World Intellectual Property Organization

An Intellectual Property Strategy adopted by a sceptical SME

COMPANY DETAILS

Firm: TMG S.A
Location: Spain
Business sector: Metallurgic industry; Metal fixing elements
Activities: Design and production of wire and metal bands
Number of employees: 24
Annual turnover: 1.932.000 € (2001)

Barcelona has a thriving metropolitan area, which encompasses Spain’s number one industrial agglomeration.  TMG, a small company specializing in manufacturing metal fixing elements, is located on the outskirts of this urban area. Usually, this type of company works as subcontractor to bigger firms in the automotive, electronics and construction industries.  TMG specializes in the illumination sector, which accounts for 95% of its production. The company develops its own products and also manufactures for its clients based on specific designs provided by them.

The dynamism of the technological environment in which TMG operates can be evaluated from two different perspectives: the technology providers and the company’s major clients. The machine tool sector is characterized by long-cycle innovations because its technology is evolving in an incremental way, while illumination manufacturing companies operate under short-cycle innovations due to the changing fashion trends when it comes to housing and office decoration.

Consequently, TMG is constantly pressured by its clients to produce new and improved fixing elements for all kind of illumination artifacts. This constant need to adapt to changing market requirements is well reflected by the fact that, during 2002, TMG developed around 500 prototypes. Therefore, most TMG innovations are product oriented.

Metal fixing is a very specialized sub-sector, which demands highly qualified labor and requires important investments in technology. In Spain, this sub-sector is dominated by

SMEs, which generally have around ten employees. In this respect, TMG is considered one of the leading companies in this sub-sector in terms of production as well as innovation. TMG has a specific budget for R&D purposes and a full-time engineer dedicated to it.

Since its foundation forty years ago, TMG has had continuous experience with IP issues. The firm has registered several utility models with European coverage thanks to the work of its own technical staff and the assistance of a legal firm. Furthermore, TMG makes extensive use of technological watch services to monitor competitors’ products and the market environment. The Spanish Patent Office provides it with periodic information about the major technological developments in the industry, and TMG’s personnel undertake regular field technological surveillance by attending industrial fairs and professional meetings.

Regarding IP, TMG has mixed feelings. On the one hand, it recognizes the need to protect inventions because it blocks potential competitor copying and it offers clear advantages as a marketing tool. But on the other hand, TMG has serious doubts about the effectiveness of IP protection in an industrial sector where copying is an easy task and is a frequent practice among competitors. In fact, when TMG develops a prototype for a major client, it has hardly any control over it, leaving itself exposed to any competitor who may wish to copy it without infringing the law by introducing small changes in the original design.

The company perceives that IP protection is ineffective for two reasons. Firstly, IP administrative procedures in the European Patent Office are extremely long and expensive, so by the time you obtain a granted patent, your market opportunity may be gone. Secondly, legal actions are slow and very expensive, so by the time you get a court decision backing your rights, your competitor may have already copied your product and gained a market position thanks to a substantial price reduction.

Given this situation, TMG has opted for a two-tier strategy regarding IP issues. The first strategy takes place when the firm develops its own products; in this case it is beneficial to initiate the IP protection process straight away so as to gain protection from any rival. The second strategy is more complicated, since it tries to protect IP when TMG acts as a supplier of a big manufacturing firm. In this case, they first test their ideas and designs with their clients so that they get a real market feedback. Once a product shows commercial acceptance, they initiate the IP protection process.

The basic problem with the second approach is that the company unveils its products before it has effective legal protection, so it runs a high risk of being copied illegally. Common sense dictates that it is following a risky strategy, but it consistently defends its position: on the one hand, it is argued that it would be foolish to register IP before evaluating commercial acceptance; on the other hand, it is felt that the industry’s dynamism makes it inevitable that sooner or later competitors will copy their innovations.

Despite its scepticism, TMG has also had some positive results from its IP experience. Occasionally, it has taken competitors to court because of copying of its products and it has been able to reach agreements for granting production rights in exchange for royalty payments. This solution usually works favorably when the market demand is so strong that TMG is not able to satisfy it by itself. Moreover, these agreements allow TMG to keep a closer control of competitors’ movements in the market.

This case study illustrates the situation in some industrial sectors where the technological cycles can force small companies to act expediently when it comes to IP protection. Consequently, official statistics do not reflect the real R&D efforts incurred by these small companies because they perceive too many risks in using IP protection as an up-front strategy. Nevertheless, SMEs should be aware that costs are not excessively high during the first stages of IP protection, and that initiating the IP process can give them priority to apply for protection in other countries.

Compiled by the LIPP Project, 2003.

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