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"Licensing patented technology to a foreign competitor is likely to reduce or eliminate the firm's competitive advantage." Is this true or false? Defend your answer.

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Walter Fischer eNotes educator | Certified Educator

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Licensing patented technology to a foreign competitor would presumably only be done with a clear understanding, formalized in documentation, that the technology in question would not be used in a competitive capacity, whatever that might be.

The whole point of attaining a patent on newly developed technology is to provide legal protections against intellectual property theft. The firm or individual developing new technology wants to protect him- or herself against trademark or patent infringement by a competitor that has sought money-saving shortcuts in the development of its own technology. At an international level, that is a constant struggle. Autocratic governments that operate outside of well-established and credible multinational legal structures, mainly Russia and China (and with acknowledgement of the memberships of both of these nations in the World Trade Organization, which includes an Agreement on Trade-Related Aspects of Intellectual Property Rights), have long track records of stealing and copying technologies developed in more advanced economies like the United States, Japan and Germany. Indeed, the Chinese government in particular has proven adept over many years at reverse-engineering foreign technologies so as to be able to duplicate those technologies in their own labs and factories. Charges of theft of intellectual property by Chinese-owned companies and by the Chinese military are routinely leveled by American companies.

What does this mean for technology transferred legally and transparently from an American firm to a foreign one? The point of the above discussion is to highlight the difficulties historically encountered by American companies in protecting themselves from unfair and illegal competition from foreign, often government-owned companies. The foreign company wants the American technology so as to market a similar or identical product, whether a tractor, a washing machine, or a jet fighter. The question specifies that the recipient of the technology transfer arrangement is a “competitor.” One has to assume, therefore, that the technology in question will be used for competitive advantage. But, not necessarily. There are instances in which an American company has an agreement, including with a competitor, to market goods under the foreign company’s label. This would improve the American company’s ability to profit from foreign markets that might not want to purchase goods with an American label (although, the opposite is usually the case, with American goods being highly valued). Bottom line: the devil is in the details. Before agreeing to sell or otherwise transfer technology to a competitor, foreign or domestic, be certain how that technology will be exploited by the recipient nation/company. In general, transferring knowledge or technology to a “competitor” will increase competition.

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