When entrepreneurs bring an innovation to the market, they can’t always capitalize on its potential. Large corporations stealing inventions from “the little guy” is an overworked Hollywood script for a reason. It not only happens, as a new study from the Strategic Management Journal suggests, it’s part of how nascent industries grow. Companies build upon each other’s patents to push technology forward, and startup patents attract more attention than their established competitors.
How Patent Citations Demonstrate an Invention’s Industry Influence
Especially in new industries, startups draw on knowledge from established companies, and established companies learn from startup innovations. This knowledge diffusion is difficult to measure, but a fair amount of technological flow across an industry can be mapped through patent citations (where one patent references the technology of an earlier patent).
Companies often build upon the technology of their competitors to take the market in a new direction or beat their competitors to a potential business opportunity. For the study, authors Francisco Polidoro Jr., of McCombs School of Business, and Charlotte Jacobs, of Louisiana State University, traced over patent citations across the solar panel industry over four decades. Their data included over 15,000 citations to a total of 6,116 patents.
“We used the number of citations that a patent receives in subsequent patents by other companies to demonstrate how much an invention by one company influences innovation by others,” Polidoro said. “While startups account for 12.6% of the sample patents, their patents account for 22.3% of the citations.”
The authors directly compared established companies and startups by only looking at patents from the same application year, building on the same underlying technology, that had similar levels of a variety of attributes, and found the same result.
Why Do Startup Innovations Attract More Attention?
The answer to why startup innovations seem to impact industries more than established companies is more complex than a single study can really address. But the authors posed explanations revolving around knowledge diffusion and protecting intellectual property. They then mined their data for evidence.
Startups Benefit More from Public Exposure
It’s possible that startup inventions impact their industries more because visibility and credibility affect them more. The explanations the authors explored included:
Commercialization: Startups with patented innovations present in the market might draw more attention from market players. The study found this isn’t true. Startups in the commercialization stage do not receive more patent citations than established companies.
Knowledge transfer to partnering companies: Startups by nature are more likely to be targeted for acquisitions or to ally with other companies to gain access to additional resources. Those expanded relationships might expose IP. The study found no evidence of this. In fact, R&D alliances seemed to dissuade other companies from building on a startup’s patent.
Knowledge spillover: Startups need more public exposure to give a technology credibility and capture market dominance. The study found that established companies were actually more likely to win scientific endorsements, but these endorsements had little effect on patent citations. However, university citations of a startup’s patents drew other firms’ attention to its technologies.
Startups Struggle to Protect IP
The two main ways to protect an invention are by advancing your technology before you competitors or creating legal repercussions.
Preemption: Startups are less able than established companies to use cumulative inventions to preempt rivals’ capturing technological opportunities spawned by their inventions. When startups do not create new technology building upon their own patents, competitors leap in to do so, but the data shows exactly the opposite reaction to technologies from established companies. The authors posit that rivals believe established companies would take advantage of promising opportunities if they existed, while startups might be unable to.
Deterrence: Startups have similar levels of patent litigations as established companies. But, for startups, prior patent infringement lawsuits seem a credible deterrent for competitors.
“As startups often lack bargaining chips and deep pockets to sustain costly litigations, cases of patent infringement involving them can reveal the strength of the invention to competitors,” Polidoro said. “These cases draw other firms’ attention to a startup’ technologies, encouraging future citations to its innovations.”
Entrepreneurs looking to launch a new product to market should take note: business strategy and financial backing seem at least as important as innovation to success. However, having increased influence over an industry’s technological advances has its advantages. Startups seem to have an advantage in capturing market dominance if they can advance their technology quickly enough.
Find an explanation of methods as well as additional considerations about why startup inventions attract attention in the full text available in the Strategic Management Journal.
