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What should firms do with their patent rights when inventors jump ship? This key managerial question was recently addressed in an elegant study by HKUST’s Yanfeng Zheng and a colleague. With critical implications for firms deciding whether to maintain intellectual property after inventors leave, the authors established and empirically tested a framework based on the interdependence between tacit and codified knowledge in invention patents. Their analyses shed light on whether firms benefit from maintaining left-behind patents after inventors move to business rivals.

Patents are a form of intellectual property (IP) that gives firms exclusive rights to the innovation outputs of inventors, i.e., the scientists and engineers they employ. However, the competitive advantage of patents is threatened by inventor mobility. When an inventor moves from one firm (“the sourcing firm”) to a target firm, the sourcing firm retains the legal patent but not necessarily its commercial value.

The problem arises because patented corporate knowledge is supported by two “pillars”: legal and intellectual. The legal pillar is the codified knowledge formally described in patents, such as software codes or device blueprints. The intellectual pillar includes all the tacit knowledge that is not explicitly written down but is required to effectively exploit the patented IP. Tacit knowledge is lost to a firm when inventors move on.

After an inventor leaves, IP managers must weigh the cost of maintaining patents against their residual commercial value. “Maintaining these assets without continued inventor input may waste valuable R&D resources,” say the researchers, “but abandoning them risks losing competitive barriers.” Unfortunately, scholars to date have paid little attention to this important post-mobility decision.

Helping to fill this gap, the authors first developed a theoretical framework based on the interdependence of tacit and codified knowledge. “Tacit knowledge augments the exploitation and modification of codified knowledge,” the authors explain, “while legal protection over codified knowledge authorizes access to specified components in innovative search.” According to their framework, this interdependent relationship drives firms’ decisions on whether and how to maintain left-behind patents.

To empirically test their framework, the researchers collected and analyzed data on 36,000 patents whose inventors had either stayed at or left the sourcing firm before the maintenance date. Their results suggested that “managers are less likely to maintain patent protection over codified knowledge after losing tacit knowledge held by inventors,” i.e., patents were less often renewed in cases of inventor movement.

Crucially, the researchers shed light on the factors that make patent maintenance more or less likely. When a patented invention embodies complex knowledge, the sourcing firm is particularly unlikely to renew it, because it cannot be utilized without its inventor’s input. Conversely, if an invention relies mostly on internal prior art—technical knowledge that the sourcing firm retains in-house, independent of the inventor—the patent is likely to be maintained.

Maintenance decisions are also influenced by knowledge spillover. Sourcing firms can maintain patents to prevent competitors exploiting tacit knowledge held by newly hired inventors. Indeed, the authors found that patent maintenance was more likely when the target firm was a close rival of the sourcing firm. They cite the case of the computer scientist Kai-Fu Lee, whom Microsoft blocked from working on search engine technology after he moved to Google.

This important study provides numerous managerial insights into the tradeoff between tacit knowledge loss and knowledge spillover threat following inventor movement. IP managers will benefit from recognizing the need to consider the internal and external conditions of left-behind patents.