To protect or not to protect? Modes of appropriability in the small enterprise sector

Abstract

What appropriation strategies are chosen by innovative small firms? A cluster analysis of data from the German CIS was carried out to indentify four distinct modes of appropriability in the small enterprise sector. The results show that for many innovative small firms the key question is not whether to use intellectual property rights (IPRs) or not, but whether to protect their innovations from imitation at all. Furthermore, formal and informal innovation protection mechanisms should not be seen as mutually exclusive, since several are employed jointly. Secrecy and lead time advantages over competitors are often combined with IPRs. Yet, a number of small firms use complexity of design as a substitute to patent protection. The relevance of each appropriation mode depends on such factors as the degree of innovativeness, the type of innovator and the general market environment, which implies that the importance of IPRs is limited to specific business contexts. Furthermore, regarding firm performance as measured by innovation effects, some evidence is found that choosing both IPR- and non-IPR-oriented appropriation strategies can prove to be effective in achieving company goals. Taken all together, the study implies that the use of IPRs by innovative small firms is highly selective. The paper concludes with a discussion of the implications for policy and research.