali (2006), How much should society fuel the greed of innovators? On therelations between appropriability, opportunities and rates of innovation, Research Policy, 35(8):1110-1121.

Hall, B. (2005), “Exploring the patent explosion”, Journal of Technology Transfer, 30: 35-48.

Hope, J. (2008), Biobazaar: The open source revolution and biotechnology, Cambridge, MA, HarvardUniversity Press.

Hortsmann, I., Mac Donald, J. and A., Slivinski (1985), “Patents as information transfer mechanisms: Topatent or (maybe) not to patent”, Journal of Political Economy, 93: 837-858.

IP Australia (2005), Review of the Innovation Patent. Issues Paper, Australian Government, Canberra,Australia.

Jaffe, A. (2000), “The US patent system in transition: Policy innovation and the innovation process”,Research Policy, 29: 531-557.

Jaffe, A. and J. Lerner (2004), Innovation and its discontents, Princeton University Press.

Jensen, P. and E. Webster (2009), “SMEs and their use of Intellectual Property Rights in Australia”,Working Paper, Melbourne Institute of Applied Economic and Social Research, Intellectual PropertyResearch Institute of Australia, Melbourne, Australia.

Kortum, S. and J. Lerner (1998), “Stronger protection or technological revolution: What is behind therecent surge in patenting?”, Rochester Conference Series on Public Policy, 48: 247-307.

Merges, R. and R. Nelson (1994), “On limiting or encouraging rivalry in technical progress: The effectsof patent scope decisions”, Journal of Economic Behaviour and Organization, 25: 1-24.

Nordhaus, W. D. (2009), “Economic issues in a designing a global agreement on global warming.”Keynote Address at the Climate Change Conference, Copenhagen, Denmark, 10-12 March,available at http://nordhaus.econ.yale.edu/documents/Copenhagen_052909.pdf.

Noonan, P (2009), Opening Presentation, APEC Intellectual Property Rights PE&A SME Workshop, 1-3 April2009, Melbourne, Australia.

Pisano, G. (2006), “Profiting from innovation and the intellectual property revolution” Research Policy,35:1122-1130.

Polany, M. (1966), The tacit dimension, Routledge: London.

Teece, D.J. (1986), “Profiting from technological innovation”, Research Policy, 15(6): 285-305.

Teece, D. (2006), “Reflections on ‘Profiting from innovation’”, Research Policy, 35: 1131-1146.

Wilson, T. (2008), Intellectual Property and the Australian economy, Institute of Public Affairs, Melbourne.


http://nordhaus.econ.yale.edu/documents/Copenhagen_052909.pdf


ANNEX 2.A1

Clean Technology and Appropriability Regime

Policies to encourage private investment in technologies that mitigate climate change

confront the problem of partial appropriability, which results in private underinvestment

in R&D (Nordhaus, 2009). The following discussion of the appropriability regime provides a

theoretical context for approaches to IP management in clean technologies, but is

applicable to other industries relying on highly technological innovations.

The following discussion of the appropriability regime provides a theoretical context

for approaches to IP management in clean technologies, but is applicable to other

industries relying on highly technological innovations.

The appropriability regime refers to “The environmental factors, excluding firm and

market structure, that govern an innovator’s ability to capture the profits generated by an

innovation. The most important dimensions of such a regime are the nature of the

technology and the efficacy of legal mechanisms of protection” (Teece, 1986, p. 287). The

appropriability regime is critical when the firm has identified its market and has started

full-scale production but still has to capture the value from it and deter competitors from

taking the dominant position.

The relation between the appropriability regime, the rates of innovation and

subsequent commercialisation has been subject to significant controversy in recent

literature (Kortum and Lerner, 1998; Hall, 2005; Jaffe and Lerner, 2004).

First, the effect of the appropriability regime is blurred by the ambiguity of the

underlying intellectual property rights (Hortsmann et al., 1985). The appropriability

conditions account for both well-defined patent and copyright protection mechanisms as

well as informal mechanisms of secrecy, lead times, learning, unique capabilities and

resources, etc. (Teece, 1986; Pisano, 2006). Firms frequently use the latter, in particular,

secrecy, lead times and complementary capabilities, as a substitute for legally regulated IPR

protection mechanisms. A significant role in such decisions plays the relation between

easily articulated and patentable explicit knowledge and difficult to replicate tacit

knowledge in the technology/product in question (Polany, 1966). If tacit knowledge prevails,

the IPR-related protection mechanisms and incentives to innovate associated with them

are likely to play an insignificant role (Hortsmann et al., 1985).

Second, the traditional logic is that private expectations of returns from innovative

activity have been an essential condition for individual entrepreneurs and firms to commit

to a risky, uncertain, expensive and time-consuming process of commercialisation (Dosi et

al., 2006). While strong appropriability is essential to motivate private innovative activities,



there is empirical evidence that above a certain threshold, strengthening of appropriability

conditions does not lead to increases in R&D investments and rates of innovation (Dosi et

al., 2006; Jaffe, 2000). An example of such counterproductive practice is the awarding of

patents for results of basic research that stand far from any feasible commercial

application and grant the holder of the patent an ability to block further research and

development of the initial idea protected by the patent rights (Merges and Nelson, 1994).

Third, the relation between the appropriability regime and the propensity to innovate

is further dependent on the nature of innovation. A discrete independent innovation is

easier to protect than an innovation requiring multiple inputs (Bessen, 2004). The

cumulative innovations are now common and represent, for example, widespread high-

tech industries where subsequent innovations are built on previously introduced

innovations (sequentiality) and preconditioned by the simultaneous existence of different

research lines (complementarity), (Bessen and Maskin, 2000). Under such conditions,

strong IPR protection could be damaging and could discourage entrepreneurs from further

investment in inventions and their commercialisation (Merges and Nelson, 1994). The

sustainable development of cumulative innovations requires involvement of multiple

players. Here, control by a single patent holder might lead to degradation of the innovation

progression in the long run. Therefore, in order to profit from innovation firms might prefer

weaker IPR regimes that allow sharing and building on innovations accumulated in

previous rounds of the process.

This argument is developed further to state that for the development of new

technologies, institutional mechanisms similar to open science might work more

efficiently than appropriability regimes (Hope, 2008).

In summary, the appropriability conditions might exercise a debateable influence on

the innovation process (Pisano, 2006). They are, however, key to appropriation of profits

from commercialisation and, therefore, success of the firm and have to be carefully

considered when undergoing technology commercialisation process.



The SME Dimension

© OECD 2011

Chapter 3

Italy: Channelling Creativity into Competitiveness

By Dr. Daniela Carosi* and Dr. Massimo Marnetto**

Ministry of Economic Development, Italy

* Italian Patent and Trademark Office, Directorate General for the Fight against Counterfeiting.** Enterprise and Internationalisation Department, Directorate General for Industrial Policy and

Competitiveness.

This chapter illustrates the opportunities and challenges for Italian SMEs increating value from intellectual assets in “design-driven” manufacturingindustries, typically targeted at high quality markets. In these industries, whichare at the core of the “Made in Italy” system, firms build competitive advantageby combining intangibles with technology and manufacturing skills. Based onevidence on access to formal IP tools, experts’ views and a range of SME casesacross different industries, the chapter highlights key challenges that ItalianSMEs in these sectors face in turning creativity into actual innovation and marketvalue and in integrating intellectual property rights in their business models. Thestudy provides a review of recent developments in the Italian IP landscape andcomments on their relevance for SMEs. It concludes with policy recommendationsfor improving the capacity of SMEs to manage their intellectual assetsstrategically and build on them to increase international competitiveness.

65

3. ITALY: CHANNELLING CREATIVITY INTO COMPETITIVENESS

IntroductionThis chapter focuses on SMEs in “design-driven” manufacturing industries, that is, in

industries in which “intangibles” combine with technology and manufacturing capacity to

continuously introduce changes in the functions, value and appearance of products and

systems, mainly targeted at high-quality market segments. The innovative drive of the

entrepreneurs is typically oriented towards improving functionality and aesthetics, as well

as towards shaping the emotional and symbolic dimension of goods. In these sectors,

which represent the core of the “Made in Italy” system, SMEs, often inserted in dense local

production systems, play a key role for innovation and international competitiveness.

The competitiveness of these design-intensive SMEs strongly depends on their

capacity to appropriate the value of intangibles, that is, on the entrepreneurs’ ability to

turn technological and intangible elements into market value. As such, Italian SMEs in

these industries have the challenge of managing their intellectual assets in a strategic

manner by integrating intellectual property rights (IPRs) in their business models.

Ninety five per cent of Italian enterprises have between 1 and 9 employees. The

percentage falls to 83% if only industry in a narrow sense is considered1 (see Annex 3.A1).

This industrial structure, largely skewed towards the small and micro size, has

implications on the patterns and typologies of innovation and the degree at which these

are captured by traditional input and output measures of innovative investment.

Usually, international data on innovation (e.g. the EU Community Innovation Survey –

CIS) provide only partial information on the innovative behaviour of Italian enterprises,

since they gather information on enterprises with a number of employees equal or greater

than 10, disregarding in this way the majority of Italian enterprises.

The 2004-06 National Innovation Survey conducted by ISTAT (see Annex 3.A1) shows

that, excluding this relevant micro-firm category, Italian firms tend to focus on process

innovation, although typically process and product innovations are complementary. It is

particularly SMEs that rely mainly on process innovation, across all sectors. In

manufacturing, the process innovation concerns largely production processes and, to a

lesser extent, support activities to production.

The small size of firms typically combines with the industrial specialisation of the

Italian economy in “traditional” sectors (e.g. textiles, furnishing, tiles, food, machinery) to

explain the overall low level of formal R&D and the relatively low propensity to patent or,

more broadly, to adopt formal protection mechanisms. It is important, however, to

underline that the competitiveness of Italian firms in these industries largely relies on

knowledge components and intangible factors, as well as on technological upgrading and

the capacity to continuously introduce innovations.



Intellectual property regulation in ItalyNational Patent Offices (NPOs) play a crucial role in creating a knowledge market and

in building confidence in the market, as all participants share rules that govern the

transactions of intangibles and rely upon the will and capacity of public institutions to

enforce IPRs.

In Italy, the National Patent and Trademark Office (Ufficio Italiano Brevetti e Marchi –

UIBM) is a Directorate General of the Ministry of Economic Development (the full

denomination is Directorate General for Combating Counterfeiting – Italian Patent and Trademark

Office) and it is responsible for any activities relating to industrial property rights.

The following types of IPRs can be obtained at the UIBM: Patents, Utility models,

Designs, Trademarks, Topographies of a Semiconductor Product, New Plant Varieties. On

the other hand, the Copyright Service of the Ministry of Cultural Heritage and Activities

administrates copyright and related rights. Applications are made at the UIBM (directly or

by post), but can also be filed at Chambers of Commerce across the country.

Patents for invention and utility model

Patents and utility models define an intellectual creation with a technological content

in any industry field. However, these are different IP rights, which cannot be combined. In

particular, patents and utility models differ in the innovative steps required, as well as in

the terms of protection. The exclusive right, which takes effect from the date of filing the

application, has a term of 20 years for inventions, and 10 years for utility models.

The object of a patent is a new invention which involves an inventive activity and is

capable of industrial application. On the other hand, a utility model consists of

improvements in shape which do not represent a solution to a technical problem, but

confer a particular utility on a product which already exists. Thus, the shape improvement

simply gives a product more efficacy and/or a greater comfort in handling, but it does not

transform the object into something substantially new and different.

By law, anyone applying for a patent for an industrial invention may at the same time

file an application for a utility model, to be processed if the patent application is refused or

accepted only in part. This is not intended as a sort of minor patent, which can be obtained

more easily than a standard one. Rather, the aim is to dispose of a tool to protect a specific

dimension of innovation, related to functionality.

The law establishes the principle of unity of invention, which requires a patent to

cover one invention only. In the case of an application containing several inventions, only

the principal one will be considered as the object of the patent application. However, the

applicant may file separate divisional applications for each other invention. These

applications will benefit from the filing date of the initial application, although they will be

treated as independent applications.

Any application for an invention or utility model has to be filed with the UIBM and is

subject by law to a period of secrecy of 18 months. The first 90 days are to allow the Defence

authorities to verify their interest in the invention and cannot be waived under any

circumstances. Proprietors may decide to make their applications available to the public

earlier and applications may be laid open after the above-mentioned 90 days. Nevertheless

proprietors residing in Italy who wish to file a patent application in a third country or with

the WIPO office responsible for managing PCT procedures need the authorisation from the



UIBM, subject to the opinion of the Defence authorities. In any case, the 90 days period of

secrecy applies.

Applications are examined by the Office in chronological order; the Office may

derogate from this only if legal proceedings are in progress, as proven by the corresponding

registration in the court register. The Office carries out a formal examination and a

technical examination, which may be followed by the grant of the patent or by an

interlocutory communication. At the end of the interlocutory stage, the Office grants or

refuses the patent.

Patents are null and void if:

● they do not meet the requirements;

● they fall into one of the cases expressly excluded from patentability;

● the description is not sufficiently clear and complete;

● the subject-matter extends beyond the content of the application as filed;

● the proprietor is not entitled to obtain a patent.

Patents lapse if:

● the fees are not paid by the due dates;

● the invention is not embodied, or is not sufficiently embodied for the needs of the

country, within two years of the grant of the first compulsory licence.

It is possible to appeal against the decisions of the UIBM to the Board of Appeal within

a term of 60 days from receipt; this term cannot be extended.2

Priority must be claimed at the same time as the application for the patent or, at the

latest, within the following two months, provided these do not exceed 12 months from the

priority date claimed. The priority claim must provide details of the first filing and related

documentation and must be accompanied by a translation into Italian; if this

documentation is not filed together with the priority claim, it must be submitted within six

months from the filing of the application.

The right of exploitation of a patent belongs to the author of the invention or model,

or to his successors in title. If an industrial invention has been developed by several

persons, the rights deriving from the patent shall, unless otherwise agreed upon, be shared

equally by the authors.

If the idea has been developed in the course of an employment contract or

relationship, and the inventive activity forms the purpose of this contract or relationship

and is compensated accordingly, the rights deriving from the patent belong to the

employer, although the author of the invention has a right to be recognised as such. If,

however, there is an employment relationship, but the inventive activity does not form part

of this relationship, the employee inventor is also entitled to fair compensation. If the

invention has been developed by an employee in the enterprise’s field of activity, but falls

outside the two preceding cases, the employer has only a right of pre-emption. If the

employer is a University or a Public Research Organisation (PRO), the rights belong to the

inventor who will receive no less than 50% of any financial return deriving from the

economic exploitation of the patent.

In the case of PROs, however, a recent reform modifies the ownership rule. The IPRs

will belong to the performing organisation, but the authorship of the patent will be



acknowledged to the inventor, who will receive a fair reward for any financial return from

the economic exploitation of the patent. In the case of co-inventors, ownership will be

shared among them and the share of the reward equally distributed, unless the same

investors define a profit sharing criterion that is proportional to their contribution.

Supplementary protection certificate

A supplementary protection certificate is a legal title that extends the duration of the

exclusive patent right, solely with respect to medicines or plant health products, in order

to make up for the time that has elapsed between the date of the patent application and

the authorisation for marketing the product. This certificate is valid from the patent expiry

date for a period equivalent to the time elapsed between the date of the patent application

and the authorisation for marketing the product, up to a maximum of 5 years.

Designs and models

If utility models protect the functional appearance, models and designs protect only the

formal appearance. In practice, the same object can be protected by utility model and

design at the same time. The design registration protects the appearance of a product, but

there are no specific aesthetic requirements. A protected design or model may also be

eligible for protection under the law of copyright, but only for designs which meet two

further requirements: creative character and artistic value. This represents an exception of

the general rule for copyright, which does not require a work to have a specific artistic

value. In this case, the validity of the protection is 70 years after the author’s death, as per

general copyright rules.

The exclusive right takes effect from the date of filing of the application and has a

validity of 5 years, renewable for other four terms of 5 years, up to a maximum of 25 years.

Multiple designs are allowed in one, with no upper limit in number, provided products are

in the same class. There is no period of secrecy, except upon a request by the applicant to

forbid accessibility, for a maximum period of 12 months from the date of filing or the date

of priority.

Trademarks

Trademark registration can be applied for a period of ten years, which is however

indefinitely renewable. To renew a mark without any change, it is merely necessary to

submit an application and pay the fees due, within the twelve months preceding the expiry

of the ten-year period in force or, with a surcharge, within the following six months.

Topographies of semiconductor products

A “topography” of a semiconductor product consists of a set of correlated drawings, no

matter how drawn up or codified, showing a three-dimensional diagram of the layers

making up a semiconductor product. Each of the drawings in this set wholly or partly

reproduces a surface of the semiconductor product at any stage of its manufacture.

Exclusive rights may be obtained for topographies resulting from the creative

intellectual efforts of their author, if they are not common or familiar in the semiconductor

products industry. Exclusive rights may also be obtained for topographies resulting from a

combination of common or familiar elements, provided that they comply in full with the

above requirements. The protection granted to semiconductor product topographies does



not extend to the concepts, processes, systems, techniques or codified information

incorporated in these topographies.

The exclusive rights conferred by the registration of semiconductor product

topographies have a term of 10 years from the first of the following dates: the end of the

civil year during which there was initial commercial exploitation; the end of the civil year

in which the application was filed.

New plant varieties

A new plant variety is a new, homogeneous, stable plant variety which is distinct from

existing varieties. The exclusive rights for the new plant varieties have a term of 20 years

from the grant (30 years in the case of vine and tree species).

Intellectual property regulation and SMEs

In Italy, there is no specific IP rule or procedure concerning SMEs. However, two

measures can be singled out for their large impact on SMEs: “Patent quality” and “linked

actions”.

Patent quality

The introduction of the patent search and a new system of fees are intended to confer

a high level of quality to patents and, in this way, favour the participation of SMEs in the

use of IPRs. A quality patent reduces in fact the risks of legal conflict and has a greater

possibility to be defended in the Courts. The patent search for Italian patents is carried out

by the European Patent Office on the basis of a working agreement signed in 2008.

Furthermore patent fees depend on the number of pages containing claims.

Linked actions

The Italian Ministry of Economic Development (MiSE) has recently implemented some

measures linked with the national IP system, in order to extend to a greater number of

enterprises, especially SMEs, the opportunities and benefits of IPR. The MiSE has made

available 60 million Euros, out of the National Innovation Fund (FNI), for SMEs that intend

to carry out innovation projects related to patents. The support takes the form of credit

financing and risk capital tools.

Another important set of measures consists in the supply of services aimed at

increasing the quality of IPR applications, in particular of patents and designs, and at

supporting their extension towards third countries. These services intend to support the

development of strategies by publicly funded Research Organisations (PROs) and by

business firms. The rationale is that quality IPR strategies are crucial for competitiveness

in the rapidly changing international market, characterised by increasing integration and

competition, and the transition towards a knowledge economy.


In order to make the Italian IP system consistent with the new economic landscape,

the IP law has been recently reviewed and rationalised and a new IP code was issued in

2005. It substitutes for the previous about 40 laws that overlapped across years since 1939.



Among the novelties provided under the new IP Code in order to raise the quality of

the IP system, two are worth pointing out. One concerns the introduction of the search for

granting patents. The other refers to a strategic use of patent application fees.

A national patent search service is provided to make Italian patents stronger, fulfilling

higher quality standards. This service is outsourced to the EPO on a bilateral agreement

basis, as France and Benelux Countries do. As commented above, this support is

particularly important for SMEs, as it increases their ability to defend their IPR in Courts.

As for the IP fees, the 2007 financial act provides for a new system of fees at the Italian

Patent Office, for granting patents (inventions and utility models), for design registration

and for trademark opposition procedures. In order to keep a granted patent for invention

in force, renewal fees must be paid on the 5th anniversary of the filing date and every year

after that. To keep a granted utility model in force the renewal fees must be paid from the

second five-year period and every year after that up to the 10th year. As for a registered

design, the renewal fees are due from the second five-year period and it is possible to

renew it up to 25 years. An important element of the fee strategy envisaged by the new

rules, conceived by the UIBM, consists in linking up the patent fee amount with the

number of patent claims. This is in order to keep a balance in the IP system between

protection and access to knowledge and innovation.

Public Research Organisations (PROs), as well as the Ministry of Defence and the

Ministry of Agriculture and Forestry are exempt from paying patent and utility model

application fees. This provision has been introduced to promote the propensity to patent

on the part of the PROs (especially Universities) and as a prerequisite to improve

collaboration between PROs and industry.

On the side of enforcement, since 2002 (Laws 273/02 – 168/03), “IP litigation specialised

sections” were created within ordinary courts and appellate courts. This introduces highly

skilled judges in the field of industrial protection. Following this regulatory change,

entrepreneurs can obtain precautionary measures to react to counterfeit damages in a short

time.

The emphasis that the Italian system is increasingly placing on combating

counterfeiting is also evident from the institutional reorganisation within MiSE, as, since

2009, the Italian Patent and Trademark Office has become part of the Directorate General

for the Fight against Counterfeiting (DGLC). This reorganisation has assigned the DGLC –

UIBM new and different institutional tasks, particularly strengthening its role of combating

counterfeiting, as a fundamental aspect for enhancing Intellectual Property.

Additionally, important measures have been launched to assist Italian enterprises in

international markets. As boundaries across national markets fade away, enterprises are

required to have an international IP management strategy by extending the IP protection to

the markets that are relevant for their business. With this rationale, a pilot project has been

designed by the UIBM. This consists of an international network of IPR desks located in

countries either where Italian enterprises are particularly well represented and active or

where the perceived risk of IPR infringement is higher: Brazil, China, India, Republic of

Korea, Russian Federation, Taiwan, Turkey, United Arab Emirates, USA, and Vietnam. They

are intended to offer free support to business in the areas of information and assistance for

registering and enforcing IP in host countries. The pilot project places special emphasis on

accurate legal assistance and precautionary statements for SMEs.



Empirical evidence

SMEs’ intellectual management practices

In order to evaluate innovation propensity by Italian enterprises and research

organisations, all the applications concerning the different IP rights should be considered

together, including the use (on the part of Italian IPR owners) of international instruments

to extend the national protection abroad.

The number of applications made at the UIBM has been growing significantly in recent

years, highlighting an important change in approach and attitude towards IPRs by Italian

firms. In the period 2005-07, applications for all IPR types at the UIBM increased

substantially: by 8.1% the patents for inventions, by 8.4% the trademarks, by 16% the utility

models and by 29% the designs. The positive trend continued in 2008-09, with an overall

increase in application of 2.2%. Over a year, applications increased by 1.7%, for designs, by

2.1% for trademarks, by 2.4% for inventions, and by 5.3% for utility models. This led in 2009

to 53 200 applications for trademarks, 1 233 for designs, 2 298 for utility models, and 9 638

for inventions.

Also the applications for community trademarks and designs originated from Italy

have increased significantly. Between 2005 and 2007, trademarks increased by 31% and

designs by 4%. In 2009, 7 333 applications for communitarian trademarks originated from

Italy, while for communitarian designs the number was 9 900.

The volume of IPR designations may be seen as a proxy of the international dimension

of the Italian innovation market. In 2005 out of a total of 128 679 applications with the EPO

(Euro and Euro-PCT) 122 004 (94.8%) designated Italy. In 2009 the applications to the EPO

from Italy were 4 343 (Euro and Euro-PCT), the applications for registrations and renewals

under the Madrid system on the part of Italian holders were 2 763 and 1 680 respectively. In

2008, the total number of registrations and subsequent designations of non-resident

trademarks which Italy received under the Madrid system was 6 171. In addition to these

figures, the applications with the Office for the Harmonization of the Internal Market

(OHIM) need to be considered: in 2009 these amounted to 88 191 for trademarks and 69 449

for designs. In practice, the Italian market is a quota of the community market and each

community IP right is Italian as well.

When compared with their foreign counterparts, Italian companies exhibit intensity

in the use of IP which varies in relation with the instrument:

● the propensity to patent is below the EU average (76.1 EPO patents per million population

versus a EU average of 105.7)

● the propensity to use trademarks is close to the EU average (120 community trademarks

per million population versus a EU average of 124.6)

● the propensity to use designs is above the EU average (184.2 community designs per

million population versus a EU average of 121.8)3

These data may be related to by specific characteristics of the italian industrial system:

● Italian firms are not specialised in patent-intensive sectors. A recent survey4 shows that

the sectors in which companies tend to use patents most frequently are electronics and

pharmaceuticals, whereas Italian companies are traditionally specialised in low- and

medium tech manufacturing (textiles, machinery, furnishing, etc.). By contrast, in the

industries in which Italian companies perform best, design is more relevant as a means

to protect IP.



● Italian companies display a low propensity to invest in R&D: business R&D expenditure

amounts to 0.55% of GDP, against an EU average of 1.1%. It is clear that R&D investment

is the key input for the production of patentable inventions.

As a consequence, R&D or patent-based international comparisons, as well as those

based on surveys omitting micro firms (e.g. CIS), generally fail to capture important

innovative dimensions of the Italian system. An approach that considers “latent micro

research activity” would be more appropriate. Nevertheless, even with respect to formal

R&D expenses and registered exchange of codified knowledge, some important recent

changes are worth noting.

The national data collected by the Technology Balance of Payments (TBP), which

records, adopting OECD and IMF standards, transactions of disembodied technology, shows

that, from 2001 to 2006, SMEs participation has strongly increased.5 This is the case

particularly of SMEs located in regions where the phenomenon of the Industrial Districts is

most intense.

The TBP comprises an indicator of technology input, payments, and an indicator of

technology output, receipts. The recent evolution in these indicators points at an increased

capacity of Italian SMEs to absorb knowledge generated outside of their local context and,

more broadly, to participate in international knowledge networks. For SMEs with a number

of employees up to 19, the share of earnings has increased from 21.3% (2001) to 38.4%

(2006). At the same time, their share of payments has risen from 22.1% (2001) to 42.3%

(2006). It is precisely the cumulative value of payments and earnings from technology

transactions, rather than the net amount between payments and earnings, which is

significant in this case. In fact, it is the cumulative value that describes the deepening of

the technology market, thus the opportunities opening to enterprises for knowledge

exchange and innovation.

These figures show that, in order to respond to increasing competitive pressure,

especially from lower cost competitors in Asia, Italian enterprises are investing to improve

technical efficiency in production processes, increase product quality and differentiation,

and further diversify within sectors. This represents a change from the recent past. In fact,

a survey over the period 2000-04, concerning the strategies of the Italian enterprises

specialized in the traditional Made in Italy productions, revealed that a limited number of

enterprises (5%) had adopted complex business strategies, based on different types of

innovation.

It is important to note that the positive trend above commented refers to SMEs

behaviour before the global crisis and recession. In 2008 the overall balance of payments

registered a surplus of about 374 million euro. This was less than the surplus of the

previous two years (on average around 800 million euro), but strengthened the trend

reversion for the structurally deficient Italian TBP6. The 2008 overall balance is the result,

in substantial continuity with the past, of surpluses in services with a technical content

(1 212 million euro) and Industrial R&D (340 million euro), partly offset by deficits in other

regulations for technology (668 million Euro) and transfer7 of designs, trademarks and patterns

(530 million euro). Receipts concerning transfer in techniques8 make a modest surplus

(20 million euro). The relevant surplus concerning services with a technical content is

determined substantially by the surplus recorded for the technical and engineering studies

(1 246 million euro).



Policies increasingly recognise that SMEs and entrepreneurs often lack awareness

about “patentability” of their innovations and that networking would increase SMEs’

capacity to stand the market. Several national programmes focus on raising awareness and

encourage SMEs to join into “business networks”, thereby optimising innovation efforts.

Overall, the IP policies promoted in Italy – and presented in this study – address key

obstacles that emerge in the relationship between SMEs and IP, as described below.

Major issue facing SMEs with regard to intellectual property protection

As the data above show, and as broadly argued by the experts interviewed, Italian

SMEs exhibit an overall low propensity to make use of formal IPR instruments. As one of

the experts interviewed pointed out, only SMEs operating in high-tech businesses and

start-up backed by venture capitalists, business angels and banks utilise semi-formal

protection methods (e.g. non-disclosure agreements and non-competition clauses) and

informal protection methods in conjunction with registered IP rights. Even the use of semi-

formal protection methods by SMEs is rare, according to legal professionals interviewed.

Non-disclosure agreements are used mainly when a company, in the secrecy period of a

patent application, intends to negotiate an agreement (e.g. a licence agreement or a

manufacture agreement) with a third party.

Furthermore, SMEs are often little aware of the “patentability” of their innovations

and, most importantly, fail to link IPR to their business strategy. If, on the one hand, SMEs

have good knowledge of the competitive context in which they play, on the other hand they

often have difficulties in correlating this with IP protection strategies.

This challenge also relates to the SME static perception of the competitive

environment, that is to the difficulties in understanding market trends and insert long-term,

forward looking elements in their business strategy. Italian SMEs appear in particular to

meet difficulties in gaining full perception about the evolving relationship between

innovation, IPRs and competitiveness in a rapidly changing competitive context.

Usually, there is not such a thing as an IP strategy. In the best cases, SMEs have an

organised set of actions, which are not really planned and consistent and rarely forward

looking. In this sense, SMEs often fail to consider all the variables (on the side of costs and

benefits) on which a sound IP strategy would need to be built.

Very often, cost is the main factor to influence the decision about IP. Cost factors, both

application charges and the legal fees necessary for IP protection, discourage enterprises in

protecting their intellectual assets. However, SMEs are aware that, in order to enhance their

competitiveness, the protection of innovation is extremely important, especially if they

export significant shares of their production.

In this respect, it is among internationalised SMEs that the most advanced strategies

are observed. Indeed, the decreasing domestic market opportunities and the increasing

need to explore foreign markets and find new export opportunities have clearly drawn a

line between those SMEs that were able to protect their own innovations and therefore

operate overseas; and those that gave up.

As far as the approach to international markets is concerned, experts underline even

more strongly the lack of forward looking strategies. Often, SMEs do not look in advance for

detailed information about the legislation of destination markets. Rather, they begin to

study these rules, in order to combat counterfeiting, only once they are faced with a clear

challenge or threat.



Case studies

The selected case studies (Table 3.1) are illustrative of innovation oriented SMEs in

different “Made in Italy” traditional sectors.

Although design is generally key to these industries and the SME business model,

large differences in the innovation process emerge when distinguishing companies that

are in direct contact with the final consumer (Business-to-Customer or B2C) and those that

are at the intermediate stages of the supply chain (Business-to-Business or B2B). B2C firms

deal closely with the final customers and, as a result, much of their innovation is

stimulated by the market and based on their capacity to capture new trends and needs,

responding with more sophisticated products. On the other hand, technological evolution

of B2B firms’ products and services is often driven by the supply side, or by firms further up

their value chain, which transmit technological changes and impose new or modified

requirements.

In the B2B segment, it is however also the case that innovations are developed through

very close interaction between users and producers of technology. This was the case for a

jewellery company interviewed, targeting a middle-low segment, highly contended by low

cost competitors. The main competitive driver of the firm is its technological capacity, as it

uses highly customised machineries vis-à-vis the relatively labour-intensive processes of

its competitors. The firm has established a very close relationship with the machinery

supplier and was able to suggest technical modifications based on its own design. The

detailed specifications by the end user represent a key knowledge input for the machinery

supplier, which is able to develop a “tailor made” technology product.

In this situation the conventional boundary between the final user company and the

machinery manufacturer does not apply. A virtuous process between product and process

sets in, favouring a mutually reinforcing innovation dynamics. The relationship often

involves tacit and idiosyncratic elements that make it hard to be replicated in another

context. The knowledge emerging is therefore highly context-specific and the innovations

tailored to the technical needs of the players involved. In this case, knowledge is protected

by secrecy and informal agreements, which are favoured by the relevance of the customer

and its capacity to provide unique feedbacks to the developer of the technology.

In general, even when operating in niche markets, SMEs are hardly static. On the

contrary, they are increasingly aware that competitiveness and survival cannot be based on

the continuous repetition of their product, even if this is a successful one in present times.

Rather, innovation is crucial and needs to become a “phase” of the production process

itself. Across many SMEs in the “Made in Italy” system, innovation is regarded as the

Table 3.1. Italy: Profile of case studies


Electronic tool and equipment manufacturer Manufacturing

Ceramics designer Design

5 Gold jewellers Jewellery

Luxury goods designer Design

Doors and windows manufacturer Manufacturing

Clothing manufacturer Manufacturing



distinguishing intangible asset, on which competitive advantage is based and reproduced

over time.

However, the SMEs’ continuous creative effort and technological development do not

often match with an adequate level of attention to the protection of intellectual property.

A greater than average awareness of intellectual protection, and its relevance for the firm

performance and growth, is observed in the case of “global” SMEs, active on their own in

remote overseas markets, whose number has increased in recent years. These global

companies are more aware of the opportunities provided by the IPR system and are willing

to invest significantly in reliable professional services, for preparing and filing IPRs,

especially patents, to defend the ownership of their inventions. These global companies

tend also to be more innovative, following exposure to international competition, but also

reflecting contact with cultural diversity.

The cases analysed provide further ground to the argument that internationalised

SMEs possess greater awareness of the relevance of IPR for their competitive strategies.

However, they also show, in line with the experts’ view, that SMEs often lack confidence in

the legal protection of their rights. The interviews with entrepreneurs confirm the widely

held knowledge that IP usage by SMEs is limited by costs and lack of confidence in the

enforcement mechanism, in particular by the high costs of litigation. Even in the case of

successful litigation, the time-consuming process and the inadequate compensation are

considered great obstacles to effective right enforcement.

The lack of confidence or negative experience with enforcement processes appear to

be a matter of concern particularly for firms planning expansion in international markets

and directly competing with larger firms, which are more capable to oppose rights. This is

the case of a SME interviewed (about 25 employees), which produces electronic tools and

equipment. In recent years, the firm has gained large shares of domestic and international

market, through continuous research and development on its products. This enterprise

competes by innovating and, over the last years, innovating has also been a way to respond

to the crisis.

However the company has suffered from repeated counterfeiting by a firm in Chinese

Taipei (not included in the PCT). Furthermore, the SME was required to pay IP rights for

years by a multinational enterprise, due to a very general patent of this latter, even if in the

end the patent in question was suspended. This negative experience has led the company

to insecurity in its strategy of expansion towards new markets and slowed its process of

internationalisation.

The perceived high costs of enforcement can also trigger peculiar preventive self-

defence strategies, which build on the awareness of IP relevance for the firm

competitiveness in open markets. It is the case of a SME (less than 50 employees)

manufacturing doors and windows, with customers around the world. The firm targets a

high quality segment of the market and operates also in China, where it has a branch

producing exactly the same products. The firm however reported that, in the case of

wealthy customers, there is a specific request for the products being delivered directly

from Italy, in order to show off the prestigious “Made in Italy” tag.

The company provides components for the finished products (doors and windows)

that are critical to ensure functionality. These key components are protected by patents.

The company is aware that patenting is relevant to defend its innovative products in

Courts, against counterfeiting, but also complaints about the excessive burden of litigation



in terms of time and cost. This led the company to adopt a preventive “intelligence”

strategy, which involves raising employees’ awareness and training them to recognize

imitation. In particular, trained technicians visit the major trade fairs in order to spot

possible cases of patent infringement. When identifying counterfeit products, the “patrol

workers” report to the head office, which then contact the owner of the investigated firm

to clear the situation. The strategy hence aims at preventive extra-judicial solutions to

infringement. Very often, in fact, these contacts lead to a gentlemen’s agreement, which is

useful to block the sale of the imitated goods, without incurring the cost and time of a

litigation.

In addition, this has proven to be a very effective form of training and motivation

exercise of employees, as technicians are continuously updated on the vulnerability to

imitation of their products and on which inventions are required to make them less

imitable.

The lack of a clear IP strategy is often cited by experts, and the broad literature, as a

specific weakness of SMEs in the commercial exploitation of their creative potential. The

cases analysed show that the focus on intellectual property generally increases when

innovation is the result of planned research, often responding to a specific critical problem

the firm has identified in production. In this respect, the interaction with external research

actors for solving specific technical difficulties seems to be beneficial also in raising the

SME awareness of IPRs.

In one of the cases investigated, a medium-size goldsmith firm, the IP strategy

emerged as a result of a formal and intense collaboration with a University, responding to

a specific problem, well defined by the same SME. The company in fact had been typically

engaged in informal, little codified innovation processes, and much embedded in the

entrepreneur and the idiosyncratic firm routines. The Italian goldsmith sector, as other

traditional manufacturing industries, is typically characterised by small entrepreneurs

that are often former craftsmen, who might have increased the size of their firm, but

continue to see innovation as intrinsic to their work, a sort of “natural” and inimitable act,

thus not in need for special protection.

The firm searched for collaboration at the local University (Department of Chemical

Engineering), in order to overcome a technical hurdle, whose importance has increased

with the rise in the price of gold: using a smaller amount of gold in jewellery production,

without sacrificing strength. The firm was therefore looking for an input saving innovation

which would have not reduced the functional quality of its products. The technical

solution was found in collaboration with the University and protected by a patent. This was

for this firm the first patent which did not concern design.

In some instances, the apparent lack of an IP strategy results from a sound evaluation

by the firm, which finds the existing IP tools are not relevant to its business model. This is

the case of a firm interviewed (less than 50 employees), operating in the high-fashion

clothing industry. Typically, in this segment, each new collection incorporates new

products, as well as new processes, often with a strong attention to the use of new

materials. These types of companies do not feel the need to protect their creations with

formal IP instruments, because the life cycle of their production is very short. Thus, the

manufacturer does not often protect formally its “collection”, relying on the “lizard’s tail”

effect. That is, when imitated generally the collection has already entered into



obsolescence; hence, those who try to imitate models, mimics a product which has already

become old (they do not take the lizard, but its tail).

If in the fast changing fashion industry, traditional IP instruments are not perceived to

be relevant for a successful business strategy, in the luxury goods segment SMEs can build

their business strategy on the management of intellectual assets, particularly of high-value

brands. This is the case of a former worldwide famous luxury car manufacturer

(Lamborghini), turned into a designer of luxury goods. In recent years, the car factory was

sold to a multinational automotive group, but the Italian firm has kept the ownership of

the famous brand, even if differently specified, but still represented by the well known logo.

In this case, the company, which employs fewer than twenty specialists, has

completely de-materialized its production, devoting exclusively to the evolution of the

brand, which is used to commercialize very different goods, such as watches, glasses,

shoes, sportswear, golf clubs, and also luxury linens and mattresses. The firm itself designs

the goods, ensuring that they are consistent with the brand and a strongly characterised

firm design, and relies on external selected high quality suppliers. The sale growth is

therefore entirely based on the “emotional” brand effect, as, by acquiring different

products, consumers enjoy an emotion which is intended to recall the one related with the

prestigious car.


Raise awareness about the strategic opportunities of IPRs

SMEs largely lack a strategic approach to IPRs, missing relevant opportunities to

strengthen their competitiveness and to enter new markets that embedding IP into their

business strategies could bring about. The lack of strategy is mainly related to a lack of

knowledge and resources, but also follows the perception of IP tools as defensive

instruments, whose benefits do not match the (effective and perceived) costs implied.

However, SMEs often lack an appropriate understanding of the benefits IPRs can offer and

an accurate knowledge of the costs implied by the instruments. The information and the

training efforts supported by policy should aim at increasing awareness about the “pro-

active” use of IPRs, as an asset on which innovative business strategies can be developed,

as a way to access knowledge markets, in which the firm’s own IPRs can serve to exchange

knowledge or enter knowledge collaborations and networks, as a signal of value and

competitiveness to other players and stakeholders, including banks, venture capitalists,

and also competitors and clients.

The pro-IP attitude can also be promoted by linking public financial support to IP

investment. In this respect, the Italian Government has created a “National Innovation

Fund” to encourage patent innovations in a different way. A condition for the entrepreneur

to access the benefits of the “National Innovation Fund” – venture capital and trenched

cover – is that he/she holds a new patent, which can increase the firm’s competitiveness.

Financial incentives to innovative SMEs might not be sufficient, per se, to make them

approach the IP system, as they often find it difficult to navigate the IP landscape. To

increase their effectiveness, these types of initiatives should be combined with adequate

information support and, possibly, business consultancy services. In this respect so-called

“Patent Angel” initiatives could be considered, with professionals supporting the

innovative start-up or SME in its first application for patents or articulating its IP strategy.



Foster intellectual property right education and training, bringing services and expertise closer to SMEs

SMEs largely lack expertise in the IP field. The problem has been addressed by a large

number of training programs over the last years. In some cases, however, IP training

experiences have failed because of a lack of motivation by the entrepreneurs, who

perceived the training to be too distant from their most urgent problems and hardly

applicable to their business. Training initiatives should be based on a sound assessment of

the target SME population and get closer to their operating field.

Furthermore, expertise can be built into the labour market SMEs typically access (often

with a relevant territorial dimension). Besides aiming at increasing the IP culture across

disciplines, education programmes should specifically concern relevant profiles. These

include not only lawyers or accountants, but also other professionals that typically work

close to SMEs in high tech fields, creative industries or design-based manufacturing

(e.g. engineers, architects, designers, and other technical profiles). In the field of design, the

Italian Ministry of Economic Development launched an initiative to facilitate the matching

between young graduates from design schools and SMEs.

Increase accessibility of the intellectual property system for SMEs

SME access to the IP system is largely constrained by complexity, lengthy procedures

and costs. In Italy, measures to increase SME access to IP include the rationalisation of the

IP code, the decentralisation of application procedures (at local Chambers of Commerce),

and also the creation of IP litigation specialised sections, which allow firms to obtain

precautionary measures against counterfeiting in a short time.

Support intellectual property right enforcement in national and international markets

Lack of confidence in enforcement mechanisms and the high costs implied by

enforcement procedures reduce SME incentive to use IP instruments in the first place. In

order to reduce time and costs, and increase entrepreneurs’ confidence, policies should

explore alternative dispute mechanisms and mediation schemes that favour extra-judicial

settlements. These mediation opportunities should be brought closer to the SME

playground, so as to favour information, understanding and access. For instance,

mediation services or panels could be created at large specialised events attended by SMEs,

such as trade fairs.

The enforcement capacity of SMEs also depends on the quality of their IPRs. In this

respect, the national patent search service introduced in Italy, aimed at increasing the

quality of the applications, responds to the need of increasing firm’s ability to defend their

rights in Courts.

The registration and enforcement of IPRs by SMEs in overseas markets can be

supported by specific services. An example is a recent pilot initiative, the launch of a

network of IPR desks by the Italian Patent and Trademark Office, to operate in relevant

export or investment markets, providing SMEs information and legal assistance.

Notes

1. In 2007, 4 620 548 Italian enterprises out of a total 4 884 313 had a number of employees between 1and 9. If only the industry sector is considered, 458 409 enterprises out of a total 553 740 fell into



the 1-9 employees size category (ISTAT, 2007). The definition adopted of a “local unit” conformswith the European council regulation No. 696, 15 March 1993, which states that a local unit is anenterprise or a part of enterprise located in a topographically identified location. In this location orstarting from this location one or more people carry out (part time) economic activities on behalfof one enterprise. According to this definition, local units are: agency, hotel, ambulatory, public bar,quarry, warehouse, garage, laboratory, mine, shop, workshop, hospital, restaurant, school, factory,study, office, and etcetera. A multi-located enterprise is an enterprise that carries out its activitiesin more than one premises and each premises is a local unit of the relevant enterprise.

2. The Board of Appeal is a body with special jurisdiction and is subject to the Code of Civil Procedure.This Board, appointed through decree by the Ministry of Economic Development, is composed byfive members: three are selected among magistrates with a rank equal or higher than appellatejudge, one of whom acts as chairman, and two are selected among professors of law atUniversities. The Board decides on appeals in judgments against which it is possible to enterappeals to the Supreme Court of Cassation on grounds of legitimacy.

3. European Innovation Scoreboard 2008.

4. Danguy J., de Rassenfosse G., Van Pottelsberghe de la Potterie B. (2009), “The R&D-patentrelationship: an industry perspective”, European Investment Bank Papers, 7/2009, EuropeanInvestment Bank, economic and Financial Studies.

5. 2006 is the latest year for which data is available by firm size (number of employees).

6. www.bancaditalia.it/statistiche/rapp_estero/altre_stat/bpt.

7. Sale, licensing, franchising.

8. Through patents and licenses, disclosure of know-how.

References

European Commission (2008), European Innovation Scoreboard 2008, Brussels.

Istat (2010), Rilevazione sull’innovazione nelle imprese. 2004-06, Rome.

Danguy J., de Rassenfosse G., Van Pottelsberghe de la Potterie B. (2009), “The R&D-patent relationship:an industry perspective”, European Investment Bank Papers, 7/2009, European Investment Bank,economic and Financial Studies.


http://www.bancaditalia.it/statistiche/rapp_estero/altre_stat/bpt


ANNEX 3.A1

Statistical Tables for Innovaton in Italy

Statistical tables: Italy

Annual enterprise statistics broken down by size classes – 2007

Size classesNumber

of enterprisesNumber

of employeesTurnover

(mln euro)Value added(mln euro)

Apparent labour productivity

(value added/number of employees)

Industry

1-9 427 189 1 180 360 115 008 34 059 28.9

10-19 53 141 712 858 111 075 31 169 43.7

20-49 25 241 758 045 156 558 38 624 51.0

50-249 10 283 995 692 314 757 62 197 62.5

SME 515 854 3 646 955 697 399 166 049 45.5

250 or more 1 477 1 113 915 485 987 96 191 86.4

Total 517 331 4 760 870 1 183 386 262 240 55.1

Construction

1-9 581 939 1 247 728 117 563 36 793 29.5

10-19 25 202 324 839 39 763 13 419 41.3

20-49 7 105 205 148 29 128 9 534 46.5

50-249 1 531 132 872 25 719 7 133 53.7

250 or more 85 53 612 14 117 3 834 71.5

SME 33 923 716 471 108 727 33 920 47.3

Total 615 862 1 964 199 226 290 70 713 36.0

Services

1-9 3 161 720 5 638 447 571 469 163 595 29.0

10-19 70 061 913 684 182 770 39 293 43.0

20-49 24 600 742 775 175 196 35 592 47.9

50-249 10 397 1 022 723 251 154 46 540 45.5

250 or more 1 856 1 991 754 371 229 103 979 52.2

SME 106 914 4 670 936 980 348 225 404 48.3

Total 3 268 634 10 309 383 1 551 817 388 999 37.7

Total

1-9 4 170 848 8 066 535 804 040 234 447 29.1

10-19 148 404 1 951 381 333 608 83 880 43.0

20-49 56 946 1 705 968 360 882 83 750 49.1

50-249 22 211 2 151 287 591 629 115 871 53.9

250 or more 3 418 3 159 281 871 333 204 004 64.6

SME 230 979 8 967 917 2 157 453 487 505 54.4

Total 4 401 827 17 034 452 2 961 492 721 952 42.4

Source: ISTAT, Rilevazione annuale 2007.



prises out ative ities

6.5

401

4.5

2.7

3.0

2.5

3.1

2.4

9.5

8.7

9.8

7.9

4.6

4.3

8.8

2.1

Innovative and non-innovative enterprises by macro-sector and size class

Years 2004-06

Size classesNumber

of enterprises

Enterprises with innovative activities

Enterprises without

innovative activities

Enterprises with innovative activities

Enterwith

innovactiv

Total

Enterprises that introduced

process or product innovation

Enterprises with innovative

activities not concluded

by 2006

Total

Enterprises that introduced

process or product innovation

Enterprises with innovative

activities not concluded

by 2006

Number Percentage

Industry

10 49 77 435 25 959 25 546 413 51 476 33.5 33.0 0.5 6

50-249 10 398 6 232 5 827 405 4 166 59.9 56.0 3.9

250 or more 1 458 1 101 1 010 91 357 75.5 69.3 6.2 2

Total 89 291 33 292 32 383 909 55 999 37.3 36.3 1.0 6

Construction

10 49 29 292 4 984 4 962 22 24 308 17.0 16.9 0,1 8

50-249 1 468 404 345 59 1 064 27.5 23.5 4.0 7

250 or more 84 31 26 5 53 36.9 31.0 6.0 6

Total 30 844 5 419 5 333 86 25 425 17.6 17.3 0.3 8

Services

10 49 79 961 16 406 16 046 360 63 555 20.5 20.1 0.5 7

50-249 8 417 2 638 2 387 251 5 779 31.3 28.4 3.0 6

250 or more 1 707 857 738 119 850 50.2 43.2 7.0 4

Total 90 085 19 901 19 171 730 70 184 22.1 21.3 0.8 7

Total

10 49 186 688 47 349 46 554 795 139 339 25.4 24.9 0.4 7

50-249 20 283 9 274 8 559 715 11.009 45.7 42.2 3.5 5

250 or more 3 249 1 989 1 774 215 1 260 61.2 54.6 6.6 3

Total 210 220 58 612 56 887 1 725 151 608 27.9 27.1 0.8 7

Source: Istat, Rilevazione sull’innovazione nelle imprese, Anni 2004-006.



onsocess uct

Innovative enterprises by innovation, macro-sector and size class

Years 2004-06

Size classesTotal number of enterprises

Product innovations only

Process Innovation only

Innovationsof both process

and product

Productinnovations only

Process Innovation only

Innovatiof both pr

and prod

Number Percentage

Industry

10 49 25 546 4 235 11 430 9 881 16.6 44.7 38.7

50-249 5 827 1 234 1 853 2 740 21.2 31.8 47.0

250 or more 1 010 207 278 525 20,5 27.5 52,0

Total 32 383 5 676 13 561 13 146 17.5 41.9 40,6

Construction

10 49 4 962 194 2.993 1.775 3.9 60.3 35,8

50-249 345 53 205 87 15.4 59.4 25,2

250 or more 26 5 14 7 19.2 53.9 26,9

Total 5 333 252 3 212 1.869 4.8 60.2 35,0

Services

10 49 16 046 1 759 10 527 3 760 11.0 65.6 23.4

50-249 2 387 333 1 164 890 14.0 48.7 37.3

250 or more 738 95 280 363 12.9 37.9 49.2

Total 19 171 2 187 11 971 5 013 11.5 62.4 26.1

TOTAL

10 49 46 554 6 188 24 950 15 416 13.3 53.6 33.1

50-249 8 559 1 620 3 222 3 717 18.9 37.7 43.4

250 or more 1 774 307 572 895 17.3 32.2 50.5

Total 56 887 8 115 28 744 20 028 14.3 50.5 35.2




vities to ion

Enterprises with process innovation by type of innovation, macro-sector and size class

Years 2004-06

Size classes

Enterprises with process innovation

(total)

Productionprocesses

Logistics, distribution or supply

abroad

Support activities to production

Productionprocesses

Logistics, distribution

or supply abroad

Support actiproduct

Number Percentage

Industry

10 49 21 311 16 665 3 252 9 601 78.2 15.3 45.1

50-249 4 593 3 506 1 221 2 464 76.3 26.6 53.6

250 or more 803 649 272 412 80.8 33.9 51.3

Total 26 707 20 820 4 745 12 477 78.0 17.8 46.7

Construction

10 49 4 768 2 437 1 089 2 489 51.1 22.8 52.2

50-249 292 102 76 226 34.9 26.0 77.4

250 or more 21 9 5 14 42.9 23.8 66.7

Total 5 081 2 548 1 170 2 729 50.1 23.0 53.7

Services

10 49 14 287 4.715 3.068 9.404 33,0 21,5 65,8

50-249 2 054 493 874 1.640 24,0 42,6 79,8

250 or more 643 207 291 522 32,2 45,3 81,2

Total 16 984 5.415 4.233 11.566 31,9 24,9 68,1

TOTAL

10 49 40 366 23 817 7 409 21 494 59.0 18.4 53.3

50-249 6 939 4 101 2 171 4 330 59.1 31.3 62.4

250 or more 1 467 865 568 948 59.0 38.7 64.6

Total 48 772 28 783 10 148 26 772 59.0 20.8 54.9




Innovative enterprises with new products to market and impact on the turnover

Years 2004-06

Size classes

Innovative enterprises with new products to marketPercentage of 2006 turnover deriving

from new products to market

Total % of total enterprises% of innovative

enterprises% of total turnover

% of total turnover of innovative enterprises

Industry

10 49 7 514 9.7 29.4 3.2 8.0

50-249 2 475 23.8 42.5 5.4 10.0

250 or more 572 39.2 56.6 5.5 7.0

Total 10 561 11.8 32.6 4.9 7.8

Construction

10 49 587 2.0 11.8 0.4 1.9

50-249 83 5.7 24.1 0.5 1.8

250 or more 8 9.5 30.8 0.1 0.4

Total 678 2.2 12.7 0.4 1.6

Services

10 49 2 330 2.9 14.5 0.7 2.8

50-249 586 7.0 24.5 1.6 4.2

250 or more 306 17.9 41.5 5.0 7.8

Total 3 222 3.6 16.8 2.9 6.3

TOTAL

10 49 10 431 5.6 22.4 1.6 5.3

50-249 3 144 15.5 36.7 3.5 7.6

250 or more 886 27.3 50.0 5.2 7.3

Total 14 461 6.9 25.4 3.7 7.0




Expenditure for innovation by macro-sector and size class

Year 2006 – (thousands of euro)

Size classes

Expenditure for innovation

TotalPer employee

(total of enterprises)Per employee

(enterprises with innovative activities)

Industry

10 49 3 509 644 2.4 6.5

50-249 4 975 160 5.0 8.1

250 or more 9 884 881 9.0 10.9

Total 18 369 685 5.2 8.9

Construction

10 49 506 987 1.1 5.9

50-249 141 012 1.1 4.1

250 or more 62 873 1.2 2.7

Total 710 872 1.1 4.9

Services

10 49 1 597 601 1.2 5.3

50-249 1 656 341 2.0 6.1

250 or more 6 601 229 3.1 5.4

Total 9 855 171 2.3 5.5

TOTAL

10 49 5 614 232 1.7 6.0

50-249 6 772 513 3.5 7.3

250 or more 16 548 983 5.1 7.7

Total 28 935 728 3.4 7.2




The SME Dimension

© OECD 2011

Chapter 4

Nordic Countries: Matching Exceptional Design

and Creativity with Progressive Policy

By Dr. Christina Wainikka

Swedish Patent Office

Sharing a number of cultural and legal traditions and a strong reputation fordesign excellence, the Nordic countries (Denmark, Finland, Iceland, Norway andSweden) provide an interesting case to examine the similarities and differences inSMEs’ management of intellectual assets. This chapter analyses the ways inwhich Nordic SMEs in the creative industries (publishing, design, film productionand art) manage their intellectual assets using intellectual property rights (IPRs).Using information gathered through interviews with experts, case studies offirms in the film and design industries and a survey of firms across a number ofindustries, key challenges and obstacles to effective management of intellectualassets by SMEs are identified. The chapter presents an overview of the IPregulation landscape across the Nordic region, commenting on regulatoryreforms and identifying innovative programmes and good practices. Finally, aseries of recommendations are proposed for ways in which governments couldcontribute to improved management of intellectual assets by SMEs.

87

4. NORDIC COUNTRIES: MATCHING EXCEPTIONAL DESIGN AND CREATIVITY WITH PROGRESSIVE POLICY

IntroductionThis study investigates the intellectual property framework in the Nordic countries

(Denmark, Finland, Iceland, Norway and Sweden) and intellectual asset management

practices in creative industries. These include publishing, design (e.g. fashion, design of

furniture and jewellery), film production and art.

Key challenges to effective management of intellectual assets by SMEs are identified,

on the basis of interviews with experts, case studies of firms in the film and design

industries and a survey of firms across a number of industries. This latter was conducted

on a sample of 158 firms in creative industries across the Nordic area, engaging mainly SME

managers and owners (see Annex 4.A1).

It is widely recognised that the creative industries are increasingly important in the

economies of the Nordic countries, although consistent statistics are hardly available.1

Indeed, most of the creative industries are part of the service sector, whose size has been

growing significantly in the Nordic countries over the last decades.

The relevance of the service sector in the Nordic countries is in line with the OECD

average, representing roughly 80% of economic activities and accounting for most start-

ups.2 However, differences emerge when it comes to the structure of the service sector

itself, as different kinds of IT services account for a significant share of employment and

added value.3 Design has attracted specific interest as a part of both creative and ordinary

manufacturing industries. Studies in Sweden and Norway show that companies that are

creative in the design field grow faster than other companies.4, 5 According to a survey

carried out by the Danish Enterprise and Construction Authority (Erhvervs- og

Byggestyrelsen), design makes an important contribution to economic growth.6 In 2009, the

Norwegian government has launched a “Design-Driven Innovation Programme”

(Designdrevet Innovasjonsprogram) that stimulates competence building and investments in

the idea-phase. The underlying vision is that design shall become a natural a part of the

innovation process in industry.

The Nordic Council of Ministers initiated KreaNord in 2008, which promotes the

creative industry within the Nordic countries. KreaNord has produced a Green Paper and is

working to co-ordinate the promotion of the creative industry across the economies.7

From an international perspective, most companies within the Nordic countries are

SMEs or even “micro companies”. The business population in the Nordic countries has a

core of very small players. In Sweden, for instance, only 0.1% of the companies have more

than 250 employees.8 In this respect, the creative field is no exception. Indeed, the average

number of employees in creative companies is particularly small, even in the case of

commercially successful and widely known firms. For instance, one of the companies

investigated in this chapter, which is one of the leading film- and television-producers in

its own country, only has 20 employees.



Intellectual property regulations in Nordic countriesTraditionally, development of IP regulation in the Nordic countries has been

characterised by co-operation.9 One example is the former regulation on trademarks that

was developed jointly by several Nordic countries.10 This has to some extent changed, as

some of the Nordic countries are today members of the European Union (Denmark,

Sweden, Finland), and some are not (Norway, Iceland), though these are members of the

European Economic Area (EEA).11 Since the European Union has been very active in the

field of IP regulation, the development of some IPRs is now different across the area. It is

also worth noting that even within the group of EU members, some EU directives have been

implemented differently at the national level.12

When it comes to the IPR field there is also co-operation at levels other than the

regulatory one. The main universities in the IPR field have co-operated for several years

with for example joint conferences and a joint legal review (Nordiskt Immateriellt Rättsskydd).

The confederations of enterprises in the Nordic countries also have a close co-operation in

the field of IPR. This co-operation concerns among other things sharing of experience and

policy development.

National differences

Even if co-operation in the field of IPR is much developed among Nordic countries, still

some differences exist in the regulatory framework.

Patents

Patent regulation is similar across Nordic countries. All of them are members of the

European Patent Organization.13 Sweden was the first Nordic country to become a member

of the European Patent Organization in 1978, followed by Denmark in 1990, Finland in 1996,

Iceland in 2004 and Norway in 2008. Further, all the Nordic countries are members of the

Patent Co-operation Treaty (PCT).14 The Swedish Patent Office has been an International

Searching Authority (ISA) and an International Patent Examination Authority (IPEA) within

the PCT system for several years.15

Trademarks

Traditionally, trademark protection has been very similar in the Nordic countries. In

the 1950s and 1960s a Nordic joint-effort led to new, harmonised legislation.16

As Norway and Iceland are not members of the European Union, trademark protection

in these two countries now differs from that in other Nordic countries, although EEA

membership implies some harmonisation. The main difference between the two groups is

represented by the community trademark. In fact, companies outside the European Union

can apply for the community trademark, but they have to apply also for a national

trademark, at the same time, in order to have trademark protection for their domestic

market.

All the Nordic countries are signatories of the Madrid Protocol,17 which was a vital step

in allowing for international registration of trademarks. The Protocol came into force on

1st December 1995 in Sweden (and came into practice from 1st April 1996), 13th February 1996

in Denmark, 29th March 1996 in Norway, 1st April 1996 in Finland and 17th of April 1997 in

Iceland. The European Union has also become a member since 1st October 2004. Since that



date, the Office for the Harmonization of the Internal Market (OHIM), which manages

international applications that indicate the European Union as the designation “country”.

Finland, Norway and Sweden further co-operated in the drafting of legislation to

support new trademark regulations, the results of which were presented in 2001.18

Copyright

The legal regulation of copyright protection is similar across Nordic countries and

follows the legal view on copyright established in French and German law, which is quite

different from the American copyright law. For instance, the regulation provides a rather

strong protection of moral rights and defines strict rules on how moral rights can be

handled through contracts and agreements.19

In spite of the similar approach, there are some national differences, which result

mainly from a different implementation of EU-directives on IPR, as in the case of copyright

infringement. In addition, reform proposals have been advanced in some of the countries

in the field of copyright contracts and agreements.20

In the Nordic legal tradition, copyright always rests with the actual, physical person

who creates the work. This means that anyone who wishes to use the work, including an

employer, must have a contract or agreement with the owner to obtain that right. Typically,

these contracts and agreements are only limited to specific uses of the work. However,

there are differences in how these contracts and agreements are handled in the different

countries. This implies that companies within the creative industries operating in more

than one Nordic country often have to write different copyright contracts and

agreements.21

In the Nordic countries a model of collective licences has been developed. The early

evaluations suggest that this model has been quite successful in reaching a balance

between the interests of the copyright holders and the users of protected works.22

Design protection

Design protection in the Nordic countries has to a large extent been influenced by the

patent protection, particularly in the way it is constructed, though the influence from the

patent law has to some extent diminished in recent years.

Since 2003 a community design for the European Union is available. This has led to

significant differences in design protection between EU members and non members.23 For

Denmark, Sweden and Finland the community design means that design protection can be

obtained for the entire European Union, including the domestic market, with only one

application. For companies in Norway and Iceland, two applications are required to get

design rights for the European Union market and for the domestic market.

Utility models

Protection for utility models does not exist in all Nordic countries. Finland and

Denmark are the two countries granting this type of protection, which is handled through

their patent offices. On the other hand, Iceland, Norway and Sweden do not have

protection for utility models, although in Sweden there has been a large debate about its

establishment and it has been pointed out that this protection would be useful particularly

for SMEs.



Domain names

Typically, domain names are not considered as part of the IPRs, although they are in

many cases equally important for many companies. There are different rules on domain

names in the Nordic countries, when it comes to the national domain names. A relevant

difference concerns the possibility to obtain the right to a domain name under the national

domain in all countries before a company is officially registered. One expert pointed this

out as a problem for entrepreneurs on their way to establishing a business.

Unfair competition

The rules on unfair competition are a legal field particularly relevant to the creative

industries, as companies working with design might find it more useful to claim unfair

competition rather than copyright infringement. In most of the Nordic countries, the field

of unfair competition is not as well established as in many other European countries. The

regulation has been undergoing relevant change, following directives on unfair commercial

practices emanating from the European Union.

Counterfeiting

Most of the regulation on counterfeiting in Nordic countries results from directives

from the European Union. However, some differences still exist in how countries handle

counterfeiting and counterfeited goods, and these have practical implications for any

company combating against counterfeiting.

SME issues and challengesSMEs’ use of IPRs has been the object of extensive debate over the last couple of years

in all Nordic countries. It has been recognised that innovative SMEs often do not have the

protection they require. Often, the lack of IPRs by SMEs is not due to strategic decisions, but

rather, is dependent on other factors.

It has been recognised that SMEs are often not able to monitor the IPRs that they

already possess. According to the survey carried out on a sample of 158 firms across

creative industries (see Annex 4.A1), 76.5% of the firms did not actively check for potential

infringement of their rights. The SME cases studies confirm this picture.

The Nordic countries that are members of the European Union have taken active part

in IPeuropAware.24 In this project 20 national patent offices have brought together two

Europe-wide initiatives. One is InnovAccess, a Web portal created by the National Patent

Offices to provide information on their services for the end user. The other is an

IPR-Helpdesk, Helpline and training mechanism for current and potential contractors in

EC-funded Framework Programme projects.

Initiatives undertaken to promote SMEs’ use of IPRs are often focused on formal,

registered rights, especially patents. On the other hand, no initiative has been undertaken

to promote the active use of other IPRs – including non-registered rights (for example

copyright) and semi-formal protection (for example business secrets).

Another area of concern across several of the Nordic countries is SMEs difficulty in

handling IPRs through contracts and agreements. As a result, legislators in several Nordic

countries have investigated how the legislation could/should be improved.25



SME “positives”

There are some IPRs that are easier for SMEs to access, especially in the case of

countries that are members of the European Union. Trademark protection for the entire

European Union is easily accessible, since one application is sufficient to receive rights

both for the domestic market as well as for the rest of the European Union.

Trademark protection is very important for companies in the creative industry. Many

of their innovations cannot be patented, but can be trademarked. This is the case for

service innovations such as franchising or television formats. Under the Nordic countries’

copyright legislation, television formats do not have copyright protection as such.

Therefore trademark protection is crucial when selling the formats.

In Denmark it has been pointed out that disputes regarding trademark-related matters

can be better handled through administrative procedures. This is recognised as a positive

thing for SMEs, as it is easier for them to handle a dispute relative to handling it through

the courts, particularly in terms of cost. In Sweden, the implementation of a similar model

has now been proposed.

The community design protection has been beneficial for SMEs in the Nordic countries

as it is easier to obtain now than when design protection was only handled through

national systems. However, these advantages do not really show up in the statistics of

registration of designs. The number of applications for community design does not mirror

the importance of design companies within the creative industries.

The survey results suggest that companies see the advantages of IPR: 71.4% of the

respondents use IPR to build competitive advantage, 60.3% to protect brand value and 19%

use it as source of direct income.


The field of IPR is the object of a large debate and reforming effort, both within the

Nordic countries themselves and on a wider-scale within the European Union. The several

directives on IPR emanated by the EU over the last years highlight that the European Union

recognises the importance of IPR for the competitiveness of its business sector.26

The development of the community trademark and the community design has been

an important step for IPR within the European Union. The practical implications for all

companies are significant. Discussion is undergoing on the community patent, and

agreement has recently been reached on several aspects.

Over the last years, in some Nordic countries discussion has focused on regulation

concerning copyright contracts and agreements, which are recognised as important for

many companies within the creative industries.27

One emerging trend is the use of open innovation. 11.9% of the survey respondents use

open innovation and 29.4% also believe that open innovation is as important in their field

of business as traditional IPRs.

The patent offices in the Nordic countries do to some extent try to help SMEs obtain

information on IPRs. The Swedish Patent Office has for example launched a “video guide”

on the patent system,28 and a blog to promote IPRs.29

In general, authorities have devoted much attention to improving on-line application

mechanisms. The patent offices in the Nordic countries have also put a lot of effort into

making their web-pages more user-friendly. However, it is largely acknowledged that much



still need to be done for promoting the use of IPR, especially in the case of service

innovation and television formats.

Empirical evidence

Major issues facing SMEs with regard to intellectual property right protection

The IP experts interviewed indicate several major challenges that SMEs face in

accessing IP protection. It is worth noting that there are some national differences when it

comes to what these issues are, but most issues were recognised in all Nordic countries

and their relevance was further confirmed through the SME survey conducted on a sample

of firms across creative industries, and through some in-depth case studies of SMEs.

Lack of knowledge

All of the interviewed experts point out that the main problem for SMEs is lack of IPR

knowledge. A majority of SMEs in the creative field do not know what IPRs they could

obtain and how to obtain them. Some rights are only to be obtained from registration and

in order to obtain these rights SMEs have to make active choices on where and how to

protect their innovations. In a situation where they lack knowledge of the IP system, they

might miss the opportunity to obtain the most useful IPRs for developing their businesses.

Lack of knowledge also concerns semi-formal protection, for example the use of non-

competition clauses and non-disclosure clauses. In some companies the level of

knowledge of these instruments is higher than that of IPRs. The reason for this could be

that the semi-formal protection is often linked to labour law. Knowledge of labour law is a

requirement to run any business. This is however not the case for IPR knowledge.

The experts also point out that many SMEs are not aware of the IP protection that they

already have. Copyright protection is obtained without registration, which means that

SMEs within the creative industries often do possess copyrighted assets, but are not always

aware of the extent of their rights. This implies that these companies often are not able to

make the most of the rights they already possess. According to the result of the survey,

however, 20.3% of firms have tried to assess the value of their intellectual property.

Lack of resources to acquire knowledge

Some experts highlight that SMEs lack sufficient resources to acquire knowledge of

IPR. The limitations concern both financial resources and competences that might be

needed to access and use effectively use the knowledge available.

Most SMEs do not have in-house lawyers and/or IPR experts. The consequence is that

they consult IPR lawyers and/or patent attorneys when they see the need. As they lack

knowledge of the IPR system they do not consult experts as often as they perhaps should.

One additional problem is that when SMEs consult IPR lawyers and/or patent

attorneys, they do not have the financial resources or background knowledge needed to

discuss the strategic implications of IPR. SMEs seldom have financial resources to discuss

when, in the course of the innovation process, an invention should be patented or how to

balance semi-formal protection with registered rights. As a result, they often come with a

direct question (i.e. “is this patentable?”) and that is subsequently all the IPR lawyer and/or

patent attorney answers.



Lack of understanding about the strategic implications of intellectual property rights

According to experts, SMEs largely lack an understanding of the strategic implications

of IPR. This is of course linked to their lack of knowledge of the system. However, even

SMEs with some knowledge of IPR seldom see how IPR could be used in a strategic way. The

consequence, as the experts see it, is that SMEs rarely get the full potential out of their

innovations.

Some experts mentioned that there are examples of how IPR is balanced with open

innovation in a very strategic way by SMEs but pointed out that these examples are to be

seen as exceptions and are by no means the rule.

According to the survey, 33.8% of the respondents have an overall IP strategy. Among

these companies, 71% had explained or distributed it to staff. However, at the same time,

over 73% of the respondents do not have a person specifically charged with managing the

firm’s IPR.

Difficulties in using contracts and agreements

As SMEs often lack adequate understanding of how to handle IPR strategically, they

often also do not know how to use copyright-related contracts and agreements as strategic

instruments. Some experts state that SMEs biggest problem regarding copyright is not

obtaining or enforcing it but is the ability to write the most beneficial contracts and

agreements, which requires assistance from expensive lawyers. The cost of these lawyers

is somewhat prohibitive to SMEs. As a result, in situations where SMEs are doing business

with larger corporations, which have access to in-house lawyers or large law firms, the

contracts and agreements made are not in favour of the SMEs.

Lack of time

Some experts, especially from Iceland, point out that SMEs lack sufficient time to

concentrate on IPR issues. The consequence of this is that SMEs’ decision to protect (or not

protect) their IP through registered rights is not given enough thought.

Difficulties to acquire protection for non-technical innovations

Within the creative industries, most innovations are not technical innovations, which

can be registered through the patent system. SMEs in the creative industries typically

generate service innovations, which are more difficult to protect through the IPR system. It

is possible to protect communication innovations or television formats through for

example trademark protection or design protection. However, experts claim that many

companies within the creative industries only have knowledge of patents and they do not

investigate if there are any other IPRs available for their service innovations.

Difficulties to enforce rights

The experts claim that in spite of recent developments SMEs still find it difficult to

enforce their IPRs. According to the survey, 45% of firms find the costs of enforcement an

obstacle to using IPR. Experts point at several difficulties in this regard. One important

obstacle is the cost, as it can be very expensive to enforce IPR through the court system.

Another factor is SMEs’ inability to foresee how the courts will rule in a specific case. IPR

cases are to a large extent handled by ordinary courts. Within these courts there are



seldom lawyers with sufficient knowledge and experience in IPR and this uncertainty

negatively influences SMEs use of the court system.

Over the last years there have been several legislative changes to make it easier for

right holders to enforce their rights. Some of these change are based on TRIPS agreement;

others are a result of EU-directives. In Finland it has been suggested that all cases on IPR

should be handled by the Market court or a dispute settlement system should be promoted

that is less complicated and with greater IPR expertise. However, an expert from another

Nordic country claimed that specialised courts could lead to centralisation, especially

when it comes to community rights which, from his point of view, could make it harder for

SMEs to use the court system.

Imbalances in the innovation systems

All Nordic countries have well-developed innovation systems, including advice and

financing for start-ups. For SMEs within the creative industries these innovation services

are not particularly helpful, whether public or private, as they are focused on patentable

inventions and as a result, link financing to patents.

There have been some positive changes in this area over the last couple of years. In

some Nordic countries the importance of design has been more widely recognised.

However, the protection of design is somewhat more complicated than the protection of

inventions as it is possible to protect design through copyright, design protection and

trademark protection. The balancing of these rights is a complicated matter for most SMEs

and available services are not very supportive.

The current IPR information and supporting system is largely focused on patents. Start

ups are asked whether or not they have a patent – and companies that do not have patents

are not seen as having the same potential. Strategic issues, such as ways to make the most

of a right through strategic use of contracts and agreements, are not handled.

Drivers behind SMEs’ decision to invest in intellectual property protection

All experts point out that the most important driver of SMEs’ decision to invest in IP

protection is knowledge. The more knowledge of the IPR system that a company has, the

more likely it is to use the system. Another important determinant behind SMEs’ decision

to invest in IP protection is resources. The experts point out that many SMEs consider

registered rights to be too expensive to obtain. This is especially true when it comes to

obtaining patents in more than one country. As pointed out by some experts this includes

a lack of resources to obtain knowledge. SMEs do not have the ability to consult IPR

expertise regularly, which makes IPR a question that comes in late in the innovation

process, instead of being a part of it since the early stages. The consequence may be that

the right obtained is not the most useful one for the company.

Bad experiences in dealing with IPR are another factor influencing SMEs’ use of rights.

It is claimed, at least in some countries, that most patent applicants only ever apply once.

According to the experts, one reason for this is that SMEs do not find the patent as useful

as they had hoped, perhaps due to their difficulties in effectively using the different

contracts and agreements. Another reason may be that the patent obtained is not

necessarily the most suitable protection mechanism, reflecting the lack of a clear strategy

as to when to apply for a patent in the course of the innovation process. This view is

however not supported by evidence in the survey or case studies.



It is a common view among experts that most SMEs do not have any strategy when it

comes to IPR, even in the case of companies that have obtained registered rights. This is to

some extent confirmed in the case studies. An exception can be identified in the case of

trademark rights. These are commonly used as a part of an overall business strategy. Some

companies engaged in open innovation use trademark protection as a way to control their

business, even if they decline patent and/or copyright protection.

The global context

The Nordic countries’ domestic markets are rather small, so SMEs find it necessary to

engage in cross-border commerce. One advantage SMEs within the Nordic countries have

is that, to some extent, their countries share similar languages and cultures. Further,

membership of EPO might help SMEs engaging in cross-border commerce within Europe.

However, patents through EPO do not grant protection in all member countries as the cost

is linked to the countries designated.

The community design and community trademarks are easy ways for SMEs to access

protection in all of the European Union. Companies from Denmark, Sweden and Finland

can obtain protection for the entire Union, including their domestic market, through one

application. On the other hand, companies from Norway and Iceland have to apply for

protection both in their domestic market and in the European Union.

One problem recognised for all companies engaging in cross-border commerce is the

handling of semi-formal protection as the rules on semi-formal protection vary between

different countries, and are often difficult to compare.30

SME challenges

For SMEs that engage in cross-border commerce, the costs of obtaining registered

rights in different countries, particularly the transaction costs, are considered to be

excessively high. One driving factor for the transaction costs are the costs of lawyers for

writing the different kinds of contracts and agreements that are required. In the field of

copyright, there are different traditions on how to construct contracts and agreements. The

consequence is that it is often impossible to use the same kind of agreements in more than

one country. This is not due to different legislation, but merely to different traditions.31

According to the survey, 58.1% of firms have not filed, registered or established any

intellectual property rights at an international level. Some experts do however point out

that this does not always influence the SMEs’ decision to engage in cross-border

commerce, as business opportunities are often seen as more important than IPR. This is

especially true in cases where the SMEs lack knowledge of the uses of IPR.

For companies using semi-formal protection, the costs of contracts and agreements

are significant due to the regulatory differences between different countries. Within the

European Union it has also been recognised that open innovation, within the field of

copyright, requires agreements as copyright is obtained without registration. However, the

rules for these agreements vary between all 27 member states. In order to adjust these

agreements to the legal rules in each country and bring the agreements in line with the

business strategy, SMEs require legal assistance. The costs for this can be significant.



Case studies

Case studies have been conducted across the creative industries in Denmark, Finland,

Norway and Sweden. In order to build comparative evidence, and distinguish country- and

industry-level dimensions, two case studies from two different industries, namely film

production and design, were conducted in each country.

The selected industries are relevant to the creative industries in the Nordic countries.

In recent years, film production has developed significantly and films from the Nordic

countries have achieved international recognition. The revenues from these productions

can be substantial. The companies selected are different in that some are important

players in the market place while some others are small actors.

In all Nordic countries design is very important. Governments often emphasise design

as an important competitive advantage and have for several years put a lot of effort into

promoting it. The companies selected operate in different ways in the design area. Some

companies work with industrial design, meaning that they design for other companies.

Others are selling and promoting their own design.

Experiences with intellectual property rights

All the companies in the study have some IPR experience. They are holders of different

rights, both registered and unregistered. However, not all companies have been working

very actively in the field of IPR and their experience is often rather superficial. As a result,

SMEs are often not entirely aware of how they could access and use IPRs and it generally

seems as if the companies do not see IPR as a core activity.

i) Film production companies

In movie production copyright is an essential part of business. The entire business

model rests on the fact that the results are protected by copyright. Due to the construction

of copyright law in the Nordic countries, film production companies have to make

contracts and agreements to acquire copyright from everyone who is involved in creating

works that are part of the final version. The construction of these agreements is very

complex32 and often it is the IPR area in which these companies put in the most effort.

External help is almost always used to write-up these contracts and agreements. Often

there is need for several different types of support. For some employees collective

agreements exist to handle copyright issues. The collective agreements make sure that the

producers exploit the film and in return provide royalties to the right holders (actors, script

writers, etc.). In Sweden, support is sometimes needed to interpret these collective

Table 4.1. Nordic countries: Profile of case studies


Television production company (Sweden) Film

Production company (Finland) Film

Television production company (Norway) Film

Television production company (Denmark) Film

Fashion designer (Sweden) Design

Design company (Finland) Design

Industrial design company (Norway) Design

Furniture design company (Denmark) Design



agreements. For other contributors individual contracts are elaborated with the help of

external lawyers.

One legal construction common in the Nordic countries, but not that common in

many other countries, is collective licenses. These ensure that the copyright holders

receive revenue from works when they are being used. The practice of collective licenses is

currently under debate, but the general view is to extend their use.33

Piracy has been a major issue of debate over the last decade. In all Nordic countries

piracy has been widespread. In Sweden the “right” to piracy even led its defenders to create

a specific political party, Piratpartiet.34 The fight against piracy is typically handled through

organisations, so individual companies rarely have direct experience fighting piracy in the

courts. The case study companies were very interested in discussing issues on piracy even

though they did not themselves do anything in the field.

Film production companies sometimes use IPRs other than copyright, especially

trademark protection. Not all of the companies in the case studies make active use of

trademark protection. One company even explicitly stated that “no one had explained the

benefits of trademark protection”. It is however evident that there are film production

companies that do use trademark protection in a very active way. These companies tend to

use trademarks as a tool for merchandising. The companies analysed however did not

work with merchandising at all.

ii) Design companies

The design companies had different approaches to IPR, depending on the structure of

their business. Some of the companies focused on industrial design. Their customers were

major industrial companies, mainly in the Nordic countries. By contrast, some of the

design companies were designing consumer products and selling them under their own

company name.

One company, working with industrial design, did not acquire any IPR itself. Rather, it

let the customers make all decisions concerning IPR. This meant that the protection of

designs was more of an issue for its customers than for the firm itself. The company has

had some bad experiences due to this strategy; however they admitted that they did not

have the tools to develop another strategy, as only design protection for which they had

some knowledge was copyright protection.

Other companies working with design rely on copyright protection and do not register

design protection or trademark protection. Others have a strategy using all kinds of

different protections for their designs. Companies working with consumers are more

interested in protection of IPR such as trademarks. Some of the companies have experience

enforcing their rights. However these experiences are not entirely positive.

Intellectual property management and strategy

The companies investigated all work in IPR intensive industries. This means that they

all, sooner or later, will have to deal with IPR. In fact, the case study companies have, to an

extent, some form of IP strategy. However, some companies admit that they have not put a

lot of effort into working with IPR questions, suggesting that these companies are not using

IPR as a part of their overall business strategy. Their use of IPR is quite basic and initiated

by others. Often strategies are linked to short-term needs; they are not very proactive and

tend to focus on one specific typology of IPRs, rather than considering a portfolio approach.




Generally, film production companies have IP strategies in place, but these strategies

are often focused on acquiring rights from other right holders. The structure of the

contracts is seen as very important. The film production companies’ aim is to make sure

that they can fully exploit the finished film in the most suitable way. For example, there

have been problems in selling films for use on the Internet as the contracts and agreements

have not covered such use.

As far as the selection of the protection tool is concerned, the film production

companies focused on copyright, even though trademark protection could also be of (more)

use to them. In fact, the film production companies did not have an explicit strategy linked

to other rights. One company did register trademarks quite often but did not have a clear

strategy for when to do so.


Some of the design companies did have an IPR strategy but these were very different,

depending on the business that the companies were in. It seems as if the existence of an

IPR strategy also was dependent on the firm’s actual level of IPR knowledge. The design

companies selling to consumers did to a larger extent have a clear protection strategy for

themselves. An industrial design company’s only strategy was for their customers to have

the deal with IPR.

In the same way as the film production firms, the design companies to a large extent

relied on copyright protection, even though design protection may be useful for them.

Some of the problems encountered by the design companies could in fact be tackled by also

adopting design protection.

Intellectual property enforcement

Several of the companies analysed have experience with enforcement. They have,

either by themselves or together with others, taken infringements to court, despite

enforcement of IPR being expensive and time consuming. The companies that took action

to enforce their rights are in fact very IPR intense firms. In some cases, they still believe

that their efforts to enforce their rights were worthwhile.

However, the case studies confirm the experts’ view that the business community

considers the competence of the courts to be a problem, as judges are not often up to date

on the legislation and they seldom have an in-depth understanding of the IPR in question.

In fact, in the Nordic countries, issues on IPR are handled by the general courts and the

judges that are to handle a case on IPR often do so for the very first time.


The film production companies have experience dealing with piracy although these

companies do not have direct experience taking the cases to court as this is mainly

handled through organisations.35 The production companies believe that the legal system

has not been efficient enough in handling piracy. There are several examples of court cases

related to piracy in the Nordic countries. These cases have also led to a broad discussion on

how firms in the film industry should develop their business models in the future.




Successful design is often imitated. Therefore successful design companies have to

consider what to do when these imitations occur. Some of the companies in the study have

direct experience of enforcing their rights. For instance, an industrial design company,

which let its customers take care of all IPR issues, has assisted a customer in an

infringement case. They claimed that enforcing IPR was very time consuming and one

major problem was the fact that the courts have no insights into design. They claimed that

it would be most helpful if there were design experts in the courts. There have been some

cases regarding imitation of design that have reached media attention and have

strengthened the view that IPR does not help small companies.

Policy implications and recommendationsMost of the following recommendations are based on the results of the interviews and

supported by evidence collected through the survey and the case studies.

Improve knowledge

As described above, all the interviewed experts point out that the main problem for

SMEs in the area of IPR is lack of knowledge, which influences SMEs’ opportunities to

develop their businesses and to grow. The case studies also show that SMEs do not use IPR

even in situations where it is easily accessible, the reason for this being a lack of

knowledge. Improvement of SMEs’ knowledge of IPR could be addressed in different ways,

at several different levels. For example:

● By making intellectual property rights a part of all higher education in the creative field. All

students within the creative field should get some education regarding IPR. It is

important that the programs are linked to their actual education as, for example, a

designer and a musician do not need the same education when it comes to IPR. It is

important that education does not only concern the actual IPRs that could come in

question but also emphasises different ways of handling IPRs from a strategic point of

view. The students should, for example, get an understanding of open innovation and

the balance between protection and non-protection. In order to do so, education in IPR

should also consider issues concerning IPR-related contracts and agreements. It is often

through the contracts that the IPR strategies become reality. The Alvar Aalto University,

a multidisciplinary institution in Finland, may serve as a good model on how education

can address these issues. Students participating in education within the creative field do

to a large extent end up being entrepreneurs.

● By improving the diffusion of information on intellectual property rights. The public authorities

working with IPR, such as the patent offices, are often active in diffusing information

and in international networks aimed at increasing awareness about IPR. The programme

“IPeuropAWARE” is an example of co-operation between different patent offices within

the European Union regarding SMEs’ use of IPR. However, these authorities have a focus

on registered rights and on giving information on the right as such, rather than on the

use of the right within a business context and through different kinds of contracts. This

focus also leads to non-strategic use of IPR. The role of these public authorities should be

discussed and they should be possibly given a responsibility to cover the entire field of

IPR, including copyright. The diffusion of information regarding semi-formal protection

should also be considered.



● By providing information to start-ups. Public authorities in the Nordic countries are active in

helping start-ups, since entrepreneurship is an important factor in their economic

growth. These efforts seldom include support for the use of IPR and, when they do, there

is a focus on patents.

● Alliances. There are many different actors working to help SMEs in different ways. Several

of these actors are either public authorities or are funded by public authorities. Since a

lack of knowledge is recognised as one of the major factors behind SMEs’ use of IPR, it is

very likely that these actors do not emphasise IPR enough. In order to improve this

situation, alliances between different actors could/should become reality. The national

patent offices could be one actor in such alliances.

Resources

Lack of resources is recognised as one important obstacle to SMEs’ use of IPR. Policy

areas to address this include:

● Registration fees. Some SMEs point out that registration fees can be burdensome. In

several countries, fees have been stable and/or lowered in recent years. However, the

level of fees is an important factor to bear in mind when it comes to SMEs’ opportunities

to use IPR. It is also important that information regarding the level of fees is clearly

communicated, so that the decision by SMEs not to use registered rights is based on

actual facts rather than assumptions.

● Help to acquire knowledge. It is pointed out that SMEs lack resources to acquire knowledge

of IPR. Support to identify resources and IPR courses aimed at SMEs could be an

important improvement. This has however to be done in a way that does not affect

competition between different education providers.

● Accessible information. It is important for SMEs that information regarding IPR is easily

accessible. The information tools on patents developed by the Swedish Patent Office

could serve as a model. The information is presented on the web, in a form that is

accessible to anyone. This information makes it easier for SMEs to use their resources in

a better way. It would be important to also include information on non-registered rights

and semi-formal protection.

Business use of intellectual property rights

Some of the factors influencing SMEs’ use of IPR in fact depend on the SMEs

themselves. If they had a better picture of the strategic uses that IPR could have for them,

they might be more willing to set aside more time and resources to handle IPR. Even if this

is a question that is the domain of the companies themselves, policy makers may have a

role in encouraging this behaviour. For example:

● Best practices. There are some very good examples of SMEs working with IPR and making

the most of that work. These examples of best practice should be pointed out, so that

more SMEs see what they can do to improve their competitiveness through use of IPR.

● Business perspective. In the creative industries there is sometimes a lack of business

perspective as other values are often seen as more important. Helping SMEs to look upon

what they do from a business perspective could help them to identify how to use IPR

better.

● Identification as industry. In recent years, discussion on the creative industry has grown.

Previously this was not seen as an industry. The formal identification of the creative



industries might be one important factor in helping SMEs within the creative sector to

see themselves in a new light. This might also be helpful when it comes to pointing out

best practices.

Contracts and agreements

Contracts and agreements are important for SMEs since they are used to acquire IPR

from others and to let others use their IPR. There is much to be done in this field. Some

examples on what could be done:

● Identifying the importance. It is vital that the importance of contracts and agreements is

highlighted. In situations where SMEs do not understand the full implication of

contracts and agreements, they might not make the most of their potential. All actors

should therefore highlight this importance.

● Comparative studies. There are significant differences when it comes to how IPR is

handled in contracts and agreements, even between the Nordic countries. These

differences should be subject to comparative studies, in order to help SMEs finding

information on what to consider when engaging in cross-border commerce.

● Information. When information is provided on IPR, information on the handling of

contracts and agreements should also be provided.

Recognition of all kinds of innovations – not just technical innovations

When innovations are being discussed there is too often a focus on technical

innovations that can lead to a patent. Within the creative industries there are a lot of

innovations, but they are seldom technical innovations. It is important for all policy

makers to recognise that service innovations are just as important as technical

innovations. This also means that policy makers have to recognise that the IPR-system

provides protection mechanisms other than patents.

In Finland the recognition of the multi-dimensional nature of innovation has led to the

creation of the Alvar Aalto University.36 In Denmark, CKO has been established, which

recognises the importance of creative sectors within industry and support projects that

create growth through collaboration between cultural and business life.37 In Sweden the

government has presented a strategy on service innovation.38 However, through these

initiatives, IPR is often mentioned as a problem and seldom solutions are presented.39 In

other terms, it appears as if even legislators step back from handling these issues.

Improve the innovation system

The set of players and institutions that form the innovation system do not often fully

recognise the importance of IPR. In some parts of the innovation system the focus is on

technical inventions leading to patents. It is important that IPRs other than patents are

given relevance. For instance, the mechanisms to finance innovative businesses should be

connected to a broader set of intellectual assets than patents.

Patent processing

Improvements to patent processing should be considered to make it more accessible

for SMEs. However, experts’ views differ on how this goal could be achieved. One question

that is important for SMEs in the Nordic countries, as well as in the entire European Union,

is the question of language. Some experts point out that the number of translations needed



acts as a hindrance to SMEs obtaining patent protection in more countries. However, some

other experts also point out that it is vital for SMEs to always be able to read in their own

language all information contained in patents.

Intellectual property right enforcement

As described above, it is often difficult for SMEs to enforce their rights as the process

is too difficult and expensive. The experts have pointed out some examples of

improvements that can be made:

● Dispute settlement through the administrative system. Disputes can in some cases be

handled through the administrative system. This makes the dispute settlement much

more accessible for SMEs. This way of settling disputes may not be suitable for all types

of disputes, but new ways to handle disputes through the administrative system should

be considered. This is already happening for trademarks in Denmark and similar

mechanisms for trademark disputes are under discussion in Sweden.

● Special courts for intellectual property rights. In some Nordic countries a problem for

infringement cases is that they are handled in courts that do not normally work with IPR.

Some of the national experts have pointed out that special courts for IPR would improve

the opportunities for all types of businesses to pursue their IPRs. This view has also been

confirmed by the case studies. The fact that the courts have little knowledge in, for

example, the field of design, leads to a situation where the parties have to spend

significant resources on informing the court on basic design principles. This is one of the

factors that drive the high cost of enforcement.

● Benchmarking. In some parts of the creative industries the industry itself has developed

systems for dispute settlement.40 These systems could be studied and used as

benchmarks for other industries. Policy makers should recognise the importance of

these systems.

Copyrights and trademarks

When it comes to copyright it is important to acknowledge the importance of

contracts and agreements. Due to the construction of the copyright protection, all

companies need different kinds of contracts and agreements to use different works. This

can be rather complicated. The establishment of a law on copyright agreements, such as

the German Act on copyright agreements, has been discussed in some of the Nordic

countries. In some countries, there is a strong tradition regarding the handling of copyright

in collective agreements. However, many SMEs do not use collective agreements. A legal

regulation on copyright agreements might be helpful for these companies.

It is however important that any kind of legal regulation on copyright contracts and

agreements is adjusted to the actual needs of SMEs. The legal regulation must not be

constructed according to traditional handling of copyright. That could itself hinder SMEs

within creative industries developing into new areas of business.

Cross-border commerce

For SMEs there are several issues regarding IPR that are complicated when it comes to

cross-border commerce. The way of obtaining registered rights in additional countries is

one area that is very important. The advantages from the community trademark and the



community design are clear evidence of that. A community patent is expected to have the

same beneficial effect.

Semi-formal protection is an area that is perceived to be highly complicated by SMEs

engaging in cross-border commerce. The rules on semi-formal protection are very different

between countries. The consequence of this is that SMEs need to make different

agreements in different countries. The costs for this are significant. Simplification in this

area would be of great importance. This is especially true when it comes to SMEs within the

segments of the creative industry in which direct protection of innovation is not possible.

Notes

1. Creative industries have been the object of several analytical works in the Nordic countries. InDenmark projects have been conducted that aim at defining the content producers and the musicindustry. See for example the report Danske Indholdproducenter – Film, tv og computerspil i tal 2009.

2. www.ekonomifakta.se/sv/Fakta/Foretagande/Entreprenorskap/Nystartade-foretag-efter-naringsgren/.

3. For a summary of the developments in Sweden, www.ekonomifakta.se/sv/Fakta/Arbetsmarknad/Sysselsattning/Strukturforandringar-i-sysselsattningen/.

4. “Svenska Företag om design”, 2008, SVID, Teknikföretagen och Svensk Teknik och Design.

5. Promoted in the prize “Design Effekt”.

6. “Design skaber værdi”, October 2008.

7. www.kreanord.org.

8. www.ekonomifakta.se/sv/Fakta/Foretagande/Naringslivet/Naringslivets-struktur/.

9. The cooperation in the field of IPR is presented by Koktvedgaard in Copyright 1998, pp. 348.

10. These trademarks acts came into force in the late 1950’s and early 1960’s.

11. www.efta.int/eea.aspx.

12. This is for example the case when it comes to the implementation of the directives 2001/29/ECof 22.5.2001 (on the harmonisation of certain aspects of copyright and related rights in theinformation society, INFOSOC) and 2004/48/EG of 29.4.2004 (on the enforcement of intellectualproperty rights, IPRED).

13. www.epo.org/about-us/epo/member-states.html.

14. www.wipo.int/pct/en/texts/index.html.

15. Since 1978, Förordning (1978:218) om patent- och registreringsverkets verksamhet enligtkonventionen om patentsamarbete.

16. The legislation that was a result of the cooperation came into force in 1959 in Denmark, 1960 inSweden, 1961 in Norway and 1964 in Finland.

17. www.wipo.int/treaties/en/ShowResults.jsp?lang=en&treaty_id=8.

18. In Norway the new legislation came into force on the 1 July 2010. In Sweden the regulation has notyet been passed by parliament.

19. This is for example clearly established in a case from the Swedish Supreme Court, NJA 2008, p. 309.

20. In Denmark reform proposals were presented in 1990 (1197/1990) and 2006 (148/2006). Howeverthese have not led to new legislation. In Finland a proposal for new legislation was also presentedin the past, but it has not led to any new legislation yet. In Sweden a proposal for new regulationwas presented in spring 2010 (SOU 2010:24).

21. There are however specific rules on computer programmes developed by employees, following theDirective 91/250/EEG.

22. See for example SOU 2010:56 (Sweden).

23. Regulation no 6/2002. There is also a directive on design protection, 98/71/EG.

24. www.ipeuropaware.eu.


http://www.ekonomifakta.se/sv/Fakta/Foretagande/Entreprenorskap/Nystartade-foretag-efter-naringsgren/

http://www.ekonomifakta.se/sv/Fakta/Arbetsmarknad/Sysselsattning/Strukturforandringar-i-sysselsattningen/

http://www.ekonomifakta.se/sv/Fakta/Arbetsmarknad/Sysselsattning/Strukturforandringar-i-sysselsattningen/

www.kreanord.org

http://www.ekonomifakta.se/sv/Fakta/Foretagande/Naringslivet/Naringslivets-struktur/

http://www.efta.int/eea.aspx

http://www.epo.org/about-us/epo/member-states.html

http://www.wipo.int/pct/en/texts/index.html

http://www.wipo.int/treaties/en/ShowResults.jsp?lang=en&treaty_id=8

http://www.ipeuropaware.eu


25. The most recent example is from Sweden, SOU 2010:24, Avtalad upphovsrätt.

26. ec.europa.eu/internal_market/copyright/documents/documents_en.htm.

27. In Sweden it is under currently under debate, see SOU 2010:24.

28. www.prv.se.

29. www.prvbloggen.se.

30. A comparative study between the regulations on protection of business secrets in Sweden, France,The Netherlands and Germany is Helgesson, Affärshemligheter i samtid och framtid (2000). TheFinnish legislation is similar to the German.

31. This is demonstrated clearly in the comparisons between the Nordic countries done in SOU2010:24.

32. See Wainikka, Upphovsrätten i mediebranschen – en fråga om avtal, Svensk Juristtidning, 2007.

33. For the current discussion in Sweden, see SOU 2010:24.

34. With two representatives in the European Parliament.

35. See for example the Pirate Bay Case in Sweden.

36. www.aalto.fi/en/about/.

37. www.cko.dk.

38. http://naringsdepartementet.ning.com/.

39. This is evident in both the Swedish service innovation strategy and in for example SOU 2010:56.

40. See for example www.svenskform.se/sv/node/32.

References

Erhvervs- og Byggestyrelsen (2008), Design skaber værdi: Udbredelse og effekter af design September 2008,available from: (accessed 28/3/11).

Förordning (1978), Om patent- och registreringsverkets verksamhet enligt konventionen om patentsamarbete.

Helgesson (2000), Affärshemligheter i samtid och framtid, June 2000.

Koktvedgaard, M. (1998): Ideel ret og musik. i: Ton och Rätt s. STIM. Iustus, Uppsala, Sverige.

Swedish Supreme Court, NJA 2008.

SVID (2008), Svenska Företag om design, Teknikföretagen och Svensk Teknik och Design.

Wainikka, C. (2007), Upphovsrätten i mediebranschen – en fråga om avtal, Svensk Juristtidning.


http://ec.europa.eu/internal_market/copyright/documents/documents_en.htm

www.prv.se

www.prvbloggen.se

http://www.aalto.fi/en/about/

http://www.cko.dk

http://naringsdepartementet.ning.com/

http://www.svenskform.se/sv/node/32


ANNEX 4.A1

Survey Results

Responses158 responses (107 completed the entire survey)

Sections 1 and 2: Demographic data

The respondents’ role

55.8 % management

37.8 % owner

6.4 % other employee

Main market

47.6 % National

29.3 % International

23.6 % Local

Section 3: Innovation activities

3.1 Has your company implemented any of the following innovations in the past three years? (please select all relevant)

62.9% New or significantly improved product or service.

41.9% New or significantly improved production or delivery processes.

36.2% New business practices.

32.4% New marketing practices for your good or service.

3.2 Does your firm acquire knowledge or technology through licensing?19.6% YES 80.4% NO

3.2a If yes, why does your firm utilise licensing? (please select all relevant)

66.7% To access to a technology to immediately use it30.3% To complete commercial or industrial partnership21.2% To take an option on a technology to benefit from (future) room for manoeuvre24.2% To co-develop a technology with a commercial or industrial partner18.2% To settle intellectual property right infringement conflicts



OPTIONAL SECTION ON OPEN SOURCE INNOVATION

O1 Does your firm engage in open source innovation?11.9% YES 88.1% NO

O1a If yes, please specify the type of open source activity: (please select all relevant)

52.9% Open source software development

Open source pharmaceutical projects

64.7% Other open source communities(e.g. Wiki publishing, creative commons, the Free Beer and Open Cola initiatives, and similar)

O2 Do you believe that, in the long run, the open-source protection methods is or will become the dominant form of protection within your sector (for example, compared to patents)?

29.4% YES 7.6% NO

Section 4: Intellectual assets

4.1 Does your firm use any of the following strategies or techniques to protect the specialist or confidential knowledge that your firm has? (please select all relevant)

Strategies58.2% Secrecy63.6% Trust between individuals/team21.8% Lead-time over competitors28.2% Limiting key information from staff

Techniques10.9% Complexity of design35.5% Building in specialist know-how into products

4.2 Do you use any of the following formal methods to protect your confidential knowledge? (please select all relevant)

a) Intellectual Property Rights30.6% Patents52.8% Trademarks26.9% Copyright22.2% Registered designs

b) Other71.3% Confidentiality agreements8.3% Unregistered design protection14.8% Non-protected technology or ideas

Section 5: Intellectual property and strategy

5.1 Did you file, register or establish any intellectual property rights before commencing business?39.2 YES 60.8% NO

5.2 Has your firm filed, registered or established any intellectual property rights at an international level?41.9% YES 58.1% NO

5.3 Has your company ever tried to assess how much your IP is worth?20.3% YES 79.7% NO

5.4 Do you have a person on your team specifically charged with “managing” your intellectual property?27% YES 73% NO

5.5 Does your company have an overall intellectual property policy/strategy?33.8% YES 66.2% NO

5.5a If yes – is it explained or distributed to staff?71% YES 29% NO

Section 6: Benefits / obstacles to IPR use

6.1 Please tick UP TO 3 BENEFITS of intellectual property rights that your firm uses which you find of HIGHEST IMPACT.

57.1% Protection against imitation 14.3% Attract investors

71.4% Build competitive advantage 19% Source of direct income (e.g. royalties, licensing fees, etc)

60.3% Protect brand value 38.1% Increase ability to enter collaborative agreements

14.3% Protection in overseas markets

6.2 Please tick UP TO 3 OBSTACLES for intellectual property rights that your firm uses which you find of HIGHEST IMPACT.

48.3% Lack of awareness of relevant IP type 53.3% Cost of application

33.3% Concerns regarding disclosure 45% Cost of enforcement

50% Uncertainty over whether IPR will be upheld 40% Lack of qualified personnel



Section 7: Enforcement and litigation

7.1 Does your company actively check for potential infringement of its intellectual property rights?23.5% YES 76.5% NO

7.2 Has your company ever undertaken legal action for the infringement of its intellectual property rights?13.2% YES, IN HOME COUNTRY 7.4% YES, IN FOREIGN MARKET(S) 79.4% NO

Section 8: Intellectual property advice and education

8.1 Has your company ever sought advice on intellectual property rights from the following sources? (please select all relevant)

26% In-House Legal Professional 32% National IP Office

78% External Legal Professional 16% Chamber of Commerce

28% Licensing Consultant 6% Business Association

8% Accountant 28% Internet search

24% Colleague/friend

8.1a If you have sought advice on intellectual property rights, what was the request for advice regarding? (please select all relevant)

33.3% Formal structure of IP system41.7% Filing of IP

43.8%Enforcement/litigation47.9% Search for existing IP

8.1b If yes, did the advice received meet your needs?85.4% YES 14.6% NO

8.2 Is any training in intellectual property issues provided by your company to its staff?29% YES 71% NO

8.2a If yes, who is this training provided by? (please select all relevant)

60% Within your company 20% Government sponsored course

25% Private institute25% Business Association

0% Local school/university5% Chamber of Commerce

8.2b If yes, is the training funded by: (please select all relevant)

84.2% The company 15.8% Government or other public entity 10.5% Business Association or other private entity

8.2c If yes, does this training meet your needs?90.5% YES 9.5% NO



Section 9: Reasons for not utilising IPR protection

9.1 Which obstacles deterred or prevented you from utilising the intellectual property rights system? Please tick UP TO 3 OBSTACLES which you find of HIGHEST IMPACT.

69% No need / not relevant for my firm 31% Cost of application

22.5% Lack of awareness of relevant IP type 28.2% Cost of enforcement

7% Concerns regarding disclosure 23.9% Lack of qualified personnel

16.9% Uncertainty over whether IPR will be upheld

9.2 Has your company ever sought advice on IPRs from the following sources? (please select all relevant)

23.3% In-House Legal Professional 27.9% National IP Office

51.2% External Legal Professional 14% Chamber of Commerce

23.3% Licensing Consultant 7% Business Association

7% Accountant 16.3% Internet search

23.3% Colleague/friend

9.2a If you have sought advice on IPRs, what was the request for advice regarding? (please select all relevant)

35.3% Formal structure of IP system29.4% Filing of IP

44.1% Enforcement/litigation47.1% Search for existing IP

9.2b If yes, did the advice received meet your needs?76,9% YES 13,1% NO

9.3 Is any training in IP issues provided by your company to its staff?4.7% YES 95.3%NO


60% Within your company 20% Government sponsored course

0% Private institute20%Business Association

0% Local school/university0% Chamber of Commerce


83.3% The company 33.3% Government or other public entity 0% Business Association or other private entity

9.3c If yes, does this training meet your needs?57.1% YES 42.9% NO



The SME Dimension

© OECD 2011

111

Chapter 5

United Kingdom: Intellectual Asset Management

Strategies for Diverse Innovations

By Prof. Birgitte Andersen, The Big Innovation Centre, The Work Foundation

and Dr. Federica Rossi, Birkbeck College, University of London

Evidence from small and medium sized enterprises (SMEs) in the UnitedKingdom information and communication (ICT) sector shows that firms adopt awide range of intellectual property (IP) governance mechanisms, combiningproprietary IP, such as patents, copyright and trademarks, with softer strategiessuch as open source and the exchange of non-protected technology. The variety ofapproaches in the ICT sector reflects differences in product/service specialisationand internationalisation strategies, and IP value seeking objectives. Theseare mainly related to finance, innovation, strategic relationships andcompetitiveness. On the basis of an extensive survey, expert interviews and in-depth case studies of SMEs, the chapter highlights differences in strategies byfirm size: formal IP (patents and copyright) is used relatively more by mediumsized and large firms, whereas micro and small firms are relatively more activein open source communities and in trading technology with no patent protection.Metrics used for measuring innovation and the performance of intellectual assetmanagement in SMEs should reflect this variety of approaches. The chaptercomments on institutional market failures, on the policy responses and extensivereforms promoted by the United Kingdom government, and present the case forflexible and ’neutral’ IP policies for SMEs in the ICT sector.

5. UNITED KINGDOM: INTELLECTUAL ASSET MANAGEMENT STRATEGIES FOR DIVERSE INNOVATIONS

ION © OECD 2011

Introduction

Motivation and research questions

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INTELLECTUAL ASSETS AND INNOVAT112

A considerable amount of research work has been dedicated, in recent years

understanding the use of intellectual property (IP) protection mechanisms on the pa

firms in the United Kingdom. Much of this research is focused on firms of all s

(although some specifically focuses on small and medium sized enterprises or SMEs)

is carried out across all sectors. Despite the recent increase in the amount of resea

carried out on this topic, however, several gaps and limitations of existing research ca

identified, which the present study contributes to filling. Mainly, such gaps concern: i)

range of IP mechanisms considered, which is usually limited to patents and other form

registered intellectual property rights (IPRs) such as trademarks and copyright; ii) the l

of detail at which such mechanisms are considered, and iii) the specific investigatio

firms’ strategic benefits and obstacles that firm encounter when using these mechanis

The present study focuses specifically on intellectual asset management on the pa

SMEs in a single sector (firms active in information and communication technology, or I

A one-sector perspective allows us to bring greater depth to the investigation, by taking

account i) a wide range of IP mechanisms, which are particularly relevant to the secto

question, including not only proprietary IP (patents, copyright and trademarks) but also n

proprietary IP such as open source and non-protected technology; ii) a wide rang

governance forms through which such mechanisms are used (that is, we consider fir

engagement in – among others – buying, selling, in-licensing, cross-licensing, out-licens

pooling IP); iii) both the strategic benefits that are associated with the use of this wide ra

of IP mechanisms, and the obstacles that SMEs encounter when using them.

The study investigates the following research questions:

1. What forms of IP protection mechanisms do SMEs in the ICT sector use? How does t

behaviour differ from that of large firms?

2. What are the strategic objectives that underpin the SMEs’ choice to use these differen

protection mechanisms?

3. What are the obstacles that SMEs in the ICT sector encounter when using differen

protection mechanisms?

4. How does the regulatory and business environment affect the SMEs’ ability to cr

value from their IP?

The second section presents an overview of evidence on United Kingdom firms’ us

different kinds of IP protection mechanisms (particularly focusing on SMEs), and the iss

and challenges that these mechanisms imply, paying specific attention to the compet

and regulatory environment. The third section presents the results of the empirical anal

integrating the results emerging from the survey with insights from the qualita

interviews carried out with firms and experts. The fourth section discusses, based upon

evidence presented in the previous section, several policy implications and conclusions.


113

The ICT sector

The ICT sector is very important to the United Kingdom’s economy. This sector has been

e at

om

om

h as

vity,

gn”,

han

l to

tion

ent

lace

(for

sing

the

the

due

ially

ore

able

e of

few

out

are

t in

ger

orm

odel

ghts

and

GPL

that

and

uire

e of

n in

udy

ey),

t of

are


considered the key driver of productivity increases and economic growth worldwide sinc

least the 1980s (Freeman and Perez, 1988); and recent data from the United Kingd

Innovation Survey (Robson and Haigh, 2008) confirm that more than 50% of United Kingd

innovation-active firms engage in the acquisition of products from the ICT sector suc

software and computer hardware. This is by far the most important innovation acti

preceding “market introduction of innovations”, and “training” , “internal R&D”, “desi

“acquisition of external knowledge” and “external R&D” (none of which involves more t

35% of firms). Information and communication technologies are not only instrumenta

stimulating innovation throughout the economy; they are subject to a high rate of innova

themselves.

The ICT sector is one where intellectual assets are a particularly important compon

of firm value and where their acquisition is often crucial for innovation to take p

(Cockburn, 2007). The sector has seen an increase of activity in IPR transactions

example, see Grindley and Teece, 2008, on the increase of licensing and non-licen

agreements in the computer industry). One of the reasons for this increase is due to

high level of disintegration of innovation activities in this sector, and consequently

increasing adoption of “open innovation” strategies (Chesbrough, 2003). This is partly

to technological reasons. The production of ICT products and components, espec

software, often involves disintegrated modules, which are later combined into m

complex systems (Arora, Fosfuri and Gambardella, 2001) to create commercially desir

products. The complex technologies underpinning the ICT industry and the challeng

short product life-cycles mean that firms are inclined to specialise in the production of

modules and rely on exchanges of technology with other companies to bring ab

finished products. These exchanges often involve IP transactions. Commercial reasons

also important. Many ICT firms, especially software firms, have limited investmen

downstream commercialisation capabilities, and usually choose to license to big

software firms (Arora, Fosfuri and Gambardella, 2001). This use of IP gives them a platf

to be more competitive.

ICT has pioneered innovative forms of IP governance, namely the open source m

supported by the use of General Public Licenses (GPL). Whereas intellectual property ri

law, in its current form, provides the right to exclude anyone from using, modifying

redistributing copies of an author’s work as well as a right to withhold the source-code, a

license transfers these rights to the commons in order to ensure access. This ensures

every person who receives a copy of a work has the same rights to study, use, modify,

also redistribute both the work, and derived versions of the work. Such licenses also req

that the same license terms apply to all redistributed versions of the work. Relaxing som

the restrictions of the intellectual property rights system is also becoming more commo

other sectors, and it is usually linked to an open innovation strategy of the firms.1

Methodology

The methodology followed in order to carry out the empirical part of the st

involves: i) a large-scale survey of United Kingdom firms in the ICT sector (UKNOW surv

ii) a set of qualitative interviews with experts based in the United Kingdom and iii) a se

in-depth qualitative interviews with United Kingdom SMEs in the ICT sector. They

described in turn.


ION © OECD 2011

i) UKNOW survey

The survey was performed in the context of the EU 6th Framework Programme

the

010.

n of

ore

g of

e of

phy

g or

nies

and

the

sed

ries

not

able

d to

tive

hief

ns.

y IP

s. In

ider

blic

firms


UKNOW (Understanding the Relationship between Knowledge and Competitiveness in

Enlarging EU) 2005-2009.2 Field work was carried out between October 2008 and June 2

The sampling population of ICT firms was extracted from the overall populatio

firms based in England, Wales, Scotland and Northern Ireland, with one or m

employees, active in software publishing (NACE Rev. 1, code 7221), manufacturin

computers and other information processing equipment (code 3002), manufactur

television and radio transmitters and apparatus for line telephony and line telegra

(code 322) and manufacture of television and radio receivers, sound or video recordin

reproducing apparatus and associated goods (code 323). These codes identify compa

producing both software and hardware, which are likely to be dealing with ICT patents

other IP (for simplicity, we refer to the firms in this sample as “ICT firms”). According to

FAME (Financial Analysis Made Easy) database, the total number of United Kingdom-ba

firms that fulfil these characteristics is 960 (after the removal of double ent

of companies that are no longer in business and of companies whose main activity is

ICT-related, for example, because FAME reported wrong or outdated NACE codes).

These firms were contacted by telephone with the purpose to identify knowledge

respondents (R&D manager, CEO, head of IP department, or like), who were then aske

fill in the questionnaire online. This report is based upon 39 fully completed representa

responses. The respondents were: 13 CEOs/Directors/Owners, 9 R&D Managers/C

Technology Officers/Heads of Operations, 10 IP Managers and 7 people in other positio

The questions referred, separately, to four proprietary and non-proprietar

protection mechanisms: patents, copyright, open source and non-patented innovation

turn, for each of these forms of IP protection, the respondents were asked to cons

different governance structures for their exchange, as detailed in Table 5.1.

Table 5.1. Types of intellectual property and governance forms investigatedthrough the UKNOW questionnaire

Types of IP IP Governance forms

Patents as a tool for the protection of novel ideas Selling patents

Buying patents

Out-licensing patents

In-licensing patents

Cross licensing patents

Participation in patent pools

Buying university-owned patents

Licensing university-owned patents

Copyright as a tool for the protection of original creative expressions Selling copyright

Buying copyright

Out-licensing copyright

In licensing copyright

“Non-patented” innovations Releasing not patented product or process innovations to the pu

Releasing not patented product or process innovations to private

Using not patented product or process innovations

Collaborating with universities without patent restrictions

“Open source” IP as a tool for the protection of novel ideas and creative expressions

Participating in open source software development

Participating in open source pharmaceutical projects

Participating in other open source communities


115

A first set of questions referred to the extent and intensity with which firms

participated in each form of IP exchange and in each IP governance form. Firms were asked

e of

pect

they

two

type

p to

t of

eful

see

ding

cles

ting

hic

size

&D,

ain

ht

r this


about their stock of patents owned and licensed, whether they engaged in each typ

patent governance, and if so the number of transactions in the last two years. With res

to open source, non-patented innovations and copyright, firms were asked whether

engaged in each governance form, and if so the number of transactions in the last

years.

A second set of questions referred to the benefits sought when trading IP. For each

of IP, and each governance form for the exchange of IP, firms were asked to choose u

five strategic benefits that they considered important, selecting them from a lis

13 benefits (presented in the table below). Such benefits were selected after a car

review of the academic literature and after consulting stakeholders (for a discussion,

Andersen and Rossi, 2010).

Firms were then asked to choose up to five obstacles they encountered when tra

IP, selecting them from a list of 14 obstacles (presented in the table below). Such obsta

were selected after a careful review of the academic literature and after consul

stakeholders (for a discussion, see Andersen and Rossi, 2010).

Finally, firms were requested to provide some general information: geograp

localisation (derived from address), ownership (independent or subsidiary company),

(current number of employees, current yearly turnover), yearly expenditure in R

geographic extension of the firm’s main market (domestic or international), and m

Table 5.2. Benefits from intellectual property exchange

Broad group Benefit Patents Open source Non-patented IP Copyrig

Benefits relating to financial gain

Direct income from market transaction

Cost cutting (e.g. via savings on royalties or patent administration)

increasing ability to raise venture capital (e.g. via the stock market)

Benefits relating to competitive advantage

Increasing market share (e.g. building broader user base or securing market protection)

Professional recognition or brand recognition

Competitive signaling

Benefits relating to innovation

Being able to use the best inventions, innovations, creative expressions

Setting common standards/making or using compatible technology or creative expressions

Innovation methodology: developing better technology or creative expressions

Benefiting from user or supplier involvement as a development strategy (e.g. through learning and feedback)

Benefits relating to the building of strategic relationships

Building informal relationships with industry networks

Increasing ability to enter collaborative agreements (e.g. joint ventures, strategic alliances, etc.)

Giving something to the community

Note: *Tick () means that data has been collected. A block-out means that the information was not collected foparticular form of IP.


ION © OECD 2011

the

om

nds

and

om

erty

s).

ll as

ork;

ips,

ogy,

e to

ght,

ogy,

Table 5.3. Obstacles to intellectual property exchange

broad group Obstacle Patents Open source Non-patented IP Copyright

r this


activity. A few additional variables relating to firm characteristics were derived from

FAME database: company name, full address, telephone number, primary United Kingd

SIC (2003) code, director’s name and position, e-mail, website, last turnover (in thousa

of GBP), number of employees.

ii) Qualitative interviews with experts

The semi-structured interviews were carried out between June and July 2010,

involved several experts in the field of intellectual property, based in the United Kingd

(four experts, one from academia, two from the United Kingdom Intellectual Prop

Office and one representative of one of the main United Kingdom business association

The interviews were designed to investigate the experts’ opinions about:

● the use of different types of IP on the part of small firms in the ICT sector;

● the strategies of SMEs for dealing with IP protection, acquisition and release, as we

the main factors that explain such strategies (including: business and legal framew

objectives in terms of financial gain, knowledge transfer, strategic relationsh

innovation, market positioning, or other firm characteristics such as type of technol

size of the firm, type of organisation, human capital endowment);

● SMEs’ experiences in terms of obstacles and costs in the use of the IP system;

● SMEs’ relationships with universities (channels and effectiveness);

● presence of IP support systems for SMEs (what kind of IP support system is in plac

support SMEs that want to use the patent system, or other types of IP such as copyri

trademarks, registered designs, unregistered designs, non-patented technol

Obstacles relating to search problems

Difficulty in locating the owners of IP

Difficulty in locating the users of IP

Difficulty in finding the best IP

Obstacles relating to lack of transparency

Difficulty in assessing the degree of novelty/originality of IP

Description or drawing in the patent document is not clear/ open source description is not clear

Difficulty in understanding non-patented technological solutions as they are not formally documented

Difficulty in assessing the economic value of IP

Obstacles relating to contract negotiation

Difficulty in negotiating a price for the IP

Difficulty in negotiating the terms (not related to price) of the exchange contract

Obstacles relating to contract enforcement

Excessive cost of enforcing the exchange contract

Problems (not related to cost) with enforcing the exchange contract

Trust issues (e.g. opportunistic behaviour, free-riding, or similar)

Obstacles relating to regulation and practices

Regulations allow too exclusive rights

International IP regulations do not fit the needs of different local markets

Different practices of firms

Note: *Tick () means that data has been collected. A block-out means that the information was not collected foparticular form of IP.


117

confidentiality agreements, open source?; and, how could these support systems be

improved to make them more effective for SMEs?);

are

ier?

the

and

tor

the

use

e IP

ith

f IP

able

the

ship

e.

her

t al,

008)

as

. In

eing

ded

ises

al”

ently

sed


● issues with business environment and legal framework (for example, to what extent

IPRs able to protect the IT solutions of firms that are not at the technological front

Does the legal regime fit the technology strategies of SMEs and of the ICT industry? Is

legislative framework biased towards encouraging patents?);

● finally, what are the major issues facing SMEs in relation to IP management?;

whether SMEs are able to enforce their rights successfully.

iii) Qualitative interviews with small and medium-sized companies in the ICT sec

The interviews with SMEs, carried out in August 2010, were designed to investigate

firms’ experiences with IP, the strategic decisions that underpinned the choice to

various forms of IP, the problems and obstacles that they encountered with using th

systems, the support systems that they found in place in order to help them cope w

those problems, and finally what kind of improvements would increase the ability o

systems to support the firms’ business strategy and competitiveness. The next t

presents a summary overview of these companies’ main features.

Intellectual property regulation system in the United Kingdom

SMEs’ use of intellectual property mechanisms

In recent years, a number of studies have been carried out in order to understand

use of IP protection mechanisms on the part of United Kingdom firms, and the relation

between the use of IP and certain firm characteristics such as growth and performanc

In line with evidence from well-known empirical surveys carried out in ot

countries, particularly the US and Europe (Klevorick et al., 1987; Harabi, 1995; Cohen e

2000; Arundel, 2001), the United Kingdom Innovation Survey (Robson and Heigh, 2

shows that firms attach great importance to “strategic” methods of protection (such

secrecy, lead time, complexity of design), besides formal intellectual property rights

fact, similar proportions of enterprises rated “strategic” and formal IPR methods as b

of high importance. The largest shares of firms (26% of large firms, 12% of SMEs) accor

high importance to confidentiality agreements. Nonetheless, the proportion of enterpr

marking all methods as of “high” importance, especially those classed as “form

Table 5.4. Details of companies interviewed

Company 1 2 3 4

Location Cambridge London London London

Foundation date 2000 n/a n/a 2002

Current status Acquired in 2005 Acquired Acquired in 2009 Still trading independ

Activity ICT technology (delivering video

to PC platforms)

Software development ICT technology (delivering video

to mobiles)

Delivery of web-baservices

No. of employees 60-70 150 50 70

Owns patents Yes No Yes No

Owns copyright n/a Yes n/a Yes

Participates in open source No No No Yes

Owns non-patented technology n/a Yes n/a Yes


ION © OECD 2011

protection methods, has increased on that recorded in the 2005 survey. The authors

suggest that this can perhaps be attributed to the higher awareness of IP following the

dge

ited

sms

lity

sign

tion

are

rage

rom

son

s is

recy

ore

irm

sity,

tion

ises

igh,

ions

and

tual

erns

ship

e of

rik,

ant

) in

over

ted

firm

per

ions

pes

has

the

s of

the


Gowers Review.3 Similarly, a study by the Centre for Business Research at Cambri

(Hughes and Mina, 2010) using Community Innovation Survey (CIS4) data for the Un

Kingdom shows that patents are the third least preferred appropriation mechani

among both SMEs and large firms, preceded by lead time advantage, confidentia

agreements, secrecy, trademarks and copyright. Only complexity of design and de

registration are less important strategics than patents.

The experts interviewed concur that patenting is not firms’ preferred protec

method. One expert pointed out that, even in highly patent-intensive industries, the sh

of firms that patent is not often greater than 30%, and in the ICT sector it is on ave

much lower. Besides the strategic advantages of using forms of IP that are different f

patents (which will be discussed more extensively in relation to Table 5.10), a key rea

for the limited use of patents in the ICT sector is that much of the output of ICT firm

actually not patentable so that copyright, GPL licenses, trademarks time to market, sec

and confidentiality agreements (protecting the firm’s core knowledge) are often m

important than patents for firms in this industry, and particularly for SMEs.4

Firms’ use of different types of IP protection mechanisms is often linked to f

characteristics, among which size, sector of economic activity, technological inten

innovativeness, are particularly important. Results from the United Kingdom Innova

Survey show that larger enterprises attached greater importance than smaller enterpr

to all methods for protecting intellectual property, in the ratio of 2:1 (Robson and He

2008) and that the largest firms are the most innovative with respect to all the dimens

investigated (in terms of number of products that are new to market, new to the firm

significantly improved), which may indicate that large firms generate more intellec

property and/or are more aware of intellectual property issues than SMEs. Both patt

are confirmed by CIS4 data (Hughes and Mina, 2010). In the literature, the relation

between firm size and innovativeness is quite controversial, however. There is evidenc

increasing participation of SMEs to innovation processes in general (Audretsch and Thu

2001), but, when innovation is proxied by R&D expenditure, larger firms are still domin

(Shefer and Frankel, 2005); according to ONS data (reported by Hughes and Mina, 2010

2005 United Kingdom business enterprise R&D expenditure on the whole was a little

GBP 13 billion, to which independent SMEs employing less than 250 workers contribu

only GBP 454 million (3.3%). Tether (1998) reviews the literature on small versus large

innovation rates, which tends to find that small firms produce more innovations

employee than large firms, but also provides some evidence that small firm innovat

are less valuable.

Studies linking firm characteristics to use of IP have focused mostly on certain ty

of formally registered IPRs, mainly patents and trademarks; much less information

been collected on registered or unregistered designs, copyright, open source, and on

use of technology that is not formally protected.

Rogers, Helmers and Greenhalgh (2007) sought to determine the characteristic

United Kingdom SMEs that are “IP active”, in the sense that they have one or more of


119

following: a United Kingdom patent publication, an EPO patent publication, a United

Kingdom trademark publication or a Community trademark registration. They found that:

be

the

vely

iour

mic

data

and

This

ries.

ver,

it is

s an

gly,

ted

tage

firm

MEs

ore

ctly

ods

e of

Hall

are

nts,

her

y by

arge

are

ents

out

ly a

ford

may

t in

ing,

s) is


● just under 5% of United Kingdom SMEs in operation in the period 2001-05 can

considered as “IP active (in the formal sense, as defined above)”;

● in the period 2001-05 there was a fall in numbers of United Kingdom patents;

numbers of EPO patents and United Kingdom trademark registrations were relati

constant; and the use of community trademarks grew;

● SMEs increased their use of the various kinds of IP;

● SMEs were more IP-intensive than large firms.5

A study by Helmers (2009) using United Kingdom data shows that patenting behav

on the part of micro enterprises and SMEs varies greatly according to sector of econo

activity (consistently with findings from other studies). One general feature of patent

is that they are highly skewed (i.e., most patenting firms have only one or two patents

a few have much larger numbers), and this is also the case in the United Kingdom.

skewed distribution is present for all types of patents, and also within firm size catego

In 2000, the highest levels of patenting by far were in manufacturing. By 2007, howe

business services and R&D services had grown very rapidly. Helmers points out that

not clear from these figures whether the growth in patenting in R&D services reflect

outsourcing of R&D from manufacturing as opposed to other sectors. Most interestin

the data show that patenting by micro and SME firms in computers and rela

technologics (both hardware and software) has steadily increased by a few percen

points. Also, over the period 2000 to 2007, SME patenting has increased whereas large

patenting has fallen and micro firm patenting has been roughly constant. Most S

patent while relatively young (aged ten or less) and this tendency is becoming m

pronounced over time.

Holding IPRs, however, is not the same as “using” them, in the sense of either dire

exploiting inventions or creations (i.e. using the processes or producing the go

protected by IPRs) or licensing, cross-licensing and pooling them; or even in the sens

strategically registering IPRs to block rivals or to avoid being blocked by competitors (

and Ziedonis, 2001).

The PatVal-EU study (Giuri et al., 2007; Gambardella et al., 2007) shows that there

considerable proportions of patents that are not used (including “blocking” pate

i.e. strategically important patents used to block competitors), and this proportion is hig

in the United Kingdom than is the case across the studied countries. These results var

technology, by ownership of the patent and by firm size. The survey found that in l

firms, 50% of patents are used internally (Gambardella et al., 2007) but less than 10%

traded, and 40% are not exploited. By contrast, small firms use around 80% of their pat

(of these, over 55% are used internally, and almost 25% are traded) and leave only ab

18% unused (Giuri et al., 2007). According to Bently et al. (2009), these results are part

function of the fact that the relative cost of patenting for a large firm is low: they can af

to patent more often and hence are more likely to have unused patents; while SMEs

patent more viable IP.

The UKNOW survey has allowed us to collect information on firms’ engagemen

specific governance forms for the exchange of IP (buying, selling, licensing, cross-licens

pooling and so on), thus providing insight on the way in which IP (not just patent

actually used by firms (see Tables 5.6 and 5.7).


ION © OECD 2011

Studies have also investigated whether use of IPRs (again, patents and trademarks) is

linked to various measures of SMEs growth and performance.

MEs

ly to

ther

her

tock

ups.

k of

ated

riod

any

me

rms

ries

s is

sed

hers

t in

rms

rms

ups

ose)

ctly

ave

vely

arks

alue

had

that

firm

PRs,

ing,

ICT

not


IPRs and start-up growth and survival

Rogers, Greenhalgh and Helmers (2007) find that recently founded, IP-active S

(that is, firms that had either patented or registered trademarks) are slightly more like

have become large firms, and slightly less likely to have ceased operations than o

SMEs. Having a United Kingdom trademark also makes a SME more likely to have hig

growth. Similarly, Jensen, Webster and Buddelmeyer (2008) find that both the existing s

of trademarks and trademark registrations are associated with longer survival of start-

In another study, Buddelmeyer, Jensen and Webster (2008) find that while the stoc

existing patents is associated with longer survival, new patent applications are associ

with lower survival (demonstrating the speculative nature of IP strategics).

When investigating the relationship between start-up firms’ growth in the pe

2001-05 and the existence of patents filed before 2001, Helmers (2009) does not find

relationship between patenting and high growth rates. Interestingly, he finds so

evidence of the importance of localised knowledge spillovers for start-up growth: fi

located close to fast-growing firms experience higher growth rates.

IPRs and new firm creation

The PatVal-EU study explored new firm creation from patents. Across the 8 count

considered in Gambardella et al. (2007), the share of new patents giving rise to new firm

highest in the United Kingdom, where 10.4% of patents generated new technology-ba

firms (versus only 1.2% in France, 3.3% in Germany, and 4.8% on average). The researc

concluded that “the creation of new firms requires suitable institutions that are presen

certain countries, and less so in others”. Helmers (2009) found that the entry of new fi

into a market affects the patenting behaviour of incumbents: when start-up fi

emerging from business incubators are formed, incumbents that perceive these start-

as competitors (because they are geographically, technologically or competitively cl

begin to patent more. This increased patenting activity however is not necessarily dire

related to innovation, and it may be that without entry the incumbents would not h

patented, i.e. they patent purely for competitive reasons.

IPRs and stock market value

Greenhalgh, Helmers and Rogers (2007) find that stock market values are positi

associated with R&D and trademark activity by firms: that is, firms which used tradem

experienced higher increases in stock market value. (The positive effect on market v

did, however, decline over the period 1996-2000.) Firms that registered trademarks

significantly higher productivity than firms that did not. The authors’ interpretation is

both intense trademarking activity and productivity increases were caused by some

characteristics, including primarily innovativeness.

One of the experts that were interviewed pointed out that, among the various I

trademarks are particularly interesting for firms in the service industry, such as bank

where most innovations are ICT-based, and could therefore also be important in the

sector. As mentioned above, the empirical literature has found that trademarks are


121

only associated with higher firm growth and survival, but also with higher productivity and

rate of innovation. Nonetheless, trademarks are still under-researched, and in particular

our

like

of IP

h as

rical

ty

ous

not

and

ving

elty

ent)

ant.

the

eing

ing

d to

ible

and

ven

fy a

only

ted

me

tent

ing

een

loss

s of

age,

1%),

7%).


we still do not know much about firms’ incentives to register them.

The empirical literature’s dominant focus on patents and a few other IPRs limits

understanding of firms’ actual competitive strategies around IP, especially in a sector

ICT where use of patents is generally limited. Extending the analysis to a wider range

protection mechanisms, including copyright and “non-proprietary” IP mechanisms suc

open source and non-patented technology is an innovative contribution of the empi

analysis presented in this report (see below section on “Empirical evidence”).

SME issues and challenges: Evidence on obstacles to using the intellectual propersystem

Empirical studies have shown that the patent system is characterised by numer

problems. Some studies have investigated the reasons why large numbers of firms do

use IPRs. For example, Cohen et al. (2000) surveyed 1 478 managers of US R&D units

asked them to indicate which of 5 options was the most important reason for not ha

applied for a patent. The main reasons had to do with difficulty to demonstrate the nov

of the invention, the previous disclosure of the invention (which invalidates the pat

and especially the ease of inventing around the patent, which makes the patent irrelev

Cost of enforcement was not rated as an important issue, but firm size influenced

answer: managers in small firms were more likely to cite enforcement costs as b

important.

Once patents have been issued, there may be problems with licensing them. Accord

to a US survey carried out in 2005 (Cockburn, 2007), in which respondents were aske

compare licensing transactions to similar size deals for acquisition or access to tang

assets, IP transactions are overwhelmingly considered as more costly, more complex,

more difficult to bring to closure. In about 1/3 of cases, the firm was unable to identify e

a single potential licensor or licensee to approach. Where firms were able to identi

potential licensor/licensee, negotiations over a licensing deal were entered into in

about 1/3 of cases, and of these negotiations about 50% failed to reach an execu

agreement. Provided that not all of these inventions are valueless, this suggests so

major inefficiencies in the operation of markets for patents.

Enforcing patent rights is also another issue which has been investigated. Pa

infringements are very common. An EU-wide study of SMEs in four sectors (not includ

ICT) by Rodwell et al. (2007), found that:

● 83% of firms considered that IPR abuse was of significant concern, and 75% had b

affected;

● among the effects felt were lost sales (just over 20% of SME respondents reported a

of sales greater than 10%, while 7.7% reported losses of more than 25%); los

employment (20% reported loss of jobs of 5% or more); damage to reputation or im

and reduced investment in R&D (25% of SMEs reported an adverse effect);

● the most common type of IPR said to be infringed was designs (reported by 44.

followed by “look alike products/parasitic copies” (by 37.1%) and trade marks (by 28.


ION © OECD 2011

Another EU-wide study which included a much greater number of respondents

(Kingston, 2000) found that 67% of SMEs had experienced some copying of their inventions:

(9%)

very

ited

ms’

ften

s as

has

urt.

r to

om

rent

tion

be

d at

kips

ne-

arly

es a

ited

the

ion

t of

tter,

d or

and

wed

we

the

cant

ata

rom

ther

ned

ront

egal

t in

uals

ion.


34% of them by a firm of around the same size and 26% by a larger firm. For some firms

the copying was unimportant, for others (37%) bearable and for 21% it was considered “

serious”. This problem was also highlighted as being particularly important for Un

Kingdom SMEs by one of the experts that we interviewed, according to whom large fir

infringement of SMEs patents occurs frequently, and the problem for SMEs is that o

they do not have the resources needed in order to take the infringers to court. This act

a deterrent for SMEs to patent, since patents signal to competitors that the firm

produced some valuable IP, which they may not have the resources to defend in co

Another expert agreed that keeping IP secret may be a better strategy for SMEs in orde

avoid the problem of litigation, whose costs can bring some firms to the brink of ruin.

In recent decades, some innovations have been introduced in the United Kingd

patent court system whose objective was to streamline patent litigation procedures.

First, in 1989 a Patents County Court (PCC) was set up in London with concur

jurisdiction to the traditional Patents Court.6 The objective was to make patent litiga

more accessible to SMEs, and no limit was placed on the size of claims that could

brought before the PCC. The PCC has recently introduced some new procedures aime

further simplifying and reducing the cost of the patent litigation process.7

Second, the Patents Court has adopted a “streamlined procedure”, in 2003, which s

several steps of the standard procedure, and is aimed at solving disputes through a o

day trial, approximately eight months after the commencement of proceedings. An e

assessment of the introduction of this procedure (Moore, 2006) suggested that it prov

useful way to deal with simple patent cases and to increase access to litigation.

Third, a further reform of interest is a patent opinion service offered by the Un

Kingdom Patent Office, which was introduced in October 2005. Under this provision,

proprietor of a patent or any other person may request the comptroller to issue an opin

as to whether a particular act constitutes, or (if done) would constitute, an infringemen

the patent, and as to whether the patent does not represent patentable subject ma

either because it does not constitute an invention for which a patent may be grante

because it fails to satisfy the criteria of patentability: principally novelty, inventive step

industrial applicability. The opinions are not binding for any purposes, but can be revie

by the court if they are “clearly wrong”.

Despite these improvements (which, according to one of the experts that

interviewed, have made the United Kingdom system “one of the most user-friendly in

world”) patent litigation in the United Kingdom remains more expensive, by a signifi

degree, than patent litigation in other European countries (Bently et al., 2009). The d

however is relatively scant, relates only to patents and is based mostly on estimates f

a small number of practitioners: no systematic work has been done to ascertain whe

costs have changed over recent times with the introduction of the reforms mentio

above (Bently et al., 2009).

Evidence points to the fact that SMEs find it more difficult than large firms to conf

the costs of the patent system, particularly of litigation. In a large firm, the l

department can handle such issues while the main business of the firm continues, bu

a small firm, a legal dispute makes demands on the time and energy of the individ

upon whom the firm depends, distracting them from business, and from innovat


123

Kingston (2004) found that for more than a third of SMEs fear of the cost of litigation to

defend patents affected their innovation behaviour. Moreover, failure to stop infringement

ged

that

inly

. To

tent

r to

. As

usly

also

ents

s. A

ree

ited

the

ture

tion

t (at

d in

this

tion

the

006,

this

n, a

s. A

eet

, we

ver

be

t as

MEs


promptly may destroy an SME’s entire business (IPAC, 2003). This problem also emer

from our company case studies. The two SMEs that were involved in patenting stated

not only patent litigation but also the simple filing of patents is costly for SMEs, ma

because it distracts company resources from the day-to-day running of the business

submit a patent requires a lot of paperwork, and often requires hiring an expensive pa

lawyer. New companies that have not filed before may need even more time in orde

understand how the patent filing process works, which carries a high opportunity cost

one of our experts pointed out, once the patent is granted the firms must also continuo

monitor the market in order to discover infringements, and this monitoring activity is

costly. Interestingly, according to Rodwell et al. (2007), most SMEs discover infringem

thanks to information received from their clients, and sometimes from their employee

study by DG Research has shown that obtaining and renewing a patent in Europe is th

times more expensive than in Japan and four times more expensive than in the Un

States (EC, 2003).

The empirical analysis presented in the next section investigates some of

problems that SMEs face when using and exchanging IP. Differently from the litera

reviewed here, the focus is not just on patents but on a variety of IP protec

mechanisms, both proprietary and non-proprietary.

Empirical evidence

Features of respondent firms

The number of firms surveyed for this research was 39. The median responden

50 percentile) is a firm with 75 employees and latest turnover of GBP 8 979 116, localise

England and active in the field of software publishing. One of the key objectives of

analysis is to identify differences in use and exploitation of different forms of IP protec

on the part of firms of different sizes. To classify firms by size, we have adopted

definition proposed by sections 382 and 465 of the United Kingdom Companies Act 2

which define a SME for the purpose of accounting requirements. According to

definition, a small company is one that has a turnover of not more than GBP 6.5 millio

balance sheet total of not more than GBP 3.26 million and not more than 50 employee

medium-sized company has a turnover of not more than GBP 25.9 million, a balance sh

total of not more than GBP 12.9 million and not more than 250 employees. In particular

have classified firms primarily on the number of employees, as follows:

● Micro enterprises: no more than 10 employees.

● Small enterprises: between 11 and 50 employees.

● Medium enterprises: between 51 and 250 employees.

● Large enterprises: more than 250 employees.

Available data on turnover indicate that classifying firms on the basis of turno

brackets would produce the same result, with one exception (one company would

medium in terms of turnover, large in terms of employees; we have classified i

medium-sized). On the basis of this definition, our set of respondents includes 32 S

(9 micro firms, 6 small firms and 17 medium-sized firms) and 7 large firms.


ION © OECD 2011

Interviewed firms, as can be seen from the following Table, are under-represented in

the small size category (10-49 employees). In terms of turnover, firms are over-represented

and

line

red,

ted

ther

nts.

the

ion.

size

all

e in

ted

nge

ade

ead,

rrier


in the “less than 1 million pounds” category and under-represented in the “between 1

10 million pounds” turnover category. Medium and large -sized firms are instead in

with sample distribution, both in terms of employees and of turnover.

Using different forms of intellectual property to create value

Of the 39 respondents, 10 (25.6%) do not exchange any of the forms of IP conside

and a further 12 (30.8%) only exchange non-proprietary IP (open source and non-paten

innovations). This leaves 17 firms (43.6%) that exchange some form of proprietary IP (ei

copyright or patents or both) and in particular 14 of these (35.9% of total) exchange pate

That the majority of firms surveyed do not exchange proprietary IP is in line with

findings from the literature and with the expert opinions reported in the previous sect

Table 5.6 below reports the shares of firms, divided according to the four

categories considered which engage in the exchange of each type of IP. Micro and sm

firms particularly exchange non-patented innovations (the latter also are very activ

open source communities), while large firms exchange both patents and non-paten

innovations to a similar extent. Greater shares of medium and large firms excha

patents. Larger firms, probably thanks to their greater availability of resources, tr

patents, open source, and non-patented innovations with greater intensity. Inst

similar shares of firms of all sizes exchange copyright, suggesting that size is not a ba

to the use of this form of IPR.

Table 5.5. Size distribution of population and interviewed firms

Category Size Population Interviewed

t-test (p values)No. firms N/A

960 39

% of population % of interviewed firms

No. employees Less than 10 17.4 23.1 0.425

Between 10 and 49 30.8 12.8 0.037**

Between 50 and 250 37.5 41.0 0.606

More than 250 14.1 20.5 0.229

Latest turnover (GBP) Less than 1 million 15.3 25.6 0.008***

Between 1 and 10 million 40.0 23.1 0.043**

between 10 and 50 million 25.8 28.2 0.671

More than 50 million 12.7 15.4 0.666

Note: Significance codes: * < 0.1, **< 0.05, ***< 0.01.

Table 5.6. Firms’ exchange of different types of intellectual property

Total Micro Small Medium Large

Number of firms in each size category: 39 9 6 17 7

% % % % %

Patents 35.9 20.0 20.0 35.3 71.4

Copyright 23.1 30.0 20.0 17.6 28.6

Non-patented IP 48.7 60.0 60.0 29.4 71.4

Open source 35.9 30.0 60.0 29.4 42.9

None 25.6 10.0 40.0 35.3 14.3

Note: Results are “shaded” when 40% of firms in a category, or more, exchange a certain IP.


125

Experts from the IPO suggested that for most firms, including ICT firms, the most used

form of IPR is copyright (most firms in fact come across copyright by using licensed

hen

lity

ep.

urce

ms.

are

ern

urce

ent

ium

o or

ry IP

ore

, for

tary

s on

han

for

nce

ms,

g to

, in-

r of

the

the

ized


software), followed by trademarks (mostly on company names) and then patents. W

also non-proprietary IP is considered, they stressed that secrecy/confidentia

agreements are very important, and they quoted recent unpublished data (held by D

Business Innovation and Skills) from the United Kingdom showing that the open so

community is increasing in size and that it is appealing to both large and small fir

While no official data on the size of the United Kingdom open source community

available, evidence from UNU-MERIT (2006) suggests that Europe (particularly North

European and Scandinavian countries) is the leading region in terms of active open so

developers and leads in terms of global open source project leaders.

Table 5.7 shows the extent to which firms of different sizes exchange differ

combinations of IP. Micro firms are more likely to exchange one or two types of IP, med

firms are more likely to exchange one, and large firms are more likely to exchange tw

three. However, micro and small firms are more likely to exchange only non-proprieta

(whether open source, or non-patented innovations, or both) while large firms are m

likely to exchange both proprietary and non-proprietary IP. These figures confirm that

micro and small firms, non-proprietary forms of IP are more appealing than proprie

ones. According to the experts from IPO, involvement of SMEs in open source depend

where they are in the production chain (developers are more likely to be involved t

producers that are “near market”) but in general open source is growing in importance

most firms.

The data also allow us to perform a more detailed analysis of the specific governa

forms for the exchange of each type of IP. The next Table 5.8 reports the share of fir

active in each type of IP, that engage in each IP governance form (total and accordin

size), as well as the average number of transactions in the previous two years.

Of the firms that exchange patents, a large proportion is engaged in buying

licensing, out-licensing and cross-licensing them (although the average numbe

transactions in the last two years is not very high). Selling and buying copyright are

most frequently copyright governance forms used; these probably mainly relate to

exchange of copyrighted software. It is mainly large and, to a lesser extent, medium-s

Table 5.7. Combinations of intellectual property protection mechanisms


Number of firms in each size category that exchange at least one type of IP 29 9 3 11 6

% % % % %

One type 37.9 44.4 33.3 54.5 0.0

Two types 41.4 44.4 33.3 27.3 66.7

Three types 13.8 11.1 0.0 9.1 33.3

Four types 6.9 0.0 33.3 9.1 0.0

Only proprietary 20.7 22.2 0.0 27.3 16.7

Only non-proprietary 41.4 55.6 66.7 36.4 16.7

Both 37.9 22.2 33.3 36.4 66.7

Note: Results are “shaded” when 40% of firms in a category, or more, engage in a certain IP combination.


ION © OECD 2011

firms that engage in most patent governance forms, and the same pattern is also evident,

to a lesser extent, for copyright.

or

uch

e do

ties.

vant

nce

nce

y be

tary

stly

s

the

eek

ries

ries

rent

gain

ge

0

5

4

3

1

7

0

0

0

0

7

0

0

0

3

3

5

3

4

0

7


Of the firms that exchange non-patented innovations, they mostly acquire them

release them to private firms. The average number of transactions in this case is m

higher than in the case of patents. Most firms in the ICT sector that engage in open sourc

so in the field of software, although some also engage in other open source communi

The average number of open source transactions is particularly high. There is no rele

difference in the extent to which firms of different size use non-proprietary IP governa

forms (although it seems that micro firms use some non-patented innovations governa

forms somewhat more intensively). These figures support our finding that small size ma

a barrier to the use of patents for firms in the ICT sector, while for the use of non-proprie

IP there is no such size barrier. This may be partly due to the fact that patenting is very co

for SMEs, while the cost of using non-proprietary IP is lower.

Firms’ strategic objectives when using different forms of intellectual property right

Table 5.9 provides a general overview of the strategic objectives that underpin

firms’ choice to exchange the different types of IP. The strategic benefits that firm may s

when exchanging different forms of IP have been grouped into four main catego

(financial gain, competitive advantage, innovation, strategic relationships). All catego

of benefits are important to firms that exchange each form of IP, however with diffe

intensity. Firms that exchange patents particularly seek benefits relating to financial

Table 5.8. Engagement in intellectual property governance formsTotal and by size, and average number of transactions

Type of IP IP governance form

Average transactions in previous two years

Total Micro Small Medium Lar

% % % % %

Patents ● Selling 0.0 35.7 0.0 20.0 40.0 40.

● Buying 0.6 57.1 25.0 12.5 25.0 37.

● Out-licensing 2.5 64.3 11.1 11.1 33.3 44.

● In-licensing 2.1 78.6 9.1 9.1 54.5 27.

● Cross-licensing 1.2 50.0 0.0 14.3 28.6 57.

● Patent pooling n.a. 21.4 0.0 33.3 0.0 66.

● Buying university patents 0.0 14.3 50.0 0.0 0.0 50.

● Licensing university patents 1.0 28.6 25.0 0.0 25.0 50.

Copyright ● Selling n.a. 44.4 25.0 0.0 0.0 25.

● Buying n.a. 55.6 40.0 0.0 20.0 20.

● Out-licensing n.a. 33.3 0.0 0.0 33.3 66.

● In-licensing n.a. 22.2 0.0 0.0 0.0 100.

● Buying university copyright n.a. 11.1 0.0 0.0 0.0 0.

● Licensing university copyright n.a. 11.1 0.0 0.0 0.0 0.

Non-patented IP ● Releasing to the public 135.0 36.8 42.9 0.0 42.9 14.

● Releasing to private firms 60.5 57.9 27.3 18.2 27.3 27.

● Using 50.4 68.4 46.2 0.0 15.4 38.

● Collaborating with universities 1.8 31.6 33.3 0.0 33.3 33.

Open source ● Software 93.1 100.0 21.4 21.4 35.7 21.

● Pharmaceutical n.a. 0.0 0.0 0.0 0.0 0.

● Other communities 38.8 42.9 33.3 16.7 33.3 16.

Note: Results are “shaded” when 40% of firms in a category, or more, engage in a certain IP governance form.


127

(especially when selling, out-licensing and cross-licensing patents) and to innovation

(especially when buying, in-licensing and cross-licensing patents). A similar pattern

gain

hen

rket

sing

heir

nce

hen

ght

ally,

ight

ted

the

t to

age

rder

tely

t is,

the

that

uld

ting

the

not

that

sted

r se.

and

tual

ships


emerges with respect to copyright: the most important benefits sought are financial

(particularly when selling and out-licensing copyright) and innovation (particularly w

selling, buying and in-licensing). Also, competitive advantage benefits (such as ma

share, reputation, signalling) are sought when buying patents and when out-licen

copyright, and cross-licensing patents allowing firms to build strategic relationships.

Firms that exchange non-patented innovations particularly seek benefits relating to t

innovation processes and to building strategic relationships (through all or most governa

forms, as identified in Table 5.1). Also competitive advantage benefits are important w

releasing non-patented innovations to private firms and to the public. Financial gain is sou

when releasing non-patented innovations and when collaborating with universities. Fin

firms that engage in open source seek all or most categories of benefits.

One pattern that emerges from this table is that while patents and copyr

particularly confer benefits relating to financial gain and innovation, non-paten

technology and open source particularly confer benefits relating to innovation and

building of strategic relationships. Competitive advantage benefits are equally relevan

all forms of IP.

The company interviews suggested several reasons why SMEs in the ICT sector eng

in patenting. Company 1 (see Table 5.4) stated that they patented their invention in o

to increase the firms’ value, to raise venture capital, and, as the technology was comple

new, to show to other companies that they “owned” that technological area; tha

motivations were primarily financial and related to competitive signalling, rather than

actual protection from imitation conferred by the patent. In fact, the firm was aware

other companies would easily invent around their patent, and that their technology wo

soon become obsolete. Company 3 also suggested that the primary motive for paten

was to increase the firm’s value (a financial motivation) as the owners intended to sell

company. The firm was aware that their technology had a short life span and they did

want to build the business over the long term. On the other hand, the company

eventually acquired them was, according to the CEO that we interviewed, more intere

in acquiring the company’s tacit knowledge and expertise, rather than its patents pe

For both of these SMEs, patents are valued in terms of being a signal of the firm’s value

competencies, which in turn bring financial rewards, rather than in terms of the ac

Table 5.9. Strategic benefits derived from engagement in different forms of intellectual property rights

Total Financial gain Competitive advantage Innovation Strategic relation

Number of firms(of any size)

that exchange each type of IP

% % % %

Patents 14 64.3 42.9 78.6 42.9

Copyright 9 55.6 44.4 44.4 22.2

Non-patented IP 19 42.1 47.4 73.7 52.6

Open source 14 50.0 57.1 92.9 64.3

Note: Results are “shaded” when 50% of firms within an IP category, or more, seek a certain strategic benefit.


ION © OECD 2011

protection that they offer from imitation. This is in line with an emerging strand of

empirical research which, building on Mazzoleni and Nelson (1998), suggests that firms –

(see

y to

ews

cess

n of

ime

sing

ble,

gnal

they

ted.

fits.

t to

del,

ous

alue

iver,

had

lack

and

was

by

egic

.

ater

rms

less

d be

g to

efit

nts.

em,

also

, so

new

or a

ose

tual

rent

s of

efits


especially SMEs – use patents to signal their growth prospects to potential investors

discussion in Hughes and Mina, 2010), and that patenting activity improves firms’ abilit

attract more venture capital investors (Nadeau, 2010). This is also consistent with the vi

of experts from IPO, who suggested that SMEs mostly use patents as a lever to ac

finance rather than for protection of their IP, especially because of the short life spa

many new technologies (sometimes no more than 3/5 years) when compared with the t

it takes to obtain a patent (almost 7 years in the case of a EU patent).

Company 4, which licenses a patented technology, claimed that their reasons for u

proprietary rather than open source technology had to do with the need to have a relia

secure and supported system, one that differentiated them from competitors, and to si

to the customers that they were using a branded technology. Also, at the time when

decided to license the technology (7 years ago), open source was not very well suppor

So motivations were primarily relating to innovation and market positioning bene

While the company licenses the technology it uses in its operations, it has chosen no

protect any of its products with IPRs. It sees patenting as irrelevant to its business mo

not only because of the fast-moving nature of the industry, which is based on continu

innovation (around the delivery of web-based services), but also because much of the v

of their product resides in the quality of the service and user experience that they del

which are not patentable and quite difficult to imitate.

Company 2 (which was in the business of developing software for interactive TV),

attempted to patent its technology but failed to do so; however, it recognised that the

of a patent did not constitute a problem as the business model was around content

branding, not technology as a product. The marketing of non-patented innovations

motivated by innovation, positioning, reputation, being “seen to be innovative”

competitors. This confirms the important of benefits such as innovation, strat

relationships and competitive advantage when exchanging non-patented innovations

The variety of objectives for which firms patent their innovations suggests that gre

diversification within the patent system may be beneficial to firms. For example, fi

patenting purely for signalling purposes may benefit from the use of shorter-term,

encompassing patents which could be cheaper and quicker to obtain, and which coul

used chiefly for the purpose to signal one’s technological competences; or firms wishin

make incremental changes to their existing protected intellectual property, may ben

from the possibility to access fast-track, simplified procedures for the granting of pate

One of the companies interviewed pointed out that the inflexibility of the IPR syst

which does not take into account the fact that a firm’s IP evolves rapidly, is a problem

in the context of trademarks. Firms cannot protect the evolution of their trademark

every time they make a change, which can happen quite often, they have to apply for a

one. At least, the time needed to issue a trademark is not as long as that required f

patent (usually between three and six months), but simplified procedures for the purp

of making incremental changes to one’s trademark may also enhance SMEs’ intellec

property protection strategies.

We then move to considering whether there are differences between firms of diffe

size in terms of the strategic benefits that they seek from the exchange of several type

IP. The next Table 5.10 shows the share of SMEs that choose each one of 13 possible ben


129

for each form of IP. Differently from the overall set of respondents, SMEs seek financial gain

from all types of IP. Patents and non-patented innovations mainly bring direct income,

nies

rder

ns).

rall

hen

s or

use

the

hen

ith

rce,

ant.

ents

are

rom

the

rom

ource

1

6

0

5

3

5

5

3

2

9

6

0

4

5

6

7

5

5


while non-proprietary IP in general allows SMEs to cut costs. Unlike the compa

interviewed in the case studies, only 22.2% of respondents that use patents do so in o

to raise venture capital (a greater share of SMEs do so thanks to non-patented innovatio

Competitive advantage is also sought from all forms of IP, this time in line with the ove

set of respondents. Benefits relating to innovation are also important, particularly w

engaging in patents (as patents allow to develop better technology and to involve user

suppliers in the development process) and in non-proprietary IP (which allows SMEs to

the best innovations and, in the case of open source, to involve users or suppliers in

development process).

SMEs find that strategic relationships benefits are particularly important w

engaging in non-proprietary IP, thanks to the possibility to build informal relationship w

industry networks and to enter collaborative agreements. In the case of open sou

extrinsic motivations (“giving something to the community”) are also considered relev

Differently from SMEs, large firms mainly seek financial rewards only from pat

and copyright. Similarly to SMEs, competitive advantage and innovation benefits

sought from all types of IP, and strategic relationships benefits are mainly sought f

non-proprietary IP. It emerges that small and large firms seek similar benefits from

various forms of IP, with the difference that small firms seek to benefit financially f

non-proprietary IP more than large ones.

Table 5.10. Strategic benefits from the exchange of different forms of intellectual property rights (SMEs only)

Patent CopyrightNon-patented

IPOpen s

Number of SMEs that exchange each type of IP 9 7 14 1

% % % %

FINANCIAL GAIN (specific benefits listed in bullets below): 55.6 42.9 57.1 63.

● Direct income from market transaction 66.7 14.3 42.9 0.

● Cost cutting (e.g. via savings on royalties or patent administration) 11.1 14.3 50.0 54.

● Increasing ability to raise venture capital (e.g. via the stock market) 22.2 28.6 42.9 27.

COMPETITIVE ADVANTAGE (specific benefits listed in bullets below): 66.7 42.9 50.0 54.

● Increasing market share (e.g. building broader user base or securing market protection) 0.0 0.0 14.3 45.

● Professional recognition or brand recognition 22.2 28.6 21.4 27.

● Competitive signaling 22.2 14.3 14.3 18.

INNOVATION (specific benefits listed in bullets below): 77.8 42.9 71.4 90.

● Being able to use the best inventions, innovations, creative expressions 22.2 14.3 42.9 63.

● Setting common standards / making or using compatible technology or creative expressions 22.2 28.6 14.3 0.

● Innovation methodology: developing better technology or creative expressions 44.4 14.3 28.6 36.

● Benefiting from user or supplier involvement as a development strategy (e.g. through learning and feedback) 66.7 28.6 35.7 45.

STRATEGIC RELATIONSHIPS (specific benefits listed in bullets below): 44.4 28.6 50.0 63.

● Building informal relationships with industry networks 11.1 0.0 64.3 72.

● Increasing ability to enter collaborative agreements (e.g. joint ventures, strategic alliances, etc.) 44.4 28.6 42.9 54.

● Giving something to the community 0.0 0.0 14.3 45.

Note: Results are “shaded” when 40% of firms within an IP category, or more, seek a certain strategic benefit.


ION © OECD 2011

Obstacles that firms in the ICT sector encounter when using different intellectual property protection mechanisms

nter

are

y in

y in

ent

t we

y as

ult,

ood

tner

ther

heir

tain

ork.

our

s to

and,

the

ource

1

5

1

2

4

4

3

2

0

2

3

2

7

2

4

5

3

1

2

2


The following Table 5.11 reports, for each form of IP, the shares of SMEs that encou

each type of obstacle.

SMEs find that, in the case of patents, search obstacles are very important, and so

transparency problems (difficulty in locating the owners of patents and difficult

assessing the economic value of patents) and negotiation problems (difficult

negotiating a price for the patent). Interestingly, not many of them stress enforcem

problems, which instead have emerged from the company interviews. The SMEs tha

interviewed all reported that the cost of using the patent system is very high, especiall

it is very time and resource-consuming. In accordance with the UKNOW survey res

Company 4 suggested that search obstacles are also important (it is difficult to find g

applications that are robust, reliable and scalable, as well as finding good par

companies and employees with the necessary expertise to develop them). Ano

obstacle of licensing proprietary technology is that this builds a dependence on t

partner company, so the company is trying to move to open source at least for cer

aspects of their technology.

For copyright, a third of SMEs report problems with the clarity of the copyrighted w

That transparency is a key problem in the case of copyright was confirmed by

interviews with companies. Company 4 suggested that their main difficulty i

understand whether the artistic works they use are copyrighted or not. On the other h

copyright infringement is difficult to detect, and when detected the cost of reimbursing

Table 5.11. Obstacles encountered when exchanging different forms of intellectual property rights (SMEs only)

Patent CopyrightNon-patented

IPOpen s

Number of SMEs that exchange each type of IP 9 9 14 1

% % % %

SEARCH (specific obstacles listed in bullets below): 44.4 22.2 28.6 54.

● Difficulty in locating the owners of IP 22.2 22.2 7.1 9.

● Difficulty in locating the users of IP 22.2 0.0 14.3 18.

● Difficulty in finding the best IP 22.2 0.0 14.3 36.

TRANSPARENCY (specific obstacles listed in bullets below): 66.7 33.3 35.7 36.

● Difficulty in assessing the degree of novelty/originality of the IP 44.4 0.0 28.6 27.

● The description or drawing in the IP document is not clear 33.3 33.3 14.3 18.

● Difficulty in assessing the economic value of IP 55.6 22.2 14.3 0.

NEGOTIATION (specific obstacles listed in bullets below): 66.7 22.2 21.4 18.

● Difficulty in negotiating a price for the IP 55.6 11.1 14.3 27.

● Difficulty in negotiating the terms (not related to price) of the exchange contract 22.2 11.1 14.3 18.

ENFORCEMENT (specific obstacles listed in bullets below): 22.2 11.1 28.6 72.

● Excessive cost of enforcing the exchange contract 33.3 0.0 7.1 18.

● Problems (not related to cost) with enforcing the exchange contract 0.0 0.0 7.1 36.

● Trust issues (e.g. opportunistic behaviour, free-riding, or similar) 0.0 0.0 21.4 45.

REGULATION AND PRACTICES (specific obstacles listed in bullets below): 11.1 33.3 21.4 27.

● Regulations allow too exclusive rights 11.1 0.0 14.3 9.

● International IP regulations do not fit the needs of different local markets 0.0 22.2 0.0 18.

● Differences in practices of firms 0.0 11.1 14.3 18.

Note: Results are “shaded” when 20% of firms within an IP category, or more, experience a certain obstacle.


131

copyright owner are not very high, so enforcement issues are not considered particularly

important. Creative commons licenses have simplified their work, as they make it easy to

ncy

o do

pen

was

the

but

ging

put

ack

ese

this

y in

y in

% of

the

port

and

the

urce

firm

per

nge

on-

t of

ents

g in

ilar

ms,

on-

use

se a

ta is

not

and

ems

y of


understand if certain works can be used for commercial purposes or not.

With respect to open source, the surveyed SMEs report problems with transpare

(difficulty in finding the best open source projects) and enforcement, mainly having t

with trust issues (i.e. the possibility for companies to free ride on other people’s o

source contributions and use them to develop their own proprietary IP). This problem

also remarked upon by one of the SMEs that we interviewed. Company 4 suggested that

non-proprietary model works well as long as everyone agrees with the same approach;

if a company starts patenting, then they could claim that other companies are infrin

their rights. For example, this company is building a part of their business where they

everything in the public domain, and they also invite developers in their offices for “H

weekends” where they can build applications around their technology. But if one of th

developers wants to create a proprietary product around this and commercialise it,

may create problems.

In the case of patents, large firms report problems of transparency (difficult

assessing the economic value of patents) and negotiation problems (difficult

negotiating the price and the other terms of the contract). Differently from SMEs, 40

large firms also report enforcement problems. This is in line with findings from

empirical literature (e.g. Cockburn, 2007). In the case of open source, also large firms re

enforcement problems linked to lack of trust.

Generally, both large firms and SMEs report more obstacles relatively to patents

copyright than to non-proprietary IP. This is consistent with anecdotal evidence from

experts, who reported that, while SMEs find IPRs to be problematic, they find open so

works well.

In the next Table 5.12, we present the average turnover per employee (a proxy of

performance) of firms of different sizes that use each form of IP. Generally, turnover

employee is higher for larger firms. Across most size categories, firms that excha

patents are not necessarily better performing than firms that exchange copyright, n

patented innovations and open source. The only case in which this happens is tha

medium-sized firms, which are on average better performing when they exchange pat

than when they engage in other types of IP. There are no cases of small firms engagin

patents and copyright, and the performance of those that engage in open source is sim

to that of those that exchange non-patented innovations. In the case of micro fir

highest average performance is associated with the use of copyright, followed by n

patented innovations. Of course these data do not establish a causal link between size,

of IP and performance. It may be that firms that are better performing are able to u

wider variety of IP and hence perform better overall. What is interesting from these da

that, especially in the case of micro and small firms, better performing firms do

necessarily rely on patents.

The role of the regulatory and business environment

Finally, we investigate the fourth research question: how does the regulatory

business environment affect the SMEs’ ability to create value from their IP?

The interviews with experts and SMEs have highlighted that one of the key probl

that SMEs face when using the patent system is high costs, in terms of the complexit


ION © OECD 2011

sion

the

e of

ed

rnal

it IP

cess

ean

for

em

the

ted

heir

not

eat.

d in

the

ors

for

all

ted

han

port

irst

that

kes

are

ocal

do

d by

use

for

Table 5.12. Use of intellectual property and firm performance(average turnover per employee, in thousand GBP)


the patenting process and of the time it takes to complete it. There is also a lot of confu

about what can and cannot be patented, about the international situation, and about

real costs of using the system (that is, businesses, particularly SMEs, are not fully awar

these costs when applying for a patent, and therefore are not able to make an inform

decision when choosing whether to patent their IP or not).8

According to data quoted by the IPO experts, very few firms have the inte

competences to be able to manage their IP (less than 30%), and even less have an explic

strategy (less than 12%). From the perspective of the SMEs that we interviewed, the pro

of filing a patent is very arcane and bureaucratic, and more so in the case of Europ

patent applications; for example, they found it difficult to find which categories to ask

protection for, as the business evolves over time, so they ended up choosing a lot of th

in order to be covered; and they were surprised that they could not complete most of

process online. Moreover, of the SMEs that we interviewed, the two that paten

successfully were both challenged by large firms that presented oppositions to t

patents. None of these however ended in a court case, as the large companies did

follow up on their oppositions: it seems that they were just opposing the patent as a thr

Large firms’ use of litigation threats in order to intimidate SMEs has also been describe

the literature as “endemic to SME usage of the patent system” (Kingston, 2000).

There are also problems with enforcement, particularly as SMEs do not have

resources to take large firms that infringe their patents to court. According to some auth

(Kingston, 2000) “this cost is regularly used by larger firms with more resources

litigation to intimidate SMEs, and so infringe their patents with impunity”. In fact, sm

firms very rarely challenge large ones in court: famous cases such as that of Dyson (quo

by one of the experts), which successfully challenged Hoover, are the exception rather t

the norm.

Given these issues, it is very important that SMEs can have access to external sup

that helps them use the IPR system.

The Intellectual Property Office (IPO) offers several steps of assistance to SMEs. F

the website, where there is a “IP healthcheck” – a diagnostic tool that produces a report

gives an overview of the firm’s IP status. Second, there is a helpdesk unit that ta

100 000 calls per year. It helps with filing and the mechanics of the IP system. Most calls

from individuals, SMEs and attorneys, and most enquiries are about trademarks.

The IPO also runs seminars on a regional basis (organised together with the l

business support agencies), for about 100 people, on several topics mostly having to

with IP commercialization; as well as masterclasses, that is, 3-day courses accredite

the University of Coventry, which give firms a more detailed understanding of how to

the IP system (e.g. how to search patent and trademark databases, etc.). Workshops


All IP markets 110 35 48 03 85 61 123 25 138 44

Patents 109 34 45 26 – 123 11 140 32

Copyright 112 19 108 72 – 116 70 166 74

Non-patented IP 99 56 59 72 84 12 119 62 141 46

Open source 92 20 9 31 80 91 108 97 158 45


133

SMEs organised at a regional level have proved to be very successful in other contexts, for

example in Denmark.

for

the

can

all

MEs

ave

t in

the

role

em

ives

are

tes,

h as

that

elay

tent

lity

hed

can

ly to

. To

ing:

nce

g it

use

nd

ges.

e to

r to

are

g of

ice,

to

wed

per

t of

nt’s

ffer

uld

osts


Despite these efforts made to reach out to SMEs, there is still much room

improvement. According to one expert, what is most important for firms to be able to use

patent system successfully is the ability to consult a network of peers for advice. Firms

contact business and trade associations, like the IoD, the CBI, the Federation of Sm

Business. However, these are not the firms’ ports of call for SMEs: the professionals that S

consult more frequently are their accountants and their lawyers, because they h

established relationships with them, although many lawyers may not be very competen

IP matters. This was confirmed by the IPO experts, who suggested that the quality of

advice that firms get from patent attorneys and lawyers is very variable. There may be a

for policy intervention in increasing SMEs’ awareness of the many avenues available to th

in order to exploit their intellectual property. For example, training and awareness initiat

could be directed at professionals such as accountants and lawyers, with whom SMEs

often in contact; and at SMEs involved in collaborations with universities, research institu

incubators, science parks; at organisations providing support services to SMEs suc

professional and business associations, business consultants, financial advisors.

The effectiveness of the patent system can also be improved. The IPO admits

there is currently a backlog of patents to be processed, which may imply a longer d

between the date in which the patent application is made and the date in which the pa

is granted. With a view to speed up the patent granting process and to improve the qua

of patent checks, the United Kingdom is among the several countries that have launc

peer-to-patent pilot projects: initiatives based on the idea that “a public of expert peers

help the patent examiner find and analyse the ‘prior art’ allowing him or her ultimate

prosecute the patent more comprehensively and efficiently” (D’Agostino, 2010)

succeed, however, these initiatives need to overcome numerous challenges includ

identifying incentives for volunteer experts to take part, overcoming companies’ resista

to participating, preventing companies from using the system strategically (i.e. makin

difficult for competitors to patent). Experiments with peer-to-peer initiatives and the

of “social” technologies harnessing community efforts around patent checks a

evaluations are likely to prove beneficial in order to find ways to address these challen

As these experiments are still in their infancy, the role for policy at this stage could b

ensure that a sufficient variety of pilot projects are initiated and supported in orde

obtain evidence about their usefulness and about what project characteristics

associated with successful performance, and to promote co-ordination and the sharin

information between these initiatives.

Another challenge for the IPO is to identify a balanced price for the patent serv

which is not too high to discourage firms while at the same time allowing the IPO

manage IP efficiently. Nonetheless, most other experts as well as the firms intervie

suggested that the main cost of using the patent system is not the administrative cost

se, but the cost in terms of time, effort and legal fees.

Regulations could be improved in order to help SMEs overcome the cos

enforcement. According to one expert, some years ago the British governme

Department of Trade and Industry (DTI) considered implementing a scheme to o

insurance against future infringements to SMEs that take out a patent, so that they wo

be able to defend it: if the patent was infringed, the insurance would pay for the legal c


ION © OECD 2011

of the court case. In the expert’s opinion, a scheme like this would help reduce the

imbalance between SMEs and large firms, and in this way encourage SMEs to patent more.

e in

be

vate

ore

blic

ort

ook

are

nge

up;

ead,

p. It

ore

ture

rent

s of

egal

sses

ge a

nts:

loit

and

on-

ties.

ot a

e

0

0

0


A feasibility study on the implementation of a patent litigation insurance schem

Europe was carried out in 2006 by CJA Consultants. It was found that there would

widespread industry support for such a scheme, although the extent to which the pri

insurance sector would be willing to underwrite such insurance contract is uncertain. M

research is needed into this type of instrument, and into the extent to which pu

intervention would be necessary in order to support its implementation.

Another topic that was looked into was the extent to which IPRs supp

internationalisation. While micro and small firms tend to have a national outl

(although 50% of micro firms have an international market), medium and large firms

predominantly international. As shown in the following Table 5.13, firms that excha

patents and copyright tend to be over-represented in the “international market” gro

that is, it seems that for these firms IPRs are not a barrier to internationalisation. Inst

firms that engage in open source are over-represented in the “national market” grou

may be that firms that have a national market have fewer resources and are therefore m

likely to use open source as it is less costly; but this result may also depend on the na

of their products.

The IPO is aware that different IPR practices and different regulations in diffe

countries may be a problem for SMEs that want to export (for example, problem

enforcement are even more worrying when litigation is happening in an unfamiliar l

context). IPO has provided training to the DTI in order to enable them to give busine

better advice on IP to companies that export.

Evidence based research findings (summary):

1) What forms of intellectual property protection mechanisms do SMEs in the ICT sector use? How does their behaviour differ from that of large firms?

With respect to micro and small firms, large firms are more likely to exchan

greater variety of types of IP and they are particularly more likely to exchange pate

probably due to their greater availability of resources, they are able to utilise and exp

patents, open source, and non-patented innovations with greater intensity. Micro

small firms, instead, are more likely to exchange only non-proprietary IP, particularly n

patented innovations, but small firms are also very active in open source communi

Instead, firms of all sizes use copyright to the same extent, suggesting that size is n

constraint to the use of this form of IPR.

Table 5.13. Use of intellectual property and internationalisation

Patent Copyright Non-patented IP Open source Non

Number of firms (of any size) that exchange each type of IP 14 9 19 14 1

% % % % %

International 92.9 77.8 63.2 42.9 60.

National 7.1 22.2 36.8 57.1 40.

Note: Results are “shaded” when 50% of firms within a category, or more, participate in a certain IP market.


135

2) What are the strategic objectives that underpin the SMEs’ choice to use these different intellectual property protection mechanisms?

rall

hat,

cial

lue

tage

rom

me,

nies

ital.

ose.

l set

larly

olve

d by

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hips

his

d to

ions

ent

ting

ems

tion

em

ws.

very

it is

ding

.

ted

d by

lt to

, so

rket

ility

to

the


Different forms of IP are particularly associated to specific types of benefits. Ove

(i.e. for the total set of respondents of micro, small, medium and large firms) we find t

while patents and copyright are particularly exploited for benefits relating to finan

gain, non-patented technology and open source are particularly used to create va

relating to innovation and the building of strategic relationships. Competitive advan

benefits are perceived as relevant to all forms of IP.

Compared with large firms, SMEs seek financial gain from all types of IP, not just f

proprietary IP. Patents and non-patented innovations are perceived to bring direct inco

while non-proprietary IP are in general used by SMEs to cut costs. Unlike the compa

interviewed in the case studies, few SMEs use patents in order to raise venture cap

However, a greater share of SMEs use non-patented innovations for this purp

Competitive advantage is also sought from all forms of IP, this time in line with the overal

of respondents. Benefits relating to innovations are also perceived as important, particu

when engaging in patents (as patents are used to develop better technology and to inv

users or suppliers in the development process) and in non-proprietary IP (which is use

SMEs to gain access to the best innovations and, in the case of open source, to involve u

or suppliers in the development process). SMEs find that building strategic relations

benefits is a particularly important strategy when engaging in non-proprietary IP. T

includes both the possibility to build informal relationship with industry networks an

enter formal collaborative agreements. In the case of open source, extrinsic motivat

(“giving something to the community”) are also considered relevant.

3) What are the obstacles that SMEs in the ICT sector encounter when using differintellectual property protection mechanisms?

SMEs find that, in the case of patents, market search obstacles (difficulty in loca

the owners of patents) are very important, and so are market transparency probl

(difficulty in assessing the economic value of patents) and there are contract negotia

problems (difficulty in negotiating a price for the patent). Interestingly, not many of th

stress enforcement problems, which instead have emerged from the company intervie

The SMEs that we interviewed all reported that the cost of using the patent system is

high, especially as it is very time and resource-consuming; they also suggest that

difficult to find good applications that are robust, reliable and scalable, as well as fin

good partner companies and employees with the necessary expertise to develop them

For copyright, a third of SMEs report problems with the originality of the copyrigh

work. That market transparency is a key problem in the case of copyright was confirme

our interviews with companies. On the other hand, copyright infringement is difficu

detect, but when detected the cost of reimbursing the copyright owner is not very high

enforcement issues are not considered particularly an issue.

With respect to open source, the surveyed SMEs report problems with ma

transparency and IP enforcement, mainly having to do with trust issues (i.e. the possib

for companies to free ride on other people’s open source contributions and use them

develop their own proprietary IP). This problem was also remarked upon by one of

SMEs that we interviewed.


ION © OECD 2011

Generally, both large firms and SMEs report relatively more obstacles with regard to

patents and copyright than to non-proprietary IP. This is consistent with anecdotal

they

ate

”, in

s to

out

ver,

tent

nts,

port

r to

d in

s as

o be

t). It

not

and

e in

y IP,

ted

ps.

cial

s to

and

d to

cus

into

the

), as

oth

y in

urce

han

ives

ects

and

and

ted.


evidence from the experts, who reported that, while SMEs find IPRs to be problematic,

find open source works well.

4) How does the regulatory and business environment affect the SMEs’ ability to crevalue from their intellectual property?

Of the key problems that SMEs face when using the patent system is “high costs

terms of the complexity of the patenting process and of the time and resources it take

complete it. There is also a lot of confusion about what can and cannot be patented, ab

the international situation, and about the real or true costs of using the system. Moreo

it has been reported that SMEs are often challenged by large firms, which use pa

litigation threats in order to intimidate them. When large firms infringe their pate

SMEs often do not have the resources to take them to court.

Given these issues, it is very important that SMEs can have access to external sup

that helps them to use the IPR system effectively. While steps have been taken in orde

help firm SMEs access information about IPR, in order to facilitate the filing process, an

order to simplify the litigation process, ongoing attention must be paid to these issue

many problems remain. Finally, the analysis found that the regulatory system needs t

broadened to also support IP areas beyond formal IPRs (such as patents and copyrigh

needs to integrate an infrastructure which also supports open-source and ideas

protected by patents, as they are important instruments for SMEs when exploiting

managing their intellectual assets.

Policy implications and recommendationsUnited Kingdom SMEs in the ICT sector look beyond the patent policy discours

their intellectual property (IP) strategies: they are strong users not only of proprietar

rather they use all forms of IP in order to reach a broad range of strategic objectives rela

to financial gain, competitive advantage, innovation and building strategic relationshi

Financing policies: Whereas patents are used strategically especially to raise finan

income, open source is used for cost-cutting (an inexpensive way of gaining acces

knowledge and benefiting from user-supplier relationships in knowledge spheres)

technology without patent protection is used for a range of financial reasons relate

income, cost-cutting and the ability raise venture capital. Thus, policy should not fo

merely on the enforcement of patents to raise entrepreneurial finance, but take

account a whole range of business models.

Innovation policies: The same holds for innovation policy, which needs to recognise

benefits of less proprietary knowledge sharing innovation models (or innovation systems

opposed to the traditionally strong protection via patents. ICT SMEs report that b

proprietary and non-proprietary IP are used as a strategy for innovation, especiall

relation to innovation methodologies and user-supplier involvement benefits. In open so

communities access to knowledge assets was reported as a strategic benefit by more t

60% of the firms surveyed. Policy should ensure experiments with peer-to-peer initiat

and the use of “social” technologies and ensure that a sufficient variety of pilot proj

are initiated and supported, in order to obtain evidence about their usefulness

what business model characteristics are associated with successful performance,

co-ordination and the sharing of information between these initiatives should be promo


137

Regional policies: Building both formal and informal strategic relationships, as well as

community interaction, is reported to be important strategies of SMEs in the ICT sector

ent

d as

tion

tive

ell-

ing

and

ght,

also

are.

ink

and

due

er),

l IP

reas

d in

rder

all

uch

d in

d at

ess

and

l IP

rket

the

the

kets

ems

also

hen

able

rce

new

stic


when using non-proprietary IP (i.e. open source and innovations with no pat

protection). This signals to policy how softer forms of IP protection should be recognise

important instruments to strengthen the relational and regional aspect of the innova

systems. When patents are used, this is especially to enter formal collabora

agreements such as joint ventures and strategic alliances, reflecting another w

developed and already well recognised part of the innovation system.

Competitiveness policies: From a strategic management or market position

perspective, competitive advantage with respect to professional or brand recognition

competitive signalling is a strategy when exchanging all forms of IP (patents, copyri

non-patented ideas and open source solutions), but firms in the ICT SMEs industry

interestingly report that open source communities are used to increase their market sh

Thus, policies to gain competitiveness need to recognise that it is a misconception to th

that there is a clear link between the degree of IP protection and market positioning:

● IP policies aiming to help SMEs’ value creation processes from IP need to be flexible

“neutral” to embrace the variety of IP instruments used for this purpose.

“One size” IP policy does not fit all types of firms or even all SMEs in the ICT sector,

to the variety of product/service specialisations, sizes (employees and turnov

internationalisation strategies, and IP value seeking objectives. Furthermore, forma

(patents and copyright) is used relatively more by medium sized and large firms, whe

micro and small firms are relatively more active in open source communities an

trading technology with no patent protection:

● Policy should increase SMEs’ awareness of the many avenues available to them in o

to exploit their intellectual property. For example, besides the direct contact with

forms of SMEs, training and awareness initiatives could be directed at professionals s

as accountants and lawyers, with whom SMEs are often in contact; at SMEs involve

collaborations with universities, research institutes, incubators, science parks; an

organisations providing support services to SMEs, such as professional and busin

associations, business consultants, financial advisors.

● IP policies aiming to help SMEs’ value creation processes from IP need to be flexible

“neutral” to embrace the variety of SME types to develop their own individua

strategies.

Obstacles are experienced in all IP markets (related to IP market search, ma

transparency, contract negotiation, and regulation and practices) which hamper

effective use formal IPRs and non-proprietary IP for strategic value creation purposes.

Patent policies should enforce a suitable inventive step (so everything new under

sun cannot be patented distorting the purpose of the patent system): Especially in mar

for patents, there is a heavy concentration of SMEs in the ICT sector reporting probl

relating to accessing the degree of novelty embedded in each patent. SMEs therefore

find problems in accessing the value of patents, and negotiating the price of patents w

they are traded. Patent offices should only grant patents where novelty or a size

inventive step is evident.

IP policies need to recognise and accommodate the productive role of open-sou

solutions and “technology without patent protection” in new business models, in the

economy of ICT and micro-electronics: Problems in relation to trust (opportuni


ION © OECD 2011

behaviour, free-riding and seminar) were reported in open source communities and in the

markets for technology without patent protection. Given the strategic benefits ICT firms

that

alue

ate

sset

ion,

and

iety

rily

ght,

her

ant

port

d to

i” inards,penons);-for-cted

the and011).

of5 to

tor),ould.

aller

ith ation

ews/

d aevenssuet be


report from using these “softer” and less formal means of IP protection, it is important

policy also support the enforcement of such forms of IP, for example via formalising v

creation models of such IP exchange processes:

● IP policies should aim to facilitate a better working of all IP markets, and elimin

inefficiencies.

Metrics used for measuring innovation and the performance of intellectual a

management in SMEs should be manifold:

● Innovation indicator: Patents should not be a core or sole indicator for innovat

competitiveness, market positioning of firms, nor the only way to measure regional

relational ties, as SMEs in the ICT sector manage their intellectual assets using a var

of IP tools.

● IP performance measure indicator: Firms that exchange patents are not necessa

better financial performers (turnover/employee) than firms that exchange copyri

non-patented innovations and open source. Evidence even suggests that hig

performing firms use a wider variety of IP. Financial flows should not be the domin

variable in measuring the performance of intellectual asset management, as SMEs re

a range of non-financial incentives from their intellectual asset management, relate

competitive advantage, innovation, and strategic relationship benefits.

Notes

1. Examples include “Creative Commons” in the creative industries; “Wikipedia” and “Wikpublishing; Open source in media (“Open Source Journalism” such as Webblogs, Messageboand Open Document; “Open Source Movie Production”; “Open Source Documentary”; “OSource Film Making”); Open source in education and scientific research (e.g. Science Command Open source health care and medicine, such as the Tropical Disease Initiative, and the notprofit “virtual pharmas” such as the Institute for One World Health and the Drugs for NegleDiseases Initiative.

2. Data collected in the course of this project include: ICT (hardware and software) firms inUnited Kingdom, pharmaceutical firms in Germany (Andersen, Rossi, Stephan, 2010),universities and public research organisations in the United Kingdom (Andersen and Rossi, 2

3. The Gowers Review of Intellectual Property (Gowers, 2006) was an independent reviewintellectual property rights law in the United Kingdom, conducted from December 200December 2006.

4. One expert cited the case of a semiconductor manufacturer (of which the expert was a direcusing analogue technology, which refused the opportunity to relocate to China even if it whave been cheaper to produce there, in order to protect the secrecy of the production process

5. This is not necessarily inconsistent with the possibility that larger firms have more IP than smones, since typically large firms are more asset-intensive.

6. The Patent Court is a sub-division of the Chancery Division of the High Court established wspecialist patents judge. The latter is a specific feature of the United Kingdom patent litigasystem.

7. For an overview of recent (October 2010) changes to the PCC’s operations, see www.ipo.gov.uk/nnewsletters/ipinsight/ipinsight-201010/ipinsight-201010-1.htm.

8. Weatherall and Webster (2009) raise this as a potential issue in Australia, having founsignificant portion of patentees who, having detected non-trivial infringement, were deterred from sending a letter about the infringement by the cost. Kingston (2004) too raises the iwhether patent offices are encouraging SMEs to apply for patents when those patents will noof benefit to the SME.

http://www.ipo.gov.uk/news/newsletters/ipinsight/ipinsight-201010/ipinsight-201010-1.htm

http://www.ipo.gov.uk/news/newsletters/ipinsight/ipinsight-201010/ipinsight-201010-1.htm


139

References

Andersen, B., F. Rossi (2010), “Intellectual Property (IP) governance and the pursuit of economic

heir

ork:omic

and

arch

the

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The SME Dimension

© OECD 2011

Chapter 6

The United States: Balancing Robust Protection

with Rapid Innovation

By Mr. Rohit Shukla, Dr. Don Oparah and Ms. Tanya Kiatkulpiboone

Larta Institute

This chapter looks at how the United States of America is adapting its intellectualproperty rights (IPR) system to the challenges and opportunities presented by fastmoving industries such as biotechnology and information technology.

Analysis of the implications of the latest US Supreme Court decisions ispresented alongside a study of the day-to-day issues faced by SME technologyfirms and practical recommendations for both policy makers and practitioners.In-depth case studies sourced directly from interviews with top executives offer acompelling insight into how SMEs structure their operations to identify, protectand defend IPRs with limited resources in an increasingly global marketplace.

Results from a survey across multiple industries provide a snapshot of the IPRpractices of SMEs, re-enforce the case for key policy enhancements and revealsome unexpected trends such as the increasing use of open source innovation inthe biomedical field.

141

6. THE UNITED STATES: BALANCING ROBUST PROTECTION WITH RAPID INNOVATION

IntroductionThis chapter begins with an overview of the SME landscape in the United States,

referencing key statistics that highlight the historical and current impact of the SME sector

on the broader economy. The IP landscape is then reviewed from several perspectives,

based on information gathered from interviews with IP experts:

● Section II reviews existing regulatory structure and policies and the challenges these

present to SMEs, as well as the emerging policy trends and their impact (positive or

negative) on SMEs;

● Section III looks at IP management from the internal perspective and highlights the

issues, considerations and strategies relevant to individual SMEs;

● Section IV summarises the empirical findings including results from a survey of SMEs

and key findings from several in-depth SME case studies;

● Section V offers policy and related recommendations (sourced from both expert

interviews and the authors’ research) to address some of the challenges faced by SMEs

in the areas of intellectual property protection, management and enforcement.

In the United States, SMEs with fewer than 500 workers account for half of the nation’s

private, non-farm real gross domestic product and half of all Americans who work in the

private sector are employed by a small firm. Data from the US Small Business

Administration in 2009 revealed that since the mid 1990’s small businesses provided

60-80% of all net new jobs annually. While those numbers are less in this recession era

post-2008, historical data indicate that very small firms had produced net job gains more

quickly than their larger counterparts. The following aspects are key to the role played by

SMEs.

Valuation: In the United States alone, a 2005 study indicated that the value of US

intellectual property assets is greater than five trillion dollars and far exceeds any other

nation’s GDP. The World Intellectual Property Organisation (WIPO) estimates that number

will rise to six trillion by 2020.

SME longevity: In many start-up companies, particularly in the technology-related

industries, IP assets are often the single most valuable assets. Small firms tend to

specialize in high tech, high growth industries such as biotechnology, pharmaceuticals, IT

and semiconductors. The smallest firms (those with fewer than 25 employees) produce the

greatest number of patents per employee further outperforming their large firm

counterparts in categories like growth, impact and originality. In a report by the US Small

Business Administration’s Office of Advocacy in 2008, the office found that the results of

their 1979 findings still hold true today. Those findings concluded that, “innovation is an

essential ingredient for creating jobs, controlling inflation, and for economic and social

growth. Small businesses make a disproportionately large contribution to innovation.

There is something fundamental about this unusual ability of small firms to innovate that

must be preserved for the sake of healthy economic and social growth.”



Small business statistics: In 2004, the US Small Business Administration (SBA) gathered

data revealing that small businesses provide 60-80% of the net new jobs annually. The same

study from the SBA in 2004 further revealed that small businesses produce 13 to 14 times more

patents per employee than large patenting firms. In that same year, the SBA reported the

average annual revenue of a small business was USD 3.6 million and the average annual

revenue of a small business with a web site was USD 5.03 million. As of September 2009, the

estimated total of small businesses nationwide was 29.6 million, representing 99.7% of all

employer firms, employing half the country’s private sector workforce, hiring 40% of all high

tech workers, and generating a majority of the innovations that come from US companies.

Sector statistics: If one focuses on enterprises in the fields of creative industries and

biomedical devices, the numbers are even more compelling. In 2007, “the value added by the

core copyright industries was USD 889.1 billion” amounting to over 6% of US GDP. The

biomedical sector accounts for a major share of the overall US biotech industry that has

experienced an annual growth rate of almost 14% since 2005 and is expected to reach market

share of USD 131.8 billion by the end of 2010. California, the global leader of biomedical R&D, is

home to more than one-third of all US biotechnology and medical device firms and generates

revenues close to USD 75 billion annually. More importantly, “the majority of biomedical firms

in California are privately held, smaller companies with products still in development” and are

optimistic prospects for driving national economic recovery efforts. The IT sector presents a

similar picture in terms of high economic impact. In the wireless sector alone, a report by

Ovum Research indicates that in 2004 the wireless telecom industry led to 3.6 million direct

and indirect jobs, USD 118 billion in revenues and contributed USD 92 billion to the US GDP.

The sector also demonstrated a strong growth rate of 15% annual growth.

Intellectual property regulation in the United States

i) The Constitution and Capitol Hill

American intellectual property law is essentially shaped by three factors: the

Constitution, common law, and lobbyists.

Constitutional mandate: The US Constitution addresses the following aspects of

intellectual property law:

● Statutory language protects copyright and patents – The concept of “duration” in the

protection of intellectual capital is integrated into Article I, clause 8, and reads, “To

promote the Progress of Science and useful Arts, by securing for limited Times to

Authors and Inventors the exclusive Right to their respective Writings and Discoveries”.

While this provision is sometimes referred to as the “Copyright Clause”, it actually

confers two distinct intellectual property powers. The power to secure for limited times

to authors the exclusive right to their writings is the basis for and the power to secure

for limited times to inventors the exclusive rights to their discoveries is the basis for .

● Patent protocols – Patent law protects inventions and in particular three types: utility,

design and certain plant varieties. Congress implemented patent protection by way of a

framework in contrast to many foreign first-to-file systems permitting inventors to

retain patent protection even if a patent application has not issued.

● Copyright conditions – Similar to patents, filing formalities are eliminated as a precondition

to copyright protection because there is increasing consensus that works of authorship

should be protected without regard to compliance with formalities in the interest of

fairness to the author.



Common law foundation for trademarks: Notably, the copyright clause contains no

language under which Congress may protect , those are instead protected under the broad

umbrella of the Constitution’s Commerce Clause but guided by common law (law which is

developed by case precedent and not legislative enactments). Common law is suitable

because of the inherent nature of trademarks. Trademark law protects the words and

symbols that identify goods based on a priority of appropriation (requiring a considerable

period of use as an instrument of commerce and not mere invention).

Lobbying influences: It is important to recognise that copyright law does not protect

ideas but rather protects the expression of ideas. Therefore, legislation and legislative bodies

that drive the form and content of copyright can be influenced by the interest of those who

lobby Congress to guide protection for the ways in which parties can express ideas, opinions,

beliefs or other creative expressions like music or art. Some heavyweight lobbyists in the

creative industries include the Motion Pictures Association of America (MPAA), Disney and

Random House. Nonetheless, all areas of intellectual property have followed a recent trend

of expansive protection. An increasing concern, however, is that the benefits of expansion

have yet to benefit small enterprises in the same way that they have benefited large

corporations. On September 16, 2011, the “America Invents Act” (referred to by its initials,

“AIA”) was signed into law by President Obama. It is the most significant and wide-ranging

rewrite of patent laws in the history of the US. Many of its more robust provisions will take

effect in March 2013 (i.e. 18 months after enactment). Lobbyists, in support of legislation they

believe will foster a more competitive edge in the global market place, include IBM, Motorola,

General Electric and Proctor and Gamble. Across the divide, small-scale inventors and high

technology companies such as Apple, Google, Dell and Verizon are sceptical that the bill will

instead foster bias against small businesses and poor quality patents. The challenge here is

that lobbying influences in this debate seem equally weighted.

Additionally, while levels of protection are broadening, enforcement remains laborious

and the US system requires that “for intellectual property to have any value in the United

States, individuals and businesses must police the related industry and use the US legal

system to enforce their rights”. America employs a structure that relies on an individual

safeguarding his or her rights through litigation. The grant of exclusive rights for intellectual

property is, therefore, worthless unless an owner remains vigilant in the policing of potential

infringers. Adequate protection is only possible with “a responsive judicial system and

investigative and protective rights-holders”. Much like the barrier to taking advantage of

expanding IP benefits, SMEs are at a significant disadvantage to defend their intellectual

property rights (IPR) against potential time-consuming and costly challenges.

ii) Positive practices benefiting SMEs

There are some elements of the current US system that are “SME-friendly”, including:

● Inventor precedence: US patent law is unique compared to many other jurisdictions in

that precedence is given to the party that is “first to invent” versus “first to file”. SME

inventors thus receive some inherent protection from companies with larger patent

budgets essentially stealing their inventions by “filing first”.

● Protection costs: Copyright and trademark protection is relatively cheap which is a plus

for SMEs, however enforcement can still be expensive. Likewise, as mentioned earlier,

basic patent filing fees are also relatively inexpensive, but total prosecution, protection

and enforcement costs can be very high.



● Specific regulations: Over the years there have been specific regulations that have acted

as key enablers for SMEs, a good example being the Orphan Drug Act of 1983. This act

was passed to encourage pharmaceutical companies to develop drugs for rare diseases

with relatively small markets and enabled the growth of biotechnology start-up

companies like Amgen, Genzyme and Genentech.

● Design patents: This low-level patenting option allows protection for the ornamental

design or new appearance of product. It is less costly than a utility patent because it does

not require extensive examination of technical claims but it does not protect any

functional features of the invention. In this way, a design patent makes it difficult for

companies to prevent different variations of a product.

iii) Recent developments and emerging trends in the IP environment as a response to ongoing issues and challenges

iv) Timing: From patent filing to issue

Undoubtedly, timing issues are extremely important to every applicant; they impact

costs, marketing opportunities, and the valuation of inventions. While the convenience of

online filing has become standard procedure, the USPTO has recognised special

circumstances warranting an exception to the natural course of patent examination.

According to the Associated Press, the 2011 patent backlog comprises 700 000 applications

waiting initial action and 500 000 applications being processed.

Online filing: Filing patents and trademarks online became available in 2000. This

convenience minimized the filing time because all prospective US patents must be filed

in Alexandria, VA. Further, there is less risk of misfiling amendments to the patent

application and greater ease in tracking the progress of the file on both the examiner and

rights owners’ ends.

Table 6.1. Timing: from patent filing to issue

Issues and challenges Recent developments and emerging trends

It can take up to 6 years for some patent applications to issue. Online filing. A modern necessity.The United States Patent and Trademark Office (USPTO) reduced the number of patent examiners thereby increasing delays in patent issuance.

Accelerated examination process. A decent version of fast tracking but cumbersome prerequisites in exchange for expedited issuance.

High volume of initial filings by applicants but lack of follow-through. Poor health or advanced age of the inventor exception. Unclear on how often this process is used; there is a form for Advanced Age but no specifications on what qualifies as poor health.

The “pendency” (state of time of being undecided) of patent applications covering high tech is much greater than that of the average patent application; they take much longer to be examined.

Patent Prosecution Highway (PPH). Permanent program between the US and Japan but other PPH’s are experimental.

Ombudsman pilot program. No statistics on how often or efficient this process is but it seems necessary for applications stuck in administrative loopholes. Patent Term Adjustment Act (1999). Subject of number criticisms and not helpful for creative industries needing immediate protection not longer protection.America Invents Act (2011). This legislation calls for new fee setting authority and consequently, the possibility of hiring more patent examiners. In the past, Congress diverted patent fees to the general treasury. Despite this new provision, however, the Act mandates that fees collected in excess of legislatively-mandated appropriations be deposited in a “reserve fund” and there is little clarity on the eventual disposition of these funds.



Accelerated examination process: Patent applications may qualify for accelerated

examination if filed on or after August 25, 2006 in the categories of manufacture,

infringement, environment, quality, energy, inventions related to recombinant DNA,

superconductivity, HIV/AIDs or cancer, inventions for countering terrorism, and

biotechnology by small entities in particular. The objective of this expedited process is to

issue a patentability decision within 12 months. There are however, additional

prerequisites that make this option meticulously burdensome.

Poor health or advanced age of the inventor exception: A Petition to Make Special

Provisions Based on Age (65 or older) can be filed any time during the patent prosecution

process allowing the application to be examined out of sequence.

Patent Prosecution Highway (PPH): These are programs, or bilateral arrangements,

between the patent offices of the US and one other country. The objective is to expedite

patent applications for inventions whose identical claims are being examined concurrently

in both offices. Where one office issues a ruling that at least one claim in the application is

patentable, the applicant may request the other office fast track the examination of

corresponding claims in corresponding applications.

Ombudsman pilot program: This was created to resolve breakdowns in the normal

prosecution process. An ombudsman will be a senior examiner who helps the applicant with

unresolved issues between the original examiner and his/her supervisor. The ombudsman

has the authority to issue the patent or help the examination along to panel review.

Patent Term Adjustment Act (1999): The purpose of the patent term adjustment

provision in the American Inventors Protection Act (AIPA) was to guarantee that diligent

applicants would still have a patent term of at least seventeen years from grant under the

twenty-year patent term system. However, the current terms require the USPTO and

applicants to monitor numerous events during the prosecution of the application to

determine the appropriate term adjustment, and often result in applicants obtaining

patent term adjustment despite the fact that the patent has an unadjusted term of longer

than seventeen years from grant. A strong criticism is that the PTA should be limited to the

situations in which the USPTO delayed processing or examination of the patent and this

delay resulted in the application pending before the USPTO for more than three years.

America Invents Act (2011): This legislation calls for new fee setting authority and

consequently, the possibility of hiring more patent examiners. Currently, Congress diverts

patent fees to the general treasury. Despite this new provision, however, the Act mandates

that fees collected in excess of legislatively-mandated appropriations be deposited in a

“reserve fund”. There is little clarity on the eventual disposition of these funds; thus the

prospect of expanding the capacity of the USPTO to meet anticipated demand arising from

the main provisions of the Act is uncertain.

v) Costs: Filing and prosecution fees to litigationThere seems to be a national, if not global, effort to reduce filing fees to encourage

patent protection efforts. However, the largest bearing on costs occurs during examination

and is dependent on the thoroughness of an applicant’s prior art search, the examiner

assigned to the matter, and the complexity of the invention at hand.

Provisional applications: By filing a provisional application first, the legal expenses

associated for a non-provisional application would be reduced because the non-provisional



application need only build upon the pre-existing legal work already done in the

provisional application.

Small entity filing fees: Reduces filing fees by 50%. To qualify, the applicant must be

an independent inventor, a collaboration of independent inventors, a non-profit

organisation, or a company with less than 500 employees.

Translation costs: There has been pressure to cut down on translation costs

associated with US based patents to foster harmonisation of patent standards and

protections.

Prospective new filing standards: While prosecution costs are still high, primarily

because they are correlated with attorney’s fees and costs, there is a desire for the US to

move toward a European or PCT Unity of Invention Standard but that transition may cost

the USPTO from USD 140 million to USD 160 million or 15% of their budget. This standard

essentially permits groups of inventions, so linked as to form a single inventive concept, to

be examined in a single application. The current national standard within the Office

(which bases restrictions on inventions being independent and/or distinct) may cause

applicants to file multiple applications to obtain patent coverage that might be secured

within a single application if the USPTO were to adopt the unity of invention standard.

America Invents Act (2011): The Act has reduced application filing fees and associated

fees over the life of the examination of a patent for small business, especially for a new

category of individual inventor (and universities) referred to as (a) “microentity”, with some

exceptions. Microentities are classified as those with five or less employees and fewer than

four provisional patent applications in a preceding period. A small entity discount (for

firms with less than 500 employees) is also included and also a discount for using the

electronic filing system.

Table 6.2. Costs: From filing and prosecution fees to litigation


The average cost to file a provisional patent application can range from $ 1500 to $ 2500 depending on the technology involved.

Provisional applications. Generally, a good compromise to pre-utility expenses with benefits of securing first-to-invent status.

The costs associated with filing a non-provisional (full) patent application (for patent search, application preparation, filing fee, defending the invention over the course of the application process, issue fee, maintenance fees) can range from $ 5,000 to $ 15,000 depending on the complexity of the invention. There are certainly patents that cost greater than $ 15,000 upon issuance.

Small entity filing fees. Overall, this seems to be a positive and practical implementation.

Translation costs. Cutting down on translation fees is likely to be resolved on a country-to-country basis.

Prospective new filing standards. Cost remains an issue and these standards are mere proposals.

Patent Reform Act of 2011. This bill proposes to reduce application filing fees.

Table 6.3. Public disclosure


Rights holders risk losing trade secrets once a patent filing becomes public.

Provisional applications. Subject to a one-year limitation.

Special election provision. Applies to US-only patents.



vi) Public disclosureMany companies find it difficult to decide on pursuing IP protection with the almost

necessary consequence of revealing trade secret assets. There are two ways in which a

patent application can still be filed without that risk:

● Provisional applications: Benefits an application by offering an early priority date within

the confines of confidentiality from disclosure for one year before a non-provisional

application is filed.

● Special election provision: Non-publication Request under 35 USC. 122(b)(2)(B)(i). An

applicant must certify that the invention has not and will not be the subject of an

application filed in another country, or under a multilateral international agreement, or

that requires publication at eighteen months after filing. The Applicant may rescind this

non-publication request at any time. However, if the applicant subsequently files an

application in violation of the above prerequisites, the applicant must notify the United

States Patent and Trademark Office of such filing within forty-five (45) days after the date

of the filing of such foreign or international application or risk abandonment.

vii) Effective enforcement: Combating infringement and infringement allegations

There is a fine balance between providing rights owners with aggressive tools to

combat infringing works and stifling the creativity of new innovation. The USPTO has

sought a multi-faceted approach to enforcement: creating programmes, entering into

treaties and enacting legislation.

USPTO’s Global Intellectual Property Academy (GIPA): Capacity building programs in

the United States and around the world on IP protection, enforcement and capitalisation.

Offered to IP officials, judges, prosecutors, police, customs officials, foreign policy makers,

examiners, and rights owners. Teaches US methods for protecting the rights of business

owners compliant with international treaties. Delivers IP education worldwide. GIPA is

divided into four programs: Enforcement, Patent, Trademark and Copyright. It was

established in 2006 and offered restrictively to IP officials but in 2008, the program began

delivering IP training to other stakeholders and even the general public under certain

circumstances.

Table 6.4. Effective enforcement: combating infringement and infringement allegations


The process of enforcement is inefficient and unduly expensive due to non-specialist courts and judges, lack of strategic uniformity for intellectual assets with far reaching exposure, and a failure of accurate assessment on rates of counterfeiting.

USPTO’s Global Intellectual Property Academy (GIPA). While the program emphasises education as a tool for global consensus on enforcement, it appears that participation requires permission by the government under certain circumstances

Newly appointed IP Czar Victoria Espinel. She announced a strategic plan to address counterfeiting in partnership with the public

Anti-Counterfeiting Trade Agreement (ACTA). In an almost antithetical manner, it serves as a corollary to existing intellectual property laws of signatory countries.

Patent Reform Act of 2011. This Act is updated annually with the latest attempts to combat infringement. Revisions include defining a plaintiff’s standing, opportunities to assert challenges to patentability, and scope of damages.



Newly appointed IP Czar Victoria Espinel: Ms. Espinel recognised the unreliability of

current industry estimates on counterfeiting and consequently made a public request for

good data on the extent of counterfeiting in an effort to carry out her Joint Strategic Plan.

Anti-Counterfeiting Trade Agreement (ACTA): The ACTA would establish a new

international legal framework that countries can join on a voluntary basisand would create

its own governing body outside existing international institutions such as the World Trade

Organisation (WTO), the World Intellectual Property Organisation (WIPO) or the United

Nations. Negotiating countries have described it as a response to the increase in global

trade of counterfeit goods and pirated copyright protected works. The scope of ACTA is

broad, including counterfeit goods, generic medicines and copyright infringement on the

Internet. ACTA would overcome, because it is in effect a treaty, many court precedents

defining consumer rights as to “fair use” and would either change or remove limitations on

the application of intellectual property laws. The Act was first developed and proposed by

the US and Japan in 2006.

America Invents Act (2011): The biggest change is the adoption of a First To File (FTF)

regime, replacing the current First to Invent (FTI). While in theory, this harmonises the US

system with that of OECD countries, many legal observers assert that the Act sets up a

unique system that is neither fully FTF nor FTI. The Act: heightens standards for

reexamination of an issued patent; expands defense of prior commercial use; increases

restrictions on suing multiple defendants in a single action; allows for correcting omissions

or misstatements in a patent application (“supplemental examination”), expands

challenges to so-called business methods patents, and institutes new “post-grant review”

and “Inter Partes Review” procedures that may benefit patent challengers. While it

eliminates so-called interference proceedings, filed afer a patent has been issued (but which

applied prior to the Act only to about 0.5% of all cases), in favor of “derivation” proceedings

(that sets up a review of a challenge by a Patents and Trademarks Appeals Board), it does

create a number of potential threats and issues for small businesses, including the ability of

challengers to go directly to the Federal Circuit court to bring a challenge to a patent as an

alternative to internal Patent Office review mentioned above. Though the Act maintains a

personal disclosure grace period of 12 months after filing for the original inventor, this does

not apply to third parties who independently arrive at an invention, and any disclosure by

the original inventor may be used against him/her in cases where third parties are involved.

While the impact of the Act may not be quantifiable for many years, small businesses, for

whom IP protecton is often an absolute necessity, will undoubtedly feel constrained in their

ability to raise capital and discuss their inventions with prospective partners prior to filing.

Thus a “race to the patent office” may be in the offing.

Table 6.5. Clarity of patentable subject matter


Patent applicants, attorneys and examiners often look to the judiciary to clarify the likelihood that an invention will be deemed patentable.

KSR v. Teleflex (2007). This case narrows the eligibility of prospective new patents. New inventions are susceptible to fail for “obviousness”. But what is obvious?

In re Bilski (2010). Essentially holding that some business methods are patentable. But which methods is anyone’s guess.



viii) Clarity of patentable subject matter

Practitioners rely on case law to determine the feasibility of claims and the

meritorious value of certain matters. Unfortunately, the two most publicised intellectual

property cases recently adjudicated in the United States failed to provide any definitive

guidance in the area of patentability.

KSR v. Teleflex (2007): Relaxing the test for obviousness, this case is likely to make it

harder to get new patents and defend existing ones. Almost every litigated patent case

asserts the defence of obviousness; therefore, this holding will have far reaching impact in

prosecution and litigation. Other experts who consider the Federal Circuit court as too

liberal in their interpretation of patentability view the decision as a positive development

because it helps to determine whether an invention was truly innovating or just the

product of connecting the dots between prior art.

In re Bilski (2010): The US Supreme Court held that the specific case of risk

management method claims related to hedging against weather-related losses in the

energy industry was too abstract to be patentable subject matter but that business

methods as a general matter are eligible subject matter and the use of the “machine or

transformation test” is useful but not exclusively determinative. There was much

anticipation that this case would bring clarity to the issue of business method patentability

but in fact, it continues the cycle of uncertainty in this area.

The first case subsequent to In re Bilski was RCT v. Microsoft (2010). The case forecases

a trend of cases that decide patentability on bases other than the machine or

transformation (MOT) test. The court in RCT found patentability in a process for halftone

imaging. The court reasoned that the invention was not “abstract”, one of the three

exceptions to patentability. As anticipated, forthcoming case law will continue to establish

new tests that can be used to determine patentability; more akin to an experiment and less

of a clarification.

ix) Competing and industry-specific considerations

Regulations unrelated to the intellectual property framework can impact the decision

to innovate, invest, or file patents. In 2010 alone, national healthcare reform rose to the

forefront of political debate. Firms in industries such as biotechnology, pharmaceutical,

and medical devices also participated in reform proposals and their views on the resulting

provisions are expressed in, but not limited to, the following:

● Healthcare Reform and the Pharmaceutical Industry: Tighter government reimbursement

for the pharmaceutical industry; the government’s reimbursement of certain Medicare

services has the potential to put pressure on the profit margins of providers of those services

thereby affecting the providers’ profitability of related drugs.

Table 6.6. Competing and Industry-specific considerations


Some new regulations indirectly impact SMEs and their means and/or priority for seeking IP protection.

Healthcare Reform and the Pharmaceutical Industry.

Healthcare Reform and Biotechnology

Biotechnology and Small Business

Patent Reform Act of 2011



● Healthcare Reform and Biotechnology: Local trade group Biocom spent the last year

lobbying for tax credits and patent protections that ended up in the legislation. Their

success means that small companies can get more research money and local biotechs

can develop some drugs without worrying about early competition from generics. While

groups like the AARP say the exclusivity period will delay patients’ access to cheaper

versions of drugs, its protection will encourage innovation and investment in new

treatments. Those in the biotech industry are hopeful that new patent protection will

allow them to raise money to develop new drugs.

● Biotechnology and Small Business: The legislation also established USD 1 billion in

tax credits for investments made in 2009 and 2010 on projects that prevent or treat

diseases. The credit is reserved for companies with fewer than 250 employees and as

such, it will help younger businesses that do not already have marketed products

compensate for the current drought in venture capital investment. Companies can also

convert the credit into a grant, so they will not have to wait until tax time to receive

money. However, a 2.3 per cent tax will be imposed on the sale of medical devices and

may hurt businesses in that regard. The tax, which is expected to raise USD 20 billion

to help the government fund health care reform, was meant to be an exchange for the

30 million newly insured customers. But that may be illogical if a majority of those new

patients are young, and as a result, there will be not enough medical device sales to

offset that tax.

In terms of broad and sweeping changes in the intellectual property landscape, it is

our experts’ opinion that these are likely to concentrate primarily on clearing the current

patent application backlog. Recently, the USPTO published a notice in the Federal Register

entitled, “Patent Application Backlog Reduction Stimulus Plan”. The purpose of this plan

is to give small entity applicants having multiple patent applications greater control over

the priority with which their applications are examined while also stimulating a

reduction of the backlog of unexamined patent applications pending before the USPTO.

Specifically, small entity applicants may have an application accorded special status for

examination if the applicant expressly abandons another co-pending unexamined

application.

A provision of the Act mandates congressional studies be conducted to measure the

reform’s impact on small businesses.

Empirical evidenceThis section presents empirical evidence on the behaviour of and challenges faced by

SMEs with regard to intellectual property management. The material presented was

sourced as follows: the SME Intellectual Property Management and Global Context sections

were sourced from in-depth phone interviews with intellectual property experts with

extensive experience in the SME space; the Survey Results section was sourced from a

comprehensive web-based survey completed by senior management at SMEs; the Case

Study Summaries were sourced from in-depth phone interviews with senior management

at SME firms; and the Best and Worst Practices Summary was sourced from a combination

of the case interviews and the interviews with IP experts mentioned above.



i) SME intellectual property management

Major issues facing SMEs with regard to intellectual property protection

The major internal management issues facing SMEs with regard to IP protection fall

into the following categories:

● Cost issues – SMEs often lack access to capital to fund IP protection. Especially as they are

moving into the commercialisation stage for a new product, costs include not only

protection, but also ensuring “freedom to operate” and staving off allegations of

infringement from other parties. When the costs of potential enforcement against infringers

are also factored in, the total cost of protection for one patent could easily run into millions

of dollars and could inject a sense of unpredictability into planning decisions by SMEs.

● Management issues – One of the major issues SMEs often face is a lack of appropriately

skilled management and a consequent incomplete understanding of IP law within the

organisation. This knowledge deficit, coupled with a frequent lack of established

processes (e.g. for documenting and tracking IP assets) often results in challenges around

issues like correct timing and prosecution of patent filings, appropriate coverage of

foreign jurisdictions and the development of a holistic patent strategy (incorporating

considerations like freedom to operate, smart-investing, patent strength, etc.).

● Market issues – A further challenge for SMEs is the ongoing need to balance the

(potentially significant) costs of protection and enforcement already described against a

dynamically changing valuation of that IP in the market, both domestically and abroad.

Drivers behind SMEs’ decision to invest in intellectual property protectionIn the cases where SMEs decide to invest in formal IP protection in spite of the costs

and other related challenges already discussed. Below are some of the key drivers behind

this decision.

External interest – Commercial interest from vendors, strategic partners or potential

acquirers will often trigger investment by the SME in IP protection. There is concern,

however, that some patents are not being developed into products and instead, companies

are sitting on the protection for the appeal it creates for investors.

Funding – A direct request from investors or a feeling that IP protection (typically a

patent) will open the door to funding is another common driver of protection.

IP asset strength – The potential value of the IP asset (typically the focus is on the IP

associated with core products) and the degree to which protection of that asset will serve

as a barrier to entry against the competition are key considerations.

Market size – Another important consideration is the potential market size and/or the

geographic area to be covered by the protection when weighed against the costs of

protection and enforcement.

Other factors – SMEs, by virtue of their nature, are also often subject to less robust

decision-making drivers in this area such as short-term thinking (i.e. SMEs will often only

invest in IP if there is a clear short-term payback), management agendas (e.g. sometimes

management’s personal plans to “cash-out” can influence the timing of IP investment

decisions) and peer pressure (e.g. sometimes this can drive an SME to invest in IP protection

prematurely and incur unnecessary costs).

Finally, the inherent structure of the industry in question plays a fundamental role in

determining the importance of IP protection, especially patents, for the SME and can

broadly be broken down as into the following categories.



Stable base, high cost – Industries that address human body functions through

technological inventions are largely unchanging, e.g. medical devices, biotechnology, and

pharmaceuticals. For these technologies, and particularly if the upfront development costs

are high, IP protection (generally patents) is not only desirable but often essential to

developing a viable business model.

Dynamic base, low cost – There are industries where the technological invention is

changing more rapidly than the useful lifespan of the protection offered (say by a patent),

e.g. software, Internet-related innovations. For these technologies, and particularly if the

upfront development costs are low, the return on investment for IP protection is less clear

and sometimes no protection (i.e. a focus on trade secrets) is preferable.

Key trade-offs and strategies adopted by SMEs

In light of the many challenges and resource constraints facing SMEs in the area of IP

protection, a number of trade-offs and related strategies are common including:

● Speed-to-market versus protection – In some industries SMEs will go to market prior to

securing all the protection they could so as not to miss the (often short) market window

(e.g. in the Internet space). Also, if there is no urgent need, management will often keep

IP as a trade secret for as long as possible. In the case of patents, deferring the patent

process not only postpones related expenses but also avoids early public disclosure.

● Contingency arrangements – Having developed into a cost-management trend,

contingency arrangements are available to SMEs with a strong, litigious IP case. It is

more common that SMEs work with litigation attorneys on a partial contingency basis;

the SME typically covering expenses while attorney’s fees remain contingent on a

successful outcome post-trial.

● Avoidance – A good strategy for SMEs is to invest in a “freedom to operate” study (a

search to identify active patents that could inhibit the introduction of a new product or

technology into the market), file for IP rights and protection and then focus on avoiding

patent infringement claims.

● Insurance – Intellectual property defence or enforcement insurance is one potential

strategy for getting around the high management costs. However, this type of insurance

is expensive and the insurers are few in number and often difficult to deal with.

● Litigation alternatives – Co-operative agreements and licensing are generally better

ways for SMEs to resolve IP disputes than litigation (given the costs involved) but

sometimes litigation is unavoidable – especially if an entity’s core business or revenue

model is at stake.

ii) Global context

Business questions

As SMEs assess the viability of entry into foreign markets, some of the common

business considerations include:

Economic opportunity – SMEs facing entry into foreign markets must assess the

economic viability of the opportunity. Helpful indicators include: market size, growth rate,

consumer demand, saturation of the US market, etc.

Industry – Naturally, the industry specifics will and should dictate the list of

jurisdictions with which to file for IP rights. For example, Taiwan, Japan and China are



important for SMEs in the semi-conductor industry. Additionally, Europe, Eastern Europe

and Canada are countries of focus for SMEs in the bio-medical industry.

Coverage – Another consideration is the degree of coverage gained in return for the

amount of investment in protection made. For example, filing in Europe may cover the

whole European Union with a single filing/investment.

Regulatory considerations and challenges

Some of the specific IP-related considerations and challenges faced by US SMEs

moving into foreign markets include:

Legal framework

First to File eligibiity - In determining validity date for the purpose of First To File, the

date of filing of a patent outside the US will be operative in gauging eligibility.

Patent scope – The definition of what is covered by a patent varies depending on the

jurisdiction. For example Europe has some key differences from the US; patent definition is

narrower (there is an “absolute novelty” requirement) and the mechanism for adding new

matter to a patent is different (you have to file “multiple dependent claims” instead of a

“continuation in part” as is the practice in the United States). Furthermore, the duration of

protection is not equivocal; many US patents usually expire many years after the

corresponding patent applications have expired abroad.

Translation requirements – In some countries, the entire patent application must be

translated. In others, only the patent claims must be in the national language of the

country filed. For European patents, some countries in the EU will accept the application so

long as it is in the European Patent Office’s (EPO) pre-approved official languages of English,

French or German.

Patent Cooperation Treaty (PCT) – The PCT process can simplify the way in which an

applicant obtains patents in many countries. A PCT application is filed with the PCT

authorities, who make a preliminary assessment of the invention’s patentability. This

helps determine if the cost and effort of pursuing patent protection for the invention in

specific countries is justifiable. Filing a PCT application in the EPO designation virtually any

or all of the European countries may result in a grant of a European patent with significant

coverage. The patent rights must then be “perfected” in the individual European countries

of interest through procedures that include filing translations and paying national fees.

Non-signatories to the Paris Convention – Most countries have signed the Paris

Convention, which allows a patent applicant to claim priority over a patent application

filed within the previous year. As described above, to obtain a valid patent in most

countries it is essential to file a patent application before the invention is publicly disclosed

– but the Paris Convention provides an important exception. As a result, in most countries,

it is sufficient to file within one year of the date on which the earliest application was filed,

provided that the earliest application was filed before any public disclosure of the

invention anywhere in the world. A few countries including Afghanistan, Andorra, Ethiopia

and Saudi Arabia are not members of the Paris Convention, and special consideration must

be given to filing applications in such countries to avoid loss of patent rights there.

Local enforcement – In addition to the economic opportunity, the robustness of local

IP enforcement mechanisms and the general business culture are generally more

important considerations than the presence of international treaties.



WTO TRIPS Agreement – The enforcement provision of this multilateral treaty deals

with domestic procedures and remedies for the enforcement of intellectual property

rights. It sets forth general principles applicable to all IPR enforcement procedures. In

addition, it contains provisions on civil and administrative procedures and remedies,

provisional measures, special requirements related to border measures and criminal

procedures, which specify, in a certain amount of detail, the procedures and remedies that

must be available so that right holders can effectively enforce their rights.

Treaty non-compliance – The existence and participation as signatory to a treaty does

not guarantee an ability to enforce IP protections. For example, China is a signatory to the

Berne and Paris Conventions as well as TRIPS but enforcement remains a major challenge

and thus a barrier for many foreign entrants. For this reason, an SME must entertain the

idea of having to hire local counsel to navigate the foreign legal system.

Alternatives to litigation

Special intellectual property courts or tribunals – There are several countries that are

already reaping the advantages of special IP courts or special IP divisions in a general court.

Specialist courts and judges were found to reduce hearing time, litigation costs or litigation

altogether, improve efficiency and make IP jurisprudence clearer and more predictable for

parties and the IP community. Additionally, it is the lack of judicial expertise in IP that

fosters major enforcement problems.

Dispute resolution or mediation – As a general matter, the legislature and judiciary

prefer arbitration and other forms of Alternative Dispute Resolution (ADR) because private

dispute resolution shifts the costs to the parties and relieves congestion in the courts.

These processes are generally less combative and therefore benefit SMEs by preserving

business relationships.

In general, entering other countries involves more complexity from an IP perspective

and consequently more cost – therefore SMEs will often (or be advised to) avoid entry into

foreign markets unless the market opportunity is significant. In general the experts

interviewed observed that entry into Europe is less challenging for US SMEs than some

other jurisdictions like China. Additionally, weaker enforcement in China and other Asian

jurisdictions, and the consequent ability of local competitors in those regions to move

quickly to market with imitative strategies, provides US-based SMEs with increasing

challenges in their global plans.

iii) Survey summary

The US survey was distributed to 400 participating companies. Of these, 63 companies

(15.75%) responded of which 59 (14.75%) fully completed the survey. An assessment of the

results and their relation to other key components of the country report is included below.

It should be noted that where percentages mentioned sum to greater than 100%, this

reflects a survey question that allowed respondents to select multiple responses from a list

of options.

Company overview

The geographic spread of participants is split into two main areas; the East coast and

West coast, with California enterprises as the most dominant. The prevailing industry

sector is biotechnology (51% of respondents or 32 companies) followed closely by



information technology (23% of respondents or 14 companies). The creative industry sector

constituted 13% of the respondents (or 8 companies).

The role of the respondents was either an owner (57% of respondents or 35 companies)

or management personnel (41% of respondents or 25 companies) and the firms who

participated were fairly mature (approximately 90% of respondents or 55 companies

having been in business for over 6 years).

The respondents were primarily at the smaller end of the SME spectrum, 61%

(37 companies) with less than 10 employees and 59% (35 companies) with revenue under

USD 1million with a pretty even split between a national (56% of respondents or

34 companies) and international (44% of respondents or 27 companies) market focus.

The majority of firms surveyed (89% of respondents or 54 companies) are projecting

growth and recent product innovation is high (91% of respondents or 51 companies).

IP protection and preparation

There is a fairly even split between firms that acquire knowledge or technology

through licensing (48% of respondents or 29 companies) and those that do not (52% of

respondents or 32 companies). For those that do utilise licensing, gaining access to new

technology for immediate use is the primary reason (83% of respondents or 24 companies).

These results lend support to the identified challenge concerning industry-specific timing

issues as a hindrance for SMEs to embrace the IPR process.

Intellectual property filing and registration

Since participating businesses identified the greatest benefit of IPR as the ability to

build competitive advantage (66% of respondents or 32 companies), it follows that if

businesses are finding that they can survive in the market competitively without formal

protection, the time and expense obstacles are even less worthwhile to undertake.

When businesses did consult with IP experts it was predominantly for filing purposes

(82% of respondents or 44 companies) and prior art searches (56% of respondents or

30 companies). With this trend, the US experts’ recommendation for SMEs to have an IP

expert on staff or consult with a third party expert on a regular basis makes economical

sense to the extent that the expert has a familiar foundation for drafting claims and

performing conflict checks for that entity.

Intellectual property management and strategy

While trade secrets form an important part of IP protection strategy (74% of respondents

or 43 companies) the large majority (98% of respondents or 58 companies) of firms surveyed

also use formal protection methods. For the minority who do not use formal IP protection,

concerns regarding disclosure, uncertainty over whether IP will be upheld and cost of

enforcement constitute the main concerns. These statistics help to reiterate how much

disclosure and enforcement appear problematic for SMEs. Also, the minority numbers may

be indicative of businesses that hold onto their IP as a trade secret for as long as possible or

operate in an industry where speed-to-market strategy is best utilised.

For companies that do use formal protection, confidentiality agreements are standard

(91% of respondents or 53 companies) and with a strong use of patents (76% of respondents

or 44 companies) and trademarks (66% of respondents or 38 companies), and to a lesser

extent copyrights (53% of respondents or 31 companies). Patents were not surprisingly of



particular importance to biotechnology companies (these companies constituted 62% of

patent users whereas they only from 51% of the total survey base) and less important to IT

companies (these companies constituted 11% of patent users whereas they form 23% of the

total survey base), another indicator of the growing importance of non-patent based IP

strategies (e.g. open source) in the IT community. On the other hand, the IT and creative

industries showed a higher use of trademarks and copyrights (IT companies constituted

26% of trademark users and 32% of copyright users whereas they form 23% of the total

base; creative companies constituted 16% of trademark users and 19% of copyright users

whereas they form only 13% of the survey base), again in line with expectations based on

sectoral nuances.

Many (59% of respondents or 34 companies) founders do file or register for IP

protection prior to commencing business (implying fairly high awareness levels) and

international protection is high (60% of respondents or 35 companies). Interestingly

however, a majority (55% of respondents or 32 companies) of SMEs have never actually

evaluated the value of their IP. Therefore, particular emphasis on the recommendation to

incorporate at least one IP professional on the management team or engaged as a regular

consultant to the business is well founded.

Many firms (56% of respondents or 32 companies) do not actively monitor potential

infringements of their property rights and most of them have not taken legal action against

infringers of their IP (88% of respondents or 50 companies). It is somewhat unclear whether

the lack of monitoring is the basis for non-action against existing infringement or whether

infringement is discovered through other means and non-action is purposeful. Regardless,

the high majority of firms that do not take a proactive approach to safeguarding their IP

suggest that regular monitoring has the potential to make a substantial difference. The

sectoral differences with regard to monitoring behaviour also underscore the perceived

importance of IP in different industries. For example, for those firms that do monitor

potential infringements, biotechnology firms dominate significantly (64% of firms that

monitor whereas biotechnology firms only form 51% of the total survey base) compared to

other industries like IT (only 8% of firms that monitor whereas IT firms form 23% of the

total survey base).

Companies do actively seek out advice on IP (92% of respondents or 54 companies);

mainly from external legal professionals (96% of respondents or 52 companies), but the

Internet (24% of respondents or 13 companies) as well as colleagues and friends (24% of

respondents or 13 companies) are also key sources. This feedback illustrates the need for

aggressive, comprehensive, and economical IP education to combat current trends by SMEs

to seek IP advice only after they run into problems and often from inconsistent sources.

Also, a meagre 30% of firms (or 17 companies) use open source innovation and believe it

will dominate in the future. While the idea that companies cannot afford to rely entirely on

their own , but should instead buy or license processes or inventions from other companies

and that internal inventions not being used in a firm’s business should be sold through

licensing or shared between is growing in popularity, the survey response is likely skewed by

the large percentage of biotechnology respondents. However it nevertheless it is interesting

to note that of the firms that do use open source innovation, biotechnology firms do still

form a significant component (47% use open source whereas biotechnology firms form 51%

of the total survey base), an indication perhaps of a new trend towards open source in an

industry that was historically almost entirely dependent on patent-based IP strategies.



It is encouraging to note that the majority (72% of respondents or 41 companies) of

companies do have an explicit IP strategy and distribute that strategy to staff (69% of

respondents or 29 companies). However half of respondents (50% of respondents or

29 companies) do not complement their strategy with a dedicated individual or team to

manage their IP assets. This is likely attributable to SME cost considerations.

While most companies have an explicit strategy, the survey also revealed that most

companies (83% of respondents or 49 companies) do not provide IP training to their staff;

and those that do generally provide in-house training and must fund it with their own

resources. For close-knit corporations, standardised IP training to all employees is

beneficial to keep everyone aligned with IP strategy and protocols. However such additional

expenses would no doubt need to be structured to be line with the SME’s broader

investment in IP asset management.

Intellectual property litigation and enforcement

In terms of obstacles that inhibit firms from using IP protection, cost of enforcement

(74% of respondents or 42 companies) and cost of filing (60% of respondents or

34 companies) are the most significant issues.

iv) Case studies

The case studies performed for this study were intended to complement the

information obtained from IP expert interviews and SME surveys by providing an in-depth

look at selected SMEs from an IP perspective.

The general criteria used for case study selection were as follows:

● The company is diligent in pursuing IP-based strategies for the further development of

its market (patents and trademark).

● The company draws its IP from a combination of in-house and widely available and

currently viable technology to create specific IP that provides it with competitive advantage.

● The company has in-house or closely associated IP expertise employed regularly for the

purpose of monitoring its competitive advantage.

Case study summary

A summary of the case studies on which the proceeding analysis and evaluation was

based is provided below.


This section provides a summary of some of the key points raised during the course of

the various case study interviews.

Table 6.7. Summary of case studies in the United States report

# Case study Industry

1 Contract Research and Development Company Commercial physical and biological research

2 Manufacturer of “Lab-on-a-chip” technologies Micro-fluidics



Case study #1 – contract research and development company

Company overview. This company is a manufacturer of high-grade research instruments

for the R&D market within the broader commercial physical and biological research

industry. It has been in operation for 40 years and has a staff of 65 employees. The

company is privately held and employees own a significant stake in the company. IP forms

a core part of the company’s business; it holds 25 issued patents worldwide with further

patents pending. Sales are international including some recent customers in China. The

case study interview was conducted with the CEO, who joined the company shortly after

its inception and subsequently bought out the founder.

IP protection and preparation. Most of the patents held by this company are a result of

federal R&D funding which means that when they report to the government funding

providers, they do an invention disclosure, whether they plan to patent the specific

invention or not; it is a contractual requirement to government. This requirement

consequently introduces a high level of discipline in terms of recording inventions.

However in general, the company does not apply for a patent until the invention has

been prototyped and tested, i.e. they wait until they get government funding to prototype

and test it (as long as there is not too much competitive threat). This practice limits

unnecessary expenditure of time and money on the patent filing process.

The basic process for most patents filed is that a technical staff person will do the

initial literature and patent searches (the recent deal between Google and the Patent Office

further reduces the costs of self-searches) and draft the patent disclosure before turning

the material over to the patent attorneys for completion. The company has developed a

close relationship with their patent attorneys and works with them to scope the claims. In

their experience, taking on the early stages of the work in-house not only reduces costs but

also leads to a better end product.

IP filing and registration. The company has broad experience filing patents, with patents

filed and issued in the United States, European Union and Japan. Given the large number

of patents filed, the case study interviewee was just asked to provide detail primarily on

the most important patent which is the core patent for the largest revenue-generating

product. In this case the filing process took 2 years, which in the company’s opinion is fine.

Many other patents were filed within a similar timeframe. In addition to a well-established

internal process for filling preparation (described above), this relative expediency can

probably be partially attributed to the fact that the increasing clogging in the United States

Patent Office has not affected the company’s industry as severely as some others, e.g. the

biomedical industry.

Occasionally the company had to fight for some specific claims but they have usually

been able to get them upon responding to the patent examiner’s initial assessment. The

company has very seldom had a patent rejected although there have been a few cases

where the patent was split into several parts. In the company’s opinion this is sometimes

done as a tactic by the US Patent Office to get more fees. The challenge of maintaining the

fees for multiple filings is exacerbated for foreign filings, particularly in Europe, which has

high per patent fees. In these cases the company has to be very strategic about which

countries are worth investing in. In terms of costs, typical fees for filing a patent (inclusive

of filing, legal and other fees) are in the USD 10 000 to USD 15 000 range; foreign patents are

more expensive but of the same magnitude.



However while the company’s experience with the duration of the patent filing

process has been fairly reasonable in their opinion, concern was expressed over the issue

of the increasing delay between application and disposition. This constitutes a problem

from a business perspective, because until a patent issues, the value of the intellectual

property is undetermined, which can in turn impact negotiations with potential strategic

partners, etc.

While the core of the company’s IP protection strategy is built around filing patents,

they do regularly copyright software developed to handle the control and analysis

components of the instruments they develop. This is important as the company actually

does make a number of software sales each year. The copyright protection is currently

limited to the US. Apart from a trademark on the company name, trademarks are not really

used by this company.

IP management and strategy. The company three main revenue streams and has

designed its IP strategy to support these revenue streams:

● Getting federal government (SBIR) grants for product development.

● Selling products to research customers.

● Doing contract research.

A formal IP Committee consisting of the CEO, CFO, VP Operations and a Board Member

directs the IP strategy. The VP Operations for reviewing all the company’s intellectual

property assets on a regular basis and making decisions about which investments to

maintain etc. The company also has a monthly meeting involving each of their six

technology centres and IP issues are raised during this meeting. All IP issues are recorded

in a notebook and the recordings are signed and witnessed thus creating a paper trail.

The company did enter into discussions with another firm who were interested in

licensing the technology protected by their core patent, but in the end it was decided that

selling directly would be a better strategy. Initial sales were to R&D colleagues and

competitors around the world – a strategy that proved very effective in North America and

Europe but less so in Asia. The company then developed a network of sales agents for

China, Japan and Korea and this proved to be a more effective sales strategy for the region.

Since the patent in question is now 10 years old (7 more years pending before

expiration), the CEO is constantly pushing the team to patent new version and patent key

components to extend the company’s control of the technology.

IP litigation and enforcement. The CEO regularly reviews the relevant literature for

potential infringers on the company’s patents. In some cases they will send a cautionary

letter to potential infringers. There have been a few cases where outside parties have

actually violated the company’s patents. In these cases the company decided to watch for

a while and to date the commercial efforts of the infringing companies have failed because

they were putting out an inferior version of the product. In addition the company has

limited funds for prosecution at the moment and there are only are patents where suing

might possibly make sense.

The company has never received a notice of infringement from another firm. It has

also never had any patents subject to re-examination. The interviewee believes this can be

attributed to the fact that most of the company’s patents are pretty innovative as opposed

to being minor innovations on someone else’s technology.



Case study #2 – manufacturer of “lab-on-a-chip” technologies

Company overview. This company is a 6-year-old designer and developer of micro-

fluidics technology. It owns 13 patents worldwide (of which 2 are owned and the rest

exclusively licensed) with over 300 patents pending. The interview was conducted with the

lead in-house counsel.

Intellectual property protection and preparation. The company actually has a process

for capturing, evaluating and preparing IP for filing. The process essentially follows these

steps: 1) idea submissions from employees; 2) grouping of ideas into groups of related

ideas; 3) inventor interviews; 4) further development of ideas; 4) visual recording of ideas;

5) outsourcing to a technical writer to develop an invention disclosure; 6) addition of patent

components; 7) provisional patent filing; 8) further enhancement (“beefing up”) during the

one-year provisional period; 9) filing of the US and/or international patent applications.

The process is designed to keep costs to a minimum in a couple of ways 1) inventor

interaction with the patent application is kept to a minimum – they are not required to

write anything (all information is captured orally or visually) and so presumably can focus

their time on more high-value tasks; 2) technical writers are used for the bulk of the patent

drafting process instead of patent attorneys.

The company generally does not worry about freedom to operate regarding individual

patents – this only comes into play regarding products, e.g. design choices in products.

In terms of understanding the state of the art regarding whether a specific invention

is patentable or not, the company has developed comprehensive knowledge of the space,

and on occasion may do a survey as well. The company has standardised patent watches

and searches that the interviewee reviews on a weekly basis. A list of particularly relevant

documents with strategy positions relative to those documents is maintained, along with

a file structure with notes and documents organised by company, university or individual

that the company has an IP interest in. Employees also informally share publications, etc.

Intellectual property filing and registration. The majority of the company’s IP filings are

for patents. The company was not surprised by the costs involved or the time lag, although

both were greater than they would have liked. The biggest cost concern relates to international

filing for specific countries, and appropriate budgeting in this regard is an issue.

In the United States, costs typically include 1) USD 1 000 on a technical writer; 2) A few

hundred dollars on outside counsel to file the patent; 3) Patent filing fees, USD 100 for a

provisional patent; USD 3 000 for a utility patent.

For international filing, the expenses can add up fast. For example, one scenario that

involved the company potentially filing 12 patents in about half a dozen countries would

have cost in excess of USD 300 000.

The level of investment secured and the amount of revenue generated are key factors

that determine how much the company spends on IP protection. Sometimes the IP team

will use heuristics to decide which foreign jurisdictions to file in – e.g. ranking countries by

GDP, ranking countries by dollars accessed per dollars spent (costs divided by GDP).

However is it usually very easy to just pick the top 5 (China, India, Europe, Japan, Canada).

In terms of offsetting protection costs to customers, so far this has not been done

explicitly. However these costs are often worked into the pricing for the final deal with the

customer, so that the company effectively gets its money back in that way.



Claims are routinely rejected, but the company expects this and handles it as a normal

part of the process. However the company has not been too happy with the USPTO and the

way in which they drag out the process and thus increase the overall expenses involved.

Typically the patent filing process goes as follows:

● The company for a patent, pays several thousand dollars and then has two office actions.

● The examiner will often reject the patent the first office action and the company can

then make some arguments prior to the second, final office action.

● After the final office action, the company’s options are very limited, and if substantial

changes are required, typically the company will have to effectively start again and pay

another several thousand dollars. Often the cause of this is that patent examiners do not

do a good job the first time round.

● Ideally the examiner would work with the company up front to identify allowable claims

and avoid several iterations.

● The company has resorted to taking a proactive approach to limit delays, including

making in-person visits to the patent examiners, talking on the phone etc., to force them

to identify early on what they think is allowable and thus avoid having to file a request

for continued examination (RCE)

The company has 5 trademarks that are in the early stages of being filed. The

trademarks cover the obvious areas including the name of company, the logo used on

website, various alternatives to the name of the company etc. There is no internal process

for trademarks within the company. The company just filed trademarks that seemed

interesting to the executive team, after doing a quick trademark search. At present the

trademarks are only filed in the United States, however the company is interested in filing

in other countries in the future and has an outside attorney that is familiar with filing

trademarks in foreign jurisdictions.

The company has software and designs that by definition qualify as copyrighted

material, but nothing has been formally registered yet. Formal copyright protection will be

addressed closer to the product launch date and foreign protection will follow.

Intellectual property management and strategy. The interviewee is speci f ical ly

responsible for managing the IP in the company. In addition the company has an IP Team

consisting of the two founders (who both play a CTO role in the company), a senior

technical person, the CEO as needed and the in-house counsel (the interviewee).

The interviewee spent several years working in a business-consulting group in the

intellectual property world and brought over many IP management techniques when he

joined the company. The IP team meets at least twice a month and the company has an IP

strategy meeting once a year. A strategy is created with measurable goals for the year and

then the IP team meets regularly to track process against these goals. Some IP goals also rise

up to the level corporate strategy level. The IP strategy is described at a pretty high level,

e.g. how many provisional patents to file, how many patents are expected to be granted, etc.

The IP strategy has a vision that sets the tone for all the company’s different goals. It

identifies key opportunities and risks and identifies 5-8 urgent items to be addressed

during course of the year. It then goes into aspects of strategy related to freedom to

operate. It also covers specific relationships with other companies and universities and

plans for managing them.



The company has an IP process with the following stages, and associated strategic goals:

● Conception (in the inventors minds): goals here include increasing the diversity of the

people participating in conception, incentivizing staff for creating and submitting ideas,

rewarding people for granted patents, etc.

● Capture (idea submission): goals with respect to the number of ideas submitted.

● Evaluation: criteria for selecting which IP development and protection to pursue.

● Expansion (of the original idea): goals for how many employees are involved in these

meetings, the number of meetings held, etc.

Other areas covered by the IP strategy include:

● Prosecution: how much of the work will be done internally and how much will be done

externally, and who does what.

● Portfolio: metrics of the current portfolio and goals for the coming year – including

number of patents filed, granted, etc.

● Information: strategies for disseminating information to executives, inventors, etc.

● Landscape: freedom to operate, in-licensing opportunities (in-licensing is less focused

on identifying product opportunities; more on creating a comprehensive portfolio),

monitoring to identify potential opportunities, competitor patents to monitor, etc.

● Licensing Agreements: what is being targeted.

● Grants: managing IP and grants is a big time sink. The company is largely funded by

federal grants with lots of reporting requirements and the regulations are often unclear.

However these drawbacks notwithstanding, grant funding will continue to be a major

source of funding as it allows the company to retain IP (there are a few special

government rights, e.g. to cover national emergencies, but nothing significant) without

giving up equity and control.

● Trademarks.

The company has an open source system used for the submission of ideas and the

process described above in the section on filing is followed in terms of developing and

ultimately filing for protection for these ideas.

Intellectual property litigation and enforcement. The company has discovered

instances of infringement against its intellectual property in the past, however the current

strategy is to monitor aggressively but hold back on actual enforcement until a more

appropriate time in the future.

The company sees potential infringement frequently in universities and other small

companies. They monitor the infringement but do not currently have the budget to do

anything about it. The company’s portfolio is young, but one day when they have multiple

granted patents they will go after these infringers. Competition in this regard is mainly for

federal grants – if the infringers were actually selling competing products that would be a

different story, i.e. the company would be more aggressive.

The company’s customers actually do a lot of due diligence to make sure that the IP is

properly protected. This is an area where the interviewee spends a lot of his time. Usually

he will walk the customer through all the IP scenarios they have been tracking and re-

assure them through that process.



In terms of international filing, especially in countries with less robust enforcement

cultures (e.g. China, India), the company will file but then rely on a broader strategy to

protect the IP including collaborations, distribution deals etc. Often it is the local sub-

licensees who actually create a web of relationships that provide the real protection.

The company has never been served with a notice of infringement and has never had

a patent subjected to re-examination.


A summary of the best practices highlighted by the various case studies is provided

below. These have been contrasted with corresponding worst practices identified during

both the case study and IP expert interviews.

Table 6.8. SME best and worst practices identified in the case studies

IP protection approach and preparation

Best practices Worst practices

Structured process for capturing, evaluating and preparing for IP filing.Technical writers used to minimise costly use of inventor and attorney time. Also leads to a better end product.Established patent watches and searches reviewed on a regular basis.List maintained on all companies, universities and individuals of interest from an IP perspective.Control costs by maintaining various IP “competitive scenarios” internally for as long as possible and then investing prior to product launch.Deliberate “slicing” of IP to enable out-licensing while retaining “core” in-house.Use of the “expedited request” mechanism.Creation of “customer-group” where licensees receive value-added support can be used to discourage infringement.

No prior assessment of “patentability” before filing leading to lost time and costs.Poor monitoring of key IP-related dates, e.g. allowing trademarks to slip without renewal, losing opportunity for foreign protection, etc.

IP filing and registration


Pro-active approach to communicating with patent examiners (in-person visits, phone-calls, etc.) to identify concerns early.Develop collaborative working relationship with IP attorneys and provide them with clear description of technology.Use of heuristics to maximise investment in foreign protection (e.g. country GDP versus cost of filing).

Filing without consultation of experienced legal/IP experts leading to delays, re-submissions or even complete denial of claims.Filing “everything” and wasting resources.

IP management and strategy


High-level IP strategy with measurable goals.IP team or committee.Regular meetings of IP team/committee to track progress against strategic goals.Careful marking of material in proposals (e.g. to federal agencies) as confidential to avoid inadvertent disclosure.

No systematic monitoring of IP creation leading to core IP going un-protected.Poor protection of trade secrets.

IP litigation and re-examination


Systematic approach for monitoring infringers of protected IP.Careful review of sub-contractor and project partners (especially academic institutions) to ensure IP infringement on their part does not comprise company.

No systematic “freedom-to-operate” studies leading to potentially liability in IP infringement suits.




The majority of the recommendations for improvement to the current status quo

centre on policy and regulatory framework issues including:

Overall guiding philosophy – a fundamental economic analysis of the pros and cons of

patents for a given industry should inform policy. As discussed in Section iii), patents make

sense where upfront development costs are high (e.g. drug development) but for industries

like software, some experts actually recommend doing away with patents altogether in

order to encourage fast innovation. Another important consideration is the extent to which

an overly restrictive and expensive domestic IP policy can handicap US companies when

they compete globally – e.g. competitors in other countries with less restrictive policies

could imitate US innovations, improve on them (as they are not constrained by US IP law)

and then ultimately gain competitive advantage globally. Given the high costs of continued

enforcement, this trend, already evident in Asia, may prove to be difficult for US-based

SMEs.

Patent processing – the US PTO should hire more (appropriately skilled) patent

examiners to speed up the process and this should be coupled with improvements to its

process for forecasting needs ahead of time. Another recommendation would be to create

a fast track for small business (similar to the current fast track for patents related to

“green” technologies). An additional, perhaps counter-intuitive, recommendation from one

of the experts was to increase initial patent filing fees to discourage a large volume of poorly

thought out basic filings (see the issue of “clogging” the system described in Section ii). Yet

another suggestion is to decentralise patent examination, recruiting examiners in areas of

great innovation (e.g. California) instead of maintaining the entire infrastructure of patent

examination and filing in Washington, DC.

Table 6.9. Summary of major intellectual property issues and key corresponding recommendations

Regulatory and policy Issues Key recommendations

Excessive filing time Hire more (appropriately skilled) patent examiners.Create a fast-track for small business (e.g. similar to the current fast-track for “green” technologies).De-centralise patent examination.Possibly increase initial fees (to discourage the current large number of poorly thought out filings).

Public disclosure of patent filings Modify process to alert SMEs about special election provision for non-disclosure for US-only filings.

Cost/time of enforcement Set-up specialised IP courts and judges (e.g. similar to the German Federal Patent Court).Institute a mandatory binding arbitration policy.

Lack of advocacy for SMEs Support for an independent national organisation to advocate for SMEs.

Internal SME issues Key recommendations

Constrained budgets for IP Extend provisional time-frame from 1 to 2 years to allow SMEs to defer (high) costs of foreign filing.See items above regarding reduction of enforcement costs (where the bulk of IP-related costs lie).

Lack of management knowledge Public authorities working with IPR education (e.g. via existing IP education programs like GIPA) should ensure that such education encourages SMEs to integrate an IP expert in their team or engage regularly with an expert consultant. Furthermore, the USPTO should partner with existing SME support groups (SBDC, SCORE, Business Schools, etc.) and local attorneys to deliver IP education.WIPO’s efforts in the area of IP education should be publicised more thoroughly through associations, legal groups, universities and economic development organisations at the local and state level.

Absence of IP processes Existing IP education programs (e.g. GIPA) should encourage SMEs to establish an “IP Committee” and processes for documentation and record-keeping of IP.



IP enforcement – a key step forward in terms of improving the efficiency of IP

enforcement would be to set-up specialist courts and judges to handle intellectual

property cases – for example a court of limited jurisdiction, like the German Federal Patent

Court could be explored (in general the German system appears to be an interesting

reference for regulatory improvements that could be implemented in the United States). As

regards the high costs currently associated with enforcement, one potential solution would

be to institute a mandatory binding arbitration policy that would limit the costs of IP

enforcement. A further recommendation with respect to enforcement is that the courts

and regulators provide finality and clarity on all intellectual property laws.

Management – there are practices that SMEs should institute as a matter of course,

whether or not the decision to file for formal protection is taken. For example, ensuring

that management teams include a person (or persons) who understand the technology at

hand and how it translates into an effective intellectual asset worthy of consideration as

“property”. In addition, SMEs should have an intellectual property committee that meets

regularly, tracks progress and guides IP strategy. In the absence of a formal committee, at a

minimum there should be at least one IP professional on the management team or

engaged as a regular consultant.

Processes – SMEs should establish processes to continually monitor, record and document

discussions material to their technology, whether or not this can be seen as a reflection of

intellectual asset (IA) or intellectual property (IP). Given the dynamic, changing industrial

landscape, understanding what one has in house and how it is evolving is key to the necessary

effort of monitoring developments elsewhere (i.e. outside the company). As noted above, the

impact of the Act may not be measurable for many years. However, uncertainties on many

issues may lengthen the patent process, which will negatively impact small businesses. They

do not possess the financial resources or the “staying power” necessary to combat claims of

infringement, challenges to their patents on grounds of prior art, derivation proceedings before

the newly-constituted Patent and Trademarks Appeals Board, or suits filed in the courts. In

addition, many experts raise doubts as to whether the innovation system in the US that has

enabled the country to assert global pre-eminence in cultivating and growing innovative ideas

and enterprises can be maintained for small businesses given the constraints on their ability

to raise capital in advance of filing for patent protection under the new law. Given its

provisions, many venture capitalists have opined frequently since the Act came into force that

it would make them more risk-averse and less likely to embrace innovations that are not

certain of being protected under this new complex regime.

As described in the summary table, policy makers should ensure that these best

practices on internal management and processes are integrated into existing and future

education initiatives on intellectual property management for SMEs.

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MacQueen H.L. (2007), Contemporary Intellectual Property: Law and Policy 34, Oxford University Press.

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Roberts, Clement S., RCT v. Microsoft – Fed. Cir. Attempts to Shift Focus Away from MOT Test, http://patentlawcenter.pli.edu/2010/12/29/rct-v-microsoft-fed-cir-attempts-to-shift-focus-away-from-mot-test/(29 December 2010).

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http://www.patentlyo.com/patent/2011/02/patent-reform-act-of-2011-an-overview.html

http://www.patentlyo.com/patent/2011/02/patent-reform-act-of-2011-an-overview.html

http://files.ctia.org/pdf/PositionPaper_CTIA_ImpactoftheUSWirelessIndustryontheUSEconomy_04_06.pdf

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http://www.unctad.org/Templates/Webflyer.asp?docID=9467&intItemID=1634&lang=1


The SME Dimension

© OECD 2011

ANNEX A

SME Case Studies: Template

In-depth SMEs case studies were intended to provide a detailed picture of intellectual

asset management practices and challenges in different creative business environments.

Case studies were instrumental to the main objectives of the project, that is, to

analyse:

i) What kinds of intellectual asset management methods are most frequently sued by

SMEs and how do SMEs choose their protection methods.

ii) Whether the methods differ significantly across sectors and the type of innovation

they support.

iii) How different intellectual property regulations may better serve the objectives of

creating globally competitive firms.

Case studies allowed detailed insights, for SMEs in different creative industries, on:

● the ability of SMEs to access and utilise the protection systems available to them;

● the relationship between intellectual asset management, innovation and

competitiveness.

The selected cases were intended to be illustrative examples from which key issues for

SME IP management could be highlighted and valuable best practices could be learned.

These included success cases in IP management or related with IP management, as well as

innovative approaches/practices to IP-related opportunities or challenges, promoted by

SMEs and/or resulting from specific policies. At the same time, however, cases of failure or

difficulty with a changing market and regulatory environment were also included to

present interesting learning experiences about IP mis-management or policy needs.

Structure and key issues investigatedIntroduction: relevance of the case under study for learning about key issues and

assessing best practices in SME management of intellectual asset (i.e. how the case relates

to the broader objectives of the project, why it can be taken as an illustrative example of

contemporary challenges and opportunities for SMEs in creative industries)


● Description of the SME activity (size, proprietary structure, core business, human

capital-key competencies, growth performance, innovation record, degree of

internationalisation – export/FDI/participation to international ventures, etc.).

169

ANNEX A

● Description of the SME industry and business environment (value chain organisation,

target markets, competitors, etc.).

● Brief historical record, highlighting key moments in the firm evolutionary trajectory

(i.e. origin, entry into new markets, proprietary changes, responses to changing market

conditions, etc.).


● Business strategies and perception about relevance of intellectual asset management

a) How does the firm perceive relevance and impact of intellectual asset management

for the development of its core business and its competitiveness, i.e. how does the

firm perceive the ability of appropriate IP management to increase its value and its

growth opportunities.

b) Design of a firm-specific (and explicit) IP policy and degree of staff involvement (e.g. IP

training to staff).

c) Source of IP-related business advice (if any).

● Protection methods adopted by the SME (and how they have been changing over time)

a) Typology (registered IP-rights, semi-formal protection methods such as non-

disclosure agreements and non-competition clauses, informal protection methods

such as secrecy).

b) Drivers of adoption (and of changing adoption strategies), obstacles to adoption.

c) Perceived costs and benefits (i.e. how these IP management practices enable the firm

to position itself vis-à-vis its main competitors).

d) Type of innovation that is supported by the adopted IP management practices

(i.e. technological vs. non-technological).

e) Perceived dilemmas (in relation with the current management practices and the

changing market environment).

f) How do IP protection methods depend on and affect vertical relationships (i.e. with

suppliers and clients).

g) Awareness about broader IP instruments.

h) Awareness and assessment of competitors IP strategies.

i) Innovative approaches/strategies to IP management (if any): drivers, expected

benefits.

● Enforcement and litigation

a) Ability of the firm to enforce its rights and main problems faced.

b) Experiences in litigation and/or co-operative agreements and effects on the firm IP

strategy.

c) Support at the local or national level (e.g. consultancy, SMEs-oriented services by local

or national agencies, other policy instruments).

● IP management and the global context

a) How differences in the legal regulation of IP rights, semiformal protection methods

and informal protection methods affect the firm’s approach to international markets

(export, FDI, international collaboration).


ANNEX A

b) How the IP regulatory framework (at the national and international level) affects the

firm’s ability to access and engage in global knowledge networks.

c) The firm’s perception of the about prospective scenarios.

● IP management and policies

a) According to the firm, what policy measures or instruments related to IP regulation

and management would reduce barriers to their growth and innovativeness

(e.g. policy priorities, specific measures, supporting intermediate institutions, etc.).


Evaluation about

● the relevance of intellectual asset management in the firm current competitive

environment and in the light of prospective scenarios;

● the firm’s approach to IP management practices and how it relates to its competitiveness

and innovativeness;

● the impact of the firm’s environment (regulatory, competitive, territorial) on its ability to

access and utilise the available IP protection methods;

● critical issues and best practices that can be highlighted from the case.

Policy implications

Policy implications that can be drawn from the illustrative case (distinguishing

between relevant issues that might be generalised and context-specific implications)


ANNEX B

ANNEX B

Survey Questionnaire

Posted on line, or faxed/mailed as required under law prevailing in the jurisdiction:

i) Confidentiality Statement

ii) Privacy and Data rights statement

iii) Statement re. Attorney/Client privilege

Section 1: Country specific demographic data

1.1 Contact details City

1.2 State

1.3 Country

1.4 Industry classification code

1.5 Firm’s sector of activity

Section 2: demographic data

2.1 Respondent’s role in company

Owner Management Other employee

2.2 Duration of Operations (how long in business) < 1 year 1-5 years 6-10 years 10+ years

2.3 Employees 1-9 10-49 50-249 250+

2.4 Gross Revenue < $1 000 000

$1 000 000 – $10 000 000

$10 000 000 +

2.5 Company’s main market Local National International

2.6 Legal structure of firm Sole trader Partnership Limited co. PLC

2.7 Gross revenue growth projection for next 3 years Negative 0-20% 20%+


ANNEX B

Section 3: Innovation activities

3.1 Has your company implemented any of the following innovations in the past three years? (please select all relevant)

New or significantly improved product or service.

New or significantly improved production or delivery processes.

New business practices.

New marketing practices for your good or service.

3.2 Does your firm acquire knowledge or technology through licensing?YES NO

3.2a If yes, why does your firm utilise licensing? (please select all relevant)

To access to a technology to immediately use it To complete commercial or industrial partnership To take an option on a technology to benefit from (future) room for manoeuvre To co-develop a technology with a commercial or industrial partner To settle intellectual property right infringement conflicts

OPTIONAL SECTION ON OPEN SOURCE INNOVATION

O1 Des your firm engage in open source innovation?YES NO

O1a If yes, please specify the type of open source activity: (please select all relevant)

Open source software development

Open source pharmaceutical projects

Other open source communities(e.g. Wiki publishing, creative commons, the Free Beer and Open Cola initiatives, and similar)

O2 Do you believe that, in the long run, the open-source protection methods is or will become the dominant form of protection within your sector (for example, compared to patents)?

YES NO

Section 4: Intellectual assets

4.1 Does your firm use any of the following strategies or techniques to protect the specialist or confidential knowledge that your firm has? (please select all relevant)

Strategies Secrecy Trust between individuals/team Lead-time over competitors Limiting key information from staff

Techniques Complexity of design Building in specialist know-how into products

4.2 Do you use any of the following formal methods to protect your confidential knowledge? (please select all relevant)

a) Intellectual property rights Patents Trademarks Copyright Registered designs

b) Other Confidentiality agreements Unregistered design protection Non-protected technology or ideas

PLEASE NOTE: IF YOU DID NOT TICK ANY BOX IN Q4.2a, GO TO SECTION 9


ANNEX B

Section 5: Intellectual property and strategy

5.1 Did you file, register or establish any intellectual property rights before commencing business?YES NO

5.2 Has your firm filed, registered or established any intellectual property rights at an international level?YES NO

5.3 Has your company ever tried to assess how much your IP is worth?YES NO

5.4 Do you have a person on your team specifically charged with “managing” your intellectual property?YES NO

5.5 Does your company have an overall intellectual property policy/strategy?YES NO

5.5a If yes – is it explained or distributed to staff?YES NO

Section 6: Benefits/Obstacles to IPR use

6.1 Please tick UP TO 3 BENEFITS of intellectual property rights that your firm uses which you find of HIGHEST IMPACT.

● Protection against imitation ● Attract investors

● Build competitive advantage ● Source of direct income (e.g. royalties, licensing fees, etc.)

● Protect brand value ● Increase ability to enter collaborative agreements

● Protection in overseas markets

6.2 Please tick UP TO 3 OBSTACLES for intellectual property rights that your firm uses which you find of HIGHEST IMPACT.

● Lack of awareness of relevant IP type ● Cost of application

● Concerns regarding disclosure ● Cost of enforcement

● Uncertainty over whether IPR will be upheld ● Lack of qualified personnel

Section 7: Enforcement and litigation

7.1 Does your company actively check for potential infringement of its intellectual property rights?YES NO

7.2 Has your company ever undertaken legal action for the infringement of its intellectual property rights?YES, IN HOME COUNTRY YES, IN FOREIGN MARKET(S) NO

7.3a If yes, how much money did it cost in total to resolve the matter(s)? $

7.3b If yes, how much time (in weeks) did it take in total to resolve the matter(s)? weeks


ANNEX B

Section 8: Intellectual property advice and education

8.1 Has your company ever sought advice on intellectual property rights from the following sources? (please select all relevant)

In-House Legal Professional National IP Office

External Legal Professional Chamber of Commerce

Licensing Consultant Business Association

Accountant Internet search

Colleague/friend

8.1a If you have sought advice on intellectual property rights, what was the request for advice regarding? (please select all relevant)

Formal structure of IP system Filing of IP

Enforcement/litigation Search for existing IP

8.1b If yes, did the advice received meet your needs?YES NO

8.2 Is any training in intellectual property issues provided by your company to its staff?YES NO


Within your company Private institute Business Association

Government sponsored course Local school/university Chamber of Commerce


The company Government or other public entity Business Association or other private entity

8.2c If yes, does this training meet your needs?YES NO

END OF SURVEY

Section 9: Reasons for not utilising IPR protection

9.1 Which obstacles deterred or prevented you from utilising the intellectual property rights system? Please tick UP TO 3 OBSTACLES which you find of HIGHEST IMPACT.

No need/not relevant for my firm Lack of awareness of relevant IP type Concerns regarding disclosure Uncertainty over whether IPR will be upheld

Cost of application Cost of enforcement Lack of qualified personnel

9.2 Has your company ever sought advice on IPRs from the following sources? (please select all relevant)

In-House Legal Professional External Legal Professional Licensing Consultant Accountant Colleague/friend

National IP Office Chamber of Commerce Business Association Internet search

9.2a If you have sought advice on IPRs, what was the request for advice regarding? (please select all relevant)

Formal structure of IP system Filing of IP

Enforcement/litigation Search for existing IP

9.2b If yes, did the advice received meet your needs?YES NO

9.3 Is any training in IP issues provided by your company to its staff?YES NO


Within your company Private institute Business Association

Government sponsored course Local school/university Chamber of Commerce


The company Government or other public entity Business Association or other private entity

9.3c If yes, does this training meet your needs?YES NO

END OF SURVEY


ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT

The OECD is a unique forum where governments work together to address the economic, social and

environmental challenges of globalisation. The OECD is also at the forefront of efforts to understand and

to help governments respond to new developments and concerns, such as corporate governance, the

information economy and the challenges of an ageing population. The Organisation provides a setting

where governments can compare policy experiences, seek answers to common problems, identify good

practice and work to co-ordinate domestic and international policies.

The OECD member countries are: Australia, Austria, Belgium, Canada, Chile, the Czech Republic,

Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Israel, Italy, Japan, Korea,

Luxembourg, Mexico, the Netherlands, New Zealand, Norway, Poland, Portugal, the Slovak Republic, Slovenia,

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OECD PUBLISHING, 2, rue André-Pascal, 75775 PARIS CEDEX 16

(85 2011 02 1 P) ISBN 978-92-64-11823-2 – No. 59613 2011

Please cite this publication as:

OECD (2011), Intellectual Assets and Innovation: The SME Dimension, OECD Studies on SMEs and Entrepreneurship , OECD Publishing.http://dx.doi.org/10.1787/9789264118263-en

This work is published on the OECD iLibrary, which gathers all OECD books, periodicals and statistical databases. Visit www.oecd-ilibrary.org, and do not hesitate to contact us for more information.



This series offers policy guidance for governments to foster entrepreneurship and strengthen the performance of SMEs and their contribution to growth and development. It provides evidence-based analysis and policy recommendations on thematic issues such as access to fi nance for SMEs and entrepreneurs, SME participation in global markets, intellectual assets and innovation, high-growth SMEs and women’s entrepreneurship. It also includes country reviews of key SME and entrepreneurship issues and policies in OECD member and non-member countries.

Contents

Chapter 1. Intellectual asset management, innovation and SMEs

Chapter 2. Australia: Intellectual property solutions for innovative SMEs

Chapter 3. Italy: Channeling creativity into competitiveness

Chapter 4. Nordic countries: Matching exceptional design and creativity with progressive policy

Chapter 5. The United Kingdom: Intellectual asset management strategies for diverse innovations

Chapter 6. The United States: Balancing robust protection with rapid innovation

ISBN 978-92-64-11823-285 2011 02 1 P -:HSTCQE=VV]WXW:

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