Weak Intellectual Property Rights Research Articles

Characteristics of Litigated Patents in Weak Intellectual Property Rights Regimes

Characteristics of Litigated Patents in Weak Intellectual Property Rights Regimes

A note on disease burden and pharmaceutical R&D

AbstractWe examine the relationship between research and development (R&D) expenditures and the expected impact of diseases in a simple theoretical framework that allows for intellectual property rights (IPR) protection to be strong or weak. In our theoretical model, an agent forms an expectation of the impact of a disease using a publicly available statistic on the (population level) disease burden, such as disability‐adjusted life year. We show that a profit‐maximising firm will exert relatively more R&D effort on diseases with intermediate expected impacts. We also discuss how a weak IPR regime alters the pattern of R&D investment.

How can MNEs benefit from internationalizing their R&D across countries with both weak and strong IPR protection?

Although MNEs internationalize their R&D not only in developed countries but also in emerging economies that typically feature weak protection of intellectual property rights (IPR), it remains unclear how this strategic decision affects their productivity performance. This limitation has resulted in a rather incomplete understanding of why some MNEs become more productive through R&D internationalization while others do not. This study develops a new explanation, suggesting that R&D internationalization does not affect the productivity of all MNEs equally because of differences in the idiosyncratic way in which MNEs geographically distribute their R&D units across weak and strong IPR protection countries. In advancing this explanation, the study challenges the view that weak IPR protection is disadvantageous for MNEs by showing that (and specifying how) it: 1) increases the efficacy of MNEs' internal R&D, 2) strengthens the advantages of accessing globally dispersed knowledge, and (3) improves MNEs' ability to exploit cross-country differences in IPR protection. The study enhances understanding of the complex role of IPR protection, shifts scholarly attention from the degree of R&D internationalization to how MNEs should internationalize their R&D, and clarifies how the IPR context of their location choices matters.

From imitation to innovation: examining the technology-related change process in a transitioning Chinese economy

This article examines a technology-related change process in a transitioning Chinese economy by identifying the pressures for deinstitutionalization and the moderating factors that affect a practical example of its implementation. The analysis is underpinned by the Cunningham (2002) model of organizational change, and the study focuses on the case of ANTA Sports Products Ltd., a Chinese sporting goods manufacturer undergoing an organizational change from imitation to innovation. Data were gathered from official and semiofficial documents and four semistructured interviews. The main findings are as follows: (1) a glut of low-end products, Chinese consumers’ positive technology readiness and growing sense of Chinese patriotism, and internal political pressures were particular stressors for ANTA; (2) tax preferences provided ANTA with a strong motive to promote its change process, while weak intellectual property rights and institutional protections had the opposite effect; and (3) ANTA’s access to affordable resources, the CEO’s determination, the elimination of the alternative, and the dependence upon consumers for resources ensured its successful implementation of organizational change.

Do international investment agreements attract foreign direct investment in knowledge intensive industries?

AbstractThis study estimates the industry‐specific effects of international investment agreements (IIAs) on foreign direct investment (FDI) by focusing on how intellectual properties are intensively used in industries (i.e. knowledge intensity). It also considers the country‐level heterogeneity in the effects of IIAs by focusing on the intellectual property rights (IPR) protection in host countries and addresses the issue of why there is no consensus on the effects of IIAs among the previous studies. Using data of US outward FDI for the period 1999–2018, it finds that the IIAs between the United States and 56 countries promote FDI from knowledge‐intensive industries into countries with weak IPR protection. This result supports the hypothesis that IIAs have a positive effect on FDI if IIAs substitute for the weak legal protection of IPR in host countries.

Multinational Enterprise Intellectual Property Right Strategies in Emerging Markets

While scholars have long recognized the key role of intellectual property rights (IPR) in value appropriation from innovation, less is known about foreign multinational enterprise (MNE) IPR strategies in emerging markets with weak IPR institutions. We examine how foreign MNEs evaluate the relative effectiveness of secrets and patents in response to their partnership and collocation with local emerging market firms (EMF), contingent on regional IPR development levels in the host country and IPR institutional distance between MNE home and host countries. Using data on 407 MNEs from the China Innovation Survey, we find that both partnership and collocation with local EMFs increase MNEs’ perceived effectiveness of secrets relative to patents. These effects are mitigated by regional IPR development levels in emerging markets and are strengthened by IPR institutional distance between MNE home and host countries.

The Driver and Mechanism of Outsourcing Innovation to Developing Countries

As firms have been increasingly outsourcing innovation activities in developing countries where they face the challenges of creating and capturing value due to weak protection of intellectual property rights (IPR), the answers to why they take the risk and how they manage it remain unclear. To bridge this gap, we conduct the research on offshore outsourcing innovation to argue that the availability of low-cost talent in a country with weak IPR protection increases the likelihood that a firm outsources an innovation activity to that country. In addition, we further propose that the main effect of human capital could be positively moderated by the designing of task specificity and project modularity which the firm uses to capture value and protect proprietary information from outsourcing innovation in developing countries. Using the data of Offshoring Research Network, Index of Economic Freedom, and World Economic Forum to test the hypotheses, we find our premises supported.

Characteristics of litigated patents in weak intellectual property rights regimes: Evidence from China

Characteristics of litigated patents in weak intellectual property rights regimes: Evidence from China

The impact of the Shanghai–Hong Kong stock market connection on corporate innovation: Evidence from mainland China

AbstractThe Shanghai stock market and the Hong Kong stock market were connected by the Chinese government in 2014, allowing Hong Kong investors to trade on a group of stocks on the Shanghai stock market. Using a difference‐in‐differences approach, we examine how this stock market connection affects corporate innovation in mainland China. We argue, and find, that the stock market connection enhances the informational feedback effect of stock prices and involves more‐sophisticated investors' monitoring and advising on firm management, and thereby spurs corporate innovation. We further show that the positive effect of the stock market connection on innovation is more pronounced for non‐state‐owned firms, firms with few political connections, firms with weak intellectual property rights protection or firms that are headquartered in non‐high‐tech economic zones. Our study sheds light on how the opening of a developing stock market to a more developed stock market shapes corporate innovation.

Perceived importance of intellectual property protection methods by Korean SMEs involved in product innovation and their value appropriation

ABSTRACT We investigate the sectoral patterns of relationships between SMEs’ perception of the importance of intellectual property (IP) protection methods and their value appropriation from innovation in countries with weak IP rights regime. By using a Heckman selection model to analyze 1,020 Korean SMEs involved in product innovation, we find that formal IP rights have a lower contribution to appropriation than the expected level. Instead, we find some positive links between SMEs’ affirmative perception of informal means of IP protection, particularly complex design, and their appropriation in both complex and discrete sectors. We discuss IP management and policy implications for enhancing the SMEs’ value appropriation.

Do R&D investments in weak IPR countries destroy market value? The role of internal linkages

AbstractResearch SummaryThe growth of emerging economies has attracted R&D investments by multinational enterprises, but firms have struggled to protect their knowledge assets in these environments with weak intellectual property rights protection. Knowledge misappropriation may be reduced if firms use cross‐unit R&D teams to strengthen intra‐firm interdependencies and control. We examine the relationship between such internal linkage strategies, foreign R&D investments, and firm market valuation in a dynamic market valuation model for 117 leading multinational firms. While foreign R&D investments are positively associated with market value, IP risks in host countries reduce it. The latter effect disappears if firms have developed a pronounced internal linkage strategy in weak IP environments. Linkage strategy bears costs and, in the absence of IP risks, is negatively associated with market value.Managerial SummaryThe growing market potential of emerging economies has led to an increase in research & development (R&D) activities there by multinational firms. A known challenge to multinational R&D investors in these economies is the weak protection of intellectual property rights (IPR). Firms may seek to reduce the risks of local knowledge spillovers and IPR infringement by actively embedding internal linkages in the organization of R&D and relying on cross‐unit international R&D teams. We examine the consequences of such an internal linkage strategy for the performance effects of firms’ investments in weak IPR countries. Based on an analysis of 1763 cross‐border R&D investments by 117 leading multinational firms, we find that a firm's market value is negatively affected by new R&D investments in weak IPR countries, but that such a negative influence can indeed be mitigated if the firm's R&D organization embeds internal linkages. Consistent with this observation, we demonstrate that firms with an internal linkage strategy are able to limit local knowledge outflows in weak IPR environments. However, if an internal linkage strategy is applied in strong, rather than weak, IPR environments, it bears substantial costs and negatively affects performance.

Intellectual Property Rights and the Protection of Innovations

I study how weak intellectual property rights (IPR) regimes affect firms’ innovation protection strategies. I build on transaction cost economics to explain four strategies to address not only the weak institutional IPR of ineffective regulatory and judicial systems traditionally discussed, but also the new weak technological IPR arising from the spread of digital technologies that facilitate the unauthorized diffusion of IPR. The four innovation protection strategies are (1) Defense, which is the traditional strategy of investing in legal defense to deter imitation in conditions of strong institutional and technological IPR; (2) Obsolescence, in which firms invest to make their innovations obsolete to reduce imitation in situations of strong institutional but weak technological IPR; (3) Complexity, in which firms invest in increasing the complexity of innovations to reduce imitation in situations of weak institutional but strong technological IPR; and (4) Convenience, in which firms invest in the convenient platforms to reduce incentives for imitation in conditions of weak institutional and technological IPR. These ideas question the usual argument of weak IPR leading firms to reduce investments by proposing instead the increase in investments to induce the transformation of the lack of formal transactions between firm and imitators into formal contractual relationships.

Patent Premium for Foreign Firms Innovating in Emerging Markets

Weak intellectual property rights (IPR) protections in emerging markets pose a critical challenge to foreign firms attempting to appropriate returns from innovations in these markets. This study investigates the extent to which foreign firms in emerging markets, if they do so at all, obtain a patent premium, defined as an incremental productivity gain from a firm’s patents that it would not obtain had it not owned any patents. Drawing on theoretical insights from institutional theory and the liability of foreignness (LOF) logic, and using a panel dataset representing the performance of 32,901 firms in China’s high-tech industries, we find that foreign firms do obtain a patent premium despite the country’s weak IPR protection. The level of the patent premium is, however, significantly lower for foreign firms than for domestic firms, consistent with the LOF logic. We also find that a foreign firm’s patent premium increases substantially with institutional development, and to an even greater extent among wholly owned foreign subsidiaries (WOSs) than among international joint ventures (IJVs). This finding offers further support for the LOF logic insofar as institutional development lowers the LOF for foreign firms, particularly for WOSs. These findings provide implications for foreign firms regarding their innovation strategies in emerging markets with weak IPR protections and for host-country governments when formulating their innovation policies.

The Influence of Political Capabilities and Diplomatic Relations on Innovation Offshoring

Firms can derive significant benefits from locating innovation activities in foreign countries. Yet, such offshoring of innovation activities comes with notable downsides, particularly the risk of innovation misappropriation in host countries with weak intellectual property rights (IPR) regimes. Although prior research has focused on how firms attempt to manage this downside risk through innovation-specific remedies and knowledge protection strategies, the role of firm nonmarket capabilities, notably political capabilities, has thus far been largely overlooked. We argue that firm political capabilities can help protect firms from the possible misappropriation of their intangible resources in weak IPR regimes, but that this effect will only materialize when a firm’s home and host countries maintain favorable diplomatic relationships. Our theorizing thus considers multiple levels of political influence that affect a firm’s ability to overcome the risks associated with weak IPR regimes. We find support for our predictions in a sample of 479 innovation offshoring investments made by 102 firms from 12 home countries over the period 2003-2010.

Intellectual Property Rights and Market Entry Incentives: Evidence from the Pharmaceutical Industry

This study investigates the impact of a sudden reduction in the strength of the intellectual property rights (IPR) environment on market entry and the launch of new innovative products by startup, diversifying and incumbent firms benefitting from different types of complementary assets and technological resources. We use a difference-in-differences empirical design relying on the exogenous invalidation of gene patents in the United States by a 2013 Supreme Court decision and the uninterrupted validity of gene patenting in European Union countries between 2005 and 2018. We find that a reduction in the strength of the IPR environment leads to an increase in entry in existing markets by startup firms, diversifying firms without specialised technological resources and diversifying firms with specialised technological resources. Moreover, the launch of new innovative products by incumbent firms appears to be moderately affected by IPR invalidation as the rate at which they launch such products remains high, but nevertheless decreases over time. Our empirical results are most convincing for diversifying firms that benefit from complementary assets, but lack specialised technological resources. Our findings contribute to the literatures on technology commercialisation strategy and related diversification by showing that complementary assets and specialised technological resources allow startup and diversifying firms to enter existing technological markets and displace incumbents in weak IPR environments.

Alleviating concerns of misappropriation in corporate venture capital: Creating credible commitments and calculative trust

Ventures are often hesitant to accept corporate venture capital due to concerns of intellectual property misappropriation. This is likely to be especially true with startup stage ventures operating in weak intellectual property rights regimes. Drawing on transaction costs economics and game theory, we examine how corporate investors might alleviate concerns of misappropriation by establishing credible commitments to their corporate venture capital program, which discourages opportunistic behavior. We submit that corporate investors can demonstrate credible commitments through prior investment quantity and prior investment continuity, therefore increasing the chances of forming a corporate venture capital–venture investment relationship. Our findings—using data from 11,136 ventures, 300 corporate venture capital investors, and 1782 investments across 18 years—demonstrate that ventures are more likely to pair with corporate venture capital investors that have made a credible commitment to their corporate venture capital program. Also, we find evidence that both quantity and continuity possess an enhanced effect on alleviating fears of misappropriation when a startup venture operates in the same industry as a potential corporate venture capital partner; this is because the corporate venture capital investor possesses both the absorptive capacity to understand the venture’s intellectual property and complementary capabilities to beat them to market.

Third-party relational governance and collaborative innovation performance: The role of IPR protection

The purpose of this study is to explore the impact of third-party relational governance on the performance of collaborative innovation in China. By integrating the relational view and innovation appropriation perspectives, this study analyses the effects of three mechanisms of third-party relational governance—co-reputation, interorganizational routines, and technological norms—on collaborative innovation performance. Additionally, this study investigates the moderating effects of the protection of intellectual Property Rights (IPR) on the relationship between third-party relational governance and collaborative innovation performance. Survey data of high-technology firms in China are used to empirically test the hypotheses. The results show that third-party relational governance has a positive effect on collaborative innovation performance and that IPR protection has different moderating effects. This study contributes to the relational governance literature by adding the perspective of third parties and analyzing three mechanisms of third-party relational governance in a single model. This study also contributes to the innovation appropriation literature by examining the role of IPR protection in governing collaborative innovation in China. Finally, this study offers suggestions on how Chinese firms should govern their collaborative innovation to remedy the limitations of a weak IPR legal institutional framework.

Foreign Direct Investments and Intellectual Property Rights. International Intangible Assets in Spain circa 1820–1939

We devote this paper to reflecting on Foreign Direct Investment (FDI) and Intellectual Property Rights (IPRs) in the long run, particularly analyzing the case of Spain during the nineteenth and twentieth centuries. Although the interactions between IPRs and FDI have attracted significant research efforts in distinct economic and business areas, the results lack permanent answers. Our findings demonstrate that, from a macro-level perspective, 1) FDI and IPRs are effectively related in the long term; 2) weak IPR protection does not seem to have stopped FDI; and 3) the countries with major FDI in Spain were less worried about IPR management than others with less FDI.

Fearlessly Swimming Upstream to Risky Waters: The Role of Geographic Entry in Innovation

ABSTRACTWe examine the puzzling geographic pattern that shows firms entering countries with weak intellectual property rights (IPR) protection with their research and development (R&D) activities. Geographic entry into weak IPR protection countries is at odds with conventional wisdom as such an environment erodes a firm's ability to appropriate from its innovations. We offer that while the well‐established practice of spreading out a firm's value chain activities across a region has important implications for value creation, what remains unaddressed is the value appropriation aspect of such activities. We introduce a multilevel theory and maintain that operating regionally through commercialization activities (downstream activities) provides complementary assets to the upstream activities – specifically R&D activities in a country within that region – with which focal firms can appropriate more from their innovations. We find that regional downstream commercialization activities can substitute for weak IPR regimes, thereby providing firms with an alternative mechanism for protecting their intellectual property in weak IPR countries.

The certification effect of government R&D subsidies on innovative entrepreneurial firms’ access to bank finance: evidence from China

In this paper, we argue that obtaining government R&D subsidies has a certification effect and is used by innovative entrepreneurial firms as a legitimation strategy to access bank finance. We extend the extant literature on the certification effect by combining legitimacy theory with information asymmetry to build our theoretical framework. We test our theoretical model under China’s unique institutional setting, in particular, the weak intellectual property rights (IPR) protection. Using 549 listed and 192 unlisted Chinese innovative entrepreneurial firms from 2009 to 2013, we find a positive certification effect on the acquisition of bank loans for all those sample firms. This positive effect is more profound in unlisted firms in our sample than the listed ones. We further find that regional variation of IPR protection has a moderating effect on the effectiveness of the certification. The certification effect is more significant in those regions where IPR protection is weaker.