تاثیر نهاد حفاظت از حق ثبت اختراع و تقویت بر استراتژی حالت ورود: مطالعه داده پانل شرکت های ایالات متحده

The Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement has engendered a harmonisation of patent laws across countries but the extent of enforcement of these laws continues to vary. This study investigates the degree to which de jure book law protection of patents and de facto enforcement of these laws influences the propensity of firms to exploit their patented technology in foreign markets with company-owned operations or unrelated concerns using licensing agreements. Analyzing data on royalty and fee receipts of U.S. parent companies from affiliates and non-affiliated parties abroad from 1998 to 2007, and using separate measures for de jure and de facto patent protection and enforcement, we find that strengthening de jure protection induces greater affiliate licensing while strengthening de facto enforcement induces non-affiliate licensing. We conclude by observing that greater account should be taken of de facto enforcement measures when investigating the role of institutions on the international activities of firms.

This study investigates the relationship between the propensity of firms to internalise transactions across national borders, the levels of de jure legal protection provided to patented product and process technology by countries, and the quality of de facto enforcement of these laws. It is situated at the juncture of two important trends concerning the ease with which proprietary technology is imitated and infringed. On the one hand, over the past few decades many countries have sought to strengthen the exclusive legal rights of patent-holders to prevent others from making, using, selling, or distributing patented technology without permission. The overarching objective of this is to foster an institutional environment that promotes innovation ( Watal, 2000), technology transfers ( Janodia et al., 2008 and Park and Lippoldt, 2004), foreign direct investment ( Oxley, 1999 and Watkins and Taylor, 2010), international trade ( Ivus, 2010 and Maskus and Penubarti, 1995) and, it follows, economic growth ( Falvey et al., 2006 and Gould and Gruben, 1996). Much of this reform is a consequence of countries complying with the requirements of the Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement, particularly among developing countries. 3 On the other hand, despite improvements to the degree of legal protection now generally available in countries, the extent of patent infringements continues to rise ( USTR, 2011). According to OECD estimates, the international trade of counterfeit and pirated goods have accounted for around 2% of total world trade since 2001 (on a consistently upwards trend) and by 2007 this trade was valued at around US$250bn (OECD, 2009). In the same OECD study, it is stated that companies across all industrial sectors report counterfeiting and piracy to be prevalent not only in countries that have poor legal frameworks for the protection of intellectual property rights (IPR), but also among those that have implemented the most stringent IPR-related legislation. High rates of IPR infringement can be attributed to weak enforcement mechanisms, among other things. This issue is illustrated by the recent conclusion of the “Anti-Counterfeiting Trade Agreement” (ACTA), a new international treaty which was finalised in November 2010 and has been ratified, to date, by the European Union (EU) and ten other countries in both the developed and developing world (Directorate General for Trade of the European Commission, 2011).4 This treaty comes as a response to problematic enforcement efforts around the world and it defines new international standards for upholding IPR. It sets out provisions in relation to enforcement practices, institutional arrangements, international collaboration, and the development of a legal framework to facilitate the coordination and effectiveness of both enforcement agencies and the judicial systems of countries. According to the United States Trade Representative (USTR, 2011, p. 6), ACTA reflects “a commitment by the negotiating parties not only to have strong laws on the books, but also to pursue the international cooperation and meaningful enforcement practices necessary to make intellectual property protection effective”. We can therefore see a divergence between the level of legal protection of IPR offered by countries (i.e. book law or de jure law) and the ability, willingness and effectiveness of countries and their institutions to (de facto) enforce these laws. Put another way, the simple existence of a law or statute aimed at protecting the rights of a patent holder does not necessarily guarantee that those rights will be adequately upheld by the institutional system of countries that administer and enforce the laws. It is this divergence that forms the focus of the present study. In this paper we argue that research which evaluates the ability of an institution to uphold the rights of patent owners and the effects of this on firm behaviour need to take account of both the availability and nature of book law and how effectively these laws are enforced by countries. The context in which we investigate this divergency concerns the entry mode choice of multinational enterprises (MNEs) and, in particular, the decision to license technology to affiliated or non-affiliated firms in foreign countries. A number of studies have investigated the relationship between the institutional system of patent protection and enforcement offered by countries and the entry mode choice of firms. The majority of these studies consider the pre-TRIPS period, i.e. from the 1980s to the early 1990s. These studies have explored the impact of IPR protection on foreign direct investment (FDI) levels and the choice between FDI and licensing to unrelated foreign companies (e.g. Ferrantino, 1993, Nunnenkamp and Spatz, 2002, Park and Lippoldt, 2004, Smith, 2001 and Yang and Maskus, 2001). Taken together, the findings of this work are mixed. Some studies report a propensity for firms to favour licensing with unrelated companies (i.e. non-affiliate licensing) in those countries where patent protection is strong and, conversely, for FDI to be preferred in countries where it is weak (Hagedoorn et al., 2005, Park and Lippoldt, 2004, Smith, 2001 and Yang and Maskus, 2001). Other studies report contrary findings, with FDI preferred to non-affiliate licensing as the degree of patent protection in countries strengthens (Puttitanun, 2003). Another study found no relationship between patent protection strength and the decision to license (Fosfuri, 2004). One reason for these mixed results can be attributed to the measure of national patent protection strength used in empirical models (Arora, 2009 and Cockburn, 2009). Prior studies have predominantly employed the index developed by Ginarte and Park (1997) to approximate national patent protection strength. This index was devised to estimate the level of book law patent protection offered in countries. However, it does not include measures that relate to the de facto enforcement of these laws ( Arora, 2009, Cockburn, 2009 and Park, 2008). This omission is not a limitation of the Ginarte and Park index per se. However, the fact that it does not account for enforcement levels in a country means it can be argued that studies which are solely reliant on this index and that do not account for enforcement issues in some other way provide only an incomplete picture of the institutional environment within which patent rights are upheld ( Arora, 2009, Cockburn, 2009, Jain, 2002 and Maskus, 2000). It is evident that international treaties such as TRIPS have helped to harmonise book law protection across countries. Indeed, a look at the scores contained in the latest update of the Ginarte and Park index by Park (2008) reveals that de jure protection for a large majority of countries has improved significantly in recent times, with many countries offering very high, and almost equivalent, levels of book law patent protection. Nonetheless, in practice significant differences in the extent of enforcement of de jure legislation still remain ( USTR, 2011). It is important, therefore, that studies which investigate the relationship between the overall level of patent protection offered by countries and the behaviour of firms in the post-TRIPS era of book law harmonization take due account of both the extent and nature of de jure patent protection and the de facto enforcement of these laws. This is because firms may respond differently to the quality of book law protection available to them and the quality of enforcement of those laws in practice. In order to explore this issue we use an index developed by Papageorgiadis (2010) in this study that includes measures for both the de jure and de facto aspects of the institutional system of patent protection and enforcement. This index is employed alongside the Ginarte and Park (1997) index of book law protection in order to find answers to three research questions. First, what is the relationship between entry mode choice and the extent of de facto patent rights enforcement in countries? Second, what is the relationship between entry mode choice and the extent of de jure (book law) protection of patent rights in countries in the post-TRIPS era? Third, is the direction of effect the same for both de facto enforcement and de jure protection of patent rights? Our aim is to identify if both the enforcement and the book law aspects of a country's patent system have a significant effect on the choice between FDI and non-affiliate licensing in accordance with theoretical expectations. Incorporating the Papageorgiadis (2010) index in our econometric model of the propensity of firms to use FDI or non-affiliate licensing alongside the book law patent index by Ginarte and Park (1997) enables us, for the first time, to account for both aspects of national institutional systems of patent protection and enforcement. In effect we build upon and update previous studies that have focused on the pre-TRIPS era of the 1980s and early 1990s using an annual longitudinal analysis for the post-TRIPS implementation period from 1998 to 2007. One advantage of our approach is that non-affiliate (or external) licensing and affiliate (internal) transactions can be distinguished through the use of a single data type. This is beneficial since it allows us to measure the impact of the institutional system of patent rights on entry mode choice using a single data set, thus avoiding potential methodological bias resulting from using different data sets, such as FDI stock, which has been found to be a “biased” measure of affiliate activity ( Beugelsdijk, Hennart, Smeets, & Slangen, 2010). The remainder of the paper is organised as follows. In the next section we present the theoretical background concerning foreign market entry mode choice and delineate the differences between patent protection and enforcement in the appropriability regimes of countries within which the research proposition will be derived and tested. Section 3 details the empirical investigation while the results obtained are discussed in Section 4. In the final section we provide a conclusion, outline some policy and managerial implications, and propose several directions for future research.

Our study provides fresh evidence about the relationship between book law patent protection and de facto enforcement and the choice between affiliate and non-affiliate licensing by U.S. firms, particularly in the post-TRIPS agreement era from 1998 to 2007. Implementation of the TRIPS requirements has helped to remove national differences in book law patent protection. However, there is strong evidence to suggest that the enforcement of these laws remains problematic. To gain a more complete picture than hitherto achieved by extant research on the effect of the national system of patent protection and enforcement on the internationalisation behaviour of firms, this study uses two separate variables to account for book law patent protection on the one hand and enforcement aspects on the other. Because of the measures they use, previous studies have focused solely on the impact of book law patent protection on the licensing activity of firms, and this has been done primarily for the years before or immediately following the implementation of TRIPS. The use of both book law and enforcement variables in our study enables us to derive a more holistic understanding of how different levels of patent strength offered by countries influence entry mode choice rather than being confined only to consideration of the role of statutes and national participation in international patent treaties. The results of our study show that, in response to our first two research questions, both de jure and de facto protection and enforcement levels have a significant determinant effect on the propensity of MNEs to choose internal or external parties when undertaking to sell and transfer technological assets abroad under a licensing agreement. However, and in answer to our third research question, the direction of the effect of de jure and de facto protection and enforcement is different. Strong levels of patent enforcement are found to induce non-affiliate licensing, providing empirical support to the theoretical expectations expressed in the international business literature. U.S. firms are found to prefer to internalise cross-border transactions when engaging with countries that offer low levels of patent enforcement. These results support the argument that, despite the TRIPS agreement, variable levels of patent law enforcement continue to prevail and that this poses a significant challenge to the operations of internationalising firms. In contrast, strong book law patent protection is found to promote affiliate licensing activity. This finding sheds light on a body of work that has previously reported a positive, a negative or no relationship between book law patent protection and affiliate or non-affiliate licensing. The significance of the enforcement dimension to the patent system of countries revealed in our study points towards the need for future research on the effects of patent system strength on the behaviour and activities of MNEs to advance beyond simply approximating for the role of book law patent protection alone if missing variable bias in the modelling is to be avoided. Rather, greater attention should be given to the enforcement dimension when constructing a more accurate representation of the effect of national patent systems on entry mode selection, and on the scale and distribution of international business activity more generally. Indeed, the same can be said for research in general on the effects of the institutional environment on international business activity. This is because in many other institutional settings there is likely to be divergency between the presence and quality of laws, statutes, regulations and documented policies on the one hand, and the effectiveness, ability and willingness of administrative agencies to enforce these laws, regulations and policies, on the other. Our study raises a number of implications for policy and management. It suggests that policy-makers who have an interest in promoting the volume and quality of inflows of advanced and patented technologies should look to improve not only the level of book law protection offered to patents but also the extent by which government agencies enforce these laws. This could be facilitated by providing assistance to MNEs as well as to public and private enforcement agencies, law firms and other organisations that help patent owners to uphold their rights when instances of infringement have been detected. One way of signalling to firms that enforcement of IPR represents a policy priority is for a country to participate in the recently concluded ACTA treaty. Furthermore, our study suggests that managers need to be cognizant of, and responsive to, the quality and nature of the patent enforcement system of countries at all stages of the international planning process, from country screening and selection, to the choice of appropriate market servicing strategy, through to the management of operations post entry. This is because our study highlights that enforcement quality comprises an important dimension for how firms profit from the sale of technology to countries, and the levels of risk associated with technology leakage, imitation and misappropriation of proprietary assets. It is not sufficient to rely on the presence and quality of book law, because the quality of enforcement matters. Our study is restricted to a sample population of 21 countries because of data limitations arising from the use of BEA data for our dependent variable. The BEA only reports data for a relatively small number of nations (33) some of which is withheld in various years for reasons of confidentiality. Nevertheless, this data set is the only one available worldwide that reports separately royalty and license fee income by parent firms for transactions with foreign affiliate and non-affiliate concerns disaggregated by country. Moreover, our data set includes a good mix of developed and developing countries that demonstrate a wide variation in the level of de jure protection and de facto enforcement of patent rights and this, we believe, strengthens the reliability of our findings. Subject to future data availability, researchers should consider more home and host countries for investigation, thereby extending the applicability of our results. Further investigation is also required of the relationship between de jure and de facto patent protection and enforcement and the scale and distribution of foreign direct investment and trade flows, and on the choice between exporting and collaborative modes of market entry, as well as on the decision to outsource manufacturing activity abroad.