The Economics and Management of Intellectual Property – Towards Intellectual Capitalism

This unique book – informed by ten years research – focuses on intellectual property and charts the global transition towards intellectual capitalism with technology-based corporations as prime movers. The book gives a comprehensive overview of the history and fundamentals of intellectual property as well as a textbook introduction to the field.

The book sheds new light on the economics and management of intellectual property in large corporations in Europe, Japan and the US. Special emphasis is given to strategies for the acquisition and commercialization of new technologies, patent strategies and strategies for secrecy and trademark, technology intelligence and corporate management of intellectual property. It includes an in-depth study of leading large corporations in Japan – including Canon, Hitachi, Toshiba and Sony. In conclusion, it explores the possible evolution of intellectual property management towards a distributed intellectual capital management in the context of a wider transition to intellectual capitalism, fueled by new technologies in general and new infocom technologies in particular.

The book will have particular appeal to practitioners such as managers, economists, engineers and lawyers as well as students and scholars of industrial organization, economics of innovation and technical change, and management of technology.

Ove Granstrand’s book takes the reader into uncharted waters: the waters of an Intellectual Capitalism that promises to restructure the organization of economic life in the 21st century. In the course of his examination he shines the spotlight on recent developments in Japanese corporate capitalism that will prove to be highly illuminating to western readers.
– Nathan Rosenberg, Stanford University, US

This insightful book analyzes developments in Japan, Sweden, and the United States to illuminate the increasing emphasis placed on intellectual property in corporate strategies.
– F.M. Scherer, Harvard University and Princeton University, US

Selected book chapters

You are now able to access selected chapters from the book by clicking their respective headers below. More chapters from The Economics and Management of Intellectual Property – Towards Intellectual Capitalism will be published bi-weekly on this page for your pleasure to read.

Currently available chapters on this page:

Chapter 4

Key words: Technology based firm; Intellectual capital; Intellectual property; Strategy ladder; Diversification; Open innovation.

Abstract: This chapter opens up with a general description of the modern firm as a very viable economic institution, drawing strength from several layers of competitive super-, side- and sub-markets, as well as from the development of management capabilities and from a powerful co-evolution with science and technology. As a result of this co-evolution, technology-based firms have grown to altogether control most of the world’s technologies, thereby also increasingly giving rise to proprietary firm-based technologies.

The chapter then puts IP in the context of a firm, its resources and its intellectual (or immaterial) capital (IC). A firm’s IC not only incorporates its IPRs, but also its relations and competencies, including its technological capabilities. In addition to the general properties of knowledge, technical knowledge, i.e. technology, has a number of specific properties which creates strong economies of scale and scope. In particular, technology is possible to codify and protect by patents.

The technology-based firm (TBF) is thus of particular interest, and the chapter presents a general resource-based framework for the resource structure of such a firm and a typology for the acquisition and exploitation of technology as a particular resource. A “strategy ladder” with various strategies at corporate, innovation, technology and IP levels is presented as a management tool for bridging the frequent gap between business and IP strategies. The various strategies for technology acquisition and exploitation – in-house R&D, joint ventures, licensing etc.- then correspond to strategies for inbound and outbound open innovation. This strategy framework is later used in the empirical studies reported in subsequent chapters of the book.

The chapter finally describes the dynamic nature and strategic role of technology diversification and technology management. Through notably strong economies of scale, scope, speed and space associated with the combination of different technologies and other resources, the TBF is subjected to specific dynamics in its growth and diversification processes. In particular, a TBF tends to engage in business-related technology diversification, thereby becoming a multi-technology firm. As such the TBF has incentives to economize on increasingly expensive new technologies by pursuing strategies of internationalization on both input and output markets and technology-related business diversification, as well as external technology sale and sourcing, R&D rationalization and technology-related partnering. Thus, diversification could be seen as a driver of open innovation.

Chapter 5

Key words: Japan; Patent system; Catch-up process; Open innovation; Patenting propensity; Patent strategy.

Abstract: This chapter starts with a review of the history of the patent system in Japan. Shortly after the Meiji restoration in the mid-1860s a patent system was tried in Japan, inspired by the perceived importance of new technologies and patents for the development of industry in the West and in the US in particular. Thus Japan’s patent system was installed right at the beginning of her industrialization. However, one cannot infer that the patent system was of decisive importance for Japan’s industrialization. The ability to catch up by absorbing and modifying technology from the West, and particularly from the USA after World War II, was much more important. The patent system was, however, widely used in the catch-up process, a process that has in fact been a large scale case of successful open innovation. Since the end of World War II Japanese corporations have accumulated very large patent portfolios and substantial patenting capabilities.

The modern Japanese patent system is more similar to the European patent systems than to the US one, but there are also some features specific to Japan, in particular regarding the way cultural factors and the catch-up process have influenced the use of the patent system. Thus the symbolic value of patents as rewards has been important, as have domestic technology diffusion and the use of patent information for technology intelligence.

The chapter then presents an empirical survey with data from 24 large chemical, electronic and mechanical corporations which further indicate the growth of R&D, foreign R&D, licensing out, R&D collaborations, domestic and international patenting, and patent portfolios. The survey also indicates a wide array of consistent trends. The most important of these are the increasing strategic importance of patents and top management attention paid to patents, the increasing resources for patenting, the increasing many-to-many correspondencies between patents and products, the increasing propensity to patent, infringe and litigate, and the increasing use of patent information for technology intelligence.

The extraordinarily large quantities of Japanese patents in international comparison need to be explained. A traditional explanation is that Japanese patents are of low quality. This may have been true in the past but it is no longer true. If the quality of a patent is broken down into legal, technical and economic quality aspects, each of which can be indicated in various ways, this study shows that Japanese patents are no longer inferior, on the contrary.

The chapter concludes with an analysis of various explanations for the high patenting propensity in Japanese corporations. In summary, the different types of (non-conflicting) explanations for the high quantities of Japanese patents were found to be:

  1. Historical/institutional explanations, referring e.g. to catch-up effects, legislation (single claim, narrow scope, utility models) and patent office behaviour.
  2. Strategic/managerial explanations, referring to response to pro-patent era and US litigation, increasing economic value of patent portfolios, R&D strategies and effectiveness (Kaizen, exploratory R&D, etc.), patent strategies (with emphasis on continuous patenting, flooding, fencing, licensing, bargaining power, technology acquisition), patent culture and internal incentives.
  3. Regression based explanations, referring to the most important company variables explaining the number of patent applications which were found to be number of patent personnel and amount of patenting expenditures, in line with previous research.

Chapter 6

Key words: Technology strategies; Commercialization strategies; Catch-up processes; Open innovation; IP management; Diversification; Standardization.

Abstract: This chapter deals with the commercialization of new technologies in Japan as seen at the national level, the corporate level, and the level of individual product businesses. Various strategies and common features for technology exploitation, i.e. outbound open innovation, will be elaborated upon to provide a broader context for subsequent chapters in this book, which will deal specifically with IP strategies and IP management.

Japan has rapidly and successfully developed into a technology-based state after World War II. Capabilities in acquiring and exploiting technology, i.e. inbound and outbound open innovation, have evolved during Japan’s catch-up process in a way that has found traditional innovative leaders in the West with strong S&T capabilities and S&T cultures, often embracing more closed innovation, falling behind.

The chapter first briefly reviews the pros and cons of being an early or late mover on a market – i.e. the economies and diseconomies of speed to market- a review that can help explain the dynamics of the often observed phenomena of catching up, forging ahead and falling back and then perhaps coming back again.

The capabilities in managing technology and IP that have developed in Japan during its catch-up process, especially in large corporations, have some specific features, although they often build upon management concepts and techniques having originated in the West. Based on survey data and interviews the chapter has pointed out country differences as well as sector differences in various technology management strategies and IP management strategies. Unlike European and US corporations, Japanese corporations considered patents as the most effective means of capturing the value from innovation.

A number of specific features in Japanese strategies for exploiting technology, i.e. outbound open innovation, were elaborated. One such feature, differing sharply from the West, was the propensity to engage in technology related product diversification in co-evolution with product related technology diversification, thereby benefiting from economies of scale, scope and speed. The case of Canon was given as an illustration. Speed to market and speed to technology were other important features, as were application diversification based on application visions and user cooperation. Emphasis on intellectual property management was a further important feature.

The chapter finally described how issues surrounding patents and standardization have become much more closely intertwined and altogether commercially important in recent decades.

Chapter 7

Key words: Patenting motives; Technology strategy; Open innovation; IP strategy; IP policy; Patent strategy; Trademark strategy; Trade secret strategy; Multi-protection.

Abstract: This chapter starts by describing a classification of various motives or advantages and disadvantages of patents from a company point of view and the importance attached to them by the 24 large Japanese corporations surveyed. Four main categories of advantages can be distinguished, which in order of perceived importance were (1) provision of protection, (2) bargaining power, (3) internal advantages and (4) image improvement. Several of the advantages of patents increasingly accrue as they become part of a patent portfolio and a patent portfolio arms race in the company, something that was recurrently emphasized in interviews. There was also a shift from defensive to more offensive motives behind patenting, although it is difficult to draw a sharp line in between. The perceived advantages of patenting by far exceeded the perceived main disadvantages concerning disclosure of information and direct costs for filing.

Since most Japanese corporations had a corporate-wide patent policy in contrast to many Western corporations, the chapter thus elaborated on the rationale and content of an IP policy in general. As IP has gained increasing strategic importance and top management attention, patent and IP policies evolve and become more comprehensive, strategic and integrated with business and technology management.

Chapter 7 then analyzed various generic patent strategies, counter-patent (patent response) strategies and litigation strategies as well as other IP strategies in general, such as trade secret strategies and trademark strategies. These typologies of IP strategies were then integrated in the strategy ladder model with the typologies of technology strategies for open innovation and commercialization strategies as presented in Chapter 4 and 6 in the book.

Concerning IP strategies in Japan, a number of commonly used strategies were described, such as flooding, fencing and continuous patenting as well as CI/BI-building of trademarks. Such strategies have been developed in the past by leading companies in the West, and in the USA in particular, but have been adopted, refined and applied more systematically by Japanese corporations in a manner not unlike what has happened with several other management techniques originating in the West. The chapter presented illustrations from Canon, Hitachi and Toshiba regarding patents and from Sony regarding trademarks.

The use of what was called multi-protection and total IP strategies for a business (eco)system with all its product and service components rather than for an individual product was finally described and advocated. In this way, the value of the IPR portfolio is enhanced and the company’s intellectual capital leveraged.