An Organizational Perspective on Patenting and Open Innovation

Abstract

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), 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. Thus, in the context of the “patent explosion” of the 1980’s, we show that intraorganizational forces such as inertia, financial pressures, and new leadership shaped established firms’ uptake of pro-patent management practices and their success. Our findings also suggest that pro-patent practices associated with “open-innovation” may stem the free flow of knowledge across organizational boundaries.

Keywords: intellectual property, patents, management, open innovation

JEL Classification: O31, O32