Intellectual Property Rights Regulation and Internal Patents Reallocation Within Business Groups
The importance of intellectual property rights(IPR)protection is unquestionable,and the majority of litera-ture emphasizes how local IPR protection influences the innovation of local firms.However,the basic rules of the IPR market in different regions are not uniform,which leads to unbalanced IPR regulation.Besides,innovation competition represented by patents is not always benign.In extreme cases,patent trolls employ aggressive IPR litigation strategies to threaten targeted firms.Typically,firms also build patent thickets to defend against competitors.This means risky patents become a crucial strategic tool in patent competition.In this paper,patents applied for defensive or imitative purposes are defined as risky patents.We expect to find the internal reallocation of risky patents within business groups when there is unbalanced IPR regulation in different regions.The pilot program of IPR courts in China presents an ideal setting.In 2014,the Supreme People's Court implemented a policy to establish IPR courts in Beijing,Shanghai,and Guang-zhou,with jurisdiction over IPR litigation cases in the respective regions of Beijing,Shanghai,and Guangdong Province(excluding Shenzhen).The IPR courts primarily adjudicate cases where local firms are defendants,increasing oversight of local firms'risky patents.Consequently,the risky patents are more likely to be identified,which reduces the number of patents applied for infringement or imitative purposes and then the number of applications of risky patents in local areas.However,given the limited jurisdiction of IPR courts,firms can strategically reallocate risky patents to regions outside the jurisdiction of local IPR courts through multi-location firm networks of business groups,which enables evasion of lo-cal IPR regulation without compromising the business groups'competitive intent.This paper,taking A-share business groups from 2011 to 2016 as samples,focuses on patents in areas with weak technology accumulation of the business groups to measure risky patents and uses the IPR court pilots proposed in 2014 as the impact of strong local IPR regulation.Specifically,we construct a DID model and empirically find that after the en-hanced IPR regulation in the regions where the business groups are located,the number of local firms'patent applica-tions decreases.In contrast,the number of applications by firms located in other regions within the same business groups significantly increases,especially the risky patents.This indicates the existence of strategic intra-business group innova-tion reallocation.This reallocation of risky patents is significant in the business groups with experience of IPR litigation.The risky innovation is mainly reallocated to firms in regions with weaker IPR protection.Further,the reallocation effect is more pronounced in business groups in more competitive markets,or with stronger financial constraints.Compared to the existing literature,the contributions of this paper are as follows.First,it enriches the research on the effect of IPR protection.From the perspective of the business groups'responses to unbalanced IPR protection,we find that business groups have partially circumvented strict regional IPR regulation with internal innovation reallocation,which inevitably weakens the effectiveness of regional IPR protection policies.Second,it expands the research on the in-ternal markets within business groups from the perspective of internal innovation reallocation.The phenomenon of evad-ing regulation through the reallocation of internal economic activities is not uncommon,such as profit shifting for tax avoidance and the pollution haven within business groups.This paper explores the internal innovation reallocation under stringent IPR regulation,contributing to the research on the internal markets of business groups.Third,it complements re-search on corporate strategic patent applications from the perspective of risky patent applications.While the conventional purpose of patent applications is to prevent imitation and allocate returns to R&D,firms may also engage in the strategic application of patent portfolios.This paper measures and examines how Chinese business groups strategically reallocate the unique risky patents in unbalanced IPR regulatory environments,enriching the relevant research on corporate strategic patent applications.
Intellectual Property Rights RegulationBusiness GroupsInternal Patents ReallocationNational Unified Market
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