Perceived importance of intellectual property protection methods by Korean SMEs involved in product innovation and their value appropriation

ABSTRACT

We investigate the sectoral patterns of relationships between SMEs’ perception of the importance of intellectual property (IP) protection methods and their value appropriation from innovation in countries with weak IP rights regime. By using a Heckman selection model to analyze 1,020 Korean SMEs involved in product innovation, we find that formal IP rights have a lower contribution to appropriation than the expected level. Instead, we find some positive links between SMEs’ affirmative perception of informal means of IP protection, particularly complex design, and their appropriation in both complex and discrete sectors. We discuss IP management and policy implications for enhancing the SMEs’ value appropriation.

KEYWORDS:

• Intellectual property protection
• appropriation
• small and medium-sized enterprises
• weak legal enforcement
• sectoral comparison

Correction Statement

This article has been corrected with minor changes. These changes do not impact the academic content of the article.

Notes

¹ In South Korea, SMEs are defined as firms with total assets under 500,000 million KRW, while the relevant annual sales criteria differ across sectors (see https://www.mss.go.kr/site/smba/01/10106060000002016101111.jsp).

² https://www.managingip.com/article/b1kbm11gb9r5rp/south-korea-patent-holders-can-now-seek-punitive-damages-in-korea

³ As of 2014, 99.9% of South Korean firms were classified as SMEs (see https://www.mss.go.kr/site/smba/01/10106060000002016101111.jsp).

⁴ https://www.managingip.com/article/b1kbm11gb9r5rp/south-korea-patent-holders-can-now-seek-punitive-damages-in-korea

⁵ We exclude observations with missing sales amount values.

⁶ Nomenclature Actuariel de la Communauté Européenne (European industrial classification code).

⁷ The log of value appropriation approximately follows a normal distribution, which is a basic assumption of the OLS regression (see Figure B1).

⁸ One can attribute the zero return to the absence of demand for a new product. However, in the KIS definition, product innovation should meet the condition of not only significant improvement in a product (or a totally new product) but also the product’s potential influence on firm sales, implying the existence of at least some demand for the new product.

⁹ Although one can raise the reverse causality issue arising due to the retrospective survey data, we assume that the perceived importance of an IP protection method over 2013-2015 is not directly affected by the sales amounts of 2015, as the KIS design clearly asks about the past perceptions of the importance of IP protection methods. In addition, given that firms often use several IP protection methods simultaneously, it is less likely that firms with high performance certainly attribute their success to a particular IP protection method.

¹⁰ One can raise an issue of existence of sector characteristics affecting both perceived importance and value appropriation. However, contrary to many theoretical and practical discussions of the relationship between IP protection and value appropriation, discussions on the industry features affecting both the firms’ perceptions of various IP protection methods and their value appropriation are unusual.

¹¹ Most firms in the Pharmaceutical sector regarded IPR and lead time as highly important, and most firms in the Wood sector regarded complex design as rarely important. We incorporate these two sectors into the Others category to secure the minimum number of observations per category needed for the estimation.

¹² Source: Bank of Korea - Economic Statistics System (http://ecos.bok.or.kr).

Additional information

Funding

This work was supported by the National Research Foundation of Korea (NRF) grant funded by the Korea government (MSIT) (2020R1A2C2005026).