This paper investigate how union activity that captures R&D rents alters the strategic investment behavior of internationally competitive firms. The benchmark for the analysis is the Spencer and Brander (1983) paper where firms overinvest in R&D to secure a larger share of the imperfectly competitive market. It is shown here that the effect of union activity in this framework is to reduce the firm's strategic investment in R&D. Consequently, there is also a reduction in the unionized firm's market share. The results of the empirical investigation at the industry level indicate that union activity has a significant and negative impact on the level of R&D expenditure in the U.S. manufacuring sector. The interaction term between R&D and the degree of unionization has a negative impact on export penetration. This suggests that the effect of R&D on market share cecreases with an increase in the level of union activity.