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Grantbacks, territorial restraints, and innovation

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  • Ambashi, Masahito
  • Régibeau, Pierre
  • Rockett, Katharine E.

Abstract

We analyse the effect of grantback clauses in licensing contracts. While competition authorities fear that grantback clauses might decrease the licensee's ex post incentives to innovate, a standard defence is that grantback clauses are required for the patent-owner to agree to license its technology in the first place. We examine the validity of this “but for” defence and the equilibrium effect of grantback clauses on the innovation incentives of the licensee for both non-severable and severable innovations, which roughly correspond to infringing and non-infringing innovations. We show that grantback clauses do not increase the patent-holder's incentives to license when non-severable innovations are at stake but they do when severable innovations are concerned – suggesting that the “but for” defence might be valid for severable innovations but not for non-severable ones, in direct contradiction to regulation in some jurisdictions. Moreover we show that, for severable innovations, grantback clauses can increase the range of parameters for which follow-on innovation by the licensee occurs. Our work extends the large literature on sequential innovation to an environment where information diffuses through licensing rather than through the mere act of patenting. In this different informational set up we show that Green and Scotchmer (1995)’s conclusion that the initial innovator should have a patent of infinite breadth no longer holds.

Suggested Citation

  • Ambashi, Masahito & Régibeau, Pierre & Rockett, Katharine E., 2019. "Grantbacks, territorial restraints, and innovation," International Journal of Industrial Organization, Elsevier, vol. 67(C).
  • Handle: RePEc:eee:indorg:v:67:y:2019:i:c:s0167718719300566
    DOI: 10.1016/j.ijindorg.2019.102534
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    References listed on IDEAS

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    Cited by:

    1. Fabian Gaessler & Dietmar Harhoff & Stefan Sorg & Georg von Graevenitz, 2024. "Patents, Freedom to Operate, and Follow-on Innovation: Evidence from Post-Grant Opposition," Rationality and Competition Discussion Paper Series 494, CRC TRR 190 Rationality and Competition.
    2. Masahito Ambashi, 2021. "Technology Competition, Cumurative Innovation, and Technological Development Scheme," KIER Working Papers 1065, Kyoto University, Institute of Economic Research.

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    More about this item

    Keywords

    Licensing; Innovation; Grantback; Patent;
    All these keywords.

    JEL classification:

    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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