There is a paradox in business inventions: endorsements enhance credibility and expand market share for innovations, yet this very attention exposes even patented products to imitation. While it’s widely acknowledged that smaller companies face more significant risks of intellectual property theft, a recent study published in the Strategic Management Journal reveals that competitors target startups’ technologies more than established companies, shedding light on the reasons behind this phenomenon.
Francisco Polidoro Jr. from the McCombs School of Business and Charlotte Jacobs from Louisiana State University conducted a comprehensive study spanning forty years in the solar panel industry. They analysed patent citations to track technological evolution. Their dataset encompassed over 15,000 citations referencing 6,116 patents.
“We measured the impact of patents based on how often they are cited in subsequent patents by other companies, illustrating how one company’s invention influences others’ innovations,” explained Polidoro. “Although startups represent 12.6% of our sample patents, their patents account for 22.3% of the citations.”
The study directly compared startups and established companies by focusing solely on patents filed in the same year. These patents are rooted in similar underlying technologies and attributes and consistently yield similar outcomes. It posits that startups facilitate more knowledge transfer, exploring two primary sources: intentional information exchange through acquisitions, partnerships, etc., and unintentional knowledge disclosure to the market.
Interestingly, the findings did not reveal a significant vulnerability stemming from reciprocal knowledge exchange with other companies. Citations did not surge when startups engaged in alliances or acquisitions, nor did startups introduce patented innovations to the market more frequently than established firms. Instead, the study highlighted ‘knowledge spillovers’ as the predominant vulnerability, where the market appropriates a startup’s intellectual property, with university endorsements amplifying these spillovers significantly.
“Universities play a critical role in endorsing the underlying knowledge of corporate inventions, particularly in nascent industries like solar panels, potentially drawing more attention to startup innovations compared to similar innovations from established firms,” noted Jacobs.
Another notable source of knowledge spillover arises when startups need to leverage their patents effectively. Competitors are quick to exploit underutilised startup patents, contrasting sharply with the cautious approach towards technologies from established companies. The authors hypothesised that competitors assume established firms would seize promising opportunities, whereas startups might struggle.
Furthermore, while past litigation dissuades competitors from infringing on patents held by established companies, startups face challenges in establishing a reputation for defending their inventions.
“Startups often lack bargaining power and financial resources for protracted legal battles, making cases of patent infringement public spectacles that attract competitors’ attention to their technologies,” Polidoro remarked.
Ultimately, the study offers a cautionary narrative for entrepreneurs: patents alone provide limited protection without a robust business strategy and sufficient funding to pursue technological opportunities. However, gaining substantial influence over technological advancements in their industry could offer startups a competitive edge. In growing sectors like solar panels, startup innovations possess the potential to dominate the market, provided entrepreneurs can effectively build upon their initial ideas.
More information: Francisco Polidoro Jr et al, Knowledge diffusion in nascent industries: Asymmetries between startups and established firms in spurring inventions by other firms, Strategic Management Journal. DOI: 10.1002/smj.3568
Journal information: Strategic Management Journal Provided by Strategic Management Society