Technological Competition & Patent Strategy: Protection, Blocking Rivals or the Freedom to Operate

The increasing importance of patents to the firm’s strategy goes beyond protecting innovations from imitation – i.e., the traditional patent strategy. Firms are using patents also to generate rents by blocking the commercial endeavors of rivals and by preempting substitute inventions (fence strategy), to avoid the risk of hold-up by other patent owners, or as a bargaining chip in litigation and cross-licensing (play strategy). Using the theoretical lens of the resource-based view of the firm, we propose a theoretical framework that explains the association between technological competition and patent strategy. We take the traditional strategy as our baseline, and suggest that a play strategy is more likely (and a fence strategy less likely) if the firm is aware of competitors addressing the same patentable target. However, we suggest also that competition over a patentable target close to the firm’s core technology will lead to a shift from a play strategy to a fence strategy. We use data from a large-scale survey of European patent applications to test our research hypotheses. We find support for our hypotheses