Institutional Regime Shift in Intellectual Property Rights and Patenting Strategies of Firms in China

This study develops a new conceptual framework to understand the differential impact of formal institutional regime shift in intellectual property rights on the innovation and patenting strategies of Chinese and Western firms operating in China. We argue that compared with Western firms, Chinese firms will more likely resort to alternative informal practices that are deeply rooted in the traditional Chinese philosophies to safeguard their intellectual assets from expropriation. Moreover, the complex and ambiguous interdependence between institutional forces in China makes it more feasible for Chinese firms to adopt such informal approaches. Using the major China patent law reform of 2001 as a natural experiment, we find results consistent with our key arguments: With the strengthening of (a previously weak form of) patent protection, Chinese firms do not increase the adoption of such protection for their internationally valuable innovations as much as Western firms do. However, the difference becomes less salient in regions with more robust legal institutions that foster R&D and innovation, and when Western firms operate longer in China. This study advances our understanding of how institutions can shape the strategic innovative behaviors of Chinese and Western firms in the transitional economy of China. Jelcodes:O34,O32 1 INSTITUTIONAL REGIME SHIFT IN INTELLECTUAL PROPERTY RIGHTS AND PATENTING STRATEGIES OF FIRMS IN CHINA ABSTRACT This study develops a new conceptual framework to understand the differential impact of formal institutional regime shift in intellectual property rights on the innovation and patenting strategies of Chinese and Western firms operating in China. We argue that compared with Western firms, Chinese firms will more likely resort to alternative informal practices that are deeply rooted in the traditional Chinese philosophies to safeguard their intellectual assets fromThis study develops a new conceptual framework to understand the differential impact of formal institutional regime shift in intellectual property rights on the innovation and patenting strategies of Chinese and Western firms operating in China. We argue that compared with Western firms, Chinese firms will more likely resort to alternative informal practices that are deeply rooted in the traditional Chinese philosophies to safeguard their intellectual assets from expropriation. Moreover, the complex and ambiguous interdependence between institutional forces in China makes it more feasible for Chinese firms to adopt such informal approaches. Using the major China patent law reform of 2001 as a natural experiment, we find results consistent with our key arguments: With the strengthening of (a previously weak form of) patent protection, Chinese firms do not increase the adoption of such protection for their internationally valuable innovations as much as Western firms do. However, the difference becomes less salient in regions with more robust legal institutions that foster R&D and innovation, and when Western firms operate longer in China. This study advances our understanding of how institutions can shape the strategic innovative behaviors of Chinese and Western firms in the transitional