Walking the Talk: How Do Differences between De Facto and De Jure IPR Influence Firm Strategies?

The true strength of the Intellectual Property Regime (IPR) in a country not only depends on the effectiveness of the law but also on the extent to which the law is implemented by the courts in that country. Prior research that empirically analyzes the effects of IPR on innovation or international technology transfer typically relies on changes in the law for empirical identification. However this will be an imperfect proxy which, will lead to biased results when there are differences between the letter of the law (the de jure law) and its enforcement (the de facto law). In this paper, we seek to explore if there are systematic differences between the de jure Intellectual Property (IP) law and the de facto law, the relationship between the two and its effects on firms’ litigation strategies. To this end we develop a stylized model from which we derive predictions about (a) the conditions under which differential IP enforcement – differences between the de facto and the de jure law might exist (b) the relationship between de facto and de jure IPR and (c) the influence of de facto IPR on the litigation strategies of domestic and multinational firms. Using a novel dataset comprising of all IP litigation in India from 1895-2010, we empirically test our hypotheses and find that the enforcement of the IP law weakened after the de jure IP law was actually strengthened. Moreover, both domestic and multinational firms respond to changes in the law or its implementation. Changes in the law that make IPR stronger as well as better enforcement makes IP more valuable and influences higher investments in litigation by both domestic and multinational firms.