No. 233

January 2004

SMALL BUSINESS

RESEARCH

SUMMARY

Small Firms and Technology: Acquisitions, Inventor

Movement, and Technology Transfer

by CHI Research Inc., Haddon Heights, NJ 08035

under contract no SBA-HQ-02-M-0491, 2004. 38 pages 

This Small Business Research Summary (ISSN 1076-8904) summarizes one of a series of research papers prepared under contracts

issued by the U.S. Small Business Administration’s Office of Advocacy. The opinions and recommendations of the authors of this study do

not necessarily reflect official policies of the SBA or other agencies of the U.S. government. For more information, write to the Office of

Advocacy at 409 Third Street S.W., Washington, DC 20416, or visit the office’s Internet site at www.sba.gov/advo.

Small firms are integral to the innovation process

even when they are not responsible for the final or

breakthrough technology. Small firms may play a

role in large firms’ technical breakthroughs in several ways. Large firm innovators may acquire small

firms (and their patents), hire small firm inventors,

or build on prior small firm patents. This study seeks

to determine the extent to which large firms rely on

small firms and their achievements in developing

new technologies.

Overall Findings

Small firms are a vital element of new technology in

many industries. Their importance is not immediately apparent when all industries are considered,

because small firms tend to be excluded from such

key capital intensive industries as automotive, aerospace, and oil research. In newer high technology

industries, such as biotechnology, medical electronics, medical equipment, and telecommunications,

large firms frequently rely on small firms’ discoveries and inventions.

Highlights

• Between 2000 and 2002, there was an increase

in the number of actively innovating firms (those

with more than 15 patents in the previous five

years). The researchers updated an existing database

of innovative firms and found that 104 companies

were dropped from the database, while 318 

were added.

• The influence of small firms in technology is

increasing. Small firms represented 40 percent of the

highly innovative firms in 2002, as opposed to 33

percent in the 2000.

• In their patents, large firms in the biotechnology,

medical electronics, semiconductor, and telecommunications industries have a higher-than-expected

number of citations of small firm patents. When all

industries are considered, reliance on small firm

inventions is less obvious. This is the result of the

virtual absence of small firms in certain key industries, among them aerospace, oil and gas mining, and

motor vehicles and parts.

• Between the mid-1990s and the early 2000s,

large firms’ share of elite inventors (those with at

least 10 patents in a two-year period) fell from 72

percent to 69 percent. The share of elite inventors

employed by small firms rose from 12 percent to 16

percent during the same period.

• Large firms and small firms had a similar percentage of their elite inventors remain in their

employ (74 percent and 79 percent, respectively).

Only 49 percent of inventors working in the public

sector remained with their employers. Elite inventors

tended to move within their firm-size category, moving from one large firm to another or from one small

firm to another.
• Of the 24 companies that acquired small firms,

six firms gained 50 percent or more of their technology strength through acquisitions (as measured by

patents and citations in other patents).

• Contrary to expectations, large firms obtained

limited technology through the acquisition of small

firms. Only three of the 41 firms that were acquired

were small.

• Small firms have a greater technological impact

in industries that tend to consist of many young, small

innovative firms. Industries that fit these characteristics include biotechnology, computers and peripherals, medical electronics, medical equipment, semiconductors and electronics, and telecommunications

industries. More than half of the small firms in these

industries only obtained their first patents after 1990.

Scope and Methodology

Using raw, publicly available patent data, the authors

created a database to determine the extent to which

newer patents rely on prior patents and to track

inventor movement and firm acquisitions. The

authors also verified some of the missing fields in

the patent data, such as firm size.

To determine how much patents rely on previous

patents, the researchers created a database of innovative companies (those with 15 or more patents during

each of two time periods). The database contained

1,270 companies for the time periods 1996-2000 and

1998-2002. To determine whether firms had been

acquired, the researchers analyzed technologically

innovative companies (firms with 45 or more

patents) and compared their status in 1998 and 1994.

For inventor movement, the researchers focused on

the elite inventors (with at least 10 patents in the

period 1993-95 or 2000-02 and at least one patent in

each time frame) and assigned them, where possible,

to firm size categories. These elite inventors represented 1.5 percent of unique inventors but accounted

for 27 percent of patents.

Ordering Information

The full text of this report and summaries of other

studies performed under contract to the U.S. Small

Business Administration’s Office of Advocacy are

available on the Internet at

www.sba.gov/advo/research. Printed copies are available for purchase from:

National Technical Information Service

5285 Port Royal Road

Springfield, VA 22161

(800) 553-6847

(703) 487-4639 (TDD)

www.ntis.gov

Order number: PB2004-102461

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