Attack and defense in patent-based competition: A new paradigm of strategic decision-making in the era of the fourth industrial revolution

The fourth industrial revolution, characterized by hyperautomation and hyperconnectivity, is accelerating the pace of innovation and rapidly reshaping the competitive landscapes of firms. Firms are increasingly competing to secure key resources, such as patents. Patent-based competition, e.g., patent litigation, is increasingly fierce and has been largely used as a strategic weapon against rivals. It is crucial to explore the conditions under which firms can improve their performance when taking action to address patent-based competition. We suggest that the effectiveness of different types of actions is contingent on technological diversification, open innovation, and network position. Using data from the U.S. communications equipment industry on patent infringement lawsuits, we find that firms pursuing attacks perform better. These positive effects are amplified when firms have a more diversified technological portfolio, whereas the adoption of outbound open innovation weakens the positive effects. Furthermore, although defenders are adversely affected when they are attacked, these negative effects are mitigated when firms can utilize inbound open innovation or operate in a less crowded environment. Our study contributes by extending the competitive dynamics literature to the context of patent-based competition.