How much are flexibility and uncertainty worth in patent licensing?

As patent licensing has become the prime driver of technology trade, understanding the rationales behind a properly-defined payment structure of the agreements is essential. Specifically, among the other remuneration components, upfront fees are critical in license negotiations since they imply a si...

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Bibliographic Details
Published in:Economia e politica industriale 2015-12, Vol.42 (4), p.371-394
Main Authors: Isabella Leone, Maria, Oriani, Raffaele, Reichstein, Toke
Format: Article
Language:English
Subjects:
Business Strategy/Leadership
Economics
Economics and Finance
Entrepreneurship
Fees & charges
Flexibility
Industrial economics
Industrial Organization
Licensing
R & D/Technology Policy
Uncertainty
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Summary:As patent licensing has become the prime driver of technology trade, understanding the rationales behind a properly-defined payment structure of the agreements is essential. Specifically, among the other remuneration components, upfront fees are critical in license negotiations since they imply a significant initial investment by the licensee and represent a source of liquidity for the licensor. We investigate how contractual flexibility, market uncertainty and technical uncertainty shape upfront fees from the licensee’s perspective. Upfront fees are shown to be positively associated with contractual flexibility and market uncertainty, while technical uncertainty is positively associated with upfront fees only if the license warrants contractual flexibility to the licensee. Licensees therefore do not necessarily see uncertainty as a negative attribute of a patent license, but rather as a potential value, above all if in presence of contractual flexibility.
ISSN:0391-2078
1972-4977
DOI:10.1007/s40812-015-0020-7