The impact of the timing of patents on innovation performance

Abstract

In the context of industry standard-setting, firms face the strategic decision of whether to move faster than competitors or wait for more information that reduces uncertainty. These decisions are even more challenging if there are multiple standards, and if there are benefits to belonging to more than one standard. This paper examines the effect of the timing of patents on a firm's innovation performance. The strategic logic of real options posits that patent timing is determined by the tension between the value of preemption and the value of waiting. We analyze 680 DVD disc patents in DVD patent pools to test the effect of the timing of patents on innovation performance. Consistent with real options logic, under high uncertainty, the later the timing of the patent, the higher the innovation performance, while under low uncertainty there is an early-mover advantage.