Sunday, November 3, 2013

Trademarks & Innovation

I haven't had much time for blogging recently, though as new IP papers pop up on SSRN, I have been posting links on Twitter as @PatentScholar. But since I am thinking about the relationship between trademarks and innovation for one of my current research projects, I thought I would highlight four related papers that were posted in the last few months.

Empirical Studies of Trade Marks: The Existing Economic Literature (Philipp Schautschick & Christine Greenhalgh): For those new to empirical studies of trademarks (or trade marks, as they are called in much of the rest of the English-speaking world), this is a great place to start. I am particularly interested in section 2 on the role of trademarks as an innovation indicator—there is a growing body of literature that uses trademark registrations as an innovation indicator (with different conclusions of exactly what kind of innovation they are indicating) the way some economists use patent counts.

Why Do Small, Innovative Firms File Trademarks? (Alexander Hahn, Stephan Hock, Jörn H. Block & Philipp Sandner): This paper examines survey responses from 594 trademark-filing, small (i.e., < 250 employees) U.S. firms in innovative industries (pulled from CrunchBase). Out of the 10 possible motives for registering trademarks (culled from a literature review), the single most important motive was to protect products and services from imitation. The authors used a factor analysis to group the 10 motives into 3 broad factors: financial motives (e.g., signaling to potential investors), marketing motives (e.g., enhancing customer loyalty), and IP-protection motives (e.g., preventing trademark imitation and preparing for patent expiration). Firms clustered into four main groups based on trademarking motives: firms with high values for all motives; firms with low values for all motives (perhaps because they have an imitation strategy); marketing-focused firms; and IP-protection-focused firms. (Note that there is no cluster of firms focused primarily on financial motives.) The paper presents a lot of interesting data about differences between the clusters; for example, there is a higher proportion of IP-protection-focused firms in service industries, perhaps due to the great difficulty of acquiring patent protection for services. Of course, there are lots of potential problems with subjective survey results, but given how little we know about how trademarks operate in practice, I think this is a valuable contribution to the literature.

Do Trademarks Diminish the Substitutability of Products in Innovative Knowledge-Intensive Services? (Dirk Crass & Franz Schwiebacher): These researchers at the Centre for European Economic Research also look to survey data to investigate why firms file trademarks, but rather than directly asking "why," they try to extract the "why" from more objective survey questions. They examined survey data of 4,154 German firms on issues such as the firms' competitive environment (e.g., whether the firm thinks its products are easily substitutable and how significant the firm thinks the threat of competition is) and their use of IP protection. 20% of firms "use formal trademark protection" (which seems very low!). Trademark use has no significant effect on the ease of product substitutability for non-innovative firms, but among innovative firms, those using trademarks perceive their competitive environment as less characterized by easy product substitutability, even when the authors control for patenting. The authors note the difficulty of making a causal claim, but they argue that their data suggest that trademarks are an important supplementary mechanism for protecting innovations. I think there is a lot more work to be done here, but I completely agree with the authors that "branding and innovation are still studied to a large extent in distinct scholarly discourses"—something I hope to address in my project.

When a Reputation for Innovativeness Confers Negative Consequences for Brands (Jeffrey S. Larson, Kelly Goldsmith & Bradley J. Allen): This project takes the different methodological approach of conducting four laboratory experiments to explore the connection between branding and innovation. The first three were on Mechanical Turk subjects; the fourth was on undergraduates. (For a discussion of the pros and cons of surveys, lab experiments, and other empirical methodologies, see Part I of my Patent Experimentalism article.) Their results provide an important counterpoint to the literature that has generally touted the benefits of a reputation for innovativeness, raising a lot of interesting questions for future research:
  • The first experiment described a new Maytag refrigerator with different marketing focuses (innovation, convenience, or excitement) and found that subjects in the "innovation" condition (who were told things like that the refrigerator "promises to revolutionize the entire refrigerator category") anticipated greater malfunction.
  • The second experiment presented pictures of Crate & Barrel furniture items, along with information that the company had recently won an award for innovation or for quality (or no award information), and found that subjects in the "innovation" condition anticipated greater malfunction and lower quality.
  • The third experiment asked subjects to evaluate the quality of a new product (NetVision TV, modeled on Apple TV) and found that subjects primed with words related to innovation or innovation + quality rated the product as lower quality than those primed with words related to quality alone.
  • The fourth experiment described the history of the fictional Roos Shoes with an emphasis on the brand's focus on quality, with some subjects receiving additional details about the brand's reputation for either innovativeness or fashion. When evaluating a hypothetical new product, subjects in the innovation condition rated the shoes as lower quality and said they would be less likely to purchase them, but when evaluating a mature product, there was no significant difference between conditions.

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