We believe that IP can play an important positive role in commercial success, and in particular in the success of SMEs. Our extensive experience of working with businesses of all sizes shows us that appropriate and focused use of IP can put companies in the best position for success, whatever that might look like. We have seen IP assets help our clients to present attractive investment propositions and to protect their hard-won market and brand positions.
We are not the only people who have noticed a correlation between IP usage and business success. A joint report from the EPO (European Patent Office) and EUIPO (European Union Intellectual Property Office), released on 8 February this year, makes a compelling case for the correlation.
The central question addressed in the report is: do companies that make use of IP rights perform better than those that do not?
Spoiler: the answer appears to be “yes”. However, correlation does not necessarily imply causation, and it pays to be wary of spurious correlations. Indeed the report stops short of claiming a causal link between company performance and IP right ownership. After we look at the findings, we will consider what the report might be telling us.
The authors analysed the business performance and IP ownership details of over 127’000 companies from the across the 27 EU countries and the UK. The econometric analysis, and in particular the potential effect of variables for which the data does not permit disentanglement, is predictably complex. Inadvertently averaging out the determinative variable is a risk. Nevertheless, the report manages to derive interesting, convincing and appropriately caveated conclusions.
The central outcome of the report is that:
“[…] ownership of IPRs, specifically patents, trade marks and designs, is strongly associated with improved economic performance at individual firm level. This association is especially strong in the case of SMEs.”
The report presents a number of metrics in support of this statement.
Revenue per employee for companies that own IP rights (patents, trade marks and/or designs, national and/or European) is on average 20% higher than for non-owners of IP rights. This revenue premium differs based on IP right:
- patent owners at 36.3%,
- design owners at 32.2%, and
- trade mark owners at 20.9%
This relationship is particularly pronounced for SMEs. SMEs that own IP rights have 68% higher revenue per employee than SMEs that do not own any IPRs at all. Contrast that with large companies where revenue per employee is 18% higher for IPR owners than for non-owners.
Wages paid by IP rights owners are on average 19.3% higher than those paid by non-owners. Again this revenue premium differs based on IP right:
- patent owners at 52.6%,
- design owners at 29.7%, and
- trade mark owners at 17.4%
Interestingly, European-level rights are associated with higher wage premiums than national rights for all three types of IP right (patent, trade mark and registered design).
Ownership of IP rights shows a split between SME and large companies. A greater proportion of SMEs (91.3%) than large firms (44.4%) are non-owners. In other words, only 8.7% of SMEs own any of the three IPRs included in the study, but 55.6% of large firms do.
Furthermore, increases in company performance depend on the type and combination of IP rights held. The highest revenue-per-employee increases being for:
- combined trade mark/design holders at 63% and
- combined patent/trade mark/design owners at 60%.
Trade mark-only owners have 56% higher revenue per employee, patent-only owners 43%, and design-only owners 31%.
Conclusions
While the report does not find a causal connection between company performance and ownership of IP rights, it certainly presents evidence that there could be such a connection. On one hand it is not difficult to see why that might be.
- IP rights primarily protect market position by acting to exclude or limit competitors. As a right holder, you may not even be aware when this happens; it’s difficult to identify competitor activity that never happened because of your IP. Regardless a business that possesses IP rights may be subject to lower competitive pressure because competitors are dissuaded from the market or from emulating the business.
- IP rights can provide additional revenue streams for the owner. For example, via licensing agreements or sales of IP rights.
- IP rights can evidence innovative capacity and intellectual activity. In other words, ensuring that not all the intellectual assets of a company reside only in the minds of the workforce. IP rights can demonstrate evidenced, well-understood, and legally certain transferable value, in addition to the staff. Such evidence may be important in securing investment, for example.
On the other hand, it seems unlikely that the mere act of obtaining IP rights would lead to increased business performance. I would not recommend building an IP portfolio on that expectation alone. More likely it seems that it is the mindset of the IP savvy business and the downstream benefits of having the IP that give the commercial edge that helps to tip the scales in favour of success.
We could think about the possession of IP rights as a proxy measurement of something else, something less tangible but no less important for it. For example
- Fully capturing and protecting the intellectual efforts of your workforce.
- Building an IP portfolio that aligns with and protects your business goals, using the various forms of complementary IP rights to maximise the effect.
- Securing investment (and consequent growth and performance increases) through use of IP rights to evidence business potential – both realised and future.
These factors, somewhat abstract as they are, are business areas that should be thought about, analysed, worked upon, and refined. Talk to us about whether IP rights are appropriate for your business. If they are, we can explore together how you can begin creating and using, or refining, an IP portfolio that reflects your business and puts you in the best position to benefit fully from your all of your commercial assets.
View the joint EPO and EUIPO report: Intellectual property rights and firm performance in the European Union
Read this blog in German.
