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Which IP strategies do young highly innovative firms choose?

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Abstract

This paper describes and analyzes the strategies of young highly innovative companies to appropriate the returns from their innovations. Upon controlling for other firm and industry characteristics, we show that firms combining a young age and small scale with a high R&D intensive profile are more likely to use intellectual property (IP), specifically combining formal and informal appropriation mechanisms. They are especially more likely to choose secrecy in combination with formal IP. This holds primarily when they introduce more radical innovations new to the market.

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Notes

  1. The age of the firm is unfortunately not mandatory in the EUROSTAT EU wide organized CIS survey. Only a few participating countries, among which Germany, include this information in the questionnaire.

  2. The survey is conducted annually by the Centre for European Economic Research (ZEW), infas Institut fuer Sozialforschung and ISI Fraunhofer Institute on behalf of the German Federal Ministry of Education and Research. A detailed description of the survey data and the sampling method can be found in the background reports available at ZEW (www.zew.de).

  3. The survey is directed to a stratified sample of companies in manufacturing and services sectors with at least five employees. Although the very small firms are not targeted, the sample nevertheless contains 5% of firms with less than five employees.

  4. We restrict attention to West German firms only, dropping East German observations to avoid a source of heterogeneity that is outside our issues of interest.

  5. Young Innovative Enterprises are defined in the EU State Aid Rules as small Enterprises, less than 6 years old, having being “certified’ by external experts on the basis of a business plan, as capable of developing products or processes which are technologically new or substantially improved and which carry a risk of technological or commercial failure, or have R&D intensity of at least 15% in the last 3 years or currently (for start-ups). However, there are only 51 YICs in our sample when applying this definition. We therefore expand the R&D and age criteria in order to garner more observations.

  6. These could be corporate spinoffs, or independent start-ups which have been acquired in the past. Unfortunately, the CIS survey does not contain information on the corporate history.

  7. The CIS questionnaire also asks respondents to rate the various appropriation mechanisms on their importance. These results show that there are no strongly significant differences in the reported importance of informal mechanisms for appropriating returns between YICs and other innovators, conditional on the mechanisms being used. The difference seems therefore only reflected in whether they use mechanisms or not. In the remainder of the analysis, we will only look at whether or not mechanisms have been used, rather than on how important mechanisms were rated by the respondents.

  8. It should be noted that in this group of 116 firms, only 13 firms are not SMEs, as young firms typically are small sized.

  9. We estimate the four-equation probit models by the method of simulated maximum likelihood, using the Geweke-Hajivassiliou-Keane (GHK) simulator to evaluate the four-dimensional normal integrals in the likelihood function (see e.g., Greene 2000). We use 50 draws of random variates to calculate the simulated likelihood.

  10. We do not report all marginal effects at this is computationally too intensive

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Acknowledgments

The authors wish to thank the participants at the conferences and seminars at Brussels, Leuven, Mannheim, Copenhagen, Evora (EARIE 2013), and Chicago (IIOS 2013). Veugelers acknowledges the financial support received from FWO Flanders (G. 085816N).

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Authors and Affiliations

  1. KU Leuven, Bruegel and CEPR, Leuven, Belgium

    Reinhilde Veugelers

  2. Copenhagen Business School, Copenhagen, Denmark

    Cédric Schneider

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  1. Reinhilde Veugelers
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Correspondence to Reinhilde Veugelers.

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Veugelers, R., Schneider, C. Which IP strategies do young highly innovative firms choose?. Small Bus Econ 50, 113–129 (2018). https://doi.org/10.1007/s11187-017-9898-y

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