The influence of Digital Innovation and Patents Management on SMEs: a systematic review (Part 2/2)

European Commission’s commitment in providing the tools of the trade

In the last few years, and especially after the announcement in May 2015 of the Digital Single Market strategy[1], the European Commission has been working hard to harmonize the laws relating to the intellectual and industrial property rights among all the Member States in order to avoid barriers and to create efficient EU-wide systems for protection of such rights.

During this period, the Commission acknowledged that SMEs need help to understand the IP landscape and know where and how they can get finance; moreover, they need easier paths to registration of the most appropriate and accessible rights. Therefore, it has begun to focus on the development of the necessary tools. On this regard, COSME, the EU programme for the Competitiveness of Enterprises and SMEs, has already been mentioned[2] (see also the previous part of the article https://www.iusinitinere.it/the-influence-of-digital-innovation-and-patents-management-on-smes-a-systematic-review-part-1-2-25498). The program provides support to European enterprises so that they can benefit from the EU’s Single Market and make the most of opportunities offered by markets outside the EU. More specifically, COSME finances the ASEAN[3], China and MERCOSUR Intellectual Property Rights (IPRs) SME Helpdesks[4] that offer advice and support to European SMEs facing difficulties in IPRs issues, standards or public procurement rules in those geographical areas. The programme also provides financial assistance to the EU-Japan Centre for Industrial Cooperation, to promote all forms of industrial, trade and investment cooperation by disseminating information on how to access the Japanese market, facilitating exchanges of experience and know-how between EU and Japanese businesses.

But beyond that, the European Commission is supporting other ways to provide specialized IP services to European universities and public research organizations. It is the case, for instance, of the Intellectual Property Booster (IP Booster)[5], a new specialized professional IP service financed by the European Commission for public research organizations looking to realize value from their research results. The program is carried out by experts who examine the applicants’ cases and guide them towards the best intellectual property strategy for free. Five specific services (initial IP audit; patent Landscaping; IP Evaluation or due diligence; patents, design and trademark application; negotiating technology transfer) are provided to universities according to their needs, from an initial IP audit to patent landscaping to negotiating technology transfer.

While the European Union is negotiating a series of bilateral trade agreements which aim to include comprehensive IPRs chapters, the Commission engages in regular meetings (such as IP Dialogues, IP Working Groups, etc.) with some priority partner countries around the world on IP matters. European Commission.

In fact, partnerships (enterprise/enterprise and enterprise/country) play a vital role in the commercialization of patented inventions. According to a fresh from the print report published by EPO on 4^th November 2019[6], when considering commercial exploitation, almost two thirds (67%) of the inventions for which SMEs have filed a patent application are exploited for commercial purposes. One third (34%) of all inventions are exploited exclusively by SMEs, and another third (33%) are commercialized in collaboration with external partners, via technology transfers or co-operation agreements. In other words, half of all patented inventions that reach the market are exploited via a partnership (cfr. the image below).

Image taken from “Market success for Inventions – Patent commercialisation scoreboard: European SMEs”[7]

In addition to the above-mentioned initiatives launched, the constant attitude of collaboration that is distinguishing the work of the European Commission must also be underlined, in particular in its activity of tele-coordination between bodies such as EUIPO and EPO. The joint activity of these two different European Offices, fundamental in the process of innovation, information and business protection, will be discussed in further detail in the following paragraph.

EPO-EUIPO coordination: knowledge that matters

Small and medium-sized enterprises (SMEs) are often said to be the backbone of the European economy and their key role, which has been stressed continuously throughout this article, can also be demonstrated by the figures that follow. As a matter of fact, according to a joint EPO-EUIPO report, SMEs represent 99,8% of all businesses in the European Union (EU), employ 66,8% of the working population and contribute 57% of the EU’s Gross Domestic Product (GDP). However, a large proportion of the value (given by the estimate of growth and job creation) generated by SMEs comes from a small number of high growth firms[8] (HGFs), which are often very innovative[9]. These high-growth firms (HGFs), which are characterized by an extremely high degree of innovation[10], are a priority target for policymakers. They include start-ups as well as more classical SMEs, some of which may become Europe’s future industry champions. As compared with other SMEs, their success frequently stems from investment in innovation and intellectual assets, and their growth typically involves international development.

Notwithstanding the positive outcome of having a rich and highly diverse IP portfolio[11], based on the Intellectual Property SME Scoreboard 2016 published by EUIPO, SMEs only make a minimal use of the IP system. As of 2016 record, the vast majority of SMEs – about 99% – did not own any patent, 91% did not own any registered trade mark while only 0.7% owned a registered design. In addition, nine out of 10 SMEs did not own any of the above industrial property rights and even fewer SMEs owned EU-wide IP rights titles. This means that SMEs throughout the European Union and throughout different sectors of economic activity were missing out on substantial growth and development opportunities, as SMEs that use IP generate 32% revenue more than their peers not using IP. As we will discuss in the next paragraphs, however, a trend change is taking place as businesses are starting to realize the positive outcomes arising from a well-structured IP strategy[12][13].

There are conflicting opinions[14] on this respect, but truth is that at least within the European Union, after registering their IP rights, 54% of owners claimed to have seen a positive outcome. The main impacts identified were an increase in reputation (52%), turnover (39%) and ability to access new markets (37%). For those SMEs without registered intellectual property rights, the main reason for not registering was a lack of knowledge about what IP is and its benefits. The percentage giving this reason has grown from 25% in 2016 to 38% in 2019. After all, it is perfectly understandable that in a view of mitigating risks and costs SMEs and start-ups tend either to be interested in getting patent applications done at a lower cost or to completely forgo them, even despite the impression that IP rights could actually  protect their ideas and inventions and make sure they are not infringing someone else’s intellectual property.

Image taken from “2019 Intellectual Property SME Scoreboard Report”

António Campinos[15], recently declared that “some 30% of EPO applicants are SMEs, entrepreneurs, universities or public research organizations so it is essential to continue facilitating their access to the European market in order to commercialise their inventions. It has a tremendous impact on growth and job creation, and public authorities at the European and national level should increase their efforts to support this goal.”

Notwithstanding the fact that the most recent studies agree in stating that there is a principle of direct causality between the development and acquisition of IP by SMEs and the growth of the latter, there is still a general lack of understanding among SMEs of how to maximize the potential of IPRs. On the basis of a report released in October 2019 and commissioned by EUIPO from KPMG Spain[16], monetisation of innovation IPRs are often seen by SMEs just as a cost rather than an investment and that happens because the value added is often not entirely understood. Only 25% of medium-sized IPRs owners have professionally valued their intangible assets[17], and this drops to 20% for both small and micro-sized IPRs owners.

A general lack of understanding of how to maximize the potential of IPRs arising from a patent portfolio can be seen in the number of SMEs who have attempted to gain finance based upon their intangible assets. Although access to finance is one of the biggest issues for SMEs, only 13% of IPRs owners have attempted to gain finance using their intangible assets. On a more positive note, however, 9% have done so successfully. When it comes to commercialization, 24% of IPRs owners interviewed have signed a licence involving IPRs, with 71 % of those licensing their IPRs to other organizations. The main reasons for doing this were to obtain additional revenue (27%) and to expand into new areas (sectors and geographies) without incurring the related costs (23%).

One last look at the IP management in SMEs has been taken by EPO in its already mentioned survey which targets specifically the commercialization of the patented inventions[18]. The analysis focuses on geographical origins of SMEs, as no significant differences were found at the sectoral level[19]. The SMEs interviewed have a dedicated IP department or dedicated IP staff, highlighting strong contrasts between geographical areas. While SMEs at European level report with a dedicated IP department in 25% of cases, this sharing is much higher (41%) among German SMEs and in some way higher among French SMEs (32%). On the contrary, the fact that only 12% of UK-based SMEs report having a dedicated IP department suggests that they rely more on external IP consultants. The frequency with which IP’s activities return to the top of the company management is another indicator of the importance given to IP issues by SMEs.

Image taken from “Market success for Inventions – Patent commercialisation scoreboard: European SMEs”

 

Special thanks go to Dr Domenico Golzio, Director at the European Patent Office, for sharing part of his extensive knowledge and expertise in the field of patents with me and for his precious support.

 

[1] See for further information the “Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions – A Digital Single Market Strategy for Europe”, May 2015, European Commission. Available at the following link: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=celex%3A52015DC0192. Last accessed on 1^st November 2019.

[2] Cfr. footnote n. 21

[3] The ASEAN IP Portal was launched by Thailand in April 2013, in conjunction with World IP Day 2013. Comprising information on ASEAN IP systems, comparative IP-related data, and web links to ASEAN IP Offices, stakeholders of ASEAN Member States can now obtain IP information for the entire ASEAN region via a consolidated platform. This one-stop portal facilitates information flow within the region’s IP knowledge network and enables stakeholders to access relevant information such as notices and procedures in a more efficient manner. The portal is currently hosted and managed by Singapore. Features of the portal include an electronic application form for the ASEAN Patent Examination Co-operation (ASPEC) – a programme to help patent applicants obtain high quality search and examination results more quickly in ASEAN.

[4] The MERCOSUR IPR SME Helpdesk is an initiative co-funded by the European Commission, which aims to support European Small and Medium-sized Enterprises (SMEs) to protect and enforce their Intellectual Property (IP) rights in Chile and MERCOSUR, the ‘Southern Common Market’ composed of Argentina, Brazil, Paraguay, Uruguay and Venezuela. The region offers clear internationalization opportunities for European SMEs which are looking to build up and expand their activities and linkages in a wide range of sectors.

[5] See for further information the website available at the following link: https://ipbooster.meta-group.com/about. Last accessed on 1^st November 2019

[6] See “Market success for Inventions – Patent commercialisation scoreboard: European SMEs”, Nov. 2019, EPO, p. 10.

[7] Ibid, p. 10.

[8] See “High-Growth Firms: Facts, Fiction, and Policy Options for Emerging Economies”, Nov. 2018, The World Bank. Available at the following link: https://www.worldbank.org/en/news/feature/2018/11/16/high-growth-firms-facts-fiction-and-policy-options-for-emerging-economies. Last accessed on 15^th November 2019.

[9] See K. Wilson, “Financing High-Growth Firms: The Role of Angel Investors”, Dec. 2011, p. 10. Available at the following link: https://papers.ssrn.com/Sol3/papers.cfm?abstract_id=1983115. Last accessed on 15^th November 2019

[10] See W. Hoelzl, “High growth firms in Europe”, Jan. 2016, p. 247

[11] See G. de Rassenfosse, “How SMEs exploit their intellectual property assets: evidence from survey data”, Dec. 2010, Melbourne Institute of Applied Economic and Social Research (MIAESR), and Intellectual Property Research Institute of Australia (IPRIA) The University of Melbourne, p. 8. Available on SSRN at the following link: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1726208&download=yes. Last accessed on 15^th November 2019.

[12] See on the same topic “2019 Intellectual Property SME Scoreboard Report”, October 2019. The report will be discussed in the next paragraphs. Available at the following link: https://euipo.europa.eu/tunnel-web/secure/webdav/guest/document_library/observatory/documents/IP_sme_scoreboard_study_2019/IP_sme_scoreboard_study_2019_en.pdf, p. 24-31. IP Scoreboard Report is a major piece of research that includes the results from more than 8,300 interviews with SMEs from across the 28 EU Member States.

[13] Ibid, p. 11.

[14] See E. Gold, J. Morin, E. Shadeed, “Does intellectual property lead to economic growth? Insights from a novel IP dataset”, Aug. 2017, John Wiley & Sons Australia, Ltd. Available at the following link: . Last accessed on 15^th November 2019.

[15] President of the European Patent Office.

[16] See “2019 Intellectual Property SME Scoreboard Report”, October 2019. Available at the following link: https://euipo.europa.eu/tunnel-web/secure/webdav/guest/document_library/observatory/documents/IP_sme_scoreboard_study_2019/IP_sme_scoreboard_study_2019_en.pdf, p. 24-31.

[17] Def. An intangible asset is an asset that is not physical in nature. Goodwill, brand recognition and intellectual property, such as patents, trademarks, and copyrights, are all intangible assets. Intangible assets exist in opposition to tangible assets, which include land, vehicles, equipment, and inventory.

[18] See “Market success for Inventions – Patent commercialisation scoreboard: European SMEs”, Nov. 2019, EPO, p. 53.

[19] Ibid, p. 56.