The use of intellectual property right bundles and firm performance in China

Abstract

Intellectual property rights (IPRs) have become increasingly important for firms in today’s knowledge-based economy, as evidenced by the strong growth in their use. The vital role of IPRs has motivated research into their association with firm performance. However, few firm-level studies have been conducted in developing countries. Moreover, empirical studies on the use of IPR bundles and their economic performance are scarce. To fill this gap, this study first illuminates how the joint use of different IPRs varies with firm characteristics, second, it analyses the association of such joint use with firm performance, based on a constructed large dataset that merges firm-level information from China’s Annual Survey of Industrial Enterprises with data on IPR filings from the China National Intellectual Property Administration. Results indicate that the joint use of different IPRs is strongly correlated with the industrial sector and firm size. Firms that use IPR bundles also have much greater economic performance than those that rely only on single types, indicating the existing complementarity between these rights. This study advances the understanding of the relationship between IPRs and firm performance and emphasises the complementary effect between different types of IPRs, demonstrating the significance of utilising various intellectual property mechanisms fully to increase firms’ competitive advantages.

Introduction

Nowadays, firms are increasingly engaged in multiple innovative activities and could thereby rely on multiple types of intellectual property rights (IPRs) because innovation and commercialisation are becoming more complex and competitive. In fact, while the innovation process in today’s world often has multiple layers and includes several individual inventions embedded in a single product, it previously had only one layer (Graham, 2008). It is clear that different types of IPRs can be used complementarily to benefit firms that are shifting the focus from a single invention to a complex product or a dynamic innovation process (Somaya and Graham, 2006; Graham, 2008). Different IPRs are designed to protect different innovation facets and address distinct market needs (Comino et al., 2015); thus, the joint use of various IPRs throughout innovation and commercialisation processes could provide better protection and offer more opportunities to reap returns from new technologies and products (Graham, 2008). As the European Union Intellectual Property Office (EUIPO, 2020) pointed out, ‘it is not surprising that IPR bundles are suitable for innovation, as it is a process where novelty and marketing are mixed, mapping the different IPR purposes and scope’.

However, most of the existing empirical literature has focused on the role of individual IPRs, primarily on patents (Munari, 2012; Fink et al., 2021). The empirical literature on the joint use of multiple IPRs is extremely scarce (Helmers and Schautschick, 2013; EUIPO, 2020). Some studies on this topic predominantly emphasise advanced economies, especially the U.S. and Europe (Helmers and Schautschick, 2013; Seip et al., 2019; European Patent Office [EPO] and EUIPO, 2019; EUIPO, 2020; Llerena and Millot, 2020; Thoma, 2020). Studies investigating the use of IPR bundles and assessing their relationship with firm performance in developing countries are nearly absent. To date, the evidence in developed economies suggests that the joint use of IPRs is largely dependent on firm sector and size (Seip et al., 2019; EUIPO, 2020). Further, it is strongly correlated with stronger economic weight (Helmers and Schautschick, 2013; EUIPO, 2020), greater firm performance (EPO and EUIPO, 2021), a higher likelihood of experiencing turnover growth (EPO and EUIPO, 2019), and increased market value (Thoma, 2020). The naturally emerging questions include the following: What are the characteristics of IPR bundling? Is there any relationship between such joint use and firm performance in developing countries? Further, the joint use of patents and trademarks has been studied extensively (Seip et al., 2019; EUIPO, 2020), whereas other combinations, such as patents and utility models (UMs) or patents and designs, have received little attention. In practice, UMs are used more frequently in developing countries, particularly in China. However, little is known about the role of UMs. Empirical evidence from Korean firms suggested that UMs that protect incremental inventions are more conducive when firms are technologically lagging; therefore, UMs can contribute to firm performance in developing countries (Kim et al., 2012).

This study attempts to elucidate this subject by investigating three formal types of IPRs—patents, UMs, and designs—which are protected by the patent system in China. Broadening the focus to include patents, UMs, and designs is important because these three IPRs cover different scopes and facets of firms’ intellectual assets. Patents are relevant to innovations that provide new solutions to technical problems, and they require novel and inventive features. UMs also involve technical functions but only involve less stringent inventive requirements, providing a type of protection that is primarily for incremental or minor innovations (World Intellectual Property Organisation [WIPO], 2004). The joint consideration of patents and UMs provides the possibility of capturing the differences in the nature of technological innovations obtained by firms (Beneito, 2006). Heikkilä and Lorenz (2018) found that patents and UMs complement, rather than substitute, each other. Hence, firms can jointly use patents and UMs to protect significant and incremental innovation. In contrast, designs involve no technical features but only cover ornamental or aesthetic creations that determine the appearance of industrial products (WIPO, 2004). The purpose of designs is to enhance the aesthetic appeal of products to consumers and increase their commercial value (Organisation for Economic Co-operation and Development [OECD], 2013). Designs can support the marketing function by protecting unique aesthetic features (EUIPO, 2020). Therefore, enhancing the appearance attraction of technological innovation is ideal when introducing products into the market.

In this study, we examine the use and performance premium of IPR bundles in Chinese manufacturing firms. To this end, we first explore the connections between the use of IPR bundles and firm characteristics to discern the type of firms that is more likely to rely on IPR bundles in China. Furthermore, we assess whether there is any performance premium associated with IPR bundles. If so, what categories of IPR bundles perform better? To address these questions, we use a large and rich dataset, merging financial information on Chinese manufacturing firms from 2009 to 2013 with their IPR data stored in the national registers for patents, UMs, and designs. The constructed dataset covers 577,117 unique firms, of which 100,613 apply for at least one IPR in the form of patents, UMs, or designs during the analysed period. To the best of our knowledge, this is the first study to investigate the use of IPR bundles in China. Not only does it expand the scope of IPRs from a dominant focus on patents to an emphasis on the possible use of UMs and designs to protect incremental innovations and aesthetic creations, but it also provides data-based evidence of the performance premium of the joint use of IPRs. A thorough and in-depth analysis of the use and performance premium of IPR bundles in China can provide a more comprehensive understanding of the role and importance of IPR bundles.

Theoretical backgrounds

Institutional context

In China, three types of formal IPRs (patents, UMs, and designs) are protected by patent law. According to Article 2 of the Chinese patent law, patents are defined as ‘any new technical solution relating to a product, a process, or improvement thereof’. UMs are defined as ‘any new technical solution relating to the shape, structure, or combination of a product, which is suitable for practical use’. China has a form requirement for UMs; therefore, formless subject matter, such as processes, cannot be protected by UMs. Patents need to possess prominent substantive features and represent a notable improvement over the state of the art, whereas UMs only need to possess substantive features and represent an improvement. A technical invention can only be protected by one right concurrently, as China bans double protection by patents and UMs. However, there is only one case in which an applicant can file both a patent and a UM for the same invention; that is, file these two applications on the same day. If the applicant needs to obtain a patent, the prerequisite is that he must declare the abandonment of the valid UM. Although there is the possibility of double-filing for the same invention on the same day, we believe this is also a strategy for firms to use patents and UMs jointly since these two applications need to pay related fees separately. Designs refer to ‘any new designs of product shapes, patterns, or combinations thereof, as well as the combination of colour with shape or pattern and they are aesthetically pleasing and suitable for industrial application’. Therefore, a design covers the appearance of a product but cannot protect its functional features. Table 1 shows a comparison of the patent, UM, and design protection in China.

Table 1. Comparison of patent, UM, and design protection in China.

	Patents	UMs	Designs
Subject matter	Product and process (new technical solutions)	Product only (new technical solutions)	Product only (aesthetical and non-functional features)
Examination procedure	Preliminary and substantial examinations	Preliminary examination	Preliminary examination
Publication lag from filing	18 months	Several months	Several months
Grant lag from filing	Several years	Several months	Several months
Novelty criterion	Yes	Yes	Yes
Inventive step criteria	Prominent substantive features and a marked improvement	Substantive features and an improvement	Distinct differences
Industrial applicability	Yes	Yes	Yes
Maximum duration	20 years	10 years	10 years

This table shows a comparison of patent, UM, and design protection in China in terms of the subject matters, examination procedures, grant requirements, and protection terms.

In addition, from the perspective of examination procedures and related fees, as presented in Fig. 1, UMs and designs are simpler, faster, and cheaper than patents because UMs and designs are only subjected to preliminary examination, whereas patents are subjected to preliminary and substantial examinations. The 18-month publication period and request for a substantial examination within 36 months from the filing date do not apply to UMs and designs. Instead, a UM or design is published and granted if the preliminary examination does not reveal any obvious substantive defects. Overall, patents are granted after longer and more complex examination procedures, usually several years, while UMs and designs take months. Regarding the protection term, UMs and designs have a shorter protection duration than patents do; the maximum duration of protection for UMs or designs is 10 years from the date of filing but 20 years for patents. Taken together, these three types of IPRs differ significantly in the subject matter, examination procedures, grant requirements, and protection terms. These differences make different IPRs aimed at protecting different innovations, and firms could benefit differently from them, further influencing their options for IPR strategies.

Fig. 1 [Images not available. See PDF.]

The examination procedures and related costs for patents, UMs, and designs in China.

This figure shows the examination procedures and related costs for patents, UMs, and designs in China from the date of application to the date of the final decision.

It is important to note that, in 2008, the Chinese patent law was revised for a third time, and the outline of the National Intellectual Property Strategy was issued by the State Council of China. Since then, China has progressed greatly in all aspects of its IPR development. Our analysis focuses on the most recent 5-year data available after the third amendment. Owing to word-limit restrictions, more details about the institutional context are included in the Supplementary Information.

The role of different types of IPRs

Patents and UMs are considered to appropriate significant and incremental technological innovation, respectively (Beneito, 2006). The role of patents as instruments to protect technological inventions has been extensively examined; however, to our knowledge, UMs have received very little attention. According to the WIPO (2004), both patents and UMs are exclusive rights aimed at protecting technological inventions. The purpose of UMs is to provide a protection mechanism for these innovations that might not meet all the requirements for patentable inventions but should also be encouraged and rewarded (WIPO, 2004). However, patents alone are insufficient to protect different levels of technological innovation at different stages of technological development (Kang et al., 2019).

Although UMs are similar to patents, they have two main advantages. First, UMs are labelled as small patents or petty patents (Beneito, 2006)—primarily as a mechanism to protect incremental or minor innovations. Of note, UMs tend to be favoured by small firms or latecomers because they may less frequently develop patentable innovations, and many of their inventions could be based on small improvements that lead to incremental innovations (Arundel, 2001; Kim et al., 2012; Radauer et al., 2015). In addition, large firms can also use UMs to supplement their IPR portfolios because large firms often invest in many innovative activities simultaneously and have large varieties of potential inventions, some of which are significant and could be protected by patents while some are minor and protected by UMs (Heikkilä and Lorenz, 2018). Second, the attractiveness of speed causes UMs to be particularly useful for firms that need to protect their innovations quickly, especially for those with short product lifecycles (Radauer et al., 2015; Heikkilä and Lorenz, 2018). Owing to the cost advantage, UMs are likely to be very popular with cash-strapped firms. For instance, Graham et al. (2009) found that the most common reason small firms refrain from patenting is cost considerations. Neuhäusler (2012) showed that UMs can be a good alternative to patents when the costs of filing patents are too high. Firms can use patents to protect their more innovative inventions and use UMs to protect their less innovative inventions (Beneito, 2006). Consequently, combining patents and UMs can form gradient protection for different levels of technological innovation.

In addition to technological inventions, design innovations are becoming increasingly important for manufacturing firms because of intensifying market competition and increasing customer demand for aesthetic experiences (National Endowment for the Arts [NEA], 2017). Designs are mainly relevant for aesthetic appearance and perception—how a product looks and feels (Filitz et al., 2015). As Eisenman (2013) stated, designs are powerful communicative tools that serve three important functions: as functional languages for explaining what products do and how they should be used; as aesthetic languages for stimulating users by triggering various sensory responses or emotional reactions; and as symbolic languages for extending beyond basic utility by signifying second-order meanings and associations, such as social space and position. Thus, integrating designs into products is not only conducive to the popularisation of products but also acts as a bridge in the communication between products and customers. Hence, products with attractive designs are much more likely to succeed in crowded markets than those that simply embody technologies. An example of the significance of design is the competition between Apple and Samsung through aesthetics and product styling (Filitz et al., 2015). In fact, designs can add financial value by decreasing the time needed to introduce a product to the market and by enhancing product differentiation and market diversification (NEA, 2017). Galindo-Rueda and Millot (2015) showed that firms using integrated designs have, on average, a 9.1% higher employment growth rate, 18.7% higher value-added growth rate, and 10.4% higher productivity growth rate than those that do not use designs.

The joint use of different IPRs and their complementarity

Today’s innovation is increasingly complex, and a new product often involves several individual inventions. Therefore, two or more intellectual property instruments are employed simultaneously to protect different innovations within a firm. Hence, although empirical studies on IPR bundles are scarce, the role of using various IPRs jointly is emphasised increasingly. Somaya and Graham (2006) showed that different types of IPRs are complements, and the complementarity between copyrights and trademarks in U.S. software firms is driven by managerial attention to IPRs and organisational resources leveraged across multiple forms of IPRs. Amara et al. (2008) found that different IPRs are interdependent and used by firms complementarily when protecting their innovation from imitation. Similarly, Heikkilä and Lorenz (2018) found that patents and UMs are used interdependently, and these two types of rights are complements. EPO and EUIPO (2021) conducted a study to analyse the role of IPRs (including patents, trademarks, and designs) at the European firm level. The results indicated that firms commonly protect innovations by combining different types of IPRs; about 10.4% of IPR owners use at least two types of IPRs jointly, and this number is almost 37.2% for large firms. EUIPO (2020) reported a comprehensive analysis of the use of IPR bundles by firms in the EU over the period 2014–2015, and the results showed that 8.3% of firms apply for more than one type of IPRs (patents, trademarks, and designs), accounting for 35.7% of all IPRs in the sample. In addition, Dinlersoz et al. (2018) claimed that firms with trademark filings are 15–20 times more likely to apply for patents. Similarly, Seip et al. (2019) argued that approximately 25% of Dutch firms with patent applications also file for one or more trademarks. More markedly, about 40% of the firms with designs also apply for at least one trademark and 20% apply for at least one patent. Llerena and Millot (2020) found that 77% of firms use both patents and trademarks in a sample of more than 1500 listed firms among the top 2000 corporate R&D investors worldwide. The above evidence shows that firms use different IPRs jointly as a widespread strategy.

In addition to bundling IPRs, some studies have further explored the relationship between IPR bundles and firm performance. Most support the view that IPRs can be used in a complementary manner to improve firm performance; that is, the use of IPR bundles shows great potential for firms to perform better. Parchomovsky and Siegelman (2002) were among the first scholars to analyse the impact of using patents and trademarks jointly. They provided some evidence through several case studies that patentees could implement a strategy of trademark and brand loyalty to extend patent protection well beyond the expiration of patents and thereby earn higher profits than without such a combination. Munari and Santoni (2009) used a sample of 453 manufacturing small- and medium-sized enterprises (SMEs) in Northern Italy to assess the influence of the combination of patents and trademarks/designs on firm performance. They found that compared to those not using any IPRs, firms with both types of IPRs tend to exhibit superior performance. The effect is also positive when considering firms with patents only as the control group. Therefore, the authors indicated that firms that focus on exploiting the signalling and aesthetic value of trademarks or designs would perform better than those that rely solely on patent protection. Zhou et al. (2016) explored the complementary effect of patents and trademarks on venture capital (VC) of start-ups. Their empirical analysis showed that start-ups that apply for both patents and trademarks receive more VC funding than those that own only a single type of IPRs, suggesting that patents and trademarks are complementary. Thoma (2020) showed that combining trademarks and patents almost doubles the value of a patent. Moreover, EPO and EUIPO provided a multi-angle empirical analysis of the economic impacts of IPRs bundles. For example, EPO and EUIPO (2019) examined the correlation between the turnover growth of European SMEs and patents, trademarks, and designs. Their report showed that using bundles comprising two types of IPRs leads to better performance in predicting future growth prospects than the use of isolated types of these rights. In addition, another study in 2021 reported that firms that own a combination of different types of IPRs have greater economic performance compared with those with only one type of IPRs, indicating that IPRs complement each other (EPO and EUIPO, 2021).

In summary, firms are continuously looking for various intellectual property mechanisms to protect their creative ideas and obtain adequate innovation benefits, emphasising more on the joint use of different IPRs or IPR bundles. The small but growing body of empirical literature on IPR bundles focuses primarily on firm data from developed economies, particularly the U.S. and Europe. However, research on this topic in developing countries is lacking. In addition, while the combination of patents and trademarks has been examined extensively, little is known about other combinations, such as patents and UMs, patents and designs. Therefore, our study attempts to extend the use of IPR bundles from developed economies to developing countries and provide, for the first time, the results of any combination of patents, UMs, and designs.

Data

The data used in this study consists of two components: (1) China’s Annual Survey of Industrial Enterprises (ASIE) and (2) IPR data reported by the China National Intellectual Property Administration (CNIPA). ASIE contains detailed firm-level economic and demographic information on millions of Chinese companies, which is collected by China’s National Bureau of Statistics (NBS) and widely used by academic researchers. We accessed the most recent five-year available data spanning the period from 2009 to 2013. The IPR data gathered from CNIPA comprises all records of published patents, UMs, and designs filed at CNIPA, including highly detailed and formatted information, such as application numbers, applicants’ names and addresses, and filing dates. In this study, we used IPR applications because they reflect firms’ recent innovative activities better than they do grants, as IPR-granting decisions are usually prolonged (Belderbos et al., 2010).

To correlate the IPRs of each firm with its economic information, we combined the two components into a single dataset. The IPR data provided by CNIPA were merged with the economic data provided by ASIE year by year, based on the identification of IPR ownership by firm name. More specifically, following the method of He et al. (2018), two data sources were matched in three steps: data extraction, data pre-processing, and data matching. First, we extracted all three types of IPRs from the CNIPA database and excluded two sets of IPRs before matching: IPRs assigned to natural persons and IPRs assigned to firms with addresses outside mainland China because natural persons and firms with addresses outside mainland China do not have corresponding records in the ASIE database. Concurrently, we extracted all manufacturing firms from the ASIE database and excluded firms with serious information missing, no or 0 ages, no or 0 employees, and no or negative revenues/profits. Second, a set of pre-processing procedures was conducted to normalise and harmonise IPR applicant names and ASIE firm names. Third, the link between the two databases was established using standardised and harmonised names. Although ASIE is the most comprehensive and detailed source of demographic and financial information on firms operating in China, its stored information is insufficient to identify the affiliations between firms. Therefore, following EPO and EUIPO’s (2021) study, we matched the IPRs with their immediate owners, regardless of whether the firm is part of a group. The final matched dataset comprises a panel of five years that includes information on 577,117 unique firms. The rich panel data allow us to track the connection between the use of IPR bundles and firm characteristics and to examine the performance premium of IPR bundles further. More details about the data features, such as the matching efficiency and summary statistics, are included in the Supplementary Information.

Three forms of IPRs are considered in this study and seven IPR categories are included, comprising three single types and four possible IPR bundles. These include firms that rely on the following: patents (PAT only); UMs (UM only); designs (DES only); both patents and UMs (PAT & UM); both patents and designs (PAT & DES); both UMs and designs (UM & DES); and patents, UMs, and designs (PAT & UM & DES). The first three categories were collectively labelled ‘Single use’, and the last four categories were collectively labelled ‘Joint use’. The term ‘IPR bundles’ is equivalent to the joint use of IPRs in this study, and the two expressions could be used interchangeably. Consistent with EUIPO (2020), firms owning at least one IPR are denoted as IPR-active firms (IPR owners), firms owning IPR bundles are denoted as multi-IPR firms, and IPRs filed by multi-IPR firms are labelled as concurrent IPRs. Firms that do not own any IPRs are denoted as non-IPR owners. IPR bundles in this study refer to the joint use of patents, UMs, or designs. Although IPR bundles in EUIPO (2020) also focus on three types of IPRs, they consider trademarks and not UMs. While the scope of IPR types in the two studies is somewhat different, the basic meaning of IPR bundles is the same; that is, the joint use of different types of IPRs.

Descriptive statistics

The constructed dataset used in this study comprises a sample of 100,613 firms that applied for at least one IPR in the form of patents, UMs, or designs at the CNIPA during the analysed period, which represents 17.43% of the total firms during this period. In other words, only 17.43% of all firms are IPR-active; however, a large majority (82.57%) do not use IPRs at all. The sizeable proportion of firms that do not own any IPRs (non-IPR owners) is an important feature of our data, and we consider this when specifying the econometric models and make this group the reference. To understand the use of IPR bundles better, this section only considers IPR-active firms.

We begin by describing the general profile of the use of IPR bundles by Chinese manufacturing firms and then further analysing the connection between the use of IPR bundles and firm characteristics, including the industrial sector in which the firm operates and the size of the firm, to comprehensively explore how IPR bundling behaviours vary by firm characteristics.

Overview of the use of IPR bundles

Table 2 reports the share and economic importance of firms that use different IPRs, distinguishing between the use of single-type and IPR bundles. Overall, slightly more than 50% of the firms rely only on a single type of IPRs, with UMs being the most frequently used (27.31%). However, the variations between patents and designs were not large (10.52% vs. 13.71%). Conversely, almost half of the firms are jointly oriented to use at least two types of IPRs. The most common bundle consists of patents and UMs (26.40%), and the second-largest bundle category consists of all three types of IPRs (13.03%). The shares of the remaining two bundle categories, the bundle of patents and designs and the bundle of UMs and designs were relatively small at 2.16% and 6.86%, respectively. Thus, two interesting findings can be drawn from the data presented above. First, UMs are widely used by Chinese manufacturing firms either individually or jointly. Second, patents are more likely to be used together with other types of IPRs than be used alone.

Table 2. The general profile of the use of IPR bundles.

IPR category	% of firms	% of IPRs	% of employment	% of revenue	% of profit
Single-use	51.54	14.53	34.45	26.87	25.97
PAT only	10.52	2.49	8.28	8.82	8.71
UM only	27.31	6.06	17.96	13.03	12.04
DES only	13.71	5.98	8.21	5.02	5.22
Joint use	48.45	85.48	65.56	73.13	74.03
PAT & UM	26.40	27.47	31.27	37.65	32.47
PAT & DES	2.16	2.96	2.30	1.88	2.21
UM & DES	6.86	5.62	6.21	3.88	3.69
PAT & UM & DES	13.03	49.43	25.78	29.72	35.66
Total	100	100	100	100	100

This table shows the share and economic importance of firms that use different IPRs where it distinguishes between the Single use and the Joint use. ‘% of firms’ denotes the percentage of firms that use the specific IPR category. ‘% of IPRs’ denotes the percentage of total IPRs held by the firms that use the specific IPR category. ‘% of employment’ denotes the share of total employment represented by the firms that use the specific IPR category. ‘% of revenue’ (or ‘% of profit’) denotes the share of total revenue (or total profit) accounted by the firms that use the specific IPR category.

More interestingly, regarding economic importance, multi-IPR firms represent 48.45% of all firms but contribute 65.56% of employment, 73.13% of revenue, and 74.03% of profit. Of these firms, 13.03% owning all three types of IPRs account for 25.78% of employment, 29.72% of revenue, and 35.66% of profit. These figures clearly show that firms with IPR bundles have strong and important economic weight in the manufacturing sector, which is consistent with relevant studies in developed economies (Helmers and Schautschick, 2013; EUIPO, 2020).

The use of IPR bundles by firm characteristic

IPR bundles by industrial sector

To elucidate IPR bundling broadly, we further examined the patterns of the use of IPR bundles among different industrial sectors, and the results are shown in Table 3. Considerable differences are clear between the industrial sectors with respect to the use of IPR bundles. The sector with the highest share of multi-IPR firms is the manufacture of computer, communication equipment, and other electronic products—with more than 62% of firms engaged in IPRs bundling, representing almost 95% of all IPRs in this sector. The high use of IPR bundles can also be seen in the manufacture of electrical equipment, manufacture of machinery and equipment, and manufacture of motor vehicles and other transport equipment. In these three industries, more than 54% of all firms use at least two types of IPRs, and these firms hold about 90% of all IPR applications in their respective sectors.

Table 3. The distribution of IPR bundles by industrial sector.

Code	Industrial sector	% Firms	% IPRs
C13–C14	Manufacture of food products	31.75	71.30
C15–C16	Manufacture of beverages, teas, and tobacco products	32.09	77.28
C17	Manufacture of textiles	32.44	64.99
C18	Manufacture of wearing apparel	20.53	47.70
C19	Manufacture of leather and allied products	32.25	73.34
C20	Manufacture of wood, bamboo, rattan, and straw products	38.03	78.95
C21	Manufacture of furniture	45.07	71.73
C22	Manufacture of paper and paper products	38.52	78.34
C23	Printing and reproduction of recorded media	42.37	73.89
C24	Manufacture of cultural, educational, recreational and sports goods	49.35	80.87
C25	Manufacture of petroleum and coke products	38.63	77.94
C26	Manufacture of chemicals and chemical products	40.79	75.99
C27	Manufacture of pharmaceutical products	46.08	80.07
C28	Manufacture of chemical fibre	43.40	76.97
C29	Manufacture of rubber and plastic products	46.77	80.40
C30	Manufacture of non-metallic mineral products	41.87	81.41
C31–C32	Manufacture of basic metals	47.34	83.24
C33	Manufacture of fabricated metal products, except machinery and equipment	47.02	83.86
C34–C35	Manufacture of machinery and equipment	56.11	89.49
C36–C37	Manufacture of motor vehicles and other transport equipment	54.28	91.59
C38	Manufacture of electrical equipment	58.47	91.83
C39–C40	Manufacture of computer, communication equipment and other electronic products	62.41	94.70
C41	Other manufacturing	37.32	77.99
All sectors		48.45%	85.48%

This table shows the distribution of IPR bundles by the industrial sector. ‘% Firms’ denotes the percentage of firms in each sector that use the IPR bundles. ‘% IPRs’ denotes the percentage of each sector’s total IPRs held by the bundling firms. Some sectors are merged because the low number of firms resulted in aggregations that are not statistically sound.

In contrast, most traditional manufacturing industries, such as manufacturers of food products; beverages, teas, and tobacco products; textiles; wearing apparel; leather; and allied products have a low propensity for bundling IPRs but rely more exclusively on UMs or designs. Among them, the manufacture of wearing apparel reported the lowest share of IPR bundle use (20.53%), and it had a high prevalence for designs (40.85%). All these sectors are low-technology industries with low innovation capacity and relatively small demand for IPR bundles. Consequently, single types, especially UMs and designs, appear as more popular in these sectors. These findings support Neuhäusler (2012), who found that UMs and designs appear more important in low-technology industries when examining the use of patents and other intellectual property mechanisms by German manufacturing firms.

Many studies have shown conclusively that the use of patents is strongly correlated with economic sectors, primarily concentrated in high-tech areas, such as pharmaceuticals, biotechnology, and medical instruments (Hanel, 2008; Hall and Harhoff, 2012; Munari, 2012). However, compared to the evidence collected for patents, there is much less evidence regarding the distribution of UMs and designs across industries. UMs are more attractive for industries with short product life cycles as UMs can offer fast protection (Radauer et al., 2015; Heikkilä and Lorenz, 2018). Designs seem to be particularly effective in traditional sectors (such as footwear and furniture) where aesthetic novelty can significantly improve competitiveness (Gemser and Wijnberg, 2001; Alcaide-Marzal and Tortajada-Esparza, 2007). It is clear that there are significant differences in the choice of various IPRs across sectors though. Our study found that the use of IPR bundles also varies significantly by industry. Overall, IPR bundles are used more frequently in high-tech industries, which is consistent with the finding of Seip et al. (2019) that large firms in high-tech industries tend to bundle different types of IPRs, and with the finding of Amara et al. (2008) that firms in knowledge-intensive business services rely simultaneously on multiple types of IPRs.

In addition, these patterns are very similar to a European study on the use of IPR bundles by economic sectors. Although it was somewhat different from this study in that it looked at patents, trademarks and designs, a lot of overlap in industries can still be observed. The European study showed that the four most active IPRs bundling sectors include the manufacturers of electrical equipment; motor vehicles; pharmaceutical products; and computer, electronic, and optical products. Except for manufacture of pharmaceutical products, these sectors are in line with the most active bundling industries in China. One possible reason is that pharmaceutical firms are more prone to applying for patents because of their firms’ main innovative characteristics. Many inventions in the pharmaceutical sector are not the subjects of UM protection because UMs provide protection for merely new and useful space configurations of products; thus, a new use of a known compound and a new invention in the fields of biotechnology and chemistry cannot be the subject matter of a UM (Reniero, 2009). This is why firms in the pharmaceutical industry are the heaviest patent users, with 40% of the firms in this sector using isolated patents. Some evidence indicated that firms operating in the pharmaceutical industry are keen to bundle patents and trademarks (Dernis et al., 2015; Seip et al., 2019); however, our study found that firms from the pharmaceutical sector do not show strong indication in the bundling of patents, UMs, and designs. Therefore, different industries could vary in the types of IPRs they bundle. Overall, empirical research on the industry differences in the use of IPR bundles is very limited, further evidence is strongly needed, and more attention should be paid to what factors contribute to these differences.

IPR bundles by firm size

In addition to the differences in the use of IPR bundles across industrial sectors, we also investigate the patterns of bundling IPRs by firm size, one of the key observable firm characteristics. Table 4 shows how the use of IPR bundles is associated with firm size, as measured by employment. Firms are divided into three categories based on their number of employees: firms with 1–49, 50–249, and 250 employees or more are labelled as micro and small, medium, and large firms, respectively (Heikkilä and Lorenz, 2018).

Table 4. The distribution of IPR bundles by firm size.

IPR category	Micro and small		Medium		Large
	% Firms	% IPRs	% Firms	% IPRs	% Firms	% IPRs
Single use	81.75	44.41	55.73	24.00	39.43	8.77
PAT only	9.78	6.18	11.73	4.25	8.99	1.46
UM only	44.27	21.87	29.35	10.12	20.95	3.52
DES only	27.70	16.36	14.65	9.63	9.49	3.79
Joint use	18.25	55.59	44.27	76.00	60.57	91.23
PAT & UM	10.77	27.73	25.90	33.59	30.35	24.21
PAT & DES	0.96	6.77	1.99	3.89	2.65	2.38
UM & DES	3.94	6.01	6.63	7.26	7.80	4.74
PAT & UM & DES	2.58	15.08	9.75	31.26	19.77	59.89
Total	100	100	100	100	100	100

This table shows the distribution of IPR bundles by firm size. Micro and Small, Medium, and Large refer to firms that have 1–49, 50–249, and 250 or more employees, respectively. ‘% Firms’ denotes the percentage of firms in each size that use the specific IPR category. ‘% IPRs’ denotes the percentage of each size’s total IPRs held by the firms that use the specific IPR category.

The share of firms that use IPR bundles increases considerably with firm size. Less than 19% of micro and small firms use IPR bundles, whereas more than 44% and 60% of medium and large firms, respectively, do so. Moreover, <56% of all IPRs owned by micro and small firms are concurrent filings, compared with 76% of medium firms and more than 91% of large firms. A similar pattern emerged for a specific IPR bundle. For example, less than 11% of micro and small firms own a bundle of patents and UMs, compared to nearly 26% of medium firms and more than 30% of large firms. For the combination of patents, UMs, and designs, the corresponding figures are 2.58% for micro and small firms, 9.75% for medium firms, and 19.77% for large firms.

Smaller firms have a higher propensity to use stand-alone IPRs, especially UMs and designs. There are no pronounced differences in the percentages of firms in the three size categories using patents exclusively; however, micro and small firms are more likely to use UMs or designs individually, compared to medium or large firms. Of micro and small firms, 44.27% use UMs only and 27.70% use design only—the corresponding proportions are 29.35% and 14.65% for medium firms and 20.95% and 9.49% for large firms.

It is worth mentioning that the large proportions of firms using UMs alone in all size categories (nearly 21%, even in large firms) suggest that the protection mechanism of UMs plays an important role in Chinese manufacturing firms, which differs from the small share of German firms that use UMs individually (Heikkilä and Lorenz, 2018). This reflects the importance of incorporating UMs into the analysis in this study.

In summary, micro and small firms are more inclined to use IPRs individually, whereas large firms are more inclined to use IPRs jointly. This observation is consistent with Heikkilä and Lorenz’s (2018) finding that larger firms tend to use both patents and UMs because they have more resources and capabilities to exploit IPR systems. Moreover, Hanel (2008) found that the preference for using any IPRs by manufacturing firms in Canada, notably patents, increases with the size of the firm, and he argued that two main reasons for this are cost considerations and innovation level. On the one hand, smaller firms have a heavier burden in acquiring, maintaining, and enforcing IPRs than larger ones. On the other hand, smaller firms are less likely to innovate, and if they do, they make significant innovations less frequently compared with larger firms. Similarly, we believe that financial constraints and low innovation levels could discourage smaller firms from using IPR bundles because the joint use of different IPRs tends to require more resources, and it is more demanding (Crass et al., 2019).

Econometric analysis

Method

The purpose of the econometric analysis is to evaluate and compare the firm performance resulting from the use of various IPR categories. We employ two sets of models to examine this issue. The first set of models analyses whether firms that own any category of IPR bundles show superior economic performance compared to those that own only stand-alone IPRs. Firms that jointly use at least two types of IPRs (Joint use) are considered a distinct group, which enables an overall comparison with firms that use only single types of IPRs (Single use). The second set of models is used to explore whether firms that own a specific IPR bundle (‘PAT & UM’, ‘PAT & DES’, ‘UM & DES’, ‘PAT & UM & DES’) exhibit higher economic performance than those that only own a specific single type (‘PAT only’, ‘UM only’, ‘DES only’). The advantage of the second set of models is that it makes it possible to distribute the relationships of a firm’s economic performance among different IPR bundles and single types (EPO and EUIPO, 2019).

For the two sets of models, the IPR-related variables of interest are dummy variables that take a value of either zero or one, and the category of no IPRs serves as the base category; therefore, it is omitted from the regression analyses. We rely on two variables to measure a firm’s economic performance: revenue per employee, and profit per employee. Other factors that could influence a firm’s economic performance were also considered, including the age and employment of firms, the industry in which it operates, and the year that is applied to control the effects of the economic cycle (Kim et al., 2012; EPO and EUIPO, 2021).

Regression analysis results

We begin by focusing on the relationship between the general use of IPR bundles and firm performance without distinguishing between specific categories of IPR bundles. To this end, the first analyses set compares whether firms using any IPR bundles would exhibit better performance, and the regression analysis results are presented in Table 5. Figure 2 plots the coefficients and 95% confidence intervals of the IPR-related variables in Table 5.

Table 5. The general use of IPR bundles and firm performance.

Variable	Dependent variable
	Revenue per employee (log)	Profit per employee (log)
Single use	0.241*** (0.004)	0.274*** (0.008)
Joint use	0.697*** (0.004)	0.855*** (0.008)
Employment (log)	−0.624*** (0.001)	−0.518*** (0.002)
Firm age	0.003*** (0.000)	−0.002*** (0.000)
Industry dummies	Yes	Yes
Year dummies	Yes	Yes
Constant	8.784*** (0.006)	5.163*** (0.011)
Observations	1,588,043	1,370,577
R2	0.439	0.138

This table shows the results for the first set of models, where firms that jointly use at least two types of IPRs are considered as one group (Joint use) and firms that only use a single type of IPRs are considered as another group (Single use). A reference group is a group of firms that do not use any IPRs at all, and it is omitted from the regression analyses. Standard errors are in parentheses.

***p < 0 .01.

Fig. 2 [Images not available. See PDF.]

The general use of IPR bundles and firm performance.

This figure shows the estimated coefficient of the general use of IPR bundles and the 95% confidence interval around the point estimate. Detailed results of the model estimation are presented in Table 5. ***p < 0.01.

The results clearly show that both the use of isolated IPRs and IPR bundles are positively and significantly associated with firm performance (p < 0.01). However, the magnitude of the relationship differs between Single use and Joint use. Figure 2 clearly shows that firms using IPRs jointly exhibit superior performance to those using IPRs singly. When revenue per employee is used as a measure of firm performance, the relevant coefficient is 0.241 if firms use only a single type of IPRs, whereas this relationship is particularly strong, with a coefficient of 0.697 if firms jointly use various types of IPRs. Likewise, if firm performance is measured by profit per employee, the relevant coefficient is 0.274 for firms using a single type of IPRs, compared with 0.855 for firms using at least two types of IPRs jointly. In sum, the first set of regressions finds a significant and positive association between IPR use and firm performance. Moreover, this association is more profound for Joint use than for Single use, suggesting complementarity between the three types of IPRs. Firms can protect different elements of their innovations more effectively through the joint use of different types of IPRs, thus enabling them to appropriate the value of innovative ideas more adequately.

The first set of analyses provides evidence of the economic advantage of using an IPR bundle. However, it is still unclear which category of IPR bundles performs better. Therefore, we assess the relationship between specific IPR bundles and firm performance elaborately, and the results are presented in Table 6 and Fig. 3. All categories of IPRs are found as positively associated with firm performance, as shown by the positive and statistically significant coefficients of all seven IPR-related dummy variables. However, when comparing the results of using single types of IPRs with using bundles of two types of IPRs, a stronger correlation between IPR bundles and firm performance becomes evident. For example, the use of patents individually is positively associated with revenue per employee, with a coefficient of 0.436, but is likewise outperformed by bundling patents with UMs (0.692) or designs (0.572). Similar results can also be observed for the UMs and designs. The coefficient is only 0.240 for firms that use UMs only, whereas it is 0.331 if the UMs are combined with designs. Interestingly, the relationship between the use of designs alone and revenue per employee is weak, with a coefficient of 0.096. However, bundles combining designs with patents or UMs have a strong association. These patterns also emerge when profit per employee is used as a measure of firm performance.

Table 6. The specific use of IPR bundles and firm performance.

Variable	Dependent variable
	Revenue per employee (log)	Profit per employee (log)
PAT only	0.436*** (0.009)	0.570*** (0.016)
UM only	0.240*** (0.006)	0.272*** (0.010)
DES only	0.096*** (0.008)	0.056*** (0.014)
PAT & UM	0.692*** (0.006)	0.884*** (0.010)
PAT & DES	0.572*** (0.019)	0.664*** (0.034)
UM & DES	0.331*** (0.011)	0.248*** (0.020)
PAT & UM & DES	0.928*** (0.008)	1.146*** (0.014)
Employment(log)	−0.624*** (0.001)	−0.520*** (0.002)
Firm age	0.003*** (0.000)	−0.002*** (0.000)
Industry dummies	Yes	Yes
Year dummies	Yes	Yes
Constant	8.789*** (0.006)	5.173*** (0.011)
Observations	1,588,043	1,370,577
R2	0.439	0.138

This table shows the results for the second set of models, where firms that use IPRs are distinguished into seven specific categories (PAT only, UM only, DES only, PAT & UM, PAT & DES, UM & DES, PAT & UM & DES) to distribute the relationships of firm performance among different IPR categories. A reference group is a group of firms that do not use any IPRs at all, and it is omitted from the regression analyses. Standard errors are in parentheses.

***p < 0 .01.

Fig. 3 [Images not available. See PDF.]

The specific use of IPR bundles and firm performance.

This figure shows the estimated coefficient of the specific use of IPR bundles and the 95% confidence interval around the point estimate. Detailed results of the model estimation are presented in Table 6. ***p < 0.01.

Further analysis reveals that the bundle of patents, UMs, and designs performs the best among all seven categories in improving both revenues per employee (with a coefficient of 0.928) and profit per employee (1.146). Bundles involving patents generally exhibit better performance than other bundles, implying that patents are an essential element of effective IPR bundles. This is likely because patents are associated with high-quality innovation and allow firms to increase competitive edges by appropriating the core value of their endeavours. Overall, IPR bundles that contain patents or combine the broadest possible rights appear to be the most effective.

Furthermore, we calculate the exact percentage increase in firm performance between firms that own specific categories of IPRs and firms that do not own any IPRs, as shown in Figs. 4 and 5. Figure 4 shows clearly that firms owning IPR jointly exhibit superior performance compared to firms that own IPR singly. The revenue per employee of firms that own IPRs singly is 27% greater than that of non-owners, and the equivalent statistic for firms that own IPRs jointly is 101%. The positive premiums of the IPR bundles are shown more clearly in Fig. 5. The revenue per employee of firms that own patents only exceeds that of non-owners by ~55%. When combining patents with UMs or designs, the performance increased to 100% and 77%, respectively, and even more (153%) when patents were combined with both UMs and designs. Similar results are found for profit per employee. Therefore, based on the two sets of econometric analyses, we can conclude that firms are more likely to achieve superior performance if they own IPRs jointly rather than separately, which also coincides with Munari and Santoni (2009) and EPO and EUIPO (2019, 2021). Assuming that patents and UMs represent high and minor levels of technological innovations, respectively, and designs represent aesthetic efforts to bring new technologies or products into markets, any combination of these three IPRs would increase the returns on innovation by capturing the different facets of creative activities. Therefore, with the increasing complexity of new products and technologies and the shift in consumers’ preferences for goods with differentiated tastes, combining the technical and aesthetic experience of products is a better strategy for firms to stay ahead of competitors and enhance financial performance. Accordingly, an important approach is to rely on the joint use of IPRs.

Fig. 4 [Images not available. See PDF.]

The exact performance premium of the general use of IPR bundles.

This figure shows the calculated exact percentage increase in firm performance between Single use and Joint use. ***p < 0.01.

Fig. 5 [Images not available. See PDF.]

The exact performance premium of the specific use of IPR bundles.

This figure shows the calculated exact percentage increase in firm performance between specific categories of IPRs. ***p < 0.01.

To test the robustness of the estimations reported above, we performed several additional regression analyses. First, we conducted two sets of econometric analyses separately for 2009–2010 and 2011–2013. The results are presented in Tables S4 and S5. Second, we categorised the full sample into industries with the following characteristics: the proportion of firms engaged in IPRs bundling is below average (Below average) and the proportion of firms engaged in IPRs bundling is above average (Above average). The results are presented in Tables S6 and S7. Third, we considered the stocks of IPRs in a firm. Here a specific IPR owner status was assigned to a firm if it had any active specific IPR category before 2013. The results are shown in Table S8. All the results did not change significantly, and a similar conclusion is suggested. Overall, the robustness checks confirm a strong positive relationship between IPR bundles and firm performance.

Discussion and conclusion

Empirical studies regarding the use of IPR bundles and their economic performance are scarce. To elucidate this issue, this study constructs a rich and large dataset of Chinese manufacturing firms that merges firm-level micro information extracted from China’s ASIE with the same firms’ patent, UM, and design filings gathered from the CNIPA. The matched dataset links IPR data with firm characteristics and economic performance, allowing a comprehensive and deep investigation of the IPR bundling behaviours of Chinese manufacturing firms as well as the performance premium of such IPR bundling. On the one hand, this study helps to fill the gap in the use of IPR bundles in developing countries and enhances the knowledge of IPR bundling behaviours; on the other hand, it provides a strong indication that the use of IPR bundles is positively associated with superior economic performance at the firm level.

This study contributes to the scientific research on the economic importance of IPRs in three ways. The first contribution concerns the characteristics and economic importance of firms that use IPRs jointly. Our results show that the propensity to use IPR bundles is strongly correlated with the industry sector and firm size. Further, firms that use IPRs bundles show significant economic importance, accounting for 66% of employment, 73% of revenue, and 74% of profit. These findings are in line with similar studies about the use of IPR bundles by UK firms (Helmers and Schautschick, 2013) and the use of IPR bundles by EU firms in the period 2014–2015 (EUIPO, 2020). The former found considerable variation in the use of bundles across industries, and firms with a bundle of patents and trademarks account for an important share of total assets, employment, and turnover. The latter found that larger firms are associated with a higher preference for IPR bundling and bundling behaviour differs significantly across sectors. Firms with IPR bundles show strong economic weight, representing 31.9% of employment and 35.5% of turnover.

Second, our findings confirm the importance of IPRs in a modern economy, showing that the use of IPRs singly or jointly is positively associated with firm performance. A study by EPO and EUIPO revealed that EU firms with IPRs in the form of patents, trademarks, and designs exhibit higher performance compared to firms without any IPRs, with revenue per employee being 55% greater for IPR owners than for non-IPR owners (EPO and EUIPO, 2021). Our results confirm this argument, showing that the use of both isolated IPRs and IPR bundles are positively and significantly associated with firm performance, as measured by revenue per employee and profit per employee. Firms that own IPRs singly have 27% higher revenue per employee and 32% higher profit per employee than firms that do not own any IPRs. The performance increase experienced by firms that own IPRs jointly is more evident.

Third, our analysis broadens previous research by considering patents as well as UMs and designs, providing coverage of significant innovations, incremental improvements, and aesthetic creations, and further provides evidence supporting the existing complementarity between different types of IPRs, showing that firms owning IPR bundles exhibit much higher performance than those with only single types. These findings support previous studies showing that IPR bundles have a stronger positive association with firm performance (EPO and EUIPO, 2021) or future growth (EPO and EUIPO, 2019). As different IPRs are designed to protect different facets of innovative activities, firms can establish a multi-sided protection system through the common adoption of different IPRs, and thus capture much higher benefits. A holistic perspective of IPRs, rather than focusing solely on isolated types, enables firms to have a complete and clear perception of all rights. Firms seem to prefer looking at their IPRs in an integrated manner and jointly use multiple IPRs to appropriate their creativity effectively and roundly.

This study has some limitations that must be noted. First, although the analysis finds apparent and positive relationships between the use of IPRs and firm performance, it does not allow for the establishment of a direct causal link between the two. Second, our study includes three types of formal IPRs: patents, UMs, and designs; however, it does not include trademarks here. While a trademark is an important type of IPRs, unfortunately, we could not obtain sufficient trademark data for Chinese manufacturing firms because of the lack of a sound and comprehensive database to support the collection and matching of trademark data, as opposed to the CNIPA database from which patent, UM, and design data can be collected. Third, the dataset contains no information to identify the affiliations between firms and it is therefore impossible to integrate the IPR data and firm variables on the level of economic group. This could introduce some bias, as the rewards of IPRs could be distributed among more firms within the group than just those that are direct owners of IPRs. Fourth, many studies indicated that patent quality relates positively to economic performance at the firm level; however, we do not consider the quality of IPRs in a firm, but only whether a firm is a specific IPR owner or not. Consequently, some firms with the same IPR status, for example, the owners of patents and UMs, could have differed in some important aspects such as the size, structure, and quality of the bundles. This will be analysed in a subsequent study. In addition, many important extensions are required and desirable in future research. For example, it is necessary to explore the determinants that lead firms to use different types of IPRs jointly and how these determinants vary across industries and regions.

Acknowledgements

This research was supported by the National Social Science Foundation of China (17ZDA140) and the Fundamental Research Funds for the Central Universities (22120190208).

Author contributions

LZ and XS designed the study and collected the data. LZ conducted analyses and wrote the first draft of the manuscript; LZ and XS reviewed and commented on the manuscript.

Data availability

Data can be provided on reasonable request for academic purposes only.

Competing interests

The authors declare no competing interests.

Ethical approval

This article does not contain any studies with human participants performed by any of the authors.

Informed consent

This article does not contain any studies with human participants performed by any of the authors.

Supplementary information

The online version contains supplementary material available at https://doi.org/10.1057/s41599-023-01712-z.

Publisher’s note Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.

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