Firm Size and the Use of Intellectual Property Rights*

Abstract

Innovation markets are often characterised by market failure because inventions typically incur high fixed costs relative to marginal costs and their intellectual capital is non-excludable. Intellectual property (IP) rights may attenuate this problem by providing legal recourse for firms to stop imitation by rivals. As IP rights are costly to acquire and enforce, it is often argued that SMEs are disadvantaged in their ability to utilise IP rights. This paper examines the intensity of IP usage by firm size and finds that SMEs actually have higher rates of patent, trade mark and design usage once industry effects are controlled for.