On the Duration of Technology Licensing

Gordanier, John and Chun-Hui, Miao (2009): On the Duration of Technology Licensing.

Abstract

We model an innovator's choice of payment scheme and duration as a joint decision in a multi-period licensing game with potential sequential innovations and some irreversibility of technology transfer. We find that it may be optimal to license the innovation for less than the full length of the patent and that royalty contracts can be more profitable than fixed-fee licensing even in the absence of information asymmetry and risk aversion. Moreover, licensing contracts based on royalty have a longer duration than fixed-fee licenses and are more likely to be used in industries where sequential innovations are frequent and intellectual property protection is weak. Our paper also highlights an important link between the study of technology licensing and the theory of durable goods.

• Item Type: MPRA Paper
• Language: English
• Keywords: Innovation, Licensing, Patent, Royalty, Technology Leakage, Time Consistency.
• Subjects: D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D86 - Economics of Contract: Theory; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L13 - Oligopoly and Other Imperfect Markets; L - Industrial Organization > L2 - Firm Objectives, Organization, and Behavior > L24 - Contracting Out ; Joint Ventures ; Technology Licensing

References

Anand, B.N. and T. Khanna, "The Structure of Licensing Contracts," Journal of Industrial Economics, 2000, 48 (1), 103�135.