Internal Network Structure As a Knowledge-protection Mechanism

Abstract: Organizational economists have explicated several mechanisms by which firms can protect proprietary knowledge, including patents, a litigious reputation, non-compete agreements, and equity-based governance in interfirm technology alliances. However, the role of within-firm organization of R&D in facilitating knowledge protection has received little attention. How do patterns of interaction among employees—notably, firm inventors—influence a firm’s ability to prevent rivals from appropriating returns to its innovations? We exploit a new measure of knowledge spillovers, and explore how knowledge protection is related to the structure of the co-invention network within a firm. Our study of patented innovation at several hundred corporations over a 20-year period reveals a positive relationship between the extent to which a firm’s inventors are connected to each other and the strength of that firm’s knowledge protection. We explore several explanations for this finding. We find no evidence that firms with more connected networks produce different kinds of innovations. We do find evidence that more connected inventor networks facilitate knowledge protection by enabling faster, pre-emptive patenting. We speculate that in connected internal networks, more inventors participate (directly or indirectly) in the creation of a given innovation, and are thus better situated to pursue follow-on research along multiple trajectories, as well as to construct more defensive “patent thickets.”