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The importance of intellectual property as an indicator of business value.

By: Claudio Castanheira

September 18, 2023

 the world’s largest economies, for every US$100 billion of value generated, as measured by GDP1, domestic firms protect an average of 1,000 patents and 8,000 trademarks, Figure 1. In Brazil, the perceived value generated for firms through these intangible assets leads to above-average attention to trademark protection, with almost 11,000 kinds of trademarks registered for every US$100 billion of GDP. However, protection of domestic firms’ technologies through patents is well below average, with only 148 patent applications per USD 100 billion. Japan and the US also show an imbalance, but in the opposite direction, with companies more concerned with protecting their technology differentials through patents than their brands.

The behavior of domestic companies is changing. The country’s historical difficulties in structuring a legal framework, ICT infrastructures, financing2 instruments, and government institutions that encourage research and development activity are being overcome, albeit gradually, making it possible to diversify the high risks involved in developing leading-edge technologies. Proof of this is that the country will move from 62nd to 54th place in the Global Innovation Index3 between 2020 and 2022. On the road to capturing all the value generated by this change, companies must better understand and use the international intellectual property protection system.

Figure 1: Number of patents (a) and trademarks4 (b) filed by local companies in 2021 per USD 100 billion of the country’s GDP (PPP 2017). Source: WIPO5

The international IP protection system provides companies with answers to strategic questions such as:

  • How to target company R&D to generate cutting-edge products?
    • How to protect the company’s trademarks and other distinctive signs?
    • Which inventions can and should be kept as trade secrets?
    • Which inventions (technologies, methods, systems, etc.), industrial design solutions (graphic interfaces, characterizing ornamentation, etc.), software (source codes), plant varieties, copyrights (texts, images, videos, etc.), among others, are intangible assets that should be patented or registered?
    • How to protect intangible assets against infringers?
    • How to position the company to grow in the local and international market?

It is unquestionable that having answers to these questions generates value, and this is demonstrated by analyses of the allocation of venture capital (VC) resources to start-ups. In economies with a strong technology base, such as the United States, venture capital firms allocate more than 60% (in the case of late-stage investment) and 80% (in the case of growth investment) of their investments to startups with patents or patent applications6. In these stages of startup investment, investment is usually higher, and intellectual property protection reduces risk by safeguarding the value of the investee’s technology differentials, Figure 2. The proportion of the number of investment rounds successfully closed by startups with patents or patent applications follows the same trend.

Figure 2: Share of venture capital volume allocated to startups with patents or patent applications, average from 2011 to 2020. Source: MCTIC; PitchBook Data, Inc.

Startups seek patent protection more intensively as they move through the venture capital investment cycle, somewhat in sync with the maturation of their research activities and the development of the products/services they will bring to market. Venture financing provided by VCs contributes to this costly and rapid process, as does investment in protecting intangible assets. The behavior of venture capital firms is explained by the fact that start-ups with patents or patent applications tend to:

  • Have a higher valuation
  • Increase in valuation between investment rounds when there is more patent protection activity or patent rights are granted.
  • Valuation is more consistent when there is continued patent protection activity.
  • Enable a more successful exit from the investment.
  1. Gross Domestic Product, benchmarked to purchasing power parity (PPP) in 2017.
  2. See compilation in Invest MCTI: https://invest.mcti.gov.br/.
  3. www.globalinnovationindex.org/gii-2022-report#
  4. Count the number of classes in which trademarks are protected.
  5. WIPO statistics database,
  6. [1]Ver https://invest.mcti.gov.br/blog/pitchbook-research-o-impacto-das-patentes-em-startups/; estudo centrado no mercado dos EUA feito pela PitchBook Data, Inc
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