SBA Publishes Study Regarding Impact of Small Business Patenting

Anthony Breitzman and Diana Hicks have published a report for the Small Business Administration (SBA), titled "An Analysis of Small Business Patents by Industry and Firm Size." The study is the third in a series that examines small business patent activity.

The study specifically looked at "innovative firms" that were selected from a database of 1,293 technology firms having 15 or more patents issued between 2002 and 2006. Using this database, the authors analyze the relative strengths of small and large technology businesses, including information such as the industry and technology within which the firm patents and the importance of the patent. What did the study find?

The results demonstrate that small businesses that innovate are indeed special and that the technology they create helps define the cutting edge in a number of industries. The report presents a convincing case that small firms in emerging industries are one of the greatest engines of American economic growth.

More specifically, the study found

• Of the 1,293 firms reviewed in this study, 504 had 500 or fewer employees, 760 had more than 500 employees, and no size information could be obtained for 29 firms. Thus, 40% of the firms with 15+ patents were small firms. This number is slightly lower that 2004 (41%) but significantly higher than 2003 (33%).

• Small firms obtain many more patents per employee than do large firms. This result is quantified to show that this is not a small-firm large-firm phenomenon, but is actually a firm size issue at all levels. In particular, even within the small firm domain, companies with fewer than 25 employees will have a higher patent-to-employee ratio on average than firms with 50 employees, which will in turn have a higher patent-to-employee ratio than firms with 100 employees, and so on.

• Small firm patents "outperform" large firm patents on a number of impact metrics including growth, citation impact, patent originality, and patent generality. The metrics have been validated and shown to correlate with increases in sales, profits, stock prices, inventor awards, and other positive outcomes. "This suggests that the patents of small firms in general are likely to be more technologically important than those of large firms."

• Although small firms make up only 6.5 percent of all the patents in the database, they patent at a higher rate in some technologies, particularly health-related. Ranked by broad technology areas, most small firms fall in health-related technologies (biotechnology, pharmaceutical, and medical devices) and information technology categories communications/telecommunications, semiconductors, computer hardware and software).

Read/download the (68 page) report here.

NOTE: The study also has an interesting section on "Hot Patent" and "Emerging Cluster" methodologies for evaluating patents that is worth a read.