Shared inventions and the evolution of capabilities: Examining the biotechnology industry

Do capabilities evolve differently as a function of the firm's unique ties or through the cumulative exposure to specific types of knowledge? We view capability evolution with respect to a firm's accumulation of knowledge-derived assets--patents. This study proposes that capabilities evolve by way of a firm's solo and joint invention experiences, and contends that these capabilities are uniquely shaped by the firm's history of patenting with two specific types of ties, upstream and downstream partners. Using a sample of 11,593 patents produced by 256 biotechnology firms from 1985 to 2006, we find that prior joint invention experience diversifies the capabilities of the firm and broadens its strategic options. In uncovering an inverted 'U' relationship, we also find that capabilities evolve differently according to the firm's unique joint invention experiences. Moreover, firms that continue to engage in more joint invention experiences develop broader capabilities than firms that retreat from this strategy and pursue solo inventions, whereby more specialized capabilities develop. Focusing on how R&D strategies impact capability development, our findings extend research on capabilities by accounting for how the path dependent role of shared property rights influences the technological trajectory of the firm.