Intellectual Property

Firms with intellectual property rights perform better

14 Jul 2015

4 min read

A report published by the Office for Harmonization in the Internal Market – ‘Intellectual property rights and firm performance in Europe: an economic analysis’ – sheds light on the link between companies with intellectual property rights and a superior economic position.

In this day and age the economy has evolved in such a way that ideas, imagination and individuality now hold a higher premium than the traditional methods of production. Intellectual property rights (IPRs) enable companies to obtain complete ownership and make full use of their intellectual property – especially from a financial aspect.

This analysis is a follow up report to one which was conducted in 2013. It focused primarily on ascertaining which EU industries were the most IPR intensive. It also went into the effect this has on employment. This study, published in June of 2015 can be said to be a continuance on the first, as it focuses on the performance of companies which have IPR in contrast with the performance of those companies which do not. Information was obtained from a sample of 130,000 firms coming from 12 Member States. The differences between the companies were measured according to the employees’ revenue. Companies with at least 3 years of data in 3 areas – revenue, profits, and number of employees were sampled. The IPRs which were noted are patents, trademarks and designs. This study is limited to IP ownership rather than use.

The scope of the study is not to recommend changes in policy, but rather to act as a foundation for policymakers in their work, and to place IP at the forefront of the European citizen’s mind. The data was analysed using “cluster analysis” – this is the grouping together of companies with similar traits with regards to their ownership of IPRs and subsequently analysing them so as to investigate any systematic differences between them (for example with regards to revenue per employee and average employment per firm). The four major sectors which were sampled are manufacturing, construction, wholesale and retail and professional, scientific and technical services.

The results

An astounding 89.9% of firms do not own any of the three IPRs – SMEs are more likely to be non-owners than large firms. Non-ownership goes down to 60% for larger companies. Most trade mark owners are manufacturing firms, firms in wholesale and those in retail. Large companies are more likely to own all three types of IPRs than SMEs. It transpired that 1/3 of all trademarks sampled were owned by manufacturing firms but on the other hand, manufacturing firms owned 2/3 of all patents sampled.

The revenue per employee of companies owning IPRs was on average 28.6% higher than those of companies which did not have IPRs. The employment rate of IPR companies is six times higher than non IPR companies.

Ownership of IPRs affects SMEs and large companies differently: SMEs which own IPRs have employees with wages which are 32% higher than non-owners. However, among large companies, this difference is only of 4%.

Econometric analysis shows that there is a direct link between the increase in European and national IPR stocks and the enriched performance of the firm. Increases in this performance depend on the type and combination of IPRs – the highest employee wages are those in the trade mark only or combined trademark and design ownership. It is possible that companies which choose to invest in various kinds of IPRs also choose to invest in other intangible assets and be more inventive than companies which do not have ownership of any intangible assets at all. They are therefore usually more willing to take an initiative as well as take risks.

The report made reference to studies conducted by Munari and Santoni and Helmers and Rogers. In the book ‘Trademarks, Brands and Competitiveness’, Helmers and Rogers stated: “Trademarking is associated with higher SME growth rates in assets and turnover over”

Although a cause and effect relationship has not been proven, there is a strong indication that it does exist. This positive relationship is the strongest with regards to SMEs. The report suggests that the next step for researchers would be to look into the way in which the quality of the IPR affects firms’ economic performance.

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