Strategic Management of Intellectual Property Rights and Technology Entrepreneurship

Abstract

In the 1990s, investments in intangible capital began to outweigh tangible capital investments in the United States. Firms have increasingly prioritized investment in research, development, and commercialization of intangible assets over those of traditional or tangible assets. Creating and capturing value from intellectual property (IP) have emerged as cornerstones of successful innovation and entrepreneurship. According to the United States Patent and Trademark Office, there were 127 IP-intensive industries in 2019, and these industries accounted for 41% of U.S. GDP (approximately 7.8 trillion USD) and 44% of U.S. employment (approximately 62.9 million jobs). As President Abraham Lincoln (1860) once remarked, the patent system added the fuel of interest to the fire of genius. Value creation and appropriation through intellectual property are among the most vital determinants of firm performance and growth potential. Both entrepreneurial and established firms strive to coordinate their inventive activities, not only to create but also to appropriate value from their inventions. Value appropriation generally involves many intermediate steps over the long term before transforming a firm’s creation into an end product. A firm strategically patents inventions to protect certain of its IP rights. A patented invention is a nonobvious, novel, and practical solution to a given technological problem. In return for publicly disclosing information about the invention, thus advancing our current understanding of the technical problem and promoting knowledge creation, an innovator receives a patent’s exclusive legal rights, requiring others to obtain permission for the use of this invention for a limited period of time. Although varying widely across industries and countries, this monopolistic right can confer a competitive advantage on an entrepreneur as well as a firm. As such, particularly in technology-intensive sectors, firms strategically patent and manage their IP rights as a mechanism for value creation and capture. The nature of IP and the way that it is generated can shape the choice of IP protection by influencing the firms’ current rights and expectations. However, going beyond the extensive prior studies on technology and innovation management, relatively limited research has explored firms’ strategic management of IP rights and technology entrepreneurship. In my dissertation, I examine firms’ ex post IP management strategy and technology-based entrepreneurship to delve into how entrepreneurial firms strategically create and capture economic value from innovation investments. In Chapter 1, I explore the role of IP rights in organizational decision-making by examining patent renewal management. Given that the potential value appropriation of technological inventions is highly uncertain, firms may regard filing a patent as if they were purchasing a real option. After the grant date, firms holding patents must periodically decide whether to extend their options (by paying renewal fees) or to abandon these options. Extending such real options preserves their rights to exclude others from using the inventions. Examining the renewal decisions for the population of over 2 million U.S. patents granted between 1990 and 2018, I find that firms are more likely to extend options by renewing those patents that present (1) greater breadth in terms of technological opportunities, (2) those situated in fragmented technology markets, and (3) in areas with a fast technology cycle time. In contrast, firms are more likely to abandon options by letting expire those patents with a high level of technological novelty. The findings provide new insights on how key technological attributes could affect organizational decisions differently at the time of exercising options rather than at the time of obtaining options. In Chapter 2, I provide a framework for understanding firms’ decisions to transfer patent ownership to another firm in the markets for innovation. I predict that the closer proximity of a patent’s technology structure to that of a firm’s patent portfolio generally results in greater marginal productivity from that patent, leading to future economic return for the firm. By employing a dyadic-level analysis of transactional decisions on 40,110 patents assigned to 57 leading biopharmaceutical firms between 1987 and 2016, I find that firms are more likely to trade patents when the technology structure of a patent is closer to the technology stock of a potential buyer relative to that of the original assignee. The framework also considers a set of boundary conditions in which interfirm IP transactions take place. I find that a relationship between relative technological distance and each buyer-assignee dyad is likely to be weaker when a potential buyer and the assignee are in the same industry or when the assignee has high technological capability. I discuss how these findings could stimulate patent trade for both entrepreneurial and established firms in the markets for innovation. In Chapter 3, I examine how digitization of inventive records reshapes entrepreneurial innovation and innovation diffusion. Although inventive activities rely on recombining prior art, accessibility and identification of relevant prior art incur considerable search costs. I therefore exploit a natural experiment to delve into how a sudden reduction in search costs—in this case, the 2006 launch of Google Patents digitizing inventive records—affected the productivity, nature, and diffusion of entrepreneurial innovation. Using a difference-in-differences approach, I examine the inventions of 19,190 U.S.-based startups in the life sciences industry. I find that digitizing records of inventions increase the startups’ invention productivity, without compromising invention quality, as the geographic distance from a United States Patent and Trademark Office archive grows. Moreover, digitization not only stimulates invention crossfertilization as innovation input but also expands invention breadth as innovation output for startups located at a distance from the archives. Furthermore, the pace and scope of innovation diffusion increase when inventions receive early attention within the life sciences community. This study sheds new light on how digitization reshapes entrepreneurial innovation.