Weak Appropriability Regimes Research Articles

Protecting Intellectual Property and Appropriating Value from Innovations in Weak Appropriability Regimes

Overview: How can multinational enterprises (MNEs) protect their intellectual property (IP) when patents are weakly enforced? An imitator will only take action to appropriate an innovator’s value if the imitator has the financial motivation, opportunity, and ability to copy and commercialize the innovator’s product/service. If the innovator can decrease one of these conditions to a level that demotivates or inhibits the imitator from taking action, the innovator will have protected its IP. In this article, we introduce the constructs of barrier to imitation and barrier to commercialization, two separate hurdles that can block imitators from appropriating MNE rents. We prescribe MNE IP strategies contingent on country characteristics, local imitator capabilities, an MNE’s barriers to imitation and commercialization, and the value chain activities the MNE desires to locate in the country of interest.

Embracing the Paradox of Interorganizational Value Co‐creation–Value Capture: A Literature Review towards Paradox Resolution

AbstractThis study reviews literature on paradoxical tensions between value co‐creation and capture in interorganizational relationships (IORs). The purpose of this review is to make a re‐evaluation of the literature by engaging a paradox theory lens, thereby identifying factors that render tensions salient and factors that lead to virtuous or vicious cycles. This review of 143 articles reveals factors that make tensions salient: these relate to plurality (e.g. coopetition), scarcity (e.g. lack of experience with IORs), change (e.g. changes in collaboration scope) or combinations thereof (e.g. IORs in weak appropriability regimes). Results also uncover factors that resolve paradoxical tensions of value co‐creation and capture, thus spurring virtuous cycles (e.g. carefully mixing trust and contracts), as well as factors that promote vicious cycles, owing to the emphasis on either value co‐creation or capture (e.g. myopia of learning). This review further reveals a new category of factors that may stimulate either virtuous or vicious cycles, depending on the extent to which they are enforced. This finding expands the value co‐creation–capture paradox resolution and brings to light new dynamics in the paradox framework of dynamic equilibrium. This study thus contributes by: (1) reassessing the existing literature and applying paradox theory to the well‐known hazard of value co‐creation and capture; (2) highlighting factors that amplify paradoxical tensions related to this hazard; and (3) outlining factors that help solve the paradox by embracing its contradictory poles and factors that hinder paradox resolution by emphasizing either value co‐creation or appropriation.

Product Innovation in Weak Appropriability Regimes: Innovative Style Without Superior Quality

Competition with counterfeiters is a widespread problem in many industries. However, existing research does not provide specific recommendations on the innovation strategies of authentic firms that operate in weak appropriability regimes. Our study focuses on two important dimensions of product innovation – vertical and horizontal differentiation – to test whether and how different innovation strategies can affect the likelihood of entry by counterfeiters. We test our framework by exploiting detailed product-level data on the complete Gundam product family, a popular line of plastic model kits designed and manufactured by the Japanese firm Bandai Namco between 1980 and 2010. Our novel empirical approach and unique dataset allows us to match authentic and counterfeit versions of the same product. Results show that horizontal differentiation is associated with increased likelihood of counterfeiting and that this effect is positively moderated by vertical differentiation. This finding is interesting and surprising, as it suggests that there is potentially strategic variance to exploit in the innovation efforts of authentic firms. Under weak appropriability regimes, if the aim is to forestall counterfeiting, firms may be best served focusing on the horizontal rather than on the vertical dimension of product differentiation.

R&D investment dynamics in agglomerations under weak appropriability regimes: Evidence from Indian R&D labs

What are the dynamics of R&D investment when firms agglomerate in environments with weak intellectual property rights protection? Specifically, do foreign and domestic firms present equal opportunities for free riding by domestic firms in such environments? We examine the impact on local firms' R&D investment from knowledge spillovers originating from co‐located foreign and domestic firms within and across industries. Building on fieldwork in India, we predict free riding by local firms on nearby foreign and local firms. Furthermore, we expect local firms to free ride more from other local firms within their industry and from foreign firms across industries. Analyzing a sample of 3,475 R&D lab investment decisions during 2003–2010 in India, we find that local firms free ride from other local firms both within and across industries. Copyright © 2014 John Wiley & Sons, Ltd.

R&D Investment Dynamics in Agglomerations under Weak Appropriability Regimes

R&D activity by local and foreign firms is increasing in environments with weak intellectual property rights (IPR). What are the dynamics of R&D investment when firms from multiple industries co-locate in such environments? Given that co-location can result in knowledge spillovers, we argue that local firms can ‘free-ride’ on nearby foreign and local firms. Furthermore, local firms are expected to free-ride more from other local firms within their industry and from foreign firms from other industries. Relying on fieldwork and analysis of a unique sample of 3,475 R&D lab investment decisions during 2003-2010 in India, we find that local firms free-ride from other local firms both within and across industries. Our results contribute a more nuanced view of knowledge spillovers in environments with weak IPR.

How do foreign firms patent in emerging economies with weak appropriability regimes? Archetypes and motives

Foreign firms patent in emerging economies with weak appropriability regimes at an increasing rate. This phenomenon constitutes a paradox since in such a setting foreign firms should have weak incentives to patent. In an attempt to resolve this paradox, we conducted an inductive analysis of 11 foreign firms that patent in such a setting, using the case of China as our empirical context. We identify four archetypes of foreign firms and three key antecedents the interaction of which determines which archetype a firm can be subsumed under.Our study complements the developed-economy focus of the extant appropriation literature by adding an international perspective. We extend previous econometric studies by identifying salient factors on the firm level that determine the extent to which a foreign firm patents in emerging economies with a weak appropriability regime, highlighting that the extent of a firm's motivation to maintain its freedom to operate can supersede imitability concerns. We also comment on the practical implications of these contributions for managers of foreign firms. Highlighting a structural conflict of interest between foreign firms from developed economies and the development goals of an emerging economy, we point to the generalizability of our results to a wide range of other emerging economies worldwide.

The Effect of Business Characteristics on the Methods of Knowledge Protections

Intellectual property (IP) protection has been suggested to be essential in protecting innovation in product-dominant companies. However, with the development of service industries, the ineffectiveness in IP protection becomes manifest. Meanwhile, other knowledge protecting methods enable companies to maintain their competency without formal protection. This study examines the effectiveness of different means of knowledge protection. Specifically, business is classified according to companies’ offering nature, serving mode and consider about their business hardware. The effectiveness of protection methods is analyzed among these business types. Interviews were conducted with senior managers of 39 companies in China and Singapore. It is demonstrated that the choice of knowledge protecting method does not depend mainly on whether a company provides products or services, but on how the company produces and provides its offerings. It is found that the core competency of companies largely affects their attitude on whether to protect their offerings. It is found that in weak appropriability regimes, companies apply for patents not for their knowledge protection function, but for other benefits, such as getting awards or tax reductions, and improving reputation among customers.

Is Basic Research in Firms Useful? Evidence from Panel Data for Spain

We propose a model that associates basic research with product innovation through the absorptive capacity it generates, moderated also by the level of industry appropriability. To test these relations, we used a sample of 8,861 firms taken from a panel (PITEC). Our data suggest that basic research in firms increases their knowledge stock and flows, improving their capacity to identify, assimilate and exploit external knowledge and, therefore, their innovative product performance. By using lags we were able to find that this result can last for up to three years. In addition, we see that weak appropriability regimes can have a positive effect by increasing the influence of basic research on absorptive capacity. This evidence not only questions the disdain frequently shown by managers towards basic research, but also calls for open reflection on both the net effect of appropriability on innovative performance and the advisability of allocating public resources to stages and areas of the innovation process in which there are seldom 'market failures'.

Effects of Managerial Ties and Appropriability Regimes on Open Innovation

In today's globalized world, firms are increasingly seen shifting from the traditional innovation model 1 which relied on a firm's internal R&D to the more porous open innovation paradigm which utilizes resources both internal and external to a firm to come up with innovations. However success in the open innovation paradigm is contingent upon some internal and external factors of a firm. This conceptual paper first discusses how one such internal factor - managerial ties - impacts the success of open innovation. Second, this paper looks at the moderating role of an external factor - appropriabilit y regimes - on the relationship between managerial ties and success of open innovation. We propose that building managerial ties is important for the creation of open innovation since open innovation requires exploration and exploitation of external resources. We further posit that presence of strong appropriability regimes is crucial to reap the benefits of managerial ties in the open innovation model and that in presence of weak appropriability regimes, managerial ties may not produce results as valuable. Propositions are developed, managerial implications underscored and future research directions highlighted.

Enforcing Intellectual Property Rights in Weak Appropriability Regimes

Many emerging economies are characterised by weak appropriability systems and absent legal systems to punish imitators. This places foreign firms’ intellectual property rights at risk, because existing appropriation methods, such as patents or secrecy, cannot function effectively. This concern especially applies to China, the empirical context of this article. Such adverse conditions force managers to devise new strategies to safeguard their firms’ intellectual property rights. Yet no evidence describes whether strategies exist, which forms they take, how they have evolved or how they get implemented. This article addresses this knowledge gap and explores strategies that managers have developed to achieve de facto protection, despite China’s weak appropriability system. The analysis systematically explores 13 cases of foreign firms with wholly owned subsidiaries in China. The findings confirm that de facto strategies exist, describe how they work and detail how they were achieved. The findings suggest implications for both managers and academics.

Profiting from technological innovation by others: The effect of competitor patenting on firm value

In 1986, Teece proposed a seminal framework for analyzing why innovators may fail to benefit from their innovations. He argued, in part, that firms with the requisite complementary assets can often expropriate an innovator's returns especially when appropriability regimes are weak. In this paper, we explore the implications of this framework from the perspective of an incumbent firm—more precisely, of investors in that firm—facing innovation by established corporate rivals and by inventors from outside its industry. We demonstrate that the financial-market value of publicly traded firms depends on patented innovation by competitors (both established rivals and industry outsiders). Our empirical study generates three main results. First, the financial-market value of an incumbent is negatively associated with “important” patenting by outside inventors. Second, in industries characterized by weak appropriability regimes or by a strong reliance on complementary assets, this relationship is reversed: important patenting by outsiders is positively associated with the incumbent's financial-market value. Third, the effect of outsiders’ patented innovation on the focal incumbent is qualitatively different than that of established rivals’ patented innovation on the incumbent. These results are consistent with implications of Teece [Teece, D., 1986. Profiting from Innovation, Research Policy] and with recently developed models that formalize elements of his framework. More generally, these results support theories about both the market-stealing and spillover effects of innovation.

Profiting from Technological Innovation: The Effect of Competitor Patenting on Firm Value

In 1986, Teece proposed a seminal framework for analyzing why innovators may fail to benefit from their innovations. He argued, in part, that firms with the requisite complementary assets can often expropriate an innovator’s returns especially when appropriability regimes are weak. In this paper, we explore the implications of this framework from the perspective of an incumbent firm – more precisely, of investors in that firm – facing innovation by inventors from outside its industry. We demonstrate that the financialmarket value of publicly traded firms depends on patented innovation by competitors, both existing rivals and industry outsiders. Our empirical study generates three main results. First, the financial-market value of an incumbent is negatively associated with “important” patenting by outsiders. Second, in industries characterized by weak appropriability regimes or by a strong reliance on complementary assets, this relationship is reversed: important patenting by outsiders is positively associated with the incumbent’s financial-market value. Third, the effect of outsiders’ patented innovation on the focal incumbent is qualitatively different than that of existing rivals’ patented innovation on the incumbent. These results are consistent with implications of Teece (1986) and with recently developed models that formalize elements of his framework. More generally, these results support theories about both the market-stealing and spillover effects of innovation.

Dealing with Piracy:: Intellectual Asset Management in Music and Software

The music and software industry are employing copy-protection devices in CDs and digital downloads to strengthen their weak appropriability regimes that leave ample opportunities for modern-day piracy. The effectiveness of the strategy is explained on the grounds that (a) the knowledge involved in copy protection is generally too sophisticated for consumers to circumvent, and (b) consumers are not allowed to use circumvention techniques created by knowledgeable third parties. Copy protection is controversial, because it deprives consumers of making home copies of music and software, and hence overrules copyright law that exempts the copying for private use. It is argued that the technical enforcement of copyright protection in the home domain of millions of individuals necessitates a wide consensus between business and society about the legitimacy of private and fair use.