Role of intellectual property in the UK: do smaller firms benefit?

Mark Rogers (Harris Manchester College, Oxford University) focuses on applied analysis of intellectual property and performance in his research.   He is an IP Osgoode Research Affiliate.

The role of IP in the UK, as elsewhere, is under active debate. In 2006 the Gowers Review of IP looked at all aspects of IP, although with a particular focus on copyright. The task set for Gowers was to assess ways to improve the IP system and 54 recommendations were made. The recommendations covered many issues such as establishing a voluntary register of copyright (#14) to introducing fast track patent and trademark registration (#25). However, one recommendation (#46) acknowledged the need for on-going strategic analysis and suggested setting up a Strategic Advisory Board on IP (SABIP). SABIP has now been established and has started a wide program of analysis and research into various aspects of IP.

One of the uncertainties facing IP policy is understanding how IP affects smaller firms. While there has been considerable research into large firms, especially with respect to patenting, evidence on how smaller firms use IP – and whether they actually gain from using it – is relatively unknown. Policymakers also worry that whereas large firms are experienced at lobbying government, the interests of smaller firms may not be heard. The problem is that no one knows how many smaller firms were using IP, let alone whether these firms benefit from IP. This lack of knowledge is quite serious. When faced with a sceptical entrepreneur who claims that the IP system is only for large firms it would be good to have some evidence to respond with.

As a result of this lack of knowledge, back in 2005 myself and others at the Oxford IP Research Center starting a project to map the IP activity of all UK firms. To date the project has only looked at registered IP – patents and trademarks – since for these we can match IP applicants to firm names.

In the 2000s, there were around 2.2 million UK registered firms each year. The vast majority of these are micro firms with less than 10 employees (1.9 million). As a proportion, less than 1% apply for a patent or trademark over a five year period. For small and medium enterprises (SMEs) the percentage is higher at around 5%. Despite the low percentages, for the UK we now know that, in terms of absolute numbers, micro firms and SMEs account for more patents and trademarks than larger firms.

Creating such data lets us investigate patterns of IP activity and monitor trends. It also allows us to analyse whether smaller firms gain any benefit from the use of IP. Some of our research looks specifically at start-up firms and whether IP active start-ups did better. In general, start-up firms that use IP do seem to survive longer, although this appears to be especially so for trademarkers. But do start-up IP active firms also grow faster and make higher profits? This turns out to be a complex issue, especially in the case of patents. As one might expect, start-up firms that patent are often pursuing radical innovations, which are inherently risky. In some industries we find the performance of start-up patentees is polarised: many do very well, but many do poorly. Nevertheless, we can calculate the average effect. For high- and medium-tech start-ups we find that growth rates are 6% to 17% per annum higher for patentees than non-patentees. This is at least something to tell the sceptical entrepreneur.

Two recent working papers are at:

One Comment
  1. Interesting. The author does note that “The paper has not been able to investigate reasons why such an association might exist. Clearly, our assumptions regarding the timing and nature of the decision to
    patent are critical to any interpretation.”

    While providing certain possibilities (e.g., Start-ups could be using patents as a signal to capital markets, which then allows them to borrow more), the author misses one possibility that seems readily apparent: those that obtain patents have developed a novel product/system that they believe to be of some value.

    It is entirely possible that the patent here is a symptom of the relative success of the undertaking, as opposed to a cause for it.

    To the best of my recollection, the studies described in Bessen’s Patent Failure demonstrate that IP plays a trivial role in terms of income from royalties for small and mid-size companies. This, however, does not consider the possibility of patents being used as a signaling mechanism (not the primary role of a patent).

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