Intellectual Property (IP) Governance and Strategic Value Creation

Abstract:

Setting the scene:

The presentation is based upon the results of an original exploratory empirical study about:
what forms of intellectual property (IP) appropriation mechanisms do firms engage in, taking into account both proprietary IP (patents, copyright) and non proprietary IP (open source, non-patented innovations);
what kind of strategic value (related to finance, innovation, strategic relationships, competitive advantage & market positioning) do firms seek when they exchange these different forms of IP through different governance forms (selling, buying, licensing, etc.);
what obstacles (related to IP search, transparency, contract negotiation and enforcement issues, as well as regulation) do firms encounter when attempting to create value through the exchange of IP.
whether there is a relationship between the value firms seek or the experienced obstacles, and the type of IP marketplaces (patents, copyrights, open source, or no protection) firms participate in, or the governance structures (such as licensing in or out, cross-licensing, pooling, etc. in the case of patents) they apply.

Pilot case studies have been realized on three sectors where the problem of the extent to which IPR should be enforced has been particularly debated. This allows us to derive some general implications from our findings. The sectors of investigation include ICT (software and hardware) firms and public research organizations in the UK, as wel as pharmaceutical firms in Germany.

The survey data that contribute towards the data analysis of this paper are obtained through a large scale questionnaire. This research is forming part of the EU 6th Framework Project U-KNOW (Understanding the relationship between knowledge and competitiveness in the enlarging European Union) which is an EU Specific Targeted Research Project (STRP) where Birgitte Andersen was a work package coordinator of "An IPR Regime in Support of a Knowledge Based Economy".

Contribution:

With respect to IP activity, we find that most firms in all three sectors exchange IP rather than just holding it, and that most firms exchange more than one type of IP, usually including non-proprietary IP (open source, non-patented innovations), either exclusively or in combination with proprietary IP (patents, copyright). The exchange of product and process innovations that are not formally protected involves a high share of firms in all three sectors and generates a relatively higher number of transactions. Consequently, better understanding of the processes of value creation through IP governance requires us to understand how firms engage in different forms of IP transactions, including paying attention to the exchange of product and process innovations that are not formally protected. In all sectors, different models of value creation from IP exchange coexist, with size (in ICT firms and public research organizations) and research intensity and size (in pharmaceutical firms) seemingly associated with different models.

With respect to value creation, we find that firms create value by applying all forms of IP: firms use both proprietary and non-proprietary IP exchanges in the context of their innovation strategies, in order to gain competitive advantage and to build strategic relationships, as well as for financial gain. At the same time, firms strategically use specific IP governance structures (buying, selling, licensing, and so on) in order to seek specific benefits. These results suggest that non-proprietary IP appropriation mechanisms are used because they confer specific benefits, rather than because of lack of awareness of the potential and usefulness of patents and copyright.

With respect to obstacles experienced by firms during the value creation processes, we find that firms encounter many obstacles when exchanging all kinds of IP. Some obstacles depend on the institutions regulating the marketplace (search obstacles; some transparency problems such as lack of clarity in IPR documents); others depend on the behaviour of agents in the marketplace (opportunistic behaviour, different practices of firms); others depend on the nature of knowledge exchanged, which is often characterized by uncertainty, tacitness, serendipity, and hence makes it difficult to assess its novelty and economic value. Comparatively few firms indicate problems due to fragmented or too restrictive excessive regulations. Therefore, removing the obstacles to value creation through IP exchange is not simply a matter of tightening rules, but may require actions at different levels (at the level of the patent office, of the industry, of the overall legislative framework). Some obstacles may even be impossible to eliminate, such as the difficulty in assessing the value of new knowledge. Furthermore, because obstacles are very often governance-specific, interventions directed at removing some of them should not be “one size fits all” but tailored to specific forms of IP and to specific types of transactions.

Overall, as firms create value from participation in the exchange of several forms of IP, often at the same time, it would be important to promote a legislative framework that allows different models of value creation from IP to coexist.