The implications of intellectual property rights for firm strategy and organizational choice

grantor: University of TorontoThis thesis consists of a set of essays analyzing the influence of intellectual property on different aspects of firm behaviour. Chapter 2 considers the effects of the degree of patent protection on firm organization. In bilateral arrangements, the threat of imitation influences the division of surplus and thus the incentive to make specific investments. Stronger property rights can make the imitation of lower-quality products less profitable. When investments influence expected product quality, this can lead to a disincentive to invest on the part of the patent-holder. For relatively low levels of patent protection, a strengthening of the property right may lead to results opposite those predicted by the traditional theory; contracting parties may also be made worse off by an increase in patent strength. Chapter 3 characterizes the competitive effects of some common licensing contracts. I show that if firms compete in markets that are related to, but distinct from the market for a patented good, there may be a strong incentive to license the patented product with an intrabrand restraint on price or territory. Since firms will internalize the effects of demand for the patented good on the prices of related goods, contracts that fix the final price of the patented good are generally anticompetitive; the effects of exclusive territory contracts are less severe. I derive conditions under which simple royalty contracts also can be used to influence prices in related markets for unpatented goods. The final essay analyzes the effects of Canada's 1989 'Patent Act' reform on firm behaviour. A set of hypotheses based on pre-existing theoretical models of priority and disclosure policies are developed and tested using a unique sample of Canadian manufacturing firms. I find evidence to support the priority hypotheses: the move to the first-to-file priority rule appears to have induced an increase in R&D spending and patenting intensity. The disclosure hypothesis is not supported: smaller firms did not differentially decrease R&D following the introduction of public application disclosure.Ph.D