Working Paper No.411 by

The authors consider the theory and evidence on the propensity of small and medium-sized enterprises (SMEs) to patent their innovations. Drawing on UK, European and US literature and data sources, they show that small firms are less likely to use patents as a means of protecting their investment than other means such as confidentiality, secrecy or time to market. SMEs are also less likely than larger firms to use others ’ patents as a source of information for their own innovation activities, preferring customers, suppliers and trade fairs. Conversely, smaller firms are more likely than larger firms to put their patents to productive use or to licence out their technology, a pattern that is likely to reflect relatively higher cost and capacity pressures. Among the emerging trends, of particular interest for high tech SMEs is the role of patents as an increasingly important factor in obtaining financial backing by venture capitalists. A survey of UK and US small businesses conducted jointly by the Centre for Business Research (CBR) at Cambridge and the Industrial Performance Unit at the Massachusetts Institute of Technology provides data for further analyses which reveal that small firms in the United States are twice as likely as those in the UK to patent innovations, but are still much less likely to patent than larger US firms. The authors conclude with a general discussion of main findings from a UK and European perspective.