When do strategic alliances inhibit innovation by firms? Evidence from patent pools in the global optical disc industry

Abstract

Research and development (R&D) consortia are specialized strategic alliances that shape the direction and scope of firm innovation activities. Little research exists on the performance consequences of participating in R&D consortia. We study the effect of patent pools, a unique form of R&D consortia, on firm performance in innovation. While prior research on alliances generally implies that patent pools enhance firm innovation, our study finds the opposite. Analyzing data on systemic innovation in the global optical disc industry, we find that patent pool formation substantially and significantly decreases both the quantity and quality of patents subsequently generated by licensors and licensees relative to the patenting activity of nonparticipants. Our empirical findings suggest that patent pools actually inhibit, rather than enhance, systemic innovation by participating firms.

Patent pools, litigation, and innovation

“…This competition externality creates downward pressure on license fees and individual patent holders compete each other down to the limit licensing levels. 10 We have shown that patent pools can elevate the total licensing fees when they are used to shield weak patents form the threat of litigation. However, the elevated licensing fees have no e¢ ciency consequences in the simple model where only the litigation margin is binding.…”

“…Given …rm j sets f j , …rm i has no incentive to increase its fee as it would trigger litigation against …rm i. Condition (10) ensures that …rms have no incentive to decrease their license fee either. Thus, in a subgame perfect equilibrium, each …rm sets its licensing fee at the level that deters litigation,…”

“…However, such a prediction seems to be in con ‡ict with the recent empirical …ndings. Moser (2010, 2013, forthcoming) and Joshi and Nerkar (2011) provide the …rst empirical tests of the e¤ects of a patent pool on innovation incentives. More specifically, Moser (2010, 2011) study the Sewing Machine Combination (1856-1877), the …rst patent pool in U.S. history whereas Joshi and Nerkar (2011) study the e¤ects of patent pools in the recent global optical disc industry.…”

Patent Pools, Competition, and Innovation—Evidence from 20 US Industries under the New Deal

“…For DVDs, comparable data on transfer speeds and product launches (Flamm 2013), as well as patents (Joshi and Nerkar 2011) suggest a decline in innovation. For the MPEG-2 standard pool, patenting declines after the creation of a pool, as firms shift away from inventing toward implementing new technologies (Vakili 2012).…”

Innovation diffusion, licensing and corporate entrepreneurship - a conceptual review

“…We encourage other researchers to use this overview as a repository for further research on the evolution of technology diffusion. Henderson and Cockburn (1996), Pakes and Griliches (1980), Johnson and Popp (2003), Trajtenberg (1990), Ahuja and Katila (2001), Dushnitsky and Lenox (2005), , Joshi andNerkar (2011), Wang and Success with product innovations, i.e., share of sales from products new to the market or alternatively share of sales from products new to the firm. Cockburn et al (2010) Number of patents that led to new product, e.g., for a new drug launch in the pharmaceutical industry.…”