Fragmentation of Technology Ownership and Acquisition Strategy of Firms

Abstract

This paper examines how the fragmented ownership of complementary intellectual property (IP) rights affects firms’ acquisition behaviour. We theorize that as the ownership of complementary IP rights fragments, the rate at which a focal firm engages in technology acquisitions will increase. Our predictions suggest that firms will expand their IP portfolios through acquisitions as a strategy to continue innovating when the ownership over strategic IP becomes exceedingly spread among technology holders. Furthermore, we propose that this positive relationship between fragmentation and acquisitions will be stronger for firms whose patent portfolios hold relatively less value compared to their peers, owing primarily to their diminished control over strategic IP. Using a unique longitudinal dataset from the biopharmaceutical industry, we find empirical support for our hypotheses.