5.1 Introduction: History and Theoretical Background

The origins and evolution of institutional diversity in knowledge governance have preoccupied scholars from various disciplines over the past few decades. There are several factors that contribute to this growing interest. First and foremost, both theoretical and empirical studies have established that knowledge is the most critical input in the production process (Benkler Reference Benkler2006; Corrado et al. Reference Corrado, Hulten and Sichel2006). This is true across different levels of economic analysis ranging from firm-based micro approaches (Antonelli Reference Antonelli2007; Fisk Reference Fisk2009; Stone Reference Stone, Stone and Arthurs2013) to macro level studies of economic growth (Romer Reference Romer1986). Second, given their lasting impact on knowledge production and dissemination, the role of institutions, both formal and informal, in governing today’s knowledge-based economies is a subject of intense debate. In particular, some researchers express scepticism about legal arrangements such as intellectual property rights (IPR), arguing that they may hinder rather than promote the production and dissemination of knowledge (Fisk Reference Fisk2009; Elkin-Koren and Salzberger Reference Elkin-Koren and Salzberger2012; Benkler Reference Benkler2017).Footnote ¹

None of these ideas are new. The debate about the economic and legal nature of knowledge dates back to the nineteenth century, if not earlier. For example, at the firm level, current debates over the ownership of workplace knowledge in high-tech industries (Saxenian Reference Saxenian1994; Hyde Reference Hyde2003; Stone Reference Stone, Stone and Arthurs2013; Marx Reference Marx2015) resemble the legal disputes over the ownership of workplace knowledge that emerged with the rise of the factory system following the Industrial Revolution (Fisk Reference Fisk2009). In fact, as Pagano (Reference Pagano2020) notes, the issue of the governance of workplace knowledge was first considered by scholars such as Adam Smith and Charles Babbage. They observed that the division of labour has complex implications for both the workforce and society. Depending on the extent – both in scale and scope – of the division of labour within the firm and the market, we could observe either learning by doing (as in Smith’s work) or deteriorating by doing (as in Babbage’s work, later echoed by F. W. Taylor). The adoption of technologies that promote the division of labour of the latter type – where learning and skill development are stifled – has significant consequences for workplace knowledge, including its legal ownership. This is why the rise of business corporation at the turn of the twentieth century coincided with a further erosion of workers’ skills and expertise, along with the transfer of ownership of knowledge they produced on the shop floor to the business corporation itself (Fisk Reference Fisk2009).

Frederick W. Taylor (Reference Taylor1911) was among the early analysts who highlighted the conflict inherent in knowledge governance within business firms, specifically regarding the distributional effects of controlling or owning workplace knowledge. The separation of intellectual and manual labour – and the relocation of the former almost exclusively to managerial authority, as advocated by Taylor’s (Reference Taylor1911) scientific management – exemplifies this kind of technological shift. In the process, attempts to increase productivity often reduced to machine-embedded technologies, neglecting the human knowledge components, that is, workers’ expertise (Fisk Reference Fisk2009). The problem arises primarily from the communal nature of knowledge production, as emphasized by many scholars (Prendergast Reference Prendergast, Dekker and Kuchař2021). In this context, it was Thorstein Veblen (Reference Veblen1899, Reference Veblen1908a, Reference Veblen1908b) who first argued that the common stock of knowledge and skills is an intangible asset that enables physical production processes.Footnote ² However, this idea was lost as economists shifted the focus to the accumulation of tangible assets, that is, physical capital (Prendergast Reference Prendergast, Dekker and Kuchař2021).

As Veblen had explained, production units and indeed human groups more generally have always functioned as communities, whose coherence and continuity are matters of shared knowledge and habits of thought. In the earliest hunter-gatherer societies, for example, the general knowledge that enabled the quest of a livelihood was arguably at least as important as capital goods and equipment. The same holds true even in industrial societies: accumulated experience and knowledge are still transmitted within the community and are thus in a meaningful sense collectively owned. However, what has changed significantly since the Industrial Revolution is that ownership of physical capital goods and equipment has become a prerequisite for effectively utilizing this shared common knowledge. The ownership of industrial equipment, as Veblen (Reference Veblen1908a, 527) put it, became “an institution for cornering the community’s intangible assets.” Industrialization, accompanied by an ever-increasing production of tangible goods, thus became the dominant means of controlling immaterial wealth – and as a result a source of intra-firm conflict between capitalists and those in possession of usable knowledge, most notably technicians and engineers (Veblen Reference Veblen1904).

Debates about the communal and conflictual aspects of knowledge governance – particularly in business firms – have gradually lost prominence. This shift is partly due to the dominant focus of conventional economic analysis on markets, to the neglect of the internal organization of production.Footnote ³ In the basic economic model of competitive markets, atomistic firms, guided solely by the profit motive, do not genuinely need each other to produce new knowledge (Potts Reference Potts2019). According to this view, the problem of knowledge production lies elsewhere. Once the intrinsic characteristics of knowledge – specifically its non-rivalry and non-excludability – are taken into account, an important implication emerges. Knowledge is a public good (Samuelson Reference Samuelson1954; Ostrom and Ostrom Reference Ostrom, Ostrom and Savas1977; Hess and Ostrom Reference Hess and Ostrom2007). A well-developed body of literature on market failure in economics addresses potential remedies for managing public goods, and this framework is applied, usually uncritically, to knowledge governance as well. Since the conventional approach in economics is built on the dichotomy between market and state, the proposed solutions typically involve institutional arrangements that fall within one of these categories (Scotchmer Reference Scotchmer2004). These alternative arrangements are illustrated in Table 5.1.

The IPR system is considered as a distinct approach to incentivizing knowledge production, as it is the only decentralized mechanism that addresses the underinvestment problem by establishing an efficient market for various kinds of knowledge assets (Scotchmer Reference Scotchmer2004; Gans and Stern Reference Gans and Stern2010; Gürpinar and Özveren Reference Gürpinar, Eyüp Özveren, Raban and Włodarczyk2024). On the other hand, centralized solutions typically involve some form of government intervention, depending on whether the reward is given before or after the creation of new knowledge. In this regard, the IPR system is not only an ex post mechanism but also the only system that is believed to charge only the consumers who are willing to pay for the creation of new knowledge. The theory that comes closest to the often-overlooked discussion of intra-firm dynamics concerning the control and ownership of knowledge is human capital theory. This theory has been used to address dilemmas related to workplace knowledge by conceptualizing worker skills and competencies as valuable assets or resources (Romer Reference Romer1986; Arrow Reference Arrow and Nelson1962; Becker Reference Becker1964). However, human capital theory primarily emphasizes individual decisions – such as those made by employees to acquire knowledge – and the impact of these decisions on productivity. What it tends to overlook is the inherently conflictual nature of knowledge governance, largely because it pays insufficient attention to the legal dimension of ownership and control.

In this context, one of the key contributions of the Governing Knowledge Commons (GKC) approach is its recognition of institutional arrangements that are largely absent from the traditional framework. The standard public goods perspective tends to overlook the importance of informal rules and community characteristics – such as social norms of sharing, cooperation, and reciprocity – in shaping knowledge governance (Hess and Ostrom Reference Hess and Ostrom2007; Frischmann et al. Reference Frischmann, Madison and Strandburg2014; Kealey and Ricketts Reference Kealey and Ricketts2014; Potts Reference Potts2019; Dekker and Kuchař Reference Dekker and Kuchař2021; Prendergast Reference Prendergast, Dekker and Kuchař2021). This oversight stems from a failure to account for the communal nature of knowledge production, as emphasized in earlier literature, and from a lack of attention to how agents manage the conflicts that arise from this communal dimension of knowledge governance – conflicts that lie beyond the scope of the public goods paradigm. Meanwhile, developed during roughly the same period, the Institutional Complementarities (IC) approach sheds light on the inefficiencies and diversity that emerge from the interdependent and complex nature of knowledge creation. It redirects attention to the issue of the ownership of knowledge assets and how it may influence the evolution of knowledge governance in today’s knowledge-based economies (Pagano and Rossi Reference Pagano and Rossi2004; Pagano Reference Pagano2011; Landini Reference Landini2013; Gürpinar Reference Gürpinar2016a).

Against this background, this chapter proposes a study of corporate knowledge commons that focuses on the micro-level interdependence between technological advancements and institutional diversity in IPR within business corporations. I integrate the IC approach with the GKC framework to explore the interplay between the characteristics of knowledge as a shared resource, the formal and informal rules governing its production and uses, and the strategic choices of the relevant actors. Section 5.2 outlines the theoretical foundations of the GKC and IC and discusses the possible benefits of their integration. Section 5.3 dwells into a micro-level analysis of the intra-firm evolution of and interdependence between the choice of IPR regimes and technological trajectories. Section 5.4 concludes the chapter.

5.2 Institutional Complementarities and Adjacent Action Situations in the GKC Framework

The GKC approach demonstrates that institutional arrangements for knowledge governance extend beyond IPR systems and government regulations. In other words, it highlights that the traditional framework – focused primarily on markets and state intervention – is incomplete. Several factors contribute to this limitation. First and foremost, the public goods approach overlooks the role of informal rules and the features of the community – such as social norms of sharing, cooperation, and reciprocity – in knowledge governance (Hess and Ostrom Reference Hess and Ostrom2007; Kealey and Ricketts Reference Kealey and Ricketts2014; Benkler Reference Benkler2017; Potts Reference Potts2019; Prendergast Reference Prendergast, Dekker and Kuchař2021). Reciprocity plays a particularly crucial role in this context, since access to shared knowledge usually requires prior contribution. The nature of reciprocity demands contribution to maintain membership in a community, that is, free riding generally is not sustainable in ongoing communal relationships. Moreover, as Prendergast (Reference Prendergast, Dekker and Kuchař2021) points out, knowledge communities produce not only codified knowledge but also knowledge embodied in individuals. Production and dissemination of such tacit knowledge depend on specific norms of conduct, and usually evolve organically within the community. Therefore, the governance of knowledge production and dissemination operates not only through market-based systems with IPR and government regulation but also through community-based frameworks built on social norms. These governance structures determine the degree of openness with which knowledge can be accessed and shared. Importantly, alternative governance structures, which mediate the primary tension between technology and institutions in the governance of knowledge commons, are not mutually exclusive.

Second, shared knowledge is not usually easily accessible because its tacitness creates barriers. This further reinforces the value of the GKC approach and challenges the understanding of knowledge as originally proposed by the public goods approach (Polanyi Reference Polanyi1958; Nelson and Winter Reference Nelson and Winter1982; Teece et al. Reference Teece, Pisano and Shuen1997; Teece Reference Teece1998).Footnote ⁴ Knowledge exhibits only partial excludability features (Kealey and Ricketts Reference Kealey and Ricketts2014, Reference Kealey, Ricketts, Dekker and Kuchař2021). Setting aside the more philosophical debates on the nature of tacit knowledge (Cowan et al. Reference Cowan, David and Foray2000), its existence underscores the importance of community-based knowledge governance, that is, governance that involves neither recourse to public intervention nor IPRs as traditionally understood. In such alternative knowledge governance structures, contributors receive differential benefits compared with non-contributors (Kealey and Ricketts Reference Kealey and Ricketts2014; Aydogmus and Gürpinar Reference Aydogmus and Gürpinar2022).

Third, knowledge is a unique asset in part because it is an intangible resource (Frischmann et al. Reference Frischmann, Madison and Strandburg2014) whose production and reproduction require continuous interaction among agents. This process is subject to another qualification: the production of new knowledge almost always relies on existing knowledge as an input. Therefore, knowledge production is highly sequential and cumulative (Scotchmer Reference Scotchmer1991). These characteristics add to the complexity of knowledge governance, since the conditions under which new knowledge is produced are significantly shaped by prior knowledge and the institutional arrangements that enable them. In this context, the action arena (see below) in which knowledge-related decisions are made is influenced by historical trajectories of both legal arrangements and technology. This process is path-dependent. Since pre-existing conditions exert a significant influence on the production on new knowledge, knowledge production and dissemination must be analysed within a dynamic framework, where past choices and strategies of agents exert a lasting influence on current and future decisions.

The GKC framework – like the Institutional Analysis and Development (IAD) framework upon which it is based – provides researchers with a powerful tool for analysing the diverse and often conflictual institutional arrangements that shape knowledge governance. It allows for the integration of key elements, such as the role of communities, social norms, tacit knowledge, and the dynamic nature of knowledge production, within a unified analytical structure. An important strength of the GKC framework is its ability to distinguish external variables – such as community attributes and rules-in-use – and the action arena, which includes the strategies and interactions of individual agents (Cole Reference Cole, Frischmann, Madison and Strandburg2014). This distinction facilitates a more detailed analysis of how agents’ actions both shape and are shaped by the formal and informal institutions in place.

In this formulation, the GKC framework highlights the complexity of knowledge governance that arises from the interdependence between various institutional arrangements. This interdependence was, in fact, a central concern for Elinor Ostrom. She argued that, at the configural level of analysis, the effect of a single rule is dependent on some other rules within a given situation (Ostrom Reference Ostrom1986). Consequently, she rejected the idea of studying rules in isolation and instead emphasized the importance of studying the interdependence between rules-in-use as components of broader institutional context. Ostrom acknowledged the inherent complexity of institutional arrangements and identified game theory – an important foundation of the IAD framework (Ostrom Reference Ostrom2010, 810) – as a useful tool for formalizing and understanding this complexity, particularly as it gives rise to various social dilemmas (Ostrom et al. Reference Ostrom, Gardner and Walker1994).

This is why incorporating adjacent actions situations into the GKC framework represents a fruitful conceptual innovation (Dekker and Kuchař Reference Dekker and Kuchař2024) that can deepen our understating of the corporation as an institution (Gindis and Cole Reference Gindis, Cole and Gindis2026, this volume). As argued by Cole et al. (Reference Cole, Epstein and McGinnis2019), no single action situation exists in isolation; instead, actions situations can be seen as a network. This means that actions as well as outcomes in one action situation influence other action situations. For example, as Dekker and Kuchař (Reference Dekker and Kuchař2024) point out, various elements of market governance, most notably the formation and implementation of rules, constitute action situations that are adjacent to the primary action situation, which is market exchange itself. These adjacent action situations interact with and influence one another, thereby collectively determining the performance of outcomes of the market exchange itself.

The key idea underpinning the IC approach, namely that there are interdependent choice domains, links well with the Bloomington School’s concept of adjacent action situations. Likewise, rooted in game theory, the IC framework provides a theoretical lens for examining the interdependence between institutions (Pagano and Rowthorn Reference Pagano and Rowthorn1994; Aoki Reference Aoki2001; Pagano Reference Pagano, Cafaggi, Pagano and Nicita2007; Landini and Pagano Reference Landini, Pagano, Marciano and Ramello2016). Originally applied in the context of firm behaviour (Milgrom and Roberts Reference Milgrom and Roberts1990), the IC approach has since been used to explore the complementarities between technology and property rights within production processes. Specifically, it examines how the characteristics of tangible assets used in production interact with formal and informal institutional arrangements – those that govern the distribution of ownership and control rights – across the micro, meso, and macro levels of economic analysis (Hall and Soskice Reference Hall and Soskice2001; Landini and Pagano Reference Landini, Pagano, Marciano and Ramello2016).Footnote ⁵ More generally, the IC approach provides a valuable tool for analysing the origins and evolution of institutional diversity, where interdependence across domains lead to the emergence of multiple equilibria. Depending on initial conditions that shape the available choices in any one domain, suboptimal or inferior institutional arrangements may emerge (Aoki Reference Aoki2001; Nicita and Pagano Reference Nicita, Pagano and Backhaus2005). This analytical strength of the framework aligns closely with the study of knowledge commons, since, as Benkler (Reference Benkler2017) argues, institutional diversity is one of the defining characteristics of such knowledge commons.

The IC approach offers a framework for comparing and contrasting these alternative institutional arrangements in term of (Pareto) efficiency.Footnote ⁶ This framework helps explain why (or how) inferior institutional arrangements may persist under certain conditions in knowledge governance. While competition may effectively select for (Pareto) efficient technologies, given a set of formal and informal rules, it may also inhibit the emergence and development of more efficient technologies, which could thrive under alternative institutional arrangements (Pagano Reference Pagano2011). Such outcomes may arise from agents’ inability to strategically coordinate their choices across different domains (Nicita and Pagano Reference Nicita, Pagano and Backhaus2005) or from conflicts of interest regarding the division of the surplus generated by their interactions (Bowles Reference Bowles2004). In this way, the IC approach sheds light on phenomena like persistence, inertia, and diversity, which are frequently observed in the analysis of institutional change. This insight is especially relevant to the study of corporate knowledge commons, particularly in relation to the role of IPR in competitive corporate behaviour (Benkler Reference Benkler2002, Reference Benkler2017; Boldrin and Levine Reference Boldrin and Levine2008). A key takeaway is that the viability of any technology is intrinsically influenced by existing property rights regimes, and vice versa.

These considerations suggest that a combination of the IC and GKC frameworks can yield valuable insights. Figure 5.1 combines the IC and the GKC frameworks in the context of the present discussion.

Figure 5.1

A combined GKC–IC framework.

In the GKC framework, the knowledge creation action arena comprises several adjacent action situations in which agents interact. The IC approach is particularly informative in highlighting the interdependence between specific adjacent action situations. These include the choice of technology (technologies that either foster or hinder investment in human capital) and the selection of various forms of IPR (such as patents, trade secrets, and non-compete agreements) by firms. In the IPR domain (represented by the grey-shaded squares in Figure 5.1), the strategies of key actors include the provision of IPR forms by a government body (e.g. patent office), enforcement of IPRs by non-governmental public actors (e.g. courts), and the selection of IPR forms by firms. In the technology domain (represented by the white squares in Figure 5.1), the strategies of key actors revolve around the choice of technology (by firms) and investment in human capital (by firms and employees). The choices made by actors (patent office, courts, firms) in the IPR domain strategically interact with those in the technology domain (e.g. firms’ investments in technology, workers’ investment human capital).

These interactions within the action arena represent only part of the complexity of knowledge creation. External variables – such as the existing features of the community (including the prevailing codified and tacit knowledge encapsulated in technology), and formal and informal rules (including the IPR regime and social norms) – can also exert significant influence on the choice of technology and IPR within the action arena. Moreover, the choice of technology and IPR in the action arena can themselves become external variables that, in turn, affect the choices of agents in a dynamic framework. This dynamic and complex nature of knowledge governance is highlighted in the GKC framework.Footnote ⁷ In essence, as Cole et al. (Reference Cole, Epstein and McGinnis2019) note, there is an almost dialectical process through which external variables in one period are transformed into outcomes, subsequently becoming the external variables for the next period. The block arrows in Figure 5.1 illustrate the interplay between these two domains.

The interdependence between the choice of technology and IPR operates through two channels. The first channel, highlighted by the GKC framework, is the recursive interdependence between adjacent action situations and pre-existing conditions. The second channel, underscored by the IC approach, emphasizes the interdependence that exists between these two broad domains within the action arena – technology and IPR – depicted by the white and grey boxes in Figure 5.1. A notable feature of the IC approach – and its key contribution to the present discussion – is its assertion that actors often struggle to strategically coordinate their decisions within this second channel of interdependence. This dynamic is a significant source of institutional evolution and diversity in knowledge creation, which also explains the potential source of persistence of certain institutional arrangements (e.g. an overreliance on IPR) that are often criticized in the literature (as explored further in the next section).

The analysis can be broken down as follows. As we have seen, the GKC framework highlights how feedback from outcomes of action situations affects, directly or indirectly, resource attributes, community attributes, and rules-in-use. As a result, all external variables are endogenized within the framework, forming sets of “initial conditions” that precede any particular social interaction. One example of this dynamic interdependence can be found in the evolution of the IPR regime. Central authorities have, over the last two centuries, made substantial investment in the establishment of the IPR regime as we know it today. Consequently, the legal environment is now primarily designed for inventors who seek exclusive rights to their innovations. As the pendulum has swung strongly towards private property and secrecy (Fisk Reference Fisk2009), there has been only a minimal effort to establish systems that promote knowledge sharing (Baldwin and von Hippel Reference Baldwin and von Hippel2011). The potentially detrimental effects of the current IPR regime on new forms of business, including commons-based peer production, are well documented (Boyle Reference Boyle2003; Benkler Reference Benkler2006).

This suggests that existing legal rules exert a significant influence in shaping business firms’ choice of technology. That is, these legal infrastructures can either facilitate or impede the accumulation of new knowledge by knowledge workers, as the ownership and control of knowledge assets – outcomes of past interactions – have a decisive impact on business firms’ choice of technology today. Strict IPR, for example, may hinder investment in human capital by workers, while simultaneously promoting investment in technologies that favour codified technology by firms (Cowan et al. Reference Cowan, David and Foray2000; Foray Reference Foray2004; Aydogmus and Gürpinar Reference Aydogmus and Gürpinar2022). To put it differently, as Benkler (Reference Benkler2006) argued, the legal regime functions as an institution that allows yesterday’s winners to dictate the rules of competition today. This analysis can be extended to demonstrate how the set of initial conditions regarding the characteristics of technology – such as the prior choice of codification at the expense of workers’ skills and abilities – can facilitate not only further investment in technologies that deepen reliance on codified knowledge but also the tightening of IPR in the realm of workplace knowledge, as documented by Fisk (Reference Fisk2009). A clear example of this was found in Taylor’s scientific management, which prioritized the codification of knowledge embedded in tasks over the development of worker’s skills and expertise. Furthermore, this process can lead to systemic underinvestment in workers’ intellectual skills and expertise, emerging from the mutually reinforcing relationship between technological choice and IPR regimes.

Yet, the role of IPR in our framework functions both as an external variable (i.e. a pre-existing condition) and as a strategic choice within the action arena. This dual role arises because the so-called intrinsic features of knowledge – such as its degree of tacitness – are themselves shaped by firms’ strategic decisions concerning IPR. For example, when firms choose whether to rely on technologies embodied in workers’ skills or to codify knowledge in ways that reduce reliance on workers’ skills, they often actively use IPR to restrict the use of embodied knowledge created in the production process. In doing so, firms can strategically deploy legal instruments to prevent workers from using their tacit knowledge outside the firm. Thus, treating the legal framework solely as a set of initial condition risks overlooking how business firms continually use IPR not only in competition with other firms but also as a tool of control over workers, as illustrated by growing reliance on non-compete agreements (Marx Reference Marx2015).

This unique feature of the ongoing interplay between technology and IPR in the knowledge economy was first recognized by Elkin-Koren and Salzberger (Reference Elkin-Koren and Salzberger2004) and Pagano and Rossi (Reference Pagano and Rossi2004). These authors emphasize that neither technology nor IPR can be treated as fixed or purely external variables. Instead, their interdependence must be explicitly addressed in any meaningful analysis of knowledge creation. In line with this, and inspired by Gindis and Cole’s (this volume) argument that the routine operations of business firms – embedded within a network of adjacent action situations – reinforce and are informed by the legal status of the corporation, the next section proposes an analysis that zooms in on relevant intra-firm relationships. Specifically, it focuses on strategic interactions among stakeholders, such as shareholders, managers, and knowledge workers.

5.3 The Corporation as Commons: IPR and the Governance of Knowledge in Firms

Examinations of corporate knowledge commons, developed as part of the broader GKC research program, offer valuable insights into the governance of knowledge across various levels of economic analysis. Viewing the modern business corporation through the lens of commons arrangements, along the lines initially proposed by Deakin (Reference Deakin2012), requires the identification of the types of shared assets or resources involved in corporate knowledge creation. Crucially, many of these intangible (knowledge) assets are created communally through the contributions of various stakeholders, such as shareholders, managers, and employees (Gindis and Cole, this volume). Thereby, it is important to recall that technologies utilized by business corporations are the product of cumulative interactions among various stakeholders over time (Allen Reference Allen1983; Boyle Reference Boyle2003; Nuvolari Reference Nuvolari2004; Kealey and Ricketts Reference Kealey, Ricketts, Dekker and Kuchař2021). It is this communal nature of accumulated knowledge that justifies analysing the business firm as corporate knowledge commons. Legal, but perhaps more crucially, social infrastructures – such as norms of sharing and cooperation – play a critical role when conceptualizing corporation as a commons.Footnote ⁸

The value of communal cooperation notwithstanding, interactions among intra-firm stakeholders are often fraught with conflict. Moreover, as Milgrom and Roberts (Reference Milgrom and Roberts1990) emphasized, the strategies of various stakeholders within business firms are not perfectly coordinated. Typically, managers shape the firm’s technological trajectory, particularly thorough investments in codified knowledge; knowledge workers make decisions regarding the development of their intellectual skills; and shareholders influence the legal treatment of knowledge assets to reap the benefits (Gürpinar Reference Gürpinar2016b). The strategic interactions between these three sets of actors in different decision domains – which are increasingly acknowledged in the context of the knowledge economy (Landini Reference Landini2013; Gürpinar Reference Gürpinar2016b) – underscore the value of the combined GKC–IC framework.

As noted in the introduction, a central conflict in business firms concerns the ownership and control of knowledge assets created during and used in the production process. While patents are the most viable form of IPR protection employed by firms, they may suit the codified portion of those assets but are generally insufficient for safeguarding the full range of knowledge developed internally within firms. Some of these knowledge assets are embodied in the skills, talent, and expertise of knowledge workers (Prendergast Reference Prendergast, Dekker and Kuchař2021), which poses a challenge to the traditional forms of IPR protection.

Assume that the circle in Figure 5.2 represents a technique – a specific technology that enables a firm to produce a given product. Since the codified portion of knowledge (which can be protected through patents) constitutes only a part of the total knowledge embodied in a technique, business corporations seeking to minimize involuntary knowledge spillovers related to the technique often employ a variety of additional legal strategies within the domain of IPR. Put differently, when patents prove inadequate, control over intra-firm knowledge assets are governed by other legal mechanisms, such as trade secrets and non-compete covenants (Marx Reference Marx2015).

Figure 5.2

Complementary legal arrangements governing a technique.

Such strategic choices made by firms interact closely with the choices of knowledge workers. A key consequence of efforts to safeguard intangible assets is that it may lead to underinvestment by knowledge workers, in response to perceptions that their contributions are excessively controlled by their employers. Faced with less-than-fully cooperating employees, firms may further restrict workers from owning or using the knowledge assets they developed during their employment outside the firm. Non-competes thus restrict the productive uses of employees’ occupational or industry-specific human capital outside the firm. Corporations often justify the use of such strategies by arguing that trade secrets alone are often insufficient; non-competes are also employed to prevent the leakage of trade secrets (Marx and Fleming Reference Marx and Fleming2012). These tools that strive to safeguard intangible assets beyond what the patent system can offer function not as substitutes to be used for different contexts, but as complements to patents. Outcome 1 captures this idea.Footnote ⁹

This outcome explains, at least in part, how and why corporations have extended the scale and scope of IPR beyond their original intent – which was primarily justified on the ground of correcting market failures. In this context, it goes without saying that an institutional environment already favouring IPR not only facilitates but also further incentivizes business firms to expand the scale and scope of IPR protection, often at the expense of openness and sharing-based institutional arrangements. Much of this expansion in IPR strategies centers on patents. However, since it is the skills and expertise of employees that create the knowledge-intensive outputs requiring protection, firms increasingly resort to additional legal mechanisms aimed at controlling employees’ human capital. The overall effect is to control workplace knowledge in both its codified form (patents) and tacit dimensions (non-compete agreements).

A second set of strategies used by business firms focuses on technology. In the race to accumulate more patents, business firms can also increasingly invest in technologies that favour codified knowledge over tacit knowledge. Specifically, firms may choose to invest in technologies that facilitate the codification of knowledge, which in turn supports patenting efforts, as codification detaches knowledge from the individual who possesses it. This is summarized in Outcome 2. This strategy is employed because codification makes the object of protection more clearly identifiable (Cowan et al. Reference Cowan, David and Foray2000; Foray Reference Foray2004; Arora and Gambardella Reference Arora and Gambardella2010). As a result, the possibilities and prospects of patentability increase, allowing a greater extent of a technique to be covered by a patent.

This shift towards codified knowledge is detrimental to the accumulation of tacit knowledge. Thus, by investing in technologies that rely on and promote codification, firms reduce their reliance on tacit knowledge. This, in turn, diminishes the bargaining power of knowledge workers. Overall, such shifts in the domain of technology risks marginalizing the critical role of workers’ intellectual skills and expertise in the production process, thereby altering the internal knowledge dynamics within the business corporation in ways that are potentially detrimental to knowledge workers (see Figure 5.3). Indeed, developments in technologies that significantly enhance codification (artificial intelligence, machine learning, and so on) further exemplify this outcome.

Figure 5.3

Changing IPR mix.

Patenting begets further patenting, creating a web of interactions across adjacent action situations that sustain and reinforce each other. While a possible justification for this overreaching control over all types of knowledge assets, including those embodied in workers’ skills, could be that firms must protect themselves from the potential loss of knowledge assets, the feedback effect on the willingness of knowledge workers to invest in human capital can be detrimental, especially when they are unable to leverage the skills and capabilities in subsequent employment within the same industry. This is captured in Outcome 3, which is directly linked to the influence of IPR on employee incentives, which in turn shape the trajectory of technology development within business firms (Gürpinar Reference Gürpinar2016b).

Overall, the chain of outcomes described here emerges from the interactions between stakeholders across multiple domains and depends on the configuration of adjacent action situations. The decision by firms to tighten IPR on employee-created knowledge leads to underinvestment in the development of intellectual skills among employees. What is crucial for knowledge workers is the industry and occupation-specific intellectual skills, which legal arrangements such as non-competes directly limit (Marx and Fleming Reference Marx and Fleming2012). Thus, efforts to limit knowledge spillovers often come at the expense of labour mobility and can undermine knowledge workers’ motivation to invest in firm- and industry-specific intellectual skills (Gilson Reference Gilson1999; Hyde Reference Hyde2003; Fisk Reference Fisk2009; Marx and Fleming Reference Marx and Fleming2012). This is why some scholars argue that one reason behind the success of Silicon Valley is the non-enforcement of non-compete agreements by the state (Saxenian Reference Saxenian1994; Gilson Reference Gilson1999; Hyde Reference Hyde2003). A contrasting example is the broader debate on non-compete agreements, which highlights how such legal arrangements can directly impact economic growth (Bjoerst Reference Bjoerst2019).

This discussion underscores another crucial implication of the combination of the IC approach with the GKC framework, augmented to include adjacent action situations. Adjacent action situations arise within a set of existing or external conditions, which are mainly shaped by the features of the resource systems within which they are embedded (Cole et al. Reference Cole, Epstein and McGinnis2019; Gindis and Cole, this volume). These conditions, which include the prevailing knowledge governance systems, in turn specify how actors are impacted by the existing conditions while interacting in the action arena. Yet, the choices made in the action arena – shaped by the prevailing knowledge governance systems, the characteristics of knowledge communities, and the legal status of knowledge – become part of the pre-existing conditions in every iteration of the web of interactions (see Figure 5.1). Therefore, to make sense of external variables (the outcome of past decisions) and to infer possible future configurations (outcome of interactions of adjacent action situations), it is crucial to examine the firm-level sources of IC within the GKC framework. As demonstrated here, this dynamic process within the business corporation emerges from two interrelated yet analytically distinct processes: first, the tightening of IPR arrangements in ways that constrain knowledge workers’ autonomy over their embodied knowledge and skills; and second, increased investment in technologies that reduce reliance on tacit, worker-embodied expertise in favour of codified knowledge embedded in machinery, blueprints, software, and so on. Together, these choices create a feedback loop that discourages workers from developing their intellectual capabilities.

5.4 Conclusion

It has long been recognized that the primary capital of business corporations is immaterial, relying heavily on legal rights, contracts, and the process of purchase and sale in markets (Veblen Reference Veblen1908a: 163). Legal arrangements are therefore essential to understanding the nature of intangible assets, including knowledge, that firms utilize in the production process. This is why, in today’s knowledge-based economies, there is a renewed interest in conceptualizing useful knowledge as an economic asset. In addition to the role of business corporations, there is a growing recognition that in the digital economy or the networked information economy, knowledge commons and innovation commons play central roles (Benkler Reference Benkler2002, Reference Benkler2006; von Hippel Reference von Hippel2005; Hess and Ostrom Reference Hess and Ostrom2007; Frischman et al. Reference Frischmann, Madison and Strandburg2014; Potts Reference Potts2019).

We now recognize that firms, industries, and indeed economies generate value by drawing on, creating, combining, and exchanging a range of intangible knowledge assets, including the codified knowledge embodied in blueprints, drawings, instructions, and software but also the tacit knowledge embodied in the skills and expertise of knowledge workers (Gürpinar and Özveren Reference Gürpinar, Eyüp Özveren, Raban and Włodarczyk2024). Many of these knowledge assets are inherited from the previous generations and are the result of their collective efforts (Boyle Reference Boyle2003; Jessop Reference Jessop, Buğra and Ağartan2007). Business corporations take part in the shared collective efforts to create useful knowledge. This point directly relates to the idea of corporate knowledge commons. It is important, in this respect, to extend the discussion beyond community governance to the inherent conflicts within the business firm.

The combined GKC–IC framework proposed in this chapter offers valuable insights into the ongoing debate about how corporations can be understood as knowledge commons within today’s environment – an environment that is increasingly defined by the extensive use of IPR in governing knowledge assets. A key dimension of the present discussion is the conflictual nature of ownership of intangible (knowledge) assets within business firms. The interdependence between adjacent action situations – particularly those involving IPR and technology – results not only in the exclusion of knowledge workers from accessing and utilizing the very knowledge they have produced but also in the gradual deterioration of their skills and expertise over time. This dynamic process creates a vicious cycle that may further erode the institutional diversity of corporate knowledge governance in favour of IPR-based governance mechanisms. Indeed, the IPR strategies employed by corporations can increase the costs of and barriers associated with the emergence of alternative, more collaborative forms of knowledge production. It is important to recognize that contemporary legal arrangements are primarily optimized for a market-based (and private property) system (Benkler Reference Benkler2017).

Of course, this does not imply that IPR as a tool should be abolished from the toolkit of policymakers. Rather, it suggests that IPR addresses only a portion of the broader landscape of knowledge governance in today’s complex environment (Gürpinar and Özveren Reference Gürpinar, Eyüp Özveren, Raban and Włodarczyk2024), and that policymakers should bear in mind that current IPR-related governance mechanisms not only have the potential to extend beyond their traditional boundaries – as conceptualized by the public goods approach – but may also effectively inhibit the development of alternatives that place greater emphasis on the communal nature of knowledge production. Such alternatives would require paying due respect to the contributions in terms of skills, talent, and expertise of all stakeholders, especially knowledge workers. This perspective was highlighted in the early days of the knowledge-based economy (see, for example, Zuboff Reference Zuboff1989). However, it has since been overshadowed by policy and scholarly debates focused on the tightening of IPR (Boldrin and Levine Reference Boldrin and Levine2008) and the increasing codification of knowledge (Foray Reference Foray2004), a trend that is likely to continue with the rise of artificial intelligence and machine learning.

As this chapter has shown, certain technologies may be seen as responses to the incentive mechanisms embedded in the existing institutional setup. Technology does not develop in an institution-free environment. Decisions about investment in technology by business firms, but also decisions regarding skill development by employees – key assets for firms – are made within an institutional environment shaped by past IPR decisions. Consequently, both prior investments in specific technologies and past decisions regarding the forms of IPRs can influence the trajectory of future technological development, by either facilitating or constraining subsequent investments in alternative technologies.

This chapter has also shown how technologies that significantly enable and enhance codification may depend, at least in part, on interactions between adjacent action situations. What this contributes to the emerging corporate knowledge commons literature is an understanding of how complementarities between various firm strategies, regarding the choice of technology and the choice of IPR, co-determine each other, and ultimately drive the evolution of technology in the system. An immediate policy implication follows. To the extent that the domains of IPR and technology complement and reinforce each other, coordinated interventions across multiple adjacent action situations are necessary to alter any institutional arrangement that is deemed suboptimal. Therefore, if scholars or public authorities identify such institutional arrangements that, for example, undermine commons aspects of knowledge governance, a combined set of policies – both in the domains of IPR and technology – is essential. Such an approach to policymaking would not only address undesired institutional arrangements but also foster greater institutional diversity in the governance of knowledge. Partial measures, such as adjusting IPR for greater openness and sharing, may be insufficient, since legal arrangements and technologies create self-sustaining equilibria.