The Impact of Patent Wars on Firm Strategy: Evidence from the Global Smartphone Market

Abstract

We examine how patent wars affect firm strategy during ecosystem competition. Using data from the global smartphone industry, we show that smartphone vendors, even if they are not directly involved in the patent war, gradually shift their business focuses to markets with weak intellectual property rights protection. This shift is attenuated for firms with capabilities to countersue others and pronounced for vendors whose home markets have weak intellectual property rights protection. We also find that the shift of vendor strategy affects market shares of platforms in different countries. In particular, we find that market shares of Google’s Android phones and Microsoft’s Windows phones grow faster in markets with weak intellectual property rights protection because of stronger vendor support. This study contributes to the emerging patent strategy literature and the business ecosystem literature by shedding new light on the strategic actions ecosystem participants use to mitigate risks from their investment and the consequences of their actions.