Home / Summaries / Artikelen capturing value from innovation 2016 / secrecy-innovation-assets

James et el. (2013) "How firms capture value from their innovations

Q: What are three reasons why firms vary in their use of patents to capture value form their innovations?

Superior innovation capabilities create a 'shadow of the future' that minimizes inefficient patent disputes Firms with larger or more experienced intellectual property teams are better able to identify infringement and enforce legal remedies Some firms patent to stimulate information dissemination regarding their innovations or to influence the direction of innovative activity. (Patenting may serve as a mechanism for information signaling rather than capturing value from innovation

38 important questions on James et el. (2013) "How firms capture value from their innovations

The authors examine what is known and identify future research opportunities regarding two questions:

When should firms choose to invest in the use of a specific value capture mechanism or bundle of mechanisms?
What are the relative effects of these value capture mechanisms on profits from innovation?

Which four broad sets of factors are identified (contextual conditions)

Institutional factors such as the breadth and effectiveness (i.e., enforcement) of intellectual property laws;
Industry characteristics associated with competitive intensity, including the degree and type of product differentiation, the speed and uncertainty of technical change, and the extent to which innovation is cumulative;
Distinctions tied to firm attributes such as the level and focus of research and development, stock of technological capabilities, and innovation activity of the organization;
Technology-level characteristics that capture the degree of complexity and/or tacit nature of the knowledge embedded in the innovation.

Where does the use of secrecy as a protection mechanism refer to?

To a firm's efforts to protect the uniqueness of an innovation by withholding its technical details from public dissemination

Where does lead time advantage result from?

From early timing of developing and introducing an innovation

Where do complementary assets refer to?

To supplemenary assets such as manufacturing, distribution, marketing, or service that are used in conjunction with the know-how underlying a focal innovation to deliver value

Which four broad contextual factors affect the decision to patent?

The varying strength of legal protection for intellectual property rights across distinct product and geographic contexts.
Intellectual property laws
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.
The complexity or nature of the knowledge underlying an innovation.

What is the institutional condition?

The availability and strength of legal protection.

In which two ways does the strength of the intellectual property regime affect an innovator's expected costs of preventing imitation?

The increased expectation of infringement directly raises expected patent litigation costs.
The number of expected infringing firms affects the cost of identifying particular rivals against which to make a claim for punitive damages.

What does lead to more patentable elements?

High complexity of products

What are three reasons why firms vary in their use of patents to capture value form their innovations?

Superior innovation capabilities create a "shadow of the future" that minimizes inefficient patent disputes
Firms with larger or more experienced intellectual property teams are better able to identify infringement and enforce legal remedies
Some firms patent to stimulate information dissemination regarding their innovations or to influence the direction of innovative activity. (Patenting may serve as a mechanism for information signaling rather than capturing value from innovation

What is the industry condition?

Patents increase imitation costs for competitors, if there is high competition --> more use of patents can be useful (but depends on industry!)

Why is it easier to identify and defend agains infringements in discrete product industries?

Because of the limited number of patentable elements, limited overlap of firms that own these patentable elements, and limited number of rival firms that need to be monitored

What is the firm condition?

Less experience in patenting/IP rights --> Less use of patents

What is the knowledge condition?

Technology is complex, hard to codify --> Less use of patents

What does capturing value from secrecy involve?

The use of internal policies and procedures that restrict the flow of information both within and outside the organization

Why does the costs of secrecy increase when there is intense competition?

The risk for uninteded leakage of secrets is higher in competitive environments

What is the institutional condition with secrecy?

Weak law enforcement --> no public disclosure of technology --> more use of secrecy (than patents)

Industry condition of secrecy

More competition/more unintended knowledge spillover --> higher costs of secrecy --> less use of secrecy

Firm condition of secrecy

Secrecy can cause a certain firm culture (restriction of information, use of code names, etc) --> much efforts & higher costs to maintain secrecy --> less use of secrecy

Why should firms consider cooperating with other companies to foster future innovativeness?

Secrecy can inhibit the development and growth of firms

What has the technology condition for influence on secrecy?

The nature of technology determines the secrecy in that process innovations are easier to be kept secret than for product innovations

What is a downside of secrecy?

Although secrecy can protect an innovation from imitation, it may also entail significant costs and constrain information spillovers that foster future innovation.

As complexity of the technology underlying an innovation increases, a firm must weigh the costs and benefits of secrecy as a value capture strategy, why?

Greater complexity requires more formal organizational structures and quantitative mechanisms to control the flow of proprietary information, which, in turn, increases the costs of maintaining secrecy and monitoring employees’ access to information.

Where do the costs of secrecy depend on?

On the legal appropriability strength, industry structure, characteristics of the underlying knowledge, and the type of innovation (product/process)

Industry perspective for lead time advantages

The disctiontion between horizontal (products differ in attributes) and vertical (different quality and efficiency)

What is the firm condition that might influence a firm's ability to capture value from lead time advantages?

High absorptive capacity, good innovation capabilities --> more probable successful for first-mover. Degree of technological leadership, the ability to preempt scarece assets, and buyer switching costs.

Technological condition lead time advantages

Knowledge and capability easy to codify and to teach --> more probable successful for second/late-mover

What is the assumption with complementary assets?

Complementary assets are heterogeneously distributed across firms

Industry condition complementary assets

Weak appropriability regime --> high importance of use of complementary assets (more difficult for competitors to imitate!)

Firm condition complementary assets

In a weak appropriability regime, firms must assess whether complementary assets are necessary to commercialize a technology --> contract in strategic factor markets or develop internally --> but both decisions increase the performance

Technological condition complementary assets

Firms with radical innovation and in control of specialized complementary assets --> higher performance

Institutional/Industry conditions patents and secrecy

Given weak appropropriability regime (patents have limited protection!) and firms that engage in product and process innovation --> use of patents and secrecy increases performance

Firm/Technology conditions patents and secrecy depends on which innovation types firm is engaging in:

Product innovation: well-articulated knowledgeàcan be protected with patents
Process innovation: includes knowledge which is hard to codify --> better protected with secrecy

Institutional condition patents and complementary assets

Strong appropropriability regime --> new entrants capture more value by licensing complementary assets
Weak appropropriabilty regime --> new entrants should try to compete with rivals via own or co-developed complementary assets

Industry condition patents and complementary assets

Industries with weak appropr. regime --> patenting and owning specialized compl. assets help firms to capture value --> increases bargaining power (resulting from compl. assets related to patented innovation)

Firm condition patents and complementary assets

Owning complementary assets (downstream) and patented innovation --> deter rivals from entry/signal competitive advantage --> increases firm-specific appropriability / market power

Technology condition patents and complementary assets

(little research about that!) for firms that achieve a balance between specialization and close coordination among activities --> patenting and compl. assets more effective

What is the patent paradox?

The combination of patenting innovations and owning complementary assets is one strategy firms might employ to create firm-specific appropriability. Also the nature of technologies is an important consideration in evaluating the effectiveness of patents and complementary assets for capturing value.

The question on the page originate from the summary of the following study material:

Artikelen capturing value from innovation 2016

View summary

A unique study and practice tool
Never study anything twice again
Get the grades you hope for
100% sure, 100% understanding

Remember faster, study better. Scientifically proven.