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Intellectual property management in

small firms and in service context

RESEARCH SEMINAR
Prof. Jari Kuusisto
March 8, 2010
BRIGHTON

1 ©Jari Kuusisto www.scr.fi


Outline of the presentation

• Background
• Growing importance of intangibles
• Key research results
• Variation across the industries
• Use of IPR and informal methods
• Informal IP protection and management methods
• Case examples of publishing
• IP protection and innovation life-cycle
• IP landscape - some future issues
• User roles in innovation process
• Concluding comments
• Policy issues

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Growing importance of intangibles

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Growth of intangible assets
• ≈ 80% of S&P 500 Value is Intellectual Property

1975 1985 1995 2005


Source: www.metrics2.com/
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http://www.metrics2.com/blog/2006/12/18/80_of_sp_500_value_is_intellectual_property_new_et.html
Intangibles and corporate value t1

Corporate value

Tangible capital Intellectual capital

Physical Financial Human Intellectual


assets assets resources assets(IP)

Source: Heiden (2008)

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Intangibles and corporate value t2
• New broader scope of intangible value

Corporate value

Physical
assets Intellectual capital

Human Physical Intellectual Financial


resources assets assets assets

Source: Heiden (2008)

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Research project

• Report is based on an extensive research in the UK and Finland

• ‘Intellectual property initiative’


• ESRC / UK Patent office research programme involving 11 research groups
• ‘Intellectual Property and Innovation Management in Small Firms’
• The relevance of IPR system to the needs of small enterprises
• Key finding: Importance of informal IP protection in SMEs

• Characteristics and the use of informal methods among the SMEs


• SC-Research carried out 3 year research programme analysing 350 SMEs in the UK and Finland
• Strengths and weaknesses of informal IP protection methods

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Key research results

• The way SMEs make use of the IPR system depends on


the business sector where they operate and the size of
the business

• For many SMEs the patent system has little or no


relevance
• At the same time many SMEs stress the importance of the R&D for the
business

• For research-intensive sectors patenting is crucial


• E.g. SMEs in biotechnology and electronic sectors

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Variation across the industries
Formal
protection

Metal- and electronics


industry

- patents are commonly


used
- fairly good knowledge
on IP-related issues
Software industry
- rather negative attitudes
towards patenting
- speed of development
and commercialisation is
crucial
Knowledge intensive
services
- problems with IP-protection
are recognised
- use of copyrights and trade
marks varies between firms

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Informal protection
Variation within the service sector

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Adoption of formal IPR among KIBS

• Many SMEs have realised the


Patents Utility models value of their IP, and understand
9% 6%
how to manage their assets

• Still the use of formal IPR


methods that require registration
is limited, especially in services
91 % 94 % business

Copyrights Trademarks

31 %
36 %

Using
64 %
69 % Not using

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Use of informal IP protection practices
Secrecy Fast innovation cycle Enhancing the
commitment
•SMEs tend to prefer informal
10 % 14 %
methods instead, and they are
16 % perceived as:

90 %
86 %
84 %
•Effective
•Cheaper, and
Documentation Restrictions Circulation of duties
•Within the control of the company
16 % 20 %

32 %

68 %
84 % 80 %

Technical protection Publishing Division of duties

20 %
32 % Using
49 % 51 %
Not using
68 %
80 %

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Knowledge
protection and management methods

Formal Contracts Informal


protection methods (IPRs) protection methods

Copyrights Industrial property rights - Non-competition - Secrecy


- Confidentiality - Publishing
- Patent - Recruitment freeze - Restricted access to knowledge
- Utility model - Employee inventions - Circulation of duties
- Desigh right - Non-disclosure - Confidentiality / trust
- Right to business name - Customer relations management
- Effective sharing of information
- Documentation
- Fast innovation cycle
- ʼTechnicalʼ protection methods
Complex design
Tags / dongles
- Packaged service ʻproductsʼ
- Circulation of duties
- Trade organisation membership
- Employee loyalty building
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Contracts
• Contracts are legally binding and flexible
• Parties can agree on many types of things between themselves
• Can be difficult to enforce effectively without legal procedures
• Non competition agreements covering
• Employees, business partners
• Suppliers, sales channels, sub-contractors
• Confidentiality
• NDAs with employees, customers, suppliers...
• Recruitment freeze
• Can limit employees from working with the competitor for a certain
period of time
• Employee inventions
• Set of rules and principles for compensation and the ownership of
inventions

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Informal IP management and
protection methods
• Mostly informal methods are not legally binding

• They can be both proactive and restrictive


• Limiting the flow of knowledge within the firm and out of the firm
• Between the employees
• Between employees - suppliers - clients etc.

• Encouraging knowledge creation within the firm


• Motivate and encourage employees to develop new
innovations
• Encourage long-term employment

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Secrecy

• Key-knowledge can be kept secret from employees,


suppliers, business partners or customers
• One of the most common informal protection methods

• May have negative impact on innovativeness


• Need for knowledge sharing
• Necessary and useful at the early stages of innovation life-cycle prior
to the IPR protection
• In the longer term secrecy tends not to be a very effective method - at
some point secrets tend to leak to outsiders

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Publishing

• New idea can be published as widely as possible and the


initial developer of the idea will become well-known as
the innovator
• Seeks to prevent un-authorised copying
• Very important protection method in the service sector
• For instance in advertising
• Publishing can prevent others from claiming patents in
the same area
• Publish the results of a biotechnology research in the local newspaper in
Portugal

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Defensive publishing - Case 1
• ‘In an era of rapid change and heavy competition, does a
company still have the time - and the money - to patent
every innovation that comes along? Increasingly,
innovative companies are finding a strategic alternative:
defensive publishing’

•IBM
• Since 1982, IBM decided to switch from patenting to extensive publishing
of its inventions, thus in the same time, preventing competitors patenting
as well
• IBM Technical Disclosure Bulletin has emerged as the single most cited
source for prior art by the United States Patent and Trademark Office
• Publishing websites
• Growing publishing platform
(Source: The Bridge, fall 2001)
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‘Hidden’ publishing - case 2

• A small Portuguese bio technology enterprise publishes its new


invention in a local newspaper, in Portuguese language
• Known competitors are highly unlikely to discover this information
• Still, publishing can be used in blocking competitors patenting of the same
invention

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Boston Consulting Matrix - case 3
• Consultancy firms regularly publish their concepts and tools
• The business community knows the origin of the new concept regardless who is using it
• Earn ‘dividends’ via publicity & reputation

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Resticted access to key knowledge

• Restricting the number of people who have access to the


sensitive key-information
(employees, business partners, customers)
• May lead into insufficient knowledge sharing
•creates a barrier to innovativeness!

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Cultivating loyalty and commitment of
the personnel
• Seeks to establish long-term employment relations

• In many fields employees are considered the most


valuable asset of the business
• Strategies to maintain staff loyalty include:
• Financial incentives
• Training opportunities
• Occupational development related incentives
• Pleasant working environment
• However, incentives given to individual employees may
also harm the organisational climate

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Compartmentalising of work tasks

• Work tasks can be divided between employees so, that


each one controls and has knowledge only on a small
fraction of the process

• Individual members of staff do not know the entire product, process or


service concept
• Minimises employee-related risks in the case of departure, or recruitment
by the competitor
• More suitable for larger organisations
• In small firms compartmentalisation is not a natural tendency

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Circulation of work tasks

• Rotating staff between work tasks and making sure that


at least two members of staff know each of the key work
tasks
• Serves as a way to decrease dependence on individual members of staff
• Can be problematic for very small businesses
• Comprehensive documentation may be an alternative approach

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Documentation

• Documentation of ideas and thoughts reduces the risk of


loosing key knowledge
• By documentation a business can transfer tacit
knowledge into a more explicit forms
(written documents, tapes, databases)
• Should be carried out simultaneously with the evolving
innovation
• Two dimensions:
• Enables the effective sharing of knowledge
• Reduces the risk of a sudden loss of IP in the case when a member of
staff leaves the business

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Fast innovation cycle

• Maintaining the lead-time advantage


• Continuous flow of new or improved products can reduce
the risk of harmful copying
• Has a significant role in fast developing businesses, e.g. in software
industry
• Fits well for small businesses due to their ability to respond quickly to
the changing market demands

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Technical protection

• Provides large number of different instruments


e.g. dongles = security keys embedded in software
• Can also involve incorporation of specific identification
codes e.g. in software programs, in photographs or other
documents
• Also firewalls and passwords are widely used

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Innovation life-cycle and IP protection
• IPR and informal IP protection can
effectively complement each other
over the innovation life-cycle Next innovation
New technology or
technological
non-technological

________________________________________________________ T
Informal Formal+informal /informal Saturation
(Invention) (commercialising)

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Comparing methods

INTELLECTUAL PROPERTY CONTRACTUAL PROTECTION INFORMAL IP PROTECTION


RIGHTS

• Legal protection • Legal protection • Relatively cost effective and easy


• Lisence income (potential) • Can be seen as an asset to apply
• Can be used as a bargain chip in • Relatively cost effective and easy • Flexible, can be adopted cross the
the negotiations to apply industries and even in the smallest
• Useful in securing external financing • Flexible, can be adapted to the enterprises
wide range of situations • Can be adapted according to the
situational requirements
• Can improve the overall
effectiveness of the business

• Protection can be obtained only for • Too strict or assymmetric contracts • Offer very little in terms of legally
knowledge that meets the criteria can have negative influence on based protection
• Involves relatively high costs: innovativeness • Some informal methods require
application, maintaining and constant attention and updating
defending
• Complexity of procedures
• No protection unless the business
is able and willing to defend their
IPR

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IP landscape - some future issues

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Main forces changing the intellectual property
landscape today

1. The globalization of the economy;


2. The development of new technologies;
3. The spread of Internet connectivity and broadband penetration;
4. The growth in economic importance of non-technological business
innovations and resources not protected by existing intellectual
property regimes;
5. The politicization of intellectual property issues; and
6. Changes in the ways businesses operate
• More open innovation activities
• Users increasing role in innovation activities

Source: ICC (2008) Current and emerging intellectual property issues for business - A roadmap for business and policy makers

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Changes in innovation activities

Users  as  drivers  of  product/service  development

Supplier  driven  R&D  and  market  research

Developing Customers  &  users    as U<lisa<on  of  user


customer  &  user actors  and  resources innova<ons
understanding
New  level  of  interac8on User-­‐driven  new  service
New  research  methods gives  customers  /  users development  has  great
that  provide more  power  & poten8al  and  it  requires
in-­‐depth  understanding responsibili8es  in  the new  capabili8es
on  customers  &  users R&D&I  process

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Concluding comments
• Intellectual property rights (IPRs) represent only a tip of the iceberg
on the field of IP management and protection
• Yet, the research has almost fully focused on the formal IPR
• IP related institutions focus on IPR
• Also policy debate is very much centred around IPR

• Knowledge economy and globalisation as drivers of change in IP


protection practices
• Intangible knowledge is increasingly important ingredient of business success
• Copying of intangibles can happen globally in a matter of minutes
• Protection of intangible IP requires informal methods as well as IPR

• Successful commercialisation requires sufficient attention to formal


& informal IP protection

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Policy issues
• There is a need to create awareness of informal IP
protection within the business community
• SMEs and service sector as key target groups for practical advice
• Informal IP protection manual and training DVD for SMEs
• Linking IP services offer to the life-cycle of the business
• More European research on the issue
• Informal IP protection offers a new perspective
• It can be a challenge for existing institutions
• At the same time it provides a good opportunity to improve the overall
IP awareness and skills within the SME sector
• Systematic utilization of informal IP protection can promote also
the use of IPR system, ‘first step’

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Thank you for your attention!

jari.kuusisto@sci.fi

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