patent premium我的资源20180206 To Luo Yadong

Patent Premiums in China: The Moderating Role of Ownership, Institutions and CompetitionAbstractThe weak intellectual property rights (IPR) protections in emerging economies pose a critical challenge for firms attempting to appropriate returns from their innovations. In this study, we investigate whether and when firms in emerging economies, and in particular in China, can obtain a patent premium, which is defined as the incremental returns from a firms patent in addition to the value of the unpatented invention. Drawing on the institution-based view in the context of international business, we hypothesize how firm ownership, institutional development and competition collectively affect patent premiums. Empirical analysis demonstrates that high-technology firms in China can obtain patent premiums despite the weak IPR protection in the country. The magnitude of the patent premium varies between foreign and domestic firms as well as between state-owned and privately-owned domestic firms. We also find that institutional development and competition have disparate effects on patent premiums across firm ownership types. The increase in patent premiums due to institutional development is lower for domestic firms than for foreign firms. The decrease in patent premiums due to industry competition is greater for domestic firms than for foreign firms.Keywords: Patent premium, intellectual property rights, innovation, institutional development, ownership, competition, emerging economy, China1. IntroductionThe last decade has witnessed a surge of innovation activities in emerging economies (Qu et al., 2013, Zhao, 2006, Thursby and Thursby, 2006). However, the weak intellectual property rights (IPR) protections in emerging economies pose a critical challenge for firms attempting to appropriate returns from the innovations (Nandkumar and Srikanth, 2015). The appropriation literature asserts that patenting may not be viable in countries where law enforcement for IPR is weak (Al-Aali and Teece, 2013) because the effectiveness of patenting primarily depends on the quality of the national laws and institutional environment in which firms operate (Schankerman, 1998, Somaya, 2012). In such cases, innovators must count on other appropriation mechanisms, such as secrecy, the ownership of complementary assets or the advantage of lead time (“first to market”) to capture value from innovations (Al-Aali and Teece, 2013). Nevertheless, patent applications in emerging economies, most notably in China, have been growing steadily in recent decades (Li, 2012, Keupp et al., 2012). Patent statistics reveals that the number of invention patent applications received by the State Intellectual Property Office of China (SIPO) increased from 63,000 in 2001 to 1.3 million in 2016, producing a staggering 21-fold growth. Domestic and foreign applications for invention patents have both been growing at an annual average rate of 21% in the period of 1986-2015 (Hu and Jefferson, 2009, Hu, 2010). China surpassed the US in 2011 to become the country receiving the most invention patent applications in the world.This phenomenon is striking considering the weak institutional environment and IPR protection in China (Zhao, 2006, Li, 2012) which presumably lead to weak incentives to patent (Hu and Jefferson, 2009). The paradox has prompted researchers to investigate the conditions that are motivating the rapid growth of patenting in China (Li, 2012, Hu and Jefferson, 2009, Hu, 2010, Keupp et al., 2012). These studies point to two main conclusions: first, a number of forces have contributed to the patent surge in China, but the patenting decisions of foreign and domestic firms are driven by disparate factors, and second, despite the divergent motivations to patent, foreign and domestic firms both consider two important environmental factors, namely, the institutional environment (legal development, such as patent law amendments and government intervention, such as government subsidy) and the competitive environment (competition facing domestic firms due to increasing foreign direct investment and competition among foreign firms). Despite the fruitful literature on why firms patent in China, the questions of whether and when patents are valuable for firms in an emerging economy with weak IPR protection have received less attention.Combining the insight gained from the extant literature on the patenting surge in China with an institution-based view in the context of international business, this study aims at understanding how patenting can be valuable for firms in an emerging economy. We denote the value of patents by patent premium, which refers to the incremental returns produced by the patents in addition to the value of the unpatented inventions (Arora et al., 2008)Arora, 2008, R&D and the Patent Premium;Arora, 2008, R&D and the Patent PremiumArora, 2008, R&D and the Patent Premium;Jensen, 2011, Estimating the patent premium: Evidence from the Australian Inventor Survey. We propose that institutional development, competition and firm ownership, whether it is foreign or domestic and whether it is state-owned or privately-owned, collectively affect a firms patent premium, and firm ownership moderates the effects of institutional development and competition on the firms patent premium.The ideal method to estimate the patent premium is to compare the value of a patented invention with and without the patent (Gambardella, 2013), but the counterfactual, i.e., the value of a patented invention had it not been patented, is hard to observe. In this paper, we tackle the empirical challenge by using a large dataset of Chinese high-technology companies. This dataset is compiled by matching the data from the Chinese National Bureau of Statistics Annual Survey of Industrial Enterprises with the patent data from SIPO (He et al., 2016). In addition to firm-level patenting information, the data include key firm-level financial information, such as sales, capital investment, and employment, as well as demographic information, such as founding year and ownership details. A bias-corrected matching estimator is used to identify the counterfactual firms, which did not start patenting in the observational period but are closest to the firms that started patenting in the observational period, and then to compare their performances. If there is a significant difference between the performances of the two types of firms, it would be due to patenting. This difference is the key to our empirical identification of the patent premium.This study makes several contributions. From a theoretical standpoint, this study advances our understanding of appropriation strategy by extending the literature to an emerging economy setting. Conventional wisdom about appropriation in emerging economies argues that patenting is inadequate and alternative mechanisms should be adopted (Zhao, 2006, Keupp et al., 2009, Li, 2012). Conversely, our findings imply that patenting can be a valid appropriation mechanism and quite valuable in an emerging economy because firms can employ relationship-based strategies and social connections to overcome the institutional voids that are common in emerging economies.This study also contributes to the patent premium literature by theorizing how firms of different ownership types obtain different degrees of patent premiums and how institutional development and competition exert differential impacts on the firms patent premiums. Because firms of different ownership types are equipped with diverse capabilities and resources and adopt different strategies to capture returns from patenting, the impact of institutional development and competition intensity on patent premiums vary with firm ownership types. This study is the first to empirically estimate the patent premium in an emerging economy. We find a significantly positive patent premium in China. However, the benefit of patenting in China may not be equally distributed across firms of different ownership types. We find that domestic firms obtained higher patent premiums than foreign firms. This finding diverges from extant literature in the setting of a developed economy, which demonstrates that patents owned by foreign firms are typically more valuable than patents owned by domestic firms (Pakes et al., 1989, Lanjouw, 1992, Putnam, 1996). There is mixed evidence in Schankerman (1998)s study. Moreover, we find that the magnitude of patent premiums obtained by domestic firms, in particular privately-owned firms, is higher when the quality of institutions is low. In contrast, foreign firms patent premiums are statistically insignificant when the quality of institutions is low and become positive only when the quality of institutions is high. In general, the patent premium decreases with competition, but the magnitude of the effect is greater for domestic firms than for foreign firms and is greater for state-owned firms than for privately-owned firms. The remainder of the paper is organized as follows. Section 2 reviews the methods of patent premium generation. Section 3 draws on institution theory in the context of international business and develops the hypotheses. Section 4 describes the data sources and empirical strategies. Section 5 shows the empirical analyses and results. Section 6 concludes with a discussion of the implications of our findings.2. Means of Patent Premium Generation Patenting has long been recognized in management research as an isolating mechanism, which provides owners the right to exclude others from using the invention for a limited period (Ziedonis, 2004, Mansfield, 1986). The exclusionary power of patent rights can bring market power (Bessen, 2009) and allow firms to pursue additional profit opportunities and competitive advantage (Somaya, 2012, Gambardella, 2013). A firm holding patent rights can exercise market power by raising the prices it charges for its own products or services above the level at which they would charge in a competitive market (Fisher III and Oberholzer-Gee, 2013). Another approach to exercising market power is through enforcement of patent rights, which entails the use or threatened use of litigation to stop infringers from using patented inventions (Somaya, 2012). Exercising market power is by no means the only option available. Going beyond the scope of a single patent, firms can also develop a carefully crafted portfolio of related patents to impede imitation, deter competition, and defend against patent infringement suits (Whittington et al., 2009, Reitzig, 2004, Fisher III and Oberholzer-Gee, 2013). In many contexts, a large patent portfolio is also used as a bargaining chip in cross-licensing negotiations (Reitzig, 2004), in which each party in the cross-licensing settlement receives a license to use the others technology to make its own products (Al-Aali and Teece, 2013).An additional means of patent premium generation is licensing or selling patent rights. These transactions can be beneficial or even bring strategic advantage for the patent owners (Somaya, 2012, Fisher III and Oberholzer-Gee, 2013). For instance, licensing patent rights can discourage imitation and reduce the rivals incentives to challenge the validity of patent rights (Fisher III and Oberholzer-Gee, 2013). Carefully calibrated licensing or selling patent rights might help the patent owner to increase capacity, augment the demand for its products, and shape competition (Fisher III and Oberholzer-Gee, 2013). A firm can further enhance the value of its patent rights through technological collaboration. A salient example is standard setting, in which a firm negotiates with competitors for creating a technology standard in its favor if it owns key enabling patents for the standard (Shapiro and Varian, 1998). When a firms patents are included in a technology standard, these patents are more likely to be licensed (Joshi and Nerkar, 2011). Moreover, the inclusion of patents in standards-based patent pools can increase subsequent innovations that build on them (Rysman and Simcoe, 2008), which may propel the patented technologies toward becoming a dominant design in the industry (Somaya, 2012). When a product is designed and manufactured following the dominant design and common technology standards, the value of the product to consumers often sharply increases (Fisher III and Oberholzer-Gee, 2013), which in turn helps the firm to profit from the patented technologies (Teece, 1986) The various approaches of patent premium generation are summarized in Figure 1. None of these activities are optimal under all circumstances (Fisher III and Oberholzer-Gee, 2013). Firms can effectively increase the appropriability afforded by their patents via undertaking these activities in a concerted and coordinated manner (Somaya, 2012). -Insert Figure 1 about here-3. Hypothesis DevelopmentUnlike a developed economy, an emerging economy is characterized by a weak institutional environment, lack of transparency of laws or their inadequate enforcement, and weak protection of IPR (Ostergard, 2000, Oxley, 1999). The “institutional voids” (Khanna and Palepu, 2013) that prevail in emerging economies make it difficult to appropriate returns from innovation through patent protection (Teece, 1986, Al-Aali and Teece, 2013, Schankerman, 1998). Thus, the value of patents as an appropriation mechanism might diminish in an emerging economy. To overcome the “institutional voids” and exploit the opportunities arising from the underdeveloped institutions, firms in emerging economies usually employ a relationship-based strategy (Peng, 2003). For high-technology companies trying to appropriate returns from their innovation, the most important relationships for them to build would be with government authorities, legal experts and technology stakeholders, such as technology buyers and partners in technology alliances. The links with government authorities can be a highly efficient and cost-effective strategy for firms to protect against patent infringement. For instance, by hosting professional workshops and seminars open to local government officials, firms may gain better recognition and are more likely to be regarded as deserving IPR protection in case of patent infringements (Keupp et al., 2009). In patent litigations, firms can engage in strategies and tactics to gain the favor of government agencies or courts in terms of patent enforcement (Somaya, 2012). In addition to the legal route, patent rights in China can be enforced through the administrative channel. Local patent administration authorities established by the government of the respective locality can address infringement cases, including the determination of possible infringements and ordering injunctions should an infringement be determined. Good relationships with the administrative staff in these government agencies can prompt them to act quickly against IPR infringements without lengthy and expensive court trials (Keupp et al., 2009). Legal experts play critical roles in patent enforcement. Close ties with them provide firms with reliable access to important legal, political or locality-specific knowledge and resources in patent litigations. Legal experts also serve as crucial intermediaries in patent transactions, such as licensing, selling and cross-licensing of patents. In emerging economies, acute information asymmetry between transaction parties and lack of contract enforcing mechanisms often increase the transaction costs in conducting these activities (Yiu et al., 2007, Khanna and Palepu, 1997, Meyer, 2001). Firms that are well connected with legal intermediaries and other firms in the industry may have access to reliable information about potential licensees, buyers and cross-licensing partners for their patents, and these firms may be more effective in enforcing contracts in patent transactions. These relational advantages can minimize their transaction costs and facilitate patent premium generation. Overall, these relationship-based strategies and the social connections that are built with government authorities, legal experts and other organizations help firms compensate for the institutional voids common in emerging economies (Peng and Heath, 1996). Although weak institutions in an emerging economy may dampen the appropriation of returns from technological innovations and, accordingly, the magnitude of the patent premium, these relationship-based strategies can help firms mitigate the risk resulting from the institutional voids. Therefore, firms in an emerging economy are likely to obtain patent premiums regardless of the weak institutions there. This leads to H1.H1: There is a patent premium in China. To the extent that there is a patent premium in an emerging economy, it is of interest to recognize how the magnitude of a patent premium may vary with firm ownership. Here, we compare patent premiums between foreign subsidiaries and domestic firms. Among the domestic firms, we further investigate how patent premiums differ between state-owned and privately-owned firms. Foreign subsidiaries are distinct from domestic firms in two basic aspects. First, foreign firms face considerable liabilities of “foreignness” (Zaheer, 1995) and “outsidership” (Johanson and Vahlne, 2009) in host economies. Second, foreign subsidiaries often engage in frequent exchanges of resources and knowledge with their home country headquarters and other subsidiaries across the globe. These two major foreign-domestic differences give rise to both the institutional outsider effect and the global linkage effect, which collectively induce different levels of patent premiums between foreign subsidiaries and domestic firms.Being institutional outsiders (Khoury et al.