Firms’ Adoption of Best Practices: An Organizational Perspective on Patenting and Open Innovation

Abstract:     
How do firms respond to the emergence of industry-wide best practices? A change in US patent law in the early 1980’s increased the value of patents, particularly for firms in the electronics and semiconductors industry, yet many of the industry’s leading firms did not embrace patenting after the change. We show through an in-depth study of International Business Machines (IBM), currently the world’s largest patentee, that the company’s practices during much of the 80’s discouraged patenting. IBM adopted pro-patent management practices in 1989 after the installation of a new R&D head and in the face of faltering financial performance. IBM’s increased patenting and licensing activities improved its financial bottom-lines but curtailed its industry-wide knowledge spillovers. These causes and consequences of pro-patent practices are visible in several other large US corporations in the industry. Thus, we show that some practices enhance profitability, yet all firms do not, as economic theory contends, seamlessly adopt the practices. Instead intraorganizational forces such as inertia, financial pressures and new leadership shape firms’ uptake of profitable practices. Our findings also suggest that recent pro-patent practices associated with “open-innovation” stem the free flow of knowledge across organizational boundaries.

Number of Pages in PDF File: 42

Keywords: intellectual property, patents, management, open innovation

JEL Classification: O31, O32

working papers series