Legal Distance, Cognitive Distance, and Conflict Resolution in International Business Intellectual Property Disputes Stav Fainshmidt a, ⁎, George O. White III a,1 , Carole Cangioni b a Department of Management, College of Business and Public Administration, 2167 Constant Hall, Old Dominion University, Norfolk, VA 23529, United States b Department of Management, Haile/US Bank College of Business, Northern Kentucky University, Highland Heights, KY 41099, United States article info abstract Article history: Received 8 October 2012 Received in revised form 19 March 2013 Accepted 20 March 2013 Available online xxxx Due to the rising importance of intellectual property (IP) and increasing incidence of IP violations in today's global economy, this manuscript examines how legal and cognitive distances between MNEs engaged in an international IP dispute affect conflict resolution strategy choice. Even though such conflicts require some form of resolution, to date no consensus has developed with regard to what explains conflict resolution strategy choice in international IP disputes. We integrate IP, conflict management, and institutional theory literatures in testing our hypotheses on a dataset of 243 dyads consisting of 486 MNEs from 28 different countries engaged in international IP disputes. Surprisingly, we find that legal distance is positively associated with the likelihood of using negotiation (as opposed to litigation) as a conflict resolution strategy. However, cognitive distance increases reliance on litigation and at the same time weakens the effect of legal distance. This finding suggests that inherently tacit differences between home country origins may impede reaching a negotiated agreement, even though MNEs are able to bridge more formalized, codifiable, legal differences. Implications and future research directions are discussed. © 2013 Elsevier Inc. All rights reserved. Keywords: Legal distance Cognitive distance Intellectual property Conflict resolution Multinational enterprise 1. Introduction In July, 2007, 3M and Sony Corporation, two global electronics giants, settled a patent dispute regarding a lithium ion battery cathode, which was filed by 3M only four months beforehand. 2 Not surprisingly, the specific terms of the settlement remain confidential. More importantly, though, the circumstances which brought these two to settle such a dispute remain a mystery as well. Since intellectual property (IP) 3 is an extremely important source of value for multinational enterprises (MNEs) operating in today's global economy (Terpstra et al., 2005), IP disputes, such as the one between 3M and Sony, are becoming much more common (Ansson, 1999; LoVoi, 1999; Tiefenbrun, 1998; Wilson, 1997; Yu, 2002). Nevertheless, even though such conflicts require some form of resolution (Fey and Beamish, 2000; Wang et al., 2005) the extant literature offers little guidance with regard to what explains MNE conflict resolution choice in international business IP disputes. To date, the literature has largely emphasized the importance of host country environmental factors and their influence on MNE IP protection (e.g., Clegg and Cross, 2000; Zhao, 2006). However, because MNEs coming from various institutional contexts have different perspectives on how best to resolve an IP conflict, dissimilarities between home countries can influence the way disputes are approached and resolved (Estrin et al., 2009; Gaur and Lu, 2007; Xu et al., 2004). Rooted in institutional theory, institutional distance, “a nonefficiency perspective in which [the] institutional environment is seen as the key determinant of firm Journal of International Management xxx (2013) xxx–xxx ⁎ Corresponding author. Tel.: +1 757 353 5548; fax: +1 757 683 3258. E-mail addresses: sfainshm@odu.edu (S. Fainshmidt), gowhite@odu.edu (G.O. White), cangionic1@nku.edu (C. Cangioni). 1 Tel.: +1 757 683 3836; fax: +1 757 683 3258. 2 Official press release from the 3M Corporation website. http://solutions.3m.com/wps/portal/3M/en_US/CMPAGlobalNewsCtr/news-center/news/press-release/. 3 Intellectual property concerns “…the property created or recognized by the existing legal regimes of copyright, patent, and trademark. . .”, among others (Hughes, 1988, p. 290; Miller and Davis, 2000). These properties are intangible assets, which have resulted from human intellectual activity (Ricketson, 1991). INTMAN-00488; No of Pages 13 1075-4253/$ – see front matter © 2013 Elsevier Inc. All rights reserved. http://dx.doi.org/10.1016/j.intman.2013.03.008 Contents lists available at SciVerse ScienceDirect Journal of International Management Please cite this article as: Fainshmidt, S., et al., Legal Distance, Cognitive Distance, and Conflict Resolution in International Business Intellectual Property Disputes, Journal of International Management (2013), http://dx.doi.org/10.1016/j.intman.2013.03.008