Inventing Around and Impacts on Modes of Entry in Japan: A Cross-Country Analysis of U.S. Affiliate Sales and Licensing

Christine A. McDaniel
2000 Social Science Research Network  
A common notion in the literature is that weak patent protection encourages internalization because it allows the firm to retain direct control over its intellectual assets by building its own subsidiary. However, "inventing around" may counteract this process. This patent practice which is most frequently associated with Japan allows rival firms to read laid open patent applications, and develop similar and competing products. A simple model demonstrates how "inventing around" can erode
more » ... d" can erode profits from FDI and encourage the licensing solution. This paper examines whether and how key legal and institutional features of Japan's patent system affected entry mode decisions. Findings from a cross-country analysis of U.S. affiliate sales and licensing receipts over 1986-1994 suggest that "inventing around" may have discouraged FDI and contributed to the high level of licensing in Japan, and to a lesser extent, other countries with similar patent regimes.
doi:10.2139/ssrn.198753 fatcat:scmqn32ttnhanhqlb32kkfxyki