Modularity and intellectual property protection
By: Carliss Y. Baldwin, Joachim Henkel
Contributors: Henkel, Joachim, author; Harvard Business School
Edition: Revised edition
Series: Working paper / Harvard Business School -- 14-046; Working paper (Harvard Business School) -- 14-046.
Publisher: Harvard Business School
Published: 2014
Place of publication: Boston]
Language: eng
Number of pages: 47
Description: Modularity is a means of partitioning technical knowledge about a product or process. When state-sanctioned intellectual property (IP) rights are ineffective or costly to enforce, modularity can be used to hide information and thus protect IP. We investigate the impact of modularity on IP protection by formally modeling the threat of expropriation by agents. The principal has three options to address this threat: trust, licensing, and paying agents to stay loyal. We show how the principal can influence the value of these options by modularizing the system and by hiring clans of agents, thus exploiting relationships among them. Extensions address screening and signaling in hiring, the effects of an imperfect legal system, and social norms of fairness. We illustrate our arguments with examples from practice.
Notes: "December 2013. (Revised January 2014, April 2014.)"--Publisher's Web site.

Includes bibliographical references (pages 39-43).