The impact of product piracy on corporate IP strategy

We analyze how cases of unauthorized reproduction of a company's technology ('product piracy') influence the subsequent intellectual property (IP) protection strategy of around 200 German manufacturing companies. Specifically, we examine whether product piracy induces a stronger use of formal IP strategies or whether a shift to informal protection mechanisms occurs. Using propensity score matching, we compare companies with similar characteristics (e.g. prior IP strategy, business activities, industry affiliation, etc.). We find that imitation incidences induce a stronger use of formal protection rights, whereas for informal protection, we detect no significant differences between the copied companies and the control group. We are able to further distinguish this effect according to firm size and detect that it especially plays out for large firms. These insights raise the question whether large companies should reconsider their further focus on filing additional patents and take the strengths of the alternative protection mechanisms stronger into account. For small firms, our findings raise the concern of a restriction in scope of potential strategic response toward product piracy. On a policy level, the general and further pushed disadvantage for small- and medium-sized companies in the patent system generally calls for a policy initiative, which addresses this problem by addressing their resource constraints.

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