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Company size matters: European SMEs and innovative performance

Dr. Cornelia Peuser / March 27, 2020
Company size matters: European SMEs and innovative performance

Recently, the European Patent Office (EPO) published their study "Market success for inventions – Patent commercialization scoreboard: European SMEs," which investigates the importance of European patents for small and medium-sized enterprises' (SME) economic success.

Some of the main findings include the observation that, while SMEs consider patents and other Intellectual Property rights (IPR) an essential means to commercialize their vital technologies and products, they significantly lag behind large corporations concerning ownership of IPRs. Likewise and in half of all cases, SMEs that exploit their patents do so in collaboration with a partner. At the same time, they cite difficulties in finding a suitable cooperation as one of the main obstacles to the successful exploitation of their IPRs, be it the identification of a prospective partner itself or the complexity of the ensuing negotiations. Still, SMEs across Europe recognize the importance of protecting their inventions as paramount for their successful market operations.

This is to some extent reflected in the reported IP management practices, which vary across Europe, with a significant 41% of German SMEs claiming to have a dedicated IP management department of some kind, followed by 32% of French SMEs having one. At the lower end, and accordingly relying much more on external IP counsel, range the UK with 12% of companies reporting having an IP department, and south-eastern European SMEs with 19%.

The paradox

Realizing the importance of patent protection and the apparent sluggishness of employing one is less contradictory than it seems at first glance. The reason lies in the somewhat conflicting nature of SMEs themselves. All across Europe, it is smaller companies that drive innovation: By virtue of their size, they tend to be nimbler and more attuned to pressures in their respective markets and industries than their (much) larger competitors. Consequently, and due to the fact that SMEs are a significant economic force in most of Europe, they generate the bulk of any country's innovation.

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In Germany, for example, SMEs form the backbone of the economy - 98% of all companies are classed as SMEs and employ 67% of all nationally insured persons.

On the other hand, being comparatively small also means being often squeezed for resources, be that capital or manpower. This leads many SMEs to shun the cost of patent protection for their inventions and instead turn to other means of protection, including secrecy, maintaining their technological lead time and creating state-of-the-art through publication. This is well documented, and Dennemeyer's research into SME patenting behavior and attitudes broadly confirms this finding, too. Being small and therefore nimble means for many SMEs that they cannot afford being bogged down by what they perceive as red tape; long processes like patent grant procedures tie up precious, scarce resources and slow down the whole operation. The same applies to finding a cooperation partner.

The EPO reports that the overwhelming majority of cooperations result from prior contacts and personal networks, rather than from a systematic partner search. Again, this strongly points to the necessity of giving up overly comprehensive partner searches in favor of ad-hoc collaboration to minimize the effort expended. Additionally, any envisaged patent grant is usually less than assured, making the dedication of resources even less attractive. A further discouragement is the inevitable trade-off between nimbleness and heft. What the SME possesses in flexibility, it usually lacks in sheer muscle.

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More and more IPR owners believe that trademarks are of 'high' importance for protecting their ability to derive a competitive advantage from their innovation activity.

If any large company happens to challenge an SME's IPR, the effort needed to assert its rights (irrespective of who is actually in the right) might just prove to be prohibitive for the smaller player. An SME that once got burnt in a conflict with a larger opponent might just shun the fire and avoid patents altogether. Another implication of scarce resources is that while SMEs might realize the importance of European patent protection for their inventions, they stop short of pursuing that for cost reasons. Many SMEs contend themselves with a national patent and forgo the more expensive path to comprehensive European protection for simple cost reasons, rather than strategic considerations.

An odd patenting behavior

As such, SMEs' emphasis on the importance of patent and IPR protection in general will be only partially reflected in their actual patenting behavior. In order to be able to realize the maximum benefit that patent protection and exploitation affords the patent owner, European SMEs need support in achieving IP excellence and transparency when faced with options like patent filing strategies and developing the right "IPR mix." The growing importance of these considerations is reflected, for instance, in the increasing weight that companies attach to trademarks. More and more IPR owners believe that trademarks are the most important IPR, with a whopping 58% saying that trademarks are of 'high' importance for protecting their ability to derive a competitive advantage from their innovation activity, up from only 38% in 2016.

This clearly demonstrates the need for Europe's SMEs of an even deeper understanding of the threats and opportunities that come with the exploitation of their inventions.

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