SMEs and IP: The Biggest Challenge For Many Small Businesses—Protecting their Intellectual Property

This year the theme for World Intellectual Property (IP)Day, April 26, is “SMEs and IP”. As the World Intellectual Property Organization (WIPO) points out, SMEs (Small and Medium Sized Enterprises) are the backbone of the economy; they constitute 90 percent of the world’s businesses and employ around 50 percent of the global workforce, generating up to 40 percent of national income in many developing economies. Many micro and small businesses depend on their creativity and innovation to establish a niche for themselves in a competitive marketplace. At the same time, they often face major challenges in protecting their unique creations because they generally lack the wherewithal—knowledge, time, money—necessary to protect their IP. This has been demonstrated time and time again and is an important factor that needs to be taken into account when discussing the importance of IP to small businesses. While many national and international IP authorities focus on the lack of capability to access and incorporate IP into product development–or to properly manage IP–as the major challenges faced by SMEs, their limited ability to protect the IP they already have is also an important issue of concern.

But first what is an SME? There are various definitions of an SME; the European Commission defines a Medium Sized Enterprise as a company having less than 250 employees and an annual turnover of 50 million Euros or less (about $60 million USD), a Small Sized Enterprise as having less than 50 employees and a turnover of less than 10 million Euros and a Micro Sized Enterprise as one having less than 10 employees and an annual revenue of less than 2 million Euros. Many of the companies in this sector are micro-enterprises with just one or two people working to generate income, and indeed, the new term of art incorporates micro enterprises into the acronym as MSMEs (Micro, Small and Medium Sized Enterprises). Many micro enterprises, estimated at about one-quarter of the total, are run by women entrepreneurs and are an important vehicle for social and economic development and greater gender equity.

A few years ago I wrote a blog posting about knitting, crocheting, publishing and copyright featuring Joanne Seiff, a Winnipeg-based author and knitwear designer who was, in effect, running her own MSME. Knitting is a hobby and an industry where most of the players are women, and it is an activity that is growing, spurred on in part by the lockdowns of COVID.  The Craft Yarn Council reports that over 50 million people in the US knit or crochet. Knitters are motivated by many things and come from all regions and all age groups. Even young children can be introduced to knitting through use of creative instructional techniques such as setting knitting rhythms to nursery rhymes. While most of the participants in knitting do it a hobby to make items for family, or to raise funds for charity or just to relax, there is a business—an IP related business— behind knitting and writing about knitting. There are some big players but many who earn revenue from knitting-related activities are micro businesses. And this is where protecting IP becomes a challenge.

Knitwear designs are creative works protected by copyright. Creating, editing, distributing and selling new designs is an essential part of the industry, just as important as selling wool, needles and the other accoutrements of the trade. Unfortunately, designs are often copied and distributed, sometimes unthinkingly, as a form of unauthorized “sharing”. When I wrote my first blog on this topic back in 2016, Joanne commented that, in her experience, copyright violation in knitting and crocheting is frequently disparaged as unimportant because it is a predominantly (but not exclusively) female industry. It is seen by some as a “cottage industry” with women earning “pin money” and therefore not taken seriously.

I recently reconnected with Joanne to see how things were going in the era of COVID. She said it is still a challenging business-albeit one that she seems to really enjoy. As with any business, there is upfront investment in the hopes of hitting the jackpot with a design that takes off. She pointed out that it is time intensive to develop and make the sample for each pattern (and have it photographed, written up, tech edited, uploaded online to various sites and then marketed), with each pattern that is downloaded yielding around $5 to $10. A pattern needs to sell a lot of copies over time to break even or make money—but if just one percent of Americans who knit bought a particular pattern once and paid $10 for it, that would amount to…..$5 million! Not too shabby.

While not every micro-business is a success, any more than every multi-national enterprise is successful, there are some encouraging examples. One of these is Kate Davies Designs, a Scottish enterprise founded by Kate Davies in 2010 that has now grown into a successful small business that was named UK Microbusiness of the Year in 2016.  KDD & Co. now encompasses many different aspects of publishing, design, and creative practice related to yarn and knitting. Another is Denise Bayron’s business, Bayron Handmade, in California. Yet another is Sarah Schira, of Imagined Landscapes, in Manitoba.

When it comes theft of IP, the problem is that the more successful a pattern, the more likely it will be infringed. In Joanne’s words, there are sites in Russia and elsewhere that steal the designer’s photos, buy or steal one pattern, perhaps translate it, and then sell it online. Then there are those such as the occasional knitter who feels that if she paid for that “cute bunny knitting pattern” once, she can make dozens of the bunnies and then sell them at craft sales.  This is not technically against the law, but it goes against the intent of the designer who sells the $5 for single use only.  Some people look at the design and reverse engineer it. Human “ingenuity” has no bounds when it comes to trying to get something for “free”.  So how can micro businesses protect the IP that is the stuff and substance of their product offering.

In Joanne’s view, there has to be sufficient capital available to invest in IP protection at the beginning of the process. Shortage of capital is a perennial problem for small businesses, who have to make difficult decisions as to where to allocate scarce funds. Product design, better distribution or legal fees to protect IP? Some small businesses have enough money upfront to protect their product (through patents, copyright, registered designs, etc) and to fund the legal support to fight the battles on the business’ behalf. But unfortunately, most knitting designers (writers, artists, etc.) are never in this category.  For many people who have a very small business, there’s not enough income up front to do anything preventative from the outset.  Further, when something goes wrong, there’s not enough money to follow up properly with legal action.

It is not just pattern designers who face this dilemma. Many writers, graphic artists and musicians, as soon as they start to enjoy some sort of success, face the same challenge of monitoring infringement, chasing it down, sending notices to online sellers and distribution platforms, (usually while trying to avoid incurring legal bills by not engaging a law firm), all while trying to continue to create and produce appealing new content. This is the curse of the small or micro business and the independent artist.

If governments want to help SMEs and empower the small business sector, they need to find ways to allow small businesses to protect their IP without breaking the bank. That is the prime motivation for the passage of the CASE Act in the US (Copyright Alternative in Small-Claims Enforcement Act of 2019), which was enacted in January of this year. Once operative, it will establish an alternate form of settling copyright infringement claims (think, “small claims court” for copyright cases) to allow rights-holders to avoid the costs of litigation in a federal court. Under the CASE Act, a Copyright Claims Board will be established within the US Copyright Office. The process is voluntary (the plaintiff must choose to use the Board and the respondent must agree), statutory damages are limited to $15,000 per work or $30,000 per case and the work in question must be registered with the Copyright Office.

The CASE Act is one example. In the UK there is the Intellectual Property Enterprise Court (IPEC) which has the capacity to perform much the same function. According to IPEC, the small claims track within the court provides “a forum with simpler procedures by which the most straightforward intellectual property claims with a low financial value can be decided:

• without the need for parties to be legally represented

• without substantial pre-hearing preparation

• without the formalities of a traditional trial and

• without the parties putting themselves at risk of anything but very limited costs.”

That is the sort of facility that small businesses need, but a streamlined legal process only works when the perpetrator (or suspected perpetrator) is known. Much infringement takes place online, where perpetrators can hide their true identity. To combat this kind of infringement, both platforms (like Amazon) and governments have a role to play. My brother, a successful indie author who has published several e-books on Kindle through Amazon, discovered that one of his more successful books was being pirated (by definition, only successful books get pirated) and listed on Goodreads (owned by Amazon).   It was also a Kindle edition, with only a slight spelling change in the title. He brought it to Amazon’s attention whose response was to suggest he contact the website (which Amazon owns) and consider applying DRM (digital rights management) to the work. DRM is one solution but is easily stripped off the work. In fact, when I searched “DRM and Kindle”, the first listing on Google was “Remove the DRM from Kindle Books”. If you do decide to list your work on Amazon, the platform has a form you can submit to report infringement. How much is done about it by Amazon is another question.

Given the prevalence of online copyright infringement, any means that helps interrupt the distribution of pirated content is helpful. In this regard, various forms of site-blocking that have been instituted in a number of countries are a useful tool. (My World IP Day blog last year focused on the need to forge a global solution to the problem of global piracy by expanding site blocking). Site blocking in some countries (UK, Australia, Canada—just one case so far) is triggered only through the courts—a process which favours complainants with the means to pursue legal action, normally large companies. However, in some other countries (Portugal, Italy, Korea, for example) there is a relatively simple administrative process in place that allows rights-holders to seek a site blocking order, making it more accessible to SMEs. Site blocking orders require ISPs to block offshore web and streaming sites that promote and distribute infringing pirated content. In Canada a number of content owners tried unsuccessfully to petition for the establishment of an administrative site blocking review entity (the Independent Piracy Review Agency) operating under the oversight of the telecommunications and broadcast regulator, the CRTC, but were unsuccessful when the CRTC determined that establishment of such an agency was beyond its mandate. The problem, however, has not gone away and is now being resolved through the courts.

To come back to SMEs—they face many challenges; underfunding, difficulties in distribution, and issues related to IP, both access to innovation and protection of IP they have developed. For small businesses that require access to patented knowledge, mechanisms and concepts such as open innovation and various technical support programs offered by national governments and WIPO can help. For copyright based small businesses, the biggest IP challenge is fighting piracy with minimal available resources. The more that governments can do to facilitate enforcement action and lighten the burden on rights-holders seeking to protect and enforce their rights, the better.

As Joanne Seiff summed it up, “yes, SMEs can definitely succeed if enabled by good IP protection”. That is a big “if” and a good reminder to all concerned as we mark World IP Day.

© Hugh Stephens, 2021. All Rights Reserved.

One thought on “SMEs and IP: The Biggest Challenge For Many Small Businesses—Protecting their Intellectual Property”

  1. Heh, you think women who knit aren’t taken seriously, how about a woman who makes fairy wings.

    We won’t be able to protect our IP until sites like PicsArt, Pinterest, Instagram and others can actually be held accountable for refusing to act on valid DMCAs or for allowing rampant infringement by not enacting enough oversight or warning when users upload content. In PicsArt’s case they’re often uploading content for redistribution and usually it’s content that’s stolen.
    I would have to sweep that site daily if I wanted to keep my infringed images off of there but who has the time.

    Like

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