patent premium我的资源Patent Premium Submission 20190517

Solving Patent Premium Dilemma for Foreign Firms Innovating in Weak IPR Emerging MarketsCan Huang1, Lanhua Li1, Yadong Luo2 and Zhe Qu31 Institute for Intellectual Property Management, School of Management, Zhejiang University, Yuhangtang Road 866, Hangzhou, Zhejiang Province, China2 Department of Management, School of Business Administration, University of Miami, Coral Gables, FL 33124-9145, United States3 School of Management, Fudan University, 670 Guoshun Road, Shanghai, ChinaNote: Each author contributes equally to the study.Solving Patent Premium Dilemma for Foreign Firms Innovating in Weak IPR Emerging MarketsAbstractThe weak intellectual property rights (IPR) protection in emerging markets pose a critical challenge for foreign firms attempting to appropriate returns from innovation in these markets. This study investigates whether and when foreign firms in emerging markets obtain patent premium, defined as incremental productivity gains from a firms patents compared with its productivity had the firm not owned any patents. Drawing on theoretical insights from institutional logic and liability of foreignness and using a ten-year period of 32,901 firms in Chinas high-tech industries wherein foreign firms are actively competing answered a puzzle: Foreign firms do obtain patent premium despite the weak IPR protection in the country. Among foreign firms, the level of patent premium is significantly lower for international joint ventures than for wholly owned foreign subsidiaries. We also find that foreign firms obtain lower patent premium than domestic firms, particularly in institutional weak regions. However, patent premium growth due to improved institutional development is stronger for foreign firms than for domestic firms, whereas patent premium diminution due to heightened competition is stronger for domestic firms than for foreign firms. These suggest that patent premium of foreign firms, comparing with local firms, are more prone to institutional improvement but less susceptible to industry competition. Keywords: Patent premium, IPR, innovation, institutions, emerging economyINTRODUCTIONIt has been a big paradoxical question to both scholars and executives alike for some time: Can innovation and patents pay off for foreign firms competing in large emerging markets where market opportunities are enormous yet intellectual property rights (IPR) protection is rather limited? The last decade has witnessed a surge of innovation activities of multinational enterprises (MNEs) competing in foreign emerging markets (Qu, Huang, Zhang, & Zhao, 2013; Thursby & Thursby, 2006; Zhao, 2006). However, the weak IPR protection there pose a critical challenge for MNEs attempting to appropriate returns from patenting activities. The appropriation literature asserts that patenting may not be viable in countries where law enforcement for IPR is weak (Al-Aali & Teece, 2013) because the effectiveness of patenting primarily depends on the quality of national law system and institutional environment in which firms operate (Schankerman, 1998; Somaya, 2012). In such cases, innovators must count on other appropriation mechanisms, such as secrecy, control of complementary resources, or taking an advantage of lead time (“first to market”) to capture value from innovations (Al-Aali & Teece, 2013). Nevertheless, patent applications in emerging markets have been growing steadily in recent decades. Patent statistics reveals that the number of invention patent applications received by the National Intellectual Property Administration of China (CNIPA), for instance, 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 in the nation have both been growing at an annual average rate of 21% in the period of 1986-2015 (Hu, 2010; Hu & Jefferson, 2009), with the fact that China surpassed the US since 2011 becoming the worlds biggest country in receiving patent applications.This phenomenon is striking considering the weak institutional environment and IPR protection in these economies, as recently debated in JIBS (Brander, Cui, & Vertinsky, 2017; Peng, Ahlstrom, Carraher, & Shi, 2017). Weak IPR system presumably leads to weak incentives to patent. This paradox has prompted researchers to investigate the conditions that are motivating the rapid growth of patenting in these countries (Hu, 2010; Hu & Jefferson, 2009; Keupp, Friesike, & von Zedtwitz, 2012; Li, 2012). It has been recognized that market size and economic advancement may offset some disincentives of patenting activities caused by weak IPR protection (Huang & Jacob, 2014), and governmental support for innovation (e.g., better financial and policy treatment) may cherish firm-level patenting activities despite the existence of patent infringement (Huang, 2017; Li, 2012). Others also suggest that improved physical infrastructure and geographic clusters for innovation are conduits of patenting undertaking (Hu & Mathews, 2005; Porter & Stern, 2001). Despite these scholarly efforts, it remains unanswered whether and when patents are valuable for foreign firms investing in large emerging markets characterized with weak IPR protection. Combining insights from institutional logic and liability of foreignness, we aim to understand how much patenting is valuable for foreign firms in such an important context (i.e., patents registered in the host country) and under what conditions this value is further enhanced or threatened. We denote the value of patents by patent premium, generally referring to increment to the value of technological innovations realized by patenting them (Arora, Ceccagnoli, & Cohen, 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, and specifically in this study connotes to incremental productivity gains from a firms patents compared with its productivity had the firm not owned any patents. The ideal method to estimate patent premium is to compare productivity of a patent-owning firm with its productivity had the firm not owned any patents, but the productivity of a patent-owing firm had it not owned any patents is hard to observe. In order to provide robust evidence, we tackle this challenge by employing a matching and difference-in-difference method and using a large dataset of high-technology (high-tech) companies competing in China, the largest emerging market that features well with market opportunities, weak IPR protection, institutional change, and intensified competition in most sectors.Our longitudinal analysis of a ten-year period of 32,901 firms in Chinas high-tech industries (in which foreign firms actively operate) through our compiling and matching the data from Chinas National Bureau of Statistics Annual Survey of Industrial Enterprises with the patent data from Chinas State Intellectual Property Office (SIPO) offers some very interesting and important insights. First, we find a significantly positive patent premium among foreign firms despite weak IPR system in the country. However, this positive premium is not equally distributed across foreign firms of different ownership types. We find that wholly foreign owned subsidiaries (WOSs) gained higher patent premium than international joint ventures (IJVs). Second, domestic firms obtained higher patent premium than foreign firms, thus validating the existence of liability of foreignness in this regard. Third, patent premium growth due to improved subnational institutional development in the region where the firm is located is stronger for foreign firms than for domestic firms, whereas patent premium diminution due to heightened industry-level competition is stronger for domestic firms than for foreign firms. These suggest that foreign firms, compared with local firms, are more prone to institutional improvement but less susceptible to industry competition regarding patent premium.These results provide both theoretical and practical insights. It suggests that, while liability of foreignness does exist regarding patent premium or innovation gains, foreign firms achieve net gains from local patents comparing with no local patents despite weak IPR protection. IB research on entry strategies has seldom pointed to post-entry innovation implications, and we discover that WOSs generate greater patent premium than IJVs. This study also extends the institution-location interface by showing that foreign firms patent premium is more disposed to institutional improvement than that of local firms. We exhibit strong evidence on institutional complexity in general and institutional incompatibility in particular, suggesting that subnational variance in institutional conditions exerts an important impact on patenting activities and rewards. An understanding of institutional logic is fuller if we unite the institutional void logic (weak IPR protection) and the institutional complexity logic (institutional fragility and incompatibility across different locations with a country) in analyzing both foreign and local firms. Further, while competition can create more value to societal well-being in emerging markets (Devarajan & Rodrik, 1989), we find that it does squeeze patent premium, more so for domestic firms than for foreign counterparts. These results implicate the dual importance of MNE-level organizational control and host-country institutional improvement when we assess the patent premium dilemma for foreign firms competing in weal IPR emerging economies. THEORETICAL DEVELOPMENTPatenting under Weak IPR ProtectionPatenting has long been recognized as a differentiating mechanism, providing owners with the right to exclude others from using the invention for a limited period (Mansfield, 1986; Ziedonis, 2004). The exclusionary power of patent rights can bring market power (Bessen, 2009) and allow firms to pursue additional profit opportunities and competitive advantage (Gambardella, 2013; Somaya, 2012). 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. Patent holders can also bolster market power through enforcement of patent rights, which entails the use or threatened use of litigation to stop infringers from using patented inventions. These holders can further develop a carefully crafted portfolio of related patents to impede imitation, deter competition, and defend against patent infringement (Fisher Iii & Oberholzer-Gee, 2013; Reitzig, 2004; Whittington, Owen-Smith, & Powell, 2009). Firms can additionally appropriate patent returns through licensing or selling patent rights. These transactions can be beneficial or even bring strategic advantage for the patent owners (Fisher Iii & Oberholzer-Gee, 2013; Somaya, 2012). Finally, firms can enhance the value of their patent rights through standard setting and technological collaboration. When a firms patents are included in a technology standard, these patents are more likely to be demanded and licensed (Joshi & Nerkar, 2011). Moreover, the inclusion of patents in standards-based patent pools can increase subsequent innovations that build on them (Rysman & Simcoe, 2008), which may propel patented technologies toward becoming a dominant design in the industry (Teece, 1986).While the above logic generally applies to firms in every country, actual returns or benefits of patenting activities will significantly vary depending on institutional and market environments. Perhaps, there is no country that brings in such complexity and paradox for firms to deal with patenting activities as larger emerging economies like China and India. Markets are huge yet IPR protection remains weak. Albeit some of these governments have been making efforts in protecting patent rights, especially after joining the World Trade Organization (WTO), legal enforcement of IPR protection is impeded by a plentitude of perilous issues such as public empathy of copycatting (Luo, Sun, & Wang, 2011), weak judiciary and administrative systems in IPR (Bosworth & Yang, 2000; Wang, 2004), business and public sector corruption (Kshetri, 2009; Liu, 2006), and political and institutional instability (Lieberthal & Lieberthal, 2003). Such institutional voids or hardships relating to patenting activities are further exacerbated by lack of institutional transparency and limited and often selective enforcement of IPR law (Khanna & Palepu, 2013; Ostergard, 2000; Oxley, 1999). This makes it difficult to appropriate returns from innovation through patent protection (Al-Aali & Teece, 2013; Schankerman, 1998; Teece, 1986). We approach this paradox from the institutional logic, complemented with the liability of foreignness logic. The institutional logic we develop originates from works that integrate institutional theory (DiMaggio & Powell, 1983; Scott, 1987) and strategic choice that hinges in part on a firms dependence on external institutions that control critical resources (Oliver, 1991; Peng, 2003; Tolbert, 1985). This institution-based view of strategy, and Olivers strategic response logic to institutional processes in particular (Oliver, 1991; Oliver, 1997), holds that institutional forces enact a strong effect on organizations, even more so during institutional change (Peng, 2003) but this effect is not equal to every organization in the said institutional setting due to three idiosyncrasies - one in varying dependence on external institutions that maintain power stemming from resource control (Pfeffer & Salancik, 1978), second in varying strategic intent to exploit opportunities during institutional change (Hitt, Ahlstrom, Dacin, Levitas, & Svobodina, 2004), and third in varying policy treatments or capabilities in dealing with institutional dynamics (Hillman & Keim, 1995).Grounding on such logic, we argue that institutional hazards, such as weak IPR protection, may hinder patenting activities, but meanwhile competitive opportunities and values through patenting in a large emerging economy, characterized with sheer market size and fast economic growth, can offset this hindering effect. Yet, we expect that foreign firms patenting rewards will be lower than local firms due to liability of foreignness, which is, in this case, manifested in extra difficulties, challenges and costs in dealing with weak IPR protection. This suggests that foreign firms are deemed to benefit less from patenting gains in weak IPR protection markets than local firms. We study patenting gains by patent premium, defined as incremental productivity gains from a firms patents compared with its productivity had the firm not owned any patents. A patent is a document issued upon application by a government office, which describes an invention which may relate to a product or a process, and creates a legal situation in which the patented invention can normally only be exploited (manufactured, used, sold, imported) with the authorization of the owner of the patent. As detailed below, we first probe whether or not there exists patent premium for foreign firms in a large emerging market and then hypothesize how such premium is influenced by ownership types of foreign firms (IJVs versus WOSs). Then we compare patent premium between foreign and domestic firms, building in part on the logic of liabilities of foreignness. What follows then is our explanation on how institutional development in a sub-region where the firm is located and competition intensity in an industry in which the firm competes affect patent premium for foreign and domestic firms, respectively. Institutional development is the degree to which market support economic activities, including IPR protection, law governance, regulatory supportiveness, public services, private sector development, and intermediary market maturity, among others (Meyer & Nguyen, 2005). We theoretically chose subnational institutional development and industry-level competition intensity as the critical conditions that may affect patent premium for three reasons. First, both institutional and liability of foreignness logics pinpoint the importance of institutional conditions while the lens of strategic response to such conditions suggests the relevance of market opportunities (thus competition) in our theoretic framing. Second, a large emerging economy, like China, is exemplified by immense within-country variance of institutional development and industrial competition. Third, solving patent premium dilemma, as we noted, hinges in part on disentangling market opportunities (that affect the revenue side of patent premium) and institutional deterrence (that affects the cost or liability side of patent premium). Finally, we chose a host of high-tech industries as our specific analytical setting as it is the one in which foreign firms have been actively competing with local firms yet it is the one that is highly susceptible to IPR infringement. Foreign Firm and Patent PremiumAs MNEs broaden their innovation activities in large emerging markets, the risk of exposing their technologies to potential imitation and misappropriation increases, so does the need to protect their technological innovation. Among various methods to protect technological innovation, patent is considered an important means for firms to profit from their innovation (Mansfield, 1986; Schankerman, 1998). This is consistent with the strategic choice view in institutional theory. This view asserts that companies often face a multiplicity of institutional pressures (sometimes contradictory), which leads to misalignments between their strategic needs and the institutional environment (Greenwood & Hinings, 1996; Oliver, 1