Study: "Tough" IP Enforcement Not Only Keeps Competitors in Check, But Also Your Employees

"Don't let your employees do to you what you did to your former boss"

- Golden Rule attributed to Roger Borovoy, former GC at Intel

With all the talk about "spreading innovation", one topic that doesn't get much coverage is one of the most common ways in which knowledge gets diffused throughout industries - employee defections.

Back in 1987, a survey (Levin et al.) confirmed that hiring employees from rivals enabled companies to learn about external technologies more efficiently and, in turn, hastened the rate of imitation. In 1994, a survey (Bhide) of the "100 fastest-growing private companies" found that 71% of the entrepreneurial founders commercialized ideas they had encountered or discovered while working at other companies. More recently (Kerstetter, 2000), a study documents celebrated employee raids designed to gain access to competitors' technologies, claiming that technology companies often live by the adage: "If you have trouble with the competition, simply raid its talent."

Working from this backdrop, Rajshree Agarwal, Martin Ganco and Rosemarie Ziedonis looked at ways in which employers traditionally defended against "knowledge apillovers" to competitors. Finding that trade secrets and non-compete agreements provided limited protection, they turned to patents to see what effects they had on stemming the flow of information when employees leave.

What they found was that companies having reputations as being "tough" in IP enforcement have less knowledge spillover due to inventor mobility. The reputations were not gained by actively pursuing IP litigation against all, or even many, of its employees. Rather, a general reputation of agressively pursuing or defending IP litigation will be enough. Notes the report: "From the source firm's perspective . . . even if the costs outweigh the benefits of being litigious in a particular dispute, the deterrence of future knowledge spillovers can justify the inventment."

From the Abstract:

"Job hopping" by scientists and engineers is an important channel for knowledge diffusion. Little is known, however, about the effectiveness of actions firms take to reduce the outward flow of know-how and talent from their own organizations. Building on theories of reputation-building and strategic deterrence, this study investigates the moderating effects of corporate reputations for "toughness" in the enforcement of patents. Drawing on a unique database of enforcement activity, inter-firm inventor mobility events, and patent citations in the U.S. semiconductor industry, we find that a firm's litigiousness significantly curtails the dissemination of knowledge anticipated from employee departures, particularly to firms that are relatively disadvantaged to fund or withstand a legal dispute (i.e., that are small, young, or private). The overall effects are similar in magnitude for California-based
firms relative to firms headquartered in other states. The study sheds new light on the strategic levers firms use to capture value from investments in human capital and R&D.

Read/download a copy of the study, titled "Reputations for Toughness in Patent Enforcement: Implications for Knowledge Spillovers via Inventor Mobility" (link)