Winning the second race of technology standardization: Strategic maneuvers in SEP follow-on innovations

Innovation is cumulative in nature, and follow-on innovation is a way to extract value from existing technology. Thus, to appropriate the value of standard essential patents (SEPs), firms need to win the first race in pushing proprietary technologies to become SEPs and the second race in exploiting SEP-related opportunities in follow-on innovations. This study investigates how, when, and to what effect firms strategically maneuver in follow-on innovations to maximize the value appropriation from SEPs. Drawing from a resource-based logic, we argue that SEP firms' winning strategic maneuver involves such moves: (a) engaging in early follow-on innovation targeting SEPs, (b) prioritizing the exploitation of SEPs over non-SEPs, and (c) exploiting cross-follow-on innovations to take advantage of the information and network resources they obtain from their participation in the standardization process. We further argue that SEP firms' strategic maneuvering results in high-quality follow-on innovations, which together with SEPs form stronger patent portfolios. Analyzing a unique dataset of patents from leading Chinese ICT firms matched with forward citations, we find empirical evidence that supports our arguments. Our research has important theoretical and managerial implications for firms' strategic innovation management with a focus on technology standardization.