SMEs using intellectual property rights are more likely to achieve high growth

23/08/2019

The European Patent Office (EPO) and the EU Intellectual Property Office (EUIPO) have jointly published a report examining the relationship between IP activity and the growth prospects of European small and medium-sized enterprises (SMEs).

In summary, the report found that SMEs that apply for patents, trade marks or registered designs have a greater probability of experiencing high growth than SMEs that do not.

SMEs account for 99% of all businesses operating in the EU and are described by the European Commission as being “the backbone of Europe’s economy”. SMEs encompass a broad variety of businesses, from local services to high-tech firms, and in 2016 SMEs provided 67% of total private sector employment in the EU. The EU’s specific definition of an SME is a company that has a staff headcount of less than 250 and either a turnover of no more than €50m or a balance sheet total of no more than €43m.

The report prepared by the EPO and the EUIPO aims to investigate whether there is any link between IP registration and an SME being a “high-growth firm”. A high-growth firm is considered by the report to be an SME having at least ten employees and an average annualised growth rate greater than 20% per annum over three consecutive years.

The report contains a lot of interesting analysis on the IP activity of SMEs, but the main findings are:

1. SMEs with an IP right are more likely to grow than SMEs without an IP right. SMEs that have filed at least one IP right are 21% more likely to experience a subsequent growth period, and 10% more likely to become a high-growth firm.
2. The likelihood of an SME becoming a high-growth firm is even greater for SMEs that have filed a European IP right. SMEs that have filed at least one European IP right are 26% more likely to experience a subsequent growth period, and 17% more likely to become a high-growth firm.
3. An SME having filed a European patent application is a strong predictor of the likelihood of the company becoming a high-growth firm. In high-tech industries, SMEs that have filed at least one European patent application are 110% more likely to experience a subsequent high growth period. Interestingly, in low-tech industries, SMEs that have filed at least one European patent application are 172% more likely to experience a subsequent high growth period.
4. A consumer-oriented SME having filed a trade mark is strong predictor of whether the company becomes a high-growth firm. In consumer non-durable industries, such as cosmetics and pharmaceuticals, an SME is 62% more likely to experience high growth if it has filed a European trade mark. In consumer durable industries, such as consumer electronics and jewellery, an SME is 18% more likely to experience high growth if it has filed a national trade mark.
5. An SME that has a bundle of different IP rights is even more likely to undergo high growth compared to an SME relying on just one type of IP protection. For example, an SME having a bundle of patents, registered designs and trade marks is 33% more likely to experience high growth.

The joint report published by the EPO and the EUIPO therefore highlights that high-growth SMEs rely strongly on IP rights. As a consequence of this insight, the report also explains that in the future, IP rights could be used by investors to predict future high-growth firms.

The report also suggests that “the ability of an SME to effectively leverage its IPRs [IP rights] to sustain high growth largely depends on the quality of its IP management and IP strategy. In other words, success also critically depends on the SME’s ability to build a relevant combination of IPRs on the appropriate geographical scale, and to proactively exploit this IPR portfolio to capture and develop value in the market”.

Interestingly, the report also points out that although a company having IP rights may be a predictor of high-growth, previous reports show that SMEs in the EU are about ten times less likely than large companies to own European patents, EU trade marks or registered Community designs. Accordingly, it appears that there is scope for SMEs in the EU to improve their IP protection in order to potentially increase their likelihood of achieving high growth.

If you would like to discuss how an intellectual property strategy can improve your business, or for more information about intellectual property protection, please contact us.

This article is for general information only. Its content is not a statement of the law on any subject and does not constitute advice. Please contact Reddie & Grose LLP for advice before taking any action in reliance on it.