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Article

How Tech Firms Influence the US Supreme Court to Shape Innovation Policies

Strategy
10 minutes

Building on the long tradition of innovation research that examines changes in firms’ rate and direction of innovation, the research by HEC Paris Professor Elie Sung aims to help further our understanding of firms’ innovation strategy by examining their actions in nonmarket arenas along with their market strategies. Elie Sung has examined how firms and the courts jointly shape patent policy and how in turn those policies shape firms’ innovative activities. This research participates to a long-lasting debate on the relationship between patents and innovation, and strongly contributes to the economics of innovation and to the nonmarket strategy academic literature. 

patent and supreme court - Jack Aloya on Adobe Stock

 ©Jack Aloya on Adobe Stock

Weaker patents lead to less innovation: True belief?

The research finds that firms that expect to be disadvantaged by a patent policy change do not innovate less. Instead, they produce fewer inventions of higher technological impact. Innovation being a key source of competitive advantage in today’s knowledge-based economy, firms tend to adapt in order to continue producing inventions of high technological impact when they are faced with a disadvantageous policy change that makes innovation more costly.    


Firms that expect to be disadvantaged by a policy change react by producing fewer inventions of higher technological impact.


Leveraging a shock created by the US Supreme Court, this research shows that the common belief that weaker patents lead to less innovation is incorrect (for a specific aspect of patent strength). When faced with a weakening in the exclusivity conferred by patents, most firms increase their R&D efforts to cope with the change and produce inventions with higher technological impact.

The research also highlights the heterogeneous impact of innovation policies. Policies tend to change the business environment in ways that are both advantageous for some types of firms and disadvantageous for others. As a result, firms conduct political actions in order to protect the efficiency of their innovative efforts. 

 

patent and supreme court - iaremenko on Adobe Stock
©iaremenko on Adobe Stock

 

Patent policymaking: The US Supreme Court is a policymaker

A novelty of this research is to examine corporate political strategy in the judicial branch of government. The legal and political science literature has established since the 1950s that the Supreme Court is a policymaker. Yet, in the existing nonmarket strategy literature, courts are only referred to in passing in studies of corporate political action.

They are considered as a venue of recourse in case political action fails or as a check that can overturn decisions taken by other types of policymakers when those decisions are found to be illegitimate. However, the fast pace of innovation relative to traditional policymaking in the elected branches of government has led the judicial branch to become the central source of changes for an important determinant for innovative firms’ business environment: patent policy. 

In this setting, the research examines how firms with different (market) innovation strategy conduct corporate political actions. 

 

patent and supreme court - Marta Sher on Adobe Stock
©Marta Sher on Adobe Stock

 

Different ways to influence the Supreme Court

Innovations such as social networking sites, autonomous vehicles, and CRISPR bring into question the need for new public policies. Meanwhile, policymakers struggle to keep up with the knowledge relevant to understanding new forms of innovation. In comparison, firms have a better understanding of the innovations they produce and their commercialization strategy. This provides firms with opportunities to sway government officials into making decisions that are beneficial for their business.

The clashing interests of firms that use different patenting strategies and the asymmetry of information between policymakers and firms provide a great setting to examine how firms can provide information strategically to influence policies that will shape their business environment. The research finds that this expertise of advocates supporting the firms’ position seems most critical for the legitimacy it provides, rather than information transmitted. 


Expertise is more efficient as a source of legitimacy than for its informational content.


Providing expertise improves the likelihood of influencing public policy decisions. However, expertise is more efficient as a source of legitimacy than for its informational content.

 

Methodology
The research combines quantitative and qualitative evidence. Firm reaction to patent policy is studied using the entire population of French innovative firms’ reaction to US Supreme Court decisions. This method overcomes a key endogeneity issue that is evidenced in the dissertation: the participation of US firms in US Supreme Court decisions. The research uses text analysis of court documents from all patent-related Supreme Court cases in the United States between 2000 and 2015 to examine the role of information and expertise in corporate political actions.

 

Completed in August 2019, Elie Sung’s dissertation was supported by a National Science Foundation Doctoral Dissertation Research Grant in the Science of Science and Innovation Policy (SciSIP) program. She was a finalist for the Kauffman Prize for Best Student Paper at the REER conference and received the Best Paper for an Emerging Scholar Award at the European Policy for Intellectual Property conference. She also won the 2020 TIM Best Dissertation Award of the TIM Division at the Academy of Management Conference.

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