A comparison of the use and value of patents and trade marks in large and small firms*

by Mark Rogers+, Christian Helmers++ and Christine Greenhalgh†

+Harris Manchester College, Oxford University++Wolfson College, Oxford University †St Peter’s College, Oxford University

and all associated with theOxford Intellectual Property Research Centre

Seminar at Melbourne Institute for AppliedEconomic and Social Research

* The research was supported by the UK IP Office and UK Trade and Investment.

Intellectual Property and firm size

• Well known that IP is widely used by large firms • Many studies of these large firms show benefits of

both patents and trade marks• One hypothesis concerning SMEs is that they may

do less innovation, so obtain less IP• SMEs may have a lower propensity to protect their

innovation, so again leads to less IP • Rather few studies have comprehensive data on IP

in SMEs• Notable exception is Jensen and Webster for

Australia – see Economic Record, March 2006

Some reasons for less IP in SMEs(full survey of factors in Jensen and Webster)

• SMEs do less innovation investment as face higher risk, e.g. bankruptcy, cannot diversify risk as in large firm with many product lines for R&D

• Liquidity constraints affect ability to undertake R&D investment with long pay-back period

• SME applies for less IP per innovation, as lacking in information about procedures and cannot afford an IP specialist in management team

• Cost of IP application high in relation to turnover and potential litigation costs also high, so see less potential return to IP

• All these factors would lead to lower IP intensity (IP relative to size of firm) in SME

Our objectives in this study

• Document for the first time for the UK the actual IP use by SMEs and compare this with larger firms and micro firms

• Explore the determinants of IP intensity (measured relative to assets) focusing on the role of firm size

• Analyse the comparative performance of IP active and inactive firms to see if IP is good for SMEs

• Performance to be investigated by analysis of firm survival rates – does IP help or hinder?

• Also explore firm asset growth in years following acquisition of new IP

• Small and medium enterprises (SMEs)– 2m Euros < total assets < 43 million Euros– 10 < employment < 250– Euro 10m < turnover < 50m Euros

• Subsidiaries of large UK firms are not classed as SMEs• Problem in that some SMEs have foreign parents of

unknown size – we can exclude later• Micro firms have assets < 2m or missing, but if owned

by an SME reclassified as an SME• Large firms have assets >43m Euros • MR calls this the Oxford Firm Level IP (OFLIP) data

Definitions

UK companies in Fame database (actively trading in 2005)

   Trading

Companies

All companies 

2,198,825

Large (> £28.7m total assets)

88,832

SMEs(£1.3m < assets < £28.7m)

159,399

Micro (assets <= £1.3m)

1,950,594

The FAME Dec 2006 data also contains 926,503 firms that are now classified as inactive. The FAME database only removes inactive firms after five years from dissolution so the record during 2001-2006 is complete.

Matching these firms IP acquisitions

• Matching of patents and trade marks registered in either (or both) the UK or in Europe

• Matching conducted by company names recorded in the IP application

• Also matched IP for firms that existed during 2001 to 2005, but listed as inactive by 2006

• Inactive includes live but not trading, in receivership, dissolved, and liquidated firms

• Total sample approx. 3m firms of which 2.1m live, but bulk of population is micro firms

All SMEs and IP active SMEs 2001-2005Year 

AlltradingSMEs

IP active SMEs

% Foreign owned

IP active SMEs

 2001 130, 082 3,123 2.41%  

574

2002 138,243 3,365 2.43% 577

2003 148,215 3,330 2.25% 547

2004 158,221 3,325 2.10% 506

2005 159,399 3,547 2.23% 514

    

 

2001-2005 213,855 10,269 4.80% 1,604

 For comparison, during 2001-2005, 5.4% of large firms and 0.8% of micro firms were IP active in one or more IP types

Benchmarking the matching outcome

(IP publications in 2003)   

OfficialData

OFLIPData

(%)

UKIP – UK patents 5,708 4,084 71.5

UKIP – UK trade marks 18,071 12,484 69.1

OHIM – Comm. marks 6,301 4,478 71.1

EPO – patents 4,361 4,132 94.7

Not expecting 100% as official data is for UK residents: individual, corporate, university, or government agency

Numbers of IP assets by year and type

01

0,0

00

20,0

00

30,0

00

No. o

f P

ub

lica

tion

s

2001 2002 2003 2004 2005

UK Patents EPOUK TM CTM

Numbers of patents by year and class of firm

01

,000

2,0

00

3,0

00

4,0

00

No. o

f P

ub

lica

tion

s

Large SME Micro

200

1

200

2

200

3

200

4

200

5

200

1

200

2

200

3

200

4

200

5

200

1

200

2

200

3

200

4

200

5

UK Patents (pub) EPO Patents (pub)

Numbers of trade marks by year and class of firm

02

,000

4,0

00

6,0

00

8,0

00

No. o

f tr

ade

mark

s

Large SME Micro

200

1

200

2

200

3

200

4

200

5

200

1

200

2

200

3

200

4

200

5

200

1

200

2

200

3

200

4

200

5

UK trade marks (pub) Community TM (reg)

The facts so far• UK has a large number of SMEs and even larger

number of micro firms• A small but significant proportion of both classes

were actively seeking patents and trade marks during 2001-05

• The absolute number of patents by SME plus micro firms stands comparison in scale with the total for all large firms over the period

• By 2005 the within-year total for SME + micro patents exceeded that for large firms

• The absolute number of trade mark applications by SME plus micro firms exceeded that of large firms in each year of the study

IP active SMEs and IP assets per firm (by sector 2001-2005)

Sector UK TM Av Com. TM Av UK Pat Av EPO Pat Av

Agric. Mining 420 1.6 148 1.7 35 2.1 38 2.1

Manufacturing 2,226 1.7 1,307 1.6 1,734 1.6 1,202 1.7

EGW, construction 204 1.4 33 1.5 94 1.4 33 1.3

Whole, retail, hotel 2,507 1.8 1,004 1.8 243 1.7 131 1.4

Transport, telecom. 292 1.7 154 1.6 43 5.0 26 2.3

Finance, real estate 445 1.5 150 1.3 21 1.2 15 1.2

Computer related 576 1.6 596 1.6 185 2.0 158 1.8

R&D services 128 2.4 127 1.5 227 3.4 372 2.6

Business Services 1,383 1.6 699 1.6 321 1.9 262 2.3

Health, educ, culture 1,073 1.6 428 1.5 99 1.4 116 1.7

SIC missing in FAME 191 1.7 136 1.5 99 1.3 70 1.8

All sectors 9,445 1.7 4,782 1.6 3,101 1.8 2,423 1.9

Median IP intensity of firms without foreign parents by size class

(IP intensity per £1m assets)

Firm size by assets

UK trade marks

CTM trade marks

UK patents

EPO patents

Large 0.030 0.022 0.036 0.029

SME 0.413 0.331 0.390 0.366

Micro 9.174 5.291 7.477 7.576

Regressions of IP intensity (trimmed at 95th %ile)

(include year, region and industry dummies)IP Intensity: UK trade marks Community trade

marksUK patents EPO patents

Log. assets -17.67 (72.54)** -5.72 (43.07)** -12.10 (37.79)** -8.62 (34.55)**

Log. assets 2 0.82 (58.36)** 0.24 (36.73)** 0.55 (32.03)** 0.38 (29.53)**

Age of firm 0.14 (14.49)** 0.03 (7.40)** 0.04 (4.44)** 0.05 (6.52)**

Age 2 -0.001 (10.07)** -0.0002 (5.11)** -0.0003 (2.72)** -0.0004 (4.99)**

University link -1.13 (0.99) 0.22 (0.23) -0.45 (0.36) 2.45 (1.73)

Foreign parent 2.80 (18.74)** 0.42 (7.34)** 2.20 (14.54)** 1.05 (9.80)**

Constant 82.44 (18.60)** 32.46 (43.14)** 53.31 (43.68)** 47.12 (36.04)**

Sample 26,874 11,125 7,520 5,879

R 2 0.64 0.62 0.65 0.65

Conclusions so far • SME and micro firms are more IP intensive

relative to their asset base than are large firms• Declining IP intensity with size is confirmed in

multivariate regressions controlling for many firm characteristics (including industry and region)

• Older firms are more IP intensive • Firms with foreign parents are more IP intensive• Co-location with a university increases EPO

intensity (not strongly significant)• Regional dummies are insignificant once industry

dummies are included • No trends exist in IP intensity over 5 years

Outcome by 2004 for 2001 SMEs

IP active in 2001

Not IP active in 2001

% % Large 240 8,115

7.69 6.39 SME 2,460 98,974

78.85 77.96 Micro 265 13,200

8.49 10.40 Exited 155 6,673

4.97 5.26 Total 3,120 126,962

100 100

What outcomes for SMEs in 2001 by 2004? Are they related to IP activity?

Survival outcomes depend on many factors

• Firm-level – IP use, experience, strategy, human capital, etc

• Industry level – stage of product cycle, competition, growth rates,

innovation, spillovers, etc

• Regional and macro level

• Initially use probit analysis: exit2004=1, 0

• Explanatory variables all from 2001– IP dummies (0,1) e.g. ‘did SME TM in 2001?’– Industry IP intensities

Using IP to create industry variables

SIC3 large firm patent intensity

High values may indicate mature industry with extensive cross licensing.

Increase probability of SME exit

SIC3 large firm trade mark intensity

High values may indicate mature industry with high product innovation.

Decrease probability of SME exit

SIC3 SME patent intensity

High values may indicate high technological opportunities on industry in early stage of product cycle.

Decrease probability of SME exit

SIC3 SME trade mark intensity

High values may indicate substantial product innovation by SMEs, hence competition between SMEs.

Increase probability of SME exit

Probit: Exit = 1, Survive = 0 

All SMEs Age < 5 Age 5 - 10 Age >=11         

Dummy for UK trade marks (2001)-0.014 0.000 -0.021 -0.017

  (3.80)** (0.00) (2.35)* (3.67)**

Dummy for Comm. trade marks (2001)

-0.003 0.023 -0.011 -0.016

  (0.43) (1.70) (0.79) (1.87)

Dummy for UK patents (2001)-0.011 -0.011 -0.008 -0.010

  (1.39) (0.46) (0.39) (1.16)

Dummy for EPO patents (2001)-0.009 0.013 -0.016 -0.011

  (1.13) (0.55) (0.89) (1.15)

UK pat per mill. asset SIC3 Large firms

0.241 0.114 1.622 -0.265

  (0.57) (0.14) (1.91) (0.44)

UKTM per mill. asset SIC3 Large firms

-2.151 -2.378 -3.981 -1.292

  (6.21)** (2.42)* (4.13)** (3.61)**

UK pat per mill. asset SIC3 SME firms

-0.248 0.003 -0.352 -0.261

  (1.41) (0.01) (0.80) (1.36)

UKTM per mill. asset SIC3 SME firms

0.181 0.217 0.400 0.075

  (1.94) (0.87) (1.75) (0.73)

Observations129579 24593 29517 75442

1 - lnL / lnL0 (Psuedo R2)0.09 0.10 0.08 0.09

• Own IP activity in 2001 has some impact– UK trade mark(s) reduces prob(exit) by 0.015

– Community mark(s) have impact for older firms

• Industry variables – More trade marking by large firms tends to reduce SME exit

(1 sd = ↓0.004 prob)

– More trade marking by SMEs increases exit (1 sd = 0.003 prob)

– SME industry patenting may imply spillovers (but none from large firms) – but crude method used here (no proximity weighting)

IP and survival - interpretation

Asset growth* of 2001 SMEs

Growth quartile

Non-IP active

IP active UK TM active

Com TM active

UK patent active

EPO active

Poor growth (1st quartile) 24.9 27.9 24.4 33.4 31.3 35.3 Weak growth (2nd quartile) 25.2 16.7 15.9 15.1 20.6 16.6 Solid growth (3rd quartile) 25.0 24.9 26.2 21.6 24.6 21.7 High growth (4th quartile) 24.9 30.6 33.6 29.9 23.6 26.5

* Total assets available for 82% of initial sample. All cross-tabs statistically significantly different from non-IP active firms

Turnover* growth of 2001 SMEs

Growth quartile Non-IP active

IP active UK TM active

Com TM active

UK patent active

EPO active

Poor growth (1st qtr) 25.1 23.9 20.9 25.4 24.2 34.2 Weak growth (2nd qtr) 25.1 22.5 21.3 24.1 24.2 23.2 Solid growth (3rd qtr) 25.1 24.0 26.1 18.1 26.5 18.6 High growth (4th qtr) 24.8 29.6 31.7 32.5 25.2 24.1

Turnover available for 28% of SMEs. Cor(growA, growT)=0.44 [0.52 in Manu]

UK patent distribution not statistically different from non-IP SMEs, other IP types are different

Modelling firm growth

More intuitive and revealing to re-write

1ln ln

=1 growth random around trend (Gibrat)

1 growth falls with firm size (Galton)

t t ty y

1 1 1ln ln ( 1) lnt t t t ty y growth y x u Asset growth: mean=55%, median=1%,max=193,000%

Turnover growth: mean=75% , median=3.7%

IP active firms have similar distributions

…. an example of results

Growth of assets dependent variable, OLS, robust errorsExcludes values above 99th percentile (249%)DV = Growth in assets 2001 to 2004 All SMEs Age < 5 Age 5to10 Age>10

Dummy for UK trade marks (2001) 0.049 0.073 0.071 0.032(6.78)** (2.84)** (3.94)** (4.60)**

Dummy for Comm. trade marks (2001) 0.007 0.023 0.011 0.004(0.58) (0.57) (0.44) (0.30)

Dummy for UK patents (2001) -0.011 -0.047 -0.012 -0.006(0.92) (0.72) (0.37) (0.49)

Dummy for EPO patents (2001) -0.003 0.026 -0.038 0.015(0.20) (0.46) (1.24) (0.92)

UK pat per mill. asset SIC3 Large firms -0.532 -0.172 -0.348 -1.216(0.74) (0.09) (0.23) (1.37)

UKTM per mill. asset SIC3 Large firms 0.936 0.813 0.127 0.988(2.39)* (0.43) (0.12) (2.49)*

UK pat per mill. asset SIC3 SME firms 0.280 0.009 1.081 0.130(0.96) (0.01) (1.31) (0.41)

UKTM per mill. asset SIC3 SME firms -0.372 -0.054 -0.662 -0.203(2.64)** (0.08) (1.80) (1.39)

Joint patent dummy 0.045 0.029 0.050 0.048(1.72) (0.40) (0.79) (1.45)

ln(assets) (2001) -0.013 -0.027 -0.012 -0.004(18.64)** (11.87)** (7.79)** (6.16)**

plus many other variablesObservations 103877 16390 23738 62269R-squared 0.03 0.03 0.02 0.03

Growth summary• OLS regressions sensitive to sample• Robust regression and median least squares as checksMain results• SME UK trade marking associated with increased

growth (3 to 6% p.a.)No. with UKTM =1670 SMEs in 2001 (1.58% of sample)

• Some evidence of positive association with Community trade marks

• Patents mostly have little association with growth, sometimes negative– Of course, only looking at growth in next three years (and

patents published), so maybe growth long term– But, not encouraging for SME patent use (UK or EPO)

Conclusions about innovation and IP in SMEs

• Our evidence firmly refutes view that SMEs innovate less than larger firms (pro rata)

• (unless prepared to argue that large firms are innovating more, but have lower patent and trademark propensity!)

• Findings on IP intensity support the view that SMEs do perceive value of IP protection

• Traditional view that SMEs are so disadvantaged that they cannot use IP is firmly rejected

• Cannot yet positively establish level playing field in costs and returns compared with larger firms

Conclusions about IP and performance

• Exit probability of SMEs within three years of IP activity is reduced in case of UK trade marks

• Exit of older firms is reduced by Community trade marks

• Growth of assets and turnover in all SME firms are enhanced by UK trade marks

• Other types of IP use are not significant for exit or growth over this short period

• Seems likely that the returns to patents take longer given that we observe similarly high intensity of patents and trade marks in SMEs