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Capturing Value from Innovation, Summary
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Capturing Value from Innovation – Summary of the ResearchPapers and Lectures
Brenda Giethoorn
23-03-2022
WEEK 1
Giuri,P. Mariani, M., Brusoni, S., Crespi, G., Francoz, D. Gambardella, A., Garcia-Fontes, W.,
Geuna, A., Gonzales, R. Harhoff, D., Hoisl, K., Le Bas, C., Luzzi, A., Magazzini, L. Nesta, L.,
Nomaler, Ö., Palomeras, N., Patel, P., Romanelli, M., Verspagen, B. (2007), “Inventors and
invention processes in Europe: Results from the PatVal-EU survey,” Research Policy, 36(8), 1107-
1127.
Patents have become the most common measure of innovation output. A convenient feature of
patents is that they resemble invention counts. However, patents also have shortcomings. They relate
only to certain types of inventions, and there are vast differences across firms, industries and countries
in the precision with which patents measure innovation output.
European inventors are mostly men (97.2%), and older people (35% is 50+). The low share of women
inventors seems to be consistent with two other observations: the relatively low participation of
women in engineering, and the reduced share of women along the career path. The data also confirm
that women provide a considerably unexploited potential of human capital in Europe. Most European
inventors (76.9%) have a university degree. 33% of the inventors are movers which means that these
inventors changed their employer at least once. Mobility has a positive impact on inventive output,
in particular, patents of mobile inventors receive more citations.
According to the surveyed inventors, social and personal motivations to invent are on average more
important than money or career advances. These results suggest that industrial inventors have
similar motivations as members of the scientific community. Both scientists and industrial inventors
are creative individuals, and creative individuals have common characteristics, motivations and goals.
We emphasise three similarities. First, as human capital becomes more important, the owners of this
asset, whether scientist or inventor, care about things that enhance the perception of the asset’s value.
Second, an individual benefits from the growth of the organisation in which he works because this
favours his own prestige, growth or visibility as well. Third, unlike other professions, creativity, the
search for knowledge, and the ability to show that something is possible, can be personally
enticing.
The data allow us to consider the sources of spill overs and knowledge flows without resorting to
citation measures. Only one-third of the PatVal patents involve a single inventor. Thus, a patented
invention is typically the result of teamwork. Co-application (i.e. patents applied for by more than
one organisation) is the only information concerning collaboration provided by the patent document.
Another factor promoting the exchange
of knowledge may be geographical
proximity. Fig. 1 shows the
importance of the four types of
interactions
Being in a technological cluster does
not increase the importance of local
interactions. Rather, the results of the
,study suggest that local knowledge interactions are established because of the individual inadequacy
to enter wider networks.
The PatVal survey also asked inventors to
rate the following sources of knowledge.
Fig. 2 shows the average assessment of the
importance of these sources
SAPPHO project developed at SPRU in
the 1970s noted that the ability to
understand user needs was the most
important success factor in the
production of innovations.
Half of EU6 patents (50.5%) are exploited
by the applicant organisation for industrial and commercial purposes. About 36% are not used. Of
these, about half of them are blocking and the other half are sleeping patents. Finally, 6.4% of the
patents are licensed, 4.0% are both licensed and internally used, and 3.0% are used in cross-licensing
agreements. There are differences across our five macro-technological classes. Large firms use
50% of their patents internally. They trade less than 10% of them, and about 40% are not used. More
than half of the unused inventions aim at blocking competitors. The large share of unused patents by
large firms is also likely to stem from their lower marginal cost of patenting.
While medium firms have a higher rate of internal use and partly a higher rate of licensing, small
firms have a slightly higher rate of internal use than large firms, and a much higher rate of licensing.
Overall, the small firms license out 26% of their patents and leave 18% unused, which provides a
striking contrast to large firms which license out only 10% and leave 40% of their patents unused. This
is one of the most remarkable findings of PatVal: firm size and firm type explain a large part of the
variation in the extent to which patents are used or licensed.
The role of patents as the foundation of new enterprises is conceivably an important one. Patents
may be associated with the creation of new firms in technology-based businesses and may thus
contribute to more competition and more innovation.
The PatVal survey asked inventors whether their patents were exploited commercially by starting a
new company. For the EU6, 5.1% of the patents give rise to a new firm. About 68% of all our patents
produce less than 1 million Euros, and about 8% have a value lower than 30,000 Euros.
_
It confirms the extremely limited participation of women in invention activities in Europe: 2.8% of
the total PatVal sample. In terms of educational background, about three-quarters of the European
inventors in the PatVal dataset have a university degree. Moreover, the European inventors are not
very mobile across jobs. More than three-quarters of the PatVal inventors never moved from their job
in a window of about 10 years after they produced the patent for which they were interviewed.
James, S. D., Leiblein, M. J., Lu, S. (2013), “How Firms Capture Value from their Innovations,”
Journal of Management, 39(5): 1123–1155.
The majority of work in this area emphasizes the use and relative effectiveness of patents (versus
secrecy) as a mechanism for capturing value from innovation. Figure 1 presents an organizing
framework and the subsequent discussion suggests associations among antecedent conditions, value
capture mechanisms, and performance consequences. The central question of interest is what
mechanisms affect the distribution of this value across members of the ecosystem.
,Patents
Patents refer to legally granted rights to exclude others from making, using, selling, or importing an
invention, for a limited time, within a given country. The use of secrecy as a protection mechanism
refers to a firm’s efforts to protect the uniqueness of an innovation by withholding its technical details
from public dissemination. These efforts enjoy legal protection as trade secrets when the underlying
formula, method, technique, or process derives independent economic value from not being known
and the owner of this information makes reasonable efforts to maintain its secrecy. Lead time
advantages result from early timing of developing and introducing an innovation. Complementary
assets refer to supplementary assets such as manufacturing, distribution, marketing, or service that are
used in conjunction with the know-how underlying a focal innovation to deliver value. These four
appropriability mechanisms suggest 16 possible value capture strategies (i.e., 24 combinations of
the 4 primary value capture mechanisms including the null choice of generic product market
competition)
The results of our coding scheme reveal that the greatest level of attention has focused on addressing
associations between the selection of value capture mechanisms and firm or technology-level
characteristics. The overwhelming majority (85 out of 100) of articles have investigated
combinations of contextual conditions rather than focusing on any single condition in isolation.
The left panel in Figure 1 implies that it is possible to identify and “dimensionalize” a set of primary
contextual conditions that are likely to affect the selection of specific value capture strategies. The
right panel in Figure 1 indicates the performance consequences associated with the selection of
specific value capture mechanisms.
Firms are less likely to use the patent system to protect their innovations when countries have weak
intellectual property laws or when institutional enforcement of a firm’s innovations is weak. The
varying strength of legal protection for intellectual property rights across distinct product and
geographic contexts implies that variance may exist in the propensity to patent to appropriate gains
from innovation. Moreover, the propensity to patent seems to be affected by industry-level
conditions. A third broad contextual factor affecting the decision to patent involves firm-specific
characteristics such as the scale and scope of R&D activities, the ability to manage the intellectual
property patenting process, and firm size. Patenting may serve as a mechanism for information
signaling rather than capturing value from innovation. The central question then is not whether to
patent or not, but whether to patent or allow competitors to patent.
, Firms that have large patent portfolios, firms that are more experienced at identifying and litigating
infringement, and those that seek to shape the appropriability environment are more likely to
patent. Firms in discrete product industries, which can successfully make stronger claims of
novelty in patent applications, are more likely to prevail in patent litigation suits and thus are more
likely to choose patents as a value capture mechanism. Firms in complex product industries are less
likely to choose patenting as the dominant value capture strategy.
Secrecy
Capturing value from secrecy involves the use of internal policies and procedures that restrict the
flow of information both within and outside the organization. Although such efforts increase rivals’
imitation costs, they also entail costs to the focal firm. A firm’s attempts to maintain secrecy by
compartmentalizing information may reduce R&D efficiency by restricting the internal transfer of
knowledge about the firm’s successful projects on one hand, and preventing learning from projects
that fail on the other hand.
A firm’s efforts to employ secrecy as a protection mechanism are “leveraged” by trade secret law.
Government institutions supplement a firm’s efforts to keep innovations secret by enforcing trade
secret law and contractual obligations such as confidentiality agreements and noncompete
agreements. A significant subset of the literature regarding secrecy and value capture emphasizes the
trade-off firms face between publicly disclosing technical details of an innovation and maintaining
trade secrets. The literature suggests that the cost of secrecy depends on the legal appropriability
strength, industry structure, characteristics of the underlying knowledge (i.e., the level of
complexity), and the type of innovation (product/ process).
The strength of industry characteristics, such as supply-side scale economies and the homogeneity
of demand, influences the likelihood that markets tend to “tip” to a standard. Empirical evidence
corroborates such predictions, suggesting that sharing technological knowledge with the innovation
system would generate higher profits than keeping that knowledge secret in such contexts.
Lead Time Advantages
Early commitment to a course of action can provide firms with pre-emptive competitive advantages,
but possible flexibility disadvantages, with respect to future investment opportunities. In contrast,
although late commitment can provide flexibility advantages, it also entails potential competitive
disadvantages. The balance of these apparent costs and benefits varies with the environmental, firm,
and technological context.
The availability of information regarding the innovator’s product increases the imitator’s returns on
waiting and showed that the imitation time lag is positively related to the likelihood of beating the
innovator in the branded drug industry. Firm-specific factors might also influence a firm’s ability to
capture value from lead time advantages, such as the degree of technological leadership, the ability to
pre-empt scarce assets, and buyer switching costs. Technological characteristics also influence the
extent to which first movers realize competitive advantages rather than suffer from first-mover
disadvantages. Early mover (late-mover) strategies are most appropriate in contexts where there is a
high (low) degree of uncertainty, long (short) time spans between innovations, and a high (low)
degree of intergenerational learning.
Complementary Assets
Conceptual work in this area is based on an assumption that valuable complementary assets are
heterogeneously distributed across firms in a manner familiar to resource-based scholars who
emphasize the role of endowments, prehistory, or initial heterogeneity. Given a weak appropriability
environment, firms must assess whether complementary assets necessary to commercialize a
technology are contractible in strategic factor markets and then determine whether the nature of the
technology warrants developing complementary assets internally versus contracting with a third party
who owns or controls those assets.
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