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Field-of-use restrictions in licensing agreements

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  • Schuett, Florian

Abstract

A widely used clause in license contracts -- the field-of-use restriction (FOUR) -- precludes licensees from operating outside of the specified technical field. When a technology has several distinct applications, FOUR allow the licensor to slice up his rights and attribute them to the lowest-cost producer in each field of use. This can improve production efficiency. However, with complex technologies, the boundaries of fields of use may be difficult to codify, entailing a risk of overlap of licensees' rights. We explore how this affects the optimal license contract in a moral hazard framework where the licensor's effort determines the probability of overlap. We show that depending on the contracting environment, the license agreement may include output restrictions and nonlinear royalty schemes.

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  • Schuett, Florian, 2007. "Field-of-use restrictions in licensing agreements," MPRA Paper 8534, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:8534
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    Cited by:

    1. Richard Gilbert & Eirik Gaard Kristiansen, 2018. "Licensing and innovation with imperfect contract enforcement," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 27(2), pages 297-314, June.
    2. Manuel Guerrero Gaitán, 2014. "Los contratos de transferencia internacional de tecnología. América Latina, Estados Unidos y la Unión Europea," Books, Universidad Externado de Colombia, Facultad de Derecho, number 1016, October.
    3. Pascale Crama & Bert De Reyck & Niyazi Taneri, 2017. "Licensing Contracts: Control Rights, Options, and Timing," Management Science, INFORMS, vol. 63(4), pages 1131-1149, April.
    4. Christiaan Hogendorn & Brett Frischmann, 2020. "Infrastructure and general purpose technologies: a technology flow framework," European Journal of Law and Economics, Springer, vol. 50(3), pages 469-488, December.
    5. Christiaan Hogendorn & Brett Frischmann, 2017. "Infrastructure and General Purpose Technologies: A Technology Flow Framework," Wesleyan Economics Working Papers 2017-001, Wesleyan University, Department of Economics.

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    JEL classification:

    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures

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