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									OECD Studies on SMEs and Entrepreneurship

Intellectual Assets
and Innovation
THE SME DIMENSION
OECD Studies on SMEs and Entrepreneurship




Intellectual Assets
  and Innovation

       THE SME DIMENSION
This work is published on the responsibility of the Secretary-General of the OECD. The
opinions expressed and arguments employed herein do not necessarily reflect the official
views of the Organisation or of the governments of its member countries.

This document and any map included herein are without prejudice to the status of or
sovereignty over any territory, to the delimitation of international frontiers and boundaries
and to the name of any territory, city or area.


  Please cite this publication as:
  OECD (2011), Intellectual Assets and Innovation: The SME Dimension, OECD Studies on SMEs and
  Entrepreneurship, OECD Publishing.
  http://dx.doi.org/10.1787/9789264118263-en



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Series: OECD Studies on SMEs and Entrepreneurship
ISSN 2078-0982 (print)
ISSN 2078-0990 (online)




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                                                                                                                 FOREWORD




                                                     Foreword
         I nvestment in intellectual assets is growing rapidly in the global economy, as firms, industries and
         national economies develop new modes of innovation and search for new sources of growth. The
         management of intellectual assets is critical for turning the innovation potential of firms into a real
         engine for growth and job creation. Channelling new ideas and creativity into competitiveness is a
         challenge, in particular for new businesses and small and medium-size enterprises (SMEs), which
         rely strongly on the exploitation of intellectual capital in their business models. However innovative
         SMEs develop strategies to manage their intangible assets, including access to Intellectual Property
         (IP) systems, to a much smaller extent than large firms. This is a critical concern for policy makers
         responsible for strengthening SMEs’ contribution to high-wage employment creation and economic
         growth. In order to develop appropriate policy responses, there must be greater knowledge of SME
         practices to manage intellectual assets in a rapidly changing market and technological environment.
         Improved understanding of the impact of IP regulation is also needed.
               This report examines the relationship between SMEs’ management of intellectual assets,
         innovation and competitiveness. It is the result of analysis carried out by the OECD Working Party
         on SMEs and Entrepreneurship (WPSMEE), as part of the follow up to the OECD Innovation Strategy.
         Looking at different national contexts, the study provides insights into the methods used by SMEs for
         managing intellectual assets and their ability to access and utilise the IP system. The report
         highlights recent and ongoing reforms in regulatory frameworks and investigates the effectiveness of
         programmes and policy measures to support SMEs’ access to IPRs. Policy recommendations are
         proposed to support national efforts aimed at reducing barriers to SME growth which are related to
         intellectual property regulation and management. These include making the IPR system overall more
         “SME-friendly”; raising awareness among the broad SME population about the strategic
         opportunities offered by IPRs; addressing SMEs’ financial constraints while bringing services and
         expertise closer to their working environment; improving cross-border IP co-ordination; and
         strengthening enforcement for SMEs operating internationally.
               The study covers selected manufacturing and service industries in nine countries: Australia,
         Italy, the Nordic Group (Denmark, Finland, Iceland, Norway and Sweden), the United Kingdom and
         the United States. Each country study has a sectoral focus, in which the role of SMEs is relevant for
         innovation, employment creation and growth, and in which the management of intellectual assets is
         a key strategic issue.
              The country studies were articulated in three steps: i) analysis of IP regulations, supported by
         interviews of IP experts (legal professionals, policy makers, other groups of interest); ii) in-depth case
         studies of selected SMEs; and iii) surveys of SMEs in some of the participating countries.
             The study benefited from the collaboration and substantive contributions of several national
         teams comprised of researchers and experts. Chapter 2 (Australia) was prepared by Dr. Richard
         Seymour, Mr. Jarrod Ormiston and Dr. Maria Rumyantseva (University of Sydney Business School).
         Chapter 3 (Italy) by Dr. Daniela Carosi and Dr. Massimo Marnetto (Italian Ministry of Economic
         Development); the following experts also contributed to the chapter: Mario Barbuto, Pierpaola


INTELLECTUAL ASSETS AND INNOVATION © OECD 2011                                                                         3
FOREWORD



      D’Alessandro, Daniela Della Rosa, Fabrizio De Benedetti, Sara Giordani, Andrea Granelli, Marcella
      Panucci, Antonio Paris and Alberto Piantoni; Chapter 4 (Nordic Countries) by Dr. Christina Wainikka
      (Swedish Patent Office); Chapter 5 (United Kingdom) by Prof. Birgitte Andersen (Big Innovation
      Centre at the Work Foundation, London) and Dr. Federica Rossi (Birkbeck College, University of
      London); and Chapter 6 (United States) by Mr. Rohit Shukla, Dr. Don Oparah and Ms. Tanya
      Kiatkulpiboone (Larta Institute, Los Angeles). We also acknowledge the kind support of the Merck
      Foundation in funding Chapter 5 of this study, as well as the general support of the European Union.
           This report was prepared under the supervision of Ms. Miriam Koreen, Deputy Director of the
      OECD Centre for Entrepreneurship, SMEs and Local Development (CFE). Chapter 1 was prepared by
      Ms. Lucia Cusmano (Senior Economist, SMEs and Entrepreneurship Division, CFE, OECD) and
      Mr. Benjamin Dean (Consultant, SMEs and Entrepreneurship Division, CFE, OECD).
           I would like to express sincere appreciation to Mr. Guriqbal Jaiya (World Intellectual Property
      Organisation) for his extensive inputs during the course of this study; Mme. Marie-Florence Estimé,
      former Deputy Director of the OECD Centre for Entrepreneurship, SMEs and Local Development, for
      her support and dedication to this study; and Ms. Mariarosa Lunati (Head of the Business,
      Entrepreneurship and Globalisation Section, Statistics Directorate, OECD) for her role in launching
      the study.




                                                       Sergio Arzeni
                                                       Director, OECD Centre for Entrepreneurship
                                                       Head, OECD LEED Programm




4                                                                       INTELLECTUAL ASSETS AND INNOVATION © OECD 2011
                                                                                                                                                 TABLE OF CONTENTS




                                                            Table of Contents
         Executive Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .               9

         Chapter 1. Intellectual Asset Management, Innovation and SMEs . . . . . . . . . . . . . . . . .                                                  15
               Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        16
               Objective and method of the study . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                          18
               Summary of key findings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                   20
               SME intellectual asset management practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                                  22
               Policy recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                   30
               Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   34
               References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       35

         Chapter 2. Australia: Intellectual Property Solutions for Innovative SMEs. . . . . . . . . . .                                                   37
               Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        38
               Intellectual property regulation in Australia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                              39
               Empirical evidence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .             46
               Policy implications and recommendations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                                 60
               Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   60
               References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       60
               Annex 2.A1. Clean Technology and Appropriability Regime . . . . . . . . . . . . . . . . . . . .                                            62

         Chapter 3. Italy: Channelling Creativity into Competitiveness . . . . . . . . . . . . . . . . . . . . .                                          65
               Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        66
               Intellectual property regulation in Italy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                          67
               Empirical evidence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .             72
               Policy implications and recommendations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                                 78
               Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   79
               References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       80
               Annex 3.A1. Statistical Tables for Innovaton in Italy . . . . . . . . . . . . . . . . . . . . . . . . . .                                  81

         Chapter 4. Nordic Countries: Matching Exceptional Design and Creativity
             with Progressive Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                  87
               Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
               Intellectual property regulations in Nordic countries . . . . . . . . . . . . . . . . . . . . . . . . .                             89
               SME issues and challenges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .             91
               Empirical evidence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      93
               Policy implications and recommendations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
               Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
               References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
               Annex 4.A1. Survey Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106


INTELLECTUAL ASSETS AND INNOVATION © OECD 2011                                                                                                                  5
TABLE OF CONTENTS



       Chapter 5. United Kingdom: Intellectual Asset Management Strategies
           for Diverse Innovations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
             Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
             Intellectual property regulation system in the United Kingdom. . . . . . . . . . . . . . . . 117
             Empirical evidence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123
             Policy implications and recommendations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136
             Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138
             References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139

       Chapter 6. The United States: Balancing Robust Protection with Rapid Innovation. . . 141
             Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   142
             Intellectual property regulation in the United States . . . . . . . . . . . . . . . . . . . . . . . . .                               143
             Empirical evidence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        151
             Policy implications and recommendations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                            165
             References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166

       Annex A. SME Case Studies: Template . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169

       Annex B. Survey Questionnaire . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172

       Box
          1.1.     Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       19

       Tables
          1.1.     Profile of case studies across participating countries . . . . . . . . . . . . . . . . . . . . .                                  20
          2.1.     Australian intellectual property institutional framework . . . . . . . . . . . . . . . . . .                                      40
          2.2.     Intellectual property rights available in Australia and their characteristics. . .                                                41
          2.3.     Innovation patent with regard to standard patent . . . . . . . . . . . . . . . . . . . . . . . .                                  43
          2.4.     Fees for selected intellectual property protection in Australia . . . . . . . . . . . . . .                                       44
          2.5.     Summary of innovative activity in Australian business, key indicators,
                   2007-08 and 2008-09 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .             47
          2.6.     Summary of innovative activity in Australian business,
                   by employment size, 2008-09 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                   47
          2.7.     Barriers to innovation, by innovation status, 2007-08 and 2008-09 . . . . . . . . . .                                             48
          2.8.     Innovation active businesses: barriers to innovation,
                   by employment size 2008-09 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                    48
          2.9.     Innovation active businesses: barriers to innovation, by
                   employment size, 2008-09 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                  49
         2.10.     Innovation active businesses: intellectual property protection methods,
                   by employment size, 2008-09 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                   50
         2.11.     Types of expenditure for innovation purposes, by employment size, 2008-09 .                                                       50
          3.1.     Italy: Profile of case studies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .              75
          4.1.     Nordic countries: Profile of case studies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                        97
          5.1.     Types of intellectual property and governance forms investigated
                   through the UKNOW questionnaire . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                         114
          5.2.     Benefits from intellectual property exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . .                            115
          5.3.     Obstacles to intellectual property exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                           116
          5.4.     Details of companies interviewed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                    117
          5.5.     Size distribution of population and interviewed firms . . . . . . . . . . . . . . . . . . . .                                   124


6                                                                                                       INTELLECTUAL ASSETS AND INNOVATION © OECD 2011
                                                                                                                                      TABLE OF CONTENTS



            5.6.   Firms’ exchange of different types of intellectual property . . . . . . . . . . . . . . . .                                 124
            5.7.   Combinations of intellectual property protection mechanisms. . . . . . . . . . . . .                                        125
            5.8.   Engagement in intellectual property governance forms . . . . . . . . . . . . . . . . . . .                                  126
            5.9.   Strategic benefits derived from engagement in different forms
                   of intellectual property rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .           127
          5.10.    Strategic benefits from the exchange of different forms of intellectual
                   property rights (SMEs only) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .           129
          5.11.    Obstacles encountered when exchanging different forms of intellectual
                   property rights (SMEs only) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .           130
          5.12.    Use of intellectual property and firm performance (average turnover
                   per employee, in thousand GBP) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                132
          5.13.    Use of intellectual property and internationalisation . . . . . . . . . . . . . . . . . . . . .                             134
           6.1.    Timing: from patent filing to issue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .               145
           6.2.    Costs: From filing and prosecution fees to litigation . . . . . . . . . . . . . . . . . . . . . .                           146
           6.3.    Public disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   147
           6.4.    Effective enforcement: combating infringement and infringement allegations . .                                              148
           6.5.    Clarity of patentable subject matter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                149
           6.6.    Competing and Industry-specific considerations . . . . . . . . . . . . . . . . . . . . . . . . .                            150
           6.7.    Summary of case studies in the United States report . . . . . . . . . . . . . . . . . . . . .                               158
           6.8.    SME best and worst practices identified in the case studies. . . . . . . . . . . . . . . .                                  164
           6.9.    Summary of major intellectual property issues and key corresponding
                   recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       165




INTELLECTUAL ASSETS AND INNOVATION © OECD 2011                                                                                                       7
Intellectual Assets and Innovation
The SME Dimension
© OECD 2011




                                 Executive Summary

T   he management of intellectual assets has become key to coping with market
competition in the knowledge-based economy. Intellectual property rights (IPRs) can
facilitate the process of value creation from intellectual assets. The acquisition and
management of IPRs are critical for firms to turn their innovation potential and creativity
into market value and competitiveness. This is particularly the case for new enterprises
and SMEs that rely heavily on exploiting intellectual capital in their business models.
The variety of IPRs reflects the multidimensional nature of innovation and intangibles.
IPRs are instrumental for SMEs for a number of reasons: to protect and build on their
innovations; position themselves competitively vis-à-vis larger enterprises in global
markets; gain access to revenues; signal current and prospective value to investors,
competitors and partners; access knowledge markets and networks; open up new
commercial pathways; or segment existing markets.
While the significance of IPRs and appropriate intellectual asset management for SMEs
across OECD countries are increasingly recognised, there are few regulatory frameworks or
specific instruments directed to SMEs. This is in part due to the pace of technological
innovation, which often exceeds the time it takes for policy makers to create appropriate
responses to the changing landscape of intellectual property. However, it also relates to the
lack of information among governments and policy makers about SMEs’ practices in
managing intellectual assets, the impact of laws and regulations on SMEs, and SMEs’
evolving needs in the framework of rapidly changing markets.
This study explores the relations between SME intellectual asset management, innovation
and competitiveness in different national and sectoral contexts. It provides insights on the
ability of SMEs to access and utilise the protection systems available to them and identifies
key challenges for SMEs in appropriating full value from IPRs. In particular, the study
addresses the following questions:
●   What kinds of intellectual asset management methods are most frequently used by
    SMEs in (selected) industries where IPRs are especially relevant, and how do SMEs
    choose their protection methods?
●   Do the asset management methods differ significantly across sectors, and the type of
    innovation they support (i.e. technological versus non-technological)?
●   How do different IP regulations support the exploitation by SMEs of their innovative and
    creative capacity, and how may these better serve the development of globally
    competitive firms?
The study explores the intellectual property (IP) regulatory landscapes and SME intellectual
asset management practices and challenges in nine countries: Australia, Italy, the Nordic
Group (Denmark, Finland, Iceland, Norway and Sweden), the United Kingdom and the


                                                                                                9
EXECUTIVE SUMMARY



        United States. It covers a range of industries, in which the role of SMEs is relevant for
        innovation, employment creation and growth, and in which the management of
        intellectual capital is a key strategic issue. These include creative industries (e.g. film
        production, publishing, architecture, design and crafts), knowledge intensive business
        services (e.g. Information and Communication Technology, R&D services) and
        manufacturing sectors, both in high-tech industries (e.g. biomedical devices) and in design-
        intensive traditional industries (e.g. fashion and luxury goods, jewellery, ceramics,
        equipment). The study is based on country-level analysis of IP regulation and recent reform
        trends, IP expert interviews (including legal professionals, policy makers, and other groups
        of interest), in-depth case studies in selected industries and SME surveys.


Key findings

        Regulatory reforms are underway
        The regulatory debate on IP has come to a critical point, and broad reforms are under way
        within countries and at the international level. In 2001, Australia introduced an
        “Innovation Patent System”, an alternative option for patent filing with less stringent
        requirements and simplified procedures; Italy reformed the IP code in 2005, introducing
        measures to increase quality of applications and expertise in the judicial system; Nordic
        countries are particularly active in the field of copyrights and are reforming dispute
        mechanisms; in the United Kingdom procedures for application and litigation have been
        streamlined significantly; the United States undertook the biggest overhaul to patent law
        since the 1950s and is devising additional ways to combat IPRs’ infringement. Some of
        these reforms are expected to have implications for SMEs, affecting their access to and use
        of IP instruments. Furthermore, across countries several “SME-friendly” initiatives have
        been launched, to address some of the main challenges that SMEs encounter in accessing
        and enforcing IPRs, as highlighted in the study, but most of them are at an early stage of
        implementation or pilot stage, and will require careful assessment in the future.

        IPRs create value in different ways
        The way that SMEs appropriate value from IPRs depends on the sector in which and the
        competitive conditions under which they operate. With the exception of high-tech
        manufacturing segments, overall, SMEs use strategic methods (i.e. secrecy, trust) and
        confidentiality agreements to a greater extent than formal IPRs, such as patents,
        trademarks and copyright. In Australia for instance, 28.3% of SMEs use secrecy or
        confidentiality agreements and 23% use copyright or trademarks. By contrast, only 8.2% of
        SMEs use patents. In the United Kingdom, lead time advantage and secrecy are the most
        popular appropriation mechanisms, and even in the knowledge intensive ICT sector,
        exchange of proprietary IP concerns only a small share of firms. In particular, SMEs in
        creative industries tend not to be patent-intensive and, when IP-aware, tend to use a mix
        of registered designs, trademarks and copyright.

        However SMEs often have neither IPR awareness nor an IPR strategy
        Lack of awareness and of a coherent IPR strategy is a common limitation in SME internal
        management practices. Although innovative SMEs are increasingly approaching
        knowledge markets and experimenting with strategic use of IP instruments, the large



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                                                                                             EXECUTIVE SUMMARY



         majority of SMEs in the industries studied do not have an IPR strategy in place, nor do they
         integrate IPRs into their overall business strategy or model. The limited use of IPRs is
         essentially due to a lack of knowledge and expertise in SMEs, which rarely have staff
         properly trained in the area. For instance, in the United Kingdom it is estimated that less
         than 30% of SMEs have the internal competences to manage IPRs and even fewer (about
         10%) have an explicit IPR strategy. Of the firms surveyed in the Nordic region, 71% do not
         provide any IPR training to staff. The access to external services is constrained by resources
         and is often ad hoc, driven by specific short-term needs rather than serving a broader,
         strategic set of goals.

         Additional external obstacles to SMEs’ use of IPR exist
         External obstacles to SMEs’ access and use of IPRs stem from the regulatory and legal
         framework, particularly in the application and enforcement stages. Cost and time for
         application can be a deterrent in some cases, though the highly critical stage for SMEs
         seems to be enforcement. A number of innovative SMEs are discouraged from using the IP
         system due to a lack of confidence in enforcement mechanisms and the perception of high
         costs of monitoring and litigating.

         Obstacles to IPR use are particularly acute when SMEs operate
         internationally
         SMEs encounter a unique set of challenges using IPRs when operating internationally.
         These relate mainly to cost, in particular legal overheads; multiple filings, regulatory and
         technical differences across countries, which often meet with expertise deficiencies; and
         the robustness of local IP enforcement. Particularly in the creative industries, as semi-
         formal protection methods, such as contracts, are often used, differences in legal systems
         increase transaction costs and create further complexity in enforcement.


Policy recommendations

         Policies to strengthen SMEs’ participation in innovation, value creation and productivity
         growth should target both the internal and external obstacles affecting the SMEs’ access to
         the IP system. This study suggests that policy makers should consider an overarching
         approach that encompasses the following elements:

         Raise awareness about the strategic opportunities offered by IPRs
         By and large, SMEs lack a strategic approach to IPRs, missing opportunities to build value
         from their intangible assets and strengthen their competitive position. As SMEs often
         perceive IPRs solely as defensive tools, the information and training programmes should
         aim to increase awareness of the “pro-active” use of IPRs, that is, as a strategic asset around
         which innovative business strategies can be developed.

         Diffuse knowledge about the variety of IP instruments and the strategic
         objectives they serve
         Policies to increase IPR knowledge should embrace the variety of IP instruments, including
         semi-formal protection methods (i.e. contracts) and the interplay between different
         instruments, thereby supporting SMEs in developing their own individual strategy.



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EXECUTIVE SUMMARY



       Standards and best practices, contextualized for the industry at hand, should be collated
       and distributed more widely.

       Foster IP education and training, bringing services and expertise closer
       to SMEs
       Policies should address SMEs’ lack of expertise in the IP field. IP training should be brought
       closer to the actual SME operating field and based on a sound assessment of the target SME
       population and its business environment. IP education programmes should address a
       broader set of professional profiles. Expertise should be built in the market for professional
       services that SMEs typically access. Accordingly, higher education courses in fields like
       science, engineering, design and the creative arts should include some education on IPRs,
       their strategic uses and implications.

       Address SMEs’ financial constraints in the access to IPRs
       Policies should address the financial constraints which limit SMEs’ use of formal IPRs,
       especially among micro-firms and in traditional sectors. Programmes should particularly
       address the obstacles related to their first contact with the IP system, favouring learning
       about strategic options and development of routines to handle application and manage
       intangible assets. The financing support, per se, however, might not be sufficient to create
       incentives to engage with the IP system. To increase their effectiveness, these types of
       initiatives should be combined with adequate information and service support.

       Make the IPR system overall more “SME-friendly”
       Streamlining procedures and reducing application time: particularly in industries where
       innovation occurs at a rapid rate, governments should consider creating application fast
       tracks and accelerating the granting process. However, in order to limit examination
       backlog and enforcement difficulties, these should be implemented with strict guidelines.
       This objective should also be pursued by increasing the “quality” of applications, through,
       for instance, patent search services. Early experience suggests that “innovation patents”,
       which have a shorter lifespan and undergo a simpler examination, should be carefully
       evaluated. The evaluation should take into account their cost and time advantages but also
       the risk of excessive filing and inconsistency at the international level.
       Adequately structuring fees and costs: the costs involved in IPR application should be
       addressed and adequately structured. A balance should be sought between, on the one
       hand, the desirability of a reduced cost burden on financially constrained SMEs and, on the
       other hand, the function of fees which are intended to induce self-selection by potential
       applicants and discourage frivolous filing.
       Improving litigation and enforcement mechanisms: to reduce time and cost of the IP
       enforcement procedures and to increase firms’ confidence in the enforcement
       mechanisms, policies should address the problem of a shortage of expertise in IPR in the
       judicial system. Transparency should also be increased and procedures streamlined.
       Furthermore, policies should explore alternative dispute mechanisms, such as
       administrative procedures to arbitrate disputes and decentralised mediation mechanisms.
       These are more easily accessed by SMEs and would result in greater prevention of
       infringement and easier settlement of disputes.




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         Improve cross-border IP information, co-ordination and enforcement for
         SMEs operating internationally
         More comprehensive information on IP systems in foreign countries should be provided by
         national IP bodies to better inform and assist SMEs seeking to internationalise.
         Inconsistencies and variations across IP regimes should be considered and highlighted in
         international contexts. Membership of international treaties can facilitate enforceability,
         but SMEs should be given broader information and support to access the protection
         mechanisms provided by these treaties. Simplification and standardisation of the rules
         pertaining to semi-formal protection (i.e. contracts) across countries would be particularly
         helpful for the creative industries that rely on such protection.

         Improve the metrics for measuring SMEs’ intellectual assets and evaluating
         their management
         Policies to support SMEs’ access to and use of the IP system should be supported by a
         measurement framework that takes into account the specific characteristics of SME
         innovation processes and outcomes and the nature of innovation and competition in
         specific industries. Especially in creative industries and the ICT sector, current patent-
         based metrics capture SMEs’ innovation and intellectual assets to a limited degree. In
         particular, measures for these industries should adequately consider trademarks and
         copyright, but also confidentiality agreements, semi-formal methods and “soft” strategies
         (i.e. secrecy and trust), which are the protection mechanisms most widely employed
         by SMEs.




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Intellectual Assets and Innovation
The SME Dimension
© OECD 2011




                                                  Chapter 1




              Intellectual Asset Management,
                    Innovation and SMEs

                                     By Dr. Lucia Cusmano and Mr. Benjamin Dean
                                         OECD Centre for Entrepreneurship




            This chapter illustrates the background and methodology of the study,
            highlighting the importance of intellectual asset management in the process of
            SME innovation and growth and the role intellectual property rights (IPRs) play
            in this process. It presents a synthesis of the findings from country studies,
            commenting, in a comparative perspective, reforms in intellectual property
            regulation, how SMEs use IPR to generate and appropriate value from their
            innovation, as well as obstacles to SMEs’ effective use of IPRs. It concludes with
            policy recommendations.




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Introduction
              In the knowledge-based economy, innovation is a key driver of firm creation,
         employment generation and, more broadly, economic growth. New business ventures and
         small and medium-size enterprises (SMEs) play a critical role in supporting innovation and
         its diffusion across the economy, contributing to the creation of high-wage employment
         and enhancing productivity growth. SMEs play an important role in the flow of knowledge
         within innovation systems, not just as knowledge exploiters, but also as knowledge
         sources, and, increasingly, as “bridges of innovation”, which interact with other players as
         knowledge purchasers, providers and partners.
             Indeed, the importance of SMEs to innovation dynamics has increased, as income
         growth, more niched market demand and changing technologies have reduced the
         structural disadvantages of SMEs stemming from their more limited economies of scale
         and resource constraints (OECD, 2010). Small firms are active players and often drive new
         innovation models, based on intangibles, more open and distributed modes of knowledge
         creation, networking and interactive learning.
              However, there is an uneven distribution of small firm innovation, between a few
         highly innovative firms with high growth potential, and the great majority of SMEs that
         innovate very little compared to their large counterparts. In certain high-technology
         sectors (e.g. semiconductors, biotechnology), emerging sectors (e.g. green industries) and
         creative industries (e.g. film production, publishing, architecture, etc.), innovative SMEs
         and start-ups are key players and drivers of innovation, largely based on the combination
         of intangibles, new technologies and design skills. Even in traditional sectors, SMEs in
         OECD countries represent between 33-50% of innovative firms. These sectors include
         household appliances, food industry, paper, wood, furniture, metallurgy and plastics,
         which may not invest highly in formal R&D, but rather adopt incremental modes of change,
         and where SMEs continuously create product, process, marketing and organisational
         innovations (OECD, 2010).

         Intellectual asset management is critical for turning SMEs’ innovation potential into
         market value
              The management of intellectual and intangible assets is critical for turning the
         innovation potential of SMEs into market value, competitiveness and growth, particularly
         for new enterprises and SMEs that rely strongly on the exploitation of intellectual capital
         in their business models.
             The terms “intellectual assets”, “intellectual capital”, “intangibles” and “knowledge
         capital” are sometimes used interchangeably across numerous disciplines. What all these
         terms refer to is non-physical assets with three core characteristics: i) they are viewed as
         sources of probable future economic profits; ii) they lack physical substance; and iii) to
         some extent, they can be retained and traded by a firm.




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              In the past, intellectual assets were defined as including R&D as well as intellectual
         property rights, such as patents and trademarks, which capture the value of innovative
         efforts. However, as the modes of innovation and their outcomes have been evolving, this
         understanding has been expanded to include other value drivers, such as strong
         managerial capabilities and successful business models and strategies (OECD, 2008).
              Intellectual assets, however, require other factors to create commercial value
         (Bismuth, 2006; Bismuth and Tojo, 2006). In particular, knowledge capital needs to take a
         form that other economic players can recognise and assess for its value to be appropriated
         by the firm through market mechanisms. The process of “appropriation” of value from
         intellectual assets poses various challenges. Generating new ideas, concepts, products and
         services entails significant sunk costs in terms of research and/or development efforts.
         This raises the problem of appropriability, since intellectual assets are prone to imitation at
         a considerably lower cost than that required to develop them, due to their intangible nature
         (WIPO, 2004). If knowledge is expensive to produce but cheap to reproduce, in the absence
         of specific protection mechanisms it will be under-supplied in the market (Arrow, 1962).
             Intellectual property rights (IPRs) are intended to facilitate the process of value
         creation from intellectual assets. IPRs provide a mechanism by which knowledge is
         converted into a property right and the owner is given the exclusive rights to “exclude all
         others from the commercial exploitation of a given invention, new/original design,
         trademark, literary and artistic work and/or new variety of plant” (WIPO, 2004). IPRs
         therefore give firms, in theory, exclusivity and control of their intellectual assets and, as
         such, provide an incentive for investing in their creation and an instrument for their
         management within the firm’s business model. At the same time, IPRs favour the diffusion
         of knowledge, since they require the public disclosure of details about the innovation
         process and outcome.
              To address the large number of different forms of intellectual assets, reflecting the
         multidimensional nature of innovation, several IPR instruments have been developed to
         codify and provide exclusivity to this knowledge. While differences exist across countries,
         in most jurisdictions the following formal IPRs are available: patents, trademarks, copyright,
         utility models, registered designs, lay-out designs of integrated circuits, new plant
         varieties, geographical indications and non-original database rights (WIPO, 2004). A
         number of “soft” or “semi-formal” strategies are also employed by firms to manage their
         intellectual assets, possibly in combination with formal IPRs. They include secrecy,
         confidentiality agreements, lead-time, complexity of design, building-in of specialist
         know-how and open source.
                There are many ways in which IPRs and “soft” strategies can be used by SMEs to create
         value and to position themselves competitively vis-à-vis larger enterprises. IPRs serve the
         objective of protecting intellectual assets, thereby preventing others from using the assets
         and recouping the innovation investment. However, firms may also use IPRs to access
         knowledge markets, as they provide a mechanism by which to buy and sell intellectual assets
         (i.e. through licensing). IPRs can provide SMEs with a revenue stream via licensing, sale,
         joint-ventures and other commercial pathways for registered products or services. Firms
         may use IPRs to open up or segment markets through product and design differentiation or to
         build brands and reputation. IPRs can also serve signalling purposes, as they make the
         firm’s knowledge capital visible to partners, competitors and investors and allow these
         players to value the firm’s innovation achievements and potential. Collaboration and



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1.   INTELLECTUAL ASSET MANAGEMENT, INNOVATION AND SMEs



         partnerships between firms can be facilitated by IPRs, which can also be leveraged to gain
         access to finance from financial institutions, banks or other investors (WIPO, 2004). IPRs can
         also serve SMEs to better understand, discipline and structure their innovation process, as the
         steps generally implied by formal registration demand that the often implicit and tacit
         innovation processes and outcomes be made explicit and visible.
             However, earlier studies show that SMEs use IPRs to a much smaller extent than large
         firms. The World Intellectual Property Organization (WIPO) recognises that SMEs’
         “innovative and creative capacity [...] is not always fully exploited, as many SMEs are not
         aware of the intellectual property system or the protection it can provide for their
         inventions, brands and designs”.1 This is a critical concern for policy makers tasked with
         developing and expanding the innovation capacity of SMEs and their contribution to high-
         wage employment creation and economic growth.
             Although the role of intangibles in SMEs’ contribution to innovation and growth is
         increasingly recognised across OECD countries, there are few regulatory frameworks or
         specific instruments directed at SMEs. This is due to:
         ●   firstly, the pace of technological innovation, which often exceeds the time it takes for policy
             makers to create appropriate responses to the changing landscape of intellectual
             property; and
         ●   secondly, the lack of information among governments and policy makers about SMEs’
             practices in managing intellectual assets, impact of laws and regulations on SMEs, and
             SMEs’ evolving needs in the framework of rapidly changing markets.

Objective and method of the study
              This study aims at improving the understanding of the relationship between SME
         intellectual asset management, innovation and competitiveness. It also aims at providing
         insights, in different national contexts, into the ability of SMEs to access and utilise the
         intellectual property system. In particular, the study examines the following questions:
         ●   What kinds of intellectual asset management methods are most frequently used by
             SMEs in (selected) industries where the issue of IP is especially relevant, and how do
             SMEs choose intellectual property instruments?
         ●   Do SMEs’ intellectual asset management methods differ significantly across sectors, and
             what types of innovation do they support (i.e. technological versus non-technological)?
         ●   How do different intellectual property regulations support SMEs’ exploitation of their
             own innovative and creative capacity, and how can IP policy serve the development of
             globally competitive firms?
             On the basis of analysis of these issues across selected countries and sectors, the
         study provides:
         ●   Insights into the legal and regulatory landscape surrounding IPRs, focusing on the
             differences in the regulatory regimes across selected countries.
         ●   Comparative assessment of systems and methods used by SMEs for managing
             intellectual assets and evaluation of the challenges faced in cross-border activities.
         ●   Policy recommendations to inform national efforts to reduce barriers to SME growth
             related to Intellectual Property regulation and management.




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                                                 Box 1.1. Methodology
            Country and sectoral focus
              The study covers nine countries: Australia, Italy, the Nordic Group (Denmark, Finland,
            Iceland, Norway and Sweden), the United Kingdom and the United States.
                The following sectors were focussed on by the participating countries:
            ●   Australia: Creative (publishing and film) and manufacturing (clean-tech);
            ●   Italy: Manufacturing and crafts (design-based and equipment manufacturing);
            ●   Nordic region (Denmark, Finland Iceland, Norway and Sweden): Creative (film
                production, design) with expert interviews and surveys covering a broader industry
                perspective;
            ●   United Kingdom: Knowledge intensive business services                and   manufacturing
                (Information and Communications Technology sector);
            ●   United States: Knowledge intensive business services (including R&D) and
                manufacturing (biomedical devices and Information and Communications Technology
                sector).
              These are industries in which the role of SMEs is relevant for innovation, employment
            creation and growth, and in which the management of intellectual assets is a key strategic
            issue. They have a strong presence across OECD countries and allow examination of the
            entire spectrum of intellectual property rights.

            Research method
              The country studies are articulated in three steps: i) analysis of IP regulations, supported
            by interviews of IP experts (legal professionals, policy makers, other groups of interest); ii)
            in-depth case studies of selected SMEs; and iii) surveys of SMEs in some of the participating
            countries.
              IP expert interviews have been based on a common interview protocol across countries,
            involving legal professionals, policy makers and other groups of interest. This was an open
            process in the course of the study, and, in many cases, IP experts were asked for their
            opinion and feedback at different stages of the work.
              In-depth case studies of SMEs were structured around interviews with principal officers/
            management at selected SMEs, based on a common interview protocol across countries
            (see Annex 1). The selection of case studies was based on their ability to provide illustrative
            examples (including diversity across industry sectors) from which key issues for SMEs IP
            management can be highlighted and valuable best practices learned. The variety of the
            cases across the different countries provides a rich base of material for assessing IPR
            practices among SMEs across different industries, under different policies frameworks.
              SME surveys have been conducted in some participating countries (Nordic group and
            US), on the basis of a common survey questionnaire (see Annex 2). The SME survey
            investigated the innovation activities of the responding firms, their IP strategy or rights,
            the benefits and obstacles to IP use, the litigation and enforcement experience of the firm,
            and its interaction with the other players in the system, including public and private
            service providers. In the case of the United Kingdom, a different survey questionnaire was
            used as it had previously been completed as part of a separate initiative whose goals
            overlap with the goals of this project.
                Table 1 outlines the profiles of firms on which the case studies are based in each country.




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                           Table 1.1. Profile of case studies across participating countries
                                                           Case                                              Industry/sector

          Australia                                        Educational publisher                             Publishing
                                                           Literary agent                                    Publishing
                                                           Author                                            Publishing
                                                           Production company A                              Film
                                                           Production company B                              Film
                                                           Clean-tech SME                                    Manufacturing
          Italy                                            Electronic tool and equipment manufacturer        Manufacturing
                                                           Ceramics designer                                 Design
                                                           5 gold jewellers                                  Jewellery
                                                           Luxury goods designer                             Design
                                                           Doors and windows manufacturer                    Manufacturing
                                                           Clothing manufacturer                             Manufacturing
          Nordic Countries                                 Television production company (Sweden)            Film
          (Denmark, Iceland, Finland, Norway and Sweden)   Production company (Finland)                      Film
                                                           Television production company (Norway)            Film
                                                           Television production company (Denmark)           Film
                                                           Fashion designer (Sweden)                         Design
                                                           Design company (Finland)                          Design
                                                           Industrial design company (Norway)                Design
                                                           Furniture design company (Denmark)                Design
          United Kingdom                                   Company 1: Delivering video to PC platforms       Information and communications technology
                                                           Company 2: Software development                   Information and communications technology
                                                           Company 3: Delivering video to mobiles            Information and communications technology
                                                           Company 4: Delivery of web-based services         Information and communications technology
          United States                                    Contract research and development company         Commercial physical and biological research
                                                           Manufacturer of “lab-on-a-chip” technologies      Micro-fluidics



 Summary of key findings
         The intellectual property regulatory landscape
         Reforms in the intellectual property regulatory framework are underway across all
         countries
              The role of IP has received increasing government attention across OECD countries,
         and administrations have become more sensitive to the challenges for SMEs in the current
         IP regulatory system. Across the countries investigated, the regulatory debate has come to
         a critical point and several reforms have recently been proposed or implemented.
               In the United States, an “IP Czar” was appointed by the Obama administration in 2009,
         the first White House Intellectual Property Enforcement Coordinator, and a patent reform
         bill was passed in 2011, the biggest overhaul to US patent law since the 1950s. Italy, over the
         last decade, has undertaken a major rationalisation of its IP system, resulting in a new code
         issued in 2005. Australia has created IP Australia, the government organisation
         administering statutes relating to IP, with broad-based responsibilities for outreach. The
         Nordic countries have developed close co-ordination among themselves in the area and
         introduced reforms particularly in dispute mechanisms. The United Kingdom has adopted
         several measures to improve the user-friendliness of its IP environment.
              International co-operation has accelerated the pace of change. IP international
         agreements to which the countries examined participate (e.g. the Patent Cooperation
         Treaty administered by the World Intellectual Property Organization) have been the object



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         of important reforms in recent years, and are expected to be further reformed as policy
         makers and other stakeholders debate how to improve the capacity of the IP system to
         respond to needs and opportunities emerging from a rapidly changing technological and
         competitive landscape. In Europe, for instance, discussion is underway on an EU patent,
         which would have unitary effect in the territory of the European Union, and the
         establishment of a European and EU Patents Court, as well as on software patentability.
         The IP landscape is therefore expected to change substantially in the coming years.

         Some reforms are expected to have implications for SMEs
              Although SMEs are generally not identified as a category requiring special treatment
         within the IP regulatory framework, several “SME-friendly” initiatives have been launched
         within countries. Furthermore, although most of the recent developments in IP regulation
         are not specifically targeted at SMEs, they are nevertheless expected to have a far-reaching
         impact for small businesses, affecting their access and use of IP instruments.
              Australia introduced an “Innovation Patent System” in 2001, as an alternative option
         for patent filing, specifically designed to protect inventions that do not meet the inventive
         threshold required for standard patents. Simplified procedures, lower cost and shorter
         filing time, to match a shorter life span of the protection, are expected to stimulate
         adoption among the SME population. However, the implications of this new instrument for
         SMEs are still a matter of debate. In early 2011 the Australian Minister for Innovation,
         Science and Technology requested the Advisory Council on Intellectual Property to
         undertake a process to review the system. One matter that requires evaluation is whether
         larger companies are able to use such innovation patents to broaden their competitive
         position to the detriment of SMEs. Furthermore, “Innovation Patents” raise the problem of
         consistency with the international IP system, which is currently moving towards
         standardisation and tighter patent processing.
              In Italy, under the new 2005 IP code, measures were introduced to increase the quality
         of patents and the capacity of firms to defend them in Courts, including a patent search
         service performed by the European Patent Office (EPO), on a bilateral agreement basis, and
         a new system of fees, proportional to the claims, intended to improve the balance between
         protection and disclosure. In addition, several measures have been implemented to
         improve IPR enforceability: new institutional tasks have been assigned to the Italian Patent
         and Trademark Office, strengthening its role in combating counterfeiting as a fundamental
         tool to enhance intellectual property; IP litigation special sections were created within
         ordinary and appellate courts, introducing specific expertise in the field of IP protection.
              The Nordic countries have a long tradition of co-operation in the field of IP regulation.
         However, consistency across systems has changed to some degree, as only some of these
         countries are members of the European Union (Denmark, Sweden, Finland), whereas the
         others (Iceland and Norway) are part of the European Economic Area. Since the European
         Union has been very active in the field of IP regulation, this has created differences
         between the two groups. In addition, even in the group of EU members, some EU directives
         have been implemented differently at the national level. In particular, the Nordic EU
         members have taken active part in the European initiatives aimed at improving diffusion
         of information and training mechanisms for IP users. Across the Nordic Group, recent
         debate has focussed on reforming IP tools that are particularly relevant to creative
         industries, such as trademarks and copyrights. Administrative procedures to handle
         trademark disputes have been introduced in Denmark, and their implementation is also


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1.   INTELLECTUAL ASSET MANAGEMENT, INNOVATION AND SMEs



         being discussed in the other Nordic countries. In the field of copyrights, collective licences
         which grant the copyright holders revenues any time their work is used have been adopted,
         also in combination with other work protected by copyright.
              In the United Kingdom, reforms have intended to make the IP system more user
         friendly, and are therefore expected to benefit SMEs in particular, though the evidence
         about SME access to the new tools or procedures is mixed. Procedures for patent
         application and litigation have been streamlined, through institutional and regulatory
         changes, as well as by injecting expertise in the system. In 1989, a Patent County Court
         (PCC) was set up in London, to make patent litigation more accessible to SMEs. In 2003, the
         option for a streamlined procedure intended to solve disputes more rapidly was
         introduced. A patent opinion service was launched in 2005 by the United Kingdom Patent
         Office to provide key information to potential patent applicants and improve the quality of
         applications. And in 2010, new procedures aimed at further simplifying and reducing the
         cost of the patent litigation process were introduced by the PCC.
              In the United States, the Unites States Patent and Trademark Office (USPTO) has
         implemented several measures to fast track selected patent applications from the backlog,
         including an accelerated examination process with strict guidelines, inventor age and
         health considerations, bilateral arrangements with other countries’ patent offices (“Patent
         Prosecution Highway”), and has even created an Ombudsman program to resolve
         breakdowns in the normal prosecution process, with senior examiners supporting
         applicants with unresolved issues. Furthermore, recent judiciary cases are expected to
         have far-reaching impact in the field. The landmark KSR case (KSR vs. Teleflex), with the
         decision by the US Supreme Court to essentially relax the legal standard for finding an
         innovation “obvious” in patent examinations and disputes, and the Bilski case, dealing
         with method patents, are reshaping the patent landscape. Broad change is expected from
         the 2011 reform bill. This intends to align the US with international practice by granting
         patents to the first person to file, rather than the first to invent, as traditionally in the
         United States system. The bill also addresses the concern about the US patent backlog and
         the need to increase the capacity to respond rapidly to applicants, giving the patent office
         the right to set its own fees and keep the proceeds to hire more examiners.

SME intellectual asset management practices
         Use of formal intellectual property rights is directly related to firm size
              SMEs make less use of formal IP instruments than large firms, even when active in
         innovation. In Australia, the proportion of innovative SMEs2 that use some form of IPR is
         45% compared to 67.4% of large firms. For micro enterprises (0-4 employees), this share
         falls to 32.9%. In Italy, where their presence is skewed towards traditional sectors, SMEs
         exhibit a low propensity to make use of formal IPR instruments, although their increasing
         participation in international technology transactions, as registered by the cumulative
         value of payments and earnings in the country’s Technology Balance of Payments,
         indicates greater capacity to manage formal knowledge rights. In the United Kingdom,
         according to the country’s Innovation Survey, larger enterprises attach greater importance
         than smaller enterprises to all methods for protecting intellectual property, in the ratio of
         2:1 (Robson and Haigh, 2008). Across all firm sizes, lead time advantage is the most popular
         appropriation mechanism, closely followed by secrecy (Hughes and Mina, 2010), and, even




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         in knowledge intensive sectors, such as ICT, exchange of proprietary IP concerns only a
         minor share of firms.
             When SMEs adopt formal IPRs, they have a clear tendency to use confidentiality
         agreements, copyright or trademarks above all other instruments, particularly patents
         (with the exception of some high-tech sectors). In Australia, 28.3% of SMEs use secrecy or
         confidentiality agreements and 23% apply for copyright or trademarks. This is well in
         excess of the 8.2% of SMEs that use patents. Confidentiality agreements are the most used
         type of IPR by SMEs also in the creative industries of the Nordic countries (71.3% of
         surveyed firms), although trademarks (52.8%) and patents (30.6%) are also common. Even
         in the patent-intensive high tech segments surveyed in the United States, the large
         majority of SMEs (91%) adopt confidentiality agreements.

         SMEs tend to adopt strategic methods, such as trust and secrecy, more than formal
         rights
              The relatively limited use of formal IPRs by SMEs in the majority of countries studied
         does not imply, per se, that SMEs lack a strategy for managing their intellectual assets.
         Rather, the decision not to adopt any formal IPR tool can be consistent with the firm’s
         overall business strategy and the nature of the innovation processes and outcomes in the
         industry. In fact, the adoption of strategic methods, such as trust and secrecy, is common
         across sectors, although highly innovative SMEs tend to combine strategic methods with
         selected IPRs and, largely, with confidentiality agreements.
              In certain industries, characterised by rapid innovation cycles, formal IPRs are simply
         not suitable or required. For instance, in Italy, in the fast-changing fashion clothing
         industry, firms are not particularly concerned about applying for IPRs, as their business
         model rests on the creation of new collections at such rapid intervals that old ones quickly
         become obsolete. In the Nordic region, among the creative SMEs surveyed that do not use
         IPRs, the main argument is that this is not needed or relevant to the firm’s business model.
              In the United Kingdom, across all firm sizes, lead time advantage is the most popular
         appropriation mechanism, closely followed by secrecy (Hughes and Mina, 2010), and, even
         in knowledge intensive sectors, such as ICT, exchange of proprietary IP concerns only a
         minor share of firms. In this respect, differences across industries can be more important
         than differences between SMEs and large firms in the same industry, although, ceteris
         paribus, SMEs generally lag behind larger firms in their tendency to obtain formal rights.
         The use of intellectual property rights by SMEs differs widely across industries
              SMEs’ use of IPRs depends on the competitive characteristics of their industry and the
         nature of the innovation processes. In high technology manufacturing industries,
         innovative SMEs rely strongly on patents, in much the same way as their larger
         competitors. In the United States, in high-tech and high-growth industries, SMEs are
         highly patent-intensive and, indeed, the smallest firms (those with fewer than
         25 employees) produce the greatest number of patents per employee. In the United States
         industries surveyed, patents are the most often used form of IPR (76%), followed by
         trademarks (66%) and, to a lesser extent, copyright (53%). Indeed, in the case of the most
         dynamic firms, navigating the patent filing process (including close interaction with
         examiners and handling of claims rejection) has become part of the organisation’s
         routines.




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             In many start-up companies in high-tech fields, patents are often the firm’s single
         most valuable asset. The clean-tech case study in Australia shows how investment in
         patenting can represent a crucial step for entering the high-tech business, and the main
         asset on which financing and commercial strategies are built. The involvement of venture
         capitalists, who are attracted by the intellectual asset, can prove critical for supporting IP
         management in the early stages, when inventors lack expertise in this area.
              In the high-tech industry landscape, the ICT sector exhibits specific features with
         respect to IPR relevance and management. In the United Kingdom, the ICT industry
         appears to have a much lower average patent use than most technology-intensive
         industries. This is no doubt related to the fact that much of the output in this industry
         cannot be patented, but it is also linked with the emergence of new innovation modes,
         based on the exchange of non-proprietary IP, as in the open source model. Patenting is not
         an issue when the business model is built around content and branding, rather than
         technology, as a product, or when the value of the products resides in the quality of the
         service and the user experience, both of which are difficult to imitate. Overall, the small
         ICT firms instead opt for copyright, General Public Licenses and trademarks. In particular,
         small firm size does not appear to be a particular constraint to the use of copyright.
              In the creative industries, different IPRs are typically used depending on the segment.
         In the publishing, television and film segments, copyright and trademarks dominate the
         formal IPRs, and patents are among the least used IP tools. In Australia, patents are used
         by only 1.6% of innovative SMEs in the Arts and Recreation Services industry (including film,
         video, radio, television and arts). Instead, the most used formal IPRs are copyright and
         trademarks (25.2% of innovative SMEs). Similarly, in the Nordic region, trademarks and
         copyright are seen as vital for firms in the film industry, whereas firms in the design
         segment use a mix of registered designs, trademarks or copyright depending on their
         business strategy.
             In the design-based traditional manufacturing industries discussed in the Italian
         report, propensity to patent is relatively low and, following a problem-solving approach,
         patenting itself is often the outcome of a process intended to solve specific technical
         hurdles. In some instances, a formal IP strategy can result from collaboration with other
         research actors, such as universities, as the research interaction itself induces a more
         explicit structuring of the innovation activity and codification of its outcomes.

         SMEs appropriate value from intellectual property rights in different ways
         ... protecting
              IPRs are a way for SMEs to appropriate value from their innovations and intellectual
         assets, but the benefits perceived are closely related with the firm business strategy and
         context. IPRs firstly serve a protection purpose, giving firms the exclusive right over an
         intellectual asset and, in this way, allow them to recoup their investment in innovation.
         IPRs are therefore used as a deterrent to would-be imitators and provide a legal basis upon
         which to launch infringement litigation. This is a particularly strong motivation in high-
         tech manufacturing industries, where the sunk costs of R&D are high, as well as in low and
         mid-tech industries in which functional and aesthetic improvements can be easily
         imitated. The defensive motivation is also strong, however, in some creative industries. In
         the Nordic region, the survival of the film production industry is seen as resting on the
         copyright protection of films. In the publishing industry, the displaying of copyright on all



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         published works is meant to signal to the general public the implications of unauthorised
         reproduction of content.

         ... trading
               SMEs increasingly pursue IPRs to gain access to knowledge markets, although IP
         choices are still not frequently embedded in a coherent long-term strategy. The
         opportunity to trade intellectual assets opens up new sources of revenue, but can be also a
         strategy to build value on existing assets or to combine complementary assets. In the
         United Kingdom ICT study, the survey suggests that the large majority (67%) of SMEs that
         exchange patents do so because they hope to obtain direct income from market
         transactions. The trend is also emerging in creative industries. In the media production
         industry, the licensing of “program formats” has become a potentially lucrative way to
         generate value. In Australia, digitisation is emerging as an opportunity to “monetise more
         IP”, as production companies can derive their revenues from the proceeds of Digital Media
         Rights for online and mobile content. For film production companies, as examined in the
         Nordic countries, the acquisition of rights from other holders and the capacity to combine
         them, by adopting adequate contract structures, can be at the core of the business model.
              A potential challenge as IP markets develop relates to “patent blocking”, which is the
         practice of acquiring patents and holding them, not for use but simply to prevent rivals
         from patenting related inventions. This appears to be an issue particularly in the case of
         patenting by large firms, whereas the marginal cost of such patenting for SMEs might be
         too high. In the United Kingdom, in 2006, 40% of large firm patents and 18% of small firm
         patents were left unused (Gambardella et al., 2007).The appearance in recent years of so-
         called “patent trolls” – firms whose entire business model is built around acquiring IP and
         then using it to seek aggressive licensing regimes or to litigate against companies in
         “adjacent” or similar areas – has been controversial. On the one hand, by acting as
         intermediaries, buying patents rights from innovators and licensing technologies to
         producers, these firms can provide SMEs a unique channel to sell or transfer their rights.
         On the other hand, this development has the potential to stifle innovation, as novelties
         may remain unexploited and litigation in the system increases.

         ... collaborating
             SMEs can use IPRs as a way to increase collaboration and knowledge sharing with
         other firms and actors. One trend observed in Australia and the United Kingdom is the
         growing use by SMEs of open source technologies to this end, with firms increasingly
         constructing business models that allow a part of their technology to be adopted, built on
         and improved by the open source community. This allows them to harness its collaborative
         power and create value for the firm at the same time. On the other hand, the adoption of
         open source is still relatively limited in the sectors surveyed in the United States
         (biomedical and ICT) and the Nordic creative industries.

         ... signalling to investors
             SMEs may use IPRs, particularly in patent-intensive industries, to secure access to
         finance. Firms in the United Kingdom ICT case studies suggested that their motivations for
         patent filing were primarily financial and related to competitive signalling rather than the
         actual protection from innovation conferred by the patent. However, according to the




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         survey of SMEs, the objective of using patents to raise venture capital concerns only a
         certain number (22%) of SMEs that exchange patents.

         ... opening up and segmenting markets
              SMEs use IPRs, particularly trademarks and copyright, as a part of their branding
         strategies and for market segmenting. Branding can serve to create or access new markets,
         and this strategy is increasingly used by SMEs that manage high-value intangibles. In up-
         market segments, business strategies are built on leveraging globally known brand names
         and exclusive devotion to the evolution of the brand and the commercialisation of related
         luxury goods, while selling physical production assets. This is the case for an Italian former
         luxury car designer and manufacturer, which completely changed its business by building
         value out of the brand. Similarly, a film production company in the Nordic region extended
         the use of its trademarks from the films produced to the merchandising, thus building
         substantial value on its protected intangible assets. In Australia, production companies are
         considering the possibility to trademark and license their brands globally as a part of their
         business strategy for expansion.

         Obstacles and challenges to SMEs’ use of intellectual property
             In the access and use of IP instruments, SMEs suffer from a number of internal and
         external obstacles, which preclude them from fully benefiting from their intellectual
         assets, and creating and appropriating value from intangibles.

         SMEs lack awareness and a coherent intellectual property right strategy
              Although innovative SMEs are increasingly approaching knowledge markets and
         experimenting with strategic use of IP instruments, the large majority of SMEs do not have
         an IPR strategy in place, nor do they integrate IPRs into their overall business strategy or
         model. Entrepreneurs or SME managers, even when oriented towards innovation, are often
         not well aware of the benefits they might accrue by adopting an IPR strategy. Often, when
         IPRs are required, they are the outcome of a set of actions, responding to short-term needs
         or opportunities, rather than a well-defined long-term strategy.
              This limitation emerges strongly across the country surveys and case studies,
         although differences exist between the internal capability to handle IP matters in the high-
         tech industries, such as the United States biomedical case, and SMEs in creative industries
         or design-based traditional manufacturing. In the former, the majority of firms have clear
         procedures and strategies to access or use the IPR system and, indeed, the acquisition of
         IPRs can represent a necessary first step to enter the market. By contrast, SMEs in creative
         industries are likely to be unaware of the full range of potential benefits of IPRs and to have
         limited knowledge about how to access and use IPR instruments. To illustrate, in Australia,
         one case study refers to an author who has no interest in any form of IPR, and has no
         knowledge about the system, despite its widely perceived importance in the publishing
         industry. A film company in the Nordic countries does not use trademarks, because “no
         one had explained the benefits of trademark protection”. A design company, adopting a
         strategy whereby its customers retain control of the rights to the designs, openly
         recognises that this has led to “bad experiences”, but had never considered the benefits of
         copyright to mitigate these problems.
            Even in pursuing and deriving advantages from single IP tools, SMEs are often driven
         more by immediate commercial advantage, and are less concerned with the strategic use


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         of their intellectual assets. In such cases, there seem to be a lack of knowledge about the
         strategies guiding timely development of formal protection and “soft” (sometimes less
         formal) methods. Lack of understanding of the competitive landscape and lack of strategic
         focus on the direction of the technological innovations are part of such thinking. In other
         instances, however, such as the United Kingdom study on the ICT sector, the findings do
         not give rise to such concerns.
             In general, where SMEs do have an IP strategy in place, it is often underdeveloped and
         does not have a lot of effort put into it. Intellectual Property Office (IPO) experts in the
         United Kingdom estimate that less than 30% of SMEs have the internal competences to
         manage IPRs, and even fewer (about 10%) have an explicit IPR strategy.
              The Italian study highlights how SMEs in traditional design-based manufacturing
         largely lack a strategic approach to IPRs and mainly perceive IP tools solely as a defensive
         instrument, whose benefits do not match the (actual and perceived) costs. A greater
         awareness of the benefits of industrial protection, and its relevance for the firm
         performance and growth, is observed in the case of “global” SMEs, which operate in
         overseas markets. These global companies are more aware of the opportunities provided
         by the IPR system and are willing to invest significantly in reliable professional services, for
         preparing and filing IPRs, especially patents, to defend the ownership of their inventions.
             This lack of strategy and expertise often goes hand in hand with an ad hoc approach to
         the practice of IP management and lack of appropriate monetary assessment of the firm’s
         IP portfolio. A majority of surveyed firms in the United States (55%) and in the Nordic
         countries (80%) have never actually assessed the value of their IP.
               Limitations in SMEs’ IPR strategies can also be seen in the weak monitoring of the
         firm’s IPRs. Of the SMEs surveyed in the Nordic region, 76.5% of respondents do not actively
         check for potential infringement of their IPRs. When firms do find out about infringement,
         it is often through customers or sometimes employees. In this sense, staff training in IP can
         also serve the purpose of raising attention and improving monitoring against
         infringement. This is the case of an Italian manufacturing firm that has adopted a
         “preventive intelligence” strategy, which involves raising employees’ awareness and
         training them to recognize imitation, especially at trade fairs. The strategy aims to promote
         preventive extra-judicial solutions to infringement.

         SMEs’ lack of knowledge and expertise results in inadequate management practices
              The lack of awareness of IP essentially derives from a lack of knowledge and expertise
         in SMEs. These firms rarely have staff properly trained in IPRs or even staff with an
         elementary understanding of the field, particularly in the creative industries. In the Nordic
         region, 71% of the firms surveyed do not provide any IPR training to staff. In the publishing
         industry in Australia, employees within the SMEs studied simply have no staff training in
         IPRs. Even in the patent-intensive firms studied in the United States report, only 50% of the
         firms surveyed have an individual dedicated to IPRs.
              The lack of IP knowledge and training is linked to the resource constraints typical in
         SMEs. SMEs often do not have the financial resources to implement training strategies or
         to look outside for expertise. SMEs in the creative industries rarely seek out advice on IPRs
         and when they do, this information is sought in an ad hoc manner. The Nordic report finds
         that most SMEs will only consult IPR lawyers or patent attorneys when they themselves see
         the need, which is often related to specific questions about patentability, rather than a


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         broad IPR strategy. Furthermore, given the high price associated with legal services or
         strategic consultancy, when SMEs do seek advice, it is not always from IPR specialists,
         raising questions about the quality of the advice. In some Australian cases, film companies
         only occasionally seek advice from legal counsel, and this is mainly when dealing with
         high-profile or complex IPR-related contracts.
              The services provided by national offices or agencies seem to reach the SME target
         only to a limited degree. For instance, in the Nordic countries, surveys indicate that
         external legal professionals are the group most likely to be contacted by SMEs seeking
         advice, while the National IP Office (32%) is only slightly more likely to be contacted than a
         colleague/friend (24%) or the Internet (28%).

         Digitalisation poses new challenges to the intellectual property right system
              A contemporary issue in the creative industries with respect to IP management
         concerns digitisation, driven by the ongoing digital and Internet revolution. While certain
         segments of the creative industries are embracing this shift by adjusting their business
         models to reap its benefits, the challenges associated with effectively protecting the
         intellectual property that underlies digital content currently outweighs the perceived
         benefits for SMEs in these industries.
              Digitalisation presents several potential benefits for SMEs that embrace it.
         Digitalisation enables firms to monetise more IP, to lower unit costs of production and
         distribution and to reach new audiences. These benefits however seem to be outweighed
         by several perceived costs in the current IPR framework. The firms studied cited the
         complexity of IP protection and the additional costs of digital rights management software.
         In these industries, the main concern relates to increased piracy due to greater ease of file
         copying/sharing and problems ensuring authors retain appropriate rights.

         The intellectual property right system is not “SME-friendly”
               External obstacles to SMEs’ access and use of IPRs exist and stem from the
         configuration of the regulatory and legal framework. Even when a firm does possess the
         requisite knowledge of IPRs and a clear strategy on how to use IP to appropriate value from
         its intellectual assets, like some of the SMEs studied in the manufacturing and high-tech
         industries, obstacles arise in the application and enforcement stages, related mainly to
         cost and time. More generally, the system itself appears to be “unfriendly” towards SMEs,
         in that the configuration and procedures combine with the SMEs’ internal constraints to
         place them at disadvantage vis-à-vis larger competitors.
              The cost and time taken for IPR applications, particularly patents, appear to be
         obstacles to SMEs’ effective use of the IPR system, although cost itself is not always seen to
         be the greatest challenge. In the Nordic region, of those firms that use IPRs, over half
         (53.3%) feel that the cost of application is an obstacle to their use of IPRs, but the share is
         lower (31%) among firms that do not use IPRs, suggesting that cost of application itself is
         not so frequently the main barrier to SME entry into the formal IP system.
              The findings from the US suggest that time is a major concern in patent procedures,
         as firms have to wait about two years for the patent application to be processed, although
         companies seem to be prepared for this. In the United Kingdom as well, IP experts suggest
         that the amount of time taken to process a patent application is excessive and particularly
         burdensome for SMEs.



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              SMEs encounter severe problems at the stages of IP monitoring, litigation of
         infringement and enforcement. Lack of confidence in the enforceability, at sustainable
         cost, of IPRs deters SMEs from accessing the system in the first place. The US survey reveals
         that cost of enforcement is the most important obstacle that inhibits firms from using IP
         protection. Furthermore, while 57% of the surveyed firms monitor potential infringement
         of their IPRs, they generally hold back on actual enforcement, unless it is deemed
         strategically imperative, due to cost concerns. The threat of litigation is often a strategic
         tool used by more resourceful (and often larger) firms to intimidate SMEs.
              More disconcertingly, SMEs do not trust the enforcement process to uphold their
         rights. Beside cost and time, courts are not seen to possess the required knowledge and
         experience in IPRs, most notably in those dealing with patents and design. It is a common
         complaint by innovative SMEs, especially in creative industries, that courts are ill prepared
         to handle their cases, as they possess little knowledge about the firm’s industry and its
         innovation processes. As a result, SMEs often resort to out-of-court settlements or other
         means to resolve IPR disputes.
              Some countries have introduced measures that specifically address this concern about
         lack of expertise at the enforcement stage, creating IP special sections within courts (Italy)
         or patent courts and streamlined procedures to make patent litigation more accessible to
         SMEs (United Kingdom).

         Using intellectual property rights when operating internationally is troublesome
              A unique set of IP-related issues and challenges are faced by SMEs when they
         internationalise. These relate mainly to cost, in particular legal overheads, multiple filings,
         regulatory and technical differences across countries, which often meet with expertise
         deficiencies, and the robustness of local IP enforcement.
             The price of obtaining registered rights in different countries is affected by transaction
         costs. One driving factor in this regard is the cost of lawyers to write different kinds of
         contracts and agreements that are needed when engaging in cross-border commerce. For
         firms using semi-formal protection (i.e. contracts), these costs can be significant, due to the
         regulatory differences between different countries.
              One key determinant for SMEs’ entry into foreign markets, regardless of cost, is the
         size of the potential market opportunity or commercial viability of a business. Many SMEs
         engage in semi-formal protection, such as non-disclosure agreements, non-competition
         agreements and other contracts acting under the belief that semi-formal protection is
         easier to obtain and allows the business to enter the market quickly. However, semi-formal
         protection relies on the legal system for its enforcement, and the rules vary between
         different countries and are often difficult to compare.
              The problems posed by IPR enforcement for SMEs become compounded when they
         operate across borders. In the publishing industry, for instance, complexities and costs
         arise in the translation process. In an Australian case, difficulties arose in the exporting of
         translated works, as the international publisher and the translator often own the IPR of the
         translation. Exporting to Europe has also become quite expensive, as translators also
         demand a royalty and contend that they retain copyright over the work translated. Another
         Australian company indicated that copyright enforcement in China remains a problem.
              In the manufacturing sector, difficulties and uncertainties in the enforcement process
         also prove to be an important barrier to SME market expansion in foreign markets. This is


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         the case of an Italian producer of electronic tools and equipment, whose negative
         experiences with patent infringements by Asian competitors has led to a lack of
         confidence in its strategy of expansion towards new markets and slowed its process of
         internationalisation.

Policy recommendations
              The IP landscape is changing rapidly, as reforms are implemented across countries
         and co-ordination is enhanced through international treaties and institutions. Although
         SMEs are not generally identified as the main beneficiaries of the broad reforms, the
         challenges for SMEs in the regulatory system are increasingly taken into account in the
         policy debate. Furthermore, “SME-friendly” initiatives have been launched in different
         countries to reduce the gap that currently exists between the opportunities for SMEs to
         create value from their intellectual assets and their capacity to access and use the existing
         instruments.
              Policies to strengthen SME participation in innovation, value creation and productivity
         growth should target both the internal obstacles, related to a lack of knowledge and
         strategic perspective, and the hurdles which affect the accessibility of the IP system
         for SMEs.

         Raise awareness about the strategic opportunities offered by intellectual property
         rights
             SMEs largely lack a strategic approach to IPRs, missing opportunities to build value
         from their intangible assets and strengthen their competitive position. The strategic
         weakness is mainly related to a lack of information and knowledge, as SMEs often have
         only a partial perception of the benefits and costs implied by access to IP instruments. As
         SMEs often perceive these solely as defensive tools, the information and training
         programmes should aim at increasing awareness of the “pro-active” use of IPRs, as an asset
         around which innovative business strategies can be developed, as a tool for opening up
         new markets or segmenting existing ones, and as a key to access knowledge markets, gain
         revenues or combine with complementary assets to generate new value, and as a signal to
         competitors, customers, potential partners or investors.

         Diffuse knowledge about the variety of intellectual property rights and the strategic
         objectives they serve
              Policies aimed at increasing SMEs’ awareness and knowledge about the relevance of
         IPRs to their value creation process should embrace the variety of IP instruments, helping
         SMEs to develop their own strategy. Currently, national patent and trademark offices are
         often assigned responsibility to diffuse information on IPRs. However, the information
         programmes are mainly focused on registered rights, particularly patents, and generally
         concern the normative and technical side, rather than the strategic dimension in the firm
         business environment. More comprehensive information on the range of IP instruments
         should be provided, including on relevance and mechanisms for semi-formal protection
         methods (i.e. contracts) and “soft strategies” (i.e. secrecy, confidentiality agreements, lead-
         time, complexity of design and building-in of specialist know-how, open source, etc.), and
         the interplay between different instruments. Broadening the service to the full range of
         IPRs and “soft” strategies would be particularly beneficial for SMEs in creative industries,
         knowledge intensive services and ICT. Industry standards and best practices,



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         contextualized for the industry at hand, should be collated by national IP agencies and
         distributed more widely.
             It is important for SMEs that information on IPR be easily accessible. For this purpose,
         governments should ensure that information is provided through adequate formats and
         channels, such as on the web, but also that it can be sourced at institutions at the territorial
         level (e.g. Chambers of Commerce), where SMEs typically demand information and
         services. Several advanced programmes exist in this area (e.g. the web service of the
         Swedish Patent Office, the United Kingdom IP Help Desk and IP Healthcheck, the Australian
         IP toolbox), and their experience could be shared to learn about best practices.

         Foster intellectual property education and training, bringing services and expertise
         closer to SMEs
              SMEs generally lack expertise in the IP field. Across countries, a large number of
         publicly supported education and training programmes have been created in recent years
         to address this deficiency. The assessment of their impact on SME access to IP and strategic
         use of intellectual assets should be promoted, as it would improve training schemes and
         allow institutional learning. Early evaluations suggest that, for these initiatives to impact
         SMEs, education programmes should address a broader set of professional profiles, and IP
         training experiences should be brought closer to the SME operating field, in the context of
         their industry, competitive and innovation environment.
              Expertise can be built in the labour market and the market for professional services
         that SMEs typically access. This includes professional profiles that tend to work close to
         SMEs, especially in high-tech and creative industries, such as: lawyers and accountants,
         engineers, architects, designers and other technical specialists. Accordingly, higher
         education courses in fields like science, engineering, design and the creative arts should
         include some education on IPRs, their strategic uses and implications, contextualised to
         the specific needs of the field at hand. Multi-disciplinary educational institutions that
         bridge the technology and creative/design fields, like Alvar Aalto University in Finland,
         could also be considered.
             To encourage participation and increase effectiveness, IPR training directed at
         entrepreneurs and SME employees should be based on a sound assessment of the target
         SME population and its business environment. Support through “peer” networks, business
         associations, small business development centres and other intermediate institutions
         should be further encouraged by governments, involving these players in the
         dissemination of information and training initiatives.

         Address SMEs’ financial constraints in accessing intellectual property rights and
         provide strategic support
              Financial constraints significantly limit SMEs’ use of formal IPRs, especially among
         micro-firms and in traditional sectors. By discouraging access, the financial hurdle turns
         into an obstacle for innovative SMEs to become familiar with the IP system, learn about
         strategic options and develop routines to handle application and manage intangible assets.
         To date, countries have implemented several measures to assist SMEs in this respect,
         including “IP vouchers”, government-sponsored IP consultants and IP funds, which, as in
         Italy, assist SMEs (and Public Research Organisations) to prepare and file quality patents.
         These experiences would need full assessment, in order to consider diffusion and scaling
         up, taking into account policy effectiveness and additionality.


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              Financing support, per se, might not be sufficient to create incentives for innovative
         SMEs to approach the IP system. As SMEs often find it difficult to navigate the IP landscape,
         to increase their effectiveness, these types of initiatives should be combined with adequate
         information support and, possibly, business consultancy services. In this respect, so-called
         “IP angel” initiatives could be considered and promoted through public-private
         partnerships, with professionals supporting the innovative start-up or SMEs in accessing
         the IP system for the first time or in articulating their IPR strategy.

         Make the intellectual property right system overall more “SME-friendly”
              The configuration of the IP regulatory system is largely perceived to be “unfriendly” to
         SMEs, as access and use are significantly constrained by complexity, lengthy procedures
         and costs that SMEs are less able to handle with respect to larger counterparts. These
         limitations emerge in particular at the stage of litigation and enforcement, and discourage
         SMEs from using IPR in the first place.

         ... by streamlining procedures and reducing application time
              Particularly in industries where innovation occurs at a rapid rate, the application time
         is often too slow, especially for patenting, and does not effectively meet the needs of
         innovative SMEs and start-ups, for which lengthy processes are generally less sustainable
         than for large firms, due to resource constraints and greater dependence on the successful
         processing of a single application. Governments should consider creating a fast track for
         small business (e.g. as in the United States for “green” technologies). At the same time, the
         granting process could be accelerated by increasing the “quality” of applications, through,
         for instance, patent search services, as in Italy, or a peer-to-patent system, in which
         community reviewers support the Patent Office in finding the information relevant to
         assessing the claims of pending patent applications, as well as through faster examination
         processes with strict guidelines, as experimented on in the United States.
             The introduction of “innovation patents”, which, as in Australia, undergo a formalities
         checklist as opposed to a full examination, should be carefully evaluated. If, on the one
         hand, this mechanism reduces time and cost of application, and provides a patent with
         shorter lifespan, which could be more appropriate in fast-changing environments, on the
         other hand, it goes counter to the international trend towards standardisation and tighter
         patent processing. It might therefore generate excessive filing and create problems of
         inconsistency at the international level, and, in the end, be appropriated by large firms.

         ... by adequately structuring fees and costs
              The costs involved in IPR application are widely perceived by SMEs to be an obstacle to
         the effective use of the IP system, although it is generally not the main concern, especially
         in the case of trademarks and copyright. The issue should be tackled taking into
         consideration both the desirability of a reduced cost burden on financially constrained
         SMEs and the function of fees, which are intended to induce self-selection by potential
         applicants and discourage frivolous filing, limiting in this way the examination backlog. In
         Italy, for instance, the patent fee structure has been reformed with the objective of
         reaching a balance between accessibility and application quality, imposing fees that are
         proportional to claims.




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                                                        1.   INTELLECTUAL ASSET MANAGEMENT, INNOVATION AND SMEs



         ... by improving litigation and enforcement mechanisms
               Litigation and enforcement are broadly perceived by SMEs to be complex, costly and
         time consuming, often discouraging IPR defence, or even application for formal IPRs in the
         first place. In order to increase entrepreneurs’ confidence in the enforcement mechanisms,
         transparency should be increased and procedures streamlined. It is also important that
         expertise on the broad range of IPRs be built in the judicial system. It is a common
         complaint by innovative SMEs, especially in creative industries, that courts are ill prepared
         to handle their cases, as they possess little knowledge about the firm’s industry and its
         innovation processes. Reforms to the judicial system and hiring of specialists have been
         implemented in several countries, and these experiences should be carefully assessed.
         Italy, for instance, has introduced specific expertise in the system, through IP litigation
         specialised sections in ordinary and appellate courts. In the United Kingdom, a Patent
         County Court was set up for this purpose and litigation procedures have been simplified.
              Furthermore, in order to reduce time and cost, policies should explore alternative
         dispute mechanisms, such as administrative procedures to arbitrate disputes, as
         introduced in Denmark. Mediation schemes that favour extra-judicial settlements should
         be investigated. The WIPO Mediation and Arbitration Centre for the resolution of
         international commercial disputes represents an interesting model in this respect.
         Mediation opportunities should be brought closer to the SME playground, diffusing
         information on mediation itself and considering, for instance, the creation of more
         decentralised mediation mechanisms, which can be more easily accessed by SMEs to
         prevent infringement and settle disputes.

         Improve cross-border information, co-ordination and enforcement
              Inconsistencies and variations across IP regimes in different countries represent a
         critical obstacle to SMEs operating internationally, as they must first understand the
         foreign IPR system, then apply and pay for additional IPRs in those countries. The problem
         arises in particular with patents, whereas trademarks are easier to negotiate and enforce
         across systems. Regional IPR arrangements can potentially reduce complexity and costs.
         For instance, in the EU, the community trademark and the community design, and possibly
         the EU patent under debate, simplify many aspects of IPRs for SMEs involved in cross-
         border commerce and investment in EU member states. However, a counter argument is
         that regional or global patents reduce flexibility and do not always fit local needs. Further
         evidence on this should be consulted.
             Simplification of the rules pertaining to semi-formal protection (i.e. contracts) across
         countries would be particularly helpful for the creative industries that rely on such
         protection. Membership of international treaties could facilitate enforceability. However,
         SMEs often lack the information and support to access the protection mechanisms
         provided by these treaties, thus the performance of such instruments is questionable for
         SMEs, unless specific mechanisms to diffuse information and raise awareness are
         developed.
              More comprehensive information on IPR systems in other countries should be
         provided by national IP bodies to better inform and assist SMEs when internationalising.
         For instance, IP Australia has developed a range of factsheets on key foreign markets to
         assist local businesses in making informed decisions as they engage in cross-border
         activities. In Italy, a pilot initiative was launched, involving the creation of a network of



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1.   INTELLECTUAL ASSET MANAGEMENT, INNOVATION AND SMEs



         support centres in foreign markets deemed particularly relevant for Italian SMEs, to
         encourage their IP protection and enforcement.

         Improve the metrics for measuring SME intellectual assets and evaluating their
         management
              Policy design, implementation and assessment require measures of SME access to IP
         instruments and management of IPRs. Current metrics are largely centred on patents and
         financial flows capturing knowledge transactions. However, especially in creative
         industries, these capture SME innovation and intellectual assets only to a limited degree.
         Measures concerning these industries should include in particular trademarks and
         copyright, but the assessment framework should also take into account that
         confidentiality agreements and strategic methods (i.e. secrecy and trust) are the protection
         mechanisms most widely employed by SMEs, and that their management of intellectual
         assets often responds to non-financial objectives, such as competitive signalling and
         strategic partnership. Similar findings apply to the ICT sector where firms heavily use open
         source and exchange technologies without patent protection for non-financial objectives.

Areas for further study
               The IP landscape is undergoing profound changes, as broad reforms continue across
         countries. The debate on the international IP regulatory framework reflects the challenges
         of a rapidly changing technological and competitive environment. As reforms of IP systems
         are implemented at different levels, there are a number of areas that warrant further
         examination.
         ●   Several “SME-friendly” initiatives have been launched across countries to raise
             awareness and provide training and services for IPR application, monitoring and
             enforcement. Most of these initiatives, however, are still on a small scale or at a pilot
             stage. Further experimentation and evaluation are needed in due time to understand
             their effectiveness and their opportunities to be scaled up.
         ●   Evidence suggests that the enforcement stage is a highly critical one for SMEs and
             entrepreneurs when dealing with IPRs, especially when international activities are
             involved. Further study of this issue would be desirable in order to evaluate policies and
             programmes that might be implemented to strengthen enforcement of SMEs’ IPRs across
             borders. This would also promote discussion among the main international players
             about enforcement mechanisms and international co-operation in this area.
         ●   Future analysis should be underpinned by a deeper understanding of the emerging new
             models of innovation, knowledge development and diffusion (e.g. digitalisation),
             particularly in those industries (e.g. ICT, creative sectors) where business models are
             largely based on intangibles, and SMEs are leading the development of these open and
             collaborative modes of innovation.



         Notes
          1. WIPO, Intellectual Property and Small and Medium-Sized Enterprises, www.wipo.int/about-ip/en/studies/
             publications/ip_smes.htm.
          2. Firms with 20-199 employees.




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         References
         Arrow, K.J. (1962), “Economic Welfare and the Allocation of Resources for Invention”. In Nelson, R.R.
            (ed.) The Rate and Direction of Inventive Activity. Princeton: Princeton University Press.
         Bismuth, A. (2006), Intellectual Assets and Value Creation, Implications for Corporate Reporting, OECD, Paris.
         Bismuth, A. and Tojo Y. (2006), Creating Value from Intellectual Assets, OECD, Paris.
         Gambardella, A., Giuri, P., and A. Luzzi (2007), The Market for Patents in Europe, Research Policy, Vol. 36 (8),
           pp. 1163-1183.
         Hughes, A., Mina, A. (2010) The impact of the patent system on SMEs, UK Intellectual Property Office
            Report.
         OECD (2008), Intellectual Assets and Value Creation, OECD, Paris.
         OECD (2010), SMEs, Entrepreneurship and Innovation, OECD, Paris
         Robson, S., Haigh, G. (2008), “First findings from the UK Innovation Survey 2007”, Economic and Labour
            Market Review, Vol. 2, No. 4, April.
         WIPO (2004), Intellectual property rights and innovation in small and medium enterprises, World Intellectual
            Property Organisation, Geneva.




INTELLECTUAL ASSETS AND INNOVATION © OECD 2011                                                                              35
Intellectual Assets and Innovation
The SME Dimension
© OECD 2011




                                                 Chapter 2




                Australia: Intellectual Property
                Solutions for Innovative SMEs

                 By Dr. Richard Seymour, Mr. Jarrod Ormiston and Dr. Maria Rumyantseva
                                     The University of Sydney Business School




            The importance of SMEs’ use of intellectual property rights (IPRs) has been
            recognised by policy makers in Australia over the past decades. Over this
            time, Australian SMEs have had some of their needs met by several innovative
            policies aimed at providing better access to the IPR system. This chapter presents
            an overview of the IP landscape in Australia and SME-IPR practices. Data have
            been gathered from appropriate secondary data, as well as from expert
            interviews and multiple case studies (SMEs in the creative industries and clean-
            tech sector). From these data, the chapter presents issues confronting SMEs and
            the obstacles preventing them from creating and capturing value associated with
            the IPRs. Insights and implications for policy makers are presented in the
            conclusion.




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2.   AUSTRALIA: INTELLECTUAL PROPERTY SOLUTIONS FOR INNOVATIVE SMEs




Introduction
               This chapter gives an overview of the IP landscape in Australia and its relationship
          with SMEs of particular sectors of interest. It introduces existing IP studies in the SME
          context, and highlights gaps in understanding and research. In order to describe the
          incidence of innovation and related practices by Australian businesses, the chapter
          presents evidence from a survey conducted by the Australian Bureau of Statistics (ABS) in
          2008-09. In addition to secondary data, the empirical part of our study involves two primary
          data collections: interviews with experts, and secondly, a number of case studies
          conducted over 2010 in Sydney, Australia, through interviews with founders or senior
          management of corporate ventures. The findings from the direct investigation are
          preliminary as they do not include any related quantitative survey data and so should be
          considered with that limitation in mind.

          Methodology
                Four expert interviews were conducted with the following groups of individuals:
          ●   three IP patent attorneys from a firm specialising in patents for manufacturing firms, IT
              and software developers and the life sciences – hereafter referred to as IP Patent Attorneys
              Group 1;
          ●   two IP patent attorneys from a Sydney-based advisory firm. These interviewees included
              a patent attorney with over 10 years expertise in SMEs, an inventor turned patent-
              attorney, and a research scientist turned patent attorney turned patent development
              manager for an investment private equity company. This group is hereafter referred to
              as IP Patent Attorneys Group 2;
          ●   one senior Government bureaucrat based in Canberra and responsible for the
              engagement with SMEs and policy settings, hereafter referred to as Government
              Bureaucrat; and
          ●   one CEO of an incubating fund supporting high-tech spin-offs principally from
              university research hereafter referred to as Incubating CEO.
               Five case studies in the creative industries and one case in the cleantech industry were
          conducted through a semi-structured interview format. The following individuals were
          interviewed.
          ●   a founder of a publishing house in the education sector, hereafter referred to as
              Educational Publisher;
          ●   a senior executive within an Australian literary agency, hereafter referred to as Literary
              Agency;
          ●   the author of a successful book, published by an international publishing house,
              hereafter referred to as Author;
          ●   a senior manager within two production companies producing documentary films and
              other films, hereafter referred to as Production Company A, and B; and


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         ●    the entrepreneur associated with a company producing renewable energy, hereafter
              referred to as Cleantech Company.

Intellectual property regulation in Australia
              In Australia, intellectual property (IP) represents the property of an individual’s mind
         or intellect, or proprietary knowledge in business terms. According to the Department of
         Innovation, Industry, Science and Research, Australia has one of the most effective IP rights
         protection systems in the world with Australia being ranked eighth in the world in terms
         of IP enforcement (World Competitiveness Yearbook, 2009).

         i)    Australian institutional framework
              IP Australia is the Commonwealth agency responsible for granting patents,
         trademarks, designs and plant breeder’s rights (PBRs) through dedicated offices. Although
         a prescribed agency within the Department of Innovation, Industry, Science and Research
         (DIISR), it operates independently of the Department on financial matters and with some
         degree of autonomy on other matters. By charging fees for services, IP Australia recovers
         more than 95% of its costs.
              Recognised as one of the leading IP offices in the world, IP Australia has a role to
         provide an IP system that promotes innovation, investment and trade. Its strategic focus is
         to continuously enhance the efficiency of the IP rights system in the country, focussing
         strongly on customer service and the business needs of Australian firms, complying in
         terms of response times and consistency of decisions.
               Through its communication programme IP Australia provides individuals and
         organisations with general information on how to obtain IP rights and how to take
         advantage of their IP. Further, the agency provides general guidance on how organisations
         can use IPRs to innovate and develop a distinctive identity.
              IP Australia also manages programmes that promote awareness and education on IP.
         The agency has funded a number of units of study aimed at improving IP understanding
         among Australian businesses. The units were developed by Innovations and Business Skills
         Australia (ISBA) and include 8 IP units of competence and six IP skill sets and revisions to
         other packages. Some of these units relate specifically to small businesses and their use of
         intangible assets. These units are available to Registered Training Organisations (RTOs),
         which provide, within stringent government standards, training and assessment services
         within a national system of quality assurance. RTOs include TAFEs (technical and further
         education institutions), private companies, not-for-profit training services and adult and
         community education institutions. Also, some businesses or industry organisations are
         recognized as RTOs. As at November 2010, 18 RTOs had taken up these programmes, which
         are promoted actively by IP Australia through its Marketing and Customer Engagement
         section.
              IP Australia also supports the Master of Intellectual Property Law programme offered
         jointly by the Queensland University of Technology and the World Intellectual Property
         Organisation (WIPO). The course is taught by industry experts from WIPO, IP Australia and
         the legal profession as well as leading academics in the field. A large amount of the course
         material relates to SMEs and in particular there is a unit dedicated to IP and SMEs.
              Providing services to SMEs operating internationally, or considering protecting their
         intellectual property in foreign markets, is an important element of the agency’s work.


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               IP Australia, however, does not adopt a prescriptive approach but rather encourages
               businesses to engage in further research in the international markets into which they are
               considering entering. The resources include a list of worldwide IP offices, international IP
               professionals, international IP search services and international websites related to IP. A
               reference section on multilateral and bilateral agreements that Australia is party to and a
               list of “Paris Convention for the Protection of Industrial Property” countries are also
               provided.
                    In addition to these more passive resources, IP Australia has developed a range of
               Importing and Exporting Factsheets for China, the European Union, India, Indonesia, Japan,
               South Korea, New Zealand, Singapore and the United States of America. These factsheets
               assist Australian businesses in making more informed decisions before they decide to
               engage in exporting.
                    In addition to serving as an information resource and engaging with IP offices in other
               countries, and with international and regional organisations, so as to enhance Australia’s
               role in developing IP systems and processes around the world, IP Australia is involved in
               what they describe as a ’modest’ Development Cooperation Programme. This focuses on IP
               capacity building in the Asia-Pacific region and includes public education and awareness
               programs, leadership skills workshops and training related to specific types of IP.
                   In addition to IP Australia, the following institutions comprise the IP institutional
               framework in Australia.


                         Table 2.1. Australian intellectual property institutional framework
 Institution                               Area of IP                        Role

Advisory Council on Intellectual           All                               The Advisory Council on Intellectual Property (ACIP) is an independent
Property (ACIP)                                                              body appointed by the government, and advises the Federal Minister
                                                                             for Innovation, Industry, Science and Research on intellectual property
                                                                             matters and the strategic administration of IP Australia.
AMPICTA (Australian Manufacturers’         All                               Representing owners of Intellectual Property in Australia.
Patents, Industrial Designs, Copyright
and Trade Mark Association)
Licensing Executive Society of Australia   Patents;                          LES is an international community of innovation and commercialisation
and New Zealand (LES)                      Trade marks;                      professionals whose is to create an environment for effective
                                           Designs; Plant Breeder’s Rights   and successful commercialisation using open exchange ideas, identifying
                                                                             best practice and encouraging innovation through both networking
                                                                             and education in all areas of intellectual property.
The Institute of Patent and Trade Mark     Patents;                          The Institute of Patent and Trade Mark Attorneys of Australia (IPTA) is
Attorneys of Australia (IPTA)              Trade marks;                      the peak professional body representing Australian patent and trademark
                                           Designs; Plant Breeder’s Rights   attorneys.
Professional Standards Board for Patent    Patents;                          The Professional Standards Board administers the regulatory
and Trade Mark Attorneys                   Trade marks;                      and disciplinary regimes for Patent and Trade Mark attorneys in Australia.
                                           Designs; Plant Breeder’s Rights
Patent and Trade Marks Attorneys           Patents;                          The tribunal is a statutory body established under the Patents Regulations.
Disciplinary Tribunal                      Trade marks;                      Its function is to deal with complaints against patent and trade marks
                                           Designs; Plant Breeder’s Rights   attorneys of unsatisfactory and unprofessional conduct.
The Plant Breeder’s Rights Advisory        Plant Breeder’s Rights            The Plant Breeder’s Rights Advisory Committee (PBRAC) is an independent
Committee                                                                    statutory committee established under Part 7 the Plant Breeder’s Rights Act
                                                                             1994 (PBR Act). PBRAC advises the Minister and PBR Registrar
                                                                             on technical and administrative matters relating to PBR and acts
                                                                             as an industry advisory forum.
Commonwealth Copyright                     Copyright                         Commonwealth Copyright Administration (CCA) is responsible
Administration (CCA)                                                         for the management of copyright in published materials on behalf
                                                                             of Commonwealth agencies and processes requests for permission
                                                                             to reproduce Commonwealth of Australia copyright material.




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                     Table 2.1. Australian intellectual property institutional framework (cont.)
 Institution                                   Area of IP                                        Role

The Australian Copyright Council               Copyright                                         The Australian Copyright Council is an independent non-profit organisation
                                                                                                 that provides information, advice and training about copyright in Australia.
                                                                                                 They also produce publications, do research, and make submissions
                                                                                                 on copyright policy issues.
Copyright Agency Limited (CAL)                 Copyright                                         CAL is a copyright management company whose role is to provide a bridge
                                                                                                 between creators and users of copyright material. CAL represents authors,
                                                                                                 journalists, visual artists, surveyors, photographers and newspaper,
                                                                                                 magazine and book publishers as their non-exclusive agent to license
                                                                                                 the copying of their works to the general community.
Attorney General’s Department                  Copyright                                         The Australian Government Attorney General's Department provides
                                                                                                 support to the Government in the maintenance and improvement
                                                                                                 of Australia's system of law and justice and its national security
                                                                                                 and emergency management systems. It deals with a variety of copyright
                                                                                                 issues including, among others, AUSFTA free trade agreement, Copyright
                                                                                                 Amendment Act 2006, Digital Agenda reforms, enforcement, fair use,
                                                                                                 government use of copyright material, management of IP by government
                                                                                                 agencies, IP and competition, moral rights, music and small business,
                                                                                                 parallel importation and technological protection measures.



               ii)   Types of intellectual property rights in Australia
                     The types of IPRs that are set out by IP Australia, which administers statutes relating
               to IP, are: patents for new or improved products or processes; trade marks for letters, words,
               phrases, sounds, smells, shapes, logos, pictures, aspects of packaging or a combination of
               these, to distinguish the goods and services of one trader from those of another; designs for
               the shape or appearance of manufactured goods; plant breeder’s rights for new plant
               varieties; and copyright for original material in literary, artistic, dramatic or musical works,
               films, broadcasts, multimedia and computer programs; circuit layout rights for the three-
               dimensional configuration of electronic circuits in integrated circuit products or layout
               designs; and confidentiality/trade secrets including know-how and other confidential or
               proprietary information.
                   Copyright and circuit layout rights are automatically protected whereas all other
               forms require formal steps to register the IP and obtain legal rights of ownership.


          Table 2.2. Intellectual property rights available in Australia and their characteristics
Type of IP                           What it covers          What it does not cover            What it provides              Application process               Duration

Patents                         Any device, substance,      Artistic creation,            It gives the owner the          Patents must be applied      8 years for an innovation
                                method or process, which    mathematical models,          right to commercially           for from IP Australia and    patent and 20 years for a
                                is new, inventive and       plans, schemes or other       exploit the invention for       are assessed to ensure       standard patent. A
                                useful.                     purely mental processes.      the life of the patent and it   they meet appropriate        standard patent can be
                                                                                          is legally enforceable.         legal requirements.          renewed for up to 5 years
                                                                                                                          Applications are generally   for certain human use
                                                                                                                          assessed with one month      pharmaceutical substance
                                                                                                                          for an innovation patent     patents.
                                                                                                                          and it takes up to 4 years
                                                                                                                          for a standard patent.
Trade marks                     A word, phrase, letter,     Registration of a             A registered trade mark         A trade mark must be         Trade mark registration
                                number, sound, smell,       business, company or          gives the legal right to        applied for from IP          lasts for 10 years and can
                                shape, logo, picture,       domain name does not in       use, license or sell it         Australia and applications   be renewed for
                                aspect of packaging or a    itself give any proprietary   within Australia for the        are generally assessed       successive 10 year
                                combination of these. A     rights which are provided     goods and services for          within three months from     periods.
                                trade mark can also         by a trade mark.              which it is registered.         the time of application.
                                protect a brand name.




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     Table 2.2. Intellectual property rights available in Australia and their characteristics (cont.)
Type of IP                            What it covers          What it does not cover            What it provides            Application process                  Duration

Design                          Features of shape,          Artistic works.                Exclusive and legally       A registered design must         Registration protects a
                                configuration, pattern or                                  enforceable right to use, be applied for from IP             design for five years and
                                ornamentation which,                                       license or sell the design. Australia and applications       can be renewed for a
                                when applied to a                                                                      are generally assessed           further five years.
                                product, give the product                                                              with 6 months of
                                a unique appearance. To                                                                application.
                                be able to be registered, a
                                design must be new and
                                distinctive.
Plant breeder’s Rights          New varieties of plants.     Use of a grower’s crop or     Exclusive commercial          Applications should be         Protection lasts for up to
                                                             the use of the variety in     rights to market a new        filed with IP Australia.       25 years for trees or vines
                                                             plant breeding or             variety or its reproductive   There is a registration and    and 20 years for other
                                                             retention by growers of       material.                     examination process            species.
                                                             seed for the production of                                  which generally takes
                                                             another crop on their land.                                 2.5 years.
Copyright                       Original works of art and    Copyright protects            Safeguards from copying       It is free and automatic.      Varies according to the
                                literature, music, films,    original expression of        and certain other uses.       Material is protected from     nature of the work and
                                sound recording,             ideas, not the ideas          Copyright material will       the time it is first written   whether or not it has been
                                broadcasts and computer      themselves.                   also enjoy protection         down, painted or drawn,        published. Depending on
                                programmes.                                                under the laws of other       filmed or taped.               the material, copyright for
                                                                                           countries who are                                            literary, dramatic, musical
                                                                                           signatories to the                                           and artistic works
                                                                                           international treaties, of                                   generally lasts 70 years
                                                                                           which Australia is a                                         from the year of the
                                                                                           member.                                                      author’s death or from the
                                                                                                                                                        year of first publication
                                                                                                                                                        after the author’s death.
                                                                                                                                                        Copyright for films and
                                                                                                                                                        sound recordings lasts
                                                                                                                                                        70 years from the year in
                                                                                                                                                        which they were made.
Circuit layout rights           Three-dimensional            n/a                           Circuit layout rights         There is no requirement        The maximum possible
                                configuration of                                           automatically protect         for registration for the       protection period is
                                electronic circuits in                                     original layout designs for   granting of rights to the      20 years from the year of
                                integrated circuit                                         integrated circuits and       owner of a layout design.      making an eligible layout.
                                products or layout                                         computer chips. They
                                designs.                                                   provide the exclusive right
                                                                                           to copy the layout in a
                                                                                           material form; make
                                                                                           integrated circuits from
                                                                                           the layout; and exploit it
                                                                                           commercially in Australia.
Confidentiality/trade secrets   A trade secret is both a     n/a                           Confidentiality agreement     Trade secret must be           Varies according to
                                type of IP and a strategy                                  is often used to stop         backed up by signed            confidentiality
                                for protecting your IP. It                                 employees from revealing      confidentiality                agreements.
                                can provide effective                                      secret or proprietary         agreements with every
                                protection for some                                        knowledge during and          person who has
                                technologies, proprietary                                  after their employment or     knowledge of the secret.
                                knowledge (know-how),                                      association with a
                                confidential information                                   business. If an agreement
                                and other forms of IP.                                     is breached, evidence of
                                                                                           what was agreed and
                                                                                           protection through the
                                                                                           law is required.



             iii) Innovation with regard to standard patents
                    There are two “types” of patents in Australia:
             ●   A standard patent, which lasts for 20 years with annual maintenance fees payable from
                 the fifth year.



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         ●   An innovation patent, which lasts for a maximum of 8 years with annual maintenance
             fees and acts as a relatively fast and inexpensive protection option. The innovation
             patent system is designed to provide protection for those inventions which have a lower
             inventive threshold than that required for a standard patent
                Table 2.3 provides a simple overview of the differences between the two patents


                              Table 2.3. Innovation patent with regard to standard patent
                                                      Innovation Patent                                  Standard Patent

          To apply for a patent your invention must   Be new, useful and involve an innovative step. Be new, useful and involve an inventive step.
          Application should include                  A specification including title, description, up   A specification including title, description, no
                                                      to 5 claims, drawings (if applicable) and an       limit to the number of claims, drawings and an
                                                      abstract, and forms.                               abstract, and forms.
          Examination                                 After grant but only if requested by the
                                                                                                      It is compulsory for an applicant to request
                                                      applicant, a third party or the Commissioner of
                                                                                                      examination, and pay a fee.
                                                      Patents, and a fee is paid.
          Acceptance                                  After passing formalities check.                   After passing examination.
          Grant/sealing                               Granted after acceptance.                          After acceptance and opposition period.
          Certification                               After passing examination.                         N/A
          Enforcement                                 After Certification.                               After Sealing.
          Filing of opposition                                                                           18 months from priority date and again after
                                                      At grant and again at certification.
                                                                                                         acceptance.
          Time from filing to grant                   Approx. 1 month (Note – this does not include
                                                                                                    Up to 4 years.
                                                      examination).
          Protection period                                                                              20 years max, if annual fees paid (up to 25 for
                                                      8 years max, if annual fees paid.
                                                                                                         pharmaceuticals.

         Source: IP Australia.



                The main benefits of the innovation patent are claimed to be as follows:
         ●   it provides quick protection and it only needs to be examined if requested by the
             applicant or a third party;
         ●   it has a lower inventive threshold than a standard patent;
         ●   it reduces financial and commercial risks in research and development; and
         ●   it involves a quick application process (minutes) and is generally granted within one
             month whereas a standard patent can take up to four years.
                There are, however, limitations to the innovation patent:
         ●   it has a shorter protection term, 8 years compared to 20 years;
         ●   one cannot enforce the patent until it has been examined;
         ●   it may be more difficult to sell an unexamined patent;
         ●   it cannot relate to plants or animals, biological processes for their generation, or
             humans;
         ●   it can only be applied for in Australia whereas standard patents can be applied for in
             separate countries; and
         ●   innovation patents can only be converted to a standard patent in the period before it is
             granted, which is usually within one month of application.




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          v)     Schedule of fees
              Table 2.4 details a rough estimate of the costs involved in the two types of intellectual
          property that need to be applied for through IP Australia.


                  Table 2.4. Fees for selected intellectual property protection in Australia
          Standard patents                  The average estimated cost of an Australian standard patent, including attorney fees, is between AUD 6
                                            000 to AUD 10 000, depending on the complexity of the application. Maintenance fees of the standard
                                            patent over a 20 year term would be a further AUD 8 600.
          Other IP requiring registration   Minimal outlays for application fees, however sometimes quite significant associated advisory fees.




              Due to the importance of “getting things right”, the professional fees are far higher. At
          the early stage, firms are often unwilling to incur these costs and undertake the
          protections “in house”. The implications of this are significant, particularly if the
          documentation is not appropriate, or the strategy for protection is incorrect – the firm will
          not discover this until it is too late. In the view of an expert, reality is firms will just have to
          incur the costs:
                 “There is certainly room for a greater level of knowledge within the companies,
                 whether it needs to be about formal IP or just generally being able to think through
                 innovation and knowing what the options are. I’d almost say: Well, the IP system’s the
                 IP system… it costs what it costs. Deal with it and make a considered judgement about
                 it. I do not think patents are going to halve in cost (Government Bureaucrat).”

          SME issues and challenges
               Insights into the legal and regulatory landscape impacting Australian SMEs can be
          found in Jensen and Webster (2009): 1) SMEs do not appear to have a problem using the IP
          system vis-à-vis large firms; and 2) enforcement costs are the most important inhibiting
          factor, but it is not clear whether these are more (or less) of a barrier than for large firms.
               Wilson (2008) reviewed SMEs and IP protection, concluding that SMEs apply for patents
          and trademarks at roughly the same rate as large enterprises, implying resources may not
          be critical to the IP decision. Furthermore, he found that SMEs have incentives to use IP
          protection to build strategic alliances and ensure certainty in business transactions. This
          finding was also discussed (see below) in the expert interviews.
                 With respect to SMEs and IP, research by Noonan (2009) suggests SMEs are typically:
          ●    too busy managing other areas of the business to consider IP;
          ●    lacking basic understanding of IP identification, protection and commercialisation (they
               do not know what they do not know);
          ●    lacking awareness of where to go for assistance;
          ●    fearful that IP can be infringed;
          ●    lacking knowledge on enforcement;
          ●    nervous of perceived costs of protecting IP; and
          ●    only considering IP when “in trouble.”
               These conclusions are generally supported by the in-depth interviews conducted for
          this research project, with the findings set out in the following section. Note, however, the
          in-depth interviews cannot be generalised across the population of firms or even advisors.



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         Recent developments and emerging trends
              Currently there is a gap in the legislation: What happens between “discovering” the IP
         and talking to others about the IP? Though there have been several attempts at rectifying
         these issues (see below), it could be argued that there is an ongoing gap (perhaps a
         necessary one) in the regulatory system. The main issue is how an SME, after discovering
         their IP, starts using it as a way of engaging with collaborators. The main question is
         whether collaborators will value an SME who has attained IP rights more than an SME that
         is built around a technology, people or a market.
            From the expert interviews conducted, and the secondary data reviewed, there are a
         number of significant developments and emerging trends in Australia:
         a) Innovation patents – In the context of SMEs, perhaps the most significant recent
            development is the innovation patent: The innovation patent system is intended to
            encourage and stimulate innovation by providing a means through which SMEs (in
            particular) can seek rights to exclude their competitors from copying inventions in
            which the owners of the rights have invested money and effort (IP Australia 2005, p. 3).
            There have been criticisms of the innovation patent, including (IP Patent Attorneys
            Group 1): 1) the rigour of the tests, as it is relatively easily argued that it is new, and the
            term “incremental” is not a high hurdle; 2) the bigger companies appear to be using it to
            broaden their competitive position, often to the detriment of SMEs; and 3) this Patent
            could be seen to be going against the international trends to standardise and tighten
            Patents. Other interviews however did not mention or criticise these Innovation Patents.
         b) Growing significance of Asian markets and associated IP considerations – Asian, in
            particular the Chinese and Indian (in addition to the tiger economies of Asia), markets
            are increasingly significant for Australian business. Although the most significant
            market for the majority of Australian firms seeking to internationalise is the USA, there
            is a quantum shift to the new economies. The need for a global focus is ever increasing
            in many sectors, particularly for the high-tech companies (Incubator CEO).
         c) Enforcement regimes remain complex and expensive – At the national level, the main
            issues concern the patent dispute process and the opposition process to patents. The
            need is identified for more streamlined opportunities for patent disputes and resolving
            patent disputes. In this respect, the United Kingdom’s attempt to streamline the process
            by opening up Patent Courts is seen as a reference. The Patent office has a lot with
            respect to the opposition procedure which is meant to be a low cost option prior to a
            grant or dispute. The opposition process is considered to be tedious, but there is no way
            of enforcing a company’s own rights other than it being a full court case. Particularly for
            small cases, there is no easy way (other than private negotiation) to resolve these issues,
            leaving the door open for aggressive behaviour by large predators.
         d) Open innovation is top of mind (even if not well executed) – SMEs are aware that
            collaboration can be a rich source of value creation. Smaller firms have struggled to
            participate in the practice, as many of the collaborators are large multinational firms.
            Furthermore, Universities are continually encouraged to collaborate with a mix of open
            and closed innovation. Open innovation has become more common in recent years as
            firms are seeing the power of providing part of their technology so that it can be adopted,
            improved and built upon. The issue is how you layer over the right business models that
            can take advantage of this trend.



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          e) Education, a major focus of IP Australia and the Copyright Council, is having some impact
             – Though the education efforts of IP Australia are recognised as world”s best practice,
             and it appears they have been effective in raising awareness of IP and informing the
             public (IP Patent Attorneys Group 2), there still seems to be little impact on changing SMEs’
             behaviour or improving their strategic knowledge of the IP system.
            Toolkits such as the IP Toolbox and information kit from the Copyright Council are very
            well regarded, however it was thought that information could also be addressed at
            individuals rather than organisations.
            In the context of the creative industries, experts believe that the work to educate
            designers and the like is definitely having an impact on individual/firm behaviour. There
            are examples of illustrators, designers and web designers who are extremely competent
            in IP rights management and who are developing strict contracts with authors and other
            entities that strictly detail for which uses the IP is authorised.
            It appears that the copyright industries are well advanced and relatively sophisticated
            with respect to their IP management. The creative industries are also characterised by
            standardised practices between different players that assumes standard IP rights.

Empirical evidence
          Survey data
              The survey data that we present on the incidence of innovation and related practices
          by Australian businesses is drawn from a selection of data from the 2008-09 Business
          Characteristics Survey (BCS) conducted by the Australian Bureau of Statistics (ABS1) and
          presented in 2008-09 (Catalogue number 8158.0 – Innovation in Australian Business).2
               The scope of the survey consists of all employing business entities in the Australian
          economy except for the following: general government; agriculture, forestry and fishing;
          public administration and safety; education and training; financial asset investing;
          superannuation funds; religious service; civic, professional and other interest group
          services; and private households employing staff.
               The data collection was undertaken through a mail out questionnaire with a random
          sample of approximately 9 500 businesses that was stratified by industry and employment
          sizes. The survey was begun in late October 2009 and the reference period was for the
          financial year ending 20 June 2009.
               The data presented comprises: types of innovation; barriers to and drivers of
          innovation; sources of ideas for innovation; innovation-active businesses and
          collaboration; sources of labour for innovation; innovation-active businesses and
          intellectual property; sources of development and degree of novelty of innovations; types
          of innovation-related expenditure.
              The key indicators of innovation included: measures of business innovation
          (innovating, innovation-active); types of innovation (goods and/or services, operational
          processes, organisational/managerial processes, marketing methods); and status of
          innovation (introduced, still in development, abandoned).

          Types of innovation
               To establish whether businesses were innovation active the survey covered four types
          of innovation (goods and/or services, operational processes, organisational/managerial



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         processes and marketing methods) and three types of innovation statuses (introduced, still
         in development and abandoned).
                In 2008-09, 40% of Australian businesses reported that they were innovation-active
         (i.e. those which undertook any innovative activity) and 35% of businesses had introduced
         at least one type of innovation. The figures had fallen by 5% and 4% respectively from those
         reported in 2007-08. The frequency of the different types of innovation was similar with
         each recording around 16-19%.


         Table 2.5. Summary of innovative activity in Australian business, key indicators,
                                     2007-08 and 2008-09
                                                                                                              2007-08                 2008-09

          Estimated number of businesses                                                  ’000                     711                     713
          Businesses which introduced any new or significantly improved:
             goods and/or services                                                         %                       21.9                    18.2
             operational processes                                                         %                       17.6                    16.3
             organisational/managerial processes                                           %                       19.0                    19.4
             marketing methods                                                             %                       14.6                    17.2
          Businesses which introduced innovation (innovating businesses)                   %                       39.1                    35.1
          Businesses with innovative activity which was:
             still in development                                                          %                       22.5                    17.6
             Abandoned                                                                     %                        6.9                     6.5
          Businesses with any innovation activity (innovation-active businesses)           %                       44.9                    39.8

         Source: Australian Bureau of Statistics, Innovation in Australian Business, 2008-09.



            Across the three types of innovation statutes, SMEs were less likely to have
         undertaken innovative activity than larger businesses.


                       Table 2.6. Summary of innovative activity in Australian business1,
                                        by employment size, 2008-09
                                                                                                                                   200
                                                                                                 0-4      5-19        20-199
                                                                                                                                 or more          Total
                                                                                               persons   persons      persons
                                                                                                                                 persons

          Estimated number of businesses2                                          ’000           433      217              60       3             713
          Businesses which introduced innovation (innovating businesses)            %            28.1      43.9           51.8     60.9           35.0
          Businesses with innovative activity which was:
          still in development                                                      %            14.3      21.5           26.7     36.0           17.6
          abandoned                                                                 %             5.8       7.5            7.7      7.8             6.5
          Businesses with any innovative activity (innovation-active businesses)    %            32.8     48.4            58.2    66.7            39.8

         1. Proportions are of all businesses in each employment size category.
         2. As at the end of the reference period, i.e. at 30 June 2009.
         Source: Australian Bureau of Statistics, Innovation in Australian Business, 2008-09.



             In terms of industries, the Wholesale trade, Manufacturing, and Information media
         and telecommunications industries had the highest proportion of innovation active
         businesses. (approx. 50%). The Construction and Transport, postal and warehousing
         industries recorded the lowest proportion of innovation-active businesses (approx. 31%).




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          Barriers to innovation
               All businesses that participated in the survey were asked whether any factor/s
          hampered their ability to develop innovation. 43% of business reported having at least one
          barrier to innovation. Innovation active businesses were twice as likely to report barriers as
          non-innovation active businesses. The most reported barriers to innovation were lack of
          access to additional funding and lack of skilled persons.
               For micro-businesses (0-4 employed persons) lack of access to additional funds was
          the greatest barrier to innovation. For SMEs and large businesses, lack of skilled persons
          was the common barrier to innovation. The least reported barriers to innovation were lack
          of access to knowledge or technology to enable development or introduction/
          implementation and adherence to standards. On the whole, SMEs reported more barriers
          to innovation than larger businesses.


            Table 2.7. Barriers to innovation1, 2, by innovation status, 2007-08 and 2008-09
                                                                       As a percentage3

                                                                                2007-08                                          2008-09

                                                                               Non                                                 Non
                                                           Innovation –                                      Innovation –
                                                                           innovation –           All                          innovation –       All
                                                              active                                            active
                                                                              active          businesses                          active      businesses
                                                            businesses                                        businesses
                                                                            businesses                                          businesses

          Lack of access to additional funds                   24.7                9.0              16.0            29.5           12.9          19.5
          Cost of development or introduction/
          implementation                                       17.6                5.2              10.8            20.7            7.1          12.5
          Lack of skilled persons:
             Within the business                               22.0                8.9              14.8            20.3            8.6          13.2
             Within the labour market                          22.7               11.5              16.6            16.6           10.3          12.8
             In any location4                                  32.6               15.2              23.0            27.1           14.3          19.4
          Lack of access to knowledge or technology             5.0                1.8               3.2             3.9            2.5           3.0
          Government regulations or compliance                 14.9                7.1              10.6            15.0            9.9          11.9
          Adherence to standards                                  –                 –                 –              5.1            3.4           4.1
          Uncertain demand for new goods and/or services       16.8                6.6              11.2            17.6           10.0          13.0
          Other barriers to innovation                          3.2                2.1               2.6              –                –               –
          Any barrier to innovation                            61.3               29.4              43.7            59.6           32.4          43.2
          No barriers to innovation                            38.7               70.6              56.3            40.4           67.6          56.8

          1. Barriers to innovation are those factors which significantly hampered the development or introduction of any
             new or significantly improved goods, services, processes or methods.
          2. Businesses could identify more than one barrier and were not asked to rank barriers in order of significance.
          3. Proportion are of all businesses in each category.
          4. Includes businesses that reported lack of skilled persons within the business and/or within the labour market.
          Source: Australian Bureau of Statistics, Innovation in Australian Business, 2008-09.


                            Table 2.8. Innovation active businesses: barriers to innovation,
                                             by employment size 2008-09
                                                                        As a percentage

                                                                        0-4                5-19            20-199               200
                                                                                                                                               Total
                                                                      persons             persons          persons         or more persons

          Lack of access to additional funds                            29.9                30.4             26.3               18.1            29.5
          Cost of development or introduction/implementation            19.1                23.7             18.5               19.0            20.7
          Lack of skilled persons:
          Within the business                                           18.3                22.9             20.4               17.2            20.3
          Within the labour market                                      13.6                18.8             22.2               13.7            16.6
          In any location                                               23.7                30.5             30.8               21.4            27.1




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                           Table 2.8. Innovation active businesses: barriers to innovation,
                                         by employment size 2008-09 (cont.)
                                                                           As a percentage

                                                                        0-4                  5-19            20-199              200
                                                                                                                                              Total
                                                                      persons               persons          persons        or more persons

          Lack of access to knowledge or technology                         4.1                3.7              3.6               4.0           3.9
          Government regulations or compliance                             15.9               12.6             18.5              13.1         15.0
          Adherence to standards                                            4.1                6.0              6.2               3.6           5.1
          Uncertain demand for new goods and/or services                   19.2               16.7             14.3              12.5         17.6
          Any barrier to innovation                                        58.7               61.6             57.6              45.0         59.6
          No barriers to innovation                                        41.3               38.4             42.4              55.0         40.4

         Source: Australian Bureau of Statistics, Innovation in Australian Business, 2008-09.


         Sources of ideas and information for innovation
              The survey asked innovation-active businesses from which source/s they had gained
         their ideas and information for innovation.
             The most frequently cited sources of ideas and information were from within the
         business and from clients, customers or buyers.
             The frequency of businesses which source ideas and information for innovation from
         within the business increased with size. Similarly the use of consultants was more
         common in larger businesses than in SMEs. The sources of ideas and information which
         were least cited were from universities or other higher education institutions, government
         agencies, private non-profit research institutions and commercial laboratories/research
         and development enterprises.

                          Table 2.9. Innovation active businesses: barriers to innovation,
                                           by employment size, 2008-09
                                                                           As a percentage

                                                                                                                                   200
                                                                                    0-4          5-19           20-199
                                                                                                                                 or more      Total
                                                                                  persons       persons         persons
                                                                                                                                 persons

          Within the business or related company                                    57.4              61.7        69.8              82.6       60.7
          Clients, customers or buyers                                              38.9              39.5        39.0              39.8       39.2
          Suppliers                                                                 32.2              27.2        31.5              23.1       30.2
          Competitors and other businesses from the same industry                   29.9              29.9        33.6              36.0       30.4
          Consultants                                                               12.7              20.1        27.3              46.1       17.5
          Universities or other higher education institutions                        2.9               2.2            2.2            6.4         2.6
          Government agencies                                                        3.8               4.6            3.6            8.3         4.1
          Private non-profit research institutions                                   0.9               1.1            1.1            3.5         1.0
          Commercial laboratories/research and development enterprises               1.4               2.0            0.5            3.3         1.5
          Websites, journals, research papers, publications                         28.1              29.3        22.6              17.3       27.8
          Professional conferences, seminars, meetings, trade shows                 19.3              23.5        25.1              23.9       21.6
          Industry associations                                                     15.4              19.7        24.7              20.2       18.1

         Source: Australian Bureau of Statistics, Innovation in Australian Business, 2008-09.



         Intellectual property protection methods
              The survey asked innovation-active businesses which types of intellectual property
         protection methods they had utilised. This research found that 38% of innovation-active
         businesses reported utilising some form of IP protection. Secrecy (24%) and copyright and
         trademarks (18%) were the most commonly reported types of IP protection used by businesses.


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          Complexity of product design was utilised by 8% of businesses. The use of patents or
          registrations of design were less significant, with 4% or less utilising the protections.
               Micro-businesses with 0-4 persons employed were least likely to use any of the
          protection methods. SMEs utilised significantly less IP protection methods compared to
          large enterprises.
               The statistics revealed that innovation-active businesses were more than three times as
          likely to use any intellectual property protection methods as non innovation-active businesses.
              Almost two-thirds of the Information media and telecommunications businesses
          reported using some form of intellectual property protection, whilst only 21% of businesses
          within the construction industries utilised any form of IP protection.


                          Table 2.10. Innovation active businesses: intellectual property
                              protection methods1, 2, by employment size, 2008-09
                                                                     As a percentage

                                                                     0-4            5-19              20-199          200
                                                                                                                                          Total
                                                                   persons         persons            persons    or more persons

          Patents                                                     2.5             4.3                8.2           20.2                 4.0
          Registration of design                                      4.5             4.1                7.2           16.2                 4.8
          Copyright or trademark                                     14.4            19.1               23.0           46.7               17.5
          Secrecy/confidentiality agreements3                        21.4            25.3               28.3           44.4               23.9
          Complexity of product design                               10.2             5.2                6.7              9.2               7.9
          Any intellectual property protection methods used          32.9            39.9               45.0           67.4               37.2
          No intellectual property protection methods used           67.1            60.1               55.0           32.6               62.8

          1. Proportions are of innovation-active businesses in each employment size category.
          2. Businesses could identify more than one type of intellectual property protection method.
          3. Secrecy includes electronic protection methods.
          Source: Australian Bureau of Statistics, Innovation in Australian Business, 2008-09.



          Financial indicators
              Businesses in the survey that described themselves as innovation-active were asked to
          report which types of expenditures they had incurred in the development of innovation.
              Nearly 30% of businesses reported nil expenditure on developing innovation and SMEs
          were more likely to have no expenditure than were large businesses. Acquisition of
          machinery, equipment or technology, training and marketing activities related to
          innovation were the most highly reported types of expenditure.
              SMEs were less likely to report expenditure on design, planning and testing than larger
          businesses.


           Table 2.11. Types of expenditure for innovation purposes, by employment size,
                                              2008-091, 2
                                                                     As a percentage

                                                                                                                                  200
                                                                                              0-4       5-19     20-199
                                                                                                                                or more     Total
                                                                                            persons    persons   persons
                                                                                                                                persons

          Acquisition of machinery, equipment or technology                                   39.8       50.3      51.9           63.9        45.4
          Training                                                                            24.6       31.5      45.2           57.6        30.0
          Marketing activities undertaken to introduce new goods and/or services
          to the market                                                                       23.9       31.9      29.9           37.8        27.7




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           Table 2.11. Types of expenditure for innovation purposes, by employment size,
                                          2008-091, 2 (cont.)
                                                                           As a percentage

                                                                                                                             200
                                                                                               0-4      5-19     20-199
                                                                                                                           or more   Total
                                                                                             persons   persons   persons
                                                                                                                           persons

          Research and experimental development for purposes of introducing
          innovation only:3
             Acquired from other businesses                                                     4.2       3.2       4.6       7.8      3.9
             Undertaken by the business                                                         9.3       9.8      10.9      24.4      9.8
             Any expenditure on Research and Experimental Development                          10.6      11.7      12.4      26.9     11.4
          Design, planning or testing                                                          11.5      14.6      18.8      34.4     13.7
          Acquisition of licences, rights, patents or other intellectual property               9.8       8.6      10.6      18.1      9.5
          Other activities related to the development or introduction of new or
          significantly improved:
             Goods and/or services                                                             12.5      11.3      11.9      13.9     12.0
             Operational processes                                                              8.3      13.0      12.1      23.4     10.6
             Organisational/managerial processes                                                7.7      12.5      12.3      17.2     10.1
             Marketing methods                                                                 16.0      14.8      11.2      10.7     14.9
          No expenditure on any activities related to the development or introduction of
          new or significantly improved goods, services, processes or methods                  34.8      23.2      23.4      13.5     28.9
         1. Proportions are of innovation-active businesses in each employment size category.
         2. Businesses were asked if they had incurred any expenditure during the reference period for activities related to
            innovation only. Businesses were not asked to report actual dollar expenditure for the items or activities included
            in this table.
         3. A definition of Research and Experimental Development was not provided. No interpretation checks were made.
         Source: Australian Bureau of Statistics, Innovation in Australian Business, 2008-09.


         Case studies – creative industries
             The following section provides a cross-case analysis of five creative industries in-
         depth case studies from the publishing and filmmaking industries in Australia. The case
         studies are intended to support the review of IP regulation and the expert interviews by
         providing an in-depth analysis of IP management SME firms in the creative industries.
              Within the three publishing industry case studies, the Educational Publisher, Literary
         Agent, and Author did not have any relationship with each other, and are relating different
         books, engagement and undertakings. Each (unrelated) case relates the story from
         different perspectives. Within the two filmmaking industry case studies, the case studies
         are informed from the perspective of the CEO.

         Background information
               Case Study 1 – Educational Publisher – This proprietary limited SME, “Educational
         Publisher”, has one full-time employee and 20 casual employees. The core business of
         Educational Publisher is secondary education textbooks and tutoring. The company was
         founded as a private company in 1992, was taken over by a major publisher in 2004 and
         again in 2008. The company was then sold to a not-for-profit organisation in 2009, though
         it still operates as a for-profit private company. Educational Publisher’s target markets
         include senior secondary-school teachers and students. They distribute their products
         directly to the consumer. Educational publisher has engaged in exporting within the Asia-
         Pacific region yet has not focused its marketing heavily on international expansion.
              Case Study 2 – Literary Agency – This proprietary limited SME, “Literary Agent”, has
         8 full time agents and represents over 800 Australian and New Zealand authors, the
         majority of whom are represented on multiple projects. The core business of Literary Agent


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          is publishing in Australia and internationally, however it is also representing writers for
          film, theatre and television. Literary Agent was originally the subsidiary of a United
          Kingdom operation, however it became independent in 2003 after acquiring an Australian
          competitor. Since independence, the company has grown client numbers significantly,
          with a team of 2 agents now grown to 8.
               Literary Agent acts as an intermediary in the value chain between the publisher and
          the author as the author’s representative. Literary Agent has sub-agents in the United
          Kingdom and the United States and also occasionally sells directly. They have an affiliated
          foreign rights team who sells all translation rights. Literary Agent is selling translation
          rights in approximately 50 languages with the Asian market showing the strongest growth
          in translation sales as it opens up. Spanish language is another large market for the agency.
               Case Study 3 – Author – The third case is a sole trader with zero employees who is both
          a journalist and an author (“Author”). The case focuses on IP issues surrounding Author’s
          book that was published in 2004 and to date has sold 20 000 copies, which is considered a
          success in the Australian market. Prior to approaching the (ultimate) Publishing House,
          Author had been contacted by a rival house that had proposed a book around a particular
          theme. He had created a piece in response to that proposal, which received a very positive
          response from colleagues and the rival publishing house. Author did not feel comfortable
          with the (rival) publishing house, and his wife (also an author) suggested he contact her
          commissioning editor at the ultimate Publisher.
              The book sets out the experiences of the author as an Australian journalist living and
          working in South Asia culminating in the chaos of the fall of the Taliban regime in
          Afghanistan. The book has also been published in the United Kingdom, by a subsidiary of
          the Australian publisher.
               Case Study 4 – Production Company A – Established in 1998 by two producers,
          Production Company A has produced over 30 hours of international prime-time television
          for major networks. It is a successful company, and focuses on producing multiple formats
          and genres across various platforms. Production Company A’s core business is
          documentary filmmaking, however it also produces some drama, cross-media, interactive,
          and mobile productions. It has a service arm that provides corporate video production or
          productions that are sponsored documentaries by NGOs or NPOs. Production Company A
          includes the two founding partners and two other full-time staff. Production Company A
          employs approximately 100 additional people per year on a contract basis depending on
          their production slate. It is a highly internationalised production company. The majority of
          projects are co-funded and since their inception, only rarely have they undertaken solely
          domestic projects.
               Production Company A collaborates with a variety of international partners and funds
          its projects through international presales and deals with distributors. With respect to the
          production of digital content, Production Company A generally works with the domestic
          branches of international companies, rather than local companies.
               Case Study 5 – Production Company B – Production Company B is a successful film
          production company in Sydney, Australia, with two international offices, 20 employees on
          a full-time basis including the directors, and 300 individual contractors per year. It partners
          with many of the world’s most recognised television networks. Production Company B
          produces content across all platforms and all genres including drama series, lifestyle
          programs and documentaries.


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              Production Company B typically raises funding offshore and the company is
         internationally focused. Around 40% of its turnover comes from overseas presales or
         distribution internationally. Documentary filmmaking is its core business, and will
         continue to be so in the future even if its production shifts to more drama-based
         programming.

         Intellectual asset management
              Business strategies and perception about relevance of intellectual asset management
         are detailed below.

         Importance of intellectual asset management
             The educational publisher, the literary agent and the two production companies
         considered intellectual property management as part of their core business. For
         Educational Publisher protection of copyright is key in signalling to the competitors the
         implications of unauthorised production of their content. Literary Agent considered
         maximising value and protecting the IP rights of the authors as part of its core
         responsibilities. At Production Company A, maximising the value from IP and devising
         recoupment strategies are considered the most critical roles of senior management.
         Production Company B views IP as the main asset of the company and the continual
         creation and protection of IP ensures the companies sustainability.
              In contrast to the views of the established companies, Author provided an insight that
         reveals a lack of understanding, a lack of interest and confusion in IP issues with respect to
         his book. Author’s comments with respect to IP reflect his emphasis on ethics and morals
         rather than the legal implications of IP protection. Whilst Author revealed his perception of
         the importance of IP, he explained that he feels his previous employer may have been able
         to lay claim to the book’s IP. He did, however, seek an informal release of his IP from the
         employer. The following comment from Author reveals a sentiment that we feel is
         common among creative individuals; that initial consideration of IP only occurs once it is
         breached: “It’s a real labyrinth and ultimately whose IP is it? Well, it only really becomes an
         issue when it becomes an issue.” The case of the Author illustrates how some creative
         individuals place little emphasis or consideration on protecting their IP and place their
         trust in others.

         Intellectual property policies and training
              Despite their emphasis on the importance of IP management none of the cases had a
         formal IP policy, nor did they engage in staff training with respect to IP. Literary Agent and
         the Production Companies adhered to generally accepted industry standards regarding
         copyright and the structure of contracts. Rather than formal policies the four companies
         relied on the implicit knowledge of management to manage IP.
              The previous owner of Educational Publisher did, however, have a formal IP policy that
         was disseminated to management. And this previous policy is effectively the continuing
         policy under the new ownership. Management did not however receive training on this IP
         policy; rather they received the formal documentation of the policy.

         Protection methods adopted by the SME (and how they have been changing over time)
              The case study of the Author provided the only example of unawareness with respect
         to protecting IP. Author was of the opinion that the Publisher owned the copyright to his


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          text, yet this is at odds with industry norms. There was an assumption on the part of the
          Author that the Publisher would protect his IP. Author concedes that he is uncertain how
          his Publisher is protecting his IP and notes that IP management is not one his main
          concerns. He does, however, claim that this may be due to his existing working relationship
          with the commissioning editor, a relationship with a high degree of trust.
              The other case, the four companies, showed a solid understanding and considered
          approach to IP management. The companies used a combination of copyright ownership,
          formal non-disclosure agreements, and informal methods based on secrecy and trust.
               For Educational Publisher, industry standards dictate that the company owns any
          intellectual property produced (note this differs to non-educational publishing where the
          copyright generally remains that of the author). This ownership is supported by
          nondisclosure agreements that prevent discussion of IP to other parties in the publishing
          industry. The company noted however that they rely more on their informal approach of
          secrecy that is based on high levels of trust for casual employees. This informal agreement
          includes non-disclosure of information to other people in the publishing industry. It also
          ensures that any work done by employees for the Publisher remains the IP of the Publisher.
          Employees appear to be also aware that information should not be provided to anyone
          unless they are paying customers.
               The one complication for Educational Publisher arises in that they supply content to
          another publisher, which becomes the other publisher’s intellectual property. Educational
          Publisher does, however, reserve the right to use that intellectual property in its tutoring
          activities. This arrangement is not entirely transparent and the manager of Educational
          Publisher claims that neither of the parties have a solid grasp of the IP arrangement.
               Whilst management feel they could be doing more, they believe that doing so would
          have a negative effect on the business culture that is built on trust. Management feels that
          if employees are not given that level of trust this could damage the business culture
          significantly. Additionally, given that a lot of the company’s IP becomes quickly outdated,
          management feels they do not need to be doing more to protect IP, though they are aware
          that they could be.
               In contrast to Educational Publisher, Literary Agent stresses that it ensures that their
          authors retain their IP in line with standard industry practice in non-education publishing.
          The IP of the author becomes the right of the publishers for a limited period of time;
          copyright would never be assigned to a publisher. Literary Agent does not own any of the
          intellectual property, yet it is entitled to royalties from any deal that it negotiated with
          publishers (even if an author leaves the agent). IP is further protected by the client
          agreements, which ensure a 75-day period in which a defecting author cannot sign with
          another agent.
               At Production Company A the management of IP forms part of the company’s
          fundamental strategy. The approach involves taking a strong stance in what could be
          considered lop-sided negotiations with multinational organisation over IP rights. The
          major issue in protecting and retaining copyright for Production Company A is cash flow
          and timeliness of negotiation process. Despite Production Company A’s strong reputation
          in the industry, management claims that this does not assist in the negotiating process as
          Production Company A is a relatively small player in the industry. Whilst Production
          Company A is generally concerned with the management of copyright, it has been recently
          exploring the possibilities of licensing brand rights and trade marking its brands globally.


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         Proceeds from Digital Media Rights for online and mobile content forms a significant part
         of Production Company A’s revenue, and it has focused on developing multi-platform
         production capabilities and maintaining control over this IP.
             Production Company B has numerous template contracts that ensure appropriate
         protection of IP. It contends that licensing “program formats” is a strategy that is lucrative
         for exporting IP and has been employed widely from the United Kingdom to the United
         States. This is a strategy they hope to pursue in the future. The CEO considers that these
         opportunities are yet to happen for Australian production companies, as there is little
         support for innovation in Australian content. Australian Broadcasters are alleged to rely on
         formats that have already proved successful in other territories.

         Intellectual property and digitisation in the creative industries
              For the four companies, the greatest contemporary issue with respect to IP
         management concerns digitisation in the creative industries. Both the publishing industry
         and filmmaking industries are beginning to rapidly embrace digital content. All cases
         recognised that the digital paradigm is the future for their industry yet were at varying
         stages of development with respect to their own venturing into digital content provision.
         All the companies maintain that there are multiple additional obstacles with respect to the
         protecting of digital content. Educational Publisher was the only company to have not
         begun to supply digital content.
              For Educational Publisher the complexity of IP protection is a barrier for publishers,
         preventing them from embracing the new digital paradigm. The company is exploring
         entering the digital publishing market; however they continue to ponder the practicalities
         of protecting their IP online. There is a realisation that it is the future of the industry, yet
         the challenges of effectively protecting IP of digital content outweighs the perceived
         benefits at this stage, as discussed further below. The digitisation of educational content is
         considered a positive development for publishers as it: a) addresses the requirement for
         annual updates (content is often outdated within 12-18 months because of the changing
         “real world” and shifting pedagogical requirements), b) provides an opportunity for
         education publishers to reach more readers with more specifically targeted works, and c)
         assists lowering unit costs of production and distribution. Digitisation is also negatively
         impacting the sector, particularly the educational publishing sector, as content can
         potentially be easily replicated by users (students), and illegal copying by other parties is
         also simplified. The obstacles to protecting digital IP appear to be impacting the growth of
         Educational Publisher, despite growing consumer demand. The costs of digital rights
         management software and the ease of file sharing are the greatest deterrents. Digitising
         the content itself however would actually provide a cost saving for the business, as it would
         reduce the current labour intensive printing and postage methods.
              Literary Agent notes that digitisation of the publishing industry presents additional
         obstacles, and whilst the company is aware of the mechanisms for protecting this IP they
         are relying on publishers to effectively protect the electronic IP through digital rights
         management (DRM). The company is engaging with digitisation in the publishing industry,
         despite its challenges. Whilst the move to digital publishing is perceived as exciting, it is
         also viewed as confusing and frustrating. Literary Agent recognises the difficulty of
         ensuring appropriate rights are retained by their authors. Literary Agent feels that as the
         digitisation of the industry continues the landscape of IP management will shift as some
         publishers will desire world rights as opposed to solely the rights for their home territory.


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              Production Company A contends that it has been proactive with respect to the
          protection of digital IP rights. This is considered the result of a progressive and at times
          complex rights management structure that resulted from a strong understanding of IP
          management in the digital arena. Digitisation of creative content is providing an
          opportunity for Production Company A. It views digitisation as an opportunity to monetise
          more IP and is pushing very hard in that arena. The opportunities presented through
          Google, YouTube, iTunes and Amazon are perceived as financial opportunities and a space
          currently devoid of competitors. In the coming years, Production Company A considers
          success will come to those that are able to own and control IP, and that control will feed
          revenues through social networking and other new marketing opportunities. Those in the
          strongest positions will be those that take their contact directly to the audience. Production
          Company A indicated there are enough people willing to legally obtain their content, and
          that as a result they should be able to monetise any increased awareness which comes as
          a result of IP theft.
              For Production Company B, the main dilemma posed by digitisation is the aggressive
          behaviour of broadcasters in their attempts to secure digital rights to IP.

          Advice relating to intellectual property
               Education Publisher was the only company to not have sought advice with respect to
          IP protection or management. The three other companies had sought varying degrees of
          formal and informal advice on IP.
               Literary Agent has sought advice on IP management from copyright lawyers when the
          intellectual property of authors they represent has been breached.
              Production Company A receives formal advice from legal counsel on occasion and also
          seeks informal advice through the Screen Producers Association (an industry association)
          membership and other professional colleagues. A strong awareness of legal IP issues was
          considered part of the job as a producer or executive producer.
               Production Company B employs a lawyer full-time who is involved in negotiating with
          upstream and downstream organisations and uses exterior legal counsel on a regular basis
          to take advantage of specialist knowledge for contracts that are more complex and high
          stakes. Production Company B feels that the outside lawyers are better equipped to
          negotiate these deals then the internal counsel.

          Enforcement and litigation
               None of the cases involved in our study had experienced any litigation with respect to
          IP. The four companies felt confident they could enforce their IP rights should the situation
          arise, given that Australian Copyright Law is relatively clear and provides sufficient
          protection and there are solid industry standards and accepted practices. The cases also
          cited belief in their own ability to avoid litigation and resolve any disputes outside of court;
          Production Company B cited examples of disputes that were settled through negotiation.
               Educational Publisher questioned however whether the cost of pursuing IP litigation
          would be worthwhile, whilst Production Company A considered protecting copyright a
          relatively easy task. The protection of trademarks is considered a much more difficult task
          yet they are only just beginning to explore this avenue of IP protection.




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         Benefits and costs of intellectual property management
             For all the cases the benefits of protecting IP were seen to be invaluable in terms of
         competitiveness as all cases were in the core business of creating IP. For the majority of
         firms the cost related to protecting IP were relatively little considering that they relied on
         industry standards regarding copyright law, and informal policies of trust and secrecy.
              Production Company B was the only case which viewed protection of IP as a significant
         cost as they employ a lawyer in-house to deal with these issues, and additionally an IT
         professional to create and maintain a rights management database. Furthermore, the
         company employs IP consultants on a regular basis.

         Intellectual property management and the global context
              Author and Educational Publisher had not engaged in the international market place
         to enough of an extent to consider IP issues in the global context.
              Both the Production Companies believed that the issues involved in protecting IP, in
         particular copyright, are similar in the global context. They considered some nations as
         having lackadaisical copyright protection (e.g. China) and cited examples of them having
         been taken advantage of in international contracts. As opposed to viewing these as issues
         however they perceived these incidences as having a greater positive impact on brand
         awareness and exposing content to a wider audience, which outweighs any costs of
         pursuing international legal action over IP infringements.
             Literary Agent noted that the exportation of translated works posed the greatest
         complexities for IP management, as the international publisher and often the translator
         own the IP of the translation. In Germany for example, translation has become quite an
         expensive exercise because translators also demand a royalty and contend that their
         translation of the work is their copyright.

         Intellectual property management and the government
             The majority of the firms interviewed were indifferent towards the level of
         government support for IP as they felt they were able to operate within the legal framework
         and did not have the need to engage with government bodies with relation to IP.
              Production Company B however considered that there is relatively little support from
         the government to assist SMEs in the creative industries in protecting their IP.

         Intellectual asset management and competitiveness
             For all the cases involved in our study, intellectual asset management is vital to their
         competitiveness. The complexity of internationalisation and an increasingly global
         industry is clear with digitisation in the creative industries.
             For Educational Publisher, the strong emphasis on secrecy and trust has assisted the
         company in protecting its IP with minimal costs and also assisted in building a strong
         business culture. The firm’s approach to IP management is purported to be similar to other
         firms in educational publishing. The case highlights the reliance on informal IP
         management by SMEs and confirms the lackadaisical approach to IP management in the
         creative industries.
             The study of Literary Agent suggests that its direct involvement ensures better
         protection of authors’ rights given their awareness of industry standards with respect to IP.



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               The case study of the Author revealed IP issues were not perceived to be of high
          importance. It would seem that Author is unaware of standard industry practice with
          respect to copyright (that it remains the property of the author) and thus raises potentially
          competitive threats down the value chain. This case highlights the typical creative
          individual’s lack of awareness of, and interest in, IP management and rights.
               For Production Company A, theft of digital content is considered inevitable. However
          this was not seen as impacting legitimate customers or revenues. Though IP management
          is considered essential, legal advice was obtained in an ad hoc fashion.
              Production Company B has ensured the IP management is central to its competitive
          performance. There are significant costs incurred from internal and external legal counsel,
          with a global marketplace further complicating the business.

          Case studies – Cleantech Company
              The following section details one case study in the renewable and clean energy
          industries. This case offers insights into the impact of IP management at an early stage,
          entrepreneurial cleantech venture and reflects on IP management in the context of seeking
          venture capital funding. “Cleantech Company” was investigated in its early phases, at a
          time when the entrepreneurial firm had received two rounds of investment by the venture
          capitalist.

          Background information
               The founder of Cleantech Company is an engineer and academic at a major University.
          He has business experience in research and development for a start-up firm in the
          renewable energy sector. Before he was able to share his business idea (a new and
          innovative renewable energy technology) he invested his own money to protect the
          intellectual property behind it. He then established a firm, got informal investment from
          family and friends and applied for government funding (which he was granted). He also
          secured funding from a venture capital fund.
               This young entrepreneurial firm is a renewable energy systems company that intends
          to commercialise its innovative technology through sales on a global platform. Originally,
          the firm consisted of its founder who concurrently was the chief executive officer (CEO),
          chief operations officer (COO), chief financial officer (CFO) and Chairman as well as the
          head engineer. However, shortly after the firm’s foundation, the entrepreneur approached
          an experienced businessman (especially with regards to Greenfield ventures) and a finance
          expert to join him on his exciting yet risky journey by becoming part of the entrepreneurial
          venture’s executive team in the positions of COO and CFO respectively. Furthermore,
          several engineers were contracted out, with the number of engineers depending on the
          need for their work and assistance.
               Cleantech Company has two core technologies, which puts it in a unique position
          compared to most cleantech firms that rely on one core technology. The two technologies
          are in the prototype stage with the next step being the design and scale-up to pilot for scale
          testing.




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         Intellectual asset management
         Business strategies and perception about relevance of intellectual asset management
              Cleantech Company faced a common issue in its early stages where the founder is an
         inventor who lacks management expertise but becomes the CEO and runs the company for
         a while. The company was able to operate at the beginning but eventually faced
         limitations, especially with respect to managing IP.
              The entrepreneur considered the involvement of the venture capitalist as of
         paramount importance for supporting IP management. This is compounded by the fact
         that the venture capitalist was federally backed. This added credibility, as well as its strong
         network both at the national and international level.

         Protection methods adopted by the SME (and how they have been changing over time)
              A lack of IP protection presented the first hurdles for Cleantech Company. A great deal
         of preliminary research had been undertaken yet total secrecy was required as there was
         no formal protection in place. This lack of protection created difficulties in raising venture
         capital as the idea could not be shared with potential investors.
              The entrepreneur was initially unable to raise sufficient funds to cover the legal fees
         (approx. AUS 3-4 000) or the application fees for 4 provisional patents. The entrepreneur
         therefore was forced to work up the original patent documents himself, and raise
         preliminary funding for filing the application from friends and family. The founders of the
         firm therefore consist of the entrepreneur and the early entrants who helped to cover the
         cost of the patent.

         IP management and the global context
             The process of growth for the firm was based on a strategy of rapidly increasing value
         through placing a value on the IP. If Cleantech Company is to succeed, it must succeed in a
         global market.

         Enforcement and litigation
             Issues have arisen between the University and Cleantech Company with respect to IP.
         This related to the fact that the company’s IP existed in an early form at the University. The
         entrepreneur explained that the University is very rigid about IP because in the past
         companies have found a way to get it out of the university and profit from university
         supported research.

         Intellectual asset management and competitiveness
             The case highlights the significance of intellectual property for a start-up cleantech
         company. It also highlights how a technology’s early life can confuse ownership, with
         success bringing out the multiple parties often involved in a technology’s incubation. The
         company has secured significant Government funding, which has helped increase the
         other commercial stakeholders in the venture.




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Policy implications and recommendations

          Evaluate the innovation patent initiative
               The introduction of the innovation patent marks a positive step forward in
          government efforts to evolve the IPR system to better suit the needs of firms, including
          SMEs, in the contemporary, knowledge economy. However, it is important that the
          implications and results of new and innovative measures such as this are tracked,
          evaluated and the results widely disseminated. The decision by the Minister for
          Innovation, Science and Research in February 2011 to request the Advisory Council on
          Intellectual Property to begin a process to review the innovation patent system is a positive
          development. The evaluation should take into account not just the domestic-level impacts
          but also international-level impacts as the ease with which firms in other countries are
          using these new instruments is also of concern.

          Increase awareness of intellectual property among SMEs through communication and
          education
               In the creative industry cases studied, there is a lack of awareness not so much of what
          IPRs are but more of how to use IPRs strategically i.e. how to integrate IPR into a long-term,
          business strategy and in this way appropriate greater value from intellectual assets. IP
          Australia’s efforts to communicate with firms on IPR have been effective in increasing
          general awareness over time. Efforts by IP Australia to provide IPR-modules in the
          vocational education and training sector as well as in universities should continue and be
          built on.

          Address the issues for SMEs operating internationally through greater information and
          efforts to improve enforcement of intellectual property rights
               Asian, in particular the Chinese and Indian, markets are increasingly significant for
          Australian business. However, the widespread feeling from the interviews and case studies
          is that, even when IPRs are obtained in international markets, the enforcement regime is
          not robust enough. Improving enforcement of IPR internationally will eventually have to be
          dealt with through co-ordinated action at the international-level. Governments should be
          aware of this issue and make addressing it a priority.



          Notes
           1. www.abs.gov.au/ausstats/abs@.nsf/Latestproducts/8158.0Contents2008-09?opendocument&tabname=
              Summary&prodno=8158.0&issue=2008-09&num=&view=.
           2. The “Oslo Manual, Guidelines for Collecting and Interpreting Innovation Data”, which was
              developed jointly by Eurostat and the Organisation for Economic Co-operation and Development
              (OECD) to aid in measuring the process of innovation, forms the basis of concepts and definitions
              used by the ABS to measure the incidence of innovation in Australian business through the
              Business Characteristics Survey (BCS).



          References
          Bessen, J. (2004), “Holdup and licensing of cumulative innovations with private information”, Economics
             Letters, 82(3): 321-326.
          Bessen, J. And E. Maskin (2000), “Sequential innovation, patents and imitation”, Working Paper, MIT
             Department of Economics.




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         Dosi, G., Marengo, L. and C. Pasquali (2006), How much should society fuel the greed of innovators? On the
            relations between appropriability, opportunities and rates of innovation, Research Policy, 35(8):
            1110-1121.
         Hall, B. (2005), “Exploring the patent explosion”, Journal of Technology Transfer, 30: 35-48.
         Hope, J. (2008), Biobazaar: The open source revolution and biotechnology, Cambridge, MA, Harvard
            University Press.
         Hortsmann, I., Mac Donald, J. and A., Slivinski (1985), “Patents as information transfer mechanisms: To
            patent or (maybe) not to patent”, Journal of Political Economy, 93: 837-858.
         IP Australia (2005), Review of the Innovation Patent. Issues Paper, Australian Government, Canberra,
             Australia.
         Jaffe, A. (2000), “The US patent system in transition: Policy innovation and the innovation process”,
             Research Policy, 29: 531-557.
         Jaffe, A. and J. Lerner (2004), Innovation and its discontents, Princeton University Press.
         Jensen, P. and E. Webster (2009), “SMEs and their use of Intellectual Property Rights in Australia”,
            Working Paper, Melbourne Institute of Applied Economic and Social Research, Intellectual Property
            Research Institute of Australia, Melbourne, Australia.
         Kortum, S. and J. Lerner (1998), “Stronger protection or technological revolution: What is behind the
            recent surge in patenting?”, Rochester Conference Series on Public Policy, 48: 247-307.
         Merges, R. and R. Nelson (1994), “On limiting or encouraging rivalry in technical progress: The effects
            of patent scope decisions”, Journal of Economic Behaviour and Organization, 25: 1-24.
         Nordhaus, W. D. (2009), “Economic issues in a designing a global agreement on global warming.”
            Keynote Address at the Climate Change Conference, Copenhagen, Denmark, 10-12 March,
            available at http://nordhaus.econ.yale.edu/documents/Copenhagen_052909.pdf.
         Noonan, P (2009), Opening Presentation, APEC Intellectual Property Rights PE&A SME Workshop, 1-3 April
            2009, Melbourne, Australia.
         Pisano, G. (2006), “Profiting from innovation and the intellectual property revolution” Research Policy,
             35:1122-1130.
         Polany, M. (1966), The tacit dimension, Routledge: London.
         Teece, D.J. (1986), “Profiting from technological innovation”, Research Policy, 15(6): 285-305.
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                                                 ANNEX 2.A1



                  Clean Technology and Appropriability Regime
              Policies to encourage private investment in technologies that mitigate climate change
          confront the problem of partial appropriability, which results in private underinvestment
          in R&D (Nordhaus, 2009). The following discussion of the appropriability regime provides a
          theoretical context for approaches to IP management in clean technologies, but is
          applicable to other industries relying on highly technological innovations.
              The following discussion of the appropriability regime provides a theoretical context
          for approaches to IP management in clean technologies, but is applicable to other
          industries relying on highly technological innovations.
               The appropriability regime refers to “The environmental factors, excluding firm and
          market structure, that govern an innovator’s ability to capture the profits generated by an
          innovation. The most important dimensions of such a regime are the nature of the
          technology and the efficacy of legal mechanisms of protection” (Teece, 1986, p. 287). The
          appropriability regime is critical when the firm has identified its market and has started
          full-scale production but still has to capture the value from it and deter competitors from
          taking the dominant position.
               The relation between the appropriability regime, the rates of innovation and
          subsequent commercialisation has been subject to significant controversy in recent
          literature (Kortum and Lerner, 1998; Hall, 2005; Jaffe and Lerner, 2004).
              First, the effect of the appropriability regime is blurred by the ambiguity of the
          underlying intellectual property rights (Hortsmann et al., 1985). The appropriability
          conditions account for both well-defined patent and copyright protection mechanisms as
          well as informal mechanisms of secrecy, lead times, learning, unique capabilities and
          resources, etc. (Teece, 1986; Pisano, 2006). Firms frequently use the latter, in particular,
          secrecy, lead times and complementary capabilities, as a substitute for legally regulated IPR
          protection mechanisms. A significant role in such decisions plays the relation between
          easily articulated and patentable explicit knowledge and difficult to replicate tacit
          knowledge in the technology/product in question (Polany, 1966). If tacit knowledge prevails,
          the IPR-related protection mechanisms and incentives to innovate associated with them
          are likely to play an insignificant role (Hortsmann et al., 1985).
                Second, the traditional logic is that private expectations of returns from innovative
          activity have been an essential condition for individual entrepreneurs and firms to commit
          to a risky, uncertain, expensive and time-consuming process of commercialisation (Dosi et
          al., 2006). While strong appropriability is essential to motivate private innovative activities,



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         there is empirical evidence that above a certain threshold, strengthening of appropriability
         conditions does not lead to increases in R&D investments and rates of innovation (Dosi et
         al., 2006; Jaffe, 2000). An example of such counterproductive practice is the awarding of
         patents for results of basic research that stand far from any feasible commercial
         application and grant the holder of the patent an ability to block further research and
         development of the initial idea protected by the patent rights (Merges and Nelson, 1994).
              Third, the relation between the appropriability regime and the propensity to innovate
         is further dependent on the nature of innovation. A discrete independent innovation is
         easier to protect than an innovation requiring multiple inputs (Bessen, 2004). The
         cumulative innovations are now common and represent, for example, widespread high-
         tech industries where subsequent innovations are built on previously introduced
         innovations (sequentiality) and preconditioned by the simultaneous existence of different
         research lines (complementarity), (Bessen and Maskin, 2000). Under such conditions,
         strong IPR protection could be damaging and could discourage entrepreneurs from further
         investment in inventions and their commercialisation (Merges and Nelson, 1994). The
         sustainable development of cumulative innovations requires involvement of multiple
         players. Here, control by a single patent holder might lead to degradation of the innovation
         progression in the long run. Therefore, in order to profit from innovation firms might prefer
         weaker IPR regimes that allow sharing and building on innovations accumulated in
         previous rounds of the process.
              This argument is developed further to state that for the development of new
         technologies, institutional mechanisms similar to open science might work more
         efficiently than appropriability regimes (Hope, 2008).
              In summary, the appropriability conditions might exercise a debateable influence on
         the innovation process (Pisano, 2006). They are, however, key to appropriation of profits
         from commercialisation and, therefore, success of the firm and have to be carefully
         considered when undergoing technology commercialisation process.




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Intellectual Assets and Innovation
The SME Dimension
© OECD 2011




                                                Chapter 3




                    Italy: Channelling Creativity
                        into Competitiveness

                                By Dr. Daniela Carosi* and Dr. Massimo Marnetto**
                                     Ministry of Economic Development, Italy




            This chapter illustrates the opportunities and challenges for Italian SMEs in
            creating value from intellectual assets in “design-driven” manufacturing
            industries, typically targeted at high quality markets. In these industries, which
            are at the core of the “Made in Italy” system, firms build competitive advantage
            by combining intangibles with technology and manufacturing skills. Based on
            evidence on access to formal IP tools, experts’ views and a range of SME cases
            across different industries, the chapter highlights key challenges that Italian
            SMEs in these sectors face in turning creativity into actual innovation and market
            value and in integrating intellectual property rights in their business models. The
            study provides a review of recent developments in the Italian IP landscape and
            comments on their relevance for SMEs. It concludes with policy recommendations
            for improving the capacity of SMEs to manage their intellectual assets
            strategically and build on them to increase international competitiveness.




 * Italian Patent and Trademark Office, Directorate General for the Fight against Counterfeiting.
** Enterprise and Internationalisation Department, Directorate General for Industrial Policy and
   Competitiveness.


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3.   ITALY: CHANNELLING CREATIVITY INTO COMPETITIVENESS




Introduction
               This chapter focuses on SMEs in “design-driven” manufacturing industries, that is, in
          industries in which “intangibles” combine with technology and manufacturing capacity to
          continuously introduce changes in the functions, value and appearance of products and
          systems, mainly targeted at high-quality market segments. The innovative drive of the
          entrepreneurs is typically oriented towards improving functionality and aesthetics, as well
          as towards shaping the emotional and symbolic dimension of goods. In these sectors,
          which represent the core of the “Made in Italy” system, SMEs, often inserted in dense local
          production systems, play a key role for innovation and international competitiveness.
              The competitiveness of these design-intensive SMEs strongly depends on their
          capacity to appropriate the value of intangibles, that is, on the entrepreneurs’ ability to
          turn technological and intangible elements into market value. As such, Italian SMEs in
          these industries have the challenge of managing their intellectual assets in a strategic
          manner by integrating intellectual property rights (IPRs) in their business models.
              Ninety five per cent of Italian enterprises have between 1 and 9 employees. The
          percentage falls to 83% if only industry in a narrow sense is considered1 (see Annex 3.A1).
          This industrial structure, largely skewed towards the small and micro size, has
          implications on the patterns and typologies of innovation and the degree at which these
          are captured by traditional input and output measures of innovative investment.
               Usually, international data on innovation (e.g. the EU Community Innovation Survey –
          CIS) provide only partial information on the innovative behaviour of Italian enterprises,
          since they gather information on enterprises with a number of employees equal or greater
          than 10, disregarding in this way the majority of Italian enterprises.
               The 2004-06 National Innovation Survey conducted by ISTAT (see Annex 3.A1) shows
          that, excluding this relevant micro-firm category, Italian firms tend to focus on process
          innovation, although typically process and product innovations are complementary. It is
          particularly SMEs that rely mainly on process innovation, across all sectors. In
          manufacturing, the process innovation concerns largely production processes and, to a
          lesser extent, support activities to production.
               The small size of firms typically combines with the industrial specialisation of the
          Italian economy in “traditional” sectors (e.g. textiles, furnishing, tiles, food, machinery) to
          explain the overall low level of formal R&D and the relatively low propensity to patent or,
          more broadly, to adopt formal protection mechanisms. It is important, however, to
          underline that the competitiveness of Italian firms in these industries largely relies on
          knowledge components and intangible factors, as well as on technological upgrading and
          the capacity to continuously introduce innovations.




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Intellectual property regulation in Italy
             National Patent Offices (NPOs) play a crucial role in creating a knowledge market and
         in building confidence in the market, as all participants share rules that govern the
         transactions of intangibles and rely upon the will and capacity of public institutions to
         enforce IPRs.
              In Italy, the National Patent and Trademark Office (Ufficio Italiano Brevetti e Marchi –
         UIBM) is a Directorate General of the Ministry of Economic Development (the full
         denomination is Directorate General for Combating Counterfeiting – Italian Patent and Trademark
         Office) and it is responsible for any activities relating to industrial property rights.
             The following types of IPRs can be obtained at the UIBM: Patents, Utility models,
         Designs, Trademarks, Topographies of a Semiconductor Product, New Plant Varieties. On
         the other hand, the Copyright Service of the Ministry of Cultural Heritage and Activities
         administrates copyright and related rights. Applications are made at the UIBM (directly or
         by post), but can also be filed at Chambers of Commerce across the country.

         Patents for invention and utility model
              Patents and utility models define an intellectual creation with a technological content
         in any industry field. However, these are different IP rights, which cannot be combined. In
         particular, patents and utility models differ in the innovative steps required, as well as in
         the terms of protection. The exclusive right, which takes effect from the date of filing the
         application, has a term of 20 years for inventions, and 10 years for utility models.
             The object of a patent is a new invention which involves an inventive activity and is
         capable of industrial application. On the other hand, a utility model consists of
         improvements in shape which do not represent a solution to a technical problem, but
         confer a particular utility on a product which already exists. Thus, the shape improvement
         simply gives a product more efficacy and/or a greater comfort in handling, but it does not
         transform the object into something substantially new and different.
               By law, anyone applying for a patent for an industrial invention may at the same time
         file an application for a utility model, to be processed if the patent application is refused or
         accepted only in part. This is not intended as a sort of minor patent, which can be obtained
         more easily than a standard one. Rather, the aim is to dispose of a tool to protect a specific
         dimension of innovation, related to functionality.
              The law establishes the principle of unity of invention, which requires a patent to
         cover one invention only. In the case of an application containing several inventions, only
         the principal one will be considered as the object of the patent application. However, the
         applicant may file separate divisional applications for each other invention. These
         applications will benefit from the filing date of the initial application, although they will be
         treated as independent applications.
              Any application for an invention or utility model has to be filed with the UIBM and is
         subject by law to a period of secrecy of 18 months. The first 90 days are to allow the Defence
         authorities to verify their interest in the invention and cannot be waived under any
         circumstances. Proprietors may decide to make their applications available to the public
         earlier and applications may be laid open after the above-mentioned 90 days. Nevertheless
         proprietors residing in Italy who wish to file a patent application in a third country or with
         the WIPO office responsible for managing PCT procedures need the authorisation from the



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          UIBM, subject to the opinion of the Defence authorities. In any case, the 90 days period of
          secrecy applies.
              Applications are examined by the Office in chronological order; the Office may
          derogate from this only if legal proceedings are in progress, as proven by the corresponding
          registration in the court register. The Office carries out a formal examination and a
          technical examination, which may be followed by the grant of the patent or by an
          interlocutory communication. At the end of the interlocutory stage, the Office grants or
          refuses the patent.

          Patents are null and void if:
          ●   they do not meet the requirements;
          ●   they fall into one of the cases expressly excluded from patentability;
          ●   the description is not sufficiently clear and complete;
          ●   the subject-matter extends beyond the content of the application as filed;
          ●   the proprietor is not entitled to obtain a patent.

          Patents lapse if:
          ●   the fees are not paid by the due dates;
          ●   the invention is not embodied, or is not sufficiently embodied for the needs of the
              country, within two years of the grant of the first compulsory licence.
               It is possible to appeal against the decisions of the UIBM to the Board of Appeal within
          a term of 60 days from receipt; this term cannot be extended.2
               Priority must be claimed at the same time as the application for the patent or, at the
          latest, within the following two months, provided these do not exceed 12 months from the
          priority date claimed. The priority claim must provide details of the first filing and related
          documentation and must be accompanied by a translation into Italian; if this
          documentation is not filed together with the priority claim, it must be submitted within six
          months from the filing of the application.
               The right of exploitation of a patent belongs to the author of the invention or model,
          or to his successors in title. If an industrial invention has been developed by several
          persons, the rights deriving from the patent shall, unless otherwise agreed upon, be shared
          equally by the authors.
               If the idea has been developed in the course of an employment contract or
          relationship, and the inventive activity forms the purpose of this contract or relationship
          and is compensated accordingly, the rights deriving from the patent belong to the
          employer, although the author of the invention has a right to be recognised as such. If,
          however, there is an employment relationship, but the inventive activity does not form part
          of this relationship, the employee inventor is also entitled to fair compensation. If the
          invention has been developed by an employee in the enterprise’s field of activity, but falls
          outside the two preceding cases, the employer has only a right of pre-emption. If the
          employer is a University or a Public Research Organisation (PRO), the rights belong to the
          inventor who will receive no less than 50% of any financial return deriving from the
          economic exploitation of the patent.
               In the case of PROs, however, a recent reform modifies the ownership rule. The IPRs
          will belong to the performing organisation, but the authorship of the patent will be


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         acknowledged to the inventor, who will receive a fair reward for any financial return from
         the economic exploitation of the patent. In the case of co-inventors, ownership will be
         shared among them and the share of the reward equally distributed, unless the same
         investors define a profit sharing criterion that is proportional to their contribution.

         Supplementary protection certificate
              A supplementary protection certificate is a legal title that extends the duration of the
         exclusive patent right, solely with respect to medicines or plant health products, in order
         to make up for the time that has elapsed between the date of the patent application and
         the authorisation for marketing the product. This certificate is valid from the patent expiry
         date for a period equivalent to the time elapsed between the date of the patent application
         and the authorisation for marketing the product, up to a maximum of 5 years.

         Designs and models
              If utility models protect the functional appearance, models and designs protect only the
         formal appearance. In practice, the same object can be protected by utility model and
         design at the same time. The design registration protects the appearance of a product, but
         there are no specific aesthetic requirements. A protected design or model may also be
         eligible for protection under the law of copyright, but only for designs which meet two
         further requirements: creative character and artistic value. This represents an exception of
         the general rule for copyright, which does not require a work to have a specific artistic
         value. In this case, the validity of the protection is 70 years after the author’s death, as per
         general copyright rules.
              The exclusive right takes effect from the date of filing of the application and has a
         validity of 5 years, renewable for other four terms of 5 years, up to a maximum of 25 years.
         Multiple designs are allowed in one, with no upper limit in number, provided products are
         in the same class. There is no period of secrecy, except upon a request by the applicant to
         forbid accessibility, for a maximum period of 12 months from the date of filing or the date
         of priority.

         Trademarks
              Trademark registration can be applied for a period of ten years, which is however
         indefinitely renewable. To renew a mark without any change, it is merely necessary to
         submit an application and pay the fees due, within the twelve months preceding the expiry
         of the ten-year period in force or, with a surcharge, within the following six months.

         Topographies of semiconductor products
             A “topography” of a semiconductor product consists of a set of correlated drawings, no
         matter how drawn up or codified, showing a three-dimensional diagram of the layers
         making up a semiconductor product. Each of the drawings in this set wholly or partly
         reproduces a surface of the semiconductor product at any stage of its manufacture.
              Exclusive rights may be obtained for topographies resulting from the creative
         intellectual efforts of their author, if they are not common or familiar in the semiconductor
         products industry. Exclusive rights may also be obtained for topographies resulting from a
         combination of common or familiar elements, provided that they comply in full with the
         above requirements. The protection granted to semiconductor product topographies does



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          not extend to the concepts, processes, systems, techniques or codified information
          incorporated in these topographies.
                The exclusive rights conferred by the registration of semiconductor product
          topographies have a term of 10 years from the first of the following dates: the end of the
          civil year during which there was initial commercial exploitation; the end of the civil year
          in which the application was filed.

          New plant varieties
               A new plant variety is a new, homogeneous, stable plant variety which is distinct from
          existing varieties. The exclusive rights for the new plant varieties have a term of 20 years
          from the grant (30 years in the case of vine and tree species).

          Intellectual property regulation and SMEs
               In Italy, there is no specific IP rule or procedure concerning SMEs. However, two
          measures can be singled out for their large impact on SMEs: “Patent quality” and “linked
          actions”.

          Patent quality
               The introduction of the patent search and a new system of fees are intended to confer
          a high level of quality to patents and, in this way, favour the participation of SMEs in the
          use of IPRs. A quality patent reduces in fact the risks of legal conflict and has a greater
          possibility to be defended in the Courts. The patent search for Italian patents is carried out
          by the European Patent Office on the basis of a working agreement signed in 2008.
          Furthermore patent fees depend on the number of pages containing claims.

          Linked actions
               The Italian Ministry of Economic Development (MiSE) has recently implemented some
          measures linked with the national IP system, in order to extend to a greater number of
          enterprises, especially SMEs, the opportunities and benefits of IPR. The MiSE has made
          available 60 million Euros, out of the National Innovation Fund (FNI), for SMEs that intend
          to carry out innovation projects related to patents. The support takes the form of credit
          financing and risk capital tools.
               Another important set of measures consists in the supply of services aimed at
          increasing the quality of IPR applications, in particular of patents and designs, and at
          supporting their extension towards third countries. These services intend to support the
          development of strategies by publicly funded Research Organisations (PROs) and by
          business firms. The rationale is that quality IPR strategies are crucial for competitiveness
          in the rapidly changing international market, characterised by increasing integration and
          competition, and the transition towards a knowledge economy.

          Recent developments and emerging trends
               In order to make the Italian IP system consistent with the new economic landscape,
          the IP law has been recently reviewed and rationalised and a new IP code was issued in
          2005. It substitutes for the previous about 40 laws that overlapped across years since 1939.




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              Among the novelties provided under the new IP Code in order to raise the quality of
         the IP system, two are worth pointing out. One concerns the introduction of the search for
         granting patents. The other refers to a strategic use of patent application fees.
             A national patent search service is provided to make Italian patents stronger, fulfilling
         higher quality standards. This service is outsourced to the EPO on a bilateral agreement
         basis, as France and Benelux Countries do. As commented above, this support is
         particularly important for SMEs, as it increases their ability to defend their IPR in Courts.
              As for the IP fees, the 2007 financial act provides for a new system of fees at the Italian
         Patent Office, for granting patents (inventions and utility models), for design registration
         and for trademark opposition procedures. In order to keep a granted patent for invention
         in force, renewal fees must be paid on the 5th anniversary of the filing date and every year
         after that. To keep a granted utility model in force the renewal fees must be paid from the
         second five-year period and every year after that up to the 10th year. As for a registered
         design, the renewal fees are due from the second five-year period and it is possible to
         renew it up to 25 years. An important element of the fee strategy envisaged by the new
         rules, conceived by the UIBM, consists in linking up the patent fee amount with the
         number of patent claims. This is in order to keep a balance in the IP system between
         protection and access to knowledge and innovation.
              Public Research Organisations (PROs), as well as the Ministry of Defence and the
         Ministry of Agriculture and Forestry are exempt from paying patent and utility model
         application fees. This provision has been introduced to promote the propensity to patent
         on the part of the PROs (especially Universities) and as a prerequisite to improve
         collaboration between PROs and industry.
              On the side of enforcement, since 2002 (Laws 273/02 – 168/03), “IP litigation specialised
         sections” were created within ordinary courts and appellate courts. This introduces highly
         skilled judges in the field of industrial protection. Following this regulatory change,
         entrepreneurs can obtain precautionary measures to react to counterfeit damages in a short
         time.
              The emphasis that the Italian system is increasingly placing on combating
         counterfeiting is also evident from the institutional reorganisation within MiSE, as, since
         2009, the Italian Patent and Trademark Office has become part of the Directorate General
         for the Fight against Counterfeiting (DGLC). This reorganisation has assigned the DGLC –
         UIBM new and different institutional tasks, particularly strengthening its role of combating
         counterfeiting, as a fundamental aspect for enhancing Intellectual Property.
              Additionally, important measures have been launched to assist Italian enterprises in
         international markets. As boundaries across national markets fade away, enterprises are
         required to have an international IP management strategy by extending the IP protection to
         the markets that are relevant for their business. With this rationale, a pilot project has been
         designed by the UIBM. This consists of an international network of IPR desks located in
         countries either where Italian enterprises are particularly well represented and active or
         where the perceived risk of IPR infringement is higher: Brazil, China, India, Republic of
         Korea, Russian Federation, Taiwan, Turkey, United Arab Emirates, USA, and Vietnam. They
         are intended to offer free support to business in the areas of information and assistance for
         registering and enforcing IP in host countries. The pilot project places special emphasis on
         accurate legal assistance and precautionary statements for SMEs.




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Empirical evidence
          SMEs’ intellectual management practices
               In order to evaluate innovation propensity by Italian enterprises and research
          organisations, all the applications concerning the different IP rights should be considered
          together, including the use (on the part of Italian IPR owners) of international instruments
          to extend the national protection abroad.
               The number of applications made at the UIBM has been growing significantly in recent
          years, highlighting an important change in approach and attitude towards IPRs by Italian
          firms. In the period 2005-07, applications for all IPR types at the UIBM increased
          substantially: by 8.1% the patents for inventions, by 8.4% the trademarks, by 16% the utility
          models and by 29% the designs. The positive trend continued in 2008-09, with an overall
          increase in application of 2.2%. Over a year, applications increased by 1.7%, for designs, by
          2.1% for trademarks, by 2.4% for inventions, and by 5.3% for utility models. This led in 2009
          to 53 200 applications for trademarks, 1 233 for designs, 2 298 for utility models, and 9 638
          for inventions.
               Also the applications for community trademarks and designs originated from Italy
          have increased significantly. Between 2005 and 2007, trademarks increased by 31% and
          designs by 4%. In 2009, 7 333 applications for communitarian trademarks originated from
          Italy, while for communitarian designs the number was 9 900.
               The volume of IPR designations may be seen as a proxy of the international dimension
          of the Italian innovation market. In 2005 out of a total of 128 679 applications with the EPO
          (Euro and Euro-PCT) 122 004 (94.8%) designated Italy. In 2009 the applications to the EPO
          from Italy were 4 343 (Euro and Euro-PCT), the applications for registrations and renewals
          under the Madrid system on the part of Italian holders were 2 763 and 1 680 respectively. In
          2008, the total number of registrations and subsequent designations of non-resident
          trademarks which Italy received under the Madrid system was 6 171. In addition to these
          figures, the applications with the Office for the Harmonization of the Internal Market
          (OHIM) need to be considered: in 2009 these amounted to 88 191 for trademarks and 69 449
          for designs. In practice, the Italian market is a quota of the community market and each
          community IP right is Italian as well.
               When compared with their foreign counterparts, Italian companies exhibit intensity
          in the use of IP which varies in relation with the instrument:
          ●   the propensity to patent is below the EU average (76.1 EPO patents per million population
              versus a EU average of 105.7)
          ●   the propensity to use trademarks is close to the EU average (120 community trademarks
              per million population versus a EU average of 124.6)
          ●   the propensity to use designs is above the EU average (184.2 community designs per
              million population versus a EU average of 121.8)3
                These data may be related to by specific characteristics of the italian industrial system:
          ●   Italian firms are not specialised in patent-intensive sectors. A recent survey4 shows that
              the sectors in which companies tend to use patents most frequently are electronics and
              pharmaceuticals, whereas Italian companies are traditionally specialised in low- and
              medium tech manufacturing (textiles, machinery, furnishing, etc.). By contrast, in the
              industries in which Italian companies perform best, design is more relevant as a means
              to protect IP.


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         ●   Italian companies display a low propensity to invest in R&D: business R&D expenditure
             amounts to 0.55% of GDP, against an EU average of 1.1%. It is clear that R&D investment
             is the key input for the production of patentable inventions.
             As a consequence, R&D or patent-based international comparisons, as well as those
         based on surveys omitting micro firms (e.g. CIS), generally fail to capture important
         innovative dimensions of the Italian system. An approach that considers “latent micro
         research activity” would be more appropriate. Nevertheless, even with respect to formal
         R&D expenses and registered exchange of codified knowledge, some important recent
         changes are worth noting.
             The national data collected by the Technology Balance of Payments (TBP), which
         records, adopting OECD and IMF standards, transactions of disembodied technology, shows
         that, from 2001 to 2006, SMEs participation has strongly increased.5 This is the case
         particularly of SMEs located in regions where the phenomenon of the Industrial Districts is
         most intense.
              The TBP comprises an indicator of technology input, payments, and an indicator of
         technology output, receipts. The recent evolution in these indicators points at an increased
         capacity of Italian SMEs to absorb knowledge generated outside of their local context and,
         more broadly, to participate in international knowledge networks. For SMEs with a number
         of employees up to 19, the share of earnings has increased from 21.3% (2001) to 38.4%
         (2006). At the same time, their share of payments has risen from 22.1% (2001) to 42.3%
         (2006). It is precisely the cumulative value of payments and earnings from technology
         transactions, rather than the net amount between payments and earnings, which is
         significant in this case. In fact, it is the cumulative value that describes the deepening of
         the technology market, thus the opportunities opening to enterprises for knowledge
         exchange and innovation.
             These figures show that, in order to respond to increasing competitive pressure,
         especially from lower cost competitors in Asia, Italian enterprises are investing to improve
         technical efficiency in production processes, increase product quality and differentiation,
         and further diversify within sectors. This represents a change from the recent past. In fact,
         a survey over the period 2000-04, concerning the strategies of the Italian enterprises
         specialized in the traditional Made in Italy productions, revealed that a limited number of
         enterprises (5%) had adopted complex business strategies, based on different types of
         innovation.
              It is important to note that the positive trend above commented refers to SMEs
         behaviour before the global crisis and recession. In 2008 the overall balance of payments
         registered a surplus of about 374 million euro. This was less than the surplus of the
         previous two years (on average around 800 million euro), but strengthened the trend
         reversion for the structurally deficient Italian TBP6. The 2008 overall balance is the result,
         in substantial continuity with the past, of surpluses in services with a technical content
         (1 212 million euro) and Industrial R&D (340 million euro), partly offset by deficits in other
         regulations for technology (668 million Euro) and transfer7 of designs, trademarks and patterns
         (530 million euro). Receipts concerning transfer in techniques8 make a modest surplus
         (20 million euro). The relevant surplus concerning services with a technical content is
         determined substantially by the surplus recorded for the technical and engineering studies
         (1 246 million euro).




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              Policies increasingly recognise that SMEs and entrepreneurs often lack awareness
          about “patentability” of their innovations and that networking would increase SMEs’
          capacity to stand the market. Several national programmes focus on raising awareness and
          encourage SMEs to join into “business networks”, thereby optimising innovation efforts.
          Overall, the IP policies promoted in Italy – and presented in this study – address key
          obstacles that emerge in the relationship between SMEs and IP, as described below.

          Major issue facing SMEs with regard to intellectual property protection
               As the data above show, and as broadly argued by the experts interviewed, Italian
          SMEs exhibit an overall low propensity to make use of formal IPR instruments. As one of
          the experts interviewed pointed out, only SMEs operating in high-tech businesses and
          start-up backed by venture capitalists, business angels and banks utilise semi-formal
          protection methods (e.g. non-disclosure agreements and non-competition clauses) and
          informal protection methods in conjunction with registered IP rights. Even the use of semi-
          formal protection methods by SMEs is rare, according to legal professionals interviewed.
          Non-disclosure agreements are used mainly when a company, in the secrecy period of a
          patent application, intends to negotiate an agreement (e.g. a licence agreement or a
          manufacture agreement) with a third party.
              Furthermore, SMEs are often little aware of the “patentability” of their innovations
          and, most importantly, fail to link IPR to their business strategy. If, on the one hand, SMEs
          have good knowledge of the competitive context in which they play, on the other hand they
          often have difficulties in correlating this with IP protection strategies.
              This challenge also relates to the SME static perception of the competitive
          environment, that is to the difficulties in understanding market trends and insert long-term,
          forward looking elements in their business strategy. Italian SMEs appear in particular to
          meet difficulties in gaining full perception about the evolving relationship between
          innovation, IPRs and competitiveness in a rapidly changing competitive context.
              Usually, there is not such a thing as an IP strategy. In the best cases, SMEs have an
          organised set of actions, which are not really planned and consistent and rarely forward
          looking. In this sense, SMEs often fail to consider all the variables (on the side of costs and
          benefits) on which a sound IP strategy would need to be built.
              Very often, cost is the main factor to influence the decision about IP. Cost factors, both
          application charges and the legal fees necessary for IP protection, discourage enterprises in
          protecting their intellectual assets. However, SMEs are aware that, in order to enhance their
          competitiveness, the protection of innovation is extremely important, especially if they
          export significant shares of their production.
               In this respect, it is among internationalised SMEs that the most advanced strategies
          are observed. Indeed, the decreasing domestic market opportunities and the increasing
          need to explore foreign markets and find new export opportunities have clearly drawn a
          line between those SMEs that were able to protect their own innovations and therefore
          operate overseas; and those that gave up.
              As far as the approach to international markets is concerned, experts underline even
          more strongly the lack of forward looking strategies. Often, SMEs do not look in advance for
          detailed information about the legislation of destination markets. Rather, they begin to
          study these rules, in order to combat counterfeiting, only once they are faced with a clear
          challenge or threat.


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         Case studies
              The selected case studies (Table 3.1) are illustrative of innovation oriented SMEs in
         different “Made in Italy” traditional sectors.


                                              Table 3.1. Italy: Profile of case studies
          Case                                                     Industry/sector

          Electronic tool and equipment manufacturer               Manufacturing
          Ceramics designer                                        Design
          5 Gold jewellers                                         Jewellery
          Luxury goods designer                                    Design
          Doors and windows manufacturer                           Manufacturing
          Clothing manufacturer                                    Manufacturing




                 Although design is generally key to these industries and the SME business model,
         large differences in the innovation process emerge when distinguishing companies that
         are in direct contact with the final consumer (Business-to-Customer or B2C) and those that
         are at the intermediate stages of the supply chain (Business-to-Business or B2B). B2C firms
         deal closely with the final customers and, as a result, much of their innovation is
         stimulated by the market and based on their capacity to capture new trends and needs,
         responding with more sophisticated products. On the other hand, technological evolution
         of B2B firms’ products and services is often driven by the supply side, or by firms further up
         their value chain, which transmit technological changes and impose new or modified
         requirements.
              In the B2B segment, it is however also the case that innovations are developed through
         very close interaction between users and producers of technology. This was the case for a
         jewellery company interviewed, targeting a middle-low segment, highly contended by low
         cost competitors. The main competitive driver of the firm is its technological capacity, as it
         uses highly customised machineries vis-à-vis the relatively labour-intensive processes of
         its competitors. The firm has established a very close relationship with the machinery
         supplier and was able to suggest technical modifications based on its own design. The
         detailed specifications by the end user represent a key knowledge input for the machinery
         supplier, which is able to develop a “tailor made” technology product.
              In this situation the conventional boundary between the final user company and the
         machinery manufacturer does not apply. A virtuous process between product and process
         sets in, favouring a mutually reinforcing innovation dynamics. The relationship often
         involves tacit and idiosyncratic elements that make it hard to be replicated in another
         context. The knowledge emerging is therefore highly context-specific and the innovations
         tailored to the technical needs of the players involved. In this case, knowledge is protected
         by secrecy and informal agreements, which are favoured by the relevance of the customer
         and its capacity to provide unique feedbacks to the developer of the technology.
              In general, even when operating in niche markets, SMEs are hardly static. On the
         contrary, they are increasingly aware that competitiveness and survival cannot be based on
         the continuous repetition of their product, even if this is a successful one in present times.
         Rather, innovation is crucial and needs to become a “phase” of the production process
         itself. Across many SMEs in the “Made in Italy” system, innovation is regarded as the




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          distinguishing intangible asset, on which competitive advantage is based and reproduced
          over time.
              However, the SMEs’ continuous creative effort and technological development do not
          often match with an adequate level of attention to the protection of intellectual property.
          A greater than average awareness of intellectual protection, and its relevance for the firm
          performance and growth, is observed in the case of “global” SMEs, active on their own in
          remote overseas markets, whose number has increased in recent years. These global
          companies are more aware of the opportunities provided by the IPR system and are willing
          to invest significantly in reliable professional services, for preparing and filing IPRs,
          especially patents, to defend the ownership of their inventions. These global companies
          tend also to be more innovative, following exposure to international competition, but also
          reflecting contact with cultural diversity.
               The cases analysed provide further ground to the argument that internationalised
          SMEs possess greater awareness of the relevance of IPR for their competitive strategies.
          However, they also show, in line with the experts’ view, that SMEs often lack confidence in
          the legal protection of their rights. The interviews with entrepreneurs confirm the widely
          held knowledge that IP usage by SMEs is limited by costs and lack of confidence in the
          enforcement mechanism, in particular by the high costs of litigation. Even in the case of
          successful litigation, the time-consuming process and the inadequate compensation are
          considered great obstacles to effective right enforcement.
               The lack of confidence or negative experience with enforcement processes appear to
          be a matter of concern particularly for firms planning expansion in international markets
          and directly competing with larger firms, which are more capable to oppose rights. This is
          the case of a SME interviewed (about 25 employees), which produces electronic tools and
          equipment. In recent years, the firm has gained large shares of domestic and international
          market, through continuous research and development on its products. This enterprise
          competes by innovating and, over the last years, innovating has also been a way to respond
          to the crisis.
               However the company has suffered from repeated counterfeiting by a firm in Chinese
          Taipei (not included in the PCT). Furthermore, the SME was required to pay IP rights for
          years by a multinational enterprise, due to a very general patent of this latter, even if in the
          end the patent in question was suspended. This negative experience has led the company
          to insecurity in its strategy of expansion towards new markets and slowed its process of
          internationalisation.
              The perceived high costs of enforcement can also trigger peculiar preventive self-
          defence strategies, which build on the awareness of IP relevance for the firm
          competitiveness in open markets. It is the case of a SME (less than 50 employees)
          manufacturing doors and windows, with customers around the world. The firm targets a
          high quality segment of the market and operates also in China, where it has a branch
          producing exactly the same products. The firm however reported that, in the case of
          wealthy customers, there is a specific request for the products being delivered directly
          from Italy, in order to show off the prestigious “Made in Italy” tag.
               The company provides components for the finished products (doors and windows)
          that are critical to ensure functionality. These key components are protected by patents.
          The company is aware that patenting is relevant to defend its innovative products in
          Courts, against counterfeiting, but also complaints about the excessive burden of litigation


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         in terms of time and cost. This led the company to adopt a preventive “intelligence”
         strategy, which involves raising employees’ awareness and training them to recognize
         imitation. In particular, trained technicians visit the major trade fairs in order to spot
         possible cases of patent infringement. When identifying counterfeit products, the “patrol
         workers” report to the head office, which then contact the owner of the investigated firm
         to clear the situation. The strategy hence aims at preventive extra-judicial solutions to
         infringement. Very often, in fact, these contacts lead to a gentlemen’s agreement, which is
         useful to block the sale of the imitated goods, without incurring the cost and time of a
         litigation.
             In addition, this has proven to be a very effective form of training and motivation
         exercise of employees, as technicians are continuously updated on the vulnerability to
         imitation of their products and on which inventions are required to make them less
         imitable.
              The lack of a clear IP strategy is often cited by experts, and the broad literature, as a
         specific weakness of SMEs in the commercial exploitation of their creative potential. The
         cases analysed show that the focus on intellectual property generally increases when
         innovation is the result of planned research, often responding to a specific critical problem
         the firm has identified in production. In this respect, the interaction with external research
         actors for solving specific technical difficulties seems to be beneficial also in raising the
         SME awareness of IPRs.
             In one of the cases investigated, a medium-size goldsmith firm, the IP strategy
         emerged as a result of a formal and intense collaboration with a University, responding to
         a specific problem, well defined by the same SME. The company in fact had been typically
         engaged in informal, little codified innovation processes, and much embedded in the
         entrepreneur and the idiosyncratic firm routines. The Italian goldsmith sector, as other
         traditional manufacturing industries, is typically characterised by small entrepreneurs
         that are often former craftsmen, who might have increased the size of their firm, but
         continue to see innovation as intrinsic to their work, a sort of “natural” and inimitable act,
         thus not in need for special protection.
              The firm searched for collaboration at the local University (Department of Chemical
         Engineering), in order to overcome a technical hurdle, whose importance has increased
         with the rise in the price of gold: using a smaller amount of gold in jewellery production,
         without sacrificing strength. The firm was therefore looking for an input saving innovation
         which would have not reduced the functional quality of its products. The technical
         solution was found in collaboration with the University and protected by a patent. This was
         for this firm the first patent which did not concern design.
              In some instances, the apparent lack of an IP strategy results from a sound evaluation
         by the firm, which finds the existing IP tools are not relevant to its business model. This is
         the case of a firm interviewed (less than 50 employees), operating in the high-fashion
         clothing industry. Typically, in this segment, each new collection incorporates new
         products, as well as new processes, often with a strong attention to the use of new
         materials. These types of companies do not feel the need to protect their creations with
         formal IP instruments, because the life cycle of their production is very short. Thus, the
         manufacturer does not often protect formally its “collection”, relying on the “lizard’s tail”
         effect. That is, when imitated generally the collection has already entered into




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          obsolescence; hence, those who try to imitate models, mimics a product which has already
          become old (they do not take the lizard, but its tail).
               If in the fast changing fashion industry, traditional IP instruments are not perceived to
          be relevant for a successful business strategy, in the luxury goods segment SMEs can build
          their business strategy on the management of intellectual assets, particularly of high-value
          brands. This is the case of a former worldwide famous luxury car manufacturer
          (Lamborghini), turned into a designer of luxury goods. In recent years, the car factory was
          sold to a multinational automotive group, but the Italian firm has kept the ownership of
          the famous brand, even if differently specified, but still represented by the well known logo.
              In this case, the company, which employs fewer than twenty specialists, has
          completely de-materialized its production, devoting exclusively to the evolution of the
          brand, which is used to commercialize very different goods, such as watches, glasses,
          shoes, sportswear, golf clubs, and also luxury linens and mattresses. The firm itself designs
          the goods, ensuring that they are consistent with the brand and a strongly characterised
          firm design, and relies on external selected high quality suppliers. The sale growth is
          therefore entirely based on the “emotional” brand effect, as, by acquiring different
          products, consumers enjoy an emotion which is intended to recall the one related with the
          prestigious car.

Policy implications and recommendations
          Raise awareness about the strategic opportunities of IPRs
               SMEs largely lack a strategic approach to IPRs, missing relevant opportunities to
          strengthen their competitiveness and to enter new markets that embedding IP into their
          business strategies could bring about. The lack of strategy is mainly related to a lack of
          knowledge and resources, but also follows the perception of IP tools as defensive
          instruments, whose benefits do not match the (effective and perceived) costs implied.
          However, SMEs often lack an appropriate understanding of the benefits IPRs can offer and
          an accurate knowledge of the costs implied by the instruments. The information and the
          training efforts supported by policy should aim at increasing awareness about the “pro-
          active” use of IPRs, as an asset on which innovative business strategies can be developed,
          as a way to access knowledge markets, in which the firm’s own IPRs can serve to exchange
          knowledge or enter knowledge collaborations and networks, as a signal of value and
          competitiveness to other players and stakeholders, including banks, venture capitalists,
          and also competitors and clients.
               The pro-IP attitude can also be promoted by linking public financial support to IP
          investment. In this respect, the Italian Government has created a “National Innovation
          Fund” to encourage patent innovations in a different way. A condition for the entrepreneur
          to access the benefits of the “National Innovation Fund” – venture capital and trenched
          cover – is that he/she holds a new patent, which can increase the firm’s competitiveness.
               Financial incentives to innovative SMEs might not be sufficient, per se, to make them
          approach the IP system, as they often find it difficult to navigate the IP landscape. To
          increase their effectiveness, these types of initiatives should be combined with adequate
          information support and, possibly, business consultancy services. In this respect so-called
          “Patent Angel” initiatives could be considered, with professionals supporting the
          innovative start-up or SME in its first application for patents or articulating its IP strategy.




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         Foster intellectual property right education and training, bringing services and
         expertise closer to SMEs
             SMEs largely lack expertise in the IP field. The problem has been addressed by a large
         number of training programs over the last years. In some cases, however, IP training
         experiences have failed because of a lack of motivation by the entrepreneurs, who
         perceived the training to be too distant from their most urgent problems and hardly
         applicable to their business. Training initiatives should be based on a sound assessment of
         the target SME population and get closer to their operating field.
               Furthermore, expertise can be built into the labour market SMEs typically access (often
         with a relevant territorial dimension). Besides aiming at increasing the IP culture across
         disciplines, education programmes should specifically concern relevant profiles. These
         include not only lawyers or accountants, but also other professionals that typically work
         close to SMEs in high tech fields, creative industries or design-based manufacturing
         (e.g. engineers, architects, designers, and other technical profiles). In the field of design, the
         Italian Ministry of Economic Development launched an initiative to facilitate the matching
         between young graduates from design schools and SMEs.

         Increase accessibility of the intellectual property system for SMEs
              SME access to the IP system is largely constrained by complexity, lengthy procedures
         and costs. In Italy, measures to increase SME access to IP include the rationalisation of the
         IP code, the decentralisation of application procedures (at local Chambers of Commerce),
         and also the creation of IP litigation specialised sections, which allow firms to obtain
         precautionary measures against counterfeiting in a short time.

         Support intellectual property right enforcement in national and international
         markets
             Lack of confidence in enforcement mechanisms and the high costs implied by
         enforcement procedures reduce SME incentive to use IP instruments in the first place. In
         order to reduce time and costs, and increase entrepreneurs’ confidence, policies should
         explore alternative dispute mechanisms and mediation schemes that favour extra-judicial
         settlements. These mediation opportunities should be brought closer to the SME
         playground, so as to favour information, understanding and access. For instance,
         mediation services or panels could be created at large specialised events attended by SMEs,
         such as trade fairs.
              The enforcement capacity of SMEs also depends on the quality of their IPRs. In this
         respect, the national patent search service introduced in Italy, aimed at increasing the
         quality of the applications, responds to the need of increasing firm’s ability to defend their
         rights in Courts.
             The registration and enforcement of IPRs by SMEs in overseas markets can be
         supported by specific services. An example is a recent pilot initiative, the launch of a
         network of IPR desks by the Italian Patent and Trademark Office, to operate in relevant
         export or investment markets, providing SMEs information and legal assistance.



         Notes
          1. In 2007, 4 620 548 Italian enterprises out of a total 4 884 313 had a number of employees between 1
             and 9. If only the industry sector is considered, 458 409 enterprises out of a total 553 740 fell into


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             the 1-9 employees size category (ISTAT, 2007). The definition adopted of a “local unit” conforms
             with the European council regulation No. 696, 15 March 1993, which states that a local unit is an
             enterprise or a part of enterprise located in a topographically identified location. In this location or
             starting from this location one or more people carry out (part time) economic activities on behalf
             of one enterprise. According to this definition, local units are: agency, hotel, ambulatory, public bar,
             quarry, warehouse, garage, laboratory, mine, shop, workshop, hospital, restaurant, school, factory,
             study, office, and etcetera. A multi-located enterprise is an enterprise that carries out its activities
             in more than one premises and each premises is a local unit of the relevant enterprise.
           2. The Board of Appeal is a body with special jurisdiction and is subject to the Code of Civil Procedure.
              This Board, appointed through decree by the Ministry of Economic Development, is composed by
              five members: three are selected among magistrates with a rank equal or higher than appellate
              judge, one of whom acts as chairman, and two are selected among professors of law at
              Universities. The Board decides on appeals in judgments against which it is possible to enter
              appeals to the Supreme Court of Cassation on grounds of legitimacy.
           3. European Innovation Scoreboard 2008.
           4. Danguy J., de Rassenfosse G., Van Pottelsberghe de la Potterie B. (2009), “The R&D-patent
              relationship: an industry perspective”, European Investment Bank Papers, 7/2009, European
              Investment Bank, economic and Financial Studies.
           5. 2006 is the latest year for which data is available by firm size (number of employees).
           6. www.bancaditalia.it/statistiche/rapp_estero/altre_stat/bpt.
           7. Sale, licensing, franchising.
           8. Through patents and licenses, disclosure of know-how.



          References
          European Commission (2008), European Innovation Scoreboard 2008, Brussels.
          Istat (2010), Rilevazione sull’innovazione nelle imprese. 2004-06, Rome.
          Danguy J., de Rassenfosse G., Van Pottelsberghe de la Potterie B. (2009), “The R&D-patent relationship:
             an industry perspective”, European Investment Bank Papers, 7/2009, European Investment Bank,
             economic and Financial Studies.




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                                                             ANNEX 3.A1



                          Statistical Tables for Innovaton in Italy
                                                      Statistical tables: Italy
                                          Annual enterprise statistics broken down by size classes – 2007

                                                                                                                           Apparent
                                Number                  Number                 Turnover              Value added     labour productivity
          Size classes
                             of enterprises          of employees             (mln euro)              (mln euro)    (value added/number
                                                                                                                        of employees)

          Industry
          1-9                   427 189              1 180 360                 115 008                  34 059             28.9
          10-19                  53 141                712 858                 111 075                  31 169             43.7
          20-49                  25 241                758 045                 156 558                  38 624             51.0
          50-249                 10 283                995 692                 314 757                  62 197             62.5
          SME                   515 854              3 646 955                 697 399                 166 049             45.5
          250 or more             1 477              1 113 915                 485 987                  96 191             86.4
          Total                 517 331              4 760 870               1 183 386                 262 240             55.1
          Construction
          1-9                   581 939              1 247 728                 117 563                  36 793             29.5
          10-19                  25 202                324 839                    39 763                13 419             41.3
          20-49                   7 105                205 148                    29 128                    9 534          46.5
          50-249                  1 531                132 872                    25 719                    7 133          53.7
          250 or more                85                 53 612                    14 117                    3 834          71.5
          SME                    33 923                716 471                 108 727                  33 920             47.3
          Total                 615 862              1 964 199                 226 290                  70 713             36.0
          Services
          1-9                 3 161 720              5 638 447                 571 469                 163 595             29.0
          10-19                  70 061                913 684                 182 770                  39 293             43.0
          20-49                  24 600                742 775                 175 196                  35 592             47.9
          50-249                 10 397              1 022 723                 251 154                  46 540             45.5
          250 or more             1 856              1 991 754                 371 229                 103 979             52.2
          SME                   106 914              4 670 936                 980 348                 225 404             48.3
          Total               3 268 634             10 309 383               1 551 817                 388 999             37.7
          Total
          1-9                 4 170 848              8 066 535                 804 040                 234 447             29.1
          10-19                 148 404              1 951 381                 333 608                  83 880             43.0
          20-49                  56 946              1 705 968                 360 882                  83 750             49.1
          50-249                 22 211              2 151 287                 591 629                 115 871             53.9
          250 or more             3 418              3 159 281                 871 333                 204 004             64.6
          SME                   230 979              8 967 917               2 157 453                 487 505             54.4
          Total               4 401 827             17 034 452               2 961 492                 721 952             42.4

         Source: ISTAT, Rilevazione annuale 2007.




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                                         Innovative and non-innovative enterprises by macro-sector and size class

                                                                           Years 2004-06

                                  Enterprises with innovative activities                           Enterprises with innovative activities

                                               Enterprises    Enterprises         Enterprises                   Enterprises    Enterprises      Enterprises
                  Number                     that introduced with innovative        without                   that introduced with innovative     without
Size classes
               of enterprises    Total           process        activities        innovative     Total            process        activities     innovative
                                               or product    not concluded         activities                   or product    not concluded      activities
                                               innovation       by 2006                                         innovation       by 2006

                                                Number                                                                   Percentage

                                                                                    Industry

10 49             77 435        25 959           25 546               413           51 476         33.5             33.0                0.5         66.5
50-249            10 398         6 232            5 827               405            4 166         59.9             56.0                3.9          401
250 or more        1 458         1 101            1 010                91              357         75.5             69.3                6.2         24.5
Total             89 291        33 292           32 383               909           55 999        37.3              36.3                1.0         62.7

                                                                                  Construction

10 49             29 292         4 984            4 962                22           24 308         17.0             16.9                0,1         83.0
50-249             1 468           404              345                59            1 064         27.5             23.5                4.0         72.5
250 or more           84            31               26                    5               53      36.9             31.0                6.0         63.1
Total             30 844         5 419            5 333                86           25 425        17.6              17.3                0.3         82.4

                                                                                   Services

10 49             79 961        16 406           16 046               360           63 555         20.5             20.1                0.5         79.5
50-249             8 417         2 638            2 387               251            5 779         31.3             28.4                3.0         68.7
250 or more        1 707           857              738               119              850         50.2             43.2                7.0         49.8
Total             90 085        19 901           19 171               730           70 184        22.1              21.3                0.8         77.9

                                                                                     Total

10 49            186 688        47 349           46 554               795          139 339         25.4             24.9                0.4         74.6
50-249            20 283         9 274            8 559               715           11.009         45.7             42.2                3.5         54.3
250 or more        3 249         1 989            1 774               215            1 260         61.2             54.6                6.6         38.8
Total            210 220        58 612           56 887             1 725          151 608        27.9              27.1                0.8         72.1

Source: Istat, Rilevazione sull’innovazione nelle imprese, Anni 2004-006.




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                                          Innovative enterprises by innovation, macro-sector and size class

                                                                   Years 2004-06

                                                                           Innovations                                               Innovations
                                    Product            Process                                    Product           Process
               Total number                                              of both process                                           of both process
Size classes                    innovations only    Innovation only                           innovations only   Innovation only
               of enterprises                                              and product                                               and product

                                                        Number                                                    Percentage

                                                                             Industry

10 49             25 546              4 235              11 430                9 881                16.6              44.7              38.7
50-249              5 827             1 234               1 853                2 740                21.2              31.8              47.0
250 or more         1 010               207                 278                    525              20,5              27.5              52,0
Total             32 383              5 676              13 561               13 146                17.5              41.9              40,6

                                                                           Construction

10 49               4 962               194               2.993                1.775                  3.9             60.3              35,8
50-249                345                53                 205                    87               15.4              59.4              25,2
250 or more            26                 5                  14                     7               19.2              53.9              26,9
Total               5 333               252               3 212                1.869                 4.8              60.2              35,0

                                                                             Services

10 49             16 046              1 759              10 527                3 760                11.0              65.6              23.4
50-249              2 387               333               1 164                    890              14.0              48.7              37.3
250 or more           738                95                 280                    363              12.9              37.9              49.2
Total             19 171              2 187              11 971                5 013                11.5              62.4              26.1

                                                                              TOTAL

10 49             46 554              6 188              24 950               15 416                13.3              53.6              33.1
50-249              8 559             1 620               3 222                3 717                18.9              37.7              43.4
250 or more         1 774               307                 572                    895              17.3              32.2              50.5
Total             56 887              8 115              28 744               20 028                14.3              50.5              35.2

Source: Istat, Rilevazione sull’innovazione nelle imprese, Anni 2004-06.




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                                Enterprises with process innovation by type of innovation, macro-sector and size class

                                                                    Years 2004-06

                Enterprises                              Logistics,                                                     Logistics,
                                  Production                               Support activities    Production                            Support activities to
                with process                      distribution or supply                                               distribution
 Size classes                     processes                                 to production        processes                                production
                 innovation                               abroad                                                    or supply abroad
                    (total)                             Number                                                           Percentage

                                                                               Industry

10 49             21 311           16 665                3 252                  9 601                78.2                   15.3               45.1
50-249             4 593            3 506                1 221                  2 464                76.3                   26.6               53.6
250 or more          803              649                  272                    412                80.8                   33.9               51.3
Total             26 707           20 820                4 745                 12 477                78.0                   17.8               46.7

                                                                             Construction

10 49              4 768            2 437                1 089                  2 489                51.1                   22.8               52.2
50-249               292              102                    76                   226                34.9                   26.0               77.4
250 or more           21                9                     5                     14               42.9                   23.8               66.7
Total              5 081            2 548                1 170                  2 729                50.1                   23.0               53.7

                                                                               Services

10 49             14 287            4.715                3.068                  9.404                33,0                   21,5               65,8
50-249             2 054              493                  874                  1.640                24,0                   42,6               79,8
250 or more          643              207                  291                    522                32,2                   45,3               81,2
Total             16 984            5.415                4.233                 11.566                31,9                   24,9               68,1

                                                                                TOTAL

10 49             40 366           23 817                7 409                 21 494                59.0                   18.4               53.3
50-249             6 939            4 101                2 171                  4 330                59.1                   31.3               62.4
250 or more        1 467              865                  568                    948                59.0                   38.7               64.6
Total             48 772           28 783               10 148                 26 772                59.0                   20.8               54.9

Source: Istat, Rilevazione sull’innovazione nelle imprese, Anni 2004-06.




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                                         Innovative enterprises with new products to market and impact on the turnover

                                                                            Years 2004-06

                                                                                                         Percentage of 2006 turnover deriving
                               Innovative enterprises with new products to market
                                                                                                             from new products to market
          Size classes
                                                                                  % of innovative                              % of total turnover
                             Total                 % of total enterprises                             % of total turnover
                                                                                   enterprises                              of innovative enterprises

                                                                                     Industry

          10 49              7 514                           9.7                       29.4                   3.2                      8.0
          50-249             2 475                          23.8                       42.5                   5.4                     10.0
          250 or more          572                          39.2                       56.6                   5.5                      7.0
          Total             10 561                         11.8                        32.6                   4.9                      7.8

                                                                                   Construction

          10 49                587                           2.0                       11.8                   0.4                      1.9
          50-249                83                           5.7                       24.1                   0.5                      1.8
          250 or more                8                       9.5                       30.8                   0.1                      0.4
          Total                678                           2.2                       12.7                   0.4                      1.6

                                                                                     Services

          10 49              2 330                           2.9                       14.5                   0.7                      2.8
          50-249               586                           7.0                       24.5                   1.6                      4.2
          250 or more          306                          17.9                       41.5                   5.0                      7.8
          Total              3 222                           3.6                       16.8                   2.9                      6.3

                                                                                      TOTAL

          10 49             10 431                           5.6                       22.4                   1.6                      5.3
          50-249             3 144                          15.5                       36.7                   3.5                      7.6
          250 or more          886                          27.3                       50.0                   5.2                      7.3
          Total             14 461                           6.9                       25.4                   3.7                      7.0

         Source: Istat, Rilevazione sull’innovazione nelle imprese, Anni 2004-06.




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                                               Expenditure for innovation by macro-sector and size class

                                                            Year 2006 – (thousands of euro)

                                                                     Expenditure for innovation
          Size classes                                                      Per employee                               Per employee
                                     Total
                                                                        (total of enterprises)             (enterprises with innovative activities)

                                                                              Industry

          10 49                    3 509 644                                      2.4                                         6.5
          50-249                   4 975 160                                      5.0                                         8.1
          250 or more              9 884 881                                      9.0                                        10.9
          Total                   18 369 685                                      5.2                                         8.9

                                                                            Construction

          10 49                      506 987                                      1.1                                         5.9
          50-249                     141 012                                      1.1                                         4.1
          250 or more                 62 873                                      1.2                                         2.7
          Total                      710 872                                      1.1                                         4.9

                                                                              Services

          10 49                    1 597 601                                      1.2                                         5.3
          50-249                   1 656 341                                      2.0                                         6.1
          250 or more              6 601 229                                      3.1                                         5.4
          Total                    9 855 171                                      2.3                                         5.5

                                                                               TOTAL

          10 49                    5 614 232                                      1.7                                         6.0
          50-249                   6 772 513                                      3.5                                         7.3
          250 or more             16 548 983                                      5.1                                         7.7
          Total                   28 935 728                                      3.4                                         7.2

          Source: Istat, Rilevazione sull’innovazione nelle imprese, Anni 2004-06.




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Intellectual Assets and Innovation
The SME Dimension
© OECD 2011




                                             Chapter 4




              Nordic Countries:
        Matching Exceptional Design
    and Creativity with Progressive Policy

                                        By Dr. Christina Wainikka
                                         Swedish Patent Office




            Sharing a number of cultural and legal traditions and a strong reputation for
            design excellence, the Nordic countries (Denmark, Finland, Iceland, Norway and
            Sweden) provide an interesting case to examine the similarities and differences in
            SMEs’ management of intellectual assets. This chapter analyses the ways in
            which Nordic SMEs in the creative industries (publishing, design, film production
            and art) manage their intellectual assets using intellectual property rights (IPRs).
            Using information gathered through interviews with experts, case studies of
            firms in the film and design industries and a survey of firms across a number of
            industries, key challenges and obstacles to effective management of intellectual
            assets by SMEs are identified. The chapter presents an overview of the IP
            regulation landscape across the Nordic region, commenting on regulatory
            reforms and identifying innovative programmes and good practices. Finally, a
            series of recommendations are proposed for ways in which governments could
            contribute to improved management of intellectual assets by SMEs.




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Introduction
              This study investigates the intellectual property framework in the Nordic countries
          (Denmark, Finland, Iceland, Norway and Sweden) and intellectual asset management
          practices in creative industries. These include publishing, design (e.g. fashion, design of
          furniture and jewellery), film production and art.
              Key challenges to effective management of intellectual assets by SMEs are identified,
          on the basis of interviews with experts, case studies of firms in the film and design
          industries and a survey of firms across a number of industries. This latter was conducted
          on a sample of 158 firms in creative industries across the Nordic area, engaging mainly SME
          managers and owners (see Annex 4.A1).
              It is widely recognised that the creative industries are increasingly important in the
          economies of the Nordic countries, although consistent statistics are hardly available.1
          Indeed, most of the creative industries are part of the service sector, whose size has been
          growing significantly in the Nordic countries over the last decades.
              The relevance of the service sector in the Nordic countries is in line with the OECD
          average, representing roughly 80% of economic activities and accounting for most start-
          ups.2 However, differences emerge when it comes to the structure of the service sector
          itself, as different kinds of IT services account for a significant share of employment and
          added value.3 Design has attracted specific interest as a part of both creative and ordinary
          manufacturing industries. Studies in Sweden and Norway show that companies that are
          creative in the design field grow faster than other companies.4, 5 According to a survey
          carried out by the Danish Enterprise and Construction Authority (Erhvervs- og
          Byggestyrelsen), design makes an important contribution to economic growth.6 In 2009, the
          Norwegian government has launched a “Design-Driven Innovation Programme”
          (Designdrevet Innovasjonsprogram) that stimulates competence building and investments in
          the idea-phase. The underlying vision is that design shall become a natural a part of the
          innovation process in industry.
              The Nordic Council of Ministers initiated KreaNord in 2008, which promotes the
          creative industry within the Nordic countries. KreaNord has produced a Green Paper and is
          working to co-ordinate the promotion of the creative industry across the economies.7
               From an international perspective, most companies within the Nordic countries are
          SMEs or even “micro companies”. The business population in the Nordic countries has a
          core of very small players. In Sweden, for instance, only 0.1% of the companies have more
          than 250 employees.8 In this respect, the creative field is no exception. Indeed, the average
          number of employees in creative companies is particularly small, even in the case of
          commercially successful and widely known firms. For instance, one of the companies
          investigated in this chapter, which is one of the leading film- and television-producers in
          its own country, only has 20 employees.




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Intellectual property regulations in Nordic countries
             Traditionally, development of IP regulation in the Nordic countries has been
         characterised by co-operation.9 One example is the former regulation on trademarks that
         was developed jointly by several Nordic countries.10 This has to some extent changed, as
         some of the Nordic countries are today members of the European Union (Denmark,
         Sweden, Finland), and some are not (Norway, Iceland), though these are members of the
         European Economic Area (EEA).11 Since the European Union has been very active in the
         field of IP regulation, the development of some IPRs is now different across the area. It is
         also worth noting that even within the group of EU members, some EU directives have been
         implemented differently at the national level.12
              When it comes to the IPR field there is also co-operation at levels other than the
         regulatory one. The main universities in the IPR field have co-operated for several years
         with for example joint conferences and a joint legal review (Nordiskt Immateriellt Rättsskydd).
         The confederations of enterprises in the Nordic countries also have a close co-operation in
         the field of IPR. This co-operation concerns among other things sharing of experience and
         policy development.

         National differences
            Even if co-operation in the field of IPR is much developed among Nordic countries, still
         some differences exist in the regulatory framework.

         Patents
              Patent regulation is similar across Nordic countries. All of them are members of the
         European Patent Organization.13 Sweden was the first Nordic country to become a member
         of the European Patent Organization in 1978, followed by Denmark in 1990, Finland in 1996,
         Iceland in 2004 and Norway in 2008. Further, all the Nordic countries are members of the
         Patent Co-operation Treaty (PCT).14 The Swedish Patent Office has been an International
         Searching Authority (ISA) and an International Patent Examination Authority (IPEA) within
         the PCT system for several years.15

         Trademarks
              Traditionally, trademark protection has been very similar in the Nordic countries. In
         the 1950s and 1960s a Nordic joint-effort led to new, harmonised legislation.16
              As Norway and Iceland are not members of the European Union, trademark protection
         in these two countries now differs from that in other Nordic countries, although EEA
         membership implies some harmonisation. The main difference between the two groups is
         represented by the community trademark. In fact, companies outside the European Union
         can apply for the community trademark, but they have to apply also for a national
         trademark, at the same time, in order to have trademark protection for their domestic
         market.
              All the Nordic countries are signatories of the Madrid Protocol,17 which was a vital step
         in allowing for international registration of trademarks. The Protocol came into force on
         1st December 1995 in Sweden (and came into practice from 1st April 1996), 13th February 1996
         in Denmark, 29th March 1996 in Norway, 1st April 1996 in Finland and 17th of April 1997 in
         Iceland. The European Union has also become a member since 1st October 2004. Since that




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          date, the Office for the Harmonization of the Internal Market (OHIM), which manages
          international applications that indicate the European Union as the designation “country”.
              Finland, Norway and Sweden further co-operated in the drafting of legislation to
          support new trademark regulations, the results of which were presented in 2001.18

          Copyright
               The legal regulation of copyright protection is similar across Nordic countries and
          follows the legal view on copyright established in French and German law, which is quite
          different from the American copyright law. For instance, the regulation provides a rather
          strong protection of moral rights and defines strict rules on how moral rights can be
          handled through contracts and agreements.19
               In spite of the similar approach, there are some national differences, which result
          mainly from a different implementation of EU-directives on IPR, as in the case of copyright
          infringement. In addition, reform proposals have been advanced in some of the countries
          in the field of copyright contracts and agreements.20
              In the Nordic legal tradition, copyright always rests with the actual, physical person
          who creates the work. This means that anyone who wishes to use the work, including an
          employer, must have a contract or agreement with the owner to obtain that right. Typically,
          these contracts and agreements are only limited to specific uses of the work. However,
          there are differences in how these contracts and agreements are handled in the different
          countries. This implies that companies within the creative industries operating in more
          than one Nordic country often have to write different copyright contracts and
          agreements.21
              In the Nordic countries a model of collective licences has been developed. The early
          evaluations suggest that this model has been quite successful in reaching a balance
          between the interests of the copyright holders and the users of protected works.22

          Design protection
              Design protection in the Nordic countries has to a large extent been influenced by the
          patent protection, particularly in the way it is constructed, though the influence from the
          patent law has to some extent diminished in recent years.
               Since 2003 a community design for the European Union is available. This has led to
          significant differences in design protection between EU members and non members.23 For
          Denmark, Sweden and Finland the community design means that design protection can be
          obtained for the entire European Union, including the domestic market, with only one
          application. For companies in Norway and Iceland, two applications are required to get
          design rights for the European Union market and for the domestic market.

          Utility models
               Protection for utility models does not exist in all Nordic countries. Finland and
          Denmark are the two countries granting this type of protection, which is handled through
          their patent offices. On the other hand, Iceland, Norway and Sweden do not have
          protection for utility models, although in Sweden there has been a large debate about its
          establishment and it has been pointed out that this protection would be useful particularly
          for SMEs.




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         Domain names
              Typically, domain names are not considered as part of the IPRs, although they are in
         many cases equally important for many companies. There are different rules on domain
         names in the Nordic countries, when it comes to the national domain names. A relevant
         difference concerns the possibility to obtain the right to a domain name under the national
         domain in all countries before a company is officially registered. One expert pointed this
         out as a problem for entrepreneurs on their way to establishing a business.

         Unfair competition
             The rules on unfair competition are a legal field particularly relevant to the creative
         industries, as companies working with design might find it more useful to claim unfair
         competition rather than copyright infringement. In most of the Nordic countries, the field
         of unfair competition is not as well established as in many other European countries. The
         regulation has been undergoing relevant change, following directives on unfair commercial
         practices emanating from the European Union.

         Counterfeiting
             Most of the regulation on counterfeiting in Nordic countries results from directives
         from the European Union. However, some differences still exist in how countries handle
         counterfeiting and counterfeited goods, and these have practical implications for any
         company combating against counterfeiting.

SME issues and challenges
              SMEs’ use of IPRs has been the object of extensive debate over the last couple of years
         in all Nordic countries. It has been recognised that innovative SMEs often do not have the
         protection they require. Often, the lack of IPRs by SMEs is not due to strategic decisions, but
         rather, is dependent on other factors.
              It has been recognised that SMEs are often not able to monitor the IPRs that they
         already possess. According to the survey carried out on a sample of 158 firms across
         creative industries (see Annex 4.A1), 76.5% of the firms did not actively check for potential
         infringement of their rights. The SME cases studies confirm this picture.
              The Nordic countries that are members of the European Union have taken active part
         in IPeuropAware.24 In this project 20 national patent offices have brought together two
         Europe-wide initiatives. One is InnovAccess, a Web portal created by the National Patent
         Offices to provide information on their services for the end user. The other is an
         IPR-Helpdesk, Helpline and training mechanism for current and potential contractors in
         EC-funded Framework Programme projects.
              Initiatives undertaken to promote SMEs’ use of IPRs are often focused on formal,
         registered rights, especially patents. On the other hand, no initiative has been undertaken
         to promote the active use of other IPRs – including non-registered rights (for example
         copyright) and semi-formal protection (for example business secrets).
             Another area of concern across several of the Nordic countries is SMEs difficulty in
         handling IPRs through contracts and agreements. As a result, legislators in several Nordic
         countries have investigated how the legislation could/should be improved.25




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          SME “positives”
              There are some IPRs that are easier for SMEs to access, especially in the case of
          countries that are members of the European Union. Trademark protection for the entire
          European Union is easily accessible, since one application is sufficient to receive rights
          both for the domestic market as well as for the rest of the European Union.
               Trademark protection is very important for companies in the creative industry. Many
          of their innovations cannot be patented, but can be trademarked. This is the case for
          service innovations such as franchising or television formats. Under the Nordic countries’
          copyright legislation, television formats do not have copyright protection as such.
          Therefore trademark protection is crucial when selling the formats.
               In Denmark it has been pointed out that disputes regarding trademark-related matters
          can be better handled through administrative procedures. This is recognised as a positive
          thing for SMEs, as it is easier for them to handle a dispute relative to handling it through
          the courts, particularly in terms of cost. In Sweden, the implementation of a similar model
          has now been proposed.
               The community design protection has been beneficial for SMEs in the Nordic countries
          as it is easier to obtain now than when design protection was only handled through
          national systems. However, these advantages do not really show up in the statistics of
          registration of designs. The number of applications for community design does not mirror
          the importance of design companies within the creative industries.
               The survey results suggest that companies see the advantages of IPR: 71.4% of the
          respondents use IPR to build competitive advantage, 60.3% to protect brand value and 19%
          use it as source of direct income.

          Recent developments and emerging trends
               The field of IPR is the object of a large debate and reforming effort, both within the
          Nordic countries themselves and on a wider-scale within the European Union. The several
          directives on IPR emanated by the EU over the last years highlight that the European Union
          recognises the importance of IPR for the competitiveness of its business sector.26
              The development of the community trademark and the community design has been
          an important step for IPR within the European Union. The practical implications for all
          companies are significant. Discussion is undergoing on the community patent, and
          agreement has recently been reached on several aspects.
              Over the last years, in some Nordic countries discussion has focused on regulation
          concerning copyright contracts and agreements, which are recognised as important for
          many companies within the creative industries.27
               One emerging trend is the use of open innovation. 11.9% of the survey respondents use
          open innovation and 29.4% also believe that open innovation is as important in their field
          of business as traditional IPRs.
               The patent offices in the Nordic countries do to some extent try to help SMEs obtain
          information on IPRs. The Swedish Patent Office has for example launched a “video guide”
          on the patent system,28 and a blog to promote IPRs.29
             In general, authorities have devoted much attention to improving on-line application
          mechanisms. The patent offices in the Nordic countries have also put a lot of effort into
          making their web-pages more user-friendly. However, it is largely acknowledged that much



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         still need to be done for promoting the use of IPR, especially in the case of service
         innovation and television formats.

Empirical evidence
         Major issues facing SMEs with regard to intellectual property right protection
               The IP experts interviewed indicate several major challenges that SMEs face in
         accessing IP protection. It is worth noting that there are some national differences when it
         comes to what these issues are, but most issues were recognised in all Nordic countries
         and their relevance was further confirmed through the SME survey conducted on a sample
         of firms across creative industries, and through some in-depth case studies of SMEs.

         Lack of knowledge
              All of the interviewed experts point out that the main problem for SMEs is lack of IPR
         knowledge. A majority of SMEs in the creative field do not know what IPRs they could
         obtain and how to obtain them. Some rights are only to be obtained from registration and
         in order to obtain these rights SMEs have to make active choices on where and how to
         protect their innovations. In a situation where they lack knowledge of the IP system, they
         might miss the opportunity to obtain the most useful IPRs for developing their businesses.
              Lack of knowledge also concerns semi-formal protection, for example the use of non-
         competition clauses and non-disclosure clauses. In some companies the level of
         knowledge of these instruments is higher than that of IPRs. The reason for this could be
         that the semi-formal protection is often linked to labour law. Knowledge of labour law is a
         requirement to run any business. This is however not the case for IPR knowledge.
              The experts also point out that many SMEs are not aware of the IP protection that they
         already have. Copyright protection is obtained without registration, which means that
         SMEs within the creative industries often do possess copyrighted assets, but are not always
         aware of the extent of their rights. This implies that these companies often are not able to
         make the most of the rights they already possess. According to the result of the survey,
         however, 20.3% of firms have tried to assess the value of their intellectual property.

         Lack of resources to acquire knowledge
              Some experts highlight that SMEs lack sufficient resources to acquire knowledge of
         IPR. The limitations concern both financial resources and competences that might be
         needed to access and use effectively use the knowledge available.
             Most SMEs do not have in-house lawyers and/or IPR experts. The consequence is that
         they consult IPR lawyers and/or patent attorneys when they see the need. As they lack
         knowledge of the IPR system they do not consult experts as often as they perhaps should.
              One additional problem is that when SMEs consult IPR lawyers and/or patent
         attorneys, they do not have the financial resources or background knowledge needed to
         discuss the strategic implications of IPR. SMEs seldom have financial resources to discuss
         when, in the course of the innovation process, an invention should be patented or how to
         balance semi-formal protection with registered rights. As a result, they often come with a
         direct question (i.e. “is this patentable?”) and that is subsequently all the IPR lawyer and/or
         patent attorney answers.




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          Lack of understanding about the strategic implications of intellectual property rights
               According to experts, SMEs largely lack an understanding of the strategic implications
          of IPR. This is of course linked to their lack of knowledge of the system. However, even
          SMEs with some knowledge of IPR seldom see how IPR could be used in a strategic way. The
          consequence, as the experts see it, is that SMEs rarely get the full potential out of their
          innovations.
              Some experts mentioned that there are examples of how IPR is balanced with open
          innovation in a very strategic way by SMEs but pointed out that these examples are to be
          seen as exceptions and are by no means the rule.
              According to the survey, 33.8% of the respondents have an overall IP strategy. Among
          these companies, 71% had explained or distributed it to staff. However, at the same time,
          over 73% of the respondents do not have a person specifically charged with managing the
          firm’s IPR.

          Difficulties in using contracts and agreements
               As SMEs often lack adequate understanding of how to handle IPR strategically, they
          often also do not know how to use copyright-related contracts and agreements as strategic
          instruments. Some experts state that SMEs biggest problem regarding copyright is not
          obtaining or enforcing it but is the ability to write the most beneficial contracts and
          agreements, which requires assistance from expensive lawyers. The cost of these lawyers
          is somewhat prohibitive to SMEs. As a result, in situations where SMEs are doing business
          with larger corporations, which have access to in-house lawyers or large law firms, the
          contracts and agreements made are not in favour of the SMEs.

          Lack of time
              Some experts, especially from Iceland, point out that SMEs lack sufficient time to
          concentrate on IPR issues. The consequence of this is that SMEs’ decision to protect (or not
          protect) their IP through registered rights is not given enough thought.

          Difficulties to acquire protection for non-technical innovations
              Within the creative industries, most innovations are not technical innovations, which
          can be registered through the patent system. SMEs in the creative industries typically
          generate service innovations, which are more difficult to protect through the IPR system. It
          is possible to protect communication innovations or television formats through for
          example trademark protection or design protection. However, experts claim that many
          companies within the creative industries only have knowledge of patents and they do not
          investigate if there are any other IPRs available for their service innovations.

          Difficulties to enforce rights
              The experts claim that in spite of recent developments SMEs still find it difficult to
          enforce their IPRs. According to the survey, 45% of firms find the costs of enforcement an
          obstacle to using IPR. Experts point at several difficulties in this regard. One important
          obstacle is the cost, as it can be very expensive to enforce IPR through the court system.
          Another factor is SMEs’ inability to foresee how the courts will rule in a specific case. IPR
          cases are to a large extent handled by ordinary courts. Within these courts there are




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         seldom lawyers with sufficient knowledge and experience in IPR and this uncertainty
         negatively influences SMEs use of the court system.
              Over the last years there have been several legislative changes to make it easier for
         right holders to enforce their rights. Some of these change are based on TRIPS agreement;
         others are a result of EU-directives. In Finland it has been suggested that all cases on IPR
         should be handled by the Market court or a dispute settlement system should be promoted
         that is less complicated and with greater IPR expertise. However, an expert from another
         Nordic country claimed that specialised courts could lead to centralisation, especially
         when it comes to community rights which, from his point of view, could make it harder for
         SMEs to use the court system.

         Imbalances in the innovation systems
             All Nordic countries have well-developed innovation systems, including advice and
         financing for start-ups. For SMEs within the creative industries these innovation services
         are not particularly helpful, whether public or private, as they are focused on patentable
         inventions and as a result, link financing to patents.
             There have been some positive changes in this area over the last couple of years. In
         some Nordic countries the importance of design has been more widely recognised.
         However, the protection of design is somewhat more complicated than the protection of
         inventions as it is possible to protect design through copyright, design protection and
         trademark protection. The balancing of these rights is a complicated matter for most SMEs
         and available services are not very supportive.
              The current IPR information and supporting system is largely focused on patents. Start
         ups are asked whether or not they have a patent – and companies that do not have patents
         are not seen as having the same potential. Strategic issues, such as ways to make the most
         of a right through strategic use of contracts and agreements, are not handled.

         Drivers behind SMEs’ decision to invest in intellectual property protection
              All experts point out that the most important driver of SMEs’ decision to invest in IP
         protection is knowledge. The more knowledge of the IPR system that a company has, the
         more likely it is to use the system. Another important determinant behind SMEs’ decision
         to invest in IP protection is resources. The experts point out that many SMEs consider
         registered rights to be too expensive to obtain. This is especially true when it comes to
         obtaining patents in more than one country. As pointed out by some experts this includes
         a lack of resources to obtain knowledge. SMEs do not have the ability to consult IPR
         expertise regularly, which makes IPR a question that comes in late in the innovation
         process, instead of being a part of it since the early stages. The consequence may be that
         the right obtained is not the most useful one for the company.
               Bad experiences in dealing with IPR are another factor influencing SMEs’ use of rights.
         It is claimed, at least in some countries, that most patent applicants only ever apply once.
         According to the experts, one reason for this is that SMEs do not find the patent as useful
         as they had hoped, perhaps due to their difficulties in effectively using the different
         contracts and agreements. Another reason may be that the patent obtained is not
         necessarily the most suitable protection mechanism, reflecting the lack of a clear strategy
         as to when to apply for a patent in the course of the innovation process. This view is
         however not supported by evidence in the survey or case studies.



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              It is a common view among experts that most SMEs do not have any strategy when it
          comes to IPR, even in the case of companies that have obtained registered rights. This is to
          some extent confirmed in the case studies. An exception can be identified in the case of
          trademark rights. These are commonly used as a part of an overall business strategy. Some
          companies engaged in open innovation use trademark protection as a way to control their
          business, even if they decline patent and/or copyright protection.

          The global context
                The Nordic countries’ domestic markets are rather small, so SMEs find it necessary to
          engage in cross-border commerce. One advantage SMEs within the Nordic countries have
          is that, to some extent, their countries share similar languages and cultures. Further,
          membership of EPO might help SMEs engaging in cross-border commerce within Europe.
          However, patents through EPO do not grant protection in all member countries as the cost
          is linked to the countries designated.
              The community design and community trademarks are easy ways for SMEs to access
          protection in all of the European Union. Companies from Denmark, Sweden and Finland
          can obtain protection for the entire Union, including their domestic market, through one
          application. On the other hand, companies from Norway and Iceland have to apply for
          protection both in their domestic market and in the European Union.
               One problem recognised for all companies engaging in cross-border commerce is the
          handling of semi-formal protection as the rules on semi-formal protection vary between
          different countries, and are often difficult to compare.30

          SME challenges
               For SMEs that engage in cross-border commerce, the costs of obtaining registered
          rights in different countries, particularly the transaction costs, are considered to be
          excessively high. One driving factor for the transaction costs are the costs of lawyers for
          writing the different kinds of contracts and agreements that are required. In the field of
          copyright, there are different traditions on how to construct contracts and agreements. The
          consequence is that it is often impossible to use the same kind of agreements in more than
          one country. This is not due to different legislation, but merely to different traditions.31
          According to the survey, 58.1% of firms have not filed, registered or established any
          intellectual property rights at an international level. Some experts do however point out
          that this does not always influence the SMEs’ decision to engage in cross-border
          commerce, as business opportunities are often seen as more important than IPR. This is
          especially true in cases where the SMEs lack knowledge of the uses of IPR.
               For companies using semi-formal protection, the costs of contracts and agreements
          are significant due to the regulatory differences between different countries. Within the
          European Union it has also been recognised that open innovation, within the field of
          copyright, requires agreements as copyright is obtained without registration. However, the
          rules for these agreements vary between all 27 member states. In order to adjust these
          agreements to the legal rules in each country and bring the agreements in line with the
          business strategy, SMEs require legal assistance. The costs for this can be significant.




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         Case studies
             Case studies have been conducted across the creative industries in Denmark, Finland,
         Norway and Sweden. In order to build comparative evidence, and distinguish country- and
         industry-level dimensions, two case studies from two different industries, namely film
         production and design, were conducted in each country.
              The selected industries are relevant to the creative industries in the Nordic countries.
         In recent years, film production has developed significantly and films from the Nordic
         countries have achieved international recognition. The revenues from these productions
         can be substantial. The companies selected are different in that some are important
         players in the market place while some others are small actors.
             In all Nordic countries design is very important. Governments often emphasise design
         as an important competitive advantage and have for several years put a lot of effort into
         promoting it. The companies selected operate in different ways in the design area. Some
         companies work with industrial design, meaning that they design for other companies.
         Others are selling and promoting their own design.


                                      Table 4.1. Nordic countries: Profile of case studies
          Case                                                  Industry/sector

          Television production company (Sweden)                Film
          Production company (Finland)                          Film
          Television production company (Norway)                Film
          Television production company (Denmark)               Film
          Fashion designer (Sweden)                             Design
          Design company (Finland)                              Design
          Industrial design company (Norway)                    Design
          Furniture design company (Denmark)                    Design




         Experiences with intellectual property rights
              All the companies in the study have some IPR experience. They are holders of different
         rights, both registered and unregistered. However, not all companies have been working
         very actively in the field of IPR and their experience is often rather superficial. As a result,
         SMEs are often not entirely aware of how they could access and use IPRs and it generally
         seems as if the companies do not see IPR as a core activity.

         i) Film production companies
             In movie production copyright is an essential part of business. The entire business
         model rests on the fact that the results are protected by copyright. Due to the construction
         of copyright law in the Nordic countries, film production companies have to make
         contracts and agreements to acquire copyright from everyone who is involved in creating
         works that are part of the final version. The construction of these agreements is very
         complex32 and often it is the IPR area in which these companies put in the most effort.
             External help is almost always used to write-up these contracts and agreements. Often
         there is need for several different types of support. For some employees collective
         agreements exist to handle copyright issues. The collective agreements make sure that the
         producers exploit the film and in return provide royalties to the right holders (actors, script
         writers, etc.). In Sweden, support is sometimes needed to interpret these collective


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          agreements. For other contributors individual contracts are elaborated with the help of
          external lawyers.
               One legal construction common in the Nordic countries, but not that common in
          many other countries, is collective licenses. These ensure that the copyright holders
          receive revenue from works when they are being used. The practice of collective licenses is
          currently under debate, but the general view is to extend their use.33
               Piracy has been a major issue of debate over the last decade. In all Nordic countries
          piracy has been widespread. In Sweden the “right” to piracy even led its defenders to create
          a specific political party, Piratpartiet.34 The fight against piracy is typically handled through
          organisations, so individual companies rarely have direct experience fighting piracy in the
          courts. The case study companies were very interested in discussing issues on piracy even
          though they did not themselves do anything in the field.
              Film production companies sometimes use IPRs other than copyright, especially
          trademark protection. Not all of the companies in the case studies make active use of
          trademark protection. One company even explicitly stated that “no one had explained the
          benefits of trademark protection”. It is however evident that there are film production
          companies that do use trademark protection in a very active way. These companies tend to
          use trademarks as a tool for merchandising. The companies analysed however did not
          work with merchandising at all.

          ii) Design companies
               The design companies had different approaches to IPR, depending on the structure of
          their business. Some of the companies focused on industrial design. Their customers were
          major industrial companies, mainly in the Nordic countries. By contrast, some of the
          design companies were designing consumer products and selling them under their own
          company name.
               One company, working with industrial design, did not acquire any IPR itself. Rather, it
          let the customers make all decisions concerning IPR. This meant that the protection of
          designs was more of an issue for its customers than for the firm itself. The company has
          had some bad experiences due to this strategy; however they admitted that they did not
          have the tools to develop another strategy, as only design protection for which they had
          some knowledge was copyright protection.
               Other companies working with design rely on copyright protection and do not register
          design protection or trademark protection. Others have a strategy using all kinds of
          different protections for their designs. Companies working with consumers are more
          interested in protection of IPR such as trademarks. Some of the companies have experience
          enforcing their rights. However these experiences are not entirely positive.

          Intellectual property management and strategy
                The companies investigated all work in IPR intensive industries. This means that they
          all, sooner or later, will have to deal with IPR. In fact, the case study companies have, to an
          extent, some form of IP strategy. However, some companies admit that they have not put a
          lot of effort into working with IPR questions, suggesting that these companies are not using
          IPR as a part of their overall business strategy. Their use of IPR is quite basic and initiated
          by others. Often strategies are linked to short-term needs; they are not very proactive and
          tend to focus on one specific typology of IPRs, rather than considering a portfolio approach.



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         i) Film production companies
              Generally, film production companies have IP strategies in place, but these strategies
         are often focused on acquiring rights from other right holders. The structure of the
         contracts is seen as very important. The film production companies’ aim is to make sure
         that they can fully exploit the finished film in the most suitable way. For example, there
         have been problems in selling films for use on the Internet as the contracts and agreements
         have not covered such use.
              As far as the selection of the protection tool is concerned, the film production
         companies focused on copyright, even though trademark protection could also be of (more)
         use to them. In fact, the film production companies did not have an explicit strategy linked
         to other rights. One company did register trademarks quite often but did not have a clear
         strategy for when to do so.

         ii) Design companies
              Some of the design companies did have an IPR strategy but these were very different,
         depending on the business that the companies were in. It seems as if the existence of an
         IPR strategy also was dependent on the firm’s actual level of IPR knowledge. The design
         companies selling to consumers did to a larger extent have a clear protection strategy for
         themselves. An industrial design company’s only strategy was for their customers to have
         the deal with IPR.
              In the same way as the film production firms, the design companies to a large extent
         relied on copyright protection, even though design protection may be useful for them.
         Some of the problems encountered by the design companies could in fact be tackled by also
         adopting design protection.

         Intellectual property enforcement
              Several of the companies analysed have experience with enforcement. They have,
         either by themselves or together with others, taken infringements to court, despite
         enforcement of IPR being expensive and time consuming. The companies that took action
         to enforce their rights are in fact very IPR intense firms. In some cases, they still believe
         that their efforts to enforce their rights were worthwhile.
              However, the case studies confirm the experts’ view that the business community
         considers the competence of the courts to be a problem, as judges are not often up to date
         on the legislation and they seldom have an in-depth understanding of the IPR in question.
         In fact, in the Nordic countries, issues on IPR are handled by the general courts and the
         judges that are to handle a case on IPR often do so for the very first time.

         i) Film production companies
            The film production companies have experience dealing with piracy although these
         companies do not have direct experience taking the cases to court as this is mainly
         handled through organisations.35 The production companies believe that the legal system
         has not been efficient enough in handling piracy. There are several examples of court cases
         related to piracy in the Nordic countries. These cases have also led to a broad discussion on
         how firms in the film industry should develop their business models in the future.




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          ii) Design companies
               Successful design is often imitated. Therefore successful design companies have to
          consider what to do when these imitations occur. Some of the companies in the study have
          direct experience of enforcing their rights. For instance, an industrial design company,
          which let its customers take care of all IPR issues, has assisted a customer in an
          infringement case. They claimed that enforcing IPR was very time consuming and one
          major problem was the fact that the courts have no insights into design. They claimed that
          it would be most helpful if there were design experts in the courts. There have been some
          cases regarding imitation of design that have reached media attention and have
          strengthened the view that IPR does not help small companies.

Policy implications and recommendations
              Most of the following recommendations are based on the results of the interviews and
          supported by evidence collected through the survey and the case studies.

          Improve knowledge
               As described above, all the interviewed experts point out that the main problem for
          SMEs in the area of IPR is lack of knowledge, which influences SMEs’ opportunities to
          develop their businesses and to grow. The case studies also show that SMEs do not use IPR
          even in situations where it is easily accessible, the reason for this being a lack of
          knowledge. Improvement of SMEs’ knowledge of IPR could be addressed in different ways,
          at several different levels. For example:
          ●   By making intellectual property rights a part of all higher education in the creative field. All
              students within the creative field should get some education regarding IPR. It is
              important that the programs are linked to their actual education as, for example, a
              designer and a musician do not need the same education when it comes to IPR. It is
              important that education does not only concern the actual IPRs that could come in
              question but also emphasises different ways of handling IPRs from a strategic point of
              view. The students should, for example, get an understanding of open innovation and
              the balance between protection and non-protection. In order to do so, education in IPR
              should also consider issues concerning IPR-related contracts and agreements. It is often
              through the contracts that the IPR strategies become reality. The Alvar Aalto University,
              a multidisciplinary institution in Finland, may serve as a good model on how education
              can address these issues. Students participating in education within the creative field do
              to a large extent end up being entrepreneurs.
          ●   By improving the diffusion of information on intellectual property rights. The public authorities
              working with IPR, such as the patent offices, are often active in diffusing information
              and in international networks aimed at increasing awareness about IPR. The programme
              “IPeuropAWARE” is an example of co-operation between different patent offices within
              the European Union regarding SMEs’ use of IPR. However, these authorities have a focus
              on registered rights and on giving information on the right as such, rather than on the
              use of the right within a business context and through different kinds of contracts. This
              focus also leads to non-strategic use of IPR. The role of these public authorities should be
              discussed and they should be possibly given a responsibility to cover the entire field of
              IPR, including copyright. The diffusion of information regarding semi-formal protection
              should also be considered.



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         ●   By providing information to start-ups. Public authorities in the Nordic countries are active in
             helping start-ups, since entrepreneurship is an important factor in their economic
             growth. These efforts seldom include support for the use of IPR and, when they do, there
             is a focus on patents.
         ●   Alliances. There are many different actors working to help SMEs in different ways. Several
             of these actors are either public authorities or are funded by public authorities. Since a
             lack of knowledge is recognised as one of the major factors behind SMEs’ use of IPR, it is
             very likely that these actors do not emphasise IPR enough. In order to improve this
             situation, alliances between different actors could/should become reality. The national
             patent offices could be one actor in such alliances.

         Resources
             Lack of resources is recognised as one important obstacle to SMEs’ use of IPR. Policy
         areas to address this include:
         ●   Registration fees. Some SMEs point out that registration fees can be burdensome. In
             several countries, fees have been stable and/or lowered in recent years. However, the
             level of fees is an important factor to bear in mind when it comes to SMEs’ opportunities
             to use IPR. It is also important that information regarding the level of fees is clearly
             communicated, so that the decision by SMEs not to use registered rights is based on
             actual facts rather than assumptions.
         ●   Help to acquire knowledge. It is pointed out that SMEs lack resources to acquire knowledge
             of IPR. Support to identify resources and IPR courses aimed at SMEs could be an
             important improvement. This has however to be done in a way that does not affect
             competition between different education providers.
         ●   Accessible information. It is important for SMEs that information regarding IPR is easily
             accessible. The information tools on patents developed by the Swedish Patent Office
             could serve as a model. The information is presented on the web, in a form that is
             accessible to anyone. This information makes it easier for SMEs to use their resources in
             a better way. It would be important to also include information on non-registered rights
             and semi-formal protection.

         Business use of intellectual property rights
              Some of the factors influencing SMEs’ use of IPR in fact depend on the SMEs
         themselves. If they had a better picture of the strategic uses that IPR could have for them,
         they might be more willing to set aside more time and resources to handle IPR. Even if this
         is a question that is the domain of the companies themselves, policy makers may have a
         role in encouraging this behaviour. For example:
         ●   Best practices. There are some very good examples of SMEs working with IPR and making
             the most of that work. These examples of best practice should be pointed out, so that
             more SMEs see what they can do to improve their competitiveness through use of IPR.
         ●   Business perspective. In the creative industries there is sometimes a lack of business
             perspective as other values are often seen as more important. Helping SMEs to look upon
             what they do from a business perspective could help them to identify how to use IPR
             better.
         ●   Identification as industry. In recent years, discussion on the creative industry has grown.
             Previously this was not seen as an industry. The formal identification of the creative


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              industries might be one important factor in helping SMEs within the creative sector to
              see themselves in a new light. This might also be helpful when it comes to pointing out
              best practices.

          Contracts and agreements
              Contracts and agreements are important for SMEs since they are used to acquire IPR
          from others and to let others use their IPR. There is much to be done in this field. Some
          examples on what could be done:
          ●   Identifying the importance. It is vital that the importance of contracts and agreements is
              highlighted. In situations where SMEs do not understand the full implication of
              contracts and agreements, they might not make the most of their potential. All actors
              should therefore highlight this importance.
          ●   Comparative studies. There are significant differences when it comes to how IPR is
              handled in contracts and agreements, even between the Nordic countries. These
              differences should be subject to comparative studies, in order to help SMEs finding
              information on what to consider when engaging in cross-border commerce.
          ●   Information. When information is provided on IPR, information on the handling of
              contracts and agreements should also be provided.

          Recognition of all kinds of innovations – not just technical innovations
              When innovations are being discussed there is too often a focus on technical
          innovations that can lead to a patent. Within the creative industries there are a lot of
          innovations, but they are seldom technical innovations. It is important for all policy
          makers to recognise that service innovations are just as important as technical
          innovations. This also means that policy makers have to recognise that the IPR-system
          provides protection mechanisms other than patents.
              In Finland the recognition of the multi-dimensional nature of innovation has led to the
          creation of the Alvar Aalto University.36 In Denmark, CKO has been established, which
          recognises the importance of creative sectors within industry and support projects that
          create growth through collaboration between cultural and business life.37 In Sweden the
          government has presented a strategy on service innovation.38 However, through these
          initiatives, IPR is often mentioned as a problem and seldom solutions are presented.39 In
          other terms, it appears as if even legislators step back from handling these issues.

          Improve the innovation system
              The set of players and institutions that form the innovation system do not often fully
          recognise the importance of IPR. In some parts of the innovation system the focus is on
          technical inventions leading to patents. It is important that IPRs other than patents are
          given relevance. For instance, the mechanisms to finance innovative businesses should be
          connected to a broader set of intellectual assets than patents.

          Patent processing
               Improvements to patent processing should be considered to make it more accessible
          for SMEs. However, experts’ views differ on how this goal could be achieved. One question
          that is important for SMEs in the Nordic countries, as well as in the entire European Union,
          is the question of language. Some experts point out that the number of translations needed



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         acts as a hindrance to SMEs obtaining patent protection in more countries. However, some
         other experts also point out that it is vital for SMEs to always be able to read in their own
         language all information contained in patents.

         Intellectual property right enforcement
              As described above, it is often difficult for SMEs to enforce their rights as the process
         is too difficult and expensive. The experts have pointed out some examples of
         improvements that can be made:
         ●   Dispute settlement through the administrative system. Disputes can in some cases be
             handled through the administrative system. This makes the dispute settlement much
             more accessible for SMEs. This way of settling disputes may not be suitable for all types
             of disputes, but new ways to handle disputes through the administrative system should
             be considered. This is already happening for trademarks in Denmark and similar
             mechanisms for trademark disputes are under discussion in Sweden.
         ●   Special courts for intellectual property rights. In some Nordic countries a problem for
             infringement cases is that they are handled in courts that do not normally work with IPR.
             Some of the national experts have pointed out that special courts for IPR would improve
             the opportunities for all types of businesses to pursue their IPRs. This view has also been
             confirmed by the case studies. The fact that the courts have little knowledge in, for
             example, the field of design, leads to a situation where the parties have to spend
             significant resources on informing the court on basic design principles. This is one of the
             factors that drive the high cost of enforcement.
         ●   Benchmarking. In some parts of the creative industries the industry itself has developed
             systems for dispute settlement. 40 These systems could be studied and used as
             benchmarks for other industries. Policy makers should recognise the importance of
             these systems.

         Copyrights and trademarks
              When it comes to copyright it is important to acknowledge the importance of
         contracts and agreements. Due to the construction of the copyright protection, all
         companies need different kinds of contracts and agreements to use different works. This
         can be rather complicated. The establishment of a law on copyright agreements, such as
         the German Act on copyright agreements, has been discussed in some of the Nordic
         countries. In some countries, there is a strong tradition regarding the handling of copyright
         in collective agreements. However, many SMEs do not use collective agreements. A legal
         regulation on copyright agreements might be helpful for these companies.
             It is however important that any kind of legal regulation on copyright contracts and
         agreements is adjusted to the actual needs of SMEs. The legal regulation must not be
         constructed according to traditional handling of copyright. That could itself hinder SMEs
         within creative industries developing into new areas of business.

         Cross-border commerce
             For SMEs there are several issues regarding IPR that are complicated when it comes to
         cross-border commerce. The way of obtaining registered rights in additional countries is
         one area that is very important. The advantages from the community trademark and the




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          community design are clear evidence of that. A community patent is expected to have the
          same beneficial effect.
              Semi-formal protection is an area that is perceived to be highly complicated by SMEs
          engaging in cross-border commerce. The rules on semi-formal protection are very different
          between countries. The consequence of this is that SMEs need to make different
          agreements in different countries. The costs for this are significant. Simplification in this
          area would be of great importance. This is especially true when it comes to SMEs within the
          segments of the creative industry in which direct protection of innovation is not possible.



          Notes
           1. Creative industries have been the object of several analytical works in the Nordic countries. In
              Denmark projects have been conducted that aim at defining the content producers and the music
              industry. See for example the report Danske Indholdproducenter – Film, tv og computerspil i tal 2009.
           2. www.ekonomifakta.se/sv/Fakta/Foretagande/Entreprenorskap/Nystartade-foretag-efter-naringsgren/.
           3. For a summary of the developments in Sweden, www.ekonomifakta.se/sv/Fakta/Arbetsmarknad/
              Sysselsattning/Strukturforandringar-i-sysselsattningen/.
           4. “Svenska Företag om design”, 2008, SVID, Teknikföretagen och Svensk Teknik och Design.
           5. Promoted in the prize “Design Effekt”.
           6. “Design skaber værdi”, October 2008.
           7. www.kreanord.org.
           8. www.ekonomifakta.se/sv/Fakta/Foretagande/Naringslivet/Naringslivets-struktur/.
           9. The cooperation in the field of IPR is presented by Koktvedgaard in Copyright 1998, pp. 348.
          10. These trademarks acts came into force in the late 1950’s and early 1960’s.
          11. www.efta.int/eea.aspx.
          12. This is for example the case when it comes to the implementation of the directives 2001/29/EC
              of 22.5.2001 (on the harmonisation of certain aspects of copyright and related rights in the
              information society, INFOSOC) and 2004/48/EG of 29.4.2004 (on the enforcement of intellectual
              property rights, IPRED).
          13. www.epo.org/about-us/epo/member-states.html.
          14. www.wipo.int/pct/en/texts/index.html.
          15. Since 1978, Förordning (1978:218) om patent- och registreringsverkets verksamhet enligt
              konventionen om patentsamarbete.
          16. The legislation that was a result of the cooperation came into force in 1959 in Denmark, 1960 in
              Sweden, 1961 in Norway and 1964 in Finland.
          17. www.wipo.int/treaties/en/ShowResults.jsp?lang=en&treaty_id=8.
          18. In Norway the new legislation came into force on the 1 July 2010. In Sweden the regulation has not
              yet been passed by parliament.
          19. This is for example clearly established in a case from the Swedish Supreme Court, NJA 2008, p. 309.
          20. In Denmark reform proposals were presented in 1990 (1197/1990) and 2006 (148/2006). However
              these have not led to new legislation. In Finland a proposal for new legislation was also presented
              in the past, but it has not led to any new legislation yet. In Sweden a proposal for new regulation
              was presented in spring 2010 (SOU 2010:24).
          21. There are however specific rules on computer programmes developed by employees, following the
              Directive 91/250/EEG.
          22. See for example SOU 2010:56 (Sweden).
          23. Regulation no 6/2002. There is also a directive on design protection, 98/71/EG.
          24. www.ipeuropaware.eu.



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         25. The most recent example is from Sweden, SOU 2010:24, Avtalad upphovsrätt.
         26. ec.europa.eu/internal_market/copyright/documents/documents_en.htm.
         27. In Sweden it is under currently under debate, see SOU 2010:24.
         28. www.prv.se.
         29. www.prvbloggen.se.
         30. A comparative study between the regulations on protection of business secrets in Sweden, France,
             The Netherlands and Germany is Helgesson, Affärshemligheter i samtid och framtid (2000). The
             Finnish legislation is similar to the German.
         31. This is demonstrated clearly in the comparisons between the Nordic countries done in SOU
             2010:24.
         32. See Wainikka, Upphovsrätten i mediebranschen – en fråga om avtal, Svensk Juristtidning, 2007.
         33. For the current discussion in Sweden, see SOU 2010:24.
         34. With two representatives in the European Parliament.
         35. See for example the Pirate Bay Case in Sweden.
         36. www.aalto.fi/en/about/.
         37. www.cko.dk.
         38. http://naringsdepartementet.ning.com/.
         39. This is evident in both the Swedish service innovation strategy and in for example SOU 2010:56.
         40. See for example www.svenskform.se/sv/node/32.



         References
         Erhvervs- og Byggestyrelsen (2008), Design skaber værdi: Udbredelse og effekter af design September 2008,
            available from: (accessed 28/3/11).
         Förordning (1978), Om patent- och registreringsverkets verksamhet enligt konventionen om patentsamarbete.
         Helgesson (2000), Affärshemligheter i samtid och framtid, June 2000.
         Koktvedgaard, M. (1998): Ideel ret og musik. i: Ton och Rätt s. STIM. Iustus, Uppsala, Sverige.
         Swedish Supreme Court, NJA 2008.
         SVID (2008), Svenska Företag om design, Teknikföretagen och Svensk Teknik och Design.
         Wainikka, C. (2007), Upphovsrätten i mediebranschen – en fråga om avtal, Svensk Juristtidning.




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                                                                      ANNEX 4.A1



                                                               Survey Results
Responses
                 158 responses (107 completed the entire survey)

Sections 1 and 2: Demographic data
          The respondents’ role
                 55.8 % management
                 37.8 % owner
                 6.4 % other employee

          Main market
                 47.6 % National
                 29.3 % International
                 23.6 % Local


                                                                  Section 3: Innovation activities

          3.1      Has your company implemented any of the following innovations in the past three years? (please select all relevant)
                   62.9% New or significantly improved product or service.
                   41.9% New or significantly improved production or delivery processes.
                   36.2% New business practices.
                   32.4% New marketing practices for your good or service.
          3.2      Does your firm acquire knowledge or technology through licensing?
                            19.6% YES                                    80.4% NO
          3.2a     If yes, why does your firm utilise licensing? (please select all relevant)
                   66.7% To access to a technology to immediately use it
                   30.3% To complete commercial or industrial partnership
                   21.2% To take an option on a technology to benefit from (future) room for manoeuvre
                   24.2% To co-develop a technology with a commercial or industrial partner
                   18.2% To settle intellectual property right infringement conflicts




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                                                      OPTIONAL SECTION ON OPEN SOURCE INNOVATION

          O1     Does your firm engage in open source innovation?
                                                                11.9% YES                       88.1% NO
          O1a    If yes, please specify the type of open source activity: (please select all relevant)
                 52.9%      Open source software development
                            Open source pharmaceutical projects
                 64.7%      Other open source communities
                            (e.g. Wiki publishing, creative commons, the Free Beer and Open Cola initiatives, and similar)
          O2     Do you believe that, in the long run, the open-source protection methods is or will become the dominant form of protection within your
                 sector (for example, compared to patents)?
                                                                     29.4% YES               7.6% NO




                                                                     Section 4: Intellectual assets

          4.1    Does your firm use any of the following strategies or techniques to protect the specialist or confidential knowledge that your firm has?
                 (please select all relevant)
                 Strategies                                                              Techniques
                 58.2% Secrecy                                                           10.9% Complexity of design
                 63.6% Trust between individuals/team                                    35.5% Building in specialist know-how into products
                 21.8% Lead-time over competitors
                 28.2% Limiting key information from staff
          4.2    Do you use any of the following formal methods to protect your confidential knowledge? (please select all relevant)
                 a) Intellectual Property Rights                                         b) Other
                 30.6% Patents                                                           71.3% Confidentiality agreements
                 52.8% Trademarks                                                        8.3% Unregistered design protection
                 26.9% Copyright                                                         14.8% Non-protected technology or ideas
                 22.2% Registered designs




                                                          Section 5: Intellectual property and strategy

          5.1    Did you file, register or establish any intellectual property rights before commencing business?
                                                                       39.2 YES               60.8% NO
          5.2    Has your firm filed, registered or established any intellectual property rights at an international level?
                                                                    41.9% YES                58.1% NO
          5.3    Has your company ever tried to assess how much your IP is worth?
                                                              20.3% YES                         79.7% NO
          5.4    Do you have a person on your team specifically charged with “managing” your intellectual property?
                                                                   27% YES             73% NO
          5.5    Does your company have an overall intellectual property policy/strategy?
                                                                 33.8% YES                66.2% NO
          5.5a   If yes – is it explained or distributed to staff?
                                                                         71% YES                29% NO




                                                            Section 6: Benefits / obstacles to IPR use

          6.1    Please tick UP TO 3 BENEFITS of intellectual property rights that your firm uses which you find of HIGHEST IMPACT.
                 57.1% Protection against imitation                                      14.3% Attract investors
                 71.4% Build competitive advantage                                       19% Source of direct income (e.g. royalties, licensing fees, etc)
                 60.3% Protect brand value                                               38.1% Increase ability to enter collaborative agreements
                 14.3% Protection in overseas markets
          6.2    Please tick UP TO 3 OBSTACLES for intellectual property rights that your firm uses which you find of HIGHEST IMPACT.
                 48.3% Lack of awareness of relevant IP type                             53.3% Cost of application
                 33.3% Concerns regarding disclosure                                     45% Cost of enforcement
                 50% Uncertainty over whether IPR will be upheld                          40% Lack of qualified personnel




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                                                              Section 7: Enforcement and litigation

          7.1    Does your company actively check for potential infringement of its intellectual property rights?
                                                                   23.5% YES              76.5% NO
          7.2    Has your company ever undertaken legal action for the infringement of its intellectual property rights?
                               13.2% YES, IN HOME COUNTRY                   7.4% YES, IN FOREIGN MARKET(S)                     79.4% NO




                                                     Section 8: Intellectual property advice and education

          8.1    Has your company ever sought advice on intellectual property rights from the following sources? (please select all relevant)
                 26% In-House Legal Professional                                          32% National IP Office
                 78% External Legal Professional                                          16% Chamber of Commerce
                 28% Licensing Consultant                                                 6% Business Association
                 8% Accountant                                                            28% Internet search
                 24% Colleague/friend
          8.1a   If you have sought advice on intellectual property rights, what was the request for advice regarding? (please select all relevant)
                 33.3% Formal structure of IP system                                      43.8%Enforcement/litigation
                 41.7% Filing of IP                                                       47.9% Search for existing IP
          8.1b   If yes, did the advice received meet your needs?
                                                                       85.4% YES              14.6% NO
          8.2    Is any training in intellectual property issues provided by your company to its staff?
                                                                        29% YES          71% NO
          8.2a   If yes, who is this training provided by? (please select all relevant)
                 60% Within your company                                                  20% Government sponsored course
                 25% Private institute                                                    0% Local school/university
                 25% Business Association                                                 5% Chamber of Commerce
          8.2b   If yes, is the training funded by: (please select all relevant)
                 84.2% The company              15.8% Government or other public entity             10.5% Business Association or other private entity
          8.2c   If yes, does this training meet your needs?
                                                                        90.5% YES              9.5% NO




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                                                       Section 9: Reasons for not utilising IPR protection

          9.1    Which obstacles deterred or prevented you from utilising the intellectual property rights system? Please tick UP TO 3 OBSTACLES
                 which you find of HIGHEST IMPACT.
                 69% No need / not relevant for my firm                                   31% Cost of application
                 22.5% Lack of awareness of relevant IP type                              28.2% Cost of enforcement
                 7% Concerns regarding disclosure                                         23.9% Lack of qualified personnel
                 16.9% Uncertainty over whether IPR will be upheld
          9.2    Has your company ever sought advice on IPRs from the following sources? (please select all relevant)
                 23.3% In-House Legal Professional                                        27.9% National IP Office
                 51.2% External Legal Professional                                        14% Chamber of Commerce
                 23.3% Licensing Consultant                                               7% Business Association
                 7% Accountant                                                            16.3% Internet search
                 23.3% Colleague/friend
          9.2a   If you have sought advice on IPRs, what was the request for advice regarding? (please select all relevant)
                 35.3% Formal structure of IP system                                      44.1% Enforcement/litigation
                 29.4% Filing of IP                                                       47.1% Search for existing IP
          9.2b   If yes, did the advice received meet your needs?
                                                                     76,9% YES                 13,1% NO
          9.3    Is any training in IP issues provided by your company to its staff?
                                                                   4.7% YES                    95.3%NO
          9.3a   If yes, who is this training provided by? (please select all relevant)
                 60% Within your company                                                  20% Government sponsored course
                 0% Private institute                                                     0% Local school/university
                 20%Business Association                                                  0% Chamber of Commerce
          9.3b   If yes, is the training funded by: (please select all relevant)
                 83.3% The company              33.3% Government or other public entity             0% Business Association or other private entity
          9.3c   If yes, does this training meet your needs?
                                                                     57.1% YES                 42.9% NO




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Intellectual Assets and Innovation
The SME Dimension
© OECD 2011




                                            Chapter 5




                   United Kingdom:
           Intellectual Asset Management
          Strategies for Diverse Innovations

             By Prof. Birgitte Andersen, The Big Innovation Centre, The Work Foundation
                    and Dr. Federica Rossi, Birkbeck College, University of London




            Evidence from small and medium sized enterprises (SMEs) in the United
            Kingdom information and communication (ICT) sector shows that firms adopt a
            wide range of intellectual property (IP) governance mechanisms, combining
            proprietary IP, such as patents, copyright and trademarks, with softer strategies
            such as open source and the exchange of non-protected technology. The variety of
            approaches in the ICT sector reflects differences in product/service specialisation
            and internationalisation strategies, and IP value seeking objectives. These
            are mainly related to finance, innovation, strategic relationships and
            competitiveness. On the basis of an extensive survey, expert interviews and in-
            depth case studies of SMEs, the chapter highlights differences in strategies by
            firm size: formal IP (patents and copyright) is used relatively more by medium
            sized and large firms, whereas micro and small firms are relatively more active
            in open source communities and in trading technology with no patent protection.
            Metrics used for measuring innovation and the performance of intellectual asset
            management in SMEs should reflect this variety of approaches. The chapter
            comments on institutional market failures, on the policy responses and extensive
            reforms promoted by the United Kingdom government, and present the case for
            flexible and ’neutral’ IP policies for SMEs in the ICT sector.




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Introduction
         Motivation and research questions
              A considerable amount of research work has been dedicated, in recent years, to
         understanding the use of intellectual property (IP) protection mechanisms on the part of
         firms in the United Kingdom. Much of this research is focused on firms of all sizes
         (although some specifically focuses on small and medium sized enterprises or SMEs) and
         is carried out across all sectors. Despite the recent increase in the amount of research
         carried out on this topic, however, several gaps and limitations of existing research can be
         identified, which the present study contributes to filling. Mainly, such gaps concern: i) the
         range of IP mechanisms considered, which is usually limited to patents and other formally
         registered intellectual property rights (IPRs) such as trademarks and copyright; ii) the level
         of detail at which such mechanisms are considered, and iii) the specific investigation of
         firms’ strategic benefits and obstacles that firm encounter when using these mechanisms.
              The present study focuses specifically on intellectual asset management on the part of
         SMEs in a single sector (firms active in information and communication technology, or ICT).
         A one-sector perspective allows us to brings greater depth to the investigation, by taking into
         account i) a wide range of IP mechanisms, which are particularly relevant to the sector in
         question, including not only proprietary IP (patents, copyright and trademarks) but also non-
         proprietary IP such as open source and non-protected technology; ii) a wide range of
         governance forms through which such mechanisms are used (that is, we consider firms’
         engagement in – among others – buying, selling, in-licensing, cross-licensing, out-licensing,
         pooling IP); iii) both the strategic benefits that are associated with the use of this wide range
         of IP mechanisms, and the obstacles that SMEs encounter when using them.
              The study investigates the following research questions:
         1. What forms of IP protection mechanisms do SMEs in the ICT sector use? How does their
            behaviour differ from that of large firms?
         2. What are the strategic objectives that underpin the SMEs’ choice to use these different IP
            protection mechanisms?
         3. What are the obstacles that SMEs in the ICT sector encounter when using different IP
            protection mechanisms?
         4. How does the regulatory and business environment affect the SMEs’ ability to create
            value from their IP?
              The second section presents an overview of evidence on United Kingdom firms’ use of
         different kinds of IP protection mechanisms (particularly focusing on SMEs), and the issues
         and challenges that these mechanisms imply, paying specific attention to the competitive
         and regulatory environment. The third section presents the results of the empirical analysis,
         integrating the results emerging from the survey with insights from the qualitative
         interviews carried out with firms and experts. The fourth section discusses, based upon the
         evidence presented in the previous section, several policy implications and conclusions.


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         The ICT sector
              The ICT sector is very important to the United Kingdom’s economy. This sector has
         been considered the key driver of productivity increases and economic growth worldwide
         since at least the 1980s (Freeman and Perez, 1988); recent data from the United Kingdom
         Innovation Survey (Robson and Haigh, 2008) confirm that more than 50% of United
         Kingdom innovation-active firms engage in the acquisition of products from the ICT sector
         such as software and computer hardware. This is by far the most important innovation
         activity, preceding “market introduction of innovations”, and “training” , “internal R&D”,
         “design”, “acquisition of external knowledge” and “external R&D” (none of which involves
         more than 35% of firms). Information and communication technologies are not only
         instrumental to stimulating innovation throughout the economy; they are subject to a high
         rate of innovation themselves.
              The ICT sector is one where intellectual assets are a particularly important component
         of firm value and where their acquisition is often crucial for innovation to take place
         (Cockburn, 2007). The sector has seen an increase of activity in IPR transactions (for
         example, see Grindley and Teece, 2008, on the increase of licensing and non-licensing
         agreements in the computer industry). One of the reasons for this increase is due to the
         high level of disintegration of innovation activities in this sector, and consequently the
         increasing adoption of “open innovation” strategies (Chesbrough, 2003). This is partly due
         to technological reasons. The production of ICT products and components, especially
         software, often involves disintegrated modules, which are later combined into more
         complex systems (Arora, Fosfuri and Gambardella, 2001) to create commercially desirable
         products. The complex technologies underpinning the ICT industry and the challenge of
         short product life-cycles mean that firms are inclined to specialise in the production of few
         modules and rely on exchanges of technology with other companies to bring about
         finished products, exchanges which often involve IP transactions. Commercial reasons are
         also important. Many ICT firms, especially software firms, have limited investment in
         downstream commercialisation capabilities, and usually choose to license to bigger
         software firms (Arora, Fosfuri and Gambardella, 2001): the use of IP gives them a platform
         to be more competitive.
              ICT has pioneered innovative forms of IP governance, namely the open source model
         supported by the use of General Public Licenses (GPL). Whereas intellectual property rights
         law, in its current form, provides the right to exclude anyone from using, modifying and
         redistributing copies of an author’s work as well as a right to withhold the source-code, a GPL
         license transfers these rights to the commons in order to ensure access. This ensures that
         every person who receives a copy of a work has the same rights to study, use, modify, and
         also redistribute both the work, and derived versions of the work. Such licenses also require
         that the same license terms apply to all redistributed versions of the work. Relaxing some of
         the restrictions of the intellectual property rights system is also becoming more common in
         other sectors, and it is usually linked to an open innovation strategy of the firms.1

         Methodology
               The methodology followed in order to carry out the empirical part of the study
         involves: i) a large-scale survey of United Kingdom firms in the ICT sector (UKNOW survey),
         ii) a set of qualitative interviews with experts based in the United Kingdom and iii) a set of
         in-depth qualitative interviews with United Kingdom SMEs in the ICT sector. They are
         described in turn.


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         i)      UKNOW survey
             The survey was performed in the context of the EU 6th Framework Programme
         UKNOW (Understanding the Relationship between Knowledge and Competitiveness in the
         Enlarging EU) 2005-2009.2 Field work was carried out between October 2008 and June 2010.
              The sampling population of ICT firms was extracted from the overall population of
         firms based in England, Wales, Scotland and Northern Ireland, with one or more
         employees, active in software publishing (NACE Rev. 1, code 7221), manufacturing of
         computers and other information processing equipment (code 3002), manufacture of
         television and radio transmitters and apparatus for line telephony and line telegraphy
         (code 322) and manufacture of television and radio receivers, sound or video recording or
         reproducing apparatus and associated goods (code 323). These codes identify companies
         producing both software and hardware, which are likely to be dealing with ICT patents and
         other IP (for simplicity, we refer to the firms in this sample as “ICT firms”). According to the
         FAME (Financial Analysis Made Easy) database, the total number of United Kingdom-based
         firms that fulfil these characteristics is 960 (after the removal of double entries
         of companies that are no longer in business and of companies whose main activity is not
         ICT-related, for example, because FAME reported wrong or outdated NACE codes).
                These firms were contacted by telephone with the purpose to identify knowledgeable
         respondents (R&D manager, CEO, head of IP department, or like), who were then asked to
         fill in the questionnaire online. We obtained 39 responses. The respondents were: 13 CEOs/
         Directors/Owners, 9 R&D Managers/Chief Technology Officers/Heads of Operations, 10 IP
         Managers and 7 people in other positions.
              The questions referred, separately, to four proprietary and non-proprietary IP
         protection mechanisms: patents, copyright, open source and non-patented innovations. In
         turn, for each of these forms of IP protection, the respondents were asked to consider
         different governance structures for their exchange, as detailed in Table 5.1.


              Table 5.1. Types of intellectual property and governance forms investigated
                                   through the UKNOW questionnaire
          Types of IP                                                               IP Governance forms

          Patents as a tool for the protection of novel ideas                       Selling patents
                                                                                    Buying patents
                                                                                    Out-licensing patents
                                                                                    In-licensing patents
                                                                                    Cross licensing patents
                                                                                    Participation in patent pools
                                                                                    Buying university-owned patents
                                                                                    Licensing university-owned patents
          Copyright as a tool for the protection of original creative expressions   Selling copyright
                                                                                    Buying copyright
                                                                                    Out-licensing copyright
                                                                                    In licensing copyright
          “Non-patented” innovations                                                Releasing not patented product or process innovations to the public
                                                                                    Releasing not patented product or process innovations to private firms
                                                                                    Using not patented product or process innovations
                                                                                    Collaborating with universities without patent restrictions
          “Open source” IP as a tool for the protection of novel ideas and creative Participating in open source software development
          expressions                                                               Participating in open source pharmaceutical projects
                                                                                    Participating in other open source communities




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              A first set of questions referred to the extent and intensity with which firms
         participated in each form of IP exchange and in each IP governance form. Firms were asked
         about their stock of patents owned and licensed, whether they engaged in each type of
         patent governance, and if so the number of transactions in the last two years. With respect
         to open source, non-patented innovations and copyright, firms were asked whether they
         engaged in each governance form, and if so the number of transactions in the last two
         years.
              A second set of questions referred to the benefits sought when trading IP. For each type
         of IP, and each governance form for the exchange of IP, firms were asked to choose up to
         five strategic benefits that they considered important, selecting them from a list of
         13 benefits (presented in the table below). Such benefits were selected after a careful
         review of the academic literature and after consulting stakeholders (for a discussion, see
         Andersen and Rossi, 2010).


                                Table 5.2. Benefits from intellectual property exchange
          Broad group         Benefit                                                 Patents   Open source   Non-patented IP   Copyright

          Benefits relating   Direct income from market transaction                                                              
          to financial gain   Cost cutting (e.g. via savings on royalties or
                              patent administration)                                                                            
                              increasing ability to raise venture capital (e.g. via
                              the stock market)                                                                                 
          Benefits relating   Increasing market share (e.g. building broader
          to competitive      user base or securing market protection)                                                          
          advantage           Professional recognition or brand recognition                                                     
                              Competitive signaling                                                                             
          Benefits relating   Being able to use the best inventions, innovations,
          to innovation       creative expressions                                                                              
                              Setting common standards/making or using
                              compatible technology or creative expressions                                                     
                              Innovation methodology: developing better
                              technology or creative expressions                                                                
                              Benefiting from user or supplier involvement as a
                              development strategy (e.g. through learning and
                              feedback)                                                                                         
          Benefits relating   Building informal relationships with industry
          to the building     networks                                                                                          
          of strategic        Increasing ability to enter collaborative
          relationships       agreements (e.g. joint ventures, strategic
                              alliances, etc.)                                                                                  
                              Giving something to the community                                                                 

         Note: *Tick () means that data has been collected. A block-out means that the information was not collected for this
         particular form of IP.



               Firms were then asked to choose up to five obstacles they encountered when trading
         IP, selecting them from a list of 14 obstacles (presented in the table below). Such obstacles
         were selected after a careful review of the academic literature and after consulting
         stakeholders (for a discussion, see Andersen and Rossi, 2010).
              Finally, firms were requested to provide some general information: geographic
         localisation (derived from address), ownership (independent or subsidiary company), size
         (current number of employees, current yearly turnover), yearly expenditure in R&D,
         geographic extension of the firm’s main market (domestic or international), and main



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                                  Table 5.3. Obstacles to intellectual property exchange
          broad group          Obstacle                                               Patents   Open source   Non-patented IP   Copyright

          Obstacles relating   Difficulty in locating the owners of IP                                                          
          to search            Difficulty in locating the users of IP                                                           
          problems             Difficulty in finding the best IP                                                  
          Obstacles relating   Difficulty in assessing the degree of novelty/
          to lack of           originality of IP                                                                                
          transparency         Description or drawing in the patent document is
                               not clear/ open source description is not clear                     
                               Difficulty in understanding non-patented
                               technological solutions as they are not formally
                               documented                                                                           
                               Difficulty in assessing the economic value of IP                                                 
          Obstacles relating   Difficulty in negotiating a price for the IP                                                      
          to contract          Difficulty in negotiating the terms (not related to
          negotiation          price) of the exchange contract                                                                  
          Obstacles relating   Excessive cost of enforcing the exchange contract                                                
          to contract          Problems (not related to cost) with enforcing the
          enforcement          exchange contract                                                                                
                               Trust issues (e.g. opportunistic behaviour,
                               free-riding, or similar)                                                                         
          Obstacles relating   Regulations allow too exclusive rights                                                           
          to regulation and    International IP regulations do not fit the needs of
          practices            different local markets                                                                          
                               Different practices of firms                                                                      

         Note: *Tick () means that data has been collected. A block-out means that the information was not collected for this
         particular form of IP.


         activity. A few additional variables relating to firm characteristics were derived from the
         FAME database: company name, full address, telephone number, primary United Kingdom
         SIC (2003) code, director’s name and position, e-mail, website, last turnover (in thousands
         of GBP), number of employees.

         ii)     Qualitative interviews with experts
              The semi-structured interviews were carried out between June and July 2010, and
         involved several experts in the field of intellectual property, based in the United Kingdom
         (four experts, one from academia, two from the United Kingdom Intellectual Property
         Office and one representative of one of the main United Kingdom business associations).
                 The interviews were designed to investigate the experts’ opinions about:
         ●     the use of different types of IP on the part of small firms in the ICT sector;
         ●     the strategies of SMEs for dealing with IP protection, acquisition and release and the
               main factors that explain such strategies (including: business and legal framework;
               objectives in terms of financial gain, knowledge transfer, strategic relationships,
               innovation, market positioning, or others; firm characteristics such as type of
               technology, size of the firm, type of organisation, human capital endowment);
         ●     SMEs’ experiences in terms of obstacles or costs in the use of the IP system;
         ●     SMEs’ relationships with universities (channels and effectiveness);
         ●     presence of IP support systems for SMEs (what kind of IP support system is in place to
               support SMEs that want to use the patent system, or other types of IP such as copyright,
               trademarks, registered designs, unregistered designs, non-patented technology,



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             confidentiality agreements, open source; how could these support systems be improved
             to make them more effective for SMEs);
         ●   issues with business environment and legal framework (for example, to what extent are
             IPRs able to protect the IT solutions of firms that are not at the technological frontier?
             Does the legal regime fit the technology strategies of SMEs and of the ICT industry? Is the
             legislative framework biased towards encouraging patents?);
         ●   finally, what are the major issues facing SMEs in relation to IP management; and
             whether SMEs are able to enforce their rights successfully.

         iii) Qualitative interviews with small and medium-sized companies in the ICT sector
              The interviews with SMEs, carried out in August 2010, were designed to investigate the
         firms’ experiences with IP, the strategic decisions that underpinned the choice to use
         various forms of IP, the problems and obstacles that they encountered with using the IP
         systems, the support systems that they found in place in order to help them cope with
         those problems, and finally what kind of improvements would increase the ability of IP
         systems to support the firms’ business strategy and competitiveness. The next table
         presents a summary overview of these companies’ main features.


                                            Table 5.4. Details of companies interviewed
          Company                                    1                          2                          3                             4

          Location                              Cambridge                    London                     London                        London
          Foundation date                          2000                        n/a                        n/a                          2002
          Current status                     Acquired in 2005                Acquired              Acquired in 2009          Still trading independently
          Activity                                  ICT                Software development               ICT                  Delivery of web-based
                                        technology (delivering video                          technology (delivering video            services
                                             to PC platforms)                                         to mobiles)
          No. of employees                         60-70                       150                        50                             70
          Owns patents                              Yes                        No                         Yes                            No
          Owns copyright                            n/a                        Yes                        n/a                           Yes
          Participates in open source               No                         No                         No                            Yes
          Owns non-patented
          technology                                n/a                        Yes                        n/a                           Yes



Intellectual property regulation system in the United Kingdom
         SMEs’ use of intellectual property mechanisms
             In recent years, a number of studies have been carried out in order to understand the
         use of IP protection mechanisms on the part of United Kingdom firms, and the relationship
         between use of IP and certain firm characteristics such as growth and performance.
              In line with evidence from well-known empirical surveys carried out in other
         countries, particularly the US and Europe (Klevorick et al., 1987; Harabi, 1995; Cohen et al,
         2000; Arundel, 2001), the United Kingdom Innovation Survey (Robson and Heigh, 2008)
         shows that firms attach great importance to “strategic” methods of protection (such as
         secrecy, lead time, complexity of design), besides formal intellectual property rights. In
         fact, similar proportions of enterprises rated strategic and formal IPR methods as being of
         high importance. The largest shares of firms (26% of large firms, 12% of SMEs) accorded
         high importance to confidentiality agreements. Nonetheless, the proportion of enterprises
         marking all methods as of “high” importance, especially those classed as “formal”



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         protection methods, has increased on that recorded in the 2005 survey; the authors suggest
         that this can perhaps be attributed to the higher awareness of IP following the Gowers
         Review.3 Similarly, a study by the Centre for Business Research at Cambridge (Hughes and
         Mina, 2010) using Community Innovation Survey (CIS4) data for the United Kingdom shows
         that patents are the third least preferred appropriation mechanisms among both SMEs and
         large firms, preceded by lead time advantage, confidentiality agreements, secrecy,
         trademarks and copyright. Only complexity of design and design registration are less
         important than patents.
              The experts interviewed concur that patenting is not firms’ preferred protection
         method. One expert pointed out that, even in highly patent-intensive industries, the share
         of firms that patent is not often greater than 30%, and in the ICT sector it is on average
         much lower. Besides the strategic advantages of using forms of IP that are different from
         patents (which will be discussed more extensively in section IV), a key reason for the
         limited use of patents in the ICT sector is that much of the output of ICT firms is actually
         not patentable so that copyright, GPL licenses, trademarks time to market, secrecy and
         confidentiality agreements (protecting the firm’s core knowledge) are often more
         important than patents for firms in this industry, and particularly for SMEs.4
              Firms’ use of different types of IP protection mechanisms is often linked to firm
         characteristics, among which size, sector of economic activity, technological intensity,
         innovativeness, are particularly important. Results from the United Kingdom Innovation
         Survey show that larger enterprises attached greater importance than smaller enterprises
         to all methods for protecting intellectual property, in the ratio of 2:1 (Robson and Heigh,
         2008) and that the largest firms are the most innovative with respect to all the dimensions
         investigated (in terms of number of products that are new to market, new to the firm and
         significantly improved), which may indicate that large firms generate more intellectual
         property and/or are more aware of intellectual property issues than SMEs. Both patterns
         are confirmed by CIS4 data (Hughes and Mina, 2010). In the literature, the relationship
         between firm size and innovativeness is quite controversial, however. There is evidence of
         increasing participation of SMEs to innovation processes in general (Audretsch and Thurik,
         2001), but, when innovation is proxied by R&D expenditure, larger firms are still dominant
         (Shefer and Frankel, 2005); according to ONS data (reported by Hughes and Mina, 2010) in
         2005 United Kingdom business enterprise R&D expenditure on the whole was a little over
         GBP 13 billion, to which independent SMEs employing less than 250 workers contributed
         only GBP 454 million (3.3%). Tether (1998) reviews the literature on small versus large firm
         innovation rates, which tends to find that small firms produce more innovations per
         employee than large firms, but also provides some evidence that small firm innovations
         are less valuable.
              Studies linking firm characteristics to use of IP have focused mostly on certain types
         of formally registered IPRs, mainly patents and trademarks; much less information has
         been collected on registered or unregistered designs, copyright, open source, and on the
         use of technology that is not formally protected.
             Rogers, Helmers and Greenhalgh (2007) sought to determine the characteristics of
         United Kingdom SMEs that are “IP active”, in the sense that they have one or more of the




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         following: a United Kingdom patent publication, an EPO patent publication, a United
         Kingdom trademark publication or a Community trademark registration. They found that:
         ●   just under 5% of United Kingdom SMEs in operation in the period 2001-05 can be
             considered as “IP active (in the formal sense, as defined above)”;
         ●   in the period 2001-05 there was a fall in numbers of United Kingdom patents; numbers
             of EPO patents, United Kingdom trade marks were relatively constant; and use of
             community trademarks grew;
         ●   the fall was mostly in large United Kingdom firms: SMEs increased their use of the
             various kinds of IP;
         ●   in proportion to their asset base, SMEs were more IP-intensive than large firms.5
              A study by Helmers (2009) using United Kingdom data shows that patenting behaviour
         on the part of micro enterprises and SMEs varies greatly according to sector of economic
         activity (consistently with findings from other studies). One general feature of patent data
         is that they are highly skewed (i.e., most patenting firms have only one or two patents and
         a few have much larger numbers), and this is also the case in the United Kingdom. This
         skewed distribution is present for all types of patents (United Kingdom, EPC and PCT
         publications), and also within firm size categories. In 2000, the highest levels of patenting
         by far were in manufacturing. By 2007, however, business services and R&D services had
         grown very rapidly. Helmers points out that it is not clear from these figures whether the
         growth in patenting in R&D services reflects an outsourcing of R&D from manufacturing as
         opposed to other sectors. Most interestingly for us, the data show that patenting by micro
         and SME firms in “Computer” (which is computer and related activities, both hardware and
         software) has steadily increased by a few percentage points. Also, over the period 2000 to
         2007, SME patenting has increased whereas large firm patenting has fallen and micro firm
         patenting has been roughly constant. Most SMEs patent while relatively young (aged ten or
         less) and this tendency is becoming more pronounced over time.
              Holding IPRs, however, is not the same as “using” them, in the sense of either directly
         exploiting inventions or creations (i.e. using the processes or producing the goods
         protected by IPRs) or licensing, cross-licensing and pooling them; or even in the sense of
         strategically registering IPRs to block rivals or to avoid being blocked by competitors (Hall
         and Ziedonis, 2001).
               The PatVal-EU study (Giuri et al., 2007; Gambardella et al., 2007) shows that there are
         considerable proportions of patents that are not used (including “blocking” patents,
         i.e. strategically important patents used to block competitors), and this proportion is higher
         in the United Kingdom than is the case across the studied countries. These results vary by
         technology, by ownership of the patent and by firm size. The survey found that in large
         firms, 50% of patents are used internally (Gambardella et al., 2007) but less than 10% are
         traded, and 40% are not exploited. By contrast, small firms use around 80% of their patents
         (of these, over 55% are used internally, and almost 25% are traded) and leave only about
         18% unused (Giuri et al., 2007). According to Bently et al. (2009), these results are partly a
         function of the fact that the marginal cost of patenting for a large firm is low: they can
         afford to patent more often and hence are more likely to have unused patents; while SMEs
         may patent more viable IP.
             The UKNOW survey has allowed us to collect information on firms’ engagement in
         specific governance forms for the exchange of IP (buying, selling, licensing, cross-licensing,



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         pooling and so on), thus providing insight on the way in which IP (not just patents) is
         actually used by firms.
              Studies have also investigated whether use of IPRs (again, patents and trademarks) is
         linked to various measures of SMEs growth and performance.

         IPRs and start-up growth and survival
              Rogers, Greenhalgh and Helmers (2007) find that recently founded, IP-active SMEs
         (that is, firms that had either patented or registered trademarks) are slightly more likely to
         have become large firms, and slightly less likely to have ceased operations than other
         SMEs. A more detailed analysis shows that it is only United Kingdom trademarking that
         significantly negatively affected probability of exit. Having a United Kingdom trademark
         also makes a SME more likely to have higher growth. Similarly, Jensen, Webster and
         Buddelmeyer (2008) find that both the existing stock of trademarks and trademark
         registrations are associated with longer survival of start-ups. In another study,
         Buddelmeyer, Jensen and Webster (2008) find that while the stock of existing patents is
         associated with longer survival, new patent applications are associated with lower
         survival.
              When investigating the relationship between start-up firms’ growth in the period
         2001-05 and the existence of patents filed before 2001, Helmers (2009) does not find any
         relationship between patenting and high growth rates. Interestingly, he finds some
         evidence of the importance of localised knowledge spillovers for start-up growth: firms
         located close to fast-growing firms experience higher growth rates.

         IPRs and new firm creation
              The PatVal-EU study explored new firm creation from patents. Across the 8 countries
         considered in Gambardella et al. (2007), the share of new patents giving rise to new firms is
         highest in the United Kingdom, where 10.4% of patents generated new technology-based
         firms (versus only 1.2% in France, 3.3% in Germany, and 4.8% on average) The researchers
         concluded that “the creation of new firms requires suitable institutions that are present in
         certain countries, and less so in others”. Helmers (2009) found that the entry of new firms
         into a market affects the patenting behaviour of incumbents: when start-up firms
         emerging from business incubators are formed, incumbents that perceive these start-ups
         as competitors (because they are geographically, technologically or competitively close)
         begin to patent more. This increased patenting activity however is not necessarily directly
         related to innovation, and it may be that without entry the incumbents would not have
         patented, i.e. they patent purely for competitive reasons.

         IPRs and stock market value
              Greenhalgh, Helmers and Rogers (2007) find that stock market values are positively
         associated with R&D and trademark activity by firms: that is, firms which used trademarks
         experienced higher increases in stock market value. The positive effect on market value
         did, however, decline over the period 1996-2000. Firms that registered trademarks had
         significantly higher productivity than firms that did not. The authors’ interpretation is that
         both intense trademarking activity and productivity increases were caused by some
         unobservable firm characteristics, including primarily innovativeness.




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             One of the experts that were interviewed pointed out that, among the various IPRs,
         trademarks are particularly interesting for firms in the service industry, such as banking,
         where most innovations are ICT-based, and could therefore also be important in the ICT
         sector. As mentioned above, the empirical literature has found that trademarks are not
         only associated with higher firm growth and survival, but also with higher productivity and
         rate of innovation. Nonetheless, trademarks are still under-researched, and in particular
         we still do not know much about firms’ incentives to register them.
             The empirical literature’s dominant focus on patents and a few other IPRs limits our
         understanding of firms’ actual competitive strategies around IP, especially in a sector like
         ICT where use of patents is generally limited. Extending the analysis to a wider range of IP
         protection mechanisms, including copyright and “non-proprietary” IP mechanisms such as
         open source and non-patented technology is an innovative contribution of the empirical
         analysis presented in this report.

         SME issues and challenges: Evidence on obstacles to using the intellectual property
         system
              Empirical studies have shown that the patent system is characterised by numerous
         problems. Some studies have investigated the reasons why large numbers of firms do not
         use IPRs. For example, Cohen et al. (2000) surveyed 1 478 managers of US R&D units and
         asked them to indicate which of 5 options was the most important reason for not having
         applied for a patent. The main reasons had to do with difficulty to demonstrate the novelty
         of the invention, the previous disclosure of the invention (which invalidates the patent)
         and especially the ease of inventing around the patent, which makes the patent irrelevant.
         Cost of enforcement was not rated as an important issue, but firm size influenced the
         answer: managers in small firms were more likely to cite enforcement costs as being
         important.
              Once patents have been issued, there may be problems with licensing them. According
         to a US survey carried out in 2005 (Cockburn, 2007), in which respondents were asked to
         compare licensing transactions to similar size deals for acquisition or access to tangible
         assets, IP transactions are overwhelmingly considered as more costly, more complex, and
         more difficult to bring to closure. In about 1/3 of cases, the firm was unable to identify even
         a single potential licensor or licensee to approach. Where firms were able to identify a
         potential licensor/licensee, negotiations over a licensing deal were entered into in only
         about 1/3 of cases, and of these negotiations about 50% failed to reach an executed
         agreement. Provided that not all of these inventions are valueless, this suggests some
         major inefficiencies in the operation of markets for patents.
              Enforcing patent rights is also another issue which has been investigated. Patent
         infringements are very common. An EU-wide study of SMEs in four sectors (not including
         ICT) by Rodwell et al. (2007), found that:
         ●   83% of firms considered that IPR abuse was of significant concern, and 75% had been
             affected;
         ●   among the effects felt were lost sales (just over 20% of SME respondents reported a loss
             of sales greater than 10%, while 7.7% reported losses of more than 25%); loss of
             employment (20% reported loss of jobs of 5% or more); damage to reputation or image,
             and reduced investment in R&D (25 reported an adverse effect);




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         ●   the most common type of IPR said to be infringed was designs (44.1%), followed by “look
             alike products/parasitic copies” (37.1%) and trade marks (28.7%).
             Another EU-wide study which included a much greater number of respondents
         (Kingston, 2000) found that 67% of SMEs had experienced some copying of their inventions:
         34% of them by a firm of around the same size and 26% by a larger firm. For some firms (9%)
         the copying was unimportant, for others (37%) bearable and for 21% it was considered “very
         serious”. This problem was also highlighted as being particularly important for United
         Kingdom SMEs by one of the experts that we interviewed, according to whom large firms’
         infringement of SMEs patents occurs frequently, and the problem for SMEs is that often
         they do not have the resources needed in order to take the infringers to court. This acts as
         a deterrent for SMEs to patent, since patents signal to competitors that the firm has
         produced some valuable IP, which they may not have the resources to defend in court.
         Another expert agreed that keeping IP secret may be a better strategy for SMEs in order to
         avoid the problem of litigation, whose costs can bring some firms to the brink of ruin.
             In recent decades, some innovations have been introduced in the United Kingdom
         patent court system whose objective was to streamline patent litigation procedures.
              First, in 1989 a Patents County Court (PCC) was set up in London with concurrent
         jurisdiction to the traditional Patents Court.6 The objective was to make patent litigation
         more accessible to SMEs, and no limit was placed on the size of claims that could be
         brought before the PCC. The PCC has recently introduced some new procedures aimed at
         further simplifying and reducing the cost of the patent litigation process.7
             Second, the Patents Court has adopted a “streamlined procedure”, in 2003, which skips
         several steps of the standard procedure, and is aimed at solving disputes through a one-
         day trial, approximately eight months after the commencement of proceedings. An early
         assessment of the introduction of this procedure (Moore, 2006) suggested that it proves a
         useful way to deal with simple patent cases and to increase access to litigation.
              Third, a further reform of interest is patent opinion service offered by the United
         Kingdom Patent Office, which was introduced in October 2005. Under this provision, the
         proprietor of a patent or any other person may request the comptroller to issue an opinion
         as to whether a particular act constitutes, or (if done) would constitute, an infringement of
         the patent, and as to whether the patent does not represent patentable subject matter,
         either because it does not constitute an invention for which a patent may be granted or
         because it fails to satisfy the criteria of patentability: principally novelty, inventive step and
         industrial applicability. The opinions are not binding for any purposes, but can be reviewed
         by the court if they are “clearly wrong”.
              Despite these improvements (which, according to one of the experts that we
         interviewed, have made the United Kingdom system “one of the most user-friendly in the
         world”) patent litigation in the United Kingdom remains more expensive, by a significant
         degree, than patent litigation in other European countries (Bently et al., 2009). The data
         however is relatively scant, relates only to patents and is based mostly on estimates from
         a small number of practitioners: no systematic work has been done to ascertain whether
         costs have changed over recent times with the introduction of the reforms mentioned
         above (Bently et al., 2009).
             Evidence points to the fact that SMEs find it more difficult than large firms to confront
         the costs of the patent system, particularly of litigation. In a large firm, the legal
         department can handle such issues while the main business of the firm continues, but in


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         a small firm, a legal dispute makes demands on the time and energy of the individuals
         upon whom the firm depends, distracting them from business, and from innovation.
         Kingston (2004) found that for more than a third of SMEs fear of the cost of litigation to
         defend patents affected their innovation behaviour. Moreover, failure to stop infringement
         promptly may destroy an SME’s entire business (IPAC, 2003). This problem also emerged
         from our company case studies. The two SMEs that were involved in patenting stated that
         not only patent litigation but also the simple filing of patents is costly for SMEs, mainly
         because it distracts company resources from the day-to-day running of the business. To
         submit a patent requires a lot of paperwork, and often requires hiring an expensive patent
         lawyer. New companies that have not filed before may need even more time in order to
         understand how the patent filing process works, which carries a high opportunity cost. As
         one of our experts pointed out, once the patent is granted the firms must also continuously
         monitor the market in order to discover infringements, and this monitoring activity is also
         costly. Interestingly, according to Rodwell et al. (2007), most SMEs discover infringements
         thanks to information received from their clients, and sometimes from their employees. A
         study by DG Research has shown that obtaining and renewing a patent in Europe is three
         times more expensive than in Japan and four times more expensive than in the United
         States (EC, 2003).
             The empirical analysis presented in the next section investigates some of the
         problems that SMEs face when using and exchanging IP. Differently from the literature
         reviewed here, the focus is not just on patents but on a variety of IP protection
         mechanisms, both proprietary and non-proprietary.

Empirical evidence
         Features of respondent firms
              The number of firms surveyed for this research was 39. The median respondent (at
         50 percentile) is a firm with 75 employees and latest turnover of GBP 8 979 116, localised in
         England and active in the field of software publishing. One of the key objectives of this
         analysis is to identify differences in use and exploitation of different forms of IP protection
         on the part of firms of different sizes. To classify firms by size, we have adopted the
         definition proposed by sections 382 and 465 of the United Kingdom Companies Act 2006,
         which define a SME for the purpose of accounting requirements. According to this
         definition, a small company is one that has a turnover of not more than GBP 6.5 million, a
         balance sheet total of not more than GBP 3.26 million and not more than 50 employees. A
         medium-sized company has a turnover of not more than GBP 25.9 million, a balance sheet
         total of not more than GBP 12.9 million and not more than 250 employees. In particular, we
         have classified firms primarily on the number of employees, as follows:
         ●   Micro enterprises: no more than 10 employees.
         ●   Small enterprises: between 11 and 50 employees.
         ●   Medium enterprises: between 51 and 250 employees.
         ●   Large enterprises: more than 250 employees.
             Available data on turnover indicate that classifying firms on the basis of turnover
         brackets would produce the same result, with one exception (one company would be
         medium in terms of turnover, large in terms of employees; we have classified it as
         medium-sized). On the basis of this definition, our set of respondents includes 32 SMEs
         (9 micro firms, 6 small firms and 17 medium-sized firms) and 7 large firms.


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              Interviewed firms, as can be seen from the following Table, are under-represented in
         the small size category (10-49 employees). In terms of turnover, firms are over-represented
         in the “less than 1 million pounds” category and under-represented in the “between 1 and
         10 million pounds” turnover category. Medium and large -sized firms are instead in line
         with sample distribution, both in terms of employees and of turnover.


                          Table 5.5. Size distribution of population and interviewed firms
          Category                    Size                                Population                Interviewed

                                                                             960                        39                       t-test (p values)
          No. firms                   N/A
                                                                        % of population        % of interviewed firms

          No. employees               Less than 10                           17.4                      23.1                          0.425
                                      Between 10 and 49                      30.8                      12.8                          0.037**
                                      Between 50 and 250                     37.5                      41.0                          0.606
                                      More than 250                          14.1                      20.5                          0.229
          Latest turnover (GBP)       Less than 1 million                    15.3                      25.6                          0.008***
                                      Between 1 and 10 million               40.0                      23.1                          0.043**
                                      between 10 and 50 million              25.8                      28.2                          0.671
                                      More than 50 million                   12.7                      15.4                          0.666

         Note: Significance codes: * < 0.1, **< 0.05, ***< 0.01.



         Using different forms of intellectual property to create value
             Of the 39 respondents, 10 (25.6%) do not exchange any of the forms of IP considered,
         and a further 12 (30.8%) only exchange non-proprietary IP (open source and non-patented
         innovations). This leaves 17 firms (43.6%) that exchange some form of proprietary IP (either
         copyright or patents or both) and in particular 14 of these (35.9%) exchange patents. That
         the majority of firms surveyed do not exchange proprietary IP is in line with the findings
         from the literature and with the expert opinions reported in the previous section.
             Table 5.6 below reports the shares of firms, divided according to the four size
         categories considered which engage in the exchange of each type of IP. Micro and small
         firms particularly exchange non-patented innovations (the latter also are very active in
         open source communities), while large firms exchange both patents and non-patented
         innovations to a similar extent. Greater shares of medium and large firms exchange
         patents. Larger firms, probably thanks to their greater availability of resources, trade
         patents, open source, non-patented innovations with greater intensity. Instead, similar
         shares of firms of all sizes exchange copyright, suggesting that size is not a barrier to the
         use of this form of IPR.


                      Table 5.6. Firms’ exchange of different types of intellectual property
                                                                  Total                Micro         Small              Medium               Large

          Number of firms in each size category:                   39                     9            6                  17                   7
                                                                   %                    %             %                   %                    %
          Patents                                                 35.9                 20.0          20.0                35.3                71.4
          Copyright                                               23.1                 30.0          20.0                17.6                28.6
          Non-patented IP                                         48.7                 60.0          60.0                29.4                71.4
          Ppen source                                             35.9                 30.0          60.0                29.4                42.9
          None                                                    25.6                 10.0          40.0                35.3                14.3

         Note: Results are “shaded” when 40% of firms in a category, or more, exchange a certain IP.



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             Experts from the IPO suggested that for most firms, including ICT firms, the most used
         form of IPR is copyright (most firms in fact come across copyright by using licensed
         software), followed by trademarks (mostly on company names) and then patents. When
         also non-proprietary IP is considered, they stressed that secrecy/confidentiality
         agreements are very important, and they quoted recent unpublished data (held by Dep.
         Business Innovation and Skills) from the United Kingdom showing that the open source
         community is increasing in size and that it is appealing to both large and small firms.
         While no official data on the size of the United Kingdom open source community are
         available, evidence from UNU-MERIT (2006) suggests that Europe (particularly Northern
         European and Scandinavian countries) is the leading region in terms of active open source
         developers and leads in terms of global open source project leaders.
              Table 5.7 shows the extent to which firms of different sizes exchange different
         combinations of IP. Micro firms are more likely to exchange one or two types of IP, medium
         firms are more likely to exchange one, and large firms are more likely to exchange two or
         three. However, micro and small firms are more likely to exchange only non-proprietary IP
         (whether open source, or non-patented innovations, or both) while large firms are more
         likely to exchange both proprietary and non-proprietary IP. These figures confirm that, for
         micro and small firms, non-proprietary forms of IP are more appealing than proprietary
         ones. According to the experts from IPO, involvement of SMEs in open source depends on
         where they are in the production chain (developers are more likely to be involved than
         producers that are “near market”) but in general open source is growing in importance for
         most firms.


                 Table 5.7. Combinations of intellectual property protection mechanisms
                                                                Total   Micro         Small        Medium           Large

          Number of firms in each size category that exchange
          at least one type of IP                                 29       9             3             11              6
                                                                   %       %             %             %               %
          One type                                              37.9     44.4          33.3          54.5             0.0
          Two types                                             41.4     44.4          33.3          27.3            66.7
          Three types                                           13.8     11.1           0.0           9.1            33.3
          Four types                                              6.9     0.0          33.3           9.1             0.0
          Only proprietary                                      20.7     22.2           0.0          27.3            16.7
          Only non-proprietary                                  41.4     55.6          66.7          36.4            16.7
          Both                                                  37.9     22.2          33.3          36.4            66.7

         Note: Results are “shaded” when 40% of firms in a category, or more, engage in a certain IP combination.



              The data also allow us to perform a more detailed analysis of the specific governance
         forms for the exchange of each type of IP. The next Table 5.8 reports the share of firms,
         active in each type of IP, that engage in each IP governance form (total and according to
         size), as well as the average number of transactions in the previous two years.
              Of the firms that exchange patents, a large proportion is engaged in buying, in-
         licensing, out-licensing and cross-licensing them (although the average number of
         transactions in the last two years is not very high). Selling and buying copyright are the
         most frequently copyright governance forms used; these probably mainly relate to the
         exchange of copyrighted software. It is mainly large and, to a lesser extent, medium-sized




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         firms that engage in most patent governance forms, and the same pattern is also evident,
         to a lesser extent, for copyright.
              Of the firms that exchange non-patented innovations, they mostly use them or release
         them to private firms. The average number of transactions in this case is much higher than
         in the case of patents. Most firms in the ICT sector that engage in open source do so in the
         field of software, although some also engage in other open source communities. The
         average number of open source transactions is particularly high. There is no relevant
         difference in the extent to which firms of different size use non-proprietary IP governance
         forms (although it seems that micro firms use some non-patented innovations governance
         forms somewhat more intensively). These figures support our finding that small size may
         be a barrier to the use of patents for firms in the ICT sector, while for the use of non-
         proprietary IP there is no such size barrier. This may be partly due to the fact that patenting
         is very costly for SMEs, while the cost of using non-proprietary IP is lower.


                        Table 5.8. Engagement in intellectual property governance forms
                                             Total and by size, and average number of transactions

                                                                     Average      Total   Micro        Small     Medium      Large
                                                                  transactions
          Type of IP                  IP governance form
                                                                   in previous     %       %             %          %          %
                                                                    two years

          Patents           ● Selling                                 0.0         35.7     0.0          20.0       40.0       40.0
                            ● Buying                                  0.6         57.1    25.0          12.5       25.0       37.5
                            ● Out-licensing                           2.5         64.3    11.1          11.1       33.3       44.4
                            ● In-licensing                            2.1         78.6     9.1           9.1       54.5       27.3
                            ● Cross-licensing                         1.2         50.0     0.0          14.3       28.6       57.1
                            ● Patent    pooling                       n.a.        21.4     0.0          33.3        0.0       66.7
                            ● Buying    university patents            0.0         14.3    50.0           0.0        0.0       50.0
                            ● Licensing    university patents         1.0         28.6    25.0           0.0       25.0       50.0
          Copyright         ● Selling                                 n.a.        44.4    25.0           0.0        0.0       25.0
                            ● Buying                                  n.a.        55.6    40.0           0.0       20.0       20.0
                            ● Out-licensing                           n.a.        33.3     0.0           0.0       33.3       66.7
                            ● In-licensing                            n.a.        22.2     0.0           0.0        0.0      100.0
                            ● Buying    university copyright          n.a.        11.1     0.0           0.0        0.0        0.0
                            ● Licensing    university copyright       n.a.        11.1     0.0           0.0        0.0        0.0
          Non-patented IP   ● Releasing    to the public            135.0         36.8    42.9           0.0       42.9       14.3
                            ● Releasing    to private firms          60.5         57.9    27.3          18.2       27.3       27.3
                            ● Using                                  50.4         68.4    46.2           0.0       15.4       38.5
                            ● Collaborating   with universities       1.8         31.6    33.3           0.0       33.3       33.3
          Open source       ● Software                               93.1        100.0    21.4          21.4       35.7       21.4
                            ● Pharmaceutical                          n.a.         0.0     0.0           0.0        0.0        0.0
                            ● Other   communities                    38.8         42.9    33.3          16.7       33.3       16.7

         Note: Results are “shaded” when 40% of firms in a category, or more, engage in a certain IP governance form.



         Firms’ strategic objectives when using different forms of intellectual property rights
              Table 5.9 provides a general overview of the strategic objectives that underpin the
         firms’ choice to exchange the different types of IP. The strategic benefits that firm may seek
         when exchanging different forms of IP have been grouped into four main categories
         (financial gain, competitive advantage, innovation, strategic relationships). All categories
         of benefits are important to firms that exchange each form of IP, however with different
         intensity. Firms that exchange patents particularly seek benefits relating to financial gain



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         (especially when selling, out-licensing and cross-licensing patents) and to innovation
         (especially when buying, in-licensing and cross-licensing patents). A similar pattern
         emerges with respect to copyright: the most important benefits sought are financial gain
         (particularly when selling and out-licensing copyright) and innovation (particularly when
         selling, buying and in-licensing). Also, competitive advantage benefits (such as market
         share, reputation, signalling) are sought when buying patents and when out-licensing
         copyright, and cross-licensing patents allow firms to build strategic relationships.
              Firms that exchange non-patented innovations particularly seek benefits relating to
         their innovation processes and to building strategic relationships (through all or most
         governance forms). Also competitive advantage benefits are important when releasing
         non-patented innovations to private firms and to the public. Financial gain is sought when
         releasing non-patented innovations and when collaborating with universities. Finally,
         firms that engage in open source seek all or most categories of benefits.
               One pattern that emerges from this table is that while patents and copyright
         particularly confer benefits relating to financial gain and innovation, non-patented
         technology and open source particularly confer benefits relating to innovation and the
         building of strategic relationships. Competitive advantage benefits are relevant to all forms
         of IP.


                Table 5.9. Strategic benefits derived from engagement in different forms
                                       of intellectual property rights
                                     Total            Financial gain   Competitive advantage   Innovation   Strategic relationships

                                Number of firms
                                  (of any size)
                                                           %                    %                  %                  %
                            that exchange each type
                                      of IP

          Patents                     14                  64.3                 42.9              78.6                42.9
          Copyright                    9                  55.6                 44.4              44.4                22.2
          Non-patented IP             19                  42.1                 47.4              73.7                52.6
          Open source                 14                  50.0                 57.1              92.9                64.3

         Note: Results are “shaded” when 50% of firms within an IP category, or more, seek a certain strategic benefit.



              The company interviews suggested several reasons why SMEs in the ICT sector engage
         in patenting. Company 1 stated that they patented their invention in order to increase the
         firms’ value, to raise venture capital, and, as the technology was completely new, to show
         to other companies that they “owned” that technological area; that is, motivations were
         primarily financial and related to competitive signalling, rather than the actual protection
         from imitation conferred by the patent. In fact, the firm was aware that other companies
         would easily invent around their patent, and that their technology would soon become
         obsolete. Company 3 also suggested that the primary motive for patenting was to increase
         the firm’s value (a financial motivation) as the owners intended to sell the company. The
         firm was aware that their technology had a short life span and they did not want to build
         the business over the long term. On the other hand, the company that eventually acquired
         them was, according to the CTO that we interviewed, more interested in acquiring the
         company’s tacit knowledge and expertise, rather than its patents per se. For both of these
         SMEs, patents are valued in terms of being a signal of the firm’s value and competencies,
         which in turn bring financial rewards, rather than in terms of the actual protection that


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         they offer from imitation. This is in line with an emerging strand of empirical research
         which, building on Mazzoleni and Nelson (1998), suggests that firms – especially SMEs – use
         patents to signal their growth prospects to potential investors (see discussion in Hughes
         and Mina, 2010), and that patenting activity improves firms’ ability to attract more venture
         capital investors (Nadeau, 2010). This is also consistent with the views of experts from IPO,
         who suggested that SMEs mostly use patents as a lever to access finance rather than for
         protection of their IP, especially because of the short life span of many new technologies
         (sometimes no more than 3/5 years) when compared with the time it takes to obtain a
         patent (almost 7 years in the case of a EU patent).
              Company 4, which licenses a patented technology, claimed that their reasons for using
         proprietary rather than open source technology had to do with the need to have a reliable,
         secure and supported system, one that differentiated them from competitors, and to signal
         to the customers that they were using a branded technology. Also, at the time when they
         decided to license the technology (7 years ago), open source was not very well supported.
         So motivations were primarily relating to innovation and market positioning benefits.
         While the company licenses the technology it uses in its operations, it has chosen not to
         protect any of its products with IPRs. It sees patenting as irrelevant to its business model,
         not only because of the fast-moving nature of the industry, which is based on continuous
         innovation (around the delivery of web-based services), but also because much of the value
         of their product resides in the quality of the service and user experience that they deliver,
         which are not patentable and quite difficult to imitate.
              Company 2 (which was in the business of developing software for interactive TV), had
         attempted to patent its technology but failed to do so; however, it recognised that the lack
         of a patent did not constitute a problem as the business model was around content and
         branding, not technology as a product. The marketing of non-patented innovations was
         motivated by innovation, positioning, reputation, being “seen to be innovative” by
         competitors. This confirms the important of benefits such as innovation, strategic
         relationships and competitive advantage when exchanging non-patented innovations.
              The variety of objectives for which firms patent their innovations suggests that greater
         diversification within the patent system may be beneficial to firms. For example, firms
         patenting purely for signalling purposes may benefit from the use of shorter-term, less
         encompassing patents which could be cheaper and quicker to obtain, and which could be
         used chiefly for the purpose to signal one’s technological competences; or firms wishing to
         make incremental changes to their existing protected intellectual property, may benefit
         from the possibility to access fast-track, simplified procedures for the granting of patents.
         One of the companies interviewed pointed out that the inflexibility of the IPR system,
         which does not take into account the fact that a firm’s IP evolves rapidly, is a problem also
         in the context of trademarks. Firms cannot protect the evolution of their trademark, so
         every time they make a change, which can happen quite often, they have to apply for a new
         one. At least, the time needed to issue a trademark is not as long as that required for a
         patent (usually between three and six months), but simplified procedures for the purpose
         of making incremental changes to one’s trademark may also enhance SMEs’ intellectual
         property protection strategies.
              We then move to considering whether there are differences between firms of different
         size in terms of the strategic benefits that they seek from the exchange of several types of
         IP. The next Table 5.10 shows the share of SMEs that choose each one of 13 possible benefits



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         for each form of IP. Differently from the overall set of respondents, SMEs seek financial gain
         from all types of IP. Patents and non-patented innovations mainly bring direct income,
         while non-proprietary IP in general allows SMEs to cut costs. Unlike the companies
         interviewed in the case studies, only 22.2% of respondents that use patents do so in order
         to raise venture capital (a greater share of SMEs do so thanks to non-patented innovations).
         Competitive advantage is also sought from all forms of IP, this time in line with the overall
         set of respondents. Benefits relating to innovation are also important, particularly when
         engaging in patents (as patents allow to develop better technology and to involve users or
         suppliers in the development process) and in non-proprietary IP (which allows SMEs to use
         the best innovations and, in the case of open source, to involve users or suppliers in the
         development process).


                         Table 5.10. Strategic benefits from the exchange of different forms
                                      of intellectual property rights (SMEs only)
                                                                                                                          Non-patented
                                                                                                     Patent   Copyright                Open source
                                                                                                                               IP

          Number of SMEs that exchange each type of IP                                                   9         7           14           11
                                                                                                        %         %             %            %
          FINANCIAL GAIN (specific benefits listed in bullets below):                                 55.6      42.9          57.1         63.6
          ● Direct   income from market transaction                                                   66.7      14.3          42.9          0.0
          ● Cost   cutting (e.g. via savings on royalties or patent administration)                   11.1      14.3          50.0         54.5
          ● Increasing   ability to raise venture capital (e.g. via the stock market)                 22.2      28.6          42.9         27.3
          COMPETITIVE ADVANTAGE (specific benefits listed in bullets below):                          66.7      42.9          50.0         54.5
          ● Increasing   market share (e.g. building broader user base or securing market
           protection)                                                                                 0.0       0.0          14.3         45.5
          ● Professional   recognition or brand recognition                                           22.2      28.6          21.4         27.3
          ● Competitive    signaling                                                                  22.2      14.3          14.3         18.2
          INNOVATION (specific benefits listed in bullets below):                                     77.8      42.9          71.4         90.9
          ● Being    able to use the best inventions, innovations, creative expressions               22.2      14.3          42.9         63.6
                  common standards / making or using compatible technology or creative
          ● Setting
           expressions                                                                                22.2      28.6          14.3          0.0
          ● Innovation    methodology: developing better technology or creative expressions           44.4      14.3          28.6         36.4
          ● Benefitingfrom user or supplier involvement as a development strategy
           (e.g. through learning and feedback)                                                       66.7      28.6          35.7         45.5
          STRATEGIC RELATIONSHIPS (specific benefits listed in bullets below):                        44.4      28.6          50.0         63.6
          ● Building   informal relationships with industry networks                                  11.1       0.0          64.3         72.7
          ● Increasing ability to enter collaborative agreements (e.g.   joint ventures, strategic
           alliances, etc.)                                                                           44.4      28.6          42.9         54.5
          ● Giving   something to the community                                                        0.0       0.0          14.3         45.5

         Note: Results are “shaded” when 40% of firms within an IP category, or more, seek a certain strategic benefit.



              SMEs find that strategic relationships benefits are particularly important when
         engaging in non-proprietary IP, thanks to the possibility to build informal relationship with
         industry networks and to enter collaborative agreements. In the case of open source,
         extrinsic motivations (“giving something to the community”) are also considered relevant.
              Differently from SMEs, large firms mainly seek financial rewards only from patents
         and copyright. Similarly to SMEs, competitive advantage and innovation benefits are
         sought from all types of IP, and strategic relationships benefits are mainly sought from
         non-proprietary IP. It emerges that small and large firms seek similar benefits from the
         various forms of IP, with the difference that small firms seek to benefit financially from
         non-proprietary IP more than large ones.


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         Obstacles that firms in the ICT sector encounter when using different intellectual
         property protection mechanisms
             The following Table 5.11 reports, for each form of IP, the shares of SMEs that encounter
         each type of obstacle.


                         Table 5.11. Obstacles encountered when exchanging different forms
                                       of intellectual property rights (SMEs only)
                                                                                                                            Non-patented
                                                                                                    Patent      Copyright                Open source
                                                                                                                                 IP

          Number of SMEs that exchange each type of IP                                                  9            9           14           11
                                                                                                       %            %             %            %
          SEARCH (specific obstacles listed in bullets below):                                       44.4         22.2          28.6         54.5
          ● Difficulty   in locating the owners of IP                                                22.2         22.2           7.1          9.1
          ● Difficulty   in locating the users of IP                                                 22.2          0.0          14.3         18.2
          ● Difficulty   in finding the best IP                                                      22.2          0.0          14.3         36.4
          TRANSPARENCY (specific obstacles listed in bullets below):                                 66.7         33.3          35.7         36.4
          ● Difficulty   in assessing the degree of novelty/originality of the IP                    44.4          0.0          28.6         27.3
          ● The   description or drawing in the IP document is not clear                             33.3         33.3          14.3         18.2
          ● Difficulty   in assessing the economic value of IP                                       55.6         22.2          14.3          0.0
          NEGOTIATION (specific obstacles listed in bullets below):                                  66.7         22.2          21.4         18.2
          ● Difficulty   in negotiating a price for the IP                                           55.6         11.1          14.3         27.3
          ● Difficulty   in negotiating the terms (not related to price) of the exchange contract    22.2         11.1          14.3         18.2
          ENFORCEMENT (specific obstacles listed in bullets below):                                  22.2         11.1          28.6         72.7
          ● Excessive    cost of enforcing the exchange contract                                     33.3          0.0           7.1         18.2
          ● Problems     (not related to cost) with enforcing the exchange contract                   0.0          0.0           7.1         36.4
          ● Trust   issues (e.g. opportunistic behaviour, free-riding, or similar)                    0.0          0.0          21.4         45.5
          REGULATION AND PRACTICES (specific obstacles listed in bullets below):                     11.1         33.3          21.4         27.3
          ● Regulations     allow too exclusive rights                                               11.1          0.0          14.3          9.1
          ● International   IP regulations do not fit the needs of different local markets            0.0         22.2           0.0         18.2
          ● Differences    in practices of firms                                                      0.0         11.1          14.3         18.2

         Note: Results are “shaded” when 20% of firms within an IP category, or more, experience a certain obstacle.



               SMEs find that, in the case of patents, search obstacles are very important, and so are
         transparency problems (difficulty in locating the owners of patents and difficulty in
         assessing the economic value of patents) and negotiation problems (difficulty in
         negotiating a price for the patent). Interestingly, not many of them stress enforcement
         problems, which instead have emerged from the company interviews. The SMEs that we
         interviewed all reported that the cost of using the patent system is very high, especially as
         it is very time and resource-consuming. In accordance with the UKNOW survey result,
         Company 4 suggested that search obstacles are also important (it is difficult to find good
         applications that are robust, reliable and scalable, as well as finding good partner
         companies and employees with the necessary expertise to develop them). Another
         obstacle of licensing proprietary technology is that this builds a dependence on their
         partner company, so the company is trying to move to open source at least for certain
         aspects of their technology.
             For copyright, a third of SMEs report problems with the clarity of the copyrighted work.
         That transparency is a key problem in the case of copyright was confirmed by our
         interviews with companies. Company 4 suggested that their main difficulty is to
         understand whether the artistic works they use are copyrighted or not. On the other hand,
         copyright infringement is difficult to detect, and when detected the cost of reimbursing the



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         copyright owner are not very high, so enforcement issues are not considered particularly
         important. Creative commons licenses have simplified their work, as they make it easy to
         understand if certain works can be used for commercial purposes or not.
               With respect to open source, the surveyed SMEs report problems with transparency
         (difficulty in finding the best open source projects) and enforcement, mainly having to do
         with trust issues (i.e. the possibility for companies to free ride on other people’s open
         source contributions and use them to develop their own proprietary IP). This problem was
         also remarked upon by one of the SMEs that we interviewed. Company 4 suggested that the
         non-proprietary model works well as long as everyone agrees with the same approach; but
         if a company starts patenting, then they could claim that other companies are infringing
         their rights. For example, this company is building a part of their business where they put
         everything in the public domain, and they also invite developers in their offices for “Hack
         weekends” where they can build applications around their technology. But if one of these
         developers wants to create a proprietary product around this and commercialise it, this
         may create problems.
             In the case of patents, large firms report problems of transparency (difficulty in
         assessing the economic value of patents) and negotiation problems (difficulty in
         negotiating the price and the other terms of the contract). Differently from SMEs, 40% of
         large firms also report enforcement problems. This is in line with findings from the
         empirical literature (e.g. Cockburn, 2007). In the case of open source, also large firms report
         enforcement problems linked to lack of trust.
              Generally, both large firms and SMEs report relatively more obstacles relatively to
         patents and copyright than to non-proprietary IP. This is consistent with anecdotal
         evidence from the experts, who reported that, while SMEs find IPRs to be problematic, they
         find open source works well.
              In the next Table 5.12, we present the average turnover per employee (a proxy of firm
         performance) of firms of different sizes that use each form of IP. Generally, turnover per
         employee is higher for larger firms. Across most size categories, firms that exchange
         patents are not necessarily better performing than firms that exchange copyright, non-
         patented innovations and open source. The only case in which this happens is that of
         medium-sized firms, which are on average better performing when they exchange patents
         than when they engage in other types of IP. There are no cases of small firms engaging in
         patents and copyright, and the performance of those that engage in open source is similar
         to that of those that exchange non-patented innovations. In the case of micro firms,
         highest average performance is associated with the use of copyright, followed by non-
         patented innovations. Of course these data do not establish a causal link between size, use
         of IP and performance. It may be that firms that are better performing are able to use a
         wider variety of IP and hence perform better overall. What is interesting from these data is
         that, especially in the case of micro and small firms, better performing firms do not
         necessarily rely on patents.

         The role of the regulatory and business environment
             Finally, we investigate the fourth research question: how does the regulatory and
         business environment affect the SMEs’ ability to create value from their IP?
              The interviews with experts and SMEs have highlighted that one of the key problems
         that SMEs face when using the patent system is high costs, in terms of the complexity of


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                            Table 5.12. Use of intellectual property and firm performance
                                 (average turnover per employee, in thousand GBP)
                                    Total         Micro        Small         Medium              Large

          All IP markets            110 35        48 03         85 61         123 25            138 44
          Patents                   109 34        45 26            –          123 11            140 32
          Copyright                 112 19       108 72            –          116 70            166 74
          Non-patented IP            99 56        59 72         84 12         119 62            141 46
          Open source                92 20         9 31         80 91         108 97            158 45



         the patenting process and of the time it takes to complete it. There is also a lot of confusion
         about what can and cannot be patented, about the international situation, and about the
         real costs of using the system (that is, businesses, particularly SMEs, are not fully aware of
         these costs when applying for a patent, and therefore are not able to make an informed
         decision when choosing whether to patent their IP or not).8
               According to data quoted by the IPO experts, very few firms have the internal
         competences to be able to manage their IP (less than 30%), and even less have an explicit IP
         policy (less than 12%). From the perspective of the SMEs that we interviewed, the process
         of filing a patent is very arcane and bureaucratic, and more so in the case of European
         patent applications; for example, they found it difficult to find which categories to ask for
         protection for, as the business evolves over time, so they ended up choosing a lot of them
         in order to be covered; and they were surprised that they could not complete most of the
         process online. Moreover, of the SMEs that we interviewed, the two that patented
         successfully were both challenged by large firms that presented oppositions to their
         patents. None of these however ended in a court case, as the large companies did not
         follow up on their oppositions: it seems that they were just opposing the patent as a threat.
         Large firms’ use of litigation threats in order to intimidate SMEs has also been described in
         the literature as “endemic to SME usage of the patent system” (Kingston, 2000).
               There are also problems with enforcement, particularly as SMEs do not have the
         resources to take large firms that infringe their patents to court. According to some authors
         (Kingston, 2000) “this cost is regularly used by larger firms with more resources for
         litigation to intimidate SMEs, and so infringe their patents with impunity”. In fact, very
         rarely small firms very rarely challenge large ones in court: famous cases such as that of
         Dyson (quoted by one of the experts), which successfully challenged Hoover, are the
         exception rather than the norm.
              Given these issues, it is very important that SMEs can have access to external support
         that helps them use the IPR system.
             The Intellectual Property Office (IPO) offers several steps of assistance to SMEs. First
         the website, where there is a “IP healthcheck” – a diagnostic tool that produces a report that
         gives an overview of the firm’s IP status. Second, there is a helpdesk unit that takes
         100 000 calls per year. It helps with filing and the mechanics of the IP system. Most calls are
         from individuals, SMEs and attorneys, and most enquiries are about trademarks.
              The IPO also runs seminars on a regional basis (organised together with the local
         business support agencies), for about 100 people, on several topics mostly having to do
         with IP commercialization; as well as masterclasses, that is, 3-day courses accredited by
         the University of Coventry, which give firms a more detailed understanding of how to use
         the IP system (e.g. how to search patent and trademark databases, etc.). Workshops for



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         SMEs organised at a regional level have proved to be very successful in other contexts, for
         example in Denmark.
              Despite these efforts made to reach out to SMEs, there is still much room for
         improvement. According to one expert, what is most important for firms to be able to use
         the patent system successfully is the ability to consult a network of peers for advice. Firms
         can contact business and trade associations, like the IoD, the CBI, the Federation of Small
         Business. However, these are not the firms’ ports of call for SMEs: the professionals that
         SMEs consult more frequently are their accountants and their lawyers, because they have
         established relationships with them, although many lawyers may not be very competent in
         IP matters. This was confirmed by the IPO experts, who suggested that the quality of the
         advice that firms get from patent attorneys and lawyers is very variable. There may be a
         role for policy intervention in increasing SMEs’ awareness of the many avenues available to
         them in order to exploit their intellectual property. For example, training and awareness
         initiatives could be directed at professionals such as accountants and lawyers, with whom
         SMEs are often in contact; at SMEs involved in collaborations with universities, research
         institutes, incubators, science parks; at organisations providing support services to SMEs
         such as professional and business associations, business consultants, financial advisors.
              The effectiveness of the patent system can also be improved. The IPO admits that
         there is currently a backlog of patents to be processed, which may imply a longer delay
         between the date in which the patent application is made and the date in which the patent
         is granted. With a view to speed up the patent granting process and to improve the quality
         of patent checks, the United Kingdom is among the several countries that have launched
         peer-to-patent pilot projects: initiatives based on the idea that “a public of expert peers can
         help the patent examiner find and analyse the ‘prior art’ allowing him or her ultimately to
         prosecute the patent more comprehensively and efficiently” (D’Agostino, 2010). To
         succeed, however, these initiatives need to overcome numerous challenges including:
         identifying incentives for volunteer experts to take part, overcoming companies’ resistance
         to participating, preventing companies from using the system strategically (i.e. making it
         difficult for competitors to patent). Experiments with peer-to-peer initiatives and the use
         of “social” technologies harnessing community efforts around patent checks and
         evaluations are likely to prove beneficial in order to find ways to address these challenges.
         As these experiments are still in their infancy, the role for policy at this stage could be to
         ensure that a sufficient variety of pilot projects are initiated and supported in order to
         obtain evidence about their usefulness and about what project characteristics are
         associated with successful performance, and to promote co-ordination and the sharing of
         information between these initiatives.
              Another challenge for the IPO is to identify a balanced price for the patent service,
         which is not too high to discourage firms while at the same time allowing the IPO to
         manage IP efficiently. Nonetheless, most other experts as well as the firms interviewed
         suggested that the main cost of using the patent system is not the administrative cost per
         se, but the cost in terms of time, effort and legal fees.
             Regulations could be improved in order to help SMEs overcome the cost of
         enforcement. According to one expert, some years ago the British government’s
         Department of Trade and Industry (DTI) considered implementing a scheme to offer
         insurance against future infringements to SMEs that take out a patent, so that they would
         be able to defend it: if the patent was infringed, the insurance would pay for the legal costs



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         of the court case. In the expert’s opinion, a scheme like this would help reduce the
         imbalance between SMEs and large firms, and in this way encourage SMEs to patent more.
         A feasibility study on the implementation of a patent litigation insurance scheme in
         Europe was carried out in 2006 by CJA Consultants. It was found that there would be
         widespread industry support for such a scheme, although the extent to which the private
         insurance sector would be willing to underwrite such insurance contract is uncertain. More
         research is needed into this type of instrument, and into the extent to which public
         intervention would be necessary in order to support its implementation.
              Another topic that was looked into was the extent to which IPRs support
         internationalisation. While micro and small firms tend to have a national outlook
         (although 50% of micro firms have an international market), medium and large firms are
         predominantly international. As shown in the following Table 5.13, firms that exchange
         patents and copyright tend to be over-represented in the “international market” group;
         that is, it seems that for these firms IPRs are not a barrier to internationalisation. Instead,
         firms that engage in open source are over-represented in the “national market” group. It
         may be that firms that have a national market have fewer resources and are therefore more
         likely to use open source as it is less costly; but this result may also depend on the nature
         of their products.


                          Table 5.13. Use of intellectual property and internationalisation
                                                                        Patent   Copyright   Non-patented IP Open source   None

          Number of firms (of any size) that exchange each type of IP      14          9            19             14        10
                                                                           %          %             %              %         %
          International                                                  92.9       77.8          63.2           42.9      60.0
          National                                                        7.1       22.2          36.8           57.1      40.0

         Note: Results are “shaded” when 50% of firms within a category, or more, participate in a certain IP market.



              The IPO is aware that different IPR practices and different regulations in different
         countries may be a problem for SMEs that want to export (for example, problems of
         enforcement are even more worrying when litigation is happening in an unfamiliar legal
         context). IPO has provided training to the DTI in order to enable them to give businesses
         better advice on IP to companies that export.

         Evidence based research findings (summary):
         1)      What forms of intellectual property protection mechanisms do SMEs in the
                ICT sector use? How does their behaviour differ from that of large firms?
             With respect to micro and small firms, large firms are more likely to exchange a
         greater variety of types of IP and they are particularly more likely to exchange patents:
         probably due to their greater availability of resources, they are able to utilise and exploit
         patents, open source, and non-patented innovations with greater intensity. Micro and
         small firms, instead, are more likely to exchange only non-proprietary IP, particularly non-
         patented innovations, but small firms are also very active in open source communities.
         Instead, firms of all sizes use copyright to the same extent, suggesting that size is not a
         constraint to the use of this form of IPR.




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         2)   What are the strategic objectives that underpin the SMEs’ choice to use these
              different intellectual property protection mechanisms?
                Different forms of IP are particularly associated to specific types of benefits. Overall
         (i.e. for the total set of respondents of micro, small, medium and large firms) we find that,
         while patents and copyright are particularly exploited for benefits relating to financial gain
         and innovation, non-patented technology and open source are particularly used to create
         value relating to innovation and the building of strategic relationships. Competitive
         advantage benefits are perceived as relevant to all forms of IP.
              Compared with large firms, SMEs seek financial gain from all types of IP, not just from
         proprietary IP. Patents and non-patented innovations are perceived to bring direct income,
         while non-proprietary IP are in general used by SMEs to cut costs. Unlike the companies
         interviewed in the case studies, few SMEs use patents in order to raise venture capital.
         However, a greater share of SMEs use non-patented innovations for this purpose.
         Competitive advantage is also sought from all forms of IP, this time in line with the overall
         set of respondents. Benefits relating to innovations are also perceived as important,
         particularly when engaging in patents (as patents are used to develop better technology
         and to involve users or suppliers in the development process) and in non-proprietary IP
         (which is used by SMEs to gain access to the best innovations and, in the case of open
         source, to involve users or suppliers in the development process). SMEs find that building
         strategic relationships benefits is a particularly important strategy when engaging in non-
         proprietary IP. This includes both the possibility to build informal relationship with
         industry networks and to enter collaborative agreements. In the case of open source,
         extrinsic motivations (“giving something to the community”) are also considered relevant.

         3)   What are the obstacles that SMEs in the ICT sector encounter when using different
              intellectual property protection mechanisms?
               SMEs find that, in the case of patents, market search obstacles (difficulty in locating
         the owners of patents) are very important, and so are market transparency problems
         (difficulty in assessing the economic value of patents) and there are contract negotiation
         problems (difficulty in negotiating a price for the patent). Interestingly, not many of them
         stress enforcement problems, which instead have emerged from the company interviews.
         The SMEs that we interviewed all reported that the cost of using the patent system is very
         high, especially as it is very time and resource-consuming; they also suggest that it is
         difficult to find good applications that are robust, reliable and scalable, as well as finding
         good partner companies and employees with the necessary expertise to develop them.
              For copyright, a third of SMEs report problems with the originality of the copyrighted
         work. That market transparency is a key problem in the case of copyright was confirmed by
         our interviews with companies. On the other hand, copyright infringement is difficult to
         detect, but when detected the cost of reimbursing the copyright owner is not very high, so
         enforcement issues are not considered particularly an issue.
              With respect to open source, the surveyed SMEs report problems with market
         transparency and IP enforcement, mainly having to do with trust issues (i.e. the possibility
         for companies to free ride on other people’s open source contributions and use them to
         develop their own proprietary IP). This problem was also remarked upon by one of the
         SMEs that we interviewed.




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              Generally, both large firms and SMEs report relatively more obstacles with regard to
         patents and copyright than to non-proprietary IP. This is consistent with anecdotal
         evidence from the experts, who reported that, while SMEs find IPRs to be problematic, they
         find open source works well.

         4)   How does the regulatory and business environment affect the SMEs’ ability to create
              value from their intellectual property?
              Of the key problems that SMEs face when using the patent system is “high costs”, in
         terms of the complexity of the patenting process and of the time and resources it takes to
         complete it. There is also a lot of confusion about what can and cannot be patented, about
         the international situation, and about the real or true costs of using the system. Moreover,
         it has been reported that SMEs are often challenged by large firms, which use patent
         litigation threats in order to intimidate them. When large firms infringe their patents,
         SMEs often do not have the resources to take them to court.
              Given these issues, it is very important that SMEs can have access to external support
         that helps them to use the IPR system effectively. While steps have been taken in order to
         help firm SMEs access information about IPR, in order to facilitate the filing process, and in
         order to simplify the litigation process, ongoing attention must be paid to these issues as
         many problems remain. Finally, the analysis found that the regulatory system needs to be
         broadened to also support IP areas beyond formal IPRs (such as patents and copyright). It
         needs to integrate an infrastructure which also supports open-source and ideas not
         protected by patents, as they are important instruments for SMEs when exploiting and
         managing their intellectual assets.

Policy implications and recommendations
              United Kingdom SMEs in the ICT sector look beyond the patent policy discourse in
         their intellectual property (IP) strategies: they are strong users not only of proprietary IP,
         rather they use all forms of IP in order to reach a broad range of strategic objectives related
         to financial gain, competitive advantage and innovation.
             Financing policies: Whereas patents are used strategically especially to raise financial
         income, open source is used for cost-cutting (an inexpensive way of gaining access to
         knowledge and benefiting from user-supplier relationships in knowledge spheres) and
         technology without patent protection is used for a range of financial reasons related to
         income, cost-cutting and the ability raise venture capital. Thus, policy should not focus
         merely on the enforcement of patents to raise entrepreneurial finance, but take into
         account a whole range of business models.
             Innovation policies: The same holds for innovation policy, which needs to recognise
         the benefits of less proprietary knowledge sharing innovation models (or innovation
         systems), as opposed to the traditionally strong protection via patents. ICT SMEs report
         that both proprietary and non-proprietary IP are used as a strategy for innovation,
         especially in relation to innovation methodologies and user-supplier involvement benefits.
         In open source communities access to knowledge assets was reported by more than 60% of
         the firms surveyed. Policy should ensure experiments with peer-to-peer initiatives and the
         use of “social” technologies and ensure that a sufficient variety of pilot projects are
         initiated and supported, in order to obtain evidence about their usefulness and what
         business model characteristics are associated with successful performance, and co-
         ordination and the sharing of information between these initiatives should be promoted.


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             Regional policies: Building both formal and informal strategic relationships, as well as
         community interaction, is reported to be important strategies of SMEs in the ICT sector
         when using non-proprietary IP (i.e. open source and innovations with no patent
         protection). This signals to policy how softer forms of IP protection should be recognised as
         important as instruments to strengthen the relational and regional aspect of the
         innovation systems. When patents are used, this is especially to enter formal collaborative
         agreements such as joint ventures and strategic alliances, reflecting another well-
         developed and already well recognised part of the innovation system.
              Competitiveness policies: From a strategic management or market positioning
         perspective, competitive advantage with respect to professional or brand recognition and
         competitive signalling is a strategy when exchanging all forms of IP (patents, copyright,
         non-patented ideas and open source solutions), but firms in the ICT SMEs industry also
         interestingly report that open source communities are used to increase their market share.
         Thus, policies to gain competitiveness need to recognise that it is a misconception to think
         that there is a clear link between the degree of IP protection and market positioning:
         ●   IP policies aiming to help SMEs’ value creation processes from IP need to be flexible and
             “neutral” to embrace the variety of IP instruments used for this purpose.
              “One size” IP policy does not fit all types of firms or even all SMEs in the ICT sector, due
         to the variety of product/service specialisations, sizes (employees and turnover),
         internationalisation strategies, and IP value seeking objectives. Furthermore, formal IP
         (patents and copyright) is used relatively more by medium sized and large firms, whereas
         micro and small firms are relatively more active in open source communities and in
         trading technology with no patent protection:
         ●   Policy should increase SMEs’ awareness of the many avenues available to them in order
             to exploit their intellectual property. For example, besides the direct contact with all
             forms of SMEs, training and awareness initiatives could be directed at professionals such
             as accountants and lawyers, with whom SMEs are often in contact; at SMEs involved in
             collaborations with universities, research institutes, incubators, science parks; and at
             organisations providing support services to SMEs, such as professional and business
             associations, business consultants, financial advisors.
         ●   IP policies aiming to help SMEs’ value creation processes from IP need to be flexible and
             “neutral” to embrace the variety of SME types to develop their own individual IP
             strategies.
              Obstacles are experienced in all IP markets (related to IP market search, market
         transparency, contract negotiation, and regulation and practices) which hamper the
         effective use formal IPRs and non-proprietary IP for strategic value creation purposes.
              Patent policies should enforce a suitable inventive step (so everything new under the
         sun cannot be patented distorting the purpose of the patent system): Especially in markets
         for patents, there is a heavy concentration of SMEs in the ICT sector reporting problems
         relating to accessing the degree of novelty embedded in each patent. SMEs therefore also
         find problems in accessing the value of patents, and negotiating the price of patents when
         they are traded. Patent offices should only grant patents where novelty or a sizeable
         inventive step is evident.
             IP policies need to recognise and accommodate the productive role of open-source
         solutions and “technology without patent protection” in new business models, in the new
         economy of ICT and micro-electronics: Problems in relation to trust (opportunistic

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         behaviour, free-riding and seminar) were reported in open source communities and
         markets for technology without patent protection. Given the strategic benefits ICT firms
         report from using these “softer” and less formal means of IP protection, it is important that
         policy also support the enforcement of such forms of IP, for example via formalising value
         creation models of such IP exchange processes:
         ●   IP policies should aim to facilitate a better working of all IP markets, and eliminate
             inefficiencies.
            Metrics used for measuring innovation and the performance of intellectual asset
         management in SMEs should be manifold:
         ●   Innovation indicator: Patents should not be a core or sole indicator for innovation,
             competitiveness, market positioning of firms, nor the only way to measure regional and
             relational ties, as SMEs in the ICT sector manage their intellectual assets using a variety
             of IP tools.
         ●   IP performance measure indicator: Firms that exchange patents are not necessarily
             better financial performers (turnover/employee) than firms that exchange copyright,
             non-patented innovations and open source. Evidence even suggests that higher
             performing firms use a wider variety of IP.
             Performance measure financial flows should not be the dominant variable in
         measuring the performance of intellectual asset management, as SMEs report a range of
         non-financial incentives from their intellectual asset management, related to competitive
         advantage, innovation, and strategic relationship benefits.



         Notes
           1. Examples include “Creative Commons” in the creative industries; “Wikipedia” and “Wiki” in
              publishing; Open source in media (“Open Source Journalism” such as Webblogs, Messageboards,
              and Open Document; “Open Source Movie Production”; “Open Source Documentary”; “Open
              Source Film Making”); Open source in education and scientific research (e.g. Science Commons);
              and Open source health care and medicine, such as the Tropical Disease Initiative, and the not-for-
              profit “virtual pharmas” such as the Institute for One World Health and the Drugs for Neglected
              Diseases Initiative.
           2. Data collected in the course of this project include: ICT (hardware and software) firms in the
              United Kingdom, pharmaceutical firms in Germany (Andersen, Rossi, Stephan, 2010), and
              universities and public research organisations in the United Kingdom (Andersen and Rossi, 2011).
           3. The Gowers Review of Intellectual Property (Gowers, 2006) was an independent review of
              intellectual property rights law in the United Kingdom, conducted from December 2005 to
              December 2006.
           4. One expert cited the case of a semiconductor manufacturer (of which the expert was a director),
              using analogue technology, which refused the opportunity to relocate to China even if it would
              have been cheaper to produce there, in order to protect the secrecy of the production process.
           5. This is not necessarily inconsistent with the possibility that larger firms have more IP than smaller
              ones, since typically large firms are more asset-intensive.
           6. The Patent Court is a sub-division of the Chancery Division of the High Court established with a
              specialist patents judge. The latter is a specific feature of the United Kingdom patent litigation
              system.
           7. For an overview of recent (October 2010) changes to the PCC’s operations, see www.ipo.gov.uk/news/
              newsletters/ipinsight/ipinsight-201010/ipinsight-201010-1.htm.
           8. Weatherall and Webster (2009) raise this as a potential issue in Australia, having found a
              significant portion of patentees who, having detected non-trivial infringement, were deterred even
              from sending a letter about the infringement by the cost. Kingston (2004) too raises the issue



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             whether patent offices are encouraging SMEs to apply for patents when those patents will not be
             of benefit to the SME.



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Intellectual Assets and Innovation
The SME Dimension
© OECD 2011




                                            Chapter 6




                        The United States:
                    Balancing Robust Protection
                      with Rapid Innovation

                     By Mr. Rohit Shukla, Dr. Don Oparah and Ms. Tanya Kiatkulpiboone
                                             Larta Institute




            This chapter looks at how the United States of America is adapting its intellectual
            property rights (IPR) system to the challenges and opportunities presented by fast
            moving industries such as biotechnology and information technology.
            Analysis of the implications of the latest US Supreme Court decisions is
            presented alongside a study of the day-to-day issues faced by SME technology
            firms and practical recommendations for both policy makers and practitioners.
            In-depth case studies sourced directly from interviews with top executives offer a
            compelling insight into how SMEs structure their operations to identify, protect
            and defend IPRs with limited resources in an increasingly global marketplace.
            Results from a survey across multiple industries provide a snapshot of the IPR
            practices of SMEs, re-enforce the case for key policy enhancements and reveal
            some unexpected trends such as the increasing use of open source innovation in
            the biomedical field.




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Introduction
              This chapter begins with an overview of the SME landscape in the United States,
         referencing key statistics that highlight the historical and current impact of the SME sector
         on the broader economy. The IP landscape is then reviewed from several perspectives,
         based on information gathered from interviews with IP experts:
         ●   Section II reviews existing regulatory structure and policies and the challenges these
             present to SMEs, as well as the emerging policy trends and their impact (positive or
             negative) on SMEs;
         ●   Section III looks at IP management from the internal perspective and highlights the
             issues, considerations and strategies relevant to individual SMEs;
         ●   Section IV summarises the empirical findings including results from a survey of SMEs
             and key findings from several in-depth SME case studies;
         ●   Section V offers policy and related recommendations (sourced from both expert
             interviews and the authors’ research) to address some of the challenges faced by SMEs
             in the areas of intellectual property protection, management and enforcement.
              In the United States, SMEs with fewer than 500 workers account for half of the nation’s
         private, non-farm real gross domestic product and half of all Americans who work in the
         private sector are employed by a small firm. Data from the US Small Business
         Administration in 2009 revealed that since the mid 1990’s small businesses provided
         60-80% of all net new jobs annually. While those numbers are less in this recession era
         post-2008, historical data indicate that very small firms had produced net job gains more
         quickly than their larger counterparts. The following aspects are key to the role played by
         SMEs.
              Valuation: In the United States alone, a 2005 study indicated that the value of US
         intellectual property assets is greater than five trillion dollars and far exceeds any other
         nation’s GDP. The World Intellectual Property Organisation (WIPO) estimates that number
         will rise to six trillion by 2020.
              SME longevity: In many start-up companies, particularly in the technology-related
         industries, IP assets are often the single most valuable assets. Small firms tend to
         specialize in high tech, high growth industries such as biotechnology, pharmaceuticals, IT
         and semiconductors. The smallest firms (those with fewer than 25 employees) produce the
         greatest number of patents per employee further outperforming their large firm
         counterparts in categories like growth, impact and originality. In a report by the US Small
         Business Administration’s Office of Advocacy in 2008, the office found that the results of
         their 1979 findings still hold true today. Those findings concluded that, “innovation is an
         essential ingredient for creating jobs, controlling inflation, and for economic and social
         growth. Small businesses make a disproportionately large contribution to innovation.
         There is something fundamental about this unusual ability of small firms to innovate that
         must be preserved for the sake of healthy economic and social growth.”



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             Small business statistics: In 2004, the US Small Business Administration (SBA) gathered
         data revealing that small businesses provide 60-80% of the net new jobs annually. The same
         study from the SBA in 2004 further revealed that small businesses produce 13 to 14 times more
         patents per employee than large patenting firms. In that same year, the SBA reported the
         average annual revenue of a small business was USD 3.6 million and the average annual
         revenue of a small business with a web site was USD 5.03 million. As of September 2009, the
         estimated total of small businesses nationwide was 29.6 million, representing 99.7% of all
         employer firms, employing half the country’s private sector workforce, hiring 40% of all high
         tech workers, and generating a majority of the innovations that come from US companies.
              Sector statistics: If one focuses on enterprises in the fields of creative industries and
         biomedical devices, the numbers are even more compelling. In 2007, “the value added by the
         core copyright industries was USD 889.1 billion” amounting to over 6% of US GDP. The
         biomedical sector accounts for a major share of the overall US biotech industry that has
         experienced an annual growth rate of almost 14% since 2005 and is expected to reach market
         share of USD 131.8 billion by the end of 2010. California, the global leader of biomedical R&D, is
         home to more than one-third of all US biotechnology and medical device firms and generates
         revenues close to USD 75 billion annually. More importantly, “the majority of biomedical firms
         in California are privately held, smaller companies with products still in development” and are
         optimistic prospects for driving national economic recovery efforts. The IT sector presents a
         similar picture in terms of high economic impact. In the wireless sector alone, a report by
         Ovum Research indicates that in 2004 the wireless telecom industry led to 3.6 million direct
         and indirect jobs, USD 118 billion in revenues and contributed USD 92 billion to the US GDP.
         The sector also demonstrated a strong growth rate of 15% annual growth.

Intellectual property regulation in the United States
         i)     The Constitution and Capitol Hill
             American intellectual property law is essentially shaped by three factors: the
         Constitution, common law, and lobbyists.
              Constitutional mandate: The US Constitution addresses the following aspects of
         intellectual property law:
         ●    Statutory language protects copyright and patents – The concept of “duration” in the
              protection of intellectual capital is integrated into Article I, clause 8, and reads, “To
              promote the Progress of Science and useful Arts, by securing for limited Times to
              Authors and Inventors the exclusive Right to their respective Writings and Discoveries”.
              While this provision is sometimes referred to as the “Copyright Clause”, it actually
              confers two distinct intellectual property powers. The power to secure for limited times
              to authors the exclusive right to their writings is the basis for and the power to secure
              for limited times to inventors the exclusive rights to their discoveries is the basis for .
         ●    Patent protocols – Patent law protects inventions and in particular three types: utility,
              design and certain plant varieties. Congress implemented patent protection by way of a
              framework in contrast to many foreign first-to-file systems permitting inventors to
              retain patent protection even if a patent application has not issued.
         ●    Copyright conditions – Similar to patents, filing formalities are eliminated as a precondition
              to copyright protection because there is increasing consensus that works of authorship
              should be protected without regard to compliance with formalities in the interest of
              fairness to the author.


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             Common law foundation for trademarks: Notably, the copyright clause contains no
         language under which Congress may protect , those are instead protected under the broad
         umbrella of the Constitution’s Commerce Clause but guided by common law (law which is
         developed by case precedent and not legislative enactments). Common law is suitable
         because of the inherent nature of trademarks. Trademark law protects the words and
         symbols that identify goods based on a priority of appropriation (requiring a considerable
         period of use as an instrument of commerce and not mere invention).
              Lobbying influences: It is important to recognise that copyright law does not protect
         ideas but rather protects the expression of ideas. Therefore, legislation and legislative bodies
         that drive the form and content of copyright can be influenced by the interest of those who
         lobby Congress to guide protection for the ways in which parties can express ideas, opinions,
         beliefs or other creative expressions like music or art. Some heavyweight lobbyists in the
         creative industries include the Motion Pictures Association of America (MPAA), Disney and
         Random House. Nonetheless, all areas of intellectual property have followed a recent trend
         of expansive protection. An increasing concern, however, is that the benefits of expansion
         have yet to benefit small enterprises in the same way that they have benefited large
         corporations. On September 16, 2011, the “America Invents Act” (referred to by its initials,
         “AIA”) was signed into law by President Obama. It is the most significant and wide-ranging
         rewrite of patent laws in the history of the US. Many of its more robust provisions will take
         effect in March 2013 (i.e. 18 months after enactment). Lobbyists, in support of legislation they
         believe will foster a more competitive edge in the global market place, include IBM, Motorola,
         General Electric and Proctor and Gamble. Across the divide, small-scale inventors and high
         technology companies such as Apple, Google, Dell and Verizon are sceptical that the bill will
         instead foster bias against small businesses and poor quality patents. The challenge here is
         that lobbying influences in this debate seem equally weighted.
              Additionally, while levels of protection are broadening, enforcement remains laborious
         and the US system requires that “for intellectual property to have any value in the United
         States, individuals and businesses must police the related industry and use the US legal
         system to enforce their rights”. America employs a structure that relies on an individual
         safeguarding his or her rights through litigation. The grant of exclusive rights for intellectual
         property is, therefore, worthless unless an owner remains vigilant in the policing of potential
         infringers. Adequate protection is only possible with “a responsive judicial system and
         investigative and protective rights-holders”. Much like the barrier to taking advantage of
         expanding IP benefits, SMEs are at a significant disadvantage to defend their intellectual
         property rights (IPR) against potential time-consuming and costly challenges.

         ii)     Positive practices benefiting SMEs
                 There are some elements of the current US system that are “SME-friendly”, including:
         ●     Inventor precedence: US patent law is unique compared to many other jurisdictions in
               that precedence is given to the party that is “first to invent” versus “first to file”. SME
               inventors thus receive some inherent protection from companies with larger patent
               budgets essentially stealing their inventions by “filing first”.
         ●     Protection costs: Copyright and trademark protection is relatively cheap which is a plus
               for SMEs, however enforcement can still be expensive. Likewise, as mentioned earlier,
               basic patent filing fees are also relatively inexpensive, but total prosecution, protection
               and enforcement costs can be very high.



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         ●   Specific regulations: Over the years there have been specific regulations that have acted
             as key enablers for SMEs, a good example being the Orphan Drug Act of 1983. This act
             was passed to encourage pharmaceutical companies to develop drugs for rare diseases
             with relatively small markets and enabled the growth of biotechnology start-up
             companies like Amgen, Genzyme and Genentech.
         ●   Design patents: This low-level patenting option allows protection for the ornamental
             design or new appearance of product. It is less costly than a utility patent because it does
             not require extensive examination of technical claims but it does not protect any
             functional features of the invention. In this way, a design patent makes it difficult for
             companies to prevent different variations of a product.

         iii) Recent developments and emerging trends in the IP environment as a response to
              ongoing issues and challenges

                                           Table 6.1. Timing: from patent filing to issue
          Issues and challenges                                                       Recent developments and emerging trends

          It can take up to 6 years for some patent applications to issue.            Online filing. A modern necessity.
          The United States Patent and Trademark Office (USPTO) reduced the           Accelerated examination process. A decent version of fast tracking but
          number of patent examiners thereby increasing delays in patent              cumbersome prerequisites in exchange for expedited issuance.
          issuance.
          High volume of initial filings by applicants but lack of follow-through. Poor health or advanced age of the inventor exception. Unclear on how
                                                                                   often this process is used; there is a form for Advanced Age but no
                                                                                   specifications on what qualifies as poor health.
          The “pendency” (state of time of being undecided) of patent              Patent Prosecution Highway (PPH). Permanent program between the
          applications covering high tech is much greater than that of the average US and Japan but other PPH’s are experimental.
          patent application; they take much longer to be examined.
                                                                                   Ombudsman pilot program. No statistics on how often or efficient this
                                                                                   process is but it seems necessary for applications stuck in
                                                                                   administrative loopholes.
                                                                                   Patent Term Adjustment Act (1999). Subject of number criticisms and
                                                                                   not helpful for creative industries needing immediate protection not
                                                                                   longer protection.
                                                                                   America Invents Act (2011). This legislation calls for new fee setting
                                                                                   authority and consequently, the possibility of hiring more patent
                                                                                   examiners. In the past, Congress diverted patent fees to the general
                                                                                   treasury. Despite this new provision, however, the Act mandates that fees
                                                                                   collected in excess of legislatively-mandated appropriations be deposited
                                                                                   in a “reserve fund” and there is little clarity on the eventual disposition of
                                                                                   these funds.



         iv) Timing: From patent filing to issue
              Undoubtedly, timing issues are extremely important to every applicant; they impact
         costs, marketing opportunities, and the valuation of inventions. While the convenience of
         online filing has become standard procedure, the USPTO has recognised special
         circumstances warranting an exception to the natural course of patent examination.
         According to the Associated Press, the 2011 patent backlog comprises 700 000 applications
         waiting initial action and 500 000 applications being processed.
              Online filing: Filing patents and trademarks online became available in 2000. This
         convenience minimized the filing time because all prospective US patents must be filed
         in Alexandria, VA. Further, there is less risk of misfiling amendments to the patent
         application and greater ease in tracking the progress of the file on both the examiner and
         rights owners’ ends.



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              Accelerated examination process: Patent applications may qualify for accelerated
         examination if filed on or after August 25, 2006 in the categories of manufacture,
         infringement, environment, quality, energy, inventions related to recombinant DNA,
         superconductivity, HIV/AIDs or cancer, inventions for countering terrorism, and
         biotechnology by small entities in particular. The objective of this expedited process is to
         issue a patentability decision within 12 months. There are however, additional
         prerequisites that make this option meticulously burdensome.
              Poor health or advanced age of the inventor exception: A Petition to Make Special
         Provisions Based on Age (65 or older) can be filed any time during the patent prosecution
         process allowing the application to be examined out of sequence.
              Patent Prosecution Highway (PPH): These are programs, or bilateral arrangements,
         between the patent offices of the US and one other country. The objective is to expedite
         patent applications for inventions whose identical claims are being examined concurrently
         in both offices. Where one office issues a ruling that at least one claim in the application is
         patentable, the applicant may request the other office fast track the examination of
         corresponding claims in corresponding applications.
              Ombudsman pilot program: This was created to resolve breakdowns in the normal
         prosecution process. An ombudsman will be a senior examiner who helps the applicant with
         unresolved issues between the original examiner and his/her supervisor. The ombudsman
         has the authority to issue the patent or help the examination along to panel review.
              Patent Term Adjustment Act (1999): The purpose of the patent term adjustment
         provision in the American Inventors Protection Act (AIPA) was to guarantee that diligent
         applicants would still have a patent term of at least seventeen years from grant under the
         twenty-year patent term system. However, the current terms require the USPTO and
         applicants to monitor numerous events during the prosecution of the application to
         determine the appropriate term adjustment, and often result in applicants obtaining
         patent term adjustment despite the fact that the patent has an unadjusted term of longer
         than seventeen years from grant. A strong criticism is that the PTA should be limited to the
         situations in which the USPTO delayed processing or examination of the patent and this
         delay resulted in the application pending before the USPTO for more than three years.
              America Invents Act (2011): This legislation calls for new fee setting authority and
         consequently, the possibility of hiring more patent examiners. Currently, Congress diverts
         patent fees to the general treasury. Despite this new provision, however, the Act mandates
         that fees collected in excess of legislatively-mandated appropriations be deposited in a
         “reserve fund”. There is little clarity on the eventual disposition of these funds; thus the
         prospect of expanding the capacity of the USPTO to meet anticipated demand arising from
         the main provisions of the Act is uncertain.

         v)   Costs: Filing and prosecution fees to litigation
              There seems to be a national, if not global, effort to reduce filing fees to encourage
         patent protection efforts. However, the largest bearing on costs occurs during examination
         and is dependent on the thoroughness of an applicant’s prior art search, the examiner
         assigned to the matter, and the complexity of the invention at hand.
             Provisional applications: By filing a provisional application first, the legal expenses
         associated for a non-provisional application would be reduced because the non-provisional




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                           Table 6.2. Costs: From filing and prosecution fees to litigation
          Issues and challenges                                                   Recent developments and emerging trends

          The average cost to file a provisional patent application can range from Provisional applications. Generally, a good compromise to pre-utility
          $ 1500 to $ 2500 depending on the technology involved.                   expenses with benefits of securing first-to-invent status.
          The costs associated with filing a non-provisional (full) patent        Small entity filing fees. Overall, this seems to be a positive and practical
          application (for patent search, application preparation, filing fee,    implementation.
          defending the invention over the course of the application process,
          issue fee, maintenance fees) can range from $ 5,000 to $ 15,000
          depending on the complexity of the invention. There are certainly
          patents that cost greater than $ 15,000 upon issuance.
                                                                                  Translation costs. Cutting down on translation fees is likely to be
                                                                                  resolved on a country-to-country basis.
                                                                                  Prospective new filing standards. Cost remains an issue and these
                                                                                  standards are mere proposals.
                                                                                  Patent Reform Act of 2011. This bill proposes to reduce application
                                                                                  filing fees.



         application need only build upon the pre-existing legal work already done in the
         provisional application.
             Small entity filing fees: Reduces filing fees by 50%. To qualify, the applicant must be
         an independent inventor, a collaboration of independent inventors, a non-profit
         organisation, or a company with less than 500 employees.
             Translation costs: There has been pressure to cut down on translation costs
         associated with US based patents to foster harmonisation of patent standards and
         protections.
             Prospective new filing standards: While prosecution costs are still high, primarily
         because they are correlated with attorney’s fees and costs, there is a desire for the US to
         move toward a European or PCT Unity of Invention Standard but that transition may cost
         the USPTO from USD 140 million to USD 160 million or 15% of their budget. This standard
         essentially permits groups of inventions, so linked as to form a single inventive concept, to
         be examined in a single application. The current national standard within the Office
         (which bases restrictions on inventions being independent and/or distinct) may cause
         applicants to file multiple applications to obtain patent coverage that might be secured
         within a single application if the USPTO were to adopt the unity of invention standard.
              America Invents Act (2011): The Act has reduced application filing fees and associated
         fees over the life of the examination of a patent for small business, especially for a new
         category of individual inventor (and universities) referred to as (a) “microentity”, with some
         exceptions. Microentities are classified as those with five or less employees and fewer than
         four provisional patent applications in a preceding period. A small entity discount (for
         firms with less than 500 employees) is also included and also a discount for using the
         electronic filing system.

                                                          Table 6.3. Public disclosure
          Issues and challenges                                                   Recent developments and emerging trends

          Rights holders risk losing trade secrets once a patent filing becomes   Provisional applications. Subject to a one-year limitation.
          public.
                                                                                  Special election provision. Applies to US-only patents.




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         vi) Public disclosure
             Many companies find it difficult to decide on pursuing IP protection with the almost
         necessary consequence of revealing trade secret assets. There are two ways in which a
         patent application can still be filed without that risk:
         ●   Provisional applications: Benefits an application by offering an early priority date within
             the confines of confidentiality from disclosure for one year before a non-provisional
             application is filed.
         ●   Special election provision: Non-publication Request under 35 USC. 122(b)(2)(B)(i). An
             applicant must certify that the invention has not and will not be the subject of an
             application filed in another country, or under a multilateral international agreement, or
             that requires publication at eighteen months after filing. The Applicant may rescind this
             non-publication request at any time. However, if the applicant subsequently files an
             application in violation of the above prerequisites, the applicant must notify the United
             States Patent and Trademark Office of such filing within forty-five (45) days after the date
             of the filing of such foreign or international application or risk abandonment.


                                            Table 6.4. Effective enforcement:
                                  combating infringement and infringement allegations
          Issues and challenges                                                       Recent developments and emerging trends

          The process of enforcement is inefficient and unduly expensive due to       USPTO’s Global Intellectual Property Academy (GIPA). While the
          non-specialist courts and judges, lack of strategic uniformity for          program emphasises education as a tool for global consensus on
          intellectual assets with far reaching exposure, and a failure of accurate   enforcement, it appears that participation requires permission by the
          assessment on rates of counterfeiting.                                      government under certain circumstances
                                                                                      Newly appointed IP Czar Victoria Espinel. She announced a strategic
                                                                                      plan to address counterfeiting in partnership with the public
                                                                                      Anti-Counterfeiting Trade Agreement (ACTA). In an almost antithetical
                                                                                      manner, it serves as a corollary to existing intellectual property laws of
                                                                                      signatory countries.
                                                                                      Patent Reform Act of 2011. This Act is updated annually with the latest
                                                                                      attempts to combat infringement. Revisions include defining a
                                                                                      plaintiff’s standing, opportunities to assert challenges to patentability,
                                                                                      and scope of damages.




         vii) Effective enforcement: Combating infringement and infringement allegations
              There is a fine balance between providing rights owners with aggressive tools to
         combat infringing works and stifling the creativity of new innovation. The USPTO has
         sought a multi-faceted approach to enforcement: creating programmes, entering into
         treaties and enacting legislation.
              USPTO’s Global Intellectual Property Academy (GIPA): Capacity building programs in
         the United States and around the world on IP protection, enforcement and capitalisation.
         Offered to IP officials, judges, prosecutors, police, customs officials, foreign policy makers,
         examiners, and rights owners. Teaches US methods for protecting the rights of business
         owners compliant with international treaties. Delivers IP education worldwide. GIPA is
         divided into four programs: Enforcement, Patent, Trademark and Copyright. It was
         established in 2006 and offered restrictively to IP officials but in 2008, the program began
         delivering IP training to other stakeholders and even the general public under certain
         circumstances.




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             Newly appointed IP Czar Victoria Espinel: Ms. Espinel recognised the unreliability of
         current industry estimates on counterfeiting and consequently made a public request for
         good data on the extent of counterfeiting in an effort to carry out her Joint Strategic Plan.
              Anti-Counterfeiting Trade Agreement (ACTA): The ACTA would establish a new
         international legal framework that countries can join on a voluntary basisand would create
         its own governing body outside existing international institutions such as the World Trade
         Organisation (WTO), the World Intellectual Property Organisation (WIPO) or the United
         Nations. Negotiating countries have described it as a response to the increase in global
         trade of counterfeit goods and pirated copyright protected works. The scope of ACTA is
         broad, including counterfeit goods, generic medicines and copyright infringement on the
         Internet. ACTA would overcome, because it is in effect a treaty, many court precedents
         defining consumer rights as to “fair use” and would either change or remove limitations on
         the application of intellectual property laws. The Act was first developed and proposed by
         the US and Japan in 2006.
              America Invents Act (2011): The biggest change is the adoption of a First To File (FTF)
         regime, replacing the current First to Invent (FTI). While in theory, this harmonises the US
         system with that of OECD countries, many legal observers assert that the Act sets up a
         unique system that is neither fully FTF nor FTI. The Act: heightens standards for
         reexamination of an issued patent; expands defense of prior commercial use; increases
         restrictions on suing multiple defendants in a single action; allows for correcting omissions
         or misstatements in a patent application (“supplemental examination”), expands
         challenges to so-called business methods patents, and institutes new “post-grant review”
         and “Inter Partes Review” procedures that may benefit patent challengers. While it
         eliminates so-called interference proceedings, filed afer a patent has been issued (but which
         applied prior to the Act only to about 0.5% of all cases), in favor of “derivation” proceedings
         (that sets up a review of a challenge by a Patents and Trademarks Appeals Board), it does
         create a number of potential threats and issues for small businesses, including the ability of
         challengers to go directly to the Federal Circuit court to bring a challenge to a patent as an
         alternative to internal Patent Office review mentioned above. Though the Act maintains a
         personal disclosure grace period of 12 months after filing for the original inventor, this does
         not apply to third parties who independently arrive at an invention, and any disclosure by
         the original inventor may be used against him/her in cases where third parties are involved.
         While the impact of the Act may not be quantifiable for many years, small businesses, for
         whom IP protecton is often an absolute necessity, will undoubtedly feel constrained in their
         ability to raise capital and discuss their inventions with prospective partners prior to filing.
         Thus a “race to the patent office” may be in the offing.


                                         Table 6.5. Clarity of patentable subject matter
          Issues and challenges                                                     Recent developments and emerging trends

          Patent applicants, attorneys and examiners often look to the judiciary to KSR v. Teleflex (2007). This case narrows the eligibility of prospective
          clarify the likelihood that an invention will be deemed patentable.       new patents. New inventions are susceptible to fail for “obviousness”.
                                                                                    But what is obvious?
                                                                                    In re Bilski (2010). Essentially holding that some business methods are
                                                                                    patentable. But which methods is anyone’s guess.




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         viii) Clarity of patentable subject matter
             Practitioners rely on case law to determine the feasibility of claims and the
         meritorious value of certain matters. Unfortunately, the two most publicised intellectual
         property cases recently adjudicated in the United States failed to provide any definitive
         guidance in the area of patentability.
              KSR v. Teleflex (2007): Relaxing the test for obviousness, this case is likely to make it
         harder to get new patents and defend existing ones. Almost every litigated patent case
         asserts the defence of obviousness; therefore, this holding will have far reaching impact in
         prosecution and litigation. Other experts who consider the Federal Circuit court as too
         liberal in their interpretation of patentability view the decision as a positive development
         because it helps to determine whether an invention was truly innovating or just the
         product of connecting the dots between prior art.
              In re Bilski (2010): The US Supreme Court held that the specific case of risk
         management method claims related to hedging against weather-related losses in the
         energy industry was too abstract to be patentable subject matter but that business
         methods as a general matter are eligible subject matter and the use of the “machine or
         transformation test” is useful but not exclusively determinative. There was much
         anticipation that this case would bring clarity to the issue of business method patentability
         but in fact, it continues the cycle of uncertainty in this area.
              The first case subsequent to In re Bilski was RCT v. Microsoft (2010). The case forecases
         a trend of cases that decide patentability on bases other than the machine or
         transformation (MOT) test. The court in RCT found patentability in a process for halftone
         imaging. The court reasoned that the invention was not “abstract”, one of the three
         exceptions to patentability. As anticipated, forthcoming case law will continue to establish
         new tests that can be used to determine patentability; more akin to an experiment and less
         of a clarification.


                            Table 6.6. Competing and Industry-specific considerations
          Issues and challenges                                              Recent developments and emerging trends

          Some new regulations indirectly impact SMEs and their means and/or Healthcare Reform and the Pharmaceutical Industry.
          priority for seeking IP protection.
                                                                             Healthcare Reform and Biotechnology
                                                                             Biotechnology and Small Business
                                                                             Patent Reform Act of 2011




         ix) Competing and industry-specific considerations
              Regulations unrelated to the intellectual property framework can impact the decision
         to innovate, invest, or file patents. In 2010 alone, national healthcare reform rose to the
         forefront of political debate. Firms in industries such as biotechnology, pharmaceutical,
         and medical devices also participated in reform proposals and their views on the resulting
         provisions are expressed in, but not limited to, the following:
         ●   Healthcare Reform and the Pharmaceutical Industry: Tighter government reimbursement
             for the pharmaceutical industry; the government’s reimbursement of certain Medicare
             services has the potential to put pressure on the profit margins of providers of those services
             thereby affecting the providers’ profitability of related drugs.



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         ●   Healthcare Reform and Biotechnology: Local trade group Biocom spent the last year
             lobbying for tax credits and patent protections that ended up in the legislation. Their
             success means that small companies can get more research money and local biotechs
             can develop some drugs without worrying about early competition from generics. While
             groups like the AARP say the exclusivity period will delay patients’ access to cheaper
             versions of drugs, its protection will encourage innovation and investment in new
             treatments. Those in the biotech industry are hopeful that new patent protection will
             allow them to raise money to develop new drugs.
         ●   Biotechnology and Small Business: The legislation also established USD 1 billion in
             tax credits for investments made in 2009 and 2010 on projects that prevent or treat
             diseases. The credit is reserved for companies with fewer than 250 employees and as
             such, it will help younger businesses that do not already have marketed products
             compensate for the current drought in venture capital investment. Companies can also
             convert the credit into a grant, so they will not have to wait until tax time to receive
             money. However, a 2.3 per cent tax will be imposed on the sale of medical devices and
             may hurt businesses in that regard. The tax, which is expected to raise USD 20 billion
             to help the government fund health care reform, was meant to be an exchange for the
             30 million newly insured customers. But that may be illogical if a majority of those new
             patients are young, and as a result, there will be not enough medical device sales to
             offset that tax.
              In terms of broad and sweeping changes in the intellectual property landscape, it is
         our experts’ opinion that these are likely to concentrate primarily on clearing the current
         patent application backlog. Recently, the USPTO published a notice in the Federal Register
         entitled, “Patent Application Backlog Reduction Stimulus Plan”. The purpose of this plan
         is to give small entity applicants having multiple patent applications greater control over
         the priority with which their applications are examined while also stimulating a
         reduction of the backlog of unexamined patent applications pending before the USPTO.
         Specifically, small entity applicants may have an application accorded special status for
         examination if the applicant expressly abandons another co-pending unexamined
         application.
              A provision of the Act mandates congressional studies be conducted to measure the
         reform’s impact on small businesses.

Empirical evidence
              This section presents empirical evidence on the behaviour of and challenges faced by
         SMEs with regard to intellectual property management. The material presented was
         sourced as follows: the SME Intellectual Property Management and Global Context sections
         were sourced from in-depth phone interviews with intellectual property experts with
         extensive experience in the SME space; the Survey Results section was sourced from a
         comprehensive web-based survey completed by senior management at SMEs; the Case
         Study Summaries were sourced from in-depth phone interviews with senior management
         at SME firms; and the Best and Worst Practices Summary was sourced from a combination
         of the case interviews and the interviews with IP experts mentioned above.




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         i)     SME intellectual property management
         Major issues facing SMEs with regard to intellectual property protection
              The major internal management issues facing SMEs with regard to IP protection fall
         into the following categories:
         ●    Cost issues – SMEs often lack access to capital to fund IP protection. Especially as they are
              moving into the commercialisation stage for a new product, costs include not only
              protection, but also ensuring “freedom to operate” and staving off allegations of
              infringement from other parties. When the costs of potential enforcement against infringers
              are also factored in, the total cost of protection for one patent could easily run into millions
              of dollars and could inject a sense of unpredictability into planning decisions by SMEs.
         ●    Management issues – One of the major issues SMEs often face is a lack of appropriately
              skilled management and a consequent incomplete understanding of IP law within the
              organisation. This knowledge deficit, coupled with a frequent lack of established
              processes (e.g. for documenting and tracking IP assets) often results in challenges around
              issues like correct timing and prosecution of patent filings, appropriate coverage of
              foreign jurisdictions and the development of a holistic patent strategy (incorporating
              considerations like freedom to operate, smart-investing, patent strength, etc.).
         ●    Market issues – A further challenge for SMEs is the ongoing need to balance the
              (potentially significant) costs of protection and enforcement already described against a
              dynamically changing valuation of that IP in the market, both domestically and abroad.

         Drivers behind SMEs’ decision to invest in intellectual property protection
              In the cases where SMEs decide to invest in formal IP protection in spite of the costs
         and other related challenges already discussed. Below are some of the key drivers behind
         this decision.
              External interest – Commercial interest from vendors, strategic partners or potential
         acquirers will often trigger investment by the SME in IP protection. There is concern,
         however, that some patents are not being developed into products and instead, companies
         are sitting on the protection for the appeal it creates for investors.
             Funding – A direct request from investors or a feeling that IP protection (typically a
         patent) will open the door to funding is another common driver of protection.
              IP asset strength – The potential value of the IP asset (typically the focus is on the IP
         associated with core products) and the degree to which protection of that asset will serve
         as a barrier to entry against the competition are key considerations.
             Market size – Another important consideration is the potential market size and/or the
         geographic area to be covered by the protection when weighed against the costs of
         protection and enforcement.
             Other factors – SMEs, by virtue of their nature, are also often subject to less robust
         decision-making drivers in this area such as short-term thinking (i.e. SMEs will often only
         invest in IP if there is a clear short-term payback), management agendas (e.g. sometimes
         management’s personal plans to “cash-out” can influence the timing of IP investment
         decisions) and peer pressure (e.g. sometimes this can drive an SME to invest in IP protection
         prematurely and incur unnecessary costs).
             Finally, the inherent structure of the industry in question plays a fundamental role in
         determining the importance of IP protection, especially patents, for the SME and can
         broadly be broken down as into the following categories.


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             Stable base, high cost – Industries that address human body functions through
         technological inventions are largely unchanging, e.g. medical devices, biotechnology, and
         pharmaceuticals. For these technologies, and particularly if the upfront development costs
         are high, IP protection (generally patents) is not only desirable but often essential to
         developing a viable business model.
               Dynamic base, low cost – There are industries where the technological invention is
         changing more rapidly than the useful lifespan of the protection offered (say by a patent),
         e.g. software, Internet-related innovations. For these technologies, and particularly if the
         upfront development costs are low, the return on investment for IP protection is less clear
         and sometimes no protection (i.e. a focus on trade secrets) is preferable.

         Key trade-offs and strategies adopted by SMEs
             In light of the many challenges and resource constraints facing SMEs in the area of IP
         protection, a number of trade-offs and related strategies are common including:
         ●     Speed-to-market versus protection – In some industries SMEs will go to market prior to
               securing all the protection they could so as not to miss the (often short) market window
               (e.g. in the Internet space). Also, if there is no urgent need, management will often keep
               IP as a trade secret for as long as possible. In the case of patents, deferring the patent
               process not only postpones related expenses but also avoids early public disclosure.
         ●     Contingency arrangements – Having developed into a cost-management trend,
               contingency arrangements are available to SMEs with a strong, litigious IP case. It is
               more common that SMEs work with litigation attorneys on a partial contingency basis;
               the SME typically covering expenses while attorney’s fees remain contingent on a
               successful outcome post-trial.
         ●     Avoidance – A good strategy for SMEs is to invest in a “freedom to operate” study (a
               search to identify active patents that could inhibit the introduction of a new product or
               technology into the market), file for IP rights and protection and then focus on avoiding
               patent infringement claims.
         ●     Insurance – Intellectual property defence or enforcement insurance is one potential
               strategy for getting around the high management costs. However, this type of insurance
               is expensive and the insurers are few in number and often difficult to deal with.
         ●     Litigation alternatives – Co-operative agreements and licensing are generally better
               ways for SMEs to resolve IP disputes than litigation (given the costs involved) but
               sometimes litigation is unavoidable – especially if an entity’s core business or revenue
               model is at stake.

         ii)     Global context
         Business questions
             As SMEs assess the viability of entry into foreign markets, some of the common
         business considerations include:
             Economic opportunity – SMEs facing entry into foreign markets must assess the
         economic viability of the opportunity. Helpful indicators include: market size, growth rate,
         consumer demand, saturation of the US market, etc.
              Industry – Naturally, the industry specifics will and should dictate the list of
         jurisdictions with which to file for IP rights. For example, Taiwan, Japan and China are


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         important for SMEs in the semi-conductor industry. Additionally, Europe, Eastern Europe
         and Canada are countries of focus for SMEs in the bio-medical industry.
            Coverage – Another consideration is the degree of coverage gained in return for the
         amount of investment in protection made. For example, filing in Europe may cover the
         whole European Union with a single filing/investment.

         Regulatory considerations and challenges
            Some of the specific IP-related considerations and challenges faced by US SMEs
         moving into foreign markets include:

         Legal framework
             First to File eligibiity - In determining validity date for the purpose of First To File, the
         date of filing of a patent outside the US will be operative in gauging eligibility.
              Patent scope – The definition of what is covered by a patent varies depending on the
         jurisdiction. For example Europe has some key differences from the US; patent definition is
         narrower (there is an “absolute novelty” requirement) and the mechanism for adding new
         matter to a patent is different (you have to file “multiple dependent claims” instead of a
         “continuation in part” as is the practice in the United States). Furthermore, the duration of
         protection is not equivocal; many US patents usually expire many years after the
         corresponding patent applications have expired abroad.
             Translation requirements – In some countries, the entire patent application must be
         translated. In others, only the patent claims must be in the national language of the
         country filed. For European patents, some countries in the EU will accept the application so
         long as it is in the European Patent Office’s (EPO) pre-approved official languages of English,
         French or German.
              Patent Cooperation Treaty (PCT) – The PCT process can simplify the way in which an
         applicant obtains patents in many countries. A PCT application is filed with the PCT
         authorities, who make a preliminary assessment of the invention’s patentability. This
         helps determine if the cost and effort of pursuing patent protection for the invention in
         specific countries is justifiable. Filing a PCT application in the EPO designation virtually any
         or all of the European countries may result in a grant of a European patent with significant
         coverage. The patent rights must then be “perfected” in the individual European countries
         of interest through procedures that include filing translations and paying national fees.
               Non-signatories to the Paris Convention – Most countries have signed the Paris
         Convention, which allows a patent applicant to claim priority over a patent application
         filed within the previous year. As described above, to obtain a valid patent in most
         countries it is essential to file a patent application before the invention is publicly disclosed
         – but the Paris Convention provides an important exception. As a result, in most countries,
         it is sufficient to file within one year of the date on which the earliest application was filed,
         provided that the earliest application was filed before any public disclosure of the
         invention anywhere in the world. A few countries including Afghanistan, Andorra, Ethiopia
         and Saudi Arabia are not members of the Paris Convention, and special consideration must
         be given to filing applications in such countries to avoid loss of patent rights there.
             Local enforcement – In addition to the economic opportunity, the robustness of local
         IP enforcement mechanisms and the general business culture are generally more
         important considerations than the presence of international treaties.


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             WTO TRIPS Agreement – The enforcement provision of this multilateral treaty deals
         with domestic procedures and remedies for the enforcement of intellectual property
         rights. It sets forth general principles applicable to all IPR enforcement procedures. In
         addition, it contains provisions on civil and administrative procedures and remedies,
         provisional measures, special requirements related to border measures and criminal
         procedures, which specify, in a certain amount of detail, the procedures and remedies that
         must be available so that right holders can effectively enforce their rights.
             Treaty non-compliance – The existence and participation as signatory to a treaty does
         not guarantee an ability to enforce IP protections. For example, China is a signatory to the
         Berne and Paris Conventions as well as TRIPS but enforcement remains a major challenge
         and thus a barrier for many foreign entrants. For this reason, an SME must entertain the
         idea of having to hire local counsel to navigate the foreign legal system.

         Alternatives to litigation
              Special intellectual property courts or tribunals – There are several countries that are
         already reaping the advantages of special IP courts or special IP divisions in a general court.
         Specialist courts and judges were found to reduce hearing time, litigation costs or litigation
         altogether, improve efficiency and make IP jurisprudence clearer and more predictable for
         parties and the IP community. Additionally, it is the lack of judicial expertise in IP that
         fosters major enforcement problems.
             Dispute resolution or mediation – As a general matter, the legislature and judiciary
         prefer arbitration and other forms of Alternative Dispute Resolution (ADR) because private
         dispute resolution shifts the costs to the parties and relieves congestion in the courts.
         These processes are generally less combative and therefore benefit SMEs by preserving
         business relationships.
              In general, entering other countries involves more complexity from an IP perspective
         and consequently more cost – therefore SMEs will often (or be advised to) avoid entry into
         foreign markets unless the market opportunity is significant. In general the experts
         interviewed observed that entry into Europe is less challenging for US SMEs than some
         other jurisdictions like China. Additionally, weaker enforcement in China and other Asian
         jurisdictions, and the consequent ability of local competitors in those regions to move
         quickly to market with imitative strategies, provides US-based SMEs with increasing
         challenges in their global plans.

         iii) Survey summary
              The US survey was distributed to 400 participating companies. Of these, 63 companies
         (15.75%) responded of which 59 (14.75%) fully completed the survey. An assessment of the
         results and their relation to other key components of the country report is included below.
         It should be noted that where percentages mentioned sum to greater than 100%, this
         reflects a survey question that allowed respondents to select multiple responses from a list
         of options.

         Company overview
             The geographic spread of participants is split into two main areas; the East coast and
         West coast, with California enterprises as the most dominant. The prevailing industry
         sector is biotechnology (51% of respondents or 32 companies) followed closely by



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         information technology (23% of respondents or 14 companies). The creative industry sector
         constituted 13% of the respondents (or 8 companies).
             The role of the respondents was either an owner (57% of respondents or 35 companies)
         or management personnel (41% of respondents or 25 companies) and the firms who
         participated were fairly mature (approximately 90% of respondents or 55 companies
         having been in business for over 6 years).
              The respondents were primarily at the smaller end of the SME spectrum, 61%
         (37 companies) with less than 10 employees and 59% (35 companies) with revenue under
         USD 1million with a pretty even split between a national (56% of respondents or
         34 companies) and international (44% of respondents or 27 companies) market focus.
             The majority of firms surveyed (89% of respondents or 54 companies) are projecting
         growth and recent product innovation is high (91% of respondents or 51 companies).

         IP protection and preparation
             There is a fairly even split between firms that acquire knowledge or technology
         through licensing (48% of respondents or 29 companies) and those that do not (52% of
         respondents or 32 companies). For those that do utilise licensing, gaining access to new
         technology for immediate use is the primary reason (83% of respondents or 24 companies).
         These results lend support to the identified challenge concerning industry-specific timing
         issues as a hindrance for SMEs to embrace the IPR process.

         Intellectual property filing and registration
             Since participating businesses identified the greatest benefit of IPR as the ability to
         build competitive advantage (66% of respondents or 32 companies), it follows that if
         businesses are finding that they can survive in the market competitively without formal
         protection, the time and expense obstacles are even less worthwhile to undertake.
              When businesses did consult with IP experts it was predominantly for filing purposes
         (82% of respondents or 44 companies) and prior art searches (56% of respondents or
         30 companies). With this trend, the US experts’ recommendation for SMEs to have an IP
         expert on staff or consult with a third party expert on a regular basis makes economical
         sense to the extent that the expert has a familiar foundation for drafting claims and
         performing conflict checks for that entity.

         Intellectual property management and strategy
              While trade secrets form an important part of IP protection strategy (74% of respondents
         or 43 companies) the large majority (98% of respondents or 58 companies) of firms surveyed
         also use formal protection methods. For the minority who do not use formal IP protection,
         concerns regarding disclosure, uncertainty over whether IP will be upheld and cost of
         enforcement constitute the main concerns. These statistics help to reiterate how much
         disclosure and enforcement appear problematic for SMEs. Also, the minority numbers may
         be indicative of businesses that hold onto their IP as a trade secret for as long as possible or
         operate in an industry where speed-to-market strategy is best utilised.
             For companies that do use formal protection, confidentiality agreements are standard
         (91% of respondents or 53 companies) and with a strong use of patents (76% of respondents
         or 44 companies) and trademarks (66% of respondents or 38 companies), and to a lesser
         extent copyrights (53% of respondents or 31 companies). Patents were not surprisingly of



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         particular importance to biotechnology companies (these companies constituted 62% of
         patent users whereas they only from 51% of the total survey base) and less important to IT
         companies (these companies constituted 11% of patent users whereas they form 23% of the
         total survey base), another indicator of the growing importance of non-patent based IP
         strategies (e.g. open source) in the IT community. On the other hand, the IT and creative
         industries showed a higher use of trademarks and copyrights (IT companies constituted
         26% of trademark users and 32% of copyright users whereas they form 23% of the total
         base; creative companies constituted 16% of trademark users and 19% of copyright users
         whereas they form only 13% of the survey base), again in line with expectations based on
         sectoral nuances.
             Many (59% of respondents or 34 companies) founders do file or register for IP
         protection prior to commencing business (implying fairly high awareness levels) and
         international protection is high (60% of respondents or 35 companies). Interestingly
         however, a majority (55% of respondents or 32 companies) of SMEs have never actually
         evaluated the value of their IP. Therefore, particular emphasis on the recommendation to
         incorporate at least one IP professional on the management team or engaged as a regular
         consultant to the business is well founded.
              Many firms (56% of respondents or 32 companies) do not actively monitor potential
         infringements of their property rights and most of them have not taken legal action against
         infringers of their IP (88% of respondents or 50 companies). It is somewhat unclear whether
         the lack of monitoring is the basis for non-action against existing infringement or whether
         infringement is discovered through other means and non-action is purposeful. Regardless,
         the high majority of firms that do not take a proactive approach to safeguarding their IP
         suggest that regular monitoring has the potential to make a substantial difference. The
         sectoral differences with regard to monitoring behaviour also underscore the perceived
         importance of IP in different industries. For example, for those firms that do monitor
         potential infringements, biotechnology firms dominate significantly (64% of firms that
         monitor whereas biotechnology firms only form 51% of the total survey base) compared to
         other industries like IT (only 8% of firms that monitor whereas IT firms form 23% of the
         total survey base).
              Companies do actively seek out advice on IP (92% of respondents or 54 companies);
         mainly from external legal professionals (96% of respondents or 52 companies), but the
         Internet (24% of respondents or 13 companies) as well as colleagues and friends (24% of
         respondents or 13 companies) are also key sources. This feedback illustrates the need for
         aggressive, comprehensive, and economical IP education to combat current trends by SMEs
         to seek IP advice only after they run into problems and often from inconsistent sources.
              Also, a meagre 30% of firms (or 17 companies) use open source innovation and believe it
         will dominate in the future. While the idea that companies cannot afford to rely entirely on
         their own , but should instead buy or license processes or inventions from other companies
         and that internal inventions not being used in a firm’s business should be sold through
         licensing or shared between is growing in popularity, the survey response is likely skewed by
         the large percentage of biotechnology respondents. However it nevertheless it is interesting
         to note that of the firms that do use open source innovation, biotechnology firms do still
         form a significant component (47% use open source whereas biotechnology firms form 51%
         of the total survey base), an indication perhaps of a new trend towards open source in an
         industry that was historically almost entirely dependent on patent-based IP strategies.



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             It is encouraging to note that the majority (72% of respondents or 41 companies) of
         companies do have an explicit IP strategy and distribute that strategy to staff (69% of
         respondents or 29 companies). However half of respondents (50% of respondents or
         29 companies) do not complement their strategy with a dedicated individual or team to
         manage their IP assets. This is likely attributable to SME cost considerations.
             While most companies have an explicit strategy, the survey also revealed that most
         companies (83% of respondents or 49 companies) do not provide IP training to their staff;
         and those that do generally provide in-house training and must fund it with their own
         resources. For close-knit corporations, standardised IP training to all employees is
         beneficial to keep everyone aligned with IP strategy and protocols. However such additional
         expenses would no doubt need to be structured to be line with the SME’s broader
         investment in IP asset management.

         Intellectual property litigation and enforcement
              In terms of obstacles that inhibit firms from using IP protection, cost of enforcement
         (74% of respondents or 42 companies) and cost of filing (60% of respondents or
         34 companies) are the most significant issues.

         iv) Case studies
              The case studies performed for this study were intended to complement the
         information obtained from IP expert interviews and SME surveys by providing an in-depth
         look at selected SMEs from an IP perspective.
                The general criteria used for case study selection were as follows:
         ●    The company is diligent in pursuing IP-based strategies for the further development of
              its market (patents and trademark).
         ●    The company draws its IP from a combination of in-house and widely available and
              currently viable technology to create specific IP that provides it with competitive advantage.
         ●    The company has in-house or closely associated IP expertise employed regularly for the
              purpose of monitoring its competitive advantage.

         Case study summary
             A summary of the case studies on which the proceeding analysis and evaluation was
         based is provided below.


                       Table 6.7. Summary of case studies in the United States report
          #       Case study                                     Industry

          1       Contract Research and Development Company      Commercial physical and biological research
          2       Manufacturer of “Lab-on-a-chip” technologies   Micro-fluidics




         Intellectual asset management
              This section provides a summary of some of the key points raised during the course of
         the various case study interviews.




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         Case study #1 – contract research and development company
         Company overview. This company is a manufacturer of high-grade research instruments
         for the R&D market within the broader commercial physical and biological research
         industry. It has been in operation for 40 years and has a staff of 65 employees. The
         company is privately held and employees own a significant stake in the company. IP forms
         a core part of the company’s business; it holds 25 issued patents worldwide with further
         patents pending. Sales are international including some recent customers in China. The
         case study interview was conducted with the CEO, who joined the company shortly after
         its inception and subsequently bought out the founder.

         IP protection and preparation. Most of the patents held by this company are a result of
         federal R&D funding which means that when they report to the government funding
         providers, they do an invention disclosure, whether they plan to patent the specific
         invention or not; it is a contractual requirement to government. This requirement
         consequently introduces a high level of discipline in terms of recording inventions.
             However in general, the company does not apply for a patent until the invention has
         been prototyped and tested, i.e. they wait until they get government funding to prototype
         and test it (as long as there is not too much competitive threat). This practice limits
         unnecessary expenditure of time and money on the patent filing process.
              The basic process for most patents filed is that a technical staff person will do the
         initial literature and patent searches (the recent deal between Google and the Patent Office
         further reduces the costs of self-searches) and draft the patent disclosure before turning
         the material over to the patent attorneys for completion. The company has developed a
         close relationship with their patent attorneys and works with them to scope the claims. In
         their experience, taking on the early stages of the work in-house not only reduces costs but
         also leads to a better end product.

         IP filing and registration. The company has broad experience filing patents, with patents
         filed and issued in the United States, European Union and Japan. Given the large number
         of patents filed, the case study interviewee was just asked to provide detail primarily on
         the most important patent which is the core patent for the largest revenue-generating
         product. In this case the filing process took 2 years, which in the company’s opinion is fine.
         Many other patents were filed within a similar timeframe. In addition to a well-established
         internal process for filling preparation (described above), this relative expediency can
         probably be partially attributed to the fact that the increasing clogging in the United States
         Patent Office has not affected the company’s industry as severely as some others, e.g. the
         biomedical industry.
               Occasionally the company had to fight for some specific claims but they have usually
         been able to get them upon responding to the patent examiner’s initial assessment. The
         company has very seldom had a patent rejected although there have been a few cases
         where the patent was split into several parts. In the company’s opinion this is sometimes
         done as a tactic by the US Patent Office to get more fees. The challenge of maintaining the
         fees for multiple filings is exacerbated for foreign filings, particularly in Europe, which has
         high per patent fees. In these cases the company has to be very strategic about which
         countries are worth investing in. In terms of costs, typical fees for filing a patent (inclusive
         of filing, legal and other fees) are in the USD 10 000 to USD 15 000 range; foreign patents are
         more expensive but of the same magnitude.


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              However while the company’s experience with the duration of the patent filing
         process has been fairly reasonable in their opinion, concern was expressed over the issue
         of the increasing delay between application and disposition. This constitutes a problem
         from a business perspective, because until a patent issues, the value of the intellectual
         property is undetermined, which can in turn impact negotiations with potential strategic
         partners, etc.
              While the core of the company’s IP protection strategy is built around filing patents,
         they do regularly copyright software developed to handle the control and analysis
         components of the instruments they develop. This is important as the company actually
         does make a number of software sales each year. The copyright protection is currently
         limited to the US. Apart from a trademark on the company name, trademarks are not really
         used by this company.

         IP management and strategy. The company three main revenue streams and has
         designed its IP strategy to support these revenue streams:
         ●   Getting federal government (SBIR) grants for product development.
         ●   Selling products to research customers.
         ●   Doing contract research.
              A formal IP Committee consisting of the CEO, CFO, VP Operations and a Board Member
         directs the IP strategy. The VP Operations for reviewing all the company’s intellectual
         property assets on a regular basis and making decisions about which investments to
         maintain etc. The company also has a monthly meeting involving each of their six
         technology centres and IP issues are raised during this meeting. All IP issues are recorded
         in a notebook and the recordings are signed and witnessed thus creating a paper trail.
              The company did enter into discussions with another firm who were interested in
         licensing the technology protected by their core patent, but in the end it was decided that
         selling directly would be a better strategy. Initial sales were to R&D colleagues and
         competitors around the world – a strategy that proved very effective in North America and
         Europe but less so in Asia. The company then developed a network of sales agents for
         China, Japan and Korea and this proved to be a more effective sales strategy for the region.
             Since the patent in question is now 10 years old (7 more years pending before
         expiration), the CEO is constantly pushing the team to patent new version and patent key
         components to extend the company’s control of the technology.

         IP litigation and enforcement. The CEO regularly reviews the relevant literature for
         potential infringers on the company’s patents. In some cases they will send a cautionary
         letter to potential infringers. There have been a few cases where outside parties have
         actually violated the company’s patents. In these cases the company decided to watch for
         a while and to date the commercial efforts of the infringing companies have failed because
         they were putting out an inferior version of the product. In addition the company has
         limited funds for prosecution at the moment and there are only are patents where suing
         might possibly make sense.
              The company has never received a notice of infringement from another firm. It has
         also never had any patents subject to re-examination. The interviewee believes this can be
         attributed to the fact that most of the company’s patents are pretty innovative as opposed
         to being minor innovations on someone else’s technology.


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         Case study #2 – manufacturer of “lab-on-a-chip” technologies
         Company overview. This company is a 6-year-old designer and developer of micro-
         fluidics technology. It owns 13 patents worldwide (of which 2 are owned and the rest
         exclusively licensed) with over 300 patents pending. The interview was conducted with the
         lead in-house counsel.

         Intellectual property protection and preparation. The company actually has a process
         for capturing, evaluating and preparing IP for filing. The process essentially follows these
         steps: 1) idea submissions from employees; 2) grouping of ideas into groups of related
         ideas; 3) inventor interviews; 4) further development of ideas; 4) visual recording of ideas;
         5) outsourcing to a technical writer to develop an invention disclosure; 6) addition of patent
         components; 7) provisional patent filing; 8) further enhancement (“beefing up”) during the
         one-year provisional period; 9) filing of the US and/or international patent applications.
              The process is designed to keep costs to a minimum in a couple of ways 1) inventor
         interaction with the patent application is kept to a minimum – they are not required to
         write anything (all information is captured orally or visually) and so presumably can focus
         their time on more high-value tasks; 2) technical writers are used for the bulk of the patent
         drafting process instead of patent attorneys.
             The company generally does not worry about freedom to operate regarding individual
         patents – this only comes into play regarding products, e.g. design choices in products.
               In terms of understanding the state of the art regarding whether a specific invention
         is patentable or not, the company has developed comprehensive knowledge of the space,
         and on occasion may do a survey as well. The company has standardised patent watches
         and searches that the interviewee reviews on a weekly basis. A list of particularly relevant
         documents with strategy positions relative to those documents is maintained, along with
         a file structure with notes and documents organised by company, university or individual
         that the company has an IP interest in. Employees also informally share publications, etc.

         Intellectual property filing and registration. The majority of the company’s IP filings are
         for patents. The company was not surprised by the costs involved or the time lag, although
         both were greater than they would have liked. The biggest cost concern relates to international
         filing for specific countries, and appropriate budgeting in this regard is an issue.
             In the United States, costs typically include 1) USD 1 000 on a technical writer; 2) A few
         hundred dollars on outside counsel to file the patent; 3) Patent filing fees, USD 100 for a
         provisional patent; USD 3 000 for a utility patent.
             For international filing, the expenses can add up fast. For example, one scenario that
         involved the company potentially filing 12 patents in about half a dozen countries would
         have cost in excess of USD 300 000.
              The level of investment secured and the amount of revenue generated are key factors
         that determine how much the company spends on IP protection. Sometimes the IP team
         will use heuristics to decide which foreign jurisdictions to file in – e.g. ranking countries by
         GDP, ranking countries by dollars accessed per dollars spent (costs divided by GDP).
         However is it usually very easy to just pick the top 5 (China, India, Europe, Japan, Canada).
             In terms of offsetting protection costs to customers, so far this has not been done
         explicitly. However these costs are often worked into the pricing for the final deal with the
         customer, so that the company effectively gets its money back in that way.


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              Claims are routinely rejected, but the company expects this and handles it as a normal
         part of the process. However the company has not been too happy with the USPTO and the
         way in which they drag out the process and thus increase the overall expenses involved.
               Typically the patent filing process goes as follows:
         ●   The company for a patent, pays several thousand dollars and then has two office actions.
         ●   The examiner will often reject the patent the first office action and the company can
             then make some arguments prior to the second, final office action.
         ●   After the final office action, the company’s options are very limited, and if substantial
             changes are required, typically the company will have to effectively start again and pay
             another several thousand dollars. Often the cause of this is that patent examiners do not
             do a good job the first time round.
         ●   Ideally the examiner would work with the company up front to identify allowable claims
             and avoid several iterations.
         ●   The company has resorted to taking a proactive approach to limit delays, including
             making in-person visits to the patent examiners, talking on the phone etc., to force them
             to identify early on what they think is allowable and thus avoid having to file a request
             for continued examination (RCE)
              The company has 5 trademarks that are in the early stages of being filed. The
         trademarks cover the obvious areas including the name of company, the logo used on
         website, various alternatives to the name of the company etc. There is no internal process
         for trademarks within the company. The company just filed trademarks that seemed
         interesting to the executive team, after doing a quick trademark search. At present the
         trademarks are only filed in the United States, however the company is interested in filing
         in other countries in the future and has an outside attorney that is familiar with filing
         trademarks in foreign jurisdictions.
             The company has software and designs that by definition qualify as copyrighted
         material, but nothing has been formally registered yet. Formal copyright protection will be
         addressed closer to the product launch date and foreign protection will follow.

         Intellectual property management and strategy. T h e i n t e r v i ew e e i s s p e c i f i c a l l y
         responsible for managing the IP in the company. In addition the company has an IP Team
         consisting of the two founders (who both play a CTO role in the company), a senior
         technical person, the CEO as needed and the in-house counsel (the interviewee).
               The interviewee spent several years working in a business-consulting group in the
         intellectual property world and brought over many IP management techniques when he
         joined the company. The IP team meets at least twice a month and the company has an IP
         strategy meeting once a year. A strategy is created with measurable goals for the year and
         then the IP team meets regularly to track process against these goals. Some IP goals also rise
         up to the level corporate strategy level. The IP strategy is described at a pretty high level,
         e.g. how many provisional patents to file, how many patents are expected to be granted, etc.
             The IP strategy has a vision that sets the tone for all the company’s different goals. It
         identifies key opportunities and risks and identifies 5-8 urgent items to be addressed
         during course of the year. It then goes into aspects of strategy related to freedom to
         operate. It also covers specific relationships with other companies and universities and
         plans for managing them.



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               The company has an IP process with the following stages, and associated strategic goals:
         ●   Conception (in the inventors minds): goals here include increasing the diversity of the
             people participating in conception, incentivizing staff for creating and submitting ideas,
             rewarding people for granted patents, etc.
         ●   Capture (idea submission): goals with respect to the number of ideas submitted.
         ●   Evaluation: criteria for selecting which IP development and protection to pursue.
         ●   Expansion (of the original idea): goals for how many employees are involved in these
             meetings, the number of meetings held, etc.
               Other areas covered by the IP strategy include:
         ●   Prosecution: how much of the work will be done internally and how much will be done
             externally, and who does what.
         ●   Portfolio: metrics of the current portfolio and goals for the coming year – including
             number of patents filed, granted, etc.
         ●   Information: strategies for disseminating information to executives, inventors, etc.
         ●   Landscape: freedom to operate, in-licensing opportunities (in-licensing is less focused
             on identifying product opportunities; more on creating a comprehensive portfolio),
             monitoring to identify potential opportunities, competitor patents to monitor, etc.
         ●   Licensing Agreements: what is being targeted.
         ●   Grants: managing IP and grants is a big time sink. The company is largely funded by
             federal grants with lots of reporting requirements and the regulations are often unclear.
             However these drawbacks notwithstanding, grant funding will continue to be a major
             source of funding as it allows the company to retain IP (there are a few special
             government rights, e.g. to cover national emergencies, but nothing significant) without
             giving up equity and control.
         ●   Trademarks.
              The company has an open source system used for the submission of ideas and the
         process described above in the section on filing is followed in terms of developing and
         ultimately filing for protection for these ideas.

         Intellectual property litigation and enforcement. T h e c o m p a ny h a s d i s c ov e r e d
         instances of infringement against its intellectual property in the past, however the current
         strategy is to monitor aggressively but hold back on actual enforcement until a more
         appropriate time in the future.
              The company sees potential infringement frequently in universities and other small
         companies. They monitor the infringement but do not currently have the budget to do
         anything about it. The company’s portfolio is young, but one day when they have multiple
         granted patents they will go after these infringers. Competition in this regard is mainly for
         federal grants – if the infringers were actually selling competing products that would be a
         different story, i.e. the company would be more aggressive.
             The company’s customers actually do a lot of due diligence to make sure that the IP is
         properly protected. This is an area where the interviewee spends a lot of his time. Usually
         he will walk the customer through all the IP scenarios they have been tracking and re-
         assure them through that process.




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              In terms of international filing, especially in countries with less robust enforcement
         cultures (e.g. China, India), the company will file but then rely on a broader strategy to
         protect the IP including collaborations, distribution deals etc. Often it is the local sub-
         licensees who actually create a web of relationships that provide the real protection.
                The company has never been served with a notice of infringement and has never had
         a patent subjected to re-examination.

         Intellectual asset management
             A summary of the best practices highlighted by the various case studies is provided
         below. These have been contrasted with corresponding worst practices identified during
         both the case study and IP expert interviews.


                    Table 6.8. SME best and worst practices identified in the case studies
                                                               IP protection approach and preparation

                                       Best practices                                                             Worst practices

          Structured process for capturing, evaluating and preparing for IP filing.   No prior assessment of “patentability” before filing leading to lost time
          Technical writers used to minimise costly use of inventor and attorney      and costs.
          time. Also leads to a better end product.                                   Poor monitoring of key IP-related dates, e.g. allowing trademarks to
          Established patent watches and searches reviewed on a regular basis.        slip without renewal, losing opportunity for foreign protection, etc.
          List maintained on all companies, universities and individuals of
          interest from an IP perspective.
          Control costs by maintaining various IP “competitive scenarios”
          internally for as long as possible and then investing prior to product
          launch.
          Deliberate “slicing” of IP to enable out-licensing while retaining “core”
          in-house.
          Use of the “expedited request” mechanism.
          Creation of “customer-group” where licensees receive value-added
          support can be used to discourage infringement.

                                                                       IP filing and registration

                                       Best practices                                                             Worst practices

          Pro-active approach to communicating with patent examiners (in-             Filing without consultation of experienced legal/IP experts leading to
          person visits, phone-calls, etc.) to identify concerns early.               delays, re-submissions or even complete denial of claims.
          Develop collaborative working relationship with IP attorneys and            Filing “everything” and wasting resources.
          provide them with clear description of technology.
          Use of heuristics to maximise investment in foreign protection
          (e.g. country GDP versus cost of filing).

                                                                    IP management and strategy

                                       Best practices                                                             Worst practices

          High-level IP strategy with measurable goals.                               No systematic monitoring of IP creation leading to core IP going un-
          IP team or committee.                                                       protected.
          Regular meetings of IP team/committee to track progress against             Poor protection of trade secrets.
          strategic goals.
          Careful marking of material in proposals (e.g. to federal agencies) as
          confidential to avoid inadvertent disclosure.

                                                                   IP litigation and re-examination

                                       Best practices                                                             Worst practices

          Systematic approach for monitoring infringers of protected IP.          No systematic “freedom-to-operate” studies leading to potentially
          Careful review of sub-contractor and project partners (especially       liability in IP infringement suits.
          academic institutions) to ensure IP infringement on their part does not
          comprise company.




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Policy implications and recommendations

                                  Table 6.9. Summary of major intellectual property issues
                                          and key corresponding recommendations
          Regulatory and policy Issues          Key recommendations

          Excessive filing time                 Hire more (appropriately skilled) patent examiners.
                                                Create a fast-track for small business (e.g. similar to the current fast-track for “green” technologies).
                                                De-centralise patent examination.
                                                Possibly increase initial fees (to discourage the current large number of poorly thought out filings).
          Public disclosure of patent filings   Modify process to alert SMEs about special election provision for non-disclosure for US-only filings.
          Cost/time of enforcement              Set-up specialised IP courts and judges (e.g. similar to the German Federal Patent Court).
                                                Institute a mandatory binding arbitration policy.
          Lack of advocacy for SMEs             Support for an independent national organisation to advocate for SMEs.

          Internal SME issues                   Key recommendations

          Constrained budgets for IP            Extend provisional time-frame from 1 to 2 years to allow SMEs to defer (high) costs of foreign filing.
                                                See items above regarding reduction of enforcement costs (where the bulk of IP-related costs lie).
          Lack of management knowledge          Public authorities working with IPR education (e.g. via existing IP education programs like GIPA)
                                                should ensure that such education encourages SMEs to integrate an IP expert in their team or engage
                                                regularly with an expert consultant. Furthermore, the USPTO should partner with existing SME support
                                                groups (SBDC, SCORE, Business Schools, etc.) and local attorneys to deliver IP education.
                                                WIPO’s efforts in the area of IP education should be publicised more thoroughly through associations,
                                                legal groups, universities and economic development organisations at the local and state level.
          Absence of IP processes               Existing IP education programs (e.g. GIPA) should encourage SMEs to establish an “IP Committee”
                                                and processes for documentation and record-keeping of IP.



                The majority of the recommendations for improvement to the current status quo
         centre on policy and regulatory framework issues including:
              Overall guiding philosophy – a fundamental economic analysis of the pros and cons of
         patents for a given industry should inform policy. As discussed in Section iii), patents make
         sense where upfront development costs are high (e.g. drug development) but for industries
         like software, some experts actually recommend doing away with patents altogether in
         order to encourage fast innovation. Another important consideration is the extent to which
         an overly restrictive and expensive domestic IP policy can handicap US companies when
         they compete globally – e.g. competitors in other countries with less restrictive policies
         could imitate US innovations, improve on them (as they are not constrained by US IP law)
         and then ultimately gain competitive advantage globally. Given the high costs of continued
         enforcement, this trend, already evident in Asia, may prove to be difficult for US-based
         SMEs.
              Patent processing – the US PTO should hire more (appropriately skilled) patent
         examiners to speed up the process and this should be coupled with improvements to its
         process for forecasting needs ahead of time. Another recommendation would be to create
         a fast track for small business (similar to the current fast track for patents related to
         “green” technologies). An additional, perhaps counter-intuitive, recommendation from one
         of the experts was to increase initial patent filing fees to discourage a large volume of poorly
         thought out basic filings (see the issue of “clogging” the system described in Section ii). Yet
         another suggestion is to decentralise patent examination, recruiting examiners in areas of
         great innovation (e.g. California) instead of maintaining the entire infrastructure of patent
         examination and filing in Washington, DC.




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              IP enforcement – a key step forward in terms of improving the efficiency of IP
         enforcement would be to set-up specialist courts and judges to handle intellectual
         property cases – for example a court of limited jurisdiction, like the German Federal Patent
         Court could be explored (in general the German system appears to be an interesting
         reference for regulatory improvements that could be implemented in the United States). As
         regards the high costs currently associated with enforcement, one potential solution would
         be to institute a mandatory binding arbitration policy that would limit the costs of IP
         enforcement. A further recommendation with respect to enforcement is that the courts
         and regulators provide finality and clarity on all intellectual property laws.
              Management – there are practices that SMEs should institute as a matter of course,
         whether or not the decision to file for formal protection is taken. For example, ensuring
         that management teams include a person (or persons) who understand the technology at
         hand and how it translates into an effective intellectual asset worthy of consideration as
         “property”. In addition, SMEs should have an intellectual property committee that meets
         regularly, tracks progress and guides IP strategy. In the absence of a formal committee, at a
         minimum there should be at least one IP professional on the management team or
         engaged as a regular consultant.
              Processes – SMEs should establish processes to continually monitor, record and document
         discussions material to their technology, whether or not this can be seen as a reflection of
         intellectual asset (IA) or intellectual property (IP). Given the dynamic, changing industrial
         landscape, understanding what one has in house and how it is evolving is key to the necessary
         effort of monitoring developments elsewhere (i.e. outside the company). As noted above, the
         impact of the Act may not be measurable for many years. However, uncertainties on many
         issues may lengthen the patent process, which will negatively impact small businesses. They
         do not possess the financial resources or the “staying power” necessary to combat claims of
         infringement, challenges to their patents on grounds of prior art, derivation proceedings before
         the newly-constituted Patent and Trademarks Appeals Board, or suits filed in the courts. In
         addition, many experts raise doubts as to whether the innovation system in the US that has
         enabled the country to assert global pre-eminence in cultivating and growing innovative ideas
         and enterprises can be maintained for small businesses given the constraints on their ability
         to raise capital in advance of filing for patent protection under the new law. Given its
         provisions, many venture capitalists have opined frequently since the Act came into force that
         it would make them more risk-averse and less likely to embrace innovations that are not
         certain of being protected under this new complex regime.
             As described in the summary table, policy makers should ensure that these best
         practices on internal management and processes are integrated into existing and future
         education initiatives on intellectual property management for SMEs.



         References
         America Invents Act, S.23: Patent Reform Act of 2011, www.govtrack.us/congress/billtext.xpd?bill=s112-23
           (text) (8 March 2011).
         Anania M.H. (2007), The Plight of Small Business Trademark Holders, 59 RUTGERS L. REV. 565 (2007).
         The Associated Press, Senate passes bill to overhaul patent system, www.google.com/hostednews/ap/article/
            ALeqM5g1JZx4fiB21LUHTO1Mb4zHuf2UCA?docId=cdedbb79a90e4973a05ceb7658e0fe16 (8 March 2011).




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         Coster R., From First-to-Invent to First-to-File: The Canadian Experience, www.torys.com/Publications/
            Documents/Publication%20PDFs/ARTech-19T.pdf, Torys LLP and American Intellectual Property Law
            Association (April 2002).
         Crane J.A. (2008), Riding the Tiger: A Comparison of Intellectual Property Rights in the United States and The
            People’s Republic of China, 7 CHI.-KENT J. INTELL. PROP. 95, 104 (2008).
         Crouch Dennis and Rantanen Jason, Patent Reform Act of 2011: An Overview, www.patentlyo.com/patent/
            2011/02/patent-reform-act-of-2011-an-overview.html (10 February 2011).
         Esper, M. (2009), WTO Ruling a Victory for America’s Creative Industries (14 August 2009).
         Entner, R. and D. Lewin (2005), The Impact of the US Wireless Telecomm Industry on the US Economy. Available
            at: http://files.ctia.org/pdf/PositionPaper_CTIA_ImpactoftheUSWirelessIndustryontheUSEconomy_04_06.pdf,
            Ovum (2005).
         Fisher W.W. (1999), The Growth of Intellectual Property: A History of the Ownership of Ideas in the United States
             (1999).
         Gleaton Aaron, The America Invents Act Makes U.S. One Step Closer to First-to-File System, www.ipbrief.net/
            2011/03/15/the-america-invents-act-makes-u-s-one-step-closer-to-first-to-file-system/ (15 March 2011).
         Hoffman G., David M. Rosenblatt and Risch Michael, Live Blog: Reactions to Bilski, http://patentlawcenter.pli.edu/
            2011/02/17/institute-live-blog-reactions-to-bilski/ (17 February 2011).
         Lafave, J., The House Wades into the Patent Reform Debate, www.ipbrief.net/2011/03/20/the-house-wades-into-
             the-patent-reform-debate/ (20 March 2011).
         MacQueen H.L. (2007), Contemporary Intellectual Property: Law and Policy 34, Oxford University Press.
         Nash-Hoff Michelle, Is the First-to-File Patent Reform Bill right for America? http://sandiegonewsroom.com/
            news/index.php?option=com_content&view=article&id=43336:is-the-first-to-file-patent-reform-bill-right-
            for-america&catid=230:economy&Itemid=261 (16 March 2011).
         Nguyen, X. (2007), Collateralizing Intellectual Property, 42 GA. L. REV. 1, 10 (2007).
         Piribo (1999), US Biotech Market Analysis summary, available at: www.piribo.com/publications/biotechnology/
             us_biotech_market_analysis.html.
         PriceWaterhouseCoopers (2009), Biomedical industry becomes increasingly vital to state’s economic stability,
             finds Healthcare Institute and PricewaterhouseCoopers, available at: www.pwc.com/us/en/press-releases/
             biomedical-industry-econimic-stability.jhtml (29 January 2009).
         Roberts, Clement S., RCT v. Microsoft – Fed. Cir. Attempts to Shift Focus Away from MOT Test, http://patent
            lawcenter.pli.edu/2010/12/29/rct-v-microsoft-fed-cir-attempts-to-shift-focus-away-from-mot-test/
            (29 December 2010).
         Ronspies, J.A. (2004), Does David Need a New Sling? Small Entities Face Costly Barrier to Patent Protection,
            4 J. MARSHALL REV. INTELL. PROP. L. 184, 184 (2004).
         Score.org, Small Business Impact on the Economy, available at: www.score.org/small_biz_stats.html
            (accessed 3 November 2010).
         UNCTAD (2008), Creative Industries Emerge as Key Driver of Economic Growth With Trade Nearly Doubling in
           Decade, UNCTAD Press Release, available at: www.unctad.org/Templates/Webflyer.asp?
           docID=9467&intItemID=1634&lang=1 (Jan. 14, 2008).




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     Intellectual Assets and Innovation
     The SME Dimension
     © OECD 2011




                                                         ANNEX A



                                      SME Case Studies: Template
          In-depth SMEs case studies were intended to provide a detailed picture of intellectual
      asset management practices and challenges in different creative business environments.
          Case studies were instrumental to the main objectives of the project, that is, to
      analyse:
          i) What kinds of intellectual asset management methods are most frequently sued by
             SMEs and how do SMEs choose their protection methods.
       ii) Whether the methods differ significantly across sectors and the type of innovation
           they support.
      iii) How different intellectual property regulations may better serve the objectives of
           creating globally competitive firms.
            Case studies allowed detailed insights, for SMEs in different creative industries, on:
      ●   the ability of SMEs to access and utilise the protection systems available to them;
      ●   the relationship                between   intellectual   asset   management,   innovation   and
          competitiveness.
           The selected cases were intended to be illustrative examples from which key issues for
      SME IP management could be highlighted and valuable best practices could be learned.
      These included success cases in IP management or related with IP management, as well as
      innovative approaches/practices to IP-related opportunities or challenges, promoted by
      SMEs and/or resulting from specific policies. At the same time, however, cases of failure or
      difficulty with a changing market and regulatory environment were also included to
      present interesting learning experiences about IP mis-management or policy needs.

Structure and key issues investigated
           Introduction: relevance of the case under study for learning about key issues and
      assessing best practices in SME management of intellectual asset (i.e. how the case relates
      to the broader objectives of the project, why it can be taken as an illustrative example of
      contemporary challenges and opportunities for SMEs in creative industries)

      Background information
      ●   Description of the SME activity (size, proprietary structure, core business, human
          capital-key competencies, growth performance, innovation record, degree of
          internationalisation – export/FDI/participation to international ventures, etc.).



                                                                                                            169
ANNEX A



          ●   Description of the SME industry and business environment (value chain organisation,
              target markets, competitors, etc.).
          ●   Brief historical record, highlighting key moments in the firm evolutionary trajectory
              (i.e. origin, entry into new markets, proprietary changes, responses to changing market
              conditions, etc.).

          Intellectual asset management
          ●   Business strategies and perception about relevance of intellectual asset management
              a) How does the firm perceive relevance and impact of intellectual asset management
                 for the development of its core business and its competitiveness, i.e. how does the
                 firm perceive the ability of appropriate IP management to increase its value and its
                 growth opportunities.
              b) Design of a firm-specific (and explicit) IP policy and degree of staff involvement (e.g. IP
                 training to staff).
              c) Source of IP-related business advice (if any).
          ●   Protection methods adopted by the SME (and how they have been changing over time)
              a) Typology (registered IP-rights, semi-formal protection methods such as non-
                 disclosure agreements and non-competition clauses, informal protection methods
                 such as secrecy).
              b) Drivers of adoption (and of changing adoption strategies), obstacles to adoption.
              c) Perceived costs and benefits (i.e. how these IP management practices enable the firm
                 to position itself vis-à-vis its main competitors).
              d) Type of innovation that is supported by the adopted IP management practices
                 (i.e. technological vs. non-technological).
              e) Perceived dilemmas (in relation with the current management practices and the
                 changing market environment).
              f) How do IP protection methods depend on and affect vertical relationships (i.e. with
                 suppliers and clients).
              g) Awareness about broader IP instruments.
              h) Awareness and assessment of competitors IP strategies.
              i) Innovative approaches/strategies to IP management (if any): drivers, expected
                 benefits.
          ●   Enforcement and litigation
              a) Ability of the firm to enforce its rights and main problems faced.
              b) Experiences in litigation and/or co-operative agreements and effects on the firm IP
                 strategy.
              c) Support at the local or national level (e.g. consultancy, SMEs-oriented services by local
                 or national agencies, other policy instruments).
          ●   IP management and the global context
              a) How differences in the legal regulation of IP rights, semiformal protection methods
                 and informal protection methods affect the firm’s approach to international markets
                 (export, FDI, international collaboration).




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                                                                                                             ANNEX A



             b) How the IP regulatory framework (at the national and international level) affects the
                firm’s ability to access and engage in global knowledge networks.
             c) The firm’s perception of the about prospective scenarios.
         ●   IP management and policies
             a) According to the firm, what policy measures or instruments related to IP regulation
                and management would reduce barriers to their growth and innovativeness
                (e.g. policy priorities, specific measures, supporting intermediate institutions, etc.).

         Intellectual asset management and competitiveness
               Evaluation about
         ●   the relevance of intellectual asset management in the firm current competitive
             environment and in the light of prospective scenarios;
         ●   the firm’s approach to IP management practices and how it relates to its competitiveness
             and innovativeness;
         ●   the impact of the firm’s environment (regulatory, competitive, territorial) on its ability to
             access and utilise the available IP protection methods;
         ●   critical issues and best practices that can be highlighted from the case.

         Policy implications
             Policy implications that can be drawn from the illustrative case (distinguishing
         between relevant issues that might be generalised and context-specific implications)




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ANNEX B




                                                                    ANNEX B



                                                     Survey Questionnaire
                Posted on line, or faxed/mailed as required under law prevailing in the jurisdiction:
          i)    Confidentiality Statement
          ii)   Privacy and Data rights statement
          iii) Statement re. Attorney/Client privilege


                                                       Section 1: Country specific demographic data

          1.1      Contact details           City
          1.2                                State
          1.3                                Country
          1.4      Industry classification code
          1.5                                                         Firm’s sector of activity
                                                                                                                               




                                                               Section 2: demographic data

          2.1                                                      Respondent’s role in company
                                        Owner                                    Management                          Other employee
          2.2      Duration of Operations (how long in business)    < 1 year            1-5 years         6-10 years        10+ years
          2.3      Employees                                        1-9                 10-49             50-249            250+
          2.4      Gross Revenue                                    < $1 000 000
                                                                    $1 000 000 – $10 000 000
                                                                    $10 000 000 +
          2.5      Company’s main market                            Local                    National     International
          2.6      Legal structure of firm                          Sole trader         Partnership       Limited co.       PLC
          2.7      Gross revenue growth projection for next 3 years  Negative           0-20%             20%+




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                                                                                                                                                            ANNEX B



                                                                 Section 3: Innovation activities

          3.1    Has your company implemented any of the following innovations in the past three years? (please select all relevant)
                  New or significantly improved product or service.
                  New or significantly improved production or delivery processes.
                  New business practices.
                  New marketing practices for your good or service.
          3.2    Does your firm acquire knowledge or technology through licensing?
                                                    YES                                                         NO
          3.2a   If yes, why does your firm utilise licensing? (please select all relevant)
                  To access to a technology to immediately use it
                  To complete commercial or industrial partnership
                  To take an option on a technology to benefit from (future) room for manoeuvre
                  To co-develop a technology with a commercial or industrial partner
                  To settle intellectual property right infringement conflicts




                                                     OPTIONAL SECTION ON OPEN SOURCE INNOVATION

          O1     Des your firm engage in open source innovation?
                                                    YES                                                         NO
          O1a    If yes, please specify the type of open source activity: (please select all relevant)
                     Open source software development
                      Open source pharmaceutical projects
                      Other open source communities
                      (e.g. Wiki publishing, creative commons, the Free Beer and Open Cola initiatives, and similar)
          O2     Do you believe that, in the long run, the open-source protection methods is or will become the dominant form of protection within your
                 sector (for example, compared to patents)?
                                                         YES                                                   NO




                                                                  Section 4: Intellectual assets

          4.1    Does your firm use any of the following strategies or techniques to protect the specialist or confidential knowledge that your firm has?
                 (please select all relevant)
                 Strategies                                                             Techniques
                  Secrecy                                                               Complexity of design
                  Trust between individuals/team                                        Building in specialist know-how into products
                  Lead-time over competitors
                  Limiting key information from staff
          4.2    Do you use any of the following formal methods to protect your confidential knowledge? (please select all relevant)
                 a) Intellectual property rights                                        b) Other
                  Patents                                                               Confidentiality agreements
                  Trademarks                                                            Unregistered design protection
                  Copyright                                                             Non-protected technology or ideas
                  Registered designs
                                        PLEASE NOTE: IF YOU DID NOT TICK ANY BOX IN Q4.2a, GO TO SECTION 9




INTELLECTUAL ASSETS AND INNOVATION © OECD 2011                                                                                                                 173
ANNEX B



                                                           Section 5: Intellectual property and strategy

          5.1    Did you file, register or establish any intellectual property rights before commencing business?
                                                         YES                                                   NO
          5.2    Has your firm filed, registered or established any intellectual property rights at an international level?
                                                        YES                                                       NO
          5.3    Has your company ever tried to assess how much your IP is worth?
                                                     YES                                                          NO
          5.4    Do you have a person on your team specifically charged with “managing” your intellectual property?
                                                    YES                                                    NO
          5.5    Does your company have an overall intellectual property policy/strategy?
                                                    YES                                                           NO
          5.5a   If yes – is it explained or distributed to staff?
                                                          YES                                                     NO




                                                             Section 6: Benefits/Obstacles to IPR use

          6.1    Please tick UP TO 3 BENEFITS of intellectual property rights that your firm uses which you find of HIGHEST IMPACT.
                   ● Protection against imitation                                      ● Attract investors
                   ● Build competitive advantage                                       ● Source of direct income (e.g. royalties, licensing fees, etc.)
                   ● Protect brand value                                               ● Increase ability to enter collaborative agreements
                   ● Protection in overseas markets
          6.2    Please tick UP TO 3 OBSTACLES for intellectual property rights that your firm uses which you find of HIGHEST IMPACT.
                   ● Lack of awareness of relevant IP type                             ● Cost of application
                   ● Concerns regarding disclosure                                     ● Cost of enforcement
                   ● Uncertainty over whether IPR will be upheld                       ● Lack of qualified personnel




                                                               Section 7: Enforcement and litigation

          7.1    Does your company actively check for potential infringement of its intellectual property rights?
                                                    YES                                                        NO
          7.2    Has your company ever undertaken legal action for the infringement of its intellectual property rights?
                             YES, IN HOME COUNTRY                             YES, IN FOREIGN MARKET(S)                                  NO
          7.3a   If yes, how much money did it cost in total to resolve the matter(s)?                                           $
          7.3b   If yes, how much time (in weeks) did it take in total to resolve the matter(s)?                                 weeks




174                                                                                                        INTELLECTUAL ASSETS AND INNOVATION © OECD 2011
                                                                                                                                                          ANNEX B



                                                      Section 8: Intellectual property advice and education

          8.1    Has your company ever sought advice on intellectual property rights from the following sources? (please select all relevant)
                  In-House Legal Professional                             National IP Office
                  External Legal Professional                             Chamber of Commerce
                  Licensing Consultant                                    Business Association
                  Accountant                                              Internet search
                  Colleague/friend
          8.1a   If you have sought advice on intellectual property rights, what was the request for advice regarding? (please select all relevant)
                  Formal structure of IP system                           Enforcement/litigation
                  Filing of IP                                            Search for existing IP
          8.1b   If yes, did the advice received meet your needs?
                                                       YES                                                           NO
          8.2    Is any training in intellectual property issues provided by your company to its staff?
                                                         YES                                                         NO
          8.2a   If yes, who is this training provided by? (please select all relevant)
                  Within your company                                     Government sponsored course
                  Private institute                                       Local school/university
                  Business Association                                    Chamber of Commerce
          8.2b   If yes, is the training funded by: (please select all relevant)
                  The company                Government or other public entity                          Business Association or other private entity
          8.2c   If yes, does this training meet your needs?
                                                       YES                                                           NO
                                                                         END OF SURVEY




                                                       Section 9: Reasons for not utilising IPR protection

          9.1    Which obstacles deterred or prevented you from utilising the intellectual property rights system? Please tick UP TO 3 OBSTACLES
                 which you find of HIGHEST IMPACT.
                  No need/not relevant for my firm                                        Cost of application
                  Lack of awareness of relevant IP type                                   Cost of enforcement
                  Concerns regarding disclosure                                           Lack of qualified personnel
                  Uncertainty over whether IPR will be upheld
          9.2    Has your company ever sought advice on IPRs from the following sources? (please select all relevant)
                  In-House Legal Professional                                             National IP Office
                  External Legal Professional                                             Chamber of Commerce
                  Licensing Consultant                                                    Business Association
                  Accountant                                                              Internet search
                  Colleague/friend
          9.2a   If you have sought advice on IPRs, what was the request for advice regarding? (please select all relevant)
                  Formal structure of IP system                                           Enforcement/litigation
                  Filing of IP                                                            Search for existing IP
          9.2b   If yes, did the advice received meet your needs?
                                                       YES                                                           NO
          9.3    Is any training in IP issues provided by your company to its staff?
                                                        YES                                                          NO
          9.3a   If yes, who is this training provided by? (please select all relevant)
                  Within your company                                                     Government sponsored course
                  Private institute                                                       Local school/university
                  Business Association                                                    Chamber of Commerce
          9.3b   If yes, is the training funded by: (please select all relevant)
                  The company                   Government or other public entity                 Business Association or other private entity
          9.3c   If yes, does this training meet your needs?
                                                       YES                                                           NO
                                                                         END OF SURVEY




INTELLECTUAL ASSETS AND INNOVATION © OECD 2011                                                                                                               175
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                                OECD PUBLISHING, 2, rue André-Pascal, 75775 PARIS CEDEX 16
                                  (85 2011 02 1 P) ISBN 978-92-64-11823-2 – No. 59613 2011
OECD Studies on SMEs and Entrepreneurship

Intellectual Assets and Innovation
THE SME DIMENSION
This series offers policy guidance for governments to foster entrepreneurship and strengthen the performance
of SMEs and their contribution to growth and development. It provides evidence-based analysis and
policy recommendations on thematic issues such as access to finance for SMEs and entrepreneurs,
SME participation in global markets, intellectual assets and innovation, high-growth SMEs and women’s
entrepreneurship. It also includes country reviews of key SME and entrepreneurship issues and policies in
OECD member and non-member countries.


Contents
Chapter 1. Intellectual asset management, innovation and SMEs
Chapter 2. Australia: Intellectual property solutions for innovative SMEs
Chapter 3. Italy: Channeling creativity into competitiveness
Chapter 4. Nordic countries: Matching exceptional design and creativity with progressive policy
Chapter 5. The United Kingdom: Intellectual asset management strategies for diverse innovations
Chapter 6. The United States: Balancing robust protection with rapid innovation




  Please cite this publication as:
  OECD (2011), Intellectual Assets and Innovation: The SME Dimension,
  OECD Studies on SMEs and Entrepreneurship , OECD Publishing.
  http://dx.doi.org/10.1787/9789264118263-en
  This work is published on the OECD iLibrary, which gathers all OECD books, periodicals and statistical databases.
  Visit www.oecd-ilibrary.org, and do not hesitate to contact us for more information.




                                                                          ISBN 978-92-64-11823-2
                                                                                   85 2011 02 1 P
                                                                                                    -:HSTCQE=VV]WXW:

								
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