Patent Protection and the Composition of Multinational Activity: Evidence from Us Multinational Firms

29 Pages Posted: 17 Sep 2018

See all articles by Olena Ivus

Olena Ivus

Smith School of Business

Walter G. Park

American University - Department of Economics

Kamal Saggi

Vanderbilt University - College of Arts and Science - Department of Economics

Date Written: September 2017

Abstract

This article examines how patent protection in developing countries affects the technology licensing strategy of US multinational firms and the associated technology transfer flows. Strengthening patent rights lowers appropriability hazards and so reduces the firms’ reliance on affiliated licensing as the more secure means of transfer (the internalization effect). However lower appropriability hazards also encourage the firms to increase the volume of technology transfer via licensing both within and outside the firm (the appropriability effect). Which effect prevails depends on the underlying technological complexity of the firms’ product. We find that a strengthening of patent protection in the host country increases the incentive to license innovations to unaffiliated parties. While unaffiliated licensing rises among all firms, the volume of affiliated licensing falls among complex-technology firms but rises among simple-technology firms. The positive appropriability effect on affiliated licensing is strong enough among simple-technology firms that the entire composition of their licensing further shifts towards affiliated parties. The results are significant for recent work on the internalization theories of multinational firms and the interaction between firm strategy and the institutional environment, as well as for patent policy in the developing world, where access to knowledge is critical.

Keywords: international technology, transfer, licensing, internalization, appropriability, intellectual property rights, technological complexity, and imitation risk

Suggested Citation

Ivus, Olena and Park, Walter G. and Saggi, Kamal, Patent Protection and the Composition of Multinational Activity: Evidence from Us Multinational Firms (September 2017). Journal of International Business Studies, Vol. 48, Issue 7, 2017, Available at SSRN: https://ssrn.com/abstract=3246547 or http://dx.doi.org/10.1057/s41267-017-0100-1

Olena Ivus

Smith School of Business ( email )

Smith School of Business - Queen's University
143 Union Street
Kingston, Ontario K7L 3N6
Canada

Walter G. Park (Contact Author)

American University - Department of Economics ( email )

4400 Massachusetts Avenue, N.W.
Washington, DC 20016-8029
United States

Kamal Saggi

Vanderbilt University - College of Arts and Science - Department of Economics ( email )

Box 1819 Station B
Nashville, TN 37235
United States

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