Abstract
With regard to resource and skill theories, this chapter explores a new way of thinking about business law as it relates to Intellectual Property (IP) and patent and trademark law in particular. The author advances the concept of legal astuteness as articulated and developed by Prof. C. Bagley as a means of exploring the nexus between managerial decisions of the firm and its IP legal environment. This chapter envisages IP law as a contingent component of the strategic project that can be optimised by legal astuteness and demonstrates how IP law can be both a resource and tool of value capture.
Constance E. Bagley’s concept of “legal astuteness” emphasizes that the idea of legal strategy is increasingly concerned with identifying ingenious capacity and dexterity in business and law, rather than basic business/law strategic competencies or skills. Bagley develops a seminal and original approach in frame-working the changing perception of law – regarding it as a pragmatic portfolio of managerial tools or capacities which include, inter alia, advancing global IP projects, developing and performing legal audits, legal strategies and the management of litigation. See for example, C. E. Bagley, “Winning Legally: the Value of Legal Astuteness” (2008) 33(3) Academy of Management Review 378.
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Notes
- 1.
C. E. Bagley, “Winning Legally: the Value of Legal Astuteness” (2008) 33(3) Academy of Management Review 378, (2007) Yale School of Management (2007) 1–23, online: mba.yale http://mba.yale.edu/faculty/pdf/bagley_winningLegally_12_17_07.pdf [Bagley].
- 2.
See F. Ost, and M. Van de Kerchove, Le Droit ou les Paradoxes du Jeu (PUF, 1992).
- 3.
See J. B. Barney, “Firm Resources and Sustained Competitive Advantage” (1991) 17 Journal of Management 99; See also F. J. Mata, W. L. Fuerts, and J. B. Barney, “Information Technology and Sustained Competitive Advantage: a Resource-Based Analysis” (1995) 19 MIS Quarterly 487; See also Bagley (n 2).
- 4.
R. M. Grant, “Toward a Knowledge-based Theory of the Firm” (1996) 17 Strategic Management Journal 109 [Grant]; See also K. R. Conner, and C. K. Prahalad, “A Resource Based Theory of the Firm: Knowledge versus Opportunism, Organization” (1996) 7 Science 477.
- 5.
See Grant ibid; See also J. C. Spender, “Making Knowledge the Basis of a Dynamic Theory of the Firm” (1996) 17 Strategic Management Journal 45.
- 6.
See G. Hamel, and C. K. Prahalad, Competing For the Future (Harvard Business School Press, 1994).
- 7.
See B. A. Wernerfelt, “Resource-Based View of the Firm” (1984) 5(2) Strategic Management Journal 171; See also J. B. Barney, “Firm Resources and Sustained Competitive Advantage” (1991) 17 Journal of Management 99.
- 8.
See R. P. Rumelt, “How Much Does Industry Matter?” (1991) 12(3) Strategic Management Journal 167.
- 9.
Competitive advantage depends on different macroeconomic conditions and different competitive positions, but also depends on different levels of operational effectiveness. See J. B. Barney, “Resource-Based Theories of Competitive Advantage: A Ten-Year Retrospective on the Resource-Based View” (2001) 27(6) Journal of Management 643; See also A. M. McGahan, and M. E. Porter, “How Much Does Industry Matter, Really?” (1998) 18(S1) Strategic Management Journal 15.
- 10.
See discussion in Bagley (n 2) 12; But note that although Microsoft has taken a heavy hand in dealing with piracy, it also recognises that piracy has its benefits – it can increase market share. In an interview with Fortune magazine, Bill Gates, Microsoft’s Chairman mused, “It’s easier for our software to compete with Linux when there’s piracy than when there’s not”. See “Look for the Silver Lining. Piracy is a Bad Thing. But Sometimes Companies Can Turn it to Their Advantage”, The Economist, (17 July 2008), online: The benefits http://www.economist.com/opinion/displaystory.cfm?story_id=11750492.
- 11.
See discussion in Bagley (n 2) 12.
- 12.
Ibid.
- 13.
Computer Software Copyright Act of 1980, Pub. L. No. 96-517, 94 Stat. 3015 (1980).
- 14.
State Street Bank v. Signature Financial Group (1998) 149 F.3d 1368, 1998. (Fed. Cir.).
- 15.
These trolls are mainly law and financial firms that acquire non-exploited patents (particularly in situations of business bankruptcy) and threaten the business users (mostly “big pockets”) with legal actions and injunctions with the hope to negotiating financial compensation and avoiding trial. This is an area where judicial cases are rapidly growing. RIM, for example agreed to pay 612.5 million dollars to avoid being dragged into costly litigation for patent counterfeiting. See M. G. Plasseraud, “The Patent Trolls, Evil Spirits in the World of Patents” (2008) IRPI. The attack of opportunistic Patent Trolls is often a sign of a company operating in a strategic innovation area. Some of these patent hunters’ victims are big companies which eventually negotiate and pay the premium required to exploit an acquired patent. The phenomenon is less common in Europe because the European Patent Office (EPO) and European States Patent offices have managed to maintain a high quality level of patents. However, patents known as “minefields” can be established by a competitor for the sole purpose of blocking potential development of its opponent. Similarly, “interference patents” which are copies of patents, can be filed shortly after original in order to cause distrust in patent office examiners and can delay acceptance for several years. Additional strategies can be observed in the dilatory strategies of pharmaceutical companies which seek multiple patents for the same drug (known as “clusters of patents”) or open proceedings in dispute and litigation or else enter into agreements on patents in order to limit access for generic companies to the market, or finally, thwart national authorities when new competitors apply for approvals.
- 16.
See MercExchange LLC v. eBay, Inc. (2006) 547 U.S. 388 (USSC), where in 2006, the US Supreme Court, limited the forms of parasitism by submitting the permanent injunction to the four-factor test.
- 17.
The increase in the value of patents has been attributed to: the entry of new competitors like Original Design Manufacturers; the introduction of new laws – for example, a recent State Street bank decision affirmed the validity of US business method patents; and a new economic crisis brought about by the sustained downturn in both the telecommunications and computer markets. See M. Nowotarski, “Introducing Patents into a Major Service Industry” (2003) 38(1) Les Nouvelles: Journal of the Licensing Executives 18, online: Markets, Patents & Alliances L.L.C. http://www.marketsandpatents.com/working%2001.html.
- 18.
See Bagley (n 2) 3–6.
- 19.
Ibid; See also T. Hinthorne, “Predatory Capitalism, Pragmatism and Legal Positivism in the Airlines Industry” (1997) 17(4) Strategic Management Journal 251; See also W.J. Henisz, and B.A. Zelner, “The Strategic Organization of Political Risks and Opportunities” (2003) 1(4) Strategic Organization 451.
- 20.
V.H. Fried, and B.M. Oviatt, “Michael Porter’s Missing Chapter: The Risk of Antitrust Governance of International R&D Partnerships” (1989) 36(2) Journal of International Business Studies 175 [Fried and Oviatt]; See also M.S. Baucus, and D.A. Baucus, “Paying the Paper: An Empirical Examination of Longer-Term Financial Consequences of Illegal Corporate Behaviour” (1997) 40(1) Academy of Management Journal 129; See also S.J. Frenkel, and D. Scott, “Compliance, Collaboration, and Codes of Labor Practice: The Adidas Connection” (2002), 45(1) California Management Review 1; See also P.S. Ring, G.A. Bigley, T.D’Aunno, and T. Khanna, “Perspectives on How Governments Matter” (2005) 30(2) Academy of Management Review 308.
- 21.
D.B. Yoffie, and S. Bergenstein, “Creating Political Advantage: The Rise of the Corporate Political Entrepreneur” (1985) 28(1) California Management Review 124; See also A.J. Hillman, and M.A. Hitt, “Corporate Political Strategy Formulation: A Model of Approach, Participation and Strategy Decisions” (1989) 24(4) Academy of Management Review 825.
- 22.
Increasing tendency in society to take legal action.
- 23.
Perhaps not surprisingly, the legal variable has not been ignored by business research, particularly in its examination of the strategic management framework. See R. Amit, and P. J. H. Shoemaker, “Strategic Assets and Organizational Rent” (1993) 14(1) Strategic Management Journal 33.
- 24.
Consequently, in only a few years, the legal function has shifted from a simple support function into a central position with respect to the definition and implementation of differentiation strategies, innovations, external growth, internationalization, and governance structures. The evidence is that companies are increasingly incorporating lawyers in their various business activities, particularly those lawyers who are able to integrate situations both inside and outside the legal field. Indeed, the double curriculum of “Law and Management” has become particularly welcome in many institutions.
- 25.
A hyper-competition is the result of a complete renewal of the technologies and offerings, which oblige rules and standards to be adapted. Consequently competitors must constantly and intensively compete in price, quality or innovation in order to survive. See R. A. D’Aveni, Hypercompetition (The Free Press, 1994).
- 26.
“The concept of rent was first introduced by Ricardo (1817) as part of his endeavour to abolish England’s Corn Laws. He identified that land on a mountain side varied in fertility depending on whether it was in the valley or on the mountain top. Thus, when demand was sufficient to make it economic to grow corn on less fertile land, high profits were earned by anyone owning very fertile land. These extra profits were called rents because they ultimately accrued to the landlord. The argument put forward by Ricardo was that the price of corn was determined by the supply of fertile land and not the level of rents. In other words, the achievement of above-normal rates of return or rents are achieved through valuable resources that are scarce. Whether rents are generated through valuable land, location advantage, patents, monopoly, high entry barriers or innovation, the central focus of resource-based strategies is on the continual search for rents”. K. Chaharbaghi, and R. Lynch, “Sustainable Competitive Advantage: Towards a Dynamic Resource-Based Strategy” (1999) 37(1) Management Decision 48.
- 27.
B. Wernerfelt, “A Resource-Based Theory of the Firm” (1984) 5 Strategic Management Journal 79.
- 28.
See Bagley (n 2).
- 29.
“A basic assumption of resource-based work is that the resource bundles and capabilities underlying production are heterogeneous across firms … One might describe productive factors in use as having intrinsically differential levels of ‘efficiency.’ Some are superior to others. Firms endowed with such resources are able to produce more economically and/or better satisfy customer wants. Heterogeneity implies that firms of varying capabilities are able to compete in the market-place and, at least, break even. Firms with marginal resources can only expect to break even. Firms with superior resources will earn rents”. M. A. Peteraf, “The Cornerstones of Competitive Advantage: A Resource Based View” (1993) 14(3) Strategic Management Journal 180 [Peteraf].
- 30.
Immobility leads to the creation of Ricardian rents or monopoly and relates to Resources that cannot be traded and/or are somewhat specialized to firm needs. See Peteraf ibid 183.
- 31.
“Prior to any firm’s establishing a superior resource position, there must be limited competition for that [ex-ante] position … Without imperfections in strategic factor markets, where the resources necessary to implement strategies are acquired, firms can only hope for normal returns. Rumelt makes the point that unless there is a difference between the ex post value of a venture and the ex ante cost of acquiring the necessary resources, the entrepreneurial rents are zero. Profits come from ex ante uncertainty”. Peteraf ibid 185. A lack of price flexibility constitutes an example of ex-ante limitation.
- 32.
The idea here is that in order to maintain a superior position, there must be forces that limit subsequent competition for rents achieved. Substitutes make monopolist or oligopolist demands more elastic thereby reducing rents. Imitability concerns factors that protect firms and their rent streams from imitation. See Peteraf ibid 182.
- 33.
J. Paillusseau, “Le Droit est Aussi une Science d’Organisation” (1989) 42(1) RTD Com. 9.
- 34.
C. Collard, “Le Management Juridique, une Nouvelle Pratique du Droit dans l’Entreprise” (2005) Entreprise Ethique 22.
- 35.
A. Masson, “Le Paradoxe Fondateur des Stratégies Juridiques, Essai de Théorie des Stratégies Juridiques” (2008) 1 Revue de la Recherche Juridique – Droit Prospectif 443.
- 36.
B. Aliouat, and C. Roquilly, “Projets d’Innovation et Gestion des Risques: les Stratégies d’Innovation dans une Perspective d’Ingénierie Juridique” (1996) 3 Gestion 2000 135; See also J. Hagedoorn, and G. Duysters, “External Sources of Innovative Capabilities: the Preference for Strategic Alliances or Mergers and Acquisitions” (2002) 39(2) Journal of Management Studies 167; See also J. Hagedoorn, D. Cloodt, and H. Van Kranenburg, “Intellectual Property Rights and the Governance of International R&D Partnerships” (2005) 36(2) Journal of International Business Studies 175.
- 37.
C. Sundaramarthy, J. M. Mahoney, and J. T. Mahoney, “Board, Structure, Antitakeover Provisions, and Stakeholder Wealth” (1997) 18(3) Strategic Management Journal 231; See also P. J. Lane, A. A. J. Cannella, and M. H. Lubatkin, “Ownership Structure and Corporate Strategy: One Question Viewed From Two Different Worlds” (1999) 20(11) Strategic Management Journal 1077; See also L. Poppo, and T. R. Zenger, “Do Formal Contracts and Relational Governance Function as Substitutes or Complements?” (2002) 23(8) Strategic Management Journal 707.
- 38.
P. C. Grindley, and D. J. Teece, “Managing Intellectual Capital: Licensing and Cross Licensing in Semiconductors and Electronics” (1997) 39(2) California Management Review 8; See also V. Denicolo, and L. A. Franzoni, “Patents, Secrets, and the First Inventor Defense” (2004) 13(3) Journal of Economics and Management Strategy 517; See also A. Arora, and M. Ceccagnoli, “Patent Protection, Complementary Assets, and Firm’s Incentives for Technology Licensing” (2006) 52(2) Management Science 293.
- 39.
See C. Roquilly, “La Construction des Resources Juridiques au Service de la Création d’Avantages Concurrentiels Durables” (28–31 May 2008) AIMS Conference [Roquilly].
- 40.
G. Pisano, and D. Teece, “The Dynamic Capabilities of Firms: an Introduction” (1994) 3 Ind. Corp. Change 537.
- 41.
That being said however, it is still important to remember that the obtaining of rights is the result or source of a major antagonism or conflict with the other interests at stake. Consequently, a firm should consider all other interests (for example, competitors, regulatory bodies, etc.) that could become involved when a legal resource is mobilized. Fried and Oviatt (n 21).
- 42.
R. Garud, and A. Kumaraswamy, “Changing Competitive Dynamics in Network Industries: an Exploration of Sun Microsystems’ Open Systems Strategy” (1993) 14 Strategic Management Journal 351.
- 43.
The risk of legal action also influences a competitor’s strategic choice. Externalization activities, for example, through concessions or licenses will no doubt be preferred to internalization by acquisition as the licensed firm will bear the liability for the licensing company.
- 44.
Note however that the performance of a process is hardly measurable. The only way to measure is through the use of a benchmark applied to those of the competitors. The difference between its own process and this benchmark is called a “performance distance”. See R. Camp, Benchmarking: The Search For Industry Best Practices That Lead To Superior Performance (ASQ Quality Press, 1989).
- 45.
The notion of environment here concerns any form of rules including those coming from the legal environment (law, rules, case law), the industrial environment (professional norms, codes of good conduct) and the competitive environment (property rights and contracts held by competitive firms). See Roquilly (n 40).
- 46.
S. Maijoor S. and A. Van Witteloostuijn, “An Empirical Test of the Resource-Based Theory: Strategic Regulation in the Dutch Audit Industry” (1996) 17 Strategic Management Journal 549.
- 47.
See Bagley (n 2).
- 48.
C. E. Bagley, “What’s Law Got to Do With It: A Systems Approach to Management” (2006) Harvard Business School Working Paper 06-038, online: hbswk http://hbswk.hbs.edu/item/5415.html.
- 49.
See J. Barthélémy, “Business Law Engineering: a Concept” (1993) JCP éd. E, suppl. No. 2 Cahiers de Droit de l’Entreprise; See also B. Aliouat, and C. Roquilly, “Business Law Engineering”, Ten Key Tools to Manage (Management Press, 1996).
- 50.
Business law engineering arises from a strategic platform and involves anticipating constraints and taking advantage of emerging opportunities. Here, the methods used to match the technicality of the law and the business targets – implementation of processes and methods of analysis – are similar to those used by scientific engineers. The methods utilized typically include several phases: (1) identification of purposes; (2) perception and identification of the need for law management; (3) the setting of targets; (4) consideration of organizational constraints; (5) identification of techniques to be used; (6) alternatives; and (7) implementation of techniques.
- 51.
Bagley (n 2) 3. The relation between the concept of legal astuteness and the one of legal capability, sometime used in management, can be explained by the fact that the legal capability is similar to dynamic capabilities founded on deliberate learning to make difference in constructing competitive advantage anchored in legal resources.
- 52.
Ibid.
- 53.
For further discussion see B. Aliouat, and C. Roquilly, “La Veille Juridique pour une Intelligence des Situations Stratégiques” (1994) 148 Les Petites Affiches-La Loi 10.
- 54.
IP law can be used for more than a simple tool or asset for preservation – it provides many opportunities to capture value and enhance competitive advantage. However, it should not be viewed as the only tool of value. Rather, the strategic approach recognizes that the law is simply part of a corpus of “astuteness” that can be used both as a resource for the management and as part of its value chain.
- 55.
Original diagram based on a basic SWOT (strengths, weaknesses, opportunities, threats) view. See T. Hill, and R. Westbrook, “SWOT Analysis: It’s Time for a Product Recall” (1997) 30(1) Long Range Planning 46.
- 56.
It retrieves this data and centralizes in a particular database.
- 57.
G. Morgan, Images of Organization, (Sage, 1997).
- 58.
Although IP resources are intangible assets, concrete representations of IP as a resource can be achieved by using, for example, graphic representations or through reference to concepts such as accessibility and origin. Indeed, strategic business development attaches distinctive attributes to intangibles to allow for the capture of over-value or returns from situations arising out of the differentiated character of a firm’s products and services.
- 59.
This differentiation can take a different form. For example, trademarks can be nominal, figurative or in the form of a sound. The most varied sources of communication (television, radio or internet) become supports of distinctive trademark valuation and enrich the potentialities of firms’ differentiation.
- 60.
These are opportunities for competitive truce between competitors who practice avoidance strategies or strategic alliances. See M. Porter, “Changing Patterns of International Competition” (1987) 28(2) California Management Review 13; See also B. Aliouat, Les Stratégies de Coopération Industrielles (Economica, 1996).
- 61.
In an imperfect market situation, such firms will enjoy a situation where they won’t have to suffer from unfair or parasitical behavior as intellectual rights will give them exclusivity over their image.
- 62.
This intangible resource is not frozen. The non-usage, the operation default, the degeneration or the generalisation of usage, or even deceptivity (which is the consequence of a competition based on differentiation by reputation) or a shift in a key technology could lead to the loss of a resource. See B. Aliouat, “L’Évaluation de la Depreciation de la Marque: un Obstacle à la Gestion d’un Portefeuille de Marques” (1995) 4 Gestion 2000.
- 63.
In the specific context of the firm’s value creation, this pattern introduced by Kaplan and Norton is now a popular tool to visualize relationships between intangible performance drivers and outcome objectives. See R. Kaplan, and D. P. Norton, Strategy Maps – Converting Intangible Assets into Tangible Outcomes (HBS Press, 2004). See also R. Kaplan, and D. P. Norton, L’Alignement Stratégique: Créer des Synergies par le Tableau de Bord Prospectif (Eyrolles, 2007). According to resource-based view of the firm, resources exist as an indivisible bundle which impacts performance with causal ambiguity. See, S. A. Lippman, and R. P. Rumelt, “Uncertain Imitability: An Analysis of Interfirm Differences in Efficiency Under Competition” (1982) 13(2) Bell Journal of Economics 418. So, it is neither easy nor possible to identify how an individual resource contributes to performance or success without taking into account interdependencies with other resources. Following the same logic, legal resources or other intangible resources are suggested as intangible value drivers in embedded strategy maps. The balanced scorecard model, based on four perspectives, gives organizations a better understanding of how their intangible and physical resources are interdependent on each other to create capacities, competencies, value and competitive advantage. For example, producers of mobile phones cannot obtain a competitive advantage without exploiting embedded intangible and physical resources such as: technological and network innovation; supply and selling chains; trademarks (Samsung,…); brands (U600,…); slogan (“Connecting people”); patents (electronic network, manufacturing process,…); copyright (ring-tones, pictograms, animations,…); database protection (repertory); designs (boxes, keys,…); topography (integrated circuits); and know-how in conception and manufacturing.
- 64.
The firm has deposed more than 150 patents in the world. Empirical observation in INPI Report (Paris, 2008).
- 65.
D. Danet, “Au Croisement du Management Stratégique et du Droit: la Stratégie Judiciaire des Entreprises” (2007) Journée de Recherche “Stratégie et Transversalité”, Université de Nice Sophia Antipolis.
- 66.
The abusive use of patent law for example, as a tool or an instrument, nowadays presents an unprecedented threat, especially with the significant decrease of such cases during the last few years (in 2007, 156,100 worldwide patents have been filed). World Intellectual Property Organization Report (21 Feb 2008). Several explanations have been offered for this observable fact:
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The arrival of emerging countries in global markets
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The importance of exploring research for disruptive innovations
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The importance given to innovation in competing with low costs firms
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The increasing number of start-ups
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The growing interest for protecting innovations and profits of patent portfolios by erecting barriers to market entry
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The extension of patentability scope to software and business methods, and the proliferation of patents granted by the US Patent Office
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The emergence of patent trolls, or patent hunters or spongers, getting benefit from patent system failures
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Growth opportunities for licensing
It would be judicious to identify the legal environment as a complex ecosystem where companies adopt hegemonic, competition, mutualism, symbiotic, or parasitic behaviors. However, it is well-observed that in anticipation of the reforms of the US Patent Act and the review of the United States Patent and Trademark Office procedures as to limit these failures and abuses, powerful lobbies compete to minimize the harmful effects of parasitism and delayed IP strategies by patent revocations, jurisprudence evolution and legal reform orientation.
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Aliouat, B. (2009). Patents and Trademarks: From Business Law to Legal Astuteness. In: Masson, A., Shariff, M. (eds) Legal Strategies. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-02135-0_14
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