40 Pages Posted: 12 Dec 2011 Last revised: 21 Nov 2012
Date Written: November 20, 2012
Modularity is a means of partitioning technical knowledge about a product or process. When state-sanctioned intellectual property rights are ineffective or costly to enforce, modularity can be used to hide information and thus protect intellectual property (IP). We investigate the impact of modularity on IP protection by formally modeling three different threats to the value of IP: (1) unauthorized use by known agents; imitation or substitution by third parties; and the withdrawal of IP by agents or third party owners. For each threat, we consider the impact of modularity in the presence or absence of an effective legal system. The models permit us to identify specific strategies for protecting IP and thus capturing value in modular systems. We illustrate each of the major strategies with examples from practice.
Keywords: Modularity, value appropriation, intellectual property
Suggested Citation: Suggested Citation
Baldwin, Carliss Y. and Henkel, Joachim, The Impact of Modularity on Intellectual Property and Value Appropriation (November 20, 2012). Harvard Business School Finance Working Paper No. 12-040. Available at SSRN: https://ssrn.com/abstract=1971203 or http://dx.doi.org/10.2139/ssrn.1971203