Research

Patent monetization

Non-practicing Entities (NPEs, Patent Trolls) and implications to the market of technology.

Property rights

How does the protection of property rights shape firm behavior?

AI & Strategy

How will Machine Learning and AI change organizational learning?

Publications

Substituting Human Decision-Making with Machine Learning: Implications for Organizational Learning, with Natarajan Balasubramanian and Yang Ye, 2022, Academy of Management Review, 47(3): 448-465.

The richness of organizational learning relies on the ability of humans to develop diverse patterns of action by actively engaging with their environments and applying substantive rationality. The substitution of human decision-making with machine learning has the potential to alter this richness of organizational learning. Though machine learning is significantly faster and seemingly unconstrained by human cognitive limitations and inflexibility, it is not true sentient learning and relies on formal statistical analysis for decision-making. We propose that the distinct differences between human learning and machine learning risk decreasing the within-organizational diversity in organizational routines and the extent of causal, contextual, and general knowledge associated with routines. We theorize that these changes may affect organizational learning by exacerbating the myopia of learning, and highlight some important contingencies that may mute or amplify the risk of such myopia.
Key words: Machine learning, organizational learning, learning myopia.

How Property Rights Matter to Firm Resource Investment: Evidence from a Property Law Enactment, with Tony Tong and Wenlong He, 2022, Organization Science, 33(1):293-310.

Although property rights theory has long been used to explain firms’ ownership of resources, research on the channels through which property rights affect heterogeneous firms’ investment in building resources remains scarce. Leveraging a unique property law enactment, we find that strengthening property rights protection leads private firms to make greater intangible and tangible asset investment compared to state-owned firms, and that these effects are mediated by external equity and debt financing. Further, we unpack resource heterogeneity by explicating key differences between intangible and tangible assets, and we document an alignment between asset intangibility and financing approaches in that for intangible asset investment, equity plays a larger mediation role, whereas for tangible asset investment, debt’s mediating effect is greater. We contribute to the strategy literature by using property rights theory to link together asset intangibility and financing approaches, and by showing that the strength of property rights protection affects firms’ resource investment and shapes firm heterogeneity.
Key words: organizational economics, property rights, capabilities, intangible assets, external financing, mediation effects.

working papers

Trolling for Dollars: A Theory of Patent Monetization, Competing Business Models, and Non-Practicing Entities

Distinguished Student Paper Award, STR Division AOM 2019.
Best Paper Proceedings, STR Division AOM 2019.
This paper develops an economic model of patent monetization to understand how heterogeneity in firms and in patents determines the optimal monetization method of patents. In particular, we compare two methods of patent monetization: the practicing method, where value appropriation occurs in the product market, and the litigating method, where value appropriation occurs via threat of legal action. We show that differences in both the technical strength of the technology and the exclusionary strength of the patent lead to differences in the value that firms can appropriate from practicing and litigating monetization. Although greater technical strength monotonically increases the relative profitability of practicing compared to litigating, the effect of exclusionary strength is curvilinear: The profitability of practicing is convex in exclusionary strength, while the profitability of litigating is convex. So, the relative profitability of practicing compared to litigating is usually greatest for patents with extreme values of exclusionary strength, either very high or very low. The model provides a basic theory of nonpracticing entities (NPE) by explaining how firms with different monetization methods value the same patent differently and how those valuations affect their patent acquisitions.
Key words: patent monetization, value appropriation, technological strength, exclusionary strength.

Litigating Monetization and Patent Acquisition: Evidence from the PAEs.

Best paper runner-up, Wharton Innovation Doctoral Symposium (WINDS), 2019.
Best paper runner-up, Krannert Doctoral Research Symposium, 2019.
Firms’ acquisition of resources depends on their expected value appropriation from the resource. Being important resources, patents are used by firms to practice the technology and to exclude other firms from using the technology. However, firms can also appropriate value from enforcing patent rights without participation in the product market. Such firms that do not produce products or services and specialize in monetizing patents via legal actions are called Patent Assertion Entities (PAEs). This paper studies such litigating monetization of patents and patent acquisitions driven by litigating monetization. Decoupling the technological strength from the exclusion scope of the patent, I theorize and show that patents with strong but old technologies and patents with medium scopes are more likely to be acquired by PAEs. Also, I present evidence that weak appropriability discourages patents acquisition by identifying effects of law changes following the America Invents Act (AIA). I test the theory using data on patent transactions, patent litigation, and a unique dataset on PAEs.
Key words: patent monetization, market of patents, litigation, PAEs.

How Does Patent Litigation Affect Entrepreneurial Venture Financing?

Recent years have witnessed a surge of patent litigations often involving entrepreneurial firms. While most extant research examines how patent litigations affect firms’ development of technological capabilities, it often neglects how litigations may also affect their external financing, which is one of the most central issues for entrepreneurial firms. This paper fills in the gap in the literature by examining how patent litigations affect new venture financing in the form of venture capital (VC). By using a carefully constructed matched sample linking patent litigations to VC-backed firms and exploiting variations in practices among district court, we find that litigations reduce an entrepreneurial firm’s probability of receiving venture capital investment as well as the amount of investment received. In addition, we find that the negative impacts are more prominent for firms that lack quality signals and firms that are backed by CVCs.
Key words: patent litigation, venture capital, entrepreneurial financing.

Property Rights and Firm Scope, with Tony Tong and Zhimin Li.

The corporate strategy research on the determinants of firm scale and scope is often premised on a well-established property rights regime, which contrasts with the weak property rights institution that still characterizes most countries today. We address this gap by studying how the strengthening of the property rights regime may affect firm scale and scope. Exploiting the enactment of a property law that enhanced formal protection of private property rights in China as a quasi-experiment, we find that with a strengthened property rights regime, i) private firms grow in size; and ii) the horizontal relatedness among the firms’ businesses increases, but the vertical relatedness decreases. Further, these effects are less prominent for politically connected firms that are afforded informal protection of property rights.
Key words: property rights theory, scale, scope, organizational economics, institutions.

Shadow of Crisis: The Spillover Effect of Patent Litigation on Patent Strategies, with Yifan Liu.

Key words: patent litigation, spillover, knowledge search.

Hedge Fund Activism and Patent Litigations, with Kubilay Cirik.

Key words: activism, patent litigation, shareholder, hedge fund.

Political Crisis and the Signaling Effect of GVC Involvement, with Tan Li and Delin Yang.

Agglomeration Density and Business-Consumer Matching: Evidence from Yelp.

The role of location in determining firm performance has been a central issue in strategy. Studies have shown that collocation of producers in the same industry and in different industries can enhance firm productivity as well as demand for firms’ products and services. However, what create the heightened demand is still less explored. In this paper, I use establishment-level data to examine the relationship between agglomeration density of producers and consumers’ feedback and propose a mechanism that contribute to the heightened demand. I argue that given differentiated products offered onsite by each producer, and consumers with different preferences, more establishments in a given area provides consumers with more diverse choices, enables them to inspect different producers and to choose the one that matches consumers’ preferences the best. The outcome is an improved matching between producers and consumers. However, this does not guarantee consumers’ high evaluation of producers. This study uses Yelp data on chain restaurants to test these propositions.
Key words: agglomeration, density, matching.

WORK in progress

Interaction Effects of the Four Theories of Profit, with Richard Makadok.