An Organizational Theory of International Technology Transfer

Abstract

International technology transfer plays a critical role in global welfare and economic growth. Conventional wisdom holds that strong intellectual property rights—primarily patents—promote the transfer of technologies between countries. An important counternarrative, however, contends that weakening patents promotes important forms of technology transfer. This Article challenges both perspectives by arguing that neither strengthening nor weakening patents is sufficient to transfer many technologies. This Article disaggregates international technology transfer into its constituent activities, focusing on the important processes by which technical knowledge itself moves between countries. This Article argues that separate from patents, multinational organizational structures play an important and underappreciated role in transferring technical knowledge between countries. In so doing, this Article offers a new gloss on the knowledge-based theory of the firm. Among other contentions, this theory emphasizes the advantages of firms in transferring tacit knowledge—personal, experiential knowledge that is not amenable to codification (and not disclosed in patents). This Article extends this theory in two ways to articulate a novel knowledge-based theory of “bounded entities.” First, it argues that firms (and organizations more broadly) provide a hospitable environment for transferring not only tacit knowledge but also trade secrets—secret, technical information that may or may not be codified. Second, it argues that the knowledge-transfer advantages of organizations extend beyond classic, integrated firms to a broader class of “bounded entities.” Such entities, which span integrated and quasi-integrated organizational forms, facilitate the transfer of tacit knowledge and trade secrets.

Drawing on this novel theory, this Article argues that multinational bounded entities—which include multinational firms, foreign-domestic joint ventures, and “thick” cross-border contractual relationships—play a critical and underappreciated role in transferring technical knowledge abroad. Notably, multinational bounded entities facilitate technology transfer even for inventions that have been publicly disclosed in patents and even when innovators try to assert intellectual property rights to limit such transfer. Illustrating these dynamics, this Article explores the role of multinational bounded entities in efforts to increase global manufacturing of patented COVID-19 vaccines and the controversy over “forced technology transfer” in the U.S.-China trade war. Going further, this Article synthesizes the roles of patents and organizations in international technology transfer, arguing that the strength of patent protection and the nature of technology to be transferred help determine the most effective transfer channels. It then provides prescriptions for improving international technology transfer through patent-based, involuntary, and organizational channels.

Keywords: patents, intellectual property, theory of the firm, knowledge-based theory of the firm, COVID-19, vaccines. tacit knowledge, trade secrets, forced technology transfer, U.S.-China trade war

JEL Classification: F13, K33, L14, L22, O10, O19, O24, O31, O32, O34, O38