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IIDS Lect 4_ Part 2: Entrepreneurial performance: Innovation (Examples of…
IIDS Lect 4_ Part 2: Entrepreneurial performance: Innovation
Ways to appropriate rents from innovations
How can innovations / inventions be turned into profits?
Direct profits (license fees) from use by others
Indirect profits from use by others (e.g., increased demand for my complement)
Excluding others from the use
These means are often used in combination.
When should which appropriation strategy be chosen?
Use in own products / services (typically most important)
Examples of these strategies
2. Excluding others from the use
Blocking patents in pharma or electronics; business model of patent trolls
3. Direct profits (license fees) from use by others
Drug developed by biotech start-up; Cross-licensing in microelectronics
1. Use in own products / services
Ciprobay (antibiotic, Bayer)
Aero windshield wiper (Mercedes)
4. Indirect profits from use by others
Java (programming language, Sun Microsystems)
Open Source Software
Examples cont.
(3) Licensing
Requires
strong patent protection
Can be very profitable
(especially for large companies): IBM made 1,25 B $ Gini revenues from licensing and selling intellectual property in 2001
Cross-licensing
, particularly in complex industries
However, licensing is
difficult for small companies
because
You need expensive attorneys
Litigation very time consuming
New trend:
„Patent trolls“
(also patent sharks)
(4) Benefiting from Diffusion
Increased demand for
Inputs
Complements
Standard setting
Establishing prior art
Marketing
External development support
(1) Use in own products
It is often difficult for „small“ inventors to commercialize their own invention.
When should which appropriation
strategy be chosen? What factors determines this choice?
Context factors
for choosing appropriation strategies:
Strengths of competitors
Bargaining power against customers/suppliers
Own competencies
Dynamics of the industry
Availability of „complementary assets“, for example: Manufacturing capacity, distribution network, reputation, IP rights on complementary technologies
Strength of IP regime (in some countries IP is difficult to enforce)