Global Strategy Journal
© Strategic Management Society
Virtual Special Issue Introduction
Virtual Special Issue on Innovation, Intellectual Property and Strategic Management
Will Mitchell and Aija Leiponen
SMS Virtual Special Issue on Intellectual Property and Strategic Management video introduction by Aija Leiponen.
To view the articles for this virtual special issue, click HERE.
We are pleased to introduce our inaugural Virtual Special Issue on Intellectual Property and Strategy. This virtual collection reviews the foundations of this literature and more recent directions to promote scholarly and managerial conversations and further research on these topics.
Ever since the resource-based view of the firm (Barney, 1991; Peteraf, 1993; Wernerfelt, 1984) and the notion of dynamic capabilities (Teece, Pisano, and Shuen, 1997), unique resources that typically are generated through innovation have been at the heart of our thinking of strategic management. Competitive differentiation is created through “isolating mechanisms” (Rumelt, 1984) that enable firms to strategically prevent imitation. Intellectual property rights and contractual control rights are two types of isolating mechanisms that have occupied central positions in strategic management research, and more recently in strategic entrepreneurship and global strategy research. However, the importance of these mechanisms varies across firms and industries. Hall (1992) suggested in an early survey study that, overall, reputation and knowhow were quite a bit more important for sustainable advantage than contracts and IP rights, and Cohen et al. (2000) showed in a more recent survey that most managers emphasized speed to market over formal rights. Nevertheless, these formal legal rights can be powerful strategic tools in certain industries or situations, as discussed below.
From a strategic viewpoint, competences and governance are strongly complementary frameworks in explaining firm behavior and performance. Williamson (1999) projected “a lively research future for these two perspectives, individually and in combination.” Lively indeed it has been, and this collection attempts to showcase the key studies within strategic management, entrepreneurship, and global business.
Governance: In attempting to understand how knowledge and innovation influence competition and firm performance, the governance viewpoint sheds light on how knowledge assets and innovation activities are organized and controlled. Strategic management of intellectual property is a critical element in the “governance of competencies.” For example, Aggarwal and Hsu (2009) find that the commercialization modes of innovations significantly depend on the appropriation environment in terms of enforceability of intellectual property rights, and Agarwal, Audretsch and Sarkar (2010) argue that the IP landscape, including spillovers and spill-ins of knowledge, influences incentives and organization forms of entrepreneurship. More generally, the IP regime is a significant moderating factor for entrepreneurial behavior: it determines whether innovators choose to exploit their own human capital or that of others (Autio and Acs, 2010). It also moderates the knowledge sourcing of multinational enterprises (Cantwell and Mudambi, 2011). Nevertheless, according to Burgelman and Hitt (2007), many important research questions remain to be addressed, for example, how valuable formal IP protection is to entrepreneurial promotion and growth, and how firms protect their most valuable intellectual assets outside of formal (protection) devices.
Patents: Much of strategic management research has focused on patents, which are demonstrably a strategically relevant method of appropriation for high tech firms. In a study of Australian firms, Jensen et al. (2011) estimate that the patent premium is as high as 40-50% independent of how value to the company is measured. Similarly, in Grimpe and Hussinger’s (2013) study of acquisitions, the pre-emptive power of the target’s patents is found to significantly increase acquisition price. By enhancing the value of the firm perceived by investors, patents can also reduce the costs associated with asymmetric information in obtaining external finance (Levitas and McFadyen, 2009). Along the same lines, Hsu and Ziedonis (2013) find that patents hold significant signaling value. Formal appropriation mechanisms may thus not only provide the usual competitive exclusion, they may also enhance firms’ access to and terms of trade related to strategic inputs.
Markets: The market perspective on technology emphasizes the strength of IP rights as a key determinant of tradability. Furthermore, Fosfuri (2006) argues that IP trading in the form of patent licensing depends on the market structure. IP licensing has a positive effect on firms in the form of additional revenue, and a negative effect due to profit dissipation in product markets. Highly concentrated market structures imply that profit dissipation will dominate, reducing incentives to license, whereas if the market is highly competitive, the revenue effect will dominate, and firms are more likely to license.
Litigation: In very aggressive IP markets, IP strategies must account for the threat and potential benefits of litigation. Somaya (2003) argues that the engagement of firms in litigation depends on how valuable the affected assets are. Litigiousness also significantly depends on the industry context, for example, whether the relevant technologies are systemic. Furthermore, tough reputation of patent enforcement alone can deter rivals from utilizing knowledge spillovers, for example, arising from inventor mobility (Agarwal, Ganco and Ziedonis, 2009; see also Ganco, Ziedonis and Agarwal, 2014).
Innovation and business development: Intellectual property strategies are used to appropriate returns from innovation activities, but they also interact with innovation and business development strategies in important ways. Reitzig and Puranam (2009) examine organizational features that may influence whether firms gain fast approval of their patent applications. Specifically, they find that cross-functional involvement in IP generation and utilization facilitates a more timely patent protection performance. Such cross-functional coordination may thus help both IP creation and its protection. In turn, Mulotte, Dussauge, and Mitchell (2012) and Singh and Mitchell (2005) find that initial licensing and/or pre-entry alliance strategies sometimes constrain subsequent independent attempts to develop new products, with the constraints stemming from cognitive and/or competitive barriers.
Voluntary disclosure: Whereas much of the literature on IP strategies has focused on optimizing protection of intellectual assets, voluntarily disclosing information about innovations can also be a useful IP strategy. Pacheco-de-Almeida and Zemsky (2013) suggest that voluntary disclosure reduces competitive pressure when it induces imitators to wait and copy rather than concurrently invest and compete. However, this strategy may be a two-edged sword that ends up softening the incentives for leaders to invest in R&D in the first place, hence a complex strategy to implement.
Control rights: Leiponen (2008) and Carson and John (2013) have examined the governance of intellectual assets from a property-rights theoretic perspective, and Adegbesan and Higgins (2010) analyze control right allocation in strategic alliances from a closely related bargaining perspective. Control rights such as IP ownership, market exclusivity, or technology use restrictions defined in contracts between trading or innovation partners shape the incentives of the trading parties to invest in incontractible assets or effort. Through decisions about sharing IPRs with partners, firms can thus influence partners’ behavior in the relationship. Leiponen (2008) finds that service providers that retain rights to intellectual assets created in a vertical relationship are more likely to innovate, whereas Carson and John emphasize that control rights can be used to reduce service providers’ opportunism. Similarly, Contractor, Woodley and Piepenbrink (2011) find that strategic alliance agreement provisions such as territorial restrictions or partnership exclusivity significantly predict alliance behavior in terms of the degree of interaction between the partners, and Conti (2013) suggests that the availability of non-compete agreements to control technological spillovers influences the direction of invention. Control rights to intellectual assets can thus be strategically deployed to incentivize or prevent certain behaviors by partners.
Taking stock: Scholars of strategic management, global strategy, and strategic entrepreneurship have long studied the determinants and implications of strategies pertaining to intellectual assets theoretically and empirically, with larger and smaller samples, and have explored a wide and rich field of research questions. Perhaps because of data availability, much of this research has focused on patenting. Indeed, a hot debate revolves around the patent system more broadly, and the strategic implications of patent assertion entities (or non-practicing entities, or patent trolls), more specifically. Patents will thus continue to be a fruitful context for strategic management research. A separate stream of research has examined contractual methods of governing and appropriating returns from intellectual assets. Although the cost of original research data is much greater in this latter type of research, it appears to be more than offset by the rewards from testing and extending predictions from organizational theories. However, rich research opportunities are also available around other formal or informal methods of appropriation, such as copyrights, trade secrets, and speed to market. Most recently, considering the emerging “data economy” where big data assets promise ample and complex innovation opportunities for firms, strategic management scholars could usefully guide managers in strategic decisions around big data governance and business models.
Barney, Jay (1991), Firm Resources and Sustained Competitive Advantage, Journal of Management; 17(1): 99-120.
Wesley M. Cohen, Richard R. Nelson, John P. Walsh (2000), Protecting Their Intellectual Assets: Appropriability Conditions and Why U.S. Manufacturing Firms Patent (or Not). NBER Working Paper No. 7552, February 2000.
Rumelt, D.P., (1984), Towards a Strategic Theory of the Firm. Alternative theories of the firm; 2002, (2) pp. 286–300, Elgar Reference Collection. International Library of Critical Writings in Economics, vol. 154. Cheltenham, U.K. and Northampton, Mass.: Elgar.
To view the articles for this virtual special issue, click HERE.