Why and How Are User-Firm Process Innovations Protected?

Abstract

This study investigates why and how intermediary user firms protect new process innovations. Despite little incentive for user firms to protect process innovations as a market failure related to user innovations, a significant amount of user-firm process innovations are protected. This study proposes that a main reason be to avoid the leakage of existing technological knowledge bases. Drawing on the organizational learning literature, we hypothesize that innovative searches within technological and organizational boundary tend to increase the propensity for user firms to protect new process innovations, thereby affecting the choice of protection mechanism. Using the survey data of Korean user manufacturing firms, we find that exploitative (vs. explorative) and internal (vs. external) searches increase the probability for process innovations to be protected, subsequently leading user firms to prefer secrecy-based protections to intellectual property rights. We discuss the implications to the literature of user innovations, innovation in general, and strategy.