The Goldilocks Hypothesis: Balancing Intellectual Property Rights at the Boundary of the Firm

Burk, Dan L.; McDonnell, Brett

doi:10.2139/ssrn.890944

“…In particular, Burk and Mc-Donnel (2007) document that stronger and easier to obtain downstream firm's intellectual property rights-i.e., trade secrecy and copyright instead of patents-are typically granted whenever asset specificities are particularly severe, i.e., technological businesses, such as the software industry, and the entertainment industries. 20 Furthermore, these remedies allow the downstream firm to impose on her employees and upstream partners non-disclosure agreements, work-for-hire provisions, and non-compete clauses reducing their ability to exploit proprietary information, i.e., a low γ * (Burk and McDonnel, 2007). "From the standpoint of…”

Section: Property Rights and Incomplete Contracting Costsmentioning

confidence: 99%

Property Rights, Transaction Costs, and the Limits of the Market

Guerriero¹

2018

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Although the relevance of property rights and transaction costs for trade and innovation are well-known, we still lack a formal framework to think about their origins and interplay. Within trade interactions, fully protecting the original owners' property implies that some high-valuation potential buyers inefficiently refuse to buy it because of transaction costs. When instead property rights are weak, low-valuation potential buyers inefficiently expropriate the original owners' property. The trade-off between these two misallocations entails that property rights will be weaker the larger transaction costs are regardless of whether they are driven by frictions outside the control of traders or determined by the mix of the dispersion in their valuation and either the original owners' market power or their privileged information. A similar conclusion holds true for an upstream firm's property rights on an input necessary to a downstream firm to introduce a new technology and whose cost is random and ex ante non contractible. This time, transaction costs rise with the likelihood of a more productive technology. All these implications survive when a group of traders/innovators has a larger political influence on institutional design and when the disincentive to effort effect of weak property rights is taken into account. Crucially, the model predictions are consistent with the negative effects of proxies for market frictions and failures on measures of the protection of personal, intellectual, and financial property for a panel of 135 countries spanning the 2006-2015 period. Evidence from several identification strategies suggests that these relationships are indeed causal.

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“…20 First, trade secrecy and copyright arise spontaneously, upon fixation of a creative work in a tangible medium of expression, whereas patent are granted only upon the disclosure of the claimed invention (Burk and McDonnel, 2007). Second, they receive a longer protection, i.e., respectively perpetual monopoly and the author's life plus 50 to 100 years rather than the 20 years of patent protection (Burk and McDonnel, 2007).…”

Section: Robustness Checksmentioning

confidence: 99%

“…In particular, Burk and McDonnel (2007) document that stronger and easier to obtain downstream firm's intellectual property rights-i.e., trade secrecy and copyright instead of patents-are typically granted whenever asset specificities are particularly severe, i.e., technological businesses, such as the software industry, and the entertainment industries. 20 Furthermore, these remedies allow the downstream firm to impose on her employees and upstream partners non-disclosure agreements, work-for-hire provisions, and non-compete clauses reducing their ability to exploit proprietary information, i.e., a low γ * (Burk and McDonnel, 2007 …”

mentioning

confidence: 99%

Property Rights, Transaction Costs, and the Limits of the Market.

Guerriero

¹

2017

SSRN Journal

2

0

View full text Add to dashboard Cite

Although the relevance of property rights and transaction costs for trade and innovation are well-known, we still lack a formal framework to think about their origins and interplay. Within trade interactions, fully protecting the original owners' property implies that some high-valuation potential buyers inefficiently refuse to buy it because of transaction costs. When instead property rights are weak, low-valuation potential buyers inefficiently expropriate the original owners' property. The trade-off between these two misallocations entails that property rights will be weaker the larger transaction costs are regardless of whether they are driven by frictions outside the control of traders or determined by the mix of the dispersion in their valuation and either the original owners' market power or their privileged information. A similar conclusion holds true for an upstream firm's property rights on an input necessary to a downstream firm to introduce a new technology and whose cost is random and ex ante non contractible. This time, transaction costs rise with the likelihood of a more productive technology. All these implications survive when a group of traders/innovators has a larger political influence on institutional design and when the disincentive to effort effect of weak property rights is taken into account. Crucially, the model predictions are consistent with the negative effects of proxies for market frictions and failures on measures of the protection of personal, intellectual, and financial property for a panel of 135 countries spanning the 2006-2015 period. Evidence from several identification strategies suggests that these relationships are indeed causal.

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“…Moreover, we have observed in previous work that while property rights work to lower transaction costs up to a point, beyond that point excessive property rights, or property rights in the wrong configuration, can work to increase transaction costs. 63 Commentators in a variety of fields have observed that fragmented rights may create a prohibitive anticommons that impede a business's freedom to operate.' Clearing a large number of licenses or obtaining a large number of permissions itself generates transaction costs.…”

Section: B the Theory Of The Irmmentioning

confidence: 99%