THE ROLE OF INTELLECTUAL PROPERTY TO SMALL AND MEDIUM-SIZED ENTERPRISES IN NAVIGATING THE MARKET.
UKOMADU C., IKEBUJO I.O, ADELIYI A. J, OLADEPO O.J
INTRODUCTION
Small and medium-sized businesses (SMEs) make up a significant portion of the global economy. Small and medium-sized businesses (SMEs) are often the driving force behind a significant number of developments and contributors to job creation, sustainable investments, and national and global economic development. Due to expansion and development, SMEs are becoming more active in globally competitive markets, primarily as part of supply chains. SMEs have historically focused on local markets and are ill-equipped to deal with the business pressures with a highly competitive climate. SMEs must change their competitive strategy to completely incorporate creativity in their staff, systems, programs, and goods, in addition to receiving assistance from local governments. SMEs must continually increase their efficiency, minimize manufacturing costs, and enhance the reputation of their products by investing in research and development. They must also acquire new technologies, develop innovative and attractive designs, improve management practices, and market their products and services, among other things, in order to remain internationally competitive. There is a possibility that investment in the above would be made uneconomical if intellectual property (IP) security is not provided. As a result, IP encourages SMEs to invest in steps to boost their international competitiveness in a global market.[1] Consequently, IP provides SMEs with an exclusive right to exploit their innovative products/services, creative designs and brands. This paper will provide a primer on IP, SMEs, and subsequently consider IP’s role in navigating the competitive market, the challenges SMEs may encounter, and offer recommendations and solutions to the challenges.
A PRIMER ON SMALL AND MEDIUM SIZE ENTERPRISES AND INTELLECTUAL PROPERTY RIGHT.
Small and Medium-Sized Enterprises
SMEs are small and medium-sized enterprises, and their definition differs across countries. They are enterprises that hold revenues or assets and several employees below a certain threshold. In Nigeria, SMEs have an annual turn over not exceeding five hundred thousand naira (500,000). The National Policy on Micro Small and Medium Enterprises (MSMEs) provides that a microenterprise has less than ten employees, small enterprises have 10–49 employees, and medium enterprises have 50–199 employees[2]. The European Union characterizes a small-sized enterprise as a company with fewer than 50 employees, a medium-sized enterprise has less than 250 employees, and micro-companies employ up to 10 employees[3]. In the United States, the Small Business Administration (SBA) classifies small businesses according to their ownership structure, number of employees, earnings and industry. For example, in manufacturing, an SME is a firm with 500 or fewer employees.
SMEs play a significant role in the economy of a country, particularly in developing countries. SMEs account for a majority of businesses worldwide and are contributors to job creations and global development. According to the world bank, they represent about 90% of businesses and more than 50% of employment worldwide. Formal SMEs contribute up to 40% of national income (GDP) in emerging economies. In emerging markets, most formal jobs are generated by SMEs, which create 7 out of 10 jobs.[4] The importance of SMEs is not limited to emerging nations. Between 2002 and 2012, SMEs created 77% of new jobs in Canada, nearly the same percentage as most emerging economies. These companies are vastly essential to the country’s well-being, creating jobs and generating tax revenues. Similarly, in the United States, small businesses accounted for 64% of the net new jobs created between 1993 and 2011.[5]
Intellectual Property
So, what is IP, exactly? In general, the word “intellectual property” refers to one-of-a-kind, value-adding inventions of the human intellect that are the product of human imagination, creativity, and inventiveness. It refers to mental creations such as inventions, art, music, literary works, films, symbols, and so on. Intellectual property (IP) rights are legitimate and exclusive rights gained by creative mental production. These rights protect artists’ works and enable them to profit from their creations. As a result, IP is similar to real estate in that it benefits the developer financially. The financial incentives act as a motivation for people to develop new ideas and creations that will improve a country’s economy. IP rights are usually territorial and subject to registration, and other restrictions set out by a country’s legal system and national policy. Copyright, trademarks, patents, manufacturing designs, trade secrets, and geographical indications are examples of IP rights.[6]
For as long as it maintains its competitive advantage, an innovative new or enhanced product that meets consumer needs opens up new business territories without competition for SMEs. The IP system plays a significant role in assisting SMEs in gaining and maintaining their innovation-based advantage. Since there are many players involved in promoting an innovation’s commercial success, successful use of IP resources can play an essential role in mitigating risk for those involved, allowing them to reap appropriate returns for their involvement in the process.
ROLE OF INTELLECTUAL PROPERTY RIGHTS TO SMEs IN NAVIGATING THE MARKET
The contribution of SMEs to the development of an economy cannot be overstated. New products, brands, and creative ideas appear on the market almost daily, the product of relentless human invention and creativity in the increasingly knowledge-based economy. SMEs are frequently the catalysts for such innovations; however, their creative potential is not always fully realized, either due to a lack of understanding of the intellectual property system and the protection it can provide for their inventions, brands, and designs, or a general belief that they are too small to benefit from a robust IP regime.[7] In order to ensure longevity, sustainability, and relevance in a competitive market, SMEs must be proactive in their operations. SMEs need to pursue sound legal counsel early on to protect their innovation and understand their commercial potential through intellectual property rights.[8]
IP rights enable SMEs to capitalize on their creativity and imagination, fostering and assisting future innovation funding. The copyright Act in Nigeria gives writers, authors, and their rights holders’ legal protection for their literary and artistic works. Creatives would be able to protect their work and commercialize and benefit from their intellectual property. Patent rights, which are exclusive right granted to an invention that is a product or process that provides a technical solution to a problem, are also a viable option for entrepreneurs looking to commercialize their ideas. A patentee may authorize or license others to use his or her invention under mutually agreed-upon terms.[9] Licensing, selling, or commercializing IP products or services produces revenue for SMEs, which can significantly raise a SMEs market share or profit margin. Apart from that, trademarks protect creators from unfair competition, such as counterfeiters who sell inferior products and services using similar distinctive marks.[10]
IP rights are also essential for SMEs to create a brand image in the marketplace. In any sector, a brand is a powerful marketing tool and a critical asset for establishing trust. In addition to its primary product or service, any SME that wants to thrive in a market must develop a brand picture. It is the primary identity of a product or service that conveys confidence and responsiveness to consumers.[11] When selling products or services in foreign countries, a brand, in conjunction with other marketing tools such as advertisement and sales promotion events, is vital for differentiating your goods and services and making them easily recognizable, as well as diversifying your business strategy to different target markets.[12] IP rights are critical for SMEs to market their technologies. Since good innovation entails bringing a new product to market, other IP resources become increasingly important. Trademarks and industrial designs are particularly significant in the marketing process. This enables customers to recognize a specific company’s product/service and differentiate it from similar products. A trademark can be used to introduce new product categories or entirely new products and expand market advantages beyond the patent’s lifespan. The case of aspirin is a clear illustration. The drug was developed in 1897 by Felix Hoffman, a research chemist with the Bayer Company in Germany, and patented by the Bayer Company in 1899. Knowing that patents are only valid for a certain period, the Bayer Company decided to promote a trademark for its new product. After the Aspirin patent expired, the company continued to profit from the selling of aspirin under the Aspirin trademark. For its Cipro product, Bayer has also used a two-track IP strategy, which entails using a trademark to protect market share after a patent expires (ciprofloxacin) to treat infections anthrax).[13]
IP rights can also make it easier to form joint ventures. This type of strategic partnership can be beneficial to SMEs with severe financial constraints but significant IP properties. Patent and trade secret ownership can be vital in attracting potential partners. A company with a proprietary product or valuable trade secrets could find it strategically advantageous to form a joint venture with a company with a solid trademark to increase sales.
A variety of metrics have been used to assess an organization’s efforts in conducting research and implementing new ideas. These include expenditure on research and development, details on innovation, overall revenue, firm size, and innovation strategies. IP affects these metrics, either directly or indirectly. During this stage, the IP resources used during the ‘conception of an innovative idea’ stage are still helpful. As a result, trade secrets remain important, especially if the company has yet to determine whether to file a patent application.[14] Keeping trade secrets is important in the research and development process, as no one wants rivals to access critical information. If used by such rivals, it would erode a competitive advantage resulting from the finished product. Finally, IP rights offer SMEs a competitive advantage over their competitors in the eyes of investors and banking institutions. A firm IP policy boosts a company’s value and valuation, making it more attractive to investors.
CHALLENGES SMEs MAY FACE IN NAVIGATING THE MARKET
Inadequate knowledge about the importance of intellectual property in everyday business, high costs associated with acquiring and enforcing IP rights, and misconceptions that the IP system is esoteric, cumbersome, and time-consuming.[15] These are some of the reasons why many SMEs are slow to protect their intellectual property. Given the importance of SMEs to the economies of all countries — they account for nearly 90% of all businesses worldwide and over 70% of all products and services generated — successful use of IP assets by SMEs is a critical factor in continued economic growth. SMEs face a variety of challenges when it comes to using the IP system. This is frequently due to a lack of understanding of the IP system’s ins and outs, a lack of clarification about its importance to their business strategy and competitiveness, and a perception that the system is too complicated and costly to use. According to the studies available, the use of the IP system by SMEs is generally limited to the use of patents.
Apart from a lack of awareness and knowledge on IP, one of the most significant obstacles for SMEs is the cost of registering IP.[16] Entrepreneurs must prepare for official fees (such as application fees, publishing fees, and maintenance fees) and costs associated with application preparation and prosecution, legal advice, and translation costs if the applicant wishes to apply for protection abroad. Many SMEs may believe that the costs of obtaining IP protection outweigh the potential benefits of protection, particularly given that a large portion of the costs may be incurred before the product reaches the market and that lenders, investors, and government programs seldom provide financial support for the protection of IP rights.[17] Many additional elements of the application process may act as a disincentive for SMEs to seek IP protection, including the time required to be granted a patent or to obtain a trademark registration. The increasing number of applications has often led to an increase in the backlog and an increase in the time required from filing to grant a patent or registration of a trademark. For SMEs, a long delay in obtaining a patent leaves a great degree of uncertainty and delays the possibility of finding potential licensees or partners to exploit an invention.
Limited access to required human resources and/or legal advice makes using the IP system more complex. It reduces the chances of success in the registration/grant of IP rights application process. Effective IP management necessitates diverse skills, ranging from legal to scientific/technical to commercial, which not all SMEs have on staff. In reality, such knowledge is lacking in many, if not most, SME support institutions; this is also true of private-sector SME consultants and business advisors. High costs, not only for obtaining and retaining IP rights but also for monitoring and implementing them, are another impediment, particularly for companies that operate in a number of geographically dispersed markets.
Another challenge worth noting is that of Major companies’ stealing’ ideas from Small and Medium Entrepreneurs and the helplessness the SME’s usually feel, usually due to lack of requisite knowledge on the protection available to their Intellectual Property. There is a general belief that major companies (large enterprises) always have their way in the market, especially against SME’s. Larger Enterprises have access to resources that SME’s do not. This makes the small business owners feel ‘powerless’ when they have their business ideas stolen by these major companies. In several cases, large corporates ‘take inspiration from their designs and products, and outside of long, expensive legal battles, there is not much which can be done about it.[18] Intellectual Property belonging to Small and Medium Enterprises have been infringed upon by larger companies who use this lie of ‘inspiration’ as a means to evade liability. One of the many ways these ideas are stolen is when the large enterprises ask Small and Medium Entrepreneurs to present ideas to them or when the SME’s themselves seek to either get acquired by the major company or gain funding. Hence, they showcase some of their ideas in expectation of an agreement. In Maurice Ukaoha v Broad-based Mortgage Finance Ltd,[19] the claimant who had constructed a 17 storey architectural model during his student days at the University of Lagos lent it out to the defendants to display temporarily in their conference room. Then, without the plaintiff’s authorization, the defendants appended a picture of the model in a newspaper as a proposed model of their headquarters in Abuja. They also attributed the plan to an entirely different architect. The court ruled in favour of the plaintiff. In the case mentioned above, the plaintiff might not have been an Enterprise per se. However, the means by which his Intellectual Property was infringed upon is similar to how some major enterprises steal ideas from emerging businesses. This kind of infringement poses a major challenge to SME’s because most SME’s do not have the legal resources to match that of larger corporations. In a lawsuit for infringement, many SME’s would not be able to keep up with litigation costs. Such cost, on the other hand, will hardly be felt by the major corporations. More so, many SME’s do not see this ‘theft’ as a problem. While some find it detestable, some find it flattering because they have come to believe that the lie that these major companies ‘take inspiration’ from their intellectual property. This attitude further raises the possibility of future idea theft by these large enterprises because the consequences of their infringement remain either insufficient (in the interest of justice) or non-existent.
CONCLUSION/RECOMMENDATIONS
Actions to improve the formal IP system and make it more accessible to smaller firms can support SMEs in capturing the value of their intellectual assets. Governments can:
· • Take action to enhance patent efficiency, which will help ensure that intellectual property rights can be used to signal value to prospective buyers, partners, and competitors;
· Create outreach and training programs for SME business leaders to raise awareness about the value of sound IP management, strengthen SMEs’ intellectual asset management, and expand their opportunities to interact with IP officials;
· Update the existing IP laws in order to make them more favourable for SMEs;
· Create an environment in which companies can function and prosper. To put it another way, the government plays a critical role in creating a favourable climate for the growth of SMEs’ competitiveness;
· Make it easier for entrepreneurs to get knowledge on intellectual property. Obtaining information about rules, taxes, customs legislation, business consulting services, training opportunities, and funding sources can be both costly and time-consuming. As a result, SMEs often lack the resources necessary to gain access to this data. Governments can help SMEs integrate into the international supply chain by establishing small business administrations tasked with assisting them; business organizations can be encouraged to take on some of this burden.
Conclusively, innovative SMEs must establish appropriate IP management strategies to attract the right investors and extract value from their technologies and collaborations in the business setting. The relationship between IP offices and SMEs needs to be strengthened to recognize better the IP needs of entrepreneurs and SMEs and the barriers to more successful use of the IP system by entrepreneurs and SMEs. Furthermore, government and policymakers can encourage entrepreneurs and SMEs to make better use of the IP system by raising awareness and knowledge of all aspects of the IP system, including patents, trademarks, geographical indications, industrial designs, utility models, trade secrets, copyright and related rights, new plant varieties, non-original databases, and releasable data.
[1] Rajnish Singh “Role of intellectual property rights SMEs; Need to manage knowledge” (2014) 6(1) DLR < http://www.dehradunlawreview.com/wp-content/uploads/2020/06/3-Role-of-intellectual-property-rights-for-SMEs-Need-to-manage-knowledge.pdf> accessed 24 April 2021
[2] Uche Mekwunye ‘Small and medium scale sized business in Nigeria; an overview of initial set up’ (22 November 2018) < https://www.mondaq.com/nigeria/directors-and-officers/757432/small-and-medium-scale-enterprises-in-nigeria-an-overview-of-initial-set> accessed 24 April 2021
[3]Daniel Liberto ‘Small and medium size enterprises (SME)’ (Investopedia,14 November 2020) <https://www.investopedia.com/terms/s/smallandmidsizeenterprises.asp>
[4]World Bank ‘Improving SMEs’ access to finance and finding innovative solutions to unlock sources of capital. Small and medium enterprises (SMEs) finance’ <https://www.worldbank.org/en/topic/smefinance > accessed 24 April 2021.
[5] Ibid note 3.
[6]Esteban Burrone ‘Why Intellectual Property Matters; the importance of intellectual property for small and medium sized enterprises’ < http://www.bgrandefm.com/law/sites/case.edu.law/files/2019-10/Why%20IP%20Matters%20%28WIPO%2C%208%20p.%29.pdf > accessed 24 April 2021
[7] Sati-Salmah Sukarmijan and Olivia De Vega Sapong, “The importance of intellectual property for SMEs; Challenges and moving forward”(2014) UMK Procedia. Also available at https://www.researchgtate.net/publication/270875011 accessed 23rd April, 2021.
[8] Olisa Agbakoba Legal, “Role of Intellectual Property for SMEs in the Nigerian Fashion Industry”(Monday 23rd November 2018) available at https://www.mondaq.com/nigeria/trademark/757902/role-of-intellectual-property-for-smes-in-the-nigeria-fashioon-industry accessed 23rd April, 2021
[9] Solomon Ogunbodede, “The competitive advantage of intellectual property rightd to start-ups and SMEs in Nigeria” (Business Day June 20, 2020) available at www.google.com/amp/s/businessday.ng/opinion/article/the-competitive-advantage-of-intellectual-property-rights-to-start-ups-and-smes-in-nigeria/amp/ accessed on 23rd April 2021.
[10] Ibid.
[11] Kefas Chakura Gang, “The Role of Intellectual Property Law (IP) In Small, Medium Enterprises (SMEs)”(Legal Ideas Forum, May 17 2020) available at https://legalideasforum.com/2020/05/the-role-of-intellectual-property-law.html accessed on 24th April, 2021
[12] Sati-Salmah Sukarmijan and Olivia De Vega Sapong, “The importance of intellectual property for SMEs; Challenges and moving forward”.
[13] Alain Strowel, ‘Bayer’s aspirin: a lasting success without patent and strong trademark protection’ Available at
<http://www.ipdigit.eu/2011/10/bayers-aspirin-a-lasting-success-without-patent-and-trademark-protection/> accessed 25th April 2021.
[14] See example of Australian camera man Jim Frazier who signed a confidentiality agreement with Panavision, regarded as the best lens manufacturer in the world, before he showed them his invention <http://www.wipo.int/sme/en/case_studies/frazier.htm> accessed 28th April 2021.
[15] Gee, H. L. (2007). Impact of the Intellectual Property System on Economic Growth. WIPO-UNU Joint Research Project.
[16] Sajilan, S. (2008). Business Opportunities for Technopreneurs in Strategic Industries-An Effort to Strengthen Bumiputera Entrepreneurs, 4th International Conference On Business.
[17] Idris, K., WIPO, Intellectual Property: A Power Tool for Economic Growth, p. 55 (2003), Available at <http://www.wipo.int/about-wipo/en/dgo/wipo_pub_888/index_wipo_pub_888.html.> accessed 28th April 2021.
[18] Absolutely Powerless”: Business owners are having their ideas stolen, but what can they do about it? Dominic Powell, Available at <https://www.smartcompany.com.au/business-advice/intellectual-property/absolutely-powerless-business-owners-stolen-ideas/> accessed 28th April 2021.
[19] (1997) FHCL, 477.
