IPR Global Interconnectedness Versus Differentiation
Intellectual property rights (IPRs) are of critical importance in international business. The implications for firm strategy and for policymakers are rarely aligned because the optimal level of IPR protection can be quite different from the country- and the firm-level perspectives. There is considerable heterogeneity in firm strategies, the spatial distribution of their innovation activities, and their IPR portfolios. There is still greater variation between countries, their IPR legislation and enforcement efforts, as well as their industrial and development policies. For firms, sustaining firm-specific advantages (FSAs) depends on their ability to create and extract rent from their knowledge assets, and this involves deliberate interfirm cooperation, careful location choices, and talent recruitment and retention. At the country level, the attractiveness of countries for MNEs is shaped by the provision of country-specific advantages such as IPR protection and its effective enforcement, but the kinds of IPR regimes that are optimal to attract inward investment can be disadvantageous for building domestic firm capacity, and vice-versa. Although firm IPR strategies and IPR regimes are clearly interlinked, the literature integrating across these two levels has been underdeveloped, and we propose a framework to guide future research. Intellectual property rights (IPRs) are one of the most critical building blocks of modern society. According to the World Trade Organization (WTO), they are ‘the rights given to persons over the creations of their minds. They usually give the creator an exclusive right over the use of his/her creation for a certain period of time.1 Where individual creators are employed by an organization, these rights may belong (in part or in whole) to the organization with which these individuals are affiliated. IPRs are commonly divided into two areas: first, copyright and rights related to copyright, and second, industrial property, including distinctive signs, patents, industrial design, and trade secrets. It is this second category that has garnered the most interest for IB, strategy, and policymaking. The assignation and protection of IPRs play a fundamental role in shaping both the political economy and competitiveness of countries, and in the success and failure of firms. However, there is considerable conflict and variation in the extent to which intellectual property is protected, partly because the interests of the nation state and firms (whether multinational or otherwise) are rarely aligned. Even collocated firms in the same industry may have diverging attitudes to IPRs, and different countries often have heterogeneous policy objectives, each viewing the implementation and enforcement of IPRs as a significant strategic tool to be wielded in disparate ways. It is to be emphasized that MNEs are not simply passive users of IPR regimes; they are actively engaged in shaping and influencing these regimes, as active actors within the milieu, to align to their own interests. The conflict during the Covid-19 pandemic over the equitable distribution of vaccines illustrates this well. The advanced economies (and home to the major pharmaceutical MNEs) were unwilling to waive IPRs on the new vaccines, while much of the developing world sought to either partially or fully waive IP enforcement of Covid-19 technologies, to allow universal access to IP and more equitably located production capacity. Indeed, despite considerable negotiation, as of mid-2022, no consensus has been achieved, either among or between the MNEs, the home countries of these MNEs, or among the developing countries themselves, despite the active engagement of a variety of supranational institutions, NGOs, and interest groups. It is self-evident, therefore, that IPRs are a critical field of study in international business, strategy, and economics, and that establishing and enforcing IPRs form a central aspect of the strategies and policies of MNEs and governments. Despite the ubiquitous nature of IPRs, and their implications at the firm, subnational, national, and supranational levels, much of the academic work in international business and related disciplines has tended to be single-leveled, in terms of the antecedents/determinants and the outcomes of IPRs.). Only a few studies have investigated IPR protection across levels. They have mainly focused on the influence of differing country-level IPR regimes on the strategies of firms, their effect on the optimal alliance governance structures, how internal knowledge linkages can be most effective, and the effectiveness of the modularization of Firm-level research has considered the macro aspects of IPR as exogenous, and vice versa, and rarely capture the complexity of macro- and micro-level interactions adequately. The original call for papers for this special issue sought to build a more comprehensive framework that specifies the underlying mechanisms that integrates and connects multiple levels. For example, the “optimal” level of IPR protection that balances between attracting foreign direct investment (FDI) and developing indigenous innovative capacities differs between countries at different stages of technological development. Discrepancies exist between the formalization and implementation of IPR institutions in home- and host-countries. MNEs actively seek to influence country policies, by engaging in various levels of regulatory capture. Such macro-level characteristics have challenged assumptions underlying micro-level IPR studies, which have presumed a homogenous IPR environment. We invited papers that explicitly addressed and developed multilevel explanations. We encouraged submissions that theoretically accommodated a nested, complex and adaptive system view on IPR in MNEs. In the rest of the paper, we review studies on IPRs as a key source of firm-specific advantages (FSAs), based on the IB, strategy, and organizational behavior literatures. We focus on three interconnected aspects in creating and augmenting FSAs: interfirm cooperation, location choices, and talent mobility. We then turn our attention to IPRs as a critical component of location advantages, based on the IB and economics literatures. In particular, we highlight the development challenge of IPR policies that strongly protect FSAs. Such policies can be disadvantageous for developing countries interested in building domestic firm competitiveness, while being useful to attract inward MNE investment. Adapting and incorporating these findings and theories of single-level IPR research from various disciplines, we then develop a conceptual framework for IPR research across firm- and country-levels. We identify gaps in single-level research and suggest some plausible research avenues for multilevel analysis.
The role of the nation state is crucial in IPR, as it is responsible for mandating the legal basis for IPR, as well as being responsible for enforcing the rights of individuals, firms, and other actors. Governments seek ideally to balance possible conflicts of influence from both domestic interest groups (e.g., political parties, industry associations, worker unions, and large firms) and foreign stakeholders (e.g., geopolitical allies, bilateral and multilateral agreement partners, and MNEs). IPR policy and its enforcement form an invaluable tool to shape the competitiveness of firms within its borders, and the state has considerable leeway in utilizing IPR law to strengthen or weaken the FSAs of specific groups of actors. It can do so by legislating or omitting to legislate legally binding IPRs (i.e., software patents are not similarly protected in all countries) or by only selectively enforcing IPRs (either for strategic reasons, or where there is an absence of effective regulatory capacity). Both mechanisms can be used by countries with active industrial and FDI policies as a means to strengthen the FSAs of domestic firms relative to those of foreign MNEs operating in its domain. In some circumstances, where the domestic sector is weak, the capacity to enforce IPRs may serve as a tool to attract inward MNE activity. However, not all development policy regimes rely on MNE investment, and there is considerable heterogeneity in MNE-assisted development regimes. The ‘optimal’ level of protection that balances between attracting MNE investment and developing domestic firms’ innovation capacities differs between countries at different stages of technological development, and within sectors over time. While stricter IPR enforcement tends to be more common among advanced economies with strong innovation capabilities, strong IPR can hinder the development of technological capacity and FDI inflows for developing countries seeking to catch up. Not surprisingly, while nation states establish IPR legislation as part of international IPR protection agreements (e.g., TRIPS), they differ significantly with respect to the actual implementation and enforcement of these laws. States may selectively comply with their obligations to protect foreign IPRs to maximize strategic goals for technological leapfrogging IPRs may be waived or strengthened in a specific sector, or only for a specific group of firms, in an effort to build up national champions to create and strengthen a cluster of national competitiveness. States may intentionally weaken the competitiveness of foreign-owned firms, by making their technological assets easier to imitate for domestic actors, as part of an industrial or development policy. Alternatively, policies may strengthen the IPRs of domestic firms by giving them IP protection of unusual length and breadth. While some scholars argue that IPR protection eventually becomes stronger as the domestic technological capacity grows other scholars suggest that, without strong external coercion, poor or selective IPR enforcement will continue in developing countries. Developing countries may also encounter resource constraints to enforcing international IPR regulations. Few developing countries have the legal manpower to properly interpret and judge patent applications by MNEs, or to determine infringements. Where foreign patents infringe upon unpatented intellectual property, such as local traditional medicines or extracts from plants, local actors cannot afford to protect and enforce these IPRs). Even wealthier developing countries with greater resources and significant numbers of skilled bureaucrats, such as China or India, find it challenging. Resource constraints in the public sector, and in particular the absence of skilled and expert IPR legal experts to evaluate sophisticated IP in most developing countries, will continue to impede enforcement. In general, for governments, MNE-related IPR issues are rarely a priority compared to addressing key economic problems, such as endemic unemployment and poverty. International institutions that affect IPR protection are constantly evolving as the international business contexts change over time. As various forms of digital trade (e.g., e-commerce, digitalization of physical products, and cloud computing) play an increasingly critical role in international trade, it has become critical to effectively govern digital trade globally. Crucial conditions for the functioning of the digital economy – such as maintaining free flow of data, maintaining security within digital ecosystems, and protection of source code – inevitably have consequences for IPR violation and protection. There has been a growing divide within the WTO between the advanced countries (led by the US and Europe) and the developing countries (led by India, South Africa, and Brazil) on issues associated with the right to establish IPRs for biologics. Other considerable disagreements proliferate around such issues as data localization, filtering and privacy, strategic limits to IPRs for development purposes, and the use of geographical indications.