Don't Fence Me In: Fragmented Markets for Technology and the Patent Acquisition Strategies of Firms

Innovation and Economic Growth, Intellectual Property and Patents

Article Snapshot

Author(s)

Rosemarie Ziedonis

Source

Management Science, Vol. 50:6, pp. 804-820, 2004

Summary

This article examines patterns in patenting among semiconductor firms in the United States.

Policy Relevance

Some argue that fragmented patent rights lead firms to under-invest in the development of new products. This study suggests that defensive patenting represents an alternative organizational response to patent hold-up problems and the “anti-commons” problems highlighted in prior research.

Main Points

  • Michael Heller and Rebecca Eisenberg suggest that fragmented patent rights lead firms to under-invest in the development of new products.
     
  • This study uses a new method to measure the degree of dispersion, or fragmentation, among outside owners of patent-protected technologies—a characteristic of technology markets believed to affect the transactions costs of licensing.  The study uses evidence of innovation and patenting activities of US semiconductor firms.
     
  • Using the “fragmentation index,” the study shows that technology users tend to patent more aggressively in response to increased dispersion among external patent owners.
     
  • The paper tries to describe the conditions under which firms patent defensively to avoid being "fenced in" by owners of technologies used, perhaps unknowingly, in the design or manufacture of their products.
     
  • Building on insights from transaction cost economics and anti-commons theories, this study shows that firms patent more aggressively than otherwise expected when markets for technology are highly fragmented (i.e., ownership rights to external technologies are widely distributed).
    • The effect is more pronounced for firms with large investments in technology-specific assets and under a strong legal appropriability regime.

     

  • The study suggests that the accumulation of exclusive rights like patents may enable firms to safeguard investments in new technologies while avoiding some of the costs and delays associated with ex ante contracting over rights to patented inventions owned by outsiders.

 

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