Inventing Around and Impacts on Modes of Entry in Japan: A Cross-Country Analysis211 of U.S. Affiliate Sales and Licensing

摘要

A common notion in the literature is that weak patent protection encourages211u001einternalization because it allows the firm to retain direct control over its 211u001eintellectual assets by building its own subsidiary. However, inventing around may 211u001ecounteract this process. This patent practice which is most frequently associated 211u001ewith Japan allows rival firms to read laid open patent applications, and develop 211u001esimilar and competing products. A simple model demonstrates how inventing around 211u001ecan erode profits from FDI and encourage the licensing solution. This paper 211u001eexamines whether and how key legal and institutional features of Japans patent 211u001esystem affected entry mode decisions. Findings from a cross-country analysis of 211u001eU.S. affiliate sales and licensing receipts over 1986-1994 suggest that inventing 211u001earound may have discouraged FDI and contributed to the high level of licensing in 211u001eJapan, and to a lesser extent, other countries with similar patent regimes.