At this point, at the peak of technological progress, most innovative SMEs understand the importance of adequately protecting their intangible assets, but they may not be as aware of the importance of focusing on and planning for the activation of the front where legal battles will be fought when the company takes off internationally and has to engage in the different commercial traffic of each relevant State.
According to EPO/EUIPO, SMEs account for 99% of EU enterprises, employ two out of three workers, and produce 57% of GDP (1). However, only 9% opt for intellectual property rights registration, in contrast to 40% of large companies (1).
There is a clear positive correlation between the generation of intellectual property rights and the economic progression of the company, whether this SME (High-Growth Firm, HGF) or large enterprise, indicating a greater ability to sustain growth through the creation, protection, and exploitation of intellectual property rights (1).
To ensure that innovative SMEs that do not bet on Intellectual Property as an essential business asset (91%), come to access, use and exploit such assets (e.g. patents, trademarks, and designs), it is necessary to generate support tools that encourage this bet. Access to assets can be relatively expensive for the SME but when it comes to litigating to exercise its rights through the Courts in the States in which the infringement is committed, but the defense/attack becomes impossible as the owner is who must take on the active defense and bear financial costs, which can far exceed the net profit of the company in several fiscal years. According to a recent publication of the World Intellectual Property Organization (2), the median first instance costs of patent litigation are between the following values per Jurisdiction (in US$ millions): United States of America 1-6 / Japan 0.3-0.5 / China 0.02-0.15 / Korea 0.15-0.4 M / Germany 0.09-0.25 / United Kingdom 1-2 / France 0.06-0.25 / Netherlands 0.07-0.25.
Therefore, in these cases, Intellectual Property rights may not represent a real incentive for research or innovation, and consequently, these SMEs are at a clear disadvantage compared to larger companies.
The countries best placed in the innovation tables and indices such as the United States, the United Kingdom or Denmark have patent risk insurance products for SMEs, whereas those worst placed not only do not have these insurances, but also present difficulties for their introduction because they lack critical mass (e.g. volume of insurable patents) or because there are low-quality assets (as may be the case of Spain with weak patents granted through the general grant procedure prior to the entry into force of the new Patent Law 24/2015)(3, 4).
However, the necessary SME’s internationalization process means that, generally speaking, when companies engage in the commercial traffic of a country ranking high on the innovation indexes, they must defend their Intellectual Property rights, or only defend themselves against infringement claims and, to this end, obtaining a risk insurance policy on Intellectual Property assets with a coverage that adapts to their business strategy and planning, configuring a risk management design that enables them to offer affordable premiums is highly advisable. This type of insurance can cover (i) legal assistance against e.g. infringement of the insured’s right, (ii) damages, or (iii) a combination of the foregoing but there are also other interesting coverage options, such as defense against lawsuits involving company directors and senior officers.
Additionally, risk insurance on any Intellectual Property asset not only provides a direct advantage for operating in any market with greater confidence, but also, in the event that the SME requires a capital increase, the investor will positively assess the company that has insured its intangible assets since their investment will benefit from security against possible litigation. On the other hand, distributors operating in countries with a high level of commercial litigation of this nature often require insurance as the essential condition for marketing the product.
Rafael López Moya, PONS IP Technology Transfer Director and Head of the Valencia Office.
- 1: European Patent Office and European Union Intellectual Property Office, High-growth firms and intellectual property rights – IPR profile of high-potential SMEs in Europe, May 2019
- 2: Christian Helmers; Economic Research Working Paper No. 48 – The economic analysis of patent litigation data; Dec 2018.
- 3: Patent Insurance, Pérez-Carrillo, E./pp. 36-5736. INTELLECTUAL PROPERTY JOURNAL. ISSN:1316-1164. MÉRIDA-VENEZUELA. YEAR XIII. No. 17 January-December 2014.
- 4: Elena F. Pérez Carrillo and Frank Cuypers, Viability of patent insurance in Spain, Fundación MAPFRE