Twenty Thousand Leagues under the Patent System: Do Complementarities Emerge?

Abstract

Despite growing attention devoted to the understanding of how firms appropriate the returns from innovation, our knowledge as to firms’ appropriation strategies in weak institutional settings is scant. Weak institutions do not adequately allow the enforcement of property rights even in the presence of enacted legislation. Thereby, we suspect that the current rationale that complementarities between patents and other appropriability mechanisms exist may not hold under such conditions, especially between patents and informal (i.e. non-legal) mechanisms. This paper tests this proposition by analysing a unique dataset on innovative activities in Brazil. Our analyses reveal that in weak institutional contexts complementarities seem to be achieved between patents and other formal mechanisms within the realm of Intellectual Property Rights (IPR). However, and surprisingly, firms operating in a weak institutional environment do not seem to replace patents by informal means of appropriation. Actually, secrecy is used as a complement to patenting whereas lead-time advantage and the complexity of the design are used independent of patenting. All in all, our evidence is indicative that weak institutions may actually constrain appropriability conditions and hence firms’ ability to reap the benefits from innovation.