patent information survey: information for innovation: surveys of innovating and patenting small...

Patent information Survey

PATENT INFORMATION SURVEY INFORMATION FOR INNOVATION: SURVEYS OF INNOVATING AND PATENTING SMALL FIRMS

Stuart MacDonald and Bernard Lefang

In October 1996, Sheffield University Management School carried out two surveys of small and medium enterprises (SMEs) in the UK, one of SMEs which had been granted a patent in 1990, and the other of a control group of SMEs. Both surveys were concerned with the information SMEs use for innovation, and both were part of a research project concerned specifically with the use that SMEs make of patent information for their innovation. The project is funded by the Economic and Social Research Council and seeks to test the hypothesis that: the information that SMEs obtain from patent specifications makes a greater contribution to their innovation than the protection afforded by the patent system.

Major Findings Our findings could hardly be more clear cut. By far the chief of these is that:

the patent system generally makes no contribution of any importance to the innovation of SMEs.

Though the vast majority of the surveyed firms consider themselves to be innovative, very few indeed attached any value to the patent system either as a source of information or as a means of protection. Our research hypothesis would appear to be not so much disproved as rendered irrelevant. More fundamentally though R&D (as officially measured) is rare in SMEs. The surveys reveal that:

irrespective of any involvement with the patent system, nearly all of these firms consider themselves innovative and to be engaged in investigative activity.

Also of considerable interest is the apparent isolation in which SMEs carry out their investigative activities. While the patent system is outstanding in its irrelevance to innovation in SMEs, most other external influences also have little impact. The conclusion is that:

SMEs rely heavily on their own internal resources for their innovation to the neglect of external resources.

Observations Our observations, like our major findings, are less than subtle. Basically, they are that:

there is scope for extending the ability of SMEs to

exploit external resources to facilitate their innovation.

This does not necessarily mean that policy measures are required. It may be that appropriate steps can be taken by SMEs themselves without government interference. How- ever, government and government agencies already imple- ment many programmes designed to assist SMEs, especially in their innovation. Some tailoring and re-direction may be advisable. Many of these policy measures focus on the patent system on the assumption that this plays an important part in the innovation of SMEs. It does not, and th.ese surveys provide strong evidence that:

policy and programmes to encourage SMEs to innovate through making more use of the patent system may not be appropriate and are likely to be ineffective as long as SMEs remain insular in their approach to innovation.

The Surveys: Findings and Commentary

Survey 1) Innovation in Non-Patenting SMEs Questionnaires were sent to 2000 manufacturing firms throughout the UK with between 10 and 250 employees, the sample being taken from a commercial database. Some 774 (38.7%) replies were received, of which 687 (34.5%) were usable.

Survey 2) Innovation in Patenting SMEs This sample was taken from the Patent Office’s own database of those UK SMEs (employing between 10 and1 250) which

344 Computer Law & Security Report Vol. 13 no. 5 1997 01997, Elsevier Science Ltd.

Patent Information Survey

had been granted at least one patent in the UK or Europe in 1990. Some 615 questionnaires were despatched, from

which 218 (35.5%) replies were received. Of these, 188 (32%) were usable.

Response rates for surveys of small firms are notoriously

low and these rates were judged satisfactory.

Innovation in SMEs The survey firms were given every chance to identify themselves as innovative, a very broad definition of innova-

tion being adopted, and any innovative activity over the last decade being the qualification. Innovation was perceived as technological innovation, which was defined as:

any product the company has produced that is new to

the company or the market, or any process the company has introduced that is new to the company.

Add to these criteria the general desire to perceive one’s

own firm as innovative and it is perhaps not surprising that 69% of all these SMEs declare that they are innovative. What is much more interesting is that even more -- 83% - report

that they are engaged in investigative activities considered to be research and development (R&D). Among patenting SMEs,

the tendency is even more marked - 94% declare that they have innovated in the last 10 years, and 90% that they

conduct investigative activities (Figure 2).

patenting firms

Figure 1. Firms which have innovated and which carty out investigative activities (%j

Information for Innovation If i%ms are to do anything new, to be innovative, they genera& require some contribution of information from the

outside world. This does not mean that innovation is simply

purchased and plugged in; even so-called ‘turnkey’ technology demands considerable efforts from the adopting Rrm before it can be used. Innovating firms, even those which

perform a great deal of R&D, are generally heavily dependent on external information for their innovation. In particular, they look to customers, suppliers and competitors for

information about the latest developments in their industry and market. So, too, do these SMEs: 58% of the non-patenting

group find customers useful sources, and about 40% look to suppliers and competitors. These proportions are actually surprisingly smali compared with those found in surveys of

larger firms, but they are massive compared with the contribution of information from other external sources

(Figure 2a). In fact, all other likely sources of external information vie with each other in their uselessness for innovation in SMEs, which is interesting in that many of these sources take some pride, and expend considerable public

resources, in their efforts to provide information to SMEs. Most successful in this unenviable com.petition are govem- ment sources and the patent system. Less than 10% of these

non-patenting SMEs declare these sources to be of importance as sources of information for their innovation.

Figure 2a External sources of informanion rated important for innovation (non-patenting firms)

Ffgure 2b. External sources of information rated important for innovation <patenting firms)

The pattern is very similar for patenting SMEs (Figure 2b).

Again, they look to customers, suppliers and competitors for information, but rather less so than the major group of SMEs.

And again, they find all other sources of information to be of little importance. As might be expected, they find the patent system to be somewhat less useless than do SMEs in general, but the positive side is not encouraging for those who feel

that the patent system is obviously a major source of information for innovation in SMEs: while only 8% of the

non-patenting SMEs think patent information of some importance, only 12% of SMEs which have patented, and

Computer Law & Security Report Vol. 13 no. 5 1997 0 1997, Elsevier Science Ltd. 345


which therefore have some familiarity with at least the protective side of the system, consider patents are of some

importance as a source of information. While familiarity with the patent system may not exactly have bred contempt, it has certainly not induced much confidence in the value of the

information the system contains.

There is, then, considerable evidence that innovation in SMEs is the sort of activity which is carried out in isolation from the outside world, which is almost entirely dependent

on the company’s own resources. This is reinforced by what the surveys reveal about the means by which information is acquired. By far the most important of these means is the

firm’s own R&D (specified as such rather than the more general ‘investigative activity’). The only other means of any

significance is the technical and trade press (Figure 32). Once again, there is intense competition among the means

least useful for the innovation of these non-patenting SMEs (Figure 36). Means which are characteristically important for innovation in larger firms, such as formal and informal

agreements with other firms, are of no importance for this group. Means which have been found to be important in

industries with rapid innovation, such as hiring employees from other firms, are similarly insignificant here. But, once again, one of the least useful of all is consulting patent

specifications.

The pattern is very much the same for patenting SMEs. Technical and trade journals are far and away the most

important means of acquiring information for innovation, but even this means pales into insignificance alongside reliance on the firm’s own R&D. A full 77% of patenting SMEs reckon

Figure 3a. Means of acquin’ng information for innovation considered important

7

t xnployees elsewhere

PATENT SPECS.

T”,rad,o

Figure 3b. Means of acquiring injWmatton jar innovation considered important

this an important means of gaining information for innova-

tion. Just 16% see consulting patent specifications as an important means of acquiring information, whEch exceeds the 6% of non-patenting SMEs.

Patenting Activity In theory, the patent system should be of particular benefit to

SMEs. In practice the problems of the system, particularly its complexity and the difficulty of defending a patent against a larger company, reduce much of its value. It is &ten argued

that the other forms of intellectual property protection - registered designs, copyright, trade secrets and trademarks - are of more practical use to SMEs. This would seem to be questionable. These SMEs do not see any form of intellectual property protection as important to their innovation. What is

more remarkable is that even those SMEs which have patented, and therefore have some knowledge of’ the system, are only slightly more likely to see other forms of intellect&

property protection as benefiting their innovation (Figures 4a and 4b). In both cases, trademarks and trade secrets are a little more valued than copyright and registered designs, but

the difference is marginal and is overwhelmed by the vast majority of all these SMEs considering that all forms of intellectual property protection are of Little importance for

their innovation.

Most of the firms surveyed because they had been

granted a patent in 1990 had since acquired other patents

I trade secrets trademarks copyright reg deag” J Figure 4a. Benefits to innovation from other forms of intellectual property protection (non-patenting ji’rms)

Figure 4b. Benefits to innovation from other forms of intellectual property protection (patenting firms]



Figure 5a. WOypatent searcrcles are conducted (non-patentin, firms)

Figure 5b. W%y patent searches are conducted (patenting f&ms)

- but not many. On average they had acquired but one other

patent, and only 13% had more than 10 patents. This does not necessarily mean that they are not innovative: it does suggest that they have reservations about the value of a patent. About

half did not apply for patents on inventions they though were patentable. Two-thirds have developed their invention since patenting it in 1990, but 87% would have developed the

invention even without a patent. Predictably, development is

almost exclusively in-house rather than in partnership with others. Licensing the patent to others is not a popular course; 81% have not done so. Nor has the vast majority licensed

patents from anyone else over the last 10 years. Not a single firm could boast that it frequently licensed patents from others. Of the few firms that did license, most gained know-

how as part of the agreement, but the license also restricted what they could do with the technology. Most common among these restrictions are agreements not to sell outside a

geographical area, not to dispute patents, not to sell competing products, and agreements to buy parts from the licenser and to license back improvements.

These patenting SMEs were asked the obvious questions:

why take out a patent? The response is equally obvious: simply to protect the invention. About half also want to prevent others patenting, but there is little sympathy with

the argument that a patent can assist in the development of an invention. More revealing still are the patent searching

practices of respondents. About half regularly conduct patent searches and almost all these pay a patent attorney to search

on their behalf. AS Figures 5a and 5b show, the most important reason for doing this is to keep track of competitors, but the next most important reasons are to

check on potential patent infringements and to prepare for patent applications. It has been noted by others that some of the most significant uses to which the patent system is put

are demanded by the patent system itself. When this happens, the patent system is serving not the requirements

of innovation, but is own requirements. Given that about two-thirds of those SMEs which do regularly search patent specifications seek no other information tlhan that demanded

for the patent system itself, it might be assumed that many

SMEs which do search to keep track of competitors are actually keeping track of their competitors’ patenting, and that this is why patent attorneys are so generally employed to do the searching.

Implications The two surveys paint a somewhat depressing picture of SMEs which are largely isolated from the external sources of

information for innovation which larger firms and firms in rapidly innovating sectors find so important. These SMEs

seem to rely very heavily on their own resources. There is a range of likely reasons for this, but basically they come down

to employees of SMEs, and especially senior management, having few resources available to search for information in the outside world. In a small fum, everyone is needed for day-

to-day operations, and perhaps for survival.

Yet these are not stagnant firms. They declare themselves to be avid innovators. But because they rely to a singular extent on their own resources, they run a real risk of re-

inventing the wheel with every effont to innovate, and certainly of innovating with more troublle and expense than might be necessary. That they should tolerate this self-

imposed disadvantage may be attributable to problems they experience finding, acquiring and using external information

for innovation. If this is the case, the mere availability of this information will not solve their problems. The evidence would also seem to indicate that SMEs are often incapable of

finding solutions to these problems themselves and that government intervention may be justified.

There is, of course, a variety of policy measures designed to help small fums acquire information for innovation. The

performance of these tends to be assessed in terms of firm involvement in these prograrnmes rather than in terms of benefits to the firms’ innovation. The surveys described here

step well back from these progratnmes and their customary

performance measures to look at innovation from the perspective of SMEs themselves. From this perspective, no external influence has much impact on their innovation.

This research project set out to det,ermine whether rhe patent system contributed more to the innovation of SMEs

through the information it makes available than through the protection it affords. The surveys show the question to be redundant neither function of the patent system is of any

particular importance. Patent protection is little valued and innovation is rife in its absence. And among a host of sources of information that SMEs might use for innovation and rarely

do, patent information is distinctive in being used least of all.

Computer Law & Security Report Vol. 13 no. 5 1997 0 1997, Elsevier Science Ltd. 347


But there is a patent system and this system will remain. Considerable efforts are made to render the system useful for innovation, especially ln SMEs. It would seem that these

efforts are less successful than those who administer the system might imagine. One rational response would be to

increase these efforts. This research suggests that this may not be the best course. It is tbe isolation of SMEs that needs to be addressed, and their innovation practices in this

isolation which needs to be understood before policy can hope to devise effective programmes. Whatever is done to assist SMEs in their innovation must be done in the context

in which SMEs already innovate, not in an imaginary context in which SMEs exist only to innovate. Innovation in SMEs is

always a means to an end rather than an end in itself.

Stuart Macdonald & Bernard Lefang, Sheffield University

Management School, 9 Mappln Street, Sheffield Sl 4DT, UK.

This report has been produced for managers of small and medium enterprises who responded to surveys on innovation and the patent system. The surveys are part of a research

project, funded by the Economic and Social Research Council (grant number L325253021) and part of the ESRC’s

Intellectual Property Programme. This report presents some preliminary findings.

We are grateful to the many individuals and companies who participated in the surveys and for the information they

supplied. Responsibility for the opinions expressed in this report lies with the authors alone. Comments on the report are welcome, as are requests for further information and publications emanating from the research. They should be directed to Stuart Macdonald or Bernard Lefang on Tel: + 44 114 222-344:6/3454; Fax: +44 114 222-3348, or E-mail: S.Macdonald@SheffLeld.

ac.uk

BOOK REVIEW Software Licences Software LIcence Agreements - Techniques In Structuring and Negotiating Contracts by Robert TJ. Bond, 1997, soft-cover, Thorogood Ltd, 233 pp., &125, ISBN 1 85418 076 2.

This text provides an introduction to tbe techniques of negotiating and drafting computer contracts with al particular concentration on software llcences. As the preface indicates, although there are already many excellent texts covering the subject matter of computer law and IT law, this Report “Is intended to complement such academic works by providing a general explanation of the law, whilst covering in more detail the practical and commercial aspects of computer contract negotiations.” The text is intended to be used as a working tool to guide the reader through the law and the various stages involved in the software licensing process. Section 1 of the work explores the need for software licencing and the pros and cons of standard terms and conditions. Section 2 examines the different types of software contracts from software llcences through to Web site development contracts and to escrow entrusted third party agreements. Section 3 introduces the various laws and intellectual property rights which underpin and shape computer contracts, and section 4 analyses why and when transactions are significant enough to warrant negotiation. The common mistakes often made in negotiations are highlighted. Section 5 deals with the relevant aspects of pre-negotiation preparation for both software suppliers and their customers. Section 6 explains the use of Heads of Agreement and details the different terms, conditions and clauses found in software contracts. Tbe final section discusses the key licensing terms for both providers as well as customers. Appendices contain a number of draft agreements.

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