Abstract
This paper documents the strong growth in tools used by firms to protect their intellectual property (IP), develop their know-how, and build and maintain their reputation globally. We focus on three tools that have become increasingly important in the last several decades: patents, trademarks, and industrial designs. We find that, although most IP applications come from a few countries (the United States, the European Union, Japan, China, and South Korea), most growth in IP activity has come from middle-income countries, especially in Asia. We observe important differences in the origins of this growth. For example, while in India most applicants were foreign firms, in China most were local. However, most Indian innovations were also applied overseas, while Chinese innovations rarely made it out of China. Interestingly, growth in applications varies by IP tool, with industrial designs experiencing the most growth.
These trends in applications are less evident when we study which applications are actually granted. For example, the shift in IP activity toward middle-income countries and Asia is less pronounced, and the most developed countries still lead globally. Moreover, there seems to be an important difference in the quality of patent applications and grants across countries, with very few patents granted to Chinese applicants overseas.
Although globalization and IP tools give firms an opportunity to leverage their know-how and reputation across countries to create value, it remains challenging to capture that value. For example, IP protection remains fragmented and it is very costly to develop a comprehensive IP footprint worldwide. Furthermore, larger numbers of applications are causing backlogs and delays in numerous Patent and Trademarks Offices; as a consequence, weaker patents and industrial designs are granted. Litigation over the validity and violation of IP rights has also become expensive, and its outcome uncertain. Suits and counter-suits among different players in the value chain across countries are more common due to weaker patents, a hyper-fragmented IP space, and the costs of patenting globally. For trademarks and industrial designs, globalization has created more potential infringers and an increase in piracy, as evidenced by a significant increase in customs seizures. The problems with IP even go beyond individual firms, as when governments use IP policies to favor local firms and thereby change which firms get to manufacture and capture value from IP (as in the case of wind turbines in China). Our second section describes these challenges in more detail.
Our third section confronts the fact that, although changes in the global IP system are desirable, they are unlikely to happen in the near future due to the complexity of crafting new treaties across countries. We discuss how multinational firms are dealing with the challenges of capturing value from their know-how and reputation in the existing global IP system, and review mechanisms, both market and non-market, that have been leveraged successfully. Different mechanisms are not equally effective across industries and regions. Under strong IP regimes, firms can use monopoly rights to sell their products exclusively, or license or trade their IP. However, even under these regimes firms must resort to secrecy, superior lead times, complexity, or complementary assets to maximize value capture from their IP. In fact, many of today’s multinationals rely on a combination of these mechanisms, depending on their regions of operation. Some firms seeking to improve their relative positioning in the value-capture game even resort to collective action, using patent pools or standards-setting organizations, increasing surveillance, and collaborating with governments on seizures.
The overall picture that emerges—a growing number of applications and grants, fragmented rights, and patents of questionable quality—leaves plenty to be desired. What is clear is that the challenges to capturing value from know-how and reputation using an array of IP tools will be an increasingly important matter of strategy for organizations that depend on global IP. This has important implications for management practice in this area, as we discuss in our concluding section. Global companies will need to organize cross-functional value capture teams focused on appropriating value from their know-how and reputation by combining different institutional, market, and non-market tools, depending on the institutional and business environment in a particular region.
These trends in applications are less evident when we study which applications are actually granted. For example, the shift in IP activity toward middle-income countries and Asia is less pronounced, and the most developed countries still lead globally. Moreover, there seems to be an important difference in the quality of patent applications and grants across countries, with very few patents granted to Chinese applicants overseas.
Although globalization and IP tools give firms an opportunity to leverage their know-how and reputation across countries to create value, it remains challenging to capture that value. For example, IP protection remains fragmented and it is very costly to develop a comprehensive IP footprint worldwide. Furthermore, larger numbers of applications are causing backlogs and delays in numerous Patent and Trademarks Offices; as a consequence, weaker patents and industrial designs are granted. Litigation over the validity and violation of IP rights has also become expensive, and its outcome uncertain. Suits and counter-suits among different players in the value chain across countries are more common due to weaker patents, a hyper-fragmented IP space, and the costs of patenting globally. For trademarks and industrial designs, globalization has created more potential infringers and an increase in piracy, as evidenced by a significant increase in customs seizures. The problems with IP even go beyond individual firms, as when governments use IP policies to favor local firms and thereby change which firms get to manufacture and capture value from IP (as in the case of wind turbines in China). Our second section describes these challenges in more detail.
Our third section confronts the fact that, although changes in the global IP system are desirable, they are unlikely to happen in the near future due to the complexity of crafting new treaties across countries. We discuss how multinational firms are dealing with the challenges of capturing value from their know-how and reputation in the existing global IP system, and review mechanisms, both market and non-market, that have been leveraged successfully. Different mechanisms are not equally effective across industries and regions. Under strong IP regimes, firms can use monopoly rights to sell their products exclusively, or license or trade their IP. However, even under these regimes firms must resort to secrecy, superior lead times, complexity, or complementary assets to maximize value capture from their IP. In fact, many of today’s multinationals rely on a combination of these mechanisms, depending on their regions of operation. Some firms seeking to improve their relative positioning in the value-capture game even resort to collective action, using patent pools or standards-setting organizations, increasing surveillance, and collaborating with governments on seizures.
The overall picture that emerges—a growing number of applications and grants, fragmented rights, and patents of questionable quality—leaves plenty to be desired. What is clear is that the challenges to capturing value from know-how and reputation using an array of IP tools will be an increasingly important matter of strategy for organizations that depend on global IP. This has important implications for management practice in this area, as we discuss in our concluding section. Global companies will need to organize cross-functional value capture teams focused on appropriating value from their know-how and reputation by combining different institutional, market, and non-market tools, depending on the institutional and business environment in a particular region.
| Original language | English |
|---|---|
| Publisher | Center for Global Enterprise, NYU Stern |
| Number of pages | 51 |
| Publication status | Published - 2015 |