Licensing Essential Patents: The Non‐Discriminatory Commitment and Hold‐Up

Licensors of patents essential to a standard are often required to license on reasonable and non‐discriminatory (RAND) terms. Using a model with owners of essential patents and licensees who invest into standard‐conforming technologies, this paper demonstrates that the non‐discriminatory commitment alleviates the hold‐up problem. Moreover, it improves consumer and social welfare, and promotes upstream innovation as licensing revenue is increased. In an extended model with each licensor independently choosing whether to make the commitment, all licensors voluntarily commit in the unique equilibrium.     

Problem‐formulation and problem‐solving in self‐organized communities: How modes of communication shape project behaviors in the free open‐source software community

Research summary: Building on the problem‐solving perspective, we study behaviors related to projects and the communication‐based antecedents of such behaviors in the free open‐source software (FOSS) community. We examine two kinds of problem/project‐behaviors: Individuals can set up projects around the formulation of new problems or join existing projects and define and/or work on subproblems within an existing problem. The choice between these two behaviors is influenced by the mode of communication. A communication mode with little a priori structure is the best mode for communicating about new problems (i.e., formulating a problem); empirically, it is associated with project launching behaviors. In contrast, more structured communication fits subproblems better and is related to project joining behaviors. Our hypotheses derive support from data from the FOSS community. Managerial summary: We study how the way in which individuals communicate influence the project‐behaviors they engage in. We find that relatively unstructured communication is associated with the setting up new projects, while communication that is structured around an artifact is associated with joining projects. Our findings hold implications for understanding how management may influence project behaviors and problem‐solving: Firms that need to concentrate on more incremental problem‐solving efforts (e.g., because a sufficient number of attractive problems have already been defined) should create environments in which interaction is undertaken mainly via artifacts. On the other hand, if firms seek to generate new problems (e.g., new strategic opportunities), they should create environments in which open‐ended, verbal conversation is relatively more important than artifact‐based communication. Copyright © 2015 John Wiley & Sons, Ltd.     

Estimating Value Creation from Revealed Preferences: Application to Value‐based Strategies

Research summary : We develop and apply a new set of empirical tools consistent with the tenets of value‐based business strategies, leveraging the principle that “no good deal comes undone” and the methods of revealed preferences, to empirically estimate drivers of value creation. We demonstrate how to use these tools in an analysis of value creation in buyer–supplier relationships in the UK corporate legal market. We show that our approach can uncover evidence of subtle mechanisms that traditional methods cannot easily distinguish from each other. Furthermore, we show how the estimates can be used as parameters of biform games for out‐of‐sample analyses of strategic decisions. With readily available data on relationships between firms, this approach can be applied to many other contexts of interest to strategy researchers. Managerial summary : Managers need to understand the drivers of value creation for customers in order to make competitive positioning decisions and understand when they can capture value under competition. However, estimates of the relative importance of each driver are typically difficult to obtain. In this article, we help remedy this problem by demonstrating a novel method that obtains estimates of the contribution of various drivers of value creation from commonly available data of buyer–supplier relationships. These estimates can then be used to inform the strategy‐making process. Copyright © 2017 John Wiley & Sons, Ltd.     

Enabling open innovation in small‐ and medium‐sized enterprises: how to find alternative applications for your technologies

A critical success factor in the practice of Open Innovation is the timely identification of opportunities for out‐licensing a firm's technologies outside its core business. This can be particularly challenging for small‐ and medium‐sized enterprise (SMEs), because of their focussed business portfolio, specialized knowledge basis, and limited financial resources that can be devoted to innovation activities. The paper illustrates a quick and easy‐to‐use methodology for the identification of viable opportunities for out‐licensing a firm's technologies outside its core business. The method uses established TRIZ instruments in combination with non‐financial weighting and ranking techniques and portfolio management tools. It has been developed by the authors in collaboration with an Italian SME working in the packaging industry.     

Licensing a technology standard

I examine the optimal licensing strategy of the owner of a proprietary technology standard in a monopolistically competitive industry. The standard owner can be either an outsider inventor or a joint venture of downstream firms. I find that (1) a simple revenue royalty replicates the integrated monopoly outcome; (2) a patent pool cannot do better than adopting a non-discriminatory licensing policy that offers higher royalty rates to pool members than to nonmembers; (3) if the standard owner also sells a complementary good, then it may choose a decentralized marketplace as a commitment not to maximize licensing revenue. Implications to the use of RAND pricing in standard settings are discussed.     

Re‐Examining Advances in Occupational Licensing Research: Issues and Policy Implications

Much has changed in the realms of occupational licensing since BJIR last ran a special issue on the subject in 2010. The number of occupations subject to licensing has been growing, the data available to investigate the incidence and effects of licensing have improved immeasurably, and the policy environment surrounding licensing has changed. This issue reflects these changes with eight papers from North America and Europe covering the incidence of licensing, and its effects on wages, inequality, employment, quality of service provision and rent extraction by the organizations who undertake licensing.     

Licensing‐in fosters rapid invention! the effect of the grant‐back clause and technological unfamiliarity

Drawing on contractual economics and innovation management, licensing‐in is hypothesized to accelerate licensees' invention process. Studying a matched dataset of licensees and non‐licensees, licensees are shown to be faster at inventing, but the effect is negated if the license includes a grant‐back clause, shifting incentives from licensee to licensor. Also, the effect is significantly reduced if the licensee is unfamiliar with the licensed technology. The effect of the grant‐back clause is offset if the licensee is unfamiliar with the licensed technology, suggesting that the licensee retains the incentives to invent under these circumstances. Copyright © 2012 John Wiley & Sons, Ltd.     

There and Back Again: The De‐Licensing and Re‐Licensing of Barbers in Alabama

The economic effects of occupational licensing remain an understudied topic, but even less is known about the effects of the removal of licensing legislation. In this article, we take advantage of a natural experiment that occurred in the state of Alabama. Alabama was the last state to begin licensing barbers in 1973 and also the only state to de‐license barbers (in 1983). Relying on data from 1974 to 1994, we find evidence that barber de‐licensing reduced the average annual earnings of barbers as well as the number of cosmetologist employees per million residents in Alabama, although not all our results are statistically significant. We also find evidence that de‐licensing resulted in small increases in the number of barber shops and decreases in the number of cosmetology shops in Alabama. In recent decades, a number of attempts have been made to re‐license the occupation — most recently with a barber licensing bill that became law in September 2013. The result is that barbering in Alabama is once again a licensed occupation. Our limited evidence suggests that the re‐licensing of barbers in Alabama may already have had an effect on pay and on the number of barber shops.     

Thinking about U: Theorizing and testing U‐ and inverted U‐shaped relationships in strategy research

Research summary : U‐ and inverted U‐shaped relationships are increasingly explored in strategy research, with 11 percent of all articles published in Strategic Management Journal (SMJ) in 2008–2012 investigating such quadratic relationships. Moreover, a movement towards introducing moderation to quadratic relationships has emerged. By reviewing 110 articles published in SMJ from 1980 to 2012, we identify several critical issues in theorizing and testing of these relationships for which current practice falls short. These include insufficient causal argumentation, incorrect testing, mixing up two different types of moderation, and not realizing that the curve can flip completely. For these and other issues, a guideline is provided which, when followed, may bring clarity to theoretical motivation and rigor to empirical testing. Managerial summary : Too much can be as bad as too little. Many relationships in strategic management follow an inverted U‐shaped pattern, where moderate levels of a strategy lead to optimal performance. To gain deeper insights into the conventional wisdom that too much of a good thing can be harmful to performance, we discuss how such relationships can be better theorized and tested based on a review of articles exploring U‐shaped relationships in Strategic Management Journal during 1980–2012. We identify several critical issues that require close attention and provide a guideline to further develop and validate this important managerial intuition. Copyright © 2015 John Wiley & Sons, Ltd.     

Comments on the Model Testing by Goodwin and Meeran (2012): Comparison of the Utility‐based and the Gompertz Curve Approach for High‐technology Product Sales Forecasting

Starting from a comprehensive examination of recent empirical studies focusing on consumer behavior in high‐technology markets and the resulting identification of factors probably affecting individual buying decisions as well as aggregate product sales, Decker and Gnibba‐Yukawa developed and empirically verified a utility‐based sales forecasting approach in their earlier work. Based on data for 14 consumer electronic products and using the Gompertz curve as a benchmark, Goodwin and Meeran carried out a “more extensive testing” of this proposal. However, at least from a practical point of view, the plausibility of their testing framework regarding the market potential m is not unquestionable. This paper, therefore, first discusses some theoretical aspects of both approaches by addressing issues challenged by Goodwin and Meeran, especially regarding the use of short time series and the consideration of replacement purchases. Then, the quasi‐endogenous estimation method for m favored by Goodwin and Meeran for the Gompertz curve is examined in terms of sensitivity to better understand its influence on sales forecasts, and the adequacy of the suggested range for m in the case of the approach by Decker and Gnibba‐Yukawa is investigated. In addition, the results presented in Goodwin and Meeran are considered from a more distant perspective, and possible causes of the variations in forecasting accuracy are discussed, which finally reveals that the forecasting performance of the utility‐based approach is not that “disappointing” as claimed. It provides more accurate (or at least equivalent) forecasts than the Gompertz curve approach in 64% of the cases considered. Furthermore, if product 14 (portable MP3 players) is excluded from the analysis because of the nonconsideration of probably existing product improvement effects, then the utility‐based approach, on average, outperforms the benchmark in all forecasting years. Altogether, this suggests that the approach by Decker and Gnibba‐Yukawa could achieve more accurate forecasts when applying a more reasonable range for m, rather than varying it between 2 and 15 times the cumulative sales by the end of year 7 as proposed by Goodwin and Meeran. It turns out that the Gompertz curve approach can perform on a par with the utility‐based approach in high‐technology product sales forecasting based on short time series if the market potential m is estimated exogenously. A combination of the outcomes of both approaches can even lead to more accurate forecasts as when being used individually insofar as composite forecasting seems to be a practicable approach to the problem of shorter time series compelled by the accelerated diffusion speed in high‐technology markets, rather than relying on one presumably “best” model.     

Patent Quality and a Two‐Tiered Patent System

In this paper, we study the determinants of patent quality and volume of patent applications when inventors care about perceived patent quality. We analyze the effects of various policy reforms, specifically, a proposal to establish a two‐tiered patent system. In the two‐tiered system, applicants can choose between a regular patent and a more costly, possibly more thoroughly examined, ‘gold‐plate’ patent. Introducing a second patent‐tier can reduce patent applications, reduce the incidence of bad patents, and sometimes increase social welfare. The gold‐plate tier attracts inventors with high ex‐ante probability of validity, but not necessarily applicants with innovations of high economic value.     

Grantbacks,territorial restraints,and innovation

We analyse the effect of grantback clauses in licensing contracts. While competition authorities fear that grantback clauses might decrease the licensee's ex post incentives to innovate, a standard defence is that grantback clauses are required for the patent-owner to agree to license its technology in the first place. We examine the validity of this “but for” defence and the equilibrium effect of grantback clauses on the innovation incentives of the licensee for both non-severable and severable innovations, which roughly correspond to infringing and non-infringing innovations. We show that grantback clauses do not increase the patent-holder's incentives to license when non-severable innovations are at stake but they do when severable innovations are concerned – suggesting that the “but for” defence might be valid for severable innovations but not for non-severable ones, in direct contradiction to regulation in some jurisdictions. Moreover we show that, for severable innovations, grantback clauses can increase the range of parameters for which follow-on innovation by the licensee occurs. Our work extends the large literature on sequential innovation to an environment where information diffuses through licensing rather than through the mere act of patenting. In this different informational set up we show that Green and Scotchmer (1995)’s conclusion that the initial innovator should have a patent of infinite breadth no longer holds.     

The licensing dilemma: understanding the determinants of the rate of technology licensing

The licensing of technology entails a trade‐off: licensing payments net of transaction costs (revenue effect) must be balanced against the lower price–cost margin and/or reduced market share implied by increased competition (profit dissipation effect) from the licensee. We argue that the presence of multiple technology holders, which compete in the market for technology, changes such a trade‐off and triggers more aggressive licensing behavior. To test our theory, we analyze technology licensing by large chemical firms during the period 1986–96 for 107 chemical products. We find that the rate of technology licensing displays an inverted U‐shaped relationship with the number of potential technology suppliers and is negatively related to the licensor's market share and to the degree of technology‐specific product differentiation. Copyright © 2006 John Wiley & Sons, Ltd.     

Interorganizational Imitation and Acquisitions of High‐tech Ventures

Research summary: This article shows that there is a positive association between the changes in the number of prior acquisitions or the changes in the prominence of prior acquirers within the focal venture's subfield and the venture's likelihood to be acquired. Results are in line with the existence of frequency‐ and trait‐based imitation in acquisitions targeting tech ventures. More importantly, these positive associations are more pronounced when (a) exogenous technological uncertainty within the venture's subfield increases and (b) there are significant differences between the focal venture's and acquirer's technological resources. Our findings are in accord with the suggestion that uncertainty in the technology domain is an important boundary condition in moderating the extent of imitation in technology acquisitions. We also discuss alternative explanations and implications. Managerial summary: The findings of this article suggest that when deciding whether or not to acquire a technology venture (i.e., startup company in a high‐tech industry), managers infer information by observing other acquisitions in the venture's subfield to make assessments about the underlying value of the potential targets. We also find that receiving some informational cues from previous acquisitions would be more useful when there is high technological uncertainty in the potential target's subfield about which technologies will be dominant, and when the potential acquirer and the tech venture operate in dissimilar technological areas. This article shows that imitation can be one way to deal with decision‐making under uncertainty when making acquisition decisions in high‐tech environments. Copyright © 2017 John Wiley & Sons, Ltd.     

Looking for a Needle in a Haystack: How to Search for Bottom‐Up Social Innovations that Solve Complex Humanitarian Problems

The worldwide increase in societal challenges is putting pressure on humanitarian organizations to develop sophisticated approaches to leverage social innovations in the humanitarian sector. Since humanitarian problems are complex problems, with the relevant knowledge being hidden, organizational search theory advocates the application of bottom‐up and theory‐guided search processes to identify the social innovations that solve these. Unfortunately, there has been no theoretical attention to understanding which approaches apply in this context. Further, established theory‐guided bottom‐up search processes, such as the lead user method, are unsuitable to the humanitarian sector, and we lack practice examples of adequate search processes. To start addressing this gap in theory and practice, procedural action research was done with the International Federation of Red Cross and Red Crescent Societies to develop a theory‐guided bottom‐up innovation search process for the real‐life humanitarian problem of recurring floods in Indonesia. It revealed that an innovation search process for this context must differ significantly concerning its objectives and the steps to be taken from the lead user method, which was used as a starting point. Further, a comparison of the technical quality and the social impacts of the identified social innovations with social innovations identified through a non‐theory‐guided bottom‐up search process (i.e., an innovation contest) suggests the superiority of this theory‐guided search process. With this conclusion and the insights derived throughout the development of the search process, this study makes important contributions to theory development in the social and open innovation literatures and delivers important recommendations for social innovation practice in the humanitarian sector.     

Investigating the Influence of Technology Inflows on Technology Outflows in Open Innovation Processes: A Longitudinal Analysis

The open innovation (OI) paradigm emphasizes the importance of integrating inbound and outbound flows of technology to increase a firm's innovation performance. While the synergies between technology inflows and outflows have been discussed in conceptual OI articles, the majority of empirical studies have typically focused on either the inward or the outward dimension of OI. According to recent reviews of OI literature, there is a need for further research that takes an integrated perspective on this topic and studies the combination of the inbound and outbound dimensions of OI. This paper follows these calls by focusing on technology licensing as the main contractual form for OI, and by investigating the relationship between technology in‐licensing and out‐licensing activities at the firm level of analysis. In particular, this paper argues that technology in‐licensing positively influences the volume of technology out‐licensing through two mechanisms. The first—resource‐based—occurs because in‐licensing investments expand and enrich the firm's technology base, thus increasing its value and, as a result, creating more opportunities for out‐licensing. The second—capabilities‐based—occurs because, due to commonalities between technology in‐licensing and out‐licensing in terms of performed tasks and required skills, repeated execution of in‐licensing transactions contributes to the development of higher out‐licensing capabilities and, as a result, increase out‐licensing volume. These arguments are tested using a panel dataset of 837 Spanish manufacturing firms over the period 1998–2007. Consistent with the predictions, the empirical analysis shows that higher investments in in‐licensing and more extensive in‐licensing experience lead to superior volumes of technology out‐licensing. These results contribute to research on OI and licensing, by empirically showing the existence of positive interactions between technology inflows and outflows and of synergies in the development of absorptive and desorptive capacities.     

Productivity enhancement at home via cross‐border acquisitions: The roles of learning and contemporaneous domestic investments

We examine whether ex post domestic productivity gains accrue to firms making cross‐border acquisitions. We argue that cross‐border acquisitions can enhance the acquirers' productivity at home, and we posit that these domestic productivity gains will be greater when there are learning opportunities in the target's host country and when contemporaneous domestic productivity‐enhancing investments are made by the acquirer in conjunction with the acquisition. These predictions are supported by data drawn from a sample of French acquiring and nonacquiring firms. Our results indicate that cross‐border acquisitions and investing in productivity at home are complementary: each makes the other more beneficial to firm productivity. Copyright © 2014 John Wiley & Sons, Ltd.     

Parent hostility and spin‐out performance

Prior research has focused on the performance implications of positive or neutral parent‐child relationships, but neglected negative, conflict‐laden relationships. This study explores from an embeddedness perspective whether parent hostility (degree to which an incumbent firm disapproves of the spawning of a spin‐out from within its ranks) affects spin‐out performance and how spin‐outs can effectively react to it. Analyses of 144 technology spin‐outs support our arguments that spin‐outs suffer negative consequences from hostility. These are less severe, however, if the spin‐out pursues effective network development. Copyright © 2013 John Wiley & Sons, Ltd.     

The double‐edged effect of knowledge acquisition: How contracts safeguard pre‐existing resources

Research summary : Acquiring knowledge on a partner's pre‐existing resources plays an important yet ambiguous role in collaborative relationships. We formally model how contracts trade off productive and destructive uses of knowledge in a buyer‐supplier relationship. We show that, when the buyer's pre‐existing resources are vulnerable to the revelation of sensitive knowledge, the supplier overinvests in knowledge acquisition as it expects to use the knowledge as a threat in price negotiations. A non‐renegotiable closed‐price contract prevents such overinvestment and reduces the supplier's ability to expropriate the buyer ex post. Our results extend to the cases of renegotiable closed‐price contracts, repeated interactions between a buyer and a supplier, and the use of nondisclosure policies. We draw theoretical, empirical, and managerial implications from our model. Managerial summary : This study yields new insights regarding the use of contract design in protecting pre‐existing, nonrelationship specific assets in buyer‐supplier arrangements. Anecdotal examples illustrate the “dark side” of these arrangements where opportunistic suppliers exploit knowledge of buyers' pre‐existing resources to seek rent and appropriate value. When a supplier is likely to act harmfully, a closed‐price contract that specifies the price of the supplier's component upfront may reduce the supplier's incentives to overinvest in acquiring and exploiting knowledge of the buyer's pre‐existing resources. As such, when a buyer's pre‐existing resources are highly valuable, and thus more vulnerable to use by the supplier outside of the arrangement, a non‐renegotiable closed‐price contract is more efficient. Additionally, limited disclosure policies and informal agreements based on repeated interactions complement indirect governance via price contracts. Copyright © 2015 John Wiley & Sons, Ltd.     

Marriage and Family Therapy in NPD Teams: Effects of We‐ness on Knowledge Sharing and Product Performance

Drawing on marriage and family therapy (MFT), this paper introduces the concept of we‐ness to new product development (NPD). We‐ness is the shared sense of togetherness family members feel toward each other. We apply we‐ness to NPD as the construct through which people share knowledge at the team, between‐team, and between‐organization levels. The results support the hypotheses that we‐ness increases knowledge sharing and that knowledge sharing increases product performance. In this study, we used regressions to analyze the hypotheses. We found that the greater in‐team we‐ness (H1, t = 3.786, p = .000), between‐team we‐ness (H2, t = 5.411, p = .000), and between‐organization we‐ness (H3, t = 2.940, p = .004) activities there were, the more knowledge sharing in NPD. Results also indicate that knowledge sharing is related to better NPD performance. This paper contrasts team and family as the foundation metaphor to organize people engaged in product development. We argue the team metaphor can be counterproductive in settings where difficult decisions must be made. Teams can lead to individual members suppressing their opinions to “help” the team achieve its goal. Members are expected to sacrifice for the good of the team. That can be adaptive when the task is straightforward. The family metaphor suggests that the group sacrifices for the individual. In a family environment, members protect minority opinions, and in cases where complex, ambiguous decisions must be made individual expertise and insight may come from one person. High‐trust family‐like settings can facilitate sharing sensitive information and norms that can be challenged. The family metaphor suggests a more flexible and tolerant approach to new ideas. At the same time, it is recognized that families can have dysfunctions that can detract from performance. Therefore, managers must carefully apply the use of family‐like settings. The importance for family‐like approaches across organizations seems to be more important as technology complexity increases. Between‐team we‐ness was revealed significantly higher in goods manufacturers than service firms in this study. Small companies need to make extra effort to increase between‐team we‐ness. The idea of approaching product development from a family relations perspective opens up new alternatives for managing people in teams, between teams, and even between organizations. MFT tools to address behaviors and individual performance issues increase the number and nature of managerial tools to increase product performance.