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 2

Key words: IP notions; IP history; IP philosophy; Patent system; Pro-patent era; Property rights.


When, where, how and why have notions about intellectual property evolved? This chapter traces the basic notions of intellectual property to its historical origins and describes how a diversity of IP notions have evolved and which roles they have played. Basic distinctions are made between material (physical, tangible) and immaterial (intangible, intellectual) property (resource, asset, capital); between property and property right; between individual and collectivity and between IPRs of various kinds (for inventions, information, identity marks, cultural ideas and expressions, designs etc.). Although much research remains to be done on these issues, there are indications that IP notions are fundamental and prevalent in human nature and societies, with clear signs of several IP notions in ancient societies as well as in different religious belief systems. Different IP regimes have also developed since ancient times pertaining to science, technology, culture, military activities and religion.

Among philosophers, property notions have commanded considerable interest, while IP has not, with a few exceptions, and the same could be said about economists. Physical property has also dominated property notions among jurists. This is somewhat paradoxical considering the importance of intellectual resources and creations and their inherent differences to physical resources and creations. The extendibility of physical property notions to IP was found to be severely limited as both scarcity and possession fails to serve as a basis for justifying and defining property rights in the intellectual field. The chapter describes the deontological, consequential and utilitarian justifications of IPRs, and how the utilitarian use of IPRs essentially to encourage innovation has become dominant.

The chapter then gives a brief history of especially the patent system with its progression through various eras – the non-patent, pre-patent, national patent, multinational patent, international patent and pro-patent era, with their various elements of protectionism. A chronology for Europe and the USA was provided and one for Japan is provided in Chapter 5. The emergence of the pro-patent era in the 1980s in the USA and her success with the trade-based approach to IP legislation is described in some detail.

In summary IP notions have evolved gradually as a social construct but in a fragmented way with many IP regimes, IP types and IP systems, lacking unifying notions. Thus, one cannot talk about a coherent IP system. IP notions have also evolved in a marginalized manner very much in the sidewaters of law, economics and politics.

The philosophical as well as practical complexities of intellectual property offer grounds for forgiveness of any sins of omission historically among philosophers, legislators, economists, policy-makers etc. Another ground for forgiveness is that a legal IPR system has apparently been neither necessary nor sufficient for technical, industrial and economic progress historically, as discussed in the chapter.

However the grounds for forgiving any sins of omission regarding IP have receded since the 1980s. We are entering a new IP era triggered by the events in the USA in the 1980s. There are many reasons to believe that this era is here to stay and develop further, perhaps warranting further institutional innovations in the IP field.

Chapter 3

Key words: Patent system; Intellectual property; Innovation models; Diffusion; Economic theory of IP; IP valuation; Licensing.


Inventions, know-how, data, software, designs, trademarks and artistic works are all potential intellectual properties and may be protected by Intellectual Property Rights (IPRs). Such rights are granted in contemporary society as a stimulus to creative work and innovations. IPRs pertain to specific legal systems embedded in the respective social system that provides legislation, law adherence, policing, prosecution, court practices, and infringement sanctions or penalties. These elements comprise the institutional framework of the IPR system. The framework has evolved during centuries and differs across countries similar to how social and legal systems differ. What is perceived as legally or morally right and wrong is thus contingent upon cultural and historical influences.

This chapter presents a general framework for analyzing patents and intellectual property as a textbook introduction to the topic. Innovations are fundamental not only to economic development but to cultural development at large. Various types of innovations in general (technological, managerial, financial, legal etc.)  are described together with concepts (invention, innovation, diffusion etc.) and models related more specifically to technological innovations such as the product life cycle model, the interactive innovation model and the buyer/seller-diffusion model.

In order to achieve economic development in a market economy it is crucial to ensure an adequate rate of innovation with an adequate rate of buyer diffusion producing an adequate rate of returns to innovators, buyers and society at large. Imitation in the form of seller diffusion and the resulting competition may hamper the rate of innovation, since innovators then may be unable to capture sufficient returns to cover their investments in innovation. At the same time seller diffusion may increase buyer diffusion and vice versa so that the resulting rate of returns to buyers and society for a given innovation may increase. Thus there is a problem when balancing or trading off the static efficiency for a given innovation and the dynamic efficiency for a stream of innovations. The patent system has been designed as an instrument or institution to deal with this balancing problem by offering restricted monopoly rights as an incentive to the innovator. The innovator can use these rights in turn to restrict seller diffusion and competition or to sell licenses on the patented technology in order to capture sufficient profits and returns on the investments in innovation.

The chapter describes the nature and functioning of the patent system and its underlying rationales as an economic incentive system. The basic technicalities of patenting are described along with the issues of who can patent what as well as why, when, where and how to patent from the point of view of an individual or a company. The pros and cons of a patent system from society’s point of view are then discussed. The chapter also presents a simple, qualitative model for the valuation and pricing of patents and licenses.

The chapter finally gives an overview of the growing literature on patents as well as an overview of the evolving economic theory of patents and IP. Some examples of formal economic modelling and valuation of patents and trade secrets are also presented.

Chapter 4

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


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.


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.


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.


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.

Chapter 8

Key words: IP management; IP organization; Japan; Patent culture; Intellectual capital (IC); Distributed IC management.


This chapter describes the developments in the organization and management of IP resources and activities in large Japanese corporations. Partly as a result of a long process of catching up with the West and partly as a response to the pro-patent era emerging in the 1980s and the ”patent wars” – hot as well as cold – with US corporations, large Japanese corporations have developed leading IP management practices and IP organizations. IP resources have increased substantially, and the IP organization has become upgraded, more centralized, and more comprehensive, and has received more attention by top management, technology management and business management. It appears as if Japan, partly as a result of the advent of the pro-patent era since the 1980s, has developed still another area of management in which Western companies have much to learn.

Taylor and Silberston (1973), being a pioneering study of patent organizations in industry, identified four types or stages of organizational devlopment. In relation to these, the patent organization in large Japanese corporations represents a quite different fifth type. A hypothetical ensuing sixth type with an IP organization extended to embrace e.g. open innovation is also described in the chapter.

Many large Japanese corporations could also be said to possess a patent culture, which can be characterized as having: top management involvement in patenting and IP; patenting and IP as a common concern for all engineers; patent policies and strategies integrated in business plans; clear patent objectives; clear patenting incentives for R&D personnel and organizational units; behavioural attitudes and norms conducive to technology protection and technology intelligence; visible organizational means to promote attention to patenting; and a special language, methodology and philosophy.

Patent organizations have also developed in many companies in the West during the pro-patent era, although to a lesser extent on average than in Japan. In general, the patent department has moved from being a small, reactive service department, often with low status and narrow operational tasks decoupled from business and top management, towards a larger pro-active organization with more comprehensive IP responsibilities, more status and power, more commercially oriented, more strategic concern and more interaction with technology management, business management and top management. In addition to having grown, diversified and become more integrated in the corporation, the IP organization has also become internationalized as the R&D organization has internationalized.

Further developments of IP management and IP organizations are conceivable. As the role of intellectual capital, comprising IPRs, human capital and other intangibles become more important in firms, intellectual capital management, encompassing IP management, might develop in various ways. The IP organization may also become subordinate to a type of distributed management of intellectual capital, signifying a reorientation of the whole company organization towards its intellectual capital, somewhat analogous to the total quality management movement.

Chapter 9

Key words: Patent information analysis; Patent mapping; Patent intelligence; Patent analytics; Patent networks; Techno-economic analysis.


As part of the “patent deal“ between inventors and society, inventors have to disclose information about their inventions in exchange for patent rights. This information should be sufficient to allow a skilled person or team to reproduce the particular invention (although that is not always the case in practice since patentees often try to minimize what they disclose in their patent applications.) A patent document thus represents value to prospective imitators, at least when the patent expires. In addition, patent information is also of value, and even more so, to inventors and firms performing related R&D, because it assists in their technical decision-making. Patent information also adds value to economic decision-making among a variety of other agents, e.g. policy makers. Thus, patent information may be helpful e.g. in avoiding some overinvestment of R&D in a particular field, pointing out technological trends, assisting in division and coordination of inventive labour, finding collaborators, etc.

This chapter describes how patent information is used and can be used. Since this topic is rich and rapidly expanding, this presentation cannot be comprehensive. Therefore, this chapter is intended to serve also as a textbook introduction.

The stock of publicly available patent information in the world is in fact a tremendous and unique source of technical knowledge. For various reasons (such as lack of time, costs, varying information quality, ignorance), this source of information has traditionally been underutilized, but the ongoing computerization of the patent system rapidly offers increasing possibilities to tap this valuable resource. The costly and tedious act of digging into patent archives and the subsequent distribution of patent documents are gradually being replaced by computerized patent databases, data mining and AI assisted information processing, thereby drastically improving both the costs and benefits for companies using patent information. At the same time, patenting propensities have increased and become more consistent, increasing both the quantity and quality of patent information. However the set of basic information items for a given patent has changed very little.

The present study as well as other studies show how companies have increased their use of patent information and consider such information to be one of the most important means for technology and competitive intelligence. It is significant that most companies have not considered the avoidance of patenting worthwhile in preventing other companies from finding out about their own technical developments. This is an indication that patenting may provide net benefits to industry as a whole (i.e. patenting could be considered a positive sum game in this respect.)

The literature on the use of patent information as technology indicators and/or economic indicators has grown rapidly as well, and this chapter gives a large number of references. Patents are also compared with other technical information carriers, such as publications. Several application areas of patent analysis were described, such as competitor benchmarking, technology analysis, international patenting analysis, valuation of technology assets and tracking of key inventors, together with a number of caveats. Patent analysis is then put into the general context of a framework for techno-economic analysis, which could be used to integrate various applications of patent analysis.

From this general description, the chapter then describes the nature and origin of the so-called patent mapping methodology developed in Japan. Broadly speaking, patent mapping mainly uses patent information as technology indicators. This methodology originated in the Japan Patent Office in the 1960s and has since been adopted and developed further in industry and in the leading large corporations in particular. Patent maps have a variety of applications, for example as a tool for creativity, intelligence, technology management, bargaining, litigation, communication and education.

The chapter finally gives a number of fairly simple illustrations of patent maps including a patent network map, a patent-by-country map, a patent-by-technology map and a patent-to-product map and illustrations of how Toshiba and Hitachi have organized patent information analysis.