The Formation Mechanism Of The Patent Thicket And Its Impacts On Firm Financial Performance

A patent thicket is a dense web of overlapping patent rights,which makes firms should obtain licenses from multiple holders when commercializing new technologies.In the wave of technological innovation,researchers have widely recognized patents’ role in supporting high-quality economic development.However,the worldwide explosion of patent counts may create “patent thickets,” which will increase transaction costs because of complement and hold-up problems,lead to market inefficiencies,and even create the“tragedy of the anticommons.” Patent thickets have harmed the U.S.aircraft market and the Chinese DVD industry.The theory of “patent thickets” have raised widespread concern among researchers about the blocking effects of numerous patent rights.Although existing literature has focused on the issue of patent thickets,there are still some limitations.On the one hand,most of them study the patent thickets in the U.S.and Europe.Patent thickets may have multiple characteristics and impacts in different countries for reasons such as legal systems.Unfortunately,we do not know the Chinese patent thickets’ issues and characteristics.On the other hand,there is still primary research about the antecedents and impact of patent thickets.Most prior literature adopts many measures to identify patent thickets in various technological fields.Some studies theoretically argue what factors affect the patent thickets.However,there are lacking empirical evidence to prove relevant views.It may hamper enterprises from correctly understanding and cutting through the patent thickets.Moreover,most studies about the economic impact of patent thickets focus on the relationship between patent thickets and technology innovation.Few researchers explore how patent thickets affect financial performance,impeding enterprises from assessing their impacts and weeding out them.Therefore,this paper empirically studies the core question of “What is the formation mechanism of the patent thicket and its impacts on the financial performance of enterprises,and what are their boundary conditions” in the Chinese context?First,what factors affect the formation of patent thickets is an open question.This paper explores the formation of patent thickets based on 69 telecommunication equipment firms in China between 2008 and 2019 according to the theory of patent thicket,cumulative innovation,and open innovation.By adopting the random-effects panel Tobit model,this paper finds that at least three factors have facilitated the formation of patent thickets: patent portfolio races,technological complexity,and technological cumulativeness.Notably,open patent strategies have a negative moderating effect on technological cumulativeness and patent thickets.The paper empirically studies what factors affect the formation of patent thickets and theoretically explains the patent thickets’ formation mechanisms at the firm level.Companies’ managers should look objectively at the patent thickets in a complex industry and may carry out open patent strategies to cut through the patent thickets.Second,the firms may suffer differently from the patent thickets in a particular technology field.A three-way interaction model is used to explore how patent thickets affect the financial performance of firms with different patent propensity and technological leadership based on 2008-2019 Chinese telecommunication equipment firms.We find that patent propensity positively moderates the patent thickets and financial performance.Notably,technological leadership negatively moderates the moderating effects of patent propensity.This paper enriches the heterogeneous study of patent thickest and financial performance.It shields light on the fact that firms with different technological leadership may use different patent strategies to weed out patent thickets.Third,the formation of patent thickets and their impacts may differ among various industries.This paper uses the random-effects panel Tobit models and fixed-effects models to compare industrial differences in the formation and influences of patent thickets based on the 2008-2019 Chinese telecommunication equipment and pharmaceutical industries.The extent to which patent portfolio races,technological characteristics,and open patent strategies affect the patent thickets varies across sectors in the formation stage.From the perspective of the influence stage,the negative impact of patent thickets on financial performance is only significant in complex industries.It highlights that patent thickets may form in industries.However,the blocking impact of patent thickets is not always significant.This paper enriches the application scenario and multi-stage study of patent thickets.It helps companies in different industries to correctly understand and adopt appropriate patent strategies to navigate patent thickets.