Amara Landry and Traore Ip Management Strategies For Knowledge Intensive Firms

Research Policy 37 (2008) 15301547
Contents lists available at ScienceDirect
Research Policy
journal homepage: www.elsevier.com/locate/respol
Managing the protection of innovations in knowledge-intensive

business services
Nabil Amara a, , Rjean Landry a,1 , Namati Traor b,2
a
Department of Management, Faculty of Business, Laval University, Qubec City, QC, Canada G1V 0A6
Regulatory, Legislative and Economic Affairs Division, Programs and Policy Branch, Canadian Food Inspection Agency, 59 Camelot Drive, Ottawa, ON,
Canada K1A 0Y9
a r t i c l e
i n f o
Article history:
Received 13 July 2007
Received in revised form 10 June 2008
Accepted 1 July 2008
Available online 22 August 2008
Keywords:
Protection methods of intellectual property
KIBS
Correlation approach
Complementarity
Multivariate Probit regression
a b s t r a c t
How do knowledge-intensive business services (KIBS) protect their inventions from imitation by rival rms when choosing among various protection mechanisms? Data from the
2003 Statistics Canada Innovation Survey on services are used to investigate this issue by
looking into complementarities, substitution and independence among eight protection
mechanisms. A Multivariate Probit (MVP) model is estimated to take into account the fact
that KIBS simultaneously consider many alternative intellectual property (IP) protection
methods when they attempt to protect their innovations. Results show that patents, registration of design patterns, trademarks, secrecy and lead-time advantages over competitors
constitute legal and informal methods that are used jointly. These complementarities suggest that IP protection mechanisms that are interdependent and reinforce each other to
protect innovations from imitation by rival rms constitute a pattern on which rms rely
to protect their innovations from imitation. A second pattern is based on the fact that KIBS
rely on patents and complexity of designs as substitutes, and tend to use registration of
design patterns and complexity of designs as substitutes in protecting their innovations
from imitation. A third emerging pattern concerns protection mechanisms that are independent from each other and exhibit no synergy, and do not reinforce each other to protect
innovations from imitation by other rms.
2008 Elsevier B.V. All rights reserved.
1. Introduction
Knowledge-intensive business services (KIBS) provide
services based on professional knowledge. In that industry, transactions consist of knowledge and outputs are
often intangible. Innovations result more often from new
combinations of knowledge rather than from new combinations of physical artefacts. Moreover, as pointed out by
Corresponding author. Tel.: +1 418 656 2131x4382;

fax: +1 418 656 2624.
E-mail addresses: nabil.amara@mng.ulaval.ca (N. Amara),
rejean.landry@mng.ulaval.ca (R. Landry), traoren@inspection.gc.ca
(N. Traor).
1
Tel.: +1 418 656 2131x3523; fax: +1 418 656 2624.
2
Tel: +1 613 221 3039; fax: +1 613 221 3056.
0048-7333/$ see front matter 2008 Elsevier B.V. All rights reserved.
doi:10.1016/j.respol.2008.07.001
Blind et al. (2003), business services are heterogeneous,

and the knowledge content of the services provided is very
diverse and often not easy to protect effectively with formal
intellectual property protection methods such as patents.
Intangibility is one of the attributes of service innovations
that makes them easier to imitate. In such a context of
threat of imitation, how can rms capture the value from
their innovative activities? More specically, how do KIBS
manage the protection of their innovations from imitation
when choosing among various intellectual property (IP)
protection methods?
The aim of this paper is two-fold. First, complementarities and substitutions between various forms of legal and
informal IP protection mechanisms are studied in order to
see how KIBS mix IP protection mechanisms to protect their
innovations. Second, heterogeneities in the determinants
N. Amara et al. / Research Policy 37 (2008) 15301547
of KIBS are explored in choosing among eight legal and

informal IP protection mechanisms. Studying these complementarities and substitutions in combination with their
determinants can provide insights into the use of mixes of
IP protection mechanisms by KIBS.
2. Contribution of the paper
Previous studies on IP protection methods have focussed
on the use of patents and secrecy by large rms and hightech manufacturing rms. The use of other IP protection
methods and the question of how rms mix various IP
protection methods have received much less attention.
Likewise, studies on the use of IP protection methods by
service rms are still scanty. Lack of empirical evidence is
still prevalent about IP protection of innovation across KIBS
and KIBS sectors (Miles et al., 2000; Miles and Boden, 2000;
Blind et al., 2003; Salter and Tether, 2006). This paper aims
to ll this gap by looking at a sample of KIBS operating in
engineering consulting services, computer system design
and management consulting services. The ultimate aim is to
shed light on how they mix legal and informal IP protection
methods to protect their innovations from imitation.
Prior studies usually focussed on particular inventions
or innovations as their unit of analysis, and thus attempted
to identify which protection method is the most efcient
for a particular invention. This approach is only appropriate if one assumes that rms have no more than one
invention at any given point in time. The fact that rms
simultaneously develop multiple inventions induces them
to rely concurrently on several protection methods in order
to appropriately protect different components of these
inventions (Levin et al., 1987; Arundel, 2001). This study
does not attempt to match particular inventions to particular protection methods. Instead, it focusses on how
rms combine several methods to protect their portfolio
of inventions and innovations. The different combinations
on which rms rely represent different protection patterns
about how KIBS manage competition when imitation from
rivals matters.
While prior studies have examined the determinants of the use of various IP protection mechanisms
in separate models, this paper uses a Multivariate Probit (MVP) model to reect the fact that in practice,
rms simultaneously consider the use of various mechanisms. The Multivariate Probit model includes eight
equations estimating eight IP protection mechanisms.
The eight IP protection methods included in this study
are patents, registration of design patterns, trademarks,
copyrights, condentiality agreements, secrecy, complexity of designs, and lead-time advantages over competitors.
The explanatory variables included in the Multivariate
Probit model are the types of innovations, R&D intensity, knowledge-development strategies (KDSI), External
Knowledge-Sharing with Research Organizations (EKSRO),
External Knowledge-Sharing With Market Organizations
(EKSMO), internal knowledge-sharing (IKS), types of industry, being a subsidiary, export and size of rms. By
simultaneously considering eight protection mechanisms
and their determinants, this paper contributes to shed light
on how KIBS combine different protection mechanisms into
1531
bundles likely to protect their innovations from imitation

by rival rms.
The rest of the paper is organized as follows. First are
reviewed the arguments about the conditions under which
various protection mechanisms are efcient in protecting
innovations developed by KIBS. Second, information is provided about the data and descriptive statistics. Third, the
estimation results are discussed and the paper concludes
with a discussion of implications of the results for rm IP
protection patterns.
3. Why do KIBS attempt to protect their innovations
by using various methods?
The literature about the protection of innovations deals
mostly with the protection of technological innovations
commercialized by manufacturing rms. Inventions and
technological innovations developed by rms are considered valuable knowledge and intellectual property that
need to be protected by various methods in order to capture their benets. This is an important issue for innovating
companies because the speed of imitation has a bearing
upon the durability of a rms competitive advantage (Hill
and Jones, 2001; Porter, 1996). Protecting these inventions
and innovations represents an important barrier to imitation as it makes it difcult for competitors to copy a rms
distinctive competencies. Therefore, the better the protection, the greater the barriers to imitation, and the more
sustainable a companys competitive advantage (Reed and
DeFillippi, 1990).
According to Howells et al. (2003), these arguments
do not adequately explain the propensity of KIBS to protect their innovations because the service sector operates
under a larger variety of knowledge regimes. Their conceptual framework suggests that appropriability in services
depends upon two primary explanatory variables, namely,
the degree of codication of knowledge and the degree of
tangibility of service outputs. They hypothesise that patents
are better suited to capture the prots from service innovations when these services are characterized by a high
degree of knowledge codication and output tangibility
(Miles, 2008). This would include Computer System Design
Services. The purpose of patent law is to promote technical advances by protecting the prots that may result from
the commercialization of patented inventions and technological innovations (Blind et al., 2006; Encaoua et al., 2006;
Hanel, 2006). In theory, patents provide the legal right to
exclude other rms from making, using, selling, or importing an invention or innovation. However, the legal right to
exclude does not automatically lead to exclusion (Walsh,
2007). In fact, contrary to trafc regulation, the government does not get involved in enforcing exclusion rights.
As a general rule, the protection of patents is left to the IP
owners. Overall, the protection of inventions and innovations by using patents is more challenging for KIBS than
for manufacturing rms. This is because (i) innovations are
more intangible in the service sector than in the manufacturing industry, and (ii) it is more difcult to enforce the
legal right to exclude imitators in the former than in the
latter (Andersen and Howells, 2000). Therefore, one can
hypothesise that:
1532
Fig. 1. Knowledge regimes and appropriability of benets of service innovations.
Hypothesis 1. KIBS that provide service innovations

involving codied knowledge in combination with tangible
outputs are more likely to complement the use of patents
by relying on other legal mechanisms such as copyrights,
trademarks and condentiality agreements (Fig. 1).
Conversely, Howells et al. (2003) hypothesise that for
services which are based on tacit knowledge, while intangible in form, the protection of innovations from imitation
can be obtained by protecting the rms trade name
and by relying on informal protection mechanisms such
as secrecy and condentiality agreements. This would
include Management Consulting Services. Therefore, one
can hypothesise that:
involving tacit knowledge in combination with intangible outputs are more likely to rely on informal protection
mechanisms such as secrecy, complexity of design, leadtime advantage on competitors as their primary protection
mechanisms, and they complement them by relying on
condentiality agreements and trademarks.
Howells et al. (2003) also develop hypotheses for the
other two intermediary cases. In the rst intermediary
case where the services provided are embodied in codied knowledge in combination with intangible outputs,
they hypothesise that copyrights are the most applicable protection mechanism. Registration of design patterns
and trademarks are also well suited to protect innovations
developed under this knowledge regime. This case would
include Engineering Consulting Services when the services
provided are characterized by codied information in combination with outputs such as blueprints and technical
specications. Therefore, one can hypothesise that:

involving codied knowledge in combination with intangible outputs are more likely to rely on copyrights that
are used as the primary protection mechanism, and to
complement them with trademarks and condentiality
agreements.
Finally, Howells et al. (2003, p. 51) hypothesise that
when tacit knowledge is involved in combination with tangible outputs, . . . no direct protection measures are used,
as innovation activity and intellectual property generation
are extremely low. In such a knowledge regime, KIBS may
be induced to rely on lead-time advantages over competitors and complexity of designs instead of relying on legal
mechanisms. For example, they may attempt to shorten the
innovation cycle by decreasing lead-times enough so that
by the time a rival rm attempts to imitate the innovation,
it is too late (Andersen and Howells, 2000). Therefore, one
can hypothesise that:
involving tacit knowledge in combination with tangible
outputs are more likely to rely on informal protection mechanisms such as secrecy, complexity of design,
lead-time advantage on competitors, and to complement
them with the use of condentiality agreements and
trademarks.
To sum up, given the knowledge regimes under which
services are provided and the limitations of patents, KIBS
may be inclined to protect their innovations from imitation through a combination of legal mechanisms, including
patents, trademarks, registration of design patterns and
copyrights (Andersen and Howells, 2000). This rationale
suggests that legal mechanisms are not mutually exclusive (the substitution hypothesis), but are complementary
and mutually reinforce each other (the complementarity hypothesis). Similarly, as suggested by Howells et al.
(2003), informal protection mechanisms may be considered as supplementing the legal mechanisms used to cover
and to strengthen the protection of innovations for components not covered by legal mechanisms. For example,
license agreements under patents usually include the use
of knowledge protected by patents and the use of knowledge protected by trade secrets. According to Jorda and
Kaeschke (2007, p. 64): . . . licenses under patents without
access to associated or collateral know-how have little commercial value because patents rarely disclose the ultimate
scaled-up commercial embodiments. Therefore, informal
protection mechanisms may be considered as complementary to legal mechanisms because they provide synergy and
optimise the use of legal mechanisms.
Furthermore, the complementarity hypothesis competes with the substitution hypothesis. The substitution
hypothesis rests on the idea that KIBS are resourceconstrained and therefore, investments of resources in
protecting their innovations through legal mechanisms,
notably through patents, come at the expense of investments in the use of informal mechanisms, more likely at
the expense of trade secrets and lead-times. Following this
hypothesis, KIBS are expected to invest their resources and
efforts on those mechanisms that provide the best protection for their innovations. The substitution hypothesis
assumes that protection mechanisms are separate and do
not reinforce each other.
Studies dealing with manufacturing rms and sciencebased rms have investigated complementarity between
patents and secrecy (Arora, 1997). Those looking into various protection methods have focussed on the importance
and the effectiveness of patents, compared to informal
methods to protect inventions and technological innovations (Knig and Licht, 1995; Levin et al., 1987; Arundel,
2001; Hanel, 2001). Very few studies have examined the
question of how several protection methods are used in
complementarity to prevent imitation from competitors
(Cohen et al., 2000; Arundel, 2001; Hanel, 2001; Blind and
Thumm, 2004; Landry et al., 2006).
A pioneering study conducted by Miles et al. (2000)
on the protection of innovation has independently considered the level of use of copyrights, design rights, patents
and trademarks by KIBS. A factor analysis study of the
preferences of 65 service rms from many sectors, including business services, showed that service rms rely on
four combinations of mechanisms, the rst being a mix
of patents, trademarks and copyrights; the second, a mix
of secrecy, lead-time advantages and customer relationship management. A third combination concerns bundling
long-term labour contracts and exclusive contracts with
suppliers; nally, a fourth mix concerns combining complex product design and embodying intangible products
(Blind et al., 2003, p. 81). To the extent of our knowledge,
this study is the rst to specically explore the complementary and substitution hypotheses regarding KIBS.
To sum up, there is no denitive theoretical answer to
the complementarity and substitution issues. Thus, they
have to be addressed at the empirical level. As stated
earlier, this study takes into account eight protection mech-
1533
anisms that KIBS may use to protect their innovations

from imitation by rivals. These methods, which are the
dependent variables in our study, are: patents, registration
of design patterns, trademarks, copyrights, condentiality
agreements, secrecy, complexity of designs, and lead-time
advantages over competitors. They are all binary variables
equalling one if, between 2001 and 2003, the rm used the
method, and 0 otherwise.
Empirical evidence based on innovation surveys suggests that manufacturing rms tend to rely more frequently
on secrecy than on patents to protect their inventions and
innovations (Levin et al., 1987; Rausch, 1995; Cohen et al.,
1998; Arundel et al., 1995; Harabi, 1995; McLennan, 1995;
Arundel, 2001; Cohen et al., 2000; Baldwin, 1997; Baldwin
and Hanel, 2001; Hanel, 2001). By comparison to the conceptual framework developed by Howells et al. (2003),
which explains the use of different protection methods
with the variables degree of knowledge codication and the
degree of output tangibility, the empirical literature dealing
with the manufacturing sector suggests that ve categories
of factors can be used to explain why rms rely on different protection methods. These are: (1) R&D intensity; (2)
knowledge strategies; (3) types of innovations; (4) industries; and (5) control variables such as being a subsidiary,
export and rm size. In this study on KIBS, the variable
knowledge will be taken into account by using indicators
related to the knowledge strategies implemented by KIBS,
while the variable output tangibility will be considered by
including various sectors in the list of explanatory variables,
as did Howells et al. (2003) in their conceptual framework.
We will now review the link between this conceptual and
empirical literature, and the explanatory variables included
in the regression models.
3.1. R&D intensity
Increasing R&D intensity likely contributes to augment
the degree of codication of knowledge. Services that are
associated with more codied forms of knowledge production are more likely to rely on patents to protect their
innovations (Howells et al., 2003). Furthermore, investments in R&D could contribute to increase the number of
patentable inventions (Arundel, 2001; Blind et al., 2006)
and inventions that justify the registration of designs patterns (Arundel, 2000). These hypotheses are extended to
KIBS.
Hypothesis 5. The higher the R&D intensity, the higher
the likelihood that KIBS rely on patents to protect their
innovations from imitation by competitors.
Hypothesis 6. The higher the R&D intensity, the higher
the likelihood that KIBS rely on the registration of design
patterns to protect their innovations from imitation by
competitors.
In this paper, a rms R&D intensity (SrRD) is measured
as the percentage of full-time employees in its business unit
who were involved in R&D activities in 2003. This variable
was matched with the normal distribution using a square
root transformation. Such an operationalization is especially appropriate for KIBS, given that in this type of rm,
1534
R&D rests more on investments in knowledge employees

than on equipment.
3.2. Firms knowledge-management strategies
Strategy refers to a set of decisions and actions that
aim to give the rm a superior performance and ultimately a competitive advantage over rivals (Porter, 1996).
Developing a strategy helps a rm to better understand
what to do, what to become and how to plan to get
there. A strategy denes the scope of a rms intentions,
in particular in relation to the protection of inventions
and technological innovations. Firms without strategy react
to short-term opportunities without achieving mediumand long-term goals (Miles and Snow, 1978). Knowledge is the most signicant resource required in the
production of knowledge-intensive-based services. Therefore, KIBS rms have to develop explicit strategies for
the management of their knowledge resources (Leiponen,
2006). In this paper, we hypothesise that KIBS with
a knowledge-management strategy react to competitive
challenges by investing in four categories of knowledgemanagement strategies: knowledge-development, External Knowledge-Sharing with Research Organizations,
External Knowledge-Sharing With Market Organizations,
and internal knowledge-sharing. Such planned investments could contribute to increase the pool of codied
knowledge (Howells et al., 2003) and, as a consequence, the number of patentable inventions (Brouwer
and Kleinknecht, 1999; Arundel, 2001). Therefore, one may
hypothesise that:
Hypothesis 7. The larger the investments in knowledgedevelopment, External Knowledge-Sharing with Research
Organizations, External Knowledge-Sharing With Market
Organizations, and internal knowledge-sharing strategies
are, the higher the likelihood that KIBS rely on patents to
protect their innovations from imitation by competitors.
Knowledge-development strategies refer to incentives provided by KIBS to encourage their employees to
increase their knowledge base. In this paper, knowledgedevelopment strategies was measured by using a ve-item
index assessing the importance of the following factors for
the rm: (1) encouraging experienced workers to transfer their knowledge to new or less experienced workers;
(2) encouraging workers to continue their education by
reimbursing tuition fees for successfully completed workrelated courses; (3) offering off-site training to workers in
order to keep skills current; (4) using teams which bring
people with different skills together; and (5) encouraging risk-taking initiatives by employees. For each success
factor, the respondent was asked to rate its degree of importance using a 5-point scale ranging from 1 (low importance)
to 5 (high importance). The sum of the response scores
for the ve factors, which initially ranged from 5 to 25,
was weighted in order to take into account not relevant answers. Thus, for each respondent, the sum of the
score was divided by the number of applicable items. Even
though the initial index has integer values from 1 to 5, once
weighted, it can take on non-integer values.
In their search for new ideas, KIBS can rely, as we

have seen, on internally focussed knowledge-development
strategies that draw attention to the development of their
employees knowledge base. Alternatively, as shown by
Laursen and Salter (2004, 2006), innovative rms can look
for new ideas by adopting open search strategies that
involve the use of external actors, and sources of ideas
and information to develop or improve their products or
processes. Laursen and Salter (2004, p. 1204) have characterized the openness of rms by the number of different
sources of external knowledge that each rm draws upon in
its innovative activities. We hypothesise that KIBS that are
more open to external sources of ideas are more likely to
increase their pool of codied and tacit knowledge that may
increase their capabilities to arrive at new combinations of
knowledge, and thus the generation of tangible and intangible innovations that need to be protected from imitation
through the recourse to both legal and informal protection mechanisms. In this paper, openness was measured by
using indicators of knowledge-sharing with two categories
of external sources of ideas and information.
External Knowledge-Sharing with Research Organizations was measured by using a four-item index regarding
the importance of the role played, between 2001 and 2003,
by the following four research organizations as sources of
information needed for suggesting or contributing to the
development of KIBS new or signicantly improved products or processes: (1) universities or other higher education
institutes; (2) federal government research laboratories;
(3) Provincial/territorial government research laboratories;
and (4) private non-prot research laboratories. For each
source of information, the respondent was asked to rate its
degree of importance using a 5-point scale ranging from
1 (low importance) to 5 (high importance). The sum of the
response scores for the four sources, which initially ranged
from 4 to 20, was weighted in order to take into account
not relevant answers. Thus, for each respondent, the sum
of the score was divided by the number of applicable items.
Even though the initial index has integer values from 1 to
5, once weighted, it can take on non-integer values.
External search that involves research sources of ideas
and information may help KIBS to exploit innovative opportunities. Increasing the variety and importance of research
sources may increase the validation of exploitable innovation opportunities. On the other hand, external search
that involves market sources of ideas and information may
help KIBS to explore innovative opportunities located in
their business environment. Similarly, increasing the variety and importance of market sources may improve the
validation of explorative innovation opportunities. External
Knowledge-Sharing With Market Organizations was measured by using a four-item index regarding the importance
of the role played, between 2001 and 2003, by the following four market organizations as sources of information
needed for the rms innovation activities: (1) suppliers
of software, hardware, materials, or equipment; (2) clients
or customers; (3) consultancy rms; and (4) competitors
and other enterprises from the same industry. The establishments were asked, in the Statistics Canada survey, to
rate the importance of these four sources of information
for the rms innovation activities, using a 5-point scale
ranging from 1 (low importance) to 5 (high importance).

As for the previous index, the sum of the response scores
was weighted. Thus, the weighted index can take on noninteger values from 1 to 5.
Internal knowledge-sharing was measured by using a
three-item index regarding the importance of the role
played, between 2001 and 2003, by the following three
internal sources of information needed for the rms
innovation activities: (1) sales and marketing staff; (2) production staff; and (3) management staff. The rms were to
rate the importance of these three sources of information
on a 5-point scale ranging from 1 (low importance) to 5 (high
importance). Based on the same logic as the previous two
indices, the weighted index of internal knowledge-sharing
can take on non-integer values from 1 to 5.
Mindful of the fact that the last four indices were
based on multiple-item scales, we conducted a Principal Components Factor Analysis (PCFA) with Varimax
rotation (PCFA) on the construct scales to assess their unidimensionality. For the knowledge-development strategies
index (KDSI), the results of the PCFA indicated that one
factor explained 66.92% of the original variance of the
phenomenon studied, with an initial Eigenvalue of 2.36.
Likewise, a PCFA was performed on the construct scales
to assess the unidimensionality of the index capturing the
External Knowledge-Sharing with Research Organizations.
The results of this PCFA indicated that one factor explained
70.23% of the original variance of the phenomenon studied with an initial Eigenvalue of 2.81. For the index of the
External Knowledge-Sharing With Market Organizations,
the results of the PCFA showed that one factor explained
65.14% of the original variance with an initial Eigenvalue
of 1.75. Finally, for the Internal Knowledge-Sharing Index,
we found that one factor explained 59.24% of the original
variance with an Eigenvalue of 1.75.
Once the unidimensionality of the additive scales measuring these four indices based on multiple-item scales
was established, the Chronbachs Alpha was used to obtain
their reliability coefcients. The Chronbachs Alpha score
was 0.71 for KDSI, 0.87 for EKSRO, 0.67 for IKS and 0.55
for EKSMO. These values of the Alpha coefcients are satisfactory for the rst three indices and rather low at 0.55
for EKSMO. It must be pointed out that although there is
no strict threshold for high reliability, Ahire and Devaraj
(2001), and Nunally (1978) recommended the threshold of
0.50 for emerging construct scales and 0.70 for maturing
constructs (see Table A1 for more details).
3.3. Product and process innovations
Product and process innovation may differ in relation to their degree of knowledge codication and output
tangibility. Inspired by Miles (2008), we assume that
product innovations may involve higher degrees of knowledge codication and tangibility than process innovations.
If this assumption is correct, the logic of our conceptual framework suggests that legal mechanisms, especially
patents, would be better suited to protect product innovations than process innovations, while informal protection
mechanisms would be better suited to protect process
innovations. Based on this rationale, we hypothesise that:
1535
Hypothesis 8. KIBS are more likely to attempt to protect their product innovations through patents rather than
informal protection mechanisms, and conversely, more
likely to protect their process innovations through informal
rather than legal protection mechanisms.
In this paper, types of innovation were measured with
a series of binary variables dened as follows: PRODU is
a binary variable coded 1 if, between 2001 and 2003, the
rm introduced onto the market only new or signicantly
improved products and did not introduce new or significantly improved processes, and 0 otherwise; PROCE is a
binary variable coded 1 if, between 2001 and 2003, the
rm introduced onto the market only new or signicantly
improved processes and did not introduce new or signicantly improved products, and 0 otherwise. Finally, SIMULT
is a binary variable coded 1 if, between 2001 and 2003, the
rm simultaneously introduced onto the market new or
signicantly improved products and processes, and 0 otherwise. This last category of rms was used as the reference
category in the regression model.
3.4. Industries
Survey research shows that a rms propensity to rely
on legal protection mechanisms varies across industries
(Cohen et al., 2000; Levin et al., 1987; Arundel, 2000, 2001;
Somaya, 2004). Studies on innovation tend to suggest that
knowledge becomes highly idiosyncratic at the rm level,
and that industries signicantly differ with respect to their
knowledge base and knowledge absorptive capabilities
and, therefore, their innovation capabilities. Industries that
rely heavily on professional knowledge, like KIBS, provide
a very fruitful terrain to test this hypothesis. Following, we
have differentiated the traditional professional service KIBS
from the technology-based KIBS. The rst group provides
services based on specialized knowledge of administrative
systems and social affairs, while the second group of rms
provides services linked to technology, and the production and transfer of technological innovations. Innovations
developed by technology-based KIBS involve more codied knowledge and more tangible outputs that are likely
easier to protect with legal protection mechanisms, especially patents (Miles, 2008). Conversely, service innovations
produced by traditional professional service KIBS involve
degrees of tacit knowledge and degrees of intangible outputs that are more suited for the use of informal protection
mechanisms linked to secrecy and legal mechanisms such
as condentiality agreements (Miles et al., 2000). Therefore, one may hypothesise that:
Hypothesis 9. Technology-based KIBS are more likely to
attempt to protect their innovations by relying on patents
rather than on informal mechanisms, and conversely, traditional professional service KIBS are more likely to protect
their innovations by relying on informal rather than on legal
protection mechanisms.
To test these hypotheses, one type of traditional professional service KIBS (Management Consulting Services)
and two types of new technology-based KIBS (Engineering
Consulting Services; Computer System Design Services) are
1536
considered in this study. Industries were measured with a

series of binary variables dened as follows: MANAGE is
a binary variable coded 1 if the rm operates in Management Consulting Services, and 0 otherwise. ENGINEE is a
binary variable coded 1 if the rm operates in Engineering
Consulting Services, and 0 otherwise; nally, COMPUT is a
binary variable coded 1 if the rm operates in Computer
System Design Services, and 0 otherwise. This last category
of rms was used as the reference category in the regression
model.
3.5. Control variables
3.5.1. LnSIZE
As of yet, there is no consensus on the relation between
rm size and protection methods. Arundel and Kabla found
that large manufacturing rms are more likely to rely on
patents to protect their inventions and innovations than
SMEs. Traor (2005) also found that larger biotech rms
relied more on patents than their medium and small size
counterparts to protect their innovations. Arundel (2001)
has found that the relative importance of secrecy versus patents decreases with rm size. Using the Statistics
Canada Innovation Survey of 1999, Hanel (2001) found that
small manufacturing rms rely less frequently than large
rms on protection methods, regardless of the method considered. Moreover, the cost of applying for patents and
defending them in court would disproportionately dissuade SMEs to rely on patents (Lerner, 1995; Cohen et al.,
2000). We extend these hypotheses to KIBS. In this paper,
rms size is measured by the total number of full-time
employees in 2003. This variable was matched with the
normal distribution using a logarithmic transformation.
Based on this rationale, we hypothesise that:
Hypothesis 10. Large KIBS are more likely to attempt to
protect their innovations by using legal mechanisms, especially patents, rather than informal protection mechanisms.
3.5.2. Export
Arundel (2000) found that patent protection is more
important to manufacturing rms exporting to the United
States or Japan. In these markets, due diligence also applies
to the examination of the intellectual property rights upon
which the innovations are based. We extend this hypothesis
to KIBS to suggest that exporting KIBS are more likely than
others to protect their innovations by using legal mechanisms, especially patents. In this paper, Export is a binary
variable coded 1 if the rm generated revenues in 2003
from the sale of products (goods and services) to clients
outside Canada, and 0 if no revenues in 2003 came from
the sale of products (goods and services) to clients outside
Canada. Thus, one may hypothesise that:
Hypothesis 11. KIBS are more likely to attempt to protect their innovations by using legal mechanisms, especially
patents, rather than informal protection mechanisms.
3.5.3. Subsidiary
Finally, as hypothesized by Arundel (2001), we might
expect that subsidiary rms could be induced to rely on
their parent rms for the development of their innovations,
and thus be inclined to rely more frequently on secrecy than

on patents. Despite the fact that he did not nd rm status
to have a statistically signicant effect on IP methods, we
suggest considering the impact of this factor on the choice
of protection methods. Therefore, we hypothesise that subsidiary rms are more likely to rely on informal than legal
methods, especially on secrecy rather than patents. In this
paper, SUBSIDIARY is a binary variable coded 1 if the rm
declared that the operations of its business unit are part of
a larger rm, and 0 otherwise. Thus, one may hypothesise
that:
Hypothesis 12. Subsidiary KIBS are more likely to attempt
to protect their innovations by using informal rather than
legal protection mechanisms.
4. Methods
4.1. Data
The data used in this study are based on 2625
weighted observations representing innovative service
establishments3 who responded to the 2003 Statistics
Canada Innovation Survey on services. This survey was
carried out by Statistics Canada following the guidelines
developed in the OECDS Oslo Manual (OECD, 1996). The
survey covered ICT service industries, selected natural
resource support services, selected transportation industries and selected knowledge-based professional, scientic
and technical services industries.
A key requirement of any Statistics Canada survey is a
minimal respondent burden. As a result, rms with less
than 15 employees and earning less than $250,000 in
revenues are considered small businesses and therefore
excluded from surveys. Data representativeness and quality are ensured by not only accounting for non-respondents
and applying multistage stratication techniques, but also
by systematically applying, throughout the survey process,
6 comprehensive dimensions of data quality (Traor, 2004;
Statistics Canada, 2003). Thus, the sample unit comprises
establishments with at least 15 employees and at least
$250,000 in revenues, and is representative of the surveys
target population.
The target respondents were the CEO or senior managers of the establishments. The survey was mailed out
on September 15, 2003 and data collection closed on January 30, 2004. The overall response rate was 70.5%, for a
total of 2123 completed questionnaires. Sample weights of
the non-response population were accounted for by adjusting the sample weights of the respondent population. The
data analyzed in this paper cover only innovative service
establishments operating in engineering services (number
of weighted observations = 627 establishments), Computer
System Design Services (number of weighted observations = 1514 establishments) and Management Consulting
Services (number of weighted observations = 484 establishments). The dependent variable of the paper is based
3
The statistical unit of observation for the survey is the establishment.
In the following sections, the establishment will be referred to by the term
rm.
on the question of IP protection methods which asked

each respondent to indicate whether or not his establishment had used the following methods for protecting its
intellectual property during the last three years: patents,
registration of design patterns, trademarks, copyrights,
condentiality agreements, secrecy, complexity of designs,
and lead-time advantages on competitors. Methodological
issues and the overall description of the survey are presented in Lonmo (2005).
4.2. Descriptive statistics

Overall, the IP protection methods most frequently
used by establishments are respectively condentiality
agreements (77% of establishments), lead-time advantages
(60.1%), and secrecy (53.8%). At the other extreme, the
three least used IP protection methods are registration
of design patterns (11.8%), patents (15.7%), and trademarks (34.5%) (Table 1). The results also suggest that
establishments in Engineering Consulting Services rely
more frequently on secrecy, lead-time advantages, and
condentiality agreements than on the other protection
methods. By comparison, establishments in Computer System Design Services rely more frequently on condentiality
agreements, lead-time advantages, and secrecy than on
registration of design patterns, patents and complexity
of designs. Finally, establishments in Management Consulting Services rely more frequently on condentiality
agreements, lead-time advantages, and copyrights than on
registration of design patterns, patents, and trademarks.
Table 1 also reports the Chi-square tests of independency comparing the proportion of establishments that
have used IP protection methods according to the type of
service industry. Results indicate that establishments in
Computer System Design Services rely more on registration
of design patterns, trademarks, copyrights, condentiality
agreements, and lead-time advantages than the establishments in the two other service industries. Establishments
in Engineering Consulting Services rely more on registration of design patterns, secrecy, and complexity of designs
than those operating in Management Consulting Services.
Finally, establishments in this latter service industry rely
more on trademarks, copyrights, and condentiality agreements than those operating in Engineering Consulting
Services.
Overall, establishments studied in the current paper,
irrespective of the industry, rely more on condentiality
agreements to protect their innovations than on any other
formal method. However, sectoral differences exist. In fact,
establishments in Computer System Design Services rely
much more on each and all formal protection methods than
their counterparts in Engineering Consulting Services and
Management Consulting Services. As well, establishments
in Engineering Consulting Services rely much less on condentiality agreements than their counterparts in computer
system design and Management Consulting Services. On
the other hand, establishments in Engineering Consulting
Services rely more on secrecy and complexity of designs
than the other establishments, whereas establishments
in computer system design and Management Consulting
1537
Services rely more on lead-time advantages than establishments in Engineering Consulting Services.
These ndings about the dependent variables, i.e., the
protection methods, have to be nuanced with regard to
results of prior studies in manufacturing industries (Levin
et al., 1987; Cohen et al., 2000; Arundel, 2000; Hanel, 2001),
as well as prior studies in service industries (Hanel, 2001)
which showed that establishments rely more on informal
rather than on formal methods in order to insure their
IP protection. In this study, we found that, overall, condentiality agreements are used by a larger proportion
of establishments and that copyrights are the third most
frequently used protection method by establishments operating in Management Consulting Services.
With regard to the explanatory variables (Table 2), in
2003, the average establishment had 22.82% of its fulltime employees involved in R&D activities; earned 25.8%
of its total revenues from sales to clients outside of Canada;
scored 3.60 out of a possible maximum of 5 on the index of
knowledge-development strategies; 1.60 and 3.21 out of a
possible maximum of 5 on the External Knowledge-Sharing
with Research Organizations and with market organization
indices, respectively. Finally, the average rm scored 3.49
out of a possible maximum of 5 on the index of internal
knowledge-sharing.
Furthermore, Table 2 shows that 37.6% of the establishments are part of a larger rm. Moreover, 17.5% of the
establishments have less than 20 employees, 45% of them
have between 20 and 49 employees, 20.5% between 50
and 99 employees, and 17% of the establishments have 100
employees or more. As for the innovation types, between
2001 and 2003, 43.8% of the establishments surveyed introduced, onto the market, only new or signicantly improved
products, 12.6% introduced, onto the market, only new
or signicantly improved processes, and 43.6% simultaneously introduced, onto the market, new or signicantly
improved products and processes. Finally, slightly less than
one quarter of the establishments were in Engineering Consulting Services, 58% in Computer System Design Services,
and 18% in Management Consulting Services.
4.3. Analytical plan
Previous empirical studies on complementarities
between various variables have been based on three
main approaches, namely, the productivity approach,
the reduced form exclusion restriction approach, and
the correlation approach. The rst approach involves
modelling a measurement of a rms objective function
with parameters that specify the interactions between
choices. These parameters are interpreted as indicators
of complementarity. In such a model, the distribution
of interactions among choices is identied, and choices
may be complementary for some rms, independent for
some others, and substitute for others (Athey and Stern,
1998; Ichniowski et al., 1997; Mohnen and Rller, 2002;
Mancinelli and Massimiliano, 2007).
In the second approach, the study of complementarity
is carried out by focussing on the effects of two factors, and
on their correlation (Arora, 1996; Athey and Stern, 1998).
As mentioned by Galia and Legros (2004, p. 1192), the idea
1538
Table 1
Distribution of the IP protection methods for the three selected services industries for the sub-population of innovative establishments
IP protection methods
In % of innovative establishments that used the IP methods

All selected
industries
Engineering Consulting
Services [a]
Management Consulting
Services [b]
Computer System Design

Services [c]
Legal methods
Patents
Registration of design patterns
Trademarks
Copyrights
Condentiality agreements
15.7
11.8
34.5
41.0
77.0
12.9=bc
10.7+bc
18.6bc
28.6bc
49.4bc
15.9=a=c
5.6ac
27.2+ac
37.6+ac
73.3+ac
16.8+a=b
14.3+a+b
43.4+a+b
47.1+a+b
89.5+a+b
Informal methods
Secrecy
Complexity of designs
Lead-time advantages
53.8
37.6
60.1
53.2+bc
39.8+b=c
52.8=bc
31.1ac
33.0ac
48.2=ac
61.4+a+b
38.1=a+b
67.0+a+b
Note: The gures reported in columns 2, 3 and 4 are based on Statistics Canada estimates whereas column 1 and Chi-square tests were produced by the
authors. (a), (b) and (c) refer to the three selected services industries. The signs (+) and () indicate that, for each IP protection method considered in the
rows, the proportion of establishments that have used this IP protection method is statistically signicantly (p < 0.1) greater or smaller for the industry
considered in the columns than the other industries according to Chi-square tests. The sign (=) indicates that no signicant differences exist between the
industries regarding the use or not by the establishment of this IP protection method. The null hypothesis (independency between two variables) was
rejected with signicance levels of 10% or less.
is that a factor which has an effect on one variable will not

be correlated with another variable unless the variables are
complementary. The major limitation of this approach is
that it cannot test for complementarity when more than
two choice variables are simultaneously under study.
In the third approach, which is the one adopted in
this paper, variables under scrutiny are the dependent
elements of the empirical model (Laursen and Mahnke,
2001; Galia and Legros, 2004; Schmidt, 2007). More specifically, this approach tests the correlation between two or
more dependent variables, conditional on a certain number of explanatory variables. It carries out such a test by
estimating a bivariate or Multivariate Probit model. The

complementarity arises if the null hypothesis of absence
of correlation between the residuals of two or more probit
regression equations is rejected.
This last approach was chosen over the other two
approaches for two main reasons. First, in contrast to the
rst approach, it does not require the specication of an
objective function. Instead, it uses the choice variables as
dependents in the regression models and thus offers a
direct test for complementarity between different IP protection methods (Galia and Legros, 2004). Second, unlike
the second approach that cannot test for complementarity
Table 2
Descriptive statistics
Variables
Continuous variables
R&D intensity [% of full-time employees involved in
R&D activities in 2003]
Export [% of total revenues that came from sales to
clients outside of Canada in 2003]
Knowledge Development Strategies Index
External Knowledge Sharing with Research
Organizations
External Knowledge Sharing with Market
Organizations
Internal knowledge sharing
Type of variables
Mean
Standard deviation
Cronbachs
Continuous number
22.82
26.35
Continuous: number
25.87
34.99
Weighted Index: 5 items

3.60
1.60
0.73
0.82
0.71
0.81
3.21
0.82
0.55
3.49
0.86
0.67
Categorical variables
Percentage of rms that the operations of their business units
are part of larger rms
Innovation in products only
Innovation in processes only
Innovation in products and processes
43.8%
12.6%
43.6%
Firms size [number of full-time employees in 2003]
Less than 20 employees

2049 employees
5099 employees
100 employees or more
17.5%
45.0%
20.5%
17.0%
Services industries
Engineering Services
Computer System Design Services
Management Consulting Services
23.9%
57.7%
18.4%
Subsidiary rm
Innovation types
Note: Based on Statistics Canada estimates (Survey of Innovation 2003).
37.6%
when more than two choice variables are under study, the
correlation approach offers a general solution to testing
complementarity among various IP protection methods, as
no limit is set on the number of such variables. We studied
8 IP protection methods, and therefore could not use the
reduced form exclusion restriction approach.
To the extent of our knowledge, the Multivariate Probit model approach to data analysis has never been used
to address the issue of how knowledge-intensive-based
service establishments combine various IP protection
methods in preventing imitation from rivals. The multivariate probit specication allows for systematic correlations
between choices for the different protection strategies.
Such correlations may be due to complementarities (positive correlation) or substitutions (negative correlation)
between strategies. In using the multivariate probit estimation method, the issue of inefcient estimates in separate
Probit models is resolved, where signicant correlations
exist among IP protection methods (Belderbos et al., 2004).
The Multivariate Probit model used in our study consists of eight binary choice equations. These choices are for
the IP protection strategies used by Canadian knowledgeintensive service establishments operating in three service
industries, namely: Engineering Services, Computer System Design Services and Management Consulting Services.
Five IP protection strategies refer to formal or legal
IP protection methods and are: Patents, Registration of
design patterns, Trademarks, Copyrights, and Condentiality agreements. Three other IP protection methods refer to
strategic or informal methods and are: Secrecy, Complexity
of designs and Lead-time advantages over competitors.
The MVP model, an extension of the standard Probit
model, is used in estimating the following system of eight
binary dependent variables. It allows for jointly estimating several equations while controlling for the existence of
mutual correlations between their disturbances (Galia and
Legros, 2004; Belderbos et al., 2004).
The model is written as follows:
Y = X +
where:
y1
y2
.
Y=
. ;

.
y8
b10 , b11 , b12 , . . . , b111

b20 , b21 , b22 , . . . , b211
...
=
...
...
b80 , b81 , b82 , . . . , b811
1
x1
x
2
X=
. ,
.
.
x11
1
2
.
and =
.

.
8
with Y being the vector of the eight binary dependent variables and X the vector of the explanatory variables for the
eight equations. These are as previously dened (Section
3.2) and are the same for all eight dependent variables.
is the matrix of the coefcients to be estimated and rep-
1539
resents the vector of the error terms of the eight estimated

equations. The MVP model also provides the estimates of
the variancecovariance matrix of the equations disturbances (Greene, 1995) that will serve to conclude to the
existence of substitution or complementary effects in the
choice of the different IP protection methods.
Table A1 provides results of the Principal Components Factor Analysis and internal reliability coefcients
(Cronbachs Alphas) for the explanatory variables with a
multiple-item scale. These results indicate that, for each of
these variables, the items loaded on a single factor which
assesses their unidimensionality. Moreover, the values of
Cronbachs indicate that the items forming each index are
reliable. Finally, the correlation matrix between the continuous predictors used in the regression models (Table A2)
indicates that the highest correlation coefcient between
the independent variables is 0.285 and corresponds to that
between the Internal Knowledge-Sharing Index and the
External Knowledge Sharing with Market Organizations
Index. The second column of Table A2 also reports tolerance statistic values for these predictors. Tolerance statistic
values, which are the reciprocal of Variance Ination Factors (VIF), indicated whether a predictor has a strong linear
relationship with the other predictors. It can be seen that all
the tolerance statistic values are much higher than 0.2. This
ensures that there is no multicollinearity concern (Menard,
1995; Field, 2006).
5. Regression results
The empirical results obtained from the Multivariate
Probit model estimation are summarized in Table 3. The
goodness of t is rst assessed using McFadden R2 (Oude
Lansink et al., 2003; Veall and Zimmermann, 1996).4 A
value of 0.129 is found and remains reasonable for qualitative dependent variable models.5 A second assessment
of the quality of the model t is given by the rst reported
Likelihood Ratio Index (LR index1 ) which compares the Log
Likelihoods values related to the unrestricted model and to
the nave model containing only an intercept for each of
the eight equations. The computed value of this rst index is
much larger than the critical value of the chi-squared statistic with 96 degrees of freedom at the 1 percent level. This
suggests that the null hypothesis, that all the parameter
coefcients (except the intercepts) are all zeros, is strongly
rejected. Consequently, our model is signicant at the 1
percent level. The second reported Likelihood Ratio Index
(LR index2 ) compares the Log Likelihoods values related to
the unrestricted model and to the model forcing the correlations between the equations disturbances to be equal
to zero. The computed value of this index is much larger
than the critical value of the chi-squared statistic with 28
degrees of freedom at the 1 percent level. This suggests
that the null hypothesis, that all the correlation coef-
4
McFadden R2 is calculated as: 1 [log L()/log L0 ] where log L0 is the
value of log-likelihood function subject to the constraint that all coefcients except the constant are zero, and log L() is the maximum value of
the log-likelihood function without constraints.
5
According to Sonaka et al., McFadden R2 in the range of 0.20.4 are
typical for logit models.
1540
Table 3
Multivariate Probit regressions results
Independent variables
Intercept
R&D investment
SrRDa
Patents
Complexity of designs
2.855**
0.052
1.957**
0.087
0.823**
0.079
0.559**
0.060
1.068**
0.077
0.569**
0.055
0.649**
0.053
0.051**
0.038
0.024
0.790
0.079**
0.075
0.070
0.203
0.064
0.226
0.107**
0.026
0.049**
0.085
0.063**
0.076
0.583
0.102
0.744
0.167
0.358
0.244**
0.063
0.109**
0.081
0.061
0.965
0.225**
0.099
0.198*
0.159
0.202*
0.139
0.356***
0.247*
0.157
0.070
0.685
0.082
0.591
0.606
0.071
0.649
0.331**
0.031
0.114
0.370**
0.053
0.356**
0.713**
0.306**
0.535
0.132
0.993
0.076
0.769
0.570
0.107
0.648
0.167
Coefcient P-value Coefcient P-value

()
()
Lead-time advantages
0.009
0.013
0.947
0.059
0.023
0.884
0.078
0.090
0.246*
0.357
0.327**
0.006
0.203
0.232
0.355**
Coefcient P-value
()
0.613
0.050
0.909
0.157
0.484
0.560***
0.583
0.079
0.494*
0.673**
0.111
0.098
0.110
0.906**
0.693
0.041
0.684***
0.814**
0.009
0.063
.072
0.369
0.823
0.362
0.079
0.107
0.762
0.761
0.381**
0.759*
0.041
0.139
0.029
0.069
0.914
0.854
0.056
0.067
0.070**
0.144**
0.076
0.034
0.527**
0.177**
0.057
0.061
0.273***
0.315
0.003
0.859
0.119**
0.064***
0.093
0.006
0.276**
0.228**
0.032
0.046
0.259
0.555**
0.301
0.040
0.203
0.341*
0.428
0.137
0.427*
0.114
0.182
0.112
0.800
0.319
0.315**
0.369
0.216
0.082
0.257
0.427
0.204
0.070
0.208
0.208
0.803
0.417
0.173
0.584**
0.251
0.415
0.031
0.409
0.042
0.644***
0.169
0.765
0.010
0.517
0.023
0.070
0.186
0.875
0.797
0.464
0.143
0.584
0.059
0.290
0.015***
0.985
0.091
0.239
0.097**
0.714***
0.508***
0.393**
0.358
0.535***
0.105**
0.521***
2
0.000
0.004
0.049
0.370
0.002
0.032
0.007
2625
1125.560
0.129
1293.59***
1251.30***
1242.62***
0.556***
0.442**
0.094
0.356*
0.156**
0.272
3
0.010
0.033
0.757
0.139
0.078
0.222
0.689***
0.371**
0.118
0.011
0.253
0.000
0.066
0.492
0.950
0.294
0.391** 0.057
0.249 0.235
0.095 0.499
0.160 0.348
0.345**
0.367**
0.357**
0.042
0.036
0.021
0.077
0.596***
0.612
0.0000.1050.499
Compares the unrestricted model to the nave model containing only the intercept for each of the eight equations
Compares the unrestricted model to the model forcing the correlations between the equations disturbances to be equal to zero
Compares the unrestricted model to the model forcing the regression coefcients for each of the 12 independent variables to be equal across the 8 equations
and *** indicate that the coefcient is signicant, respectively, at the 10%, 5% and 1% thresholds.
Sr indicates a square root transformation.
Ln indicates a logarithmic transformation.
Reference category is Development of Product and Process.
Reference category is Computer System Design Services.
c
d
Secrecy
0.063
Weighted number of observations

Log Likelihood
McFadden
LR index1 2 (96)
LR index2 2 (28)
LR index3 2 (84)
Condentiality
agreements
2.545**
2
3
4
5
6
7
8
Copyrights
Coefcient P-value Coefcient P-value Coefcient P-value

()
()
()
Correlations between disturbances 1
* , **
Trademarks
Coefcient P-value Coefcient P-value

()
()
Knowledge variables
Internal knowledge
0.120
sharing
0.023
External Knowledge
Sharing with Research
Organizations
External Knowledge
0.105
Sharing with Market
Knowledge development 0.168
Strategies
Services (type services)
Development of Productc 0.180
Development of Processc 0.702**
Industry sectors
Engineering Servicesd
Servicesd
Control variables
Size LnSIZEb
Export
Subsidiary Firm
Registration of design
patterns
cients between the equations disturbances are all zeros,

is strongly rejected. Consequently, the use of the Multivariate Probit model to estimate our system of eight equations
is appropriate. This last result provides evidence, at least
for our data, that the use of the separate standard Probit models is not adapted to estimate the determinant of
the choice of the establishments protection tools. Indeed,
the resulting estimators from the standard approach would
be inefcient. The last Likelihood Ratio Index (LR index3 )
reported in Table 3 compares the Log Likelihoods values,
related to the unrestricted model and to the model forcing
the regression coefcients for each of the twelve independent variables, to be equal across the eight equations. The
computed value of this index is much larger than the critical
value of the chi-squared statistic with 84 degrees of freedom at the 1 percent level. This suggests that the estimated
coefcients differ substantially across the equations, indicating the appropriateness of considering separately the
eight protection methods.6
Table 3 also reports the correlation coefcients of
the error terms of the eight equations. We can see
that most of these correlation coefcients are signicant
and positive, which supports the hypothesis of interdependence between the different IP protection methods.
More specically, the results suggest complementarities
between patents, registration of design patterns, trademarks, secrecy and lead-time advantages over competitors.
These ndings are consistent with those in the manufacturing sector and for science-based rms (Arora, 1997;
Arundel, 2001; Cohen et al., 2000; Hussinger, 2005). They
provide further empirical support to the fact that some
establishments combine both formal legal and informal
strategic protection methods in order to keep potential
imitators at bay (Arora, 1997).
The results also suggest that the registration of
design patterns is complementary to patents, trademarks,
copyrights, and secrecy. Likewise, trademarks are complementary to patents, copyrights, and condentiality
agreements. Condentiality agreements are complementary to trademarks, copyrights, secrecy, complexity of
designs, and lead-time advantages. Secrecy is complementary to patents, registration of design patterns, condentiality agreements, and lead-time advantages. Finally,
lead-time advantages over competitors are complementary
to patents, condentiality agreements, and secrecy.
However, the results also suggest that there is substitution between patents and complexity of designs, as well
as between registration of design patterns and complexity
of designs. Furthermore, patents and registration of design
patterns are independent from condentiality agreements;
trademarks are independent from secrecy, complexity of
designs, and lead-time advantages, as indicated by the
corresponding non-signicant correlations between the
estimated disturbances. Copyrights are used independently
from secrecy, complexity of designs and lead-time advantages. Finally, secrecy is independent from complexity of
design, and complexity of design is used independently
6
Hence, for example, a same variable might exert a signicant positive
impact on some protection methods but not on all of them.
1541
from lead-time advantages to protect KIBS from imitation

by rival rms.
As for the extent to which dependent variables explain
the likelihood that the various IP protection methods are
used by the establishments, results show that anywhere
from three to eight variables are signicant at levels varying from 1% to 10% in each of the eight equations. More
precisely, R&D intensity (SrR&D) is positive and signicant
in ve equations, namely, patents, trademarks, complexity of designs, and lead-time advantages, with the highest
coefcient in the case of secrecy. These results are not in
line with our expectations to the effect that R&D intensity
is associated more with formal IP protection methods than
with informal ones.
External Knowledge-Sharing with Research Organizations is found to have a positive and signicant effect on the
likelihood of choosing trademarks, copyrights, and secrecy,
with the highest coefcient in the case of copyrights.
Likewise, External Knowledge-Sharing With Market Organizations is found to have a negative and signicant effect
only for two IP protection methods, namely, copyrights
and lead-time advantages, with the highest coefcient for
copyrights. As mentioned previously, these two variables
capture the openness of the establishments or their willingness to look for external information to incorporate into the
development or improvement of their products and processes. Second, internal knowledge-sharing is signicantly
and positively related to copyrights, condentiality agreements, lead-time advantages, and complexity of design
equations, with the highest coefcient in this latter case.
Third, knowledge-development strategies have a signicant and negative inuence on the likelihood of relying on
copyrights, secrecy, complexity of designs, and lead-time
advantages, but have no signicant impact on the likelihood
of relying on the other legal protection methods.
Concerning the types of innovation, establishments that
simultaneously introduced new or signicantly improved
products and processes onto the market, between 2001
and 2003, are more likely to rely on registration of design
patterns, copyrights, and complexity of designs than establishments that introduced, during the same period, only
new or signicantly improved products, or only new or signicantly improved processes. Moreover, establishments
that introduced, between 2001 and 2003, onto the market, only new or signicantly improved processes are less
likely to rely on patents and trademarks than those that
simultaneously introduced, during the same period, onto
the market, new or signicantly improved products and
processes.
With regard to industry effects, the results show that
establishments operating in Computer System Design Services are more likely to rely on patents, registration of
design patterns, trademarks, condentiality agreements,
and secrecy than those in engineering services and Management Consulting Services. Moreover, establishments
operating in Management Consulting Services are less
likely to rely on all the informal protection methods than
their counterparts in Computer System Design Services.
Finally, establishments in engineering services are less
likely to rely on copyrights than those in Computer System
Design Services.
1542
Table 4
Summary table of the Multivariate Probit regressions results explaining the choice of the protection strategies
Independent variables
Patents
Registration of
design patterns
Trademarks
Copyrights
Condentiality
agreements
Secrecy
Complexity
of designs
Lead-time
advantages
R&D investment
SrRD
NS
NS
NS
NS
NS
NS
NS
NS
+
+
+
+
NS
NS
+
+
NS
+
NS
NS
NS
NS
NS
NS
NS
NS
NS
NS
NS
NS
NS
NS
NS
NS
NS
NS
NS
NS
NS
+
NS
NS
+
NS
NS
+
NS
NS
NS
NS
NS
NS
+
NS
NS
+
NS
NS
NS
NS
NS
NS
NS
+
+
+
NS
+
+
+
NS
+
NS
+
+
NS
NS
NS
+
NS
NS
NS
+
+
+
NS
+
NS
Knowledge variables
Internal knowledge sharing
External Knowledge Sharing
with Research Organizations
External Knowledge Sharing
with Market
Knowledge development
Strategies
Services (type services)
Development of Product
Development of Process
Industry sectors
Engineering Services
Services
Control variables
Size LnSIZE
Export
Subsidiary rm
Correlations between
disturbances
2
3
4
5
6
7
8
(+) Indicates positive impact; () indicates negative impact; (NS) indicates non-signicant impact.
Firm size (LnSIZE) is positive and signicant in all the

equations for legal protection methods except copyrights,
with the highest coefcient for registration of design patterns. However, rm size is not signicant in the four
equations for informal protection methods. This result is
consistent with several prior studies stressing that rm size
is an important determinant of the use of legal protection
methods, especially for patents (Hall and Ham Ziedonis,
2001; Hanel, 2001; Nesta and Saviotti, 2005). Finally, generating revenues from export has a positive impact on the
likelihood to resort to three of the four informal methods considered in this study: condentiality agreements,
secrecy, and lead-time advantages.
Table 4 summarizes the previous ndings and those
regarding the determinants of use of the different IP protection methods.
6. Discussion and conclusion
The protection of the innovations commercialized by
KIBS from imitation by rivals can rely on a large variety
of mechanisms, some formal or legal, while others are
strategic or informal. In comparison to prior studies that
have focussed on patents, this study considered several
legal and informal protection mechanisms, and investigated the question of how KIBS combine eight protection
mechanisms. Results show that 15.7% of KIBS relied on
patents, 11.8% on registration of design patterns, 34.5% on
trademarks, 41.0% on copyrights, 77.0% on condentiality agreements, 53.8% on secrecy, 37.6% on complexity of
designs, and 60.1% on lead-time advantages over competitors. Overall, these descriptive ndings are consistent with
the results of studies on the frequency and extent of use of
legal as well as informal protection methods in the manufacturing industries.
Contrary to prior studies that have examined the use
of protection mechanisms as separate mechanisms, this
paper estimated a Multivariate Probit model to take into
account the fact that KIBS simultaneously make use of various alternative IP protection methods when protecting
their innovations. Positive signicant correlations between
equations suggest that various IP protection methods are
used by establishments as sets of complementary protection methods. More specically, the results show that
patents, registration of design patterns and trademarks
are three complementary legal methods on which KIBS
rely. Furthermore, secrecy and lead-time advantages over
competitors are two informal protection methods that
exhibit complementarities. Additionally, patents, registration of design patterns, trademarks, secrecy and lead-time
advantages over competitors constitute legal and informal
methods that are used jointly. These complementarities
suggest that IP protection mechanisms that are interdependent and reinforce each other to protect innovations
from imitation by rival establishments constitute a pattern on which rms rely to protect their innovations from
imitation. These results shed light on a much larger number of patterns of complementarities than predicted by the
Hypotheses 14 derived from the conceptual framework
of the paper. Contrary to expectations, there are patterns
where only legal mechanisms are complementary, other
cases in which only informal mechanisms are complementary, and nally, still other patterns where a combination of
legal and informal mechanisms are complementary. These
results suggest that patterns of complementarities upon
which KIBS rms rely are much more diversied and much
more complex than predicted by the existing conceptual
framework. In itself, this result suggests that more elaborated conceptual frameworks will need to be developed.
A second way of approaching Hypotheses 14 on complementarities is to take into account a second pattern
which is based on protection mechanisms that are used as
substitutes to protect innovations from imitation by other
rms. More specically, this substitution pattern is based
on the fact that KIBS rely on patents and complexity of
designs as substitutes, and use registration of design patterns and complexity of designs as substitutes in order to
protect their innovations from imitation. Thus, there is a
very limited number of substitution patterns. One informal mechanism and two formal mechanisms are substitute
for each other. In itself, this result suggests that protection
mechanisms play different roles in the protection of service
innovations from imitation, otherwise, a larger number of
substitution patterns may have been found. These results
might also suggest that the tacit and intangible nature of the
KIBS induce them to rely on a combination rather than on a
substitution of protection mechanisms to prevent imitation
from rival rms.
Hypotheses 14 were also approached under the perspective of a third category of patterns which is made up of
all the protection mechanisms that are independent from
each other and do not exhibit any synergy. This last pattern
is composed of various pairs of protection mechanisms. In
fact, results show that patents and condentiality agreements are independent; registration of design patterns,
condentiality agreements and lead-time advantages are
independent; trademarks, secrecy, complexity of designs,
and lead-time advantages are independent; copyrights,
secrecy, complexity of designs and lead-time advantages
are independent; secrecy and complexity of designs are
independent; and nally, complexity of designs and leadtime advantages are independent. Thus, there is a rather
large number of patterns in which different protection
mechanisms are independent from each other. This result
suggests that different elements of service innovations are
independent from each other and need to be protected by
different mechanisms that are also independent from each
other. Once more, these results suggest that managing the
protection of inventions and innovations in KIBS rms is
much more complex than predicted by the current conceptual frameworks.
The results of the Multivariate Probit model also suggest
that these various patterns of complementarities, substitution and independence cannot be adequately explained
only with the degree of knowledge codication and output tangibility. The results of the econometric models
show important differences in the determinants of the
1543
different methods of IP protection and their associated patterns. For example, the reliance on protection mechanisms
that are part of the complementary pattern tends to be
explained by a small number of common factors, namely,
R&D investments, development of process innovation, size
of establishments and the fact that establishments operate
in Computer System Design Services. The reliance on the
protection mechanisms that make up the substitution pattern is explained by an even smaller number of common
factors: R&D and process innovation for the substitution
between patents and complexity of designs, and product
and process innovation in combination with the fact that
establishments operate in Computer System Design Services for the substitution between registration of design
patterns and complexity of designs. Finally, the reliance on
the mechanisms included in the group of independent IP
protection mechanisms is explained by very heterogeneous
factors. In themselves, these results suggest that protecting
service innovations from imitation by rivals involves complex theoretical and empirical issues that call for additional
research.
Let us now review and discuss more precisely the extent
to which the other hypotheses derived from the modied
Howells et al. conceptual frameworks are supported by
the results of the statistical analyses. Hypotheses derived
from the conceptual framework predicted that increasing
R&D intensity contributes to increase the reliance of KIBS
rms on patents (Hypothesis 5) and on the registration of
design patterns (Hypothesis 6). The results of this study
show that as KIBS become more R&D intensive, they tend
to rely not only on patents, but on the complementarities of a large variety of legal and informal mechanisms:
patents, trademarks, complexity of designs, secrecy, and
lead-time advantages over competitors. Therefore, R&D
intensity does not induce KIBS to rely on legal rather than
informal protection mechanisms, but instead to rely on the
complementarities derived from the use of a large variety
of legal and informal mechanisms. This unexpected nding
may be explained by the fact that R&D activities conducted
by KIBS rms might generate outputs that are less codied
and less tangible than predicted in the conceptual framework.
We hypothesized a positive relation between KIBS
knowledge management strategies and patenting
(Hypothesis 7). The results of the statistical analyses
did not support this hypothesis. Instead, they suggest
that different types of knowledge management strategies
are related to the use of different types of protection
mechanisms. Hence, External Knowledge-Sharing with
Research Organizations is related to the use of trademarks,
copyrights and secrecy, while External Knowledge-Sharing
With Market Organizations is related to the use of copyrights and lead-time advantages over competitors. The
third knowledge management strategy tested in this
study, KIBS internal knowledge-sharing, is related to the
use of copyrights, condentiality agreements, lead-time
advantages and complexity of designs. Finally, KIBS
knowledge-development strategies are negatively related
to the use of copyrights, secrecy, complexity of designs
and lead-time advantages. Once more, these unexpected
results suggest that explaining the mechanisms upon
1544
which KIBS rms rely to protect their inventions and

innovations is much more complex than predicted in the
current conceptual frameworks. The tacit and intangible
nature of knowledge and knowledge outputs might make
them more difcult to explain than predicted.
Based on the conceptual framework and prior studies, we also predicted a positive relation between product
innovation and the use of patents, and conversely, a positive relation between process innovations and the use
of informal protection mechanisms (Hypothesis 8). Once
more, this hypothesis was not clearly supported by the
results. These unexpected results might be explained by
two factors. First, in order to test this hypothesis, we had
to take into account three cases: KIBS that developed
product innovations only, those that developed process
innovations only, and nally those that developed simultaneously product and process innovations. The econometric
model used product and process innovations as its reference category, which means that product innovations
only (or process innovations only) were compared to KIBS
that developed simultaneously product and process innovations. Although this approach was the most appropriate
to take into account how KIBS innovate, it was not ideal
for testing Hypothesis 8. Second, these unexpected results
might also be explained by the fact that the difference
between product and process innovations might not be as
clear cut in the knowledge-intensive-based business industry than in the manufacturing industry.
Based on the degree of knowledge codication and
output tangibility, Howells et al.s (2003) conceptual framework, we hypothesized that legal protection mechanisms,
in particular patents, would be more suitable for establishments in Computer System Design Services than for
establishments in engineering and Management Consulting Services (Hypothesis 9). The results actually show that
establishments in Computer System Design Services generally use more both legal and informal mechanisms than
is the case for the other two sectors. These results point
to the severe limits of legal mechanisms to protect service
innovations from imitation for the new technology-based
KIBS like computer system design rms. These results suggest extending to all legal mechanisms a point recently
made by Jorda and Kaeschke (2007, p. 63), who claim that
. . . patents are but the tip of the iceberg in an ocean
of trade secrets. Over 90% of all new technology is covered by trade secrets, and over 80% of all license and
technology transfer agreements cover proprietary knowhow (i.e., trade secrets), or constitute hybrid agreements
relating to patents and trade secrets. Conversely, management consulting service establishments, which represent a
category of rms that are associated with traditional professional service rms, rely more than predicted on legal
mechanisms such as trademarks, copyrights and condentiality agreements, but also less than predicted on informal
methods such as secrecy. Contrary to the predictions of
Hypothesis 9, engineering consulting service establishments rely much less frequently than the other two sectors
on trademarks, copyrights and condentiality agreements.
However, engineering consulting service establishments
rely more on secrecy and complexity of designs than management consulting service establishments. These results
point to the relevance of differentiating new technologybased services from traditional professional services. They
also suggest that engineering consulting services constitute
an intermediary KIBS category.
The results regarding the hypotheses related to the control variables are also mixed. Hypothesis 10 predicting that
the reliance on legal protection mechanisms increases as
KIBS size increases was largely conrmed by the results.
However, the relation between export and the reliance
on legal mechanisms (Hypothesis 11) was not conrmed.
Indeed, we found no signicant relation between export
and the use of legal mechanisms, but positive relations
between export and three out of the four informal protection mechanisms included in this study. Finally, the
hypothesis derived from the literature on manufacturing
rms that predicted that subsidiary rms are more likely
to rely on informal rather than formal protection mechanisms (Hypothesis 12) was not conrmed. We even found a
positive relation between subsidiary KIBS rms and the use
of patents. The hypotheses regarding the control variables
were derived from studies on the manufacturing industry, and the fact that two of them were not conrmed
might suggest that the differences between the knowledgeintensive-based business industry and the manufacturing
industry are very real and justify different approaches and
hypotheses.
The results of this study carry important implications
for future research. They suggest that the degree of knowledge codication (or tacitness) and output tangibility (or
intangibility) have profound impact on the selection of
the mechanisms that KIBS rely on to protect their inventions and innovations from imitation by rival rms. Overall,
the results of this exploratory study suggest that the two
questions related to How KIBS rms combine different
mechanisms to protect their inventions and innovations
and What factors explain these combinations should
receive more attention in future research. The current conceptual frameworks are not very successful to predict the
behaviour of KIBS rms with respect to the mechanisms
they rely on to protect their inventions and innovations.
Hence, more conceptual work is required in this area. Furthermore, more empirical work is needed in order to test
the hypotheses of the conceptual literature in order to
generate more useful insights for the management of innovation by KIBS.
What do these results suggest in regard to the management of the protection of innovations by KIBS? The
existence of complementarities between some protection mechanisms suggests that KIBS derive benets from
the reliance on complementary protection mechanisms.
Failure to recognize complementarities between patents,
registration of design patterns, trademarks, secrecy and
lead-time over competitors may lead to the underexploitation of synergies and the under-protection of
innovations from imitation by rival rms. Thus, managers and policy makers should pay attention not only
to patents, but also to the other protection mechanisms
that complement the use of patents to protect innovations from imitation. Moreover, failure to recognize
substitution between some mechanisms, patents and registration of design patterns with complexity of designs,
may lead to overestimating the contribution of some mechanisms to the protection of innovations. Managers and
policy makers should take into account substitution effects
when they invest resources in the protection of their
innovations.
Overall, the results of this paper show that KIBS do
not consider protection methods of innovation in isolation.
They examine several methods by considering how they
may be interdependent, substitute, or independent from
each other. Results in this paper account for the choices
made by managers of KIBS and do not address the issue
of the effectiveness of the different protection strategies.
Above all, the results of this paper should be considered
as exploratory in an area where empirical studies are still
very scanty. In particular, this exploratory study carries
two limits that need to be pointed out. The rst limit
is that the study did not include KIBS with less than 15
employees. Therefore, the results of this study cannot be
generalized to small KIBS. However, a large sample of rms
was well suited for a study on appropriation mechanisms
of innovations. Moreover, the sample of rms included
in this exploratory study was limited to three industries,
namely, management consulting, engineering consulting
and Computer System Design Services. These three industries represent an interesting sample of KIBS with two
cases associated with new technology-based services and
a third case associated with traditional professional services. The results shed light on very signicant differences
between these three sectors. These differences suggest
that other industries should be studied before generalising our results to all knowledge-intensive-based service
industries.
Table A1 (Continued.)
Items
Communalities
Item 4: Using teams which bring

together people with different skills
Item 5: Encouraging risk-taking
initiatives by employees
Explained variance
Eigenvalue
0.559
0.660
0.498
0.504
Chronbachs Alpha
Appendix A
See Tables A1 and A2 .
Chronbachs Alpha
0.87
External Knowledge-Sharing with Market Organizations (EKSMO)

Item 1: Suppliers of software,
0.497
0.545
hardware, materials, or Equipment
Item 2: Clients or customers
0.505
0.595
Item 3: Consultancy rms
0.588
0.767
Item 4: Competitors and other
0.510
0.714
enterprises from the same industry
Explained variance
65.14%
Eigenvalue
1.75
Chronbachs Alpha
0.55
Internal knowledge-sharing (IKS)

Item 1: Sales and marketing staff
Item 2: Production staff
Item 3: Management staff
Explained variance
Eigenvalue
Communalities
Knowledge-development strategies (KDSI)

Item 1: Encouraging experienced
0.517
workers to transfer their knowledge to
new or less experienced workers
Item 2: Encouraging workers to
0.639
continue their education by
reimbursing tuition fees for
successfully completed work-related
courses
Item 3: Offering off-site training to
0.618
workers in order to keep skills current
Item score
0.646
0.799
0.786
0.503
0.594
0.581
0.635
0.779
0.693
59.24%
1.75
0.67
Table A2
Correlations between continuous explanatory variables
Variable Tolerance
statisticsa
SrR&D IKS
SrR&D
IKS
EKSRO
EKSMO
KDSI
LNSIZE
Table A1
Test of constructs unidimensionality and internal reliability coefcients
(Chronbachs Alpha) for variables including multiple-item scale
66.92%
2.36
0.71
Chronbachs Alpha
The authors thank Fred Gault, Frances Anderson, Susan

Schaan, and Guy Sabourin from Statistics Canada for their
support and advice.
Item score
External Knowledge-Sharing with Research Organizations (EKSRO)

Item 1: Universities or other higher
0.555
0.596
education institutes
Item 2: Federal government research
0.809
0.900
laboratories
Item 3: Provincial/territorial
0.921
0.960
government research Laboratories
Item 4: Private non-prot research
0.725
0.851
laboratories
Explained variance
70.23%
Eigenvalue
2.81
Acknowledgements
Items
1545
0.846
0.865
0.897
0.877
0.799
0.893
EKSRO EKSMO KDSI
0.269 0.155
1
0.247
1
0.168
0.285
0.384
1
LNSIZE
0.030 0.132
0.218
0.106
0.246 0.069
0.210
0.104
1
0.148
1
Tolerance statistic values are between parentheses.
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Amara Landry and Traore Ip Management Strategies For Knowledge Intensive Firms

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Research Policy 37 (2008) 15301547

Contents lists available at ScienceDirect

Managing the protection of innovations in knowledge-intensive

Corresponding author. Tel.: +1 418 656 2131x4382;

Blind et al. (2003), business services are heterogeneous,

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of KIBS are explored in choosing among eight legal and

bundles likely to protect their innovations from imitation

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Fig. 1. Knowledge regimes and appropriability of benets of service innovations.

Hypothesis 1. KIBS that provide service innovations

Hypothesis 3. KIBS that provide service innovations

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anisms that KIBS may use to protect their innovations

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R&D rests more on investments in knowledge employees

In their search for new ideas, KIBS can rely, as we

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ranging from 1 (low importance) to 5 (high importance).

N. Amara et al. / Research Policy 37 (2008) 15301547

considered in this study. Industries were measured with a

and thus be inclined to rely more frequently on secrecy than

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on the question of IP protection methods which asked

4.2. Descriptive statistics

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In % of innovative establishments that used the IP methods

Computer System Design

is that a factor which has an effect on one variable will not

estimating a bivariate or Multivariate Probit model. The

Weighted Index: 5 items

Weighted Index: 4 items

Weighted Index: 3 items

Firms size [number of full-time employees in 2003]

Less than 20 employees

Note: Based on Statistics Canada estimates (Survey of Innovation 2003).

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b10 , b11 , b12 , . . . , b111

resents the vector of the error terms of the eight estimated

Coefcient P-value Coefcient P-value

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Weighted number of observations

Coefcient P-value Coefcient P-value Coefcient P-value

Correlations between disturbances 1

Coefcient P-value Coefcient P-value

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cients between the equations disturbances are all zeros,

from lead-time advantages to protect KIBS from imitation

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Firm size (LnSIZE) is positive and signicant in all the

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which KIBS rms rely to protect their inventions and

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Item 4: Using teams which bring

External Knowledge-Sharing with Market Organizations (EKSMO)

Internal knowledge-sharing (IKS)

Knowledge-development strategies (KDSI)

The authors thank Fred Gault, Frances Anderson, Susan

External Knowledge-Sharing with Research Organizations (EKSRO)

EKSRO EKSMO KDSI

Tolerance statistic values are between parentheses.

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