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Ambassador Dacio Castillo (Honduras)
World Intellectual Property Organization (WIPO)
13.87. The representative of WIPO said that, as he was from the Economics and Statistics Division, he would focus on what the economic literature had to say about firm size and innovation and firm size and the uptake of IP. 13.88. Given the strong share in growth and employment of SMEs, there was an on-going interest in their role in the economy. The debate on the contribution of small firms to innovation was as old as the economics of innovation itself. With R&D spending used as an imperfect proxy for measuring innovation, it was seen that, on average, large firms spent more on innovation and, by this measure, produced more innovation outputs than small firms. 13.89. The vast majority of small firms did not perform any R&D. Even among the largest firms, R&D was highly concentrated. Yet, in high-income countries, there was huge heterogeneity among small firms. Research showed that some SMEs were in fact highly research intensive. The literature also showed that small firms might have an advantage in inventions, especially at the earlier stage of inventive works, and with more radical innovations. Innovation projects with higher risks and returns often took place within research-intensive SMEs, which were often university spin offs. Larger firms in turn had an advantage in later stages and in improvements and scaling up of breakthrough innovations. 13.90. Furthermore, significant differences existed across sectors. The chemical sector and other sectors with large capital intensity were dominated by large firms. However, in mechanical engineering, software, and the like, small firms contributed actively to innovation. In many low- and medium-income countries, most R&D was performed in the public sector or in some state-owned large firms. While that was changing rapidly in some middle-income countries, in most countries spending on R&D was very little. Smaller firms were often part of the informal sector, which was most often disconnected from any formal innovation system or public research organizations. 13.91. Patents were often taken by economists to be a proxy for R&D and innovation outputs. A longstanding policy concern was whether SMEs were disadvantaged in comparison with larger firms in their use of the IP system. As discussed in more depth in the WIPO World IP Report 2011, different firms deployed diverse strategies to appropriate returns from innovation. Even in the formal sector of high-income countries, the use of formal appropriation mechanisms such as patents was not the norm. For instance, only a small fraction of all firms in all sectors in countries such as the United States considered IPRs as important for appropriating returns from R&D. Among firms that considered IPRs important, trademarks were considered most important, on average, followed by trade secrets, copyrights, industrial designs and patents. 13.92. For many firms, it did not make business sense to use IPRs. However, as firms' R&D intensity and collaboration with public research institutions increased, patent protection became relatively more important. In particular, sectors with "discrete" production technologies, such as pharmaceuticals and chemicals, relied heavily on patents. 13.93. It was hard to disentangle the use of IP by firm size based on available data. There was a need to match firm data to patent data. Some of that work was being carried out by WIPO's Chief Economist for the Committee on Development and Intellectual Property (CDIP). Based on available data, however, on average the propensity to patent seemed to rise with firm size, other things being equal. It was rare that small firms relied on patents as formal appropriation mechanisms. When small firms innovated, they often relied on secrecy, lead time, or confidentiality agreements. Specifically, SMEs that cooperated in innovation with other horizontal partners, or significantly depended on vertical partners, preferred speed and lead time to appropriate returns to R&D. Even where small firms did use patents, there were only a small number of patents taken out per year relative to R&D spending. They also relied less on patent information as a source of knowledge. 13.94. That did not mean, however, that small firms failed to use the patent system. Research-intensive SMEs that harboured specialized knowledge strongly relied on the patent system, in particular spin offs from universities or in partnership with universities, or firms in the business of supplying R&D services. IPRs provided such firms with a reputation effect and access to finance. Small firms also actively used other forms of IP such as trademarks. New research at the OECD also showed that 'young firms' relied more on IP. Most OECD countries for which data was available showed a significant share of patenting activity of young firms, as share of total patents. Also, firms that used patents and trademarks had a substantially lower probability to exit the market within the first few years. 13.95. Turning to low and medium-income countries, he said it was very difficult to obtain data by firm size. Evidence showed that the uptake of IP was low among firms in these countries in general and this was true particularly among small firms. Nonetheless, use of IP was increasing throughout the world and there was a need for more study. A study performed by the CDIP on the role of innovation and IP in the informal economy in Africa indeed found many instances of innovation in small, informal firms. The project also sought to document their potential to use IP. 13.96. Another representative of WIPO indicated that micro, small and medium-sized enterprises represented over 90% of enterprises in most countries worldwide, and contributed significantly to innovation, employment, exports and economic growth. However, the vast majority of SMEs did not use the IP system for protecting their IP assets due to a variety of reasons, including a lack of awareness of the IP system, perceived high cost, complexity, inadequacy, inefficiency of using the IP system, and insufficient skills and competence in exploiting its potential for competitive advantage. In a large number of countries, the absence of readily accessible IP information and an effective focal point at the national level for interacting with the large number of heterogeneous SME support institutions also created a communications challenge for WIPO in general and for its SMEs' programme in particular. 13.97. In line with the WIPO Development Agenda Recommendations, one of the aims of WIPO was to increase the number of SMEs successfully managing their IP assets to create value and increase their competitive advantage. That aim had been achieved by reaching individual SMEs through SME support institutions and other relevant government institutions and assisting them. This was done primarily through training of trainers programmes conducted in developing countries and LDCs and countries with economies in transition in understanding the value and role of IP asset management, with special focus on the exploitation of IP assets, including trademarks and other IP rights, in branding, marketing, innovation, business operations and access to finance. 13.98. In addition, WIPO disseminated information as widely as possible through the use of the Internet, mainly through the WIPO SMEs website which contained regularly updated material of relevance to SMEs on IP asset management, as well as a monthly electronic newsletter on issues of interest to SMEs and SME stakeholders. Moreover, WIPO continued to make its SME-specific publications available locally through translation and customization and, to make available upon request, the IP PANORAMATM multimedia toolkit. More recently, it had funded eight national studies on SMEs and IP in developing and least developed countries and in countries with economies in transition as a support for IP and SME policy makers. The conclusions and recommendations, it was hoped, would be useful to policymakers in framing appropriate policies and support services on IP for SMEs. 13.99. WIPO's IP Services systems, such as the Patent Cooperation Treaty (patents), the Madrid system (trademarks) and the Hague system (industrial design), and the Global Infrastructure services, offered a higher value, more economical and less complex alternatives to enterprises of all sizes, including SMEs, to obtain IP protection internationally and to build collaborative networks and technical platforms to share knowledge and to simplify IP transactions, including free databases and tools for exchanging information.