The secrets of SMEs – and how to protect them

In recent decades, corporate investment in intangible assets has soared. It has outstripped investment in traditional tangible assets such as machinery and physical equipment. Intangible assets now account for over 70% of firms’ value in the United Kingdom and the United States. These include data, copyrights, designs, patents, trademarks, plus organisation and distribution networks.

Securing our secrets

For many SMEs, knowledge is power. Their business – and competitive edge – depends on their knowledge of markets and their product. Businesses can protect some of their most strategic insights through trade secrets. Some steps to keep this information secure are easy to implement. For example, by entering into a non-disclosure agreement before sharing information or introducing confidentiality provisions into contracts. These actions are easy to implement and low cost. Yet only 9% of small enterprises were using these provisions in 2018, compared to 13.7% of medium-sized enterprises and 21.5% of large ones.

Trade secrets can protect many modern assets, from the Google search algorithm to customer preferences plans and pricing, in the same way as more traditional assets like the 19th Century Coca Cola recipe. Trade secrets can even protect “negative know-how”, like the reason a company chooses to bail on a certain stream of research.

Yet, the protection of trade secrets remains challenging for firms, even for those who do business where solid legal frameworks are in place. Gone are the days where a company’s secrets were stored in a single physical location. Businesses demand access to their information from everywhere, 24/7, making it more vulnerable to cyber threats. We exchange confidential information in the cloud, emails or USB drives.

Changing work culture – like the proliferation of temporary contracts and more frequent job changes, teleworking, and the fragmentation of production globally – also increases the chances trade secrets will be exposed.

Once revealed, the value of confidential information can be lost forever. While no formal procedures are required to secure trade secrets, these risks demand that businesses stay smart about how they use, store, and share their confidential information. Most laws require businesses to take reasonable steps to secure their information. For the most valuable trade secrets, companies may need to take extra precautions. For example, when WD-40 enlisted an armored vehicle and top-notch security to move the secret formula of its bestselling anticorrosion oil to a new bank vault.

Beyond secrets, SMEs can benefit from other forms of intellectual property…

SMEs that also use formal intellectual property rights (IPRs) such as patents, trademarks, copyrights and industrial designs, are more likely to succeed. And a growing number of firms are leveraging these rights to assets to access finance, helping them to scale up faster. For example, last month, CHASM Advanced Material, a Massachusetts-based manufacturer of printed electronics and energy storage materials, with 24 employees, closed a USD 25 million IP-based funding, which came at a critical time in the firm’s growth trajectory.

More broadly, after registering for protection, 54 % of SME owners in the EU report having seen benefits, through improved reputation, turnover or access to new markets. SMEs that bundle trademarks, patents and designs instead of using a single category of IPR, do better still, and are more likely to achieve extraordinary growth.

… but many don’t

Yet despite these benefits, smaller businesses are less inclined to register IPRs. Three times as many large firms applied for trademarks and copyright as small firms in 2018. Four times as many large firms applied for patents and design. The main reasons SMEs don’t resort to IPRs is due to a lack of awareness or legal skills, and resources to meet the costs of application and enforcement. Only 17% of EU SMEs had a dedicated unit to monitor IPR infringement in 2019.

Organisations, like the World Intellectual Property Organization (WIPO), are working to close this gap with tools that support SMEs with concrete steps they can take to protect their businesses, like their IP Diagnostics tool and IP for Business Publications.

Time for progressive policies

As intangible investments become increasingly essential to business success, finding ways to protect them must be a priority for SMEs – and policy makers too. We are not short of bright ideas. For example, Austria offers a Patent Scheck worth EUR 12 500 to help small firms assess the patentability of their ideas. This eventually covers the costs of a professional patent attorney and application fees.

A growing number of countries offer discounts on the official costs of registration of intellectual property for SMEs while WIPO’s Inventor Assistance Program supports SMEs and individual inventors to navigate the patent system in participating countries. Spain has deployed a full IP Strategic Plan with agreements between regional governments and the National Patent and Trademark Office for developing a network of regional centres. These provide information on IPRs and their prosecution to local businesses. But for now, these policies remain too few and far between.

Read more in the forthcoming report on Unleashing SME potential to scale up that maps policies and institutions implemented across 38 OECD countries to improve SME data governance and access to scale up finance. Visit WIPO’s resources for businesses to learn more about how your enterprise can maximize its potential through intellectual property.

Head of SME and Entrepreneurship Performance, Policies and Mainstreaming unit at | Website | + posts

Sandrine Kergroach is Head of SME and Entrepreneurship Performance, Policies and Mainstreaming unit at the OECD Centre for Entrepreneurship, SMEs, Regions and Cities (CFE). She leads the work on innovation, internationalisation and the scaling up of SMEs and start-ups, their productivity and ESG performance. She supervises activities related to policy monitoring, the development of data infrastructure and the OECD SME and Entrepreneurship Outlook. She also leads efforts for mainstreaming SME&E policy considerations. Sandrine holds a Doctorate in Economics (TU Berlin), a Master in Strategy and Management (Paris Dauphine-PSL), a Master in Modern History (Paris Sorbonne) and a Bachelor in Applied Economics and Statistics (Paris Dauphine-PSL).

Head of the IP Commercialization Section at WIPO | + posts

Allison Mages is the Head of the IP Commercialization Section, in the IP for Business Division, IP and Innovation Ecosystems Sector at the World Intellectual Property Organization (WIPO). Building on her experience as an intellectual property attorney for a Fortune 500 company and an inventor, her team empowers enterprises, innovators, and creators to maximize their potential through the creation and commercialization of IP. She has worked with more than 50 countries to develop their legislative frameworks and support businesses through their creativity and ingenuity.