Reputations for Toughness in Patent Enforcement: Implications for Knowledge Spillovers via Inventor Mobility

Innovation and Economic Growth, Intellectual Property and Patents

Article Snapshot


Rajshree Agarwal, Martin Ganco and Rosemarie Ziedonis


Strategic Management Journal, Vol. 30:13, pp. 1349-1374, 2009


Firms reputed to be “tough” in enforcing patents reduce the benefits of shared knowledge as workers move between jobs.

Policy Relevance

The study raises an important policy question: do firms in weak non-compete states shape labor market activity through the enforcement of patents? A large literature in law and economics investigates how state laws governing non-compete enforcement affect labor market activity. Much less is known about the extent to which, if at all, the federal protection afforded by patents shapes behavior in these markets.

Our results also raise a troublesome possibility that the high cost of patent enforcement may tilt advantage toward firms with superior resource endowments. From a policy perspective, these results suggest that current initiatives to lower the costs of adjudicating patent rights in the United States may warrant serious consideration. Otherwise, the costs and uncertainties of IP-related conflicts may redirect innovative activity toward more established, resource-rich organizations.

Main Points

  • The study asks if firms in weak non-compete states shape labor market activity through the enforcement of patents. Scholars report that state laws governing non-compete enforcement can affect labor market activity. Less is known about how federal protection afforded by patents shapes behavior in labor markets.
  • Building on earlier work on strategic deterrence and predation, this study shows how corporate reputations for “toughness” in patent enforcement can be valuable to firms seeking to deter unauthorized transfers of proprietary knowledge through employee exits. In doing so, we shed new light on the strategies firms use to capture value from their innovation-related investments.
  • The empirical evidence is based on uniquely rich database of patent lawsuits, inventor mobility events, and patent citations in the U.S. semiconductor industry from 1973 through 2001.
  • Three main findings stem from our analysis:
    • A firm’s patent litigiousness significantly lowers the outward dissemination of technological knowledge otherwise predicted from employee departures. The results are robust to numerous alternative specifications, including fixed-effects specifications, use of gender-based instruments for mobility choice, and separate controls for pairs of firms directly involved in legal conflict.
    • Perhaps troublesome from a policy perspective, we also find that corporate reputations for toughness are particularly powerful in curbing knowledge outflows to entrepreneurial firms. An important implication is that entrepreneurial firms, which prior studies have shown stand to gain most from hiring skilled workers from established firms, are disproportionately deterred by the litigious actions of industry incumbents.
    • Finally, patent enforcement is a significant spillover-reduction mechanism used by semiconductor firms headquartered within and outside California. It is possible that firms in states where non-compete agreements are difficult to enforce are nonetheless able to shape labor market activity through an alternative lever of patent enforcement.


Get The Article

Find the full article online

Search for Full Article