New Walls in a Flat World? A Legal Perspective toward the Border Puzzle in Cumulative Innovation

Recent studies revealed a puzzling trend: cumulative innovation has become more nationally bounded in a globalization era. We contend that it is primarily driven by the global harmonization of intellectual property rights (IPRs) and the IPR strengthening in emerging economies. Integrating insights from the literatures on IPRs, international business, and the geography of innovation, we develop a theoretical framework with an analytic model to examine the effect of global IPRs on international technological trajectories. We contend that when deciding on whether to follow a foreign trajectory, domestic firms consider hold-up threats and legal costs imposed by cross-country prior patents. Following this framework, we hypothesize that after a foreign precursor obtains a cross-country patent in a target country, citations to the patented invention from that country will decrease. This deterring effect is more salient for target countries with stronger IPRs such as the US. However, when countries with weaker IPRs like China improve over time, the effect gap will diminish. Using 37,914 and 25,388 inventions originating from Europe during 2001-2010 that obtained cross-country patents in the US or China, we find strong evidence supporting our hypotheses. Our study offers a fresh perspective on how international IPRs shape global innovation landscapes.