Chapter 9 Protecting Innovation

Question 1

What is appropriability?

Answer 1

The degree to which a firm is able to capture the rents from its
innovation.

Question 2

How is the appropriability of an innovation determined?

Answer 2

. In general, the appropriability of an innovation is determined by how
easily or quickly competitors can imitate the innovation. The ease with which competitors can imitate the innovation is, in turn, a function of both the nature of the technol-
ogy itself and the strength of the mechanisms used to protect the innovation.

Question 3

When is it difficult for competitors to copy?

Answer 3

If this knowledge base is tacit (i.e., it cannot be readily codified into documents or procedures) or socially ­complex (i.e., it arises through complex interactions between people), competitors will typ-
ically find it very difficult to duplicate.1

Question 4

What is the difference between patents, trademarks and copyrights?

Answer 4

patent :A property right protecting a process, machine, manufactured item (or design for manufactured item), or variety
of plant.

trademark : An indicator used to distinguish the
source of a good.

copyright: A property right protecting works
of authorship.

Question 5

What are the criteria to qualify a patent?

Answer 5

.1 It must be useful (i.e., it must produce a desirable result, solve a problem, improve on or propose a new use for an existing development or show potential of doing so).

2. It must be novel (i.e., it must not already be patented or described in public literature, or be in public use for more than a year).
3. It must not be obvious (i.e., a person with experience or skill in the particular art of the patent would not be expected to achieve the same invention with a normal
   amount of effort).

Question 6

Which are not patentable?

Answer 6

• Substituting one material for another (e.g., plastic for metal).
• Merely changing the size of an already existing device. * Making something more portable.
• Substituting an element for an equivalent element.
• Altering an item’s shape

Question 7

What is patent trolling?

Answer 7

A pejorative term for when an individual or firm misuses patents against other individuals or firms in attempt to extract money
from them.

Question 8

What are patent thickets?

Answer 8

A dense web of overlapping patents that can make it difficult for firms to com-
pete or innovate.

Question 9

What is a trademark?

Answer 9

trademark is a word, phrase, symbol, design, or other indicator that is used to distinguish the source of goods from one party from the goods of others.

Question 10

What is the difference between a service mark and a trademark?

Answer 10

A service mark is basically the same as a trademark, but distinguishes the provider of a service rather than a product. Often the term trademark is used to refer to
both trademarks and service marks.

Question 11

How are trademarks and service marks embodied?

Answer 11

Trademarks and service marks can be embodied in any indicator that can be perceived through one of the five senses. Most marks are embodied in visual indicators, such as words, pictures, and slogans. However, marks are also registered that use other
senses such as sound

Question 12

How long does a trademark provide protection?

Answer 12

Unlike patents and copyrights, trademark protection can last as long as the trademark is in use, but the registration requires periodic renewal.

Question 13

What are the 3 forms of intellectual property rights?

Answer 13

1. law-based IP (patents, copyright, trademarks)
2. trade secrets (accumulated tacit knowledge & socially complex knowledge)
3. norms-based IP
   - (operate entirely on basis of implicit social norms that are held in common by community members)
   - does not rely on legislative authorities or contracts

Question 14

What is a trade secret?

Answer 14

A trade secret is information that belongs to a business that is generally unknown to others. Trade secrets need not meet many of the stringent requirements of patent law, enabling a broader class of assets
and activities to be protectable.

information is typically considered to be a trade secret only if it
(a) offers a distinctive advantage to the company in the form of economic rents, and
(b) remains valuable only as long as the information remains private.

Question 15

What is open source software?

Answer 15

Software whose code is made freely available to others for use, augmentation,
and resale.

Question 16

What are wholly proprietary systems?

Answer 16

Goods based on technology that is owned and vigorously protected through patents, copyrights, secrecy, or other mechanisms. Wholly proprietary technologies may be legally produced and augmented only by their developers.

Question 17

What are wholly open systems?

Answer 17

Goods based on technology that is not protected and that is freely available for production or augmentation by
other producers.

Question 18

What are original equipment manufacturers (OEMs)?

Answer 18

Firms that assemble goods using components made by other manufacturers, also called value added resellers
(VARs).

Question 19

The advantages of protection for proprietary systems are

Answer 19

1. greater rent appropriability
   Proprietary systems allow developers to retain more control over their technology, enabling them to capture a larger share of the profits generated by its success.
2. investment in technological development
   when a single firm is the primary beneficiary of its technology’s success, it has a strong incentive to reinvest profits into improving the technology. This ongoing investment leads to continuous innovation and enhancements.
3. promotion and distribution
4. long-term strategic positioning
5. architectural control
6. compatibility management
7. influence over industry
8. market power

Question 20

What is architectural control?

Answer 20

The ability of a firm (or group of firms) to determine the structure, operation, compatibility, and development
of a technology.

Question 21

What are the advantages of diffusion?

Answer 21

The primary argument for diffusing a technology instead of protecting it is that open technologies may accrue more rapid adoptions.

a liberal diffusion strategy can stimulate the growth of the installed base and availability of complementary goods.

Open technologies can also benefit from the collective development efforts of parties external to the sponsoring firm

Question 22

What are some costs and risks of external development?

Answer 22

External development, however, poses some costs and risks. First, external development efforts typically lack the coordination of internal development. Much of their effort may be redundant, as different external developers work on solving the same problems
without communicating with each other

Question 23

Which factors should firms consider when deciding whether and to what degree it should protect its innovation?

Answer 23

Production Capabilities, Marketing Capabilities, and Capital

If the firm is unable to produce the technology at sufficient volume or quality levels (or market the technology with sufficient intensity), then protecting the technology so that
the firm is its sole provider may significantly hinder its adoption

if complementary goods influence the value of the technology to users, then the firm must (a) be able to produce the complements in sufficient range and quantity, (b) sponsor their production by other firms, or (c) encourage collective production of
the complements through a more open technology strategy.

Industry Opposition against Sole-Source Technology

The degree of industry opposition to a sole-source technology needs to be considered when the firm formulates its technology strategy. If the industry is able to pose significant opposition, the firm may need to consider a more open technology strategy to improve
the technology’s likelihood of being chosen as a dominant design

Resources for Internal Development

If a firm does not have significant resources (capital, technological expertise) to invest in the technology’s functionality, it may have difficulty producing a technology that has an initial performance level, and rate of improvement, that the market finds attractive.

Control over Fragmentation

For technologies in which standardization and compatibility are important, maintaining the integrity of the core product is absolutely essential, and external development
can put it at risk.
the developer of any technology that requires standardization and compatibility should retain some degree of control over the technology, or find/establish another governing body with the authority to do so.

Incentives for Architectural Control

A firm with architectural control can typically design the technology to be compatible with its own complements and incompatible with those of competitors.
Architectural control can also enable the firm to direct the development efforts put into the technology so that it exploits the firm’s core competencies.