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An Organizational Theory of International Technology Transfer

By Peter Lee. Full Text.

International technology transfer plays a critical role in advancing economic and social welfare around the world. Conventional wisdom holds that strong intellectual property rights—primarily patents—promote the transfer of technologies between countries. An important counternarrative, however, contends that weakening patents promotes important forms of technology transfer. This Article challenges the centrality of both perspectives by arguing that neither strengthening nor weakening patents is sufficient to transfer many technologies. This Article disaggregates international technology transfer into its constituent activities, focusing on the important processes by which technical knowledge itself moves between countries. In theory, patents play an important role in the international transfer of technical knowledge because, among other functions, they require inventors to disclose their inventions. In practice, however, such disclosure is often inadequate. This Article argues that multinational organizational structures play an important and underappreciated role in transferring technical knowledge between countries, even for inventions that are ostensibly disclosed in patents.

In so doing, this Article offers a new gloss on the knowledge- based theory of the firm. In pertinent part, the knowledge-based theory of the firm emphasizes the advantages of transferring tacit knowledge—personal, experiential knowledge that is not amenable to codification (and not disclosed in patents)—within firms as opposed to between separate firms. This Article extends this theory in two ways to articulate a novel knowledge-based theory of “bounded entities.” First, it argues that firms (and organizations more broadly) provide a hospitable environment for transferring not only tacit knowledge but also trade secrets—secret, technical information that may or may not be codified. Second, it argues that the knowledge-transfer advantages of organizations extend beyond classic, integrated firms to a broader class of “bounded entities.” Such entities, which span integrated and quasi-integrated organizational forms, facilitate the transfer of tacit knowledge and trade secrets.

Drawing on this novel theory, this Article argues that “multinational bounded entities”—which include multinational firms, foreign-domestic joint ventures, and “thick” cross-border contractual relationships—greatly facilitate the transfer of technical knowledge abroad. They do so even for inventions that have been publicly disclosed in patents and even when innovators would ordinarily assert intellectual property rights to limit such transfer. Illustrating these dynamics, this Article explores the role of multinational bounded entities in the global manufacturing of patented COVID-19 vaccines and “forced technology transfer” in the U.S.-China trade war. Going further, this Article synthesizes the roles of patents and organizations in international technology transfer, arguing that the strength of patent protection and the nature of technology to be transferred help determine the most effective transfer channels. It then provides prescriptions for improving international technology transfer through patent-based channels and multinational bounded entities.