Washington U. in St. Louis, Olin Business School, United States
The Patent Cooperation Treaty (PCT) offers multinational enterprises (MNEs) a streamlined process for securing global patent protection. By taking the PCT route, MNEs have up to 30 months before deciding whether, when and where to apply for national patents while preserving the priority rights of their initial filing. In theory, the optimal strategy is to delay this decision until just before the deadline, allowing firms to better assess the technological and market potential of the invention. Surprisingly, however, some firms choose to enter the national phase earlier. Drawing on real options theory (ROT), we propose that this behavior reflects the tension between the intrinsic and time value of the option. Since national patent application outcomes are uncertain and vary by country, early entry may serve as a signal of invention quality, mitigating the uncertainty discount on intrinsic value—but at the expense of time value. Analyzing a dataset of PCT families filed in the global automotive industry between 2010 and 2018, we find supportive evidence that MNEs are more likely to apply national patents early when the originating country has relatively lenient patenting policies, in nascent technology sectors, and for technologies with fewer observable quality attributes. These findings shed new light on our understanding of global patenting strategies. They also contribute to the ROT literature by highlighting the tradeoff between signaling strength in the present and waiting for clarity in the future.
