How Much are Flexibility and Uncertainty Worth in Patent Licensing?

Maria Isabella Leone, Raffaele Oriani, Toke Reichstein

    Research output: Contribution to journalJournal articleResearchpeer-review

    Abstract

    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.
    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.
    LanguageEnglish
    JournalEconomia e Politica Industriale
    Volume42
    Issue number4
    Pages371-394
    ISSN0391-2078
    DOIs
    StatePublished - 2015

    Keywords

    • Technology licensing
    • Upfront payments
    • Flexibility
    • Uncertainty

    Cite this

    Leone, Maria Isabella ; Oriani, Raffaele ; Reichstein, Toke. / How Much are Flexibility and Uncertainty Worth in Patent Licensing?. In: Economia e Politica Industriale. 2015 ; Vol. 42, No. 4. pp. 371-394
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    How Much are Flexibility and Uncertainty Worth in Patent Licensing? / Leone, Maria Isabella; Oriani, Raffaele; Reichstein, Toke.

    In: Economia e Politica Industriale, Vol. 42, No. 4, 2015, p. 371-394.

    Research output: Contribution to journalJournal articleResearchpeer-review

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    AB - 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.

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