The Modularity of Intellectual Property

• Applicant: Professor Dr. Joachim Henkel
• Subject Area: Accounting and Finance
• Term: from 2008 to 2009
• Project identifier: Deutsche Forschungsgemeinschaft (DFG) - Project number 70817322

A central question both to economics and to management scholars is how innovators can appropriate the value their innovation creates. Recent exploratory research by the applicant on licensing practices of patents and software showed that there is a modular structure to intellectual property (IP). It appears that a suitable “IP modularization” is a precondition for optimal value appropriation by licensing, and a safeguard against the economic effects of inadvertent patent infringement. IP modularization allows treating each module in an optimal way from an IP perspective, thus improving markets for technology and enabling semi-open innovation processes.Profs. Carliss Baldwin and Karim Lakhani from Harvard Business School and I plan to address this issue by a conceptual and model-theoretical analysis, supported by case studies. We will first use industry interviews to determine if and how practitioners “IP modularize” their artifacts, what problems and obstacles they face in doing so, and what benefits they reap. These questions apply both to artifacts protected by patents (tangible artifacts, software), and artifacts protected by copyright (software). In the field of software, “IP modularization” with respect to different licenses (open source and proprietary licenses) seems to be of particular importance. An analysis of artifacts, in particular software code bases, will then allow us to identify good and bad examples of IP-based modularization. An extended mathematical model of IP-based modularization complements the empirical approaches.Modularity is known to have a technical and an organizational dimension to it. With our research, we aim to extend the theory of modularity to comprise “IP-based modularity,” link it to the economic analysis of markets for technology, and to generate advice for managers.

• DFG Programme: Research Grants