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How much are flexibility and uncertainty worth in patent licensing?

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  • Maria Isabella Leone
  • Raffaele Oriani
  • Toke Reichstein

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. Copyright Associazione Amici di Economia e Politica Industriale 2015

Suggested Citation

  • Maria Isabella Leone & Raffaele Oriani & Toke Reichstein, 2015. "How much are flexibility and uncertainty worth in patent licensing?," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 42(4), pages 371-394, December.
    • Handle: RePEc:spr:epolin:v:42:y:2015:i:4:p:371-394
    DOI: 10.1007/s40812-015-0020-7
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    More about this item

    Keywords

    Technology licensing; Upfront payments; Flexibility; Uncertainty; O34;
    All these keywords.

    JEL classification:

    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital

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