Technological Competition and Patent Strategy: Protecting Innovation, Preempting Rivals and Defending the Freedom to Operate

Drawing on the resource-based view of the firm, we examine the effect of technological competition for a patent on a firm’s choice of patenting strategy. We claim that technological competition makes the traditional strategy of protecting focal innovations from imitation less likely and increases the likelihood of a play strategy — i.e., using patents to avoid the risk of hold-up by other patent owners, or as a bargaining chip in litigation and cross-licensing. However, technological competition for a target close to the firm’s core technology should instead lead firms to use a fence strategy, i.e. blocking the commercial endeavors of rivals and preempting substitute inventions. We find support for these hypotheses using data from a large-scale survey of European patent applications.