Protecting Intellectual Property to enhance firm performance: does it work for SMEs?

Purpose – Measuring the effects of intellectual capital on firm performance is essential in the knowledge and information age. Intellectual property (IP) has a worldwide recognized protection, and patents and trademarks are two of the most relevant intellectual property rights (IPRs). The literature offers many different contributions as far as the relationship between patents and firm performance is concerned, even though they don’t reach a shared result. Kendall et al. (2010) find that patents are negatively associated with both ROA and sales growth, while Tseng and Wu (2008) and Bessler and Bittelmeyer (2007) find that patents positively and significantly influence firm performances. These different results suggest that further research is needed to shed light on how the type of industry and the differences between large firms and SMEs influence this relationship. On the contrary, trademarks have not been extensively analyzed in previous studies (Helmers and Rogers, 2008), but since trademarks help consumers to reduce search costs and hence producers are able to charge a higher price (Landesand Posner, 1987), we presume a relationship between trademarks and firm performance exists. Thus, this paper aims at studying the relationship between two different IPR, patents and trademarks, and firm performance in SMEs in two different industries. Design/methodology/approach – We propose an approach that uses linear regression to investigate the relationship between the number of IPR, the independent variable, and firm performance, the dependent variable, in two Italian industries: the North-East packaging district, a technology-driven one where patents are the main IPR, and the Brenta shoe district (near Venice), a market-driven one where trademarks are the main IPR. Data for patents and trademarks were obtained by respectively Thomson Innovation, the Thomson Reuters database containing global patent data, and TMView, the WIPO Database containing global trademarks data, Romarin, the international trademark system, and UIBM, the Italian trademark database. Data for performance outcomes were obtained by AIDA, the Bureau Van Dick database containing company financial and business data. After performing linear regression, the focus of the analysis was shifted to the influence that each type of IPR has on firm performances. To this purpose, a cluster analysis has been carried out within each industry in order to verify if there are any significant differences between high and low performers using the NPC Test (Multivariate Permutation Test using MiniTab). Originality/Value – The relationship between IPR and firm performance in SMEs is much less studied than in large companies, and in particular the relationship between trademarks and firm performances has never been investigated at empirical level. The results of this exploratory study put in evidence that there is not a positive relationship between the number of IPR and firm performance in SMEs. In particular, firms with better performance have no or a few patents in the packaging industry and a small trademarks portfolio in the shoe industry. In the discussion, we try to give explanation to the results and to formulate hypothesis analyzing the effect played by other variables related to both the firm (e.g.: R&D and advertising expenses and the firm age) and the IPRs (e.g.: their scope, the residual life and the number of citations of patents) for the two industries separately. Practical implications– The outcomes of the study concern the way SMEs deal with the protection of intellectual capital and IPR in particular. The analysis makes it clear that at present SMEs take out a patent or register a trademark more for reasons of protecting the invention or preventing imitation or falsification than to capitalize on their technological, knowledge and reputation assets. This evidence underlines the absence of a valorization strategy of IPR, which can have different causes. One of these may be the lack of managerial competencies within SMEs, but this aspect deserves further research in order to discover the real reasons why SMEs are not able to convert their intellectual capital into firm performance. Further analysis, based also on in depth case studies, is necessary to shed light on this issue.