Intellectual Property Rights and the Protection of Innovations

Abstract

I study how weak intellectual property rights (IPR) regimes affect firms’ innovation protection strategies. I build on transaction cost economics to explain four strategies to address not only the weak institutional IPR of ineffective regulatory and judicial systems traditionally discussed, but also the new weak technological IPR arising from the spread of digital technologies that facilitate the unauthorized diffusion of IPR. The four innovation protection strategies are (1) Defense, which is the traditional strategy of investing in legal defense to deter imitation in conditions of strong institutional and technological IPR; (2) Obsolescence, in which firms invest to make their innovations obsolete to reduce imitation in situations of strong institutional but weak technological IPR; (3) Complexity, in which firms invest in increasing the complexity of innovations to reduce imitation in situations of weak institutional but strong technological IPR; and (4) Convenience, in which firms invest in the convenient platforms to reduce incentives for imitation in conditions of weak institutional and technological IPR. These ideas question the usual argument of weak IPR leading firms to reduce investments by proposing instead the increase in investments to induce the transformation of the lack of formal transactions between firm and imitators into formal contractual relationships.