The Impact of Transnational Intellectual Property Rights on Firms’ Knowledge Formation: Evidence from China-US Patent Dyads

As firms and organizations increasingly operate and conduct R&D in emerging economies, “transnational patenting” – patenting of the same invention across more than one country – is becoming the cornerstone of their intellectual property strategy. Drawing on works from signaling theory and intellectual property strategy, I examine the dynamics and impact of transnational patenting on technological knowledge formation across distinct intellectual property right (IPR) institutions. Using a novel dataset of 4226 China-US patent dyads covering 1104 firms and organizations, I find patent grant to technological invention under a weak IPR institution such as China significantly increases (by up to 108%) follow-on knowledge formation and adoption under a strong IPR institution such as U.S. The increase is most salient for inventions covered by broader patents, for patents awarded in the life sciences and to firms located in clusters with higher de facto institutional quality such as the Chinese municipalities of Beijing, Shanghai, Tianjin or Chongqing. These findings highlight how policy aiming to improve IPR institutional qualities in an emerging economy can have an influential effect on a developed economy. This study also sheds light on how transnational patenting strategy employed by innovating firms in one market can shape knowledge formation in another.