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Control Rights over Intellectual Property: Corporate Venturing and Bankruptcy Regimes

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  • Sudipto Bhattacharya

    ()
    (NLondon School of Economics, and CEPR)

  • Sergei Guriev

    ()
    (Stockholm School of Economics, Stockholm; Centre for Economic and Financial Research (CEFIR), Moscow, and CEPR)

Abstract

We develop a theory of control rights in the context of licensing interim innovative knowledge for further development, which is consistent with the inalienability of initial innovator's intellectual property rights (IPR). Control rights of a downstream development unit, a buyer of the interim innovation, arise from his ability to prevent the upstream research unit from forming financial coalitions at the ex interim stage of bargaining, over the amount and structure of licensing fees as well as the mode of licensing, either based on trade secrets or via patenting. We model explicitly the equilibrium choice of the financial structure of licensing fees and show that the innovator's financial constraint is more likely to bind when the value of her innovation is low. By constraining the flexibility of the upstream unit regarding her choice of the mode of licensing of her interim knowledge, the controlling development unit is able to reduce the research unit's payoffs in such contingencies. This incentivises the research unit to expend costly e¤ort ex ante to generate more productive interim innovations. We show that such interim control rights can be renegotiation-proof.

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Bibliographic Info

Paper provided by Center for Economic and Financial Research (CEFIR) in its series Working Papers with number w0118.

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Length: 25 pages
Date of creation: Apr 2008
Date of revision:
Handle: RePEc:cfr:cefirw:w0118

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  1. Oliver Hart & John Moore, 1991. "A Theory of Debt Based on the Inalienability of Human Capital," STICERD - Theoretical Economics Paper Series, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE /1991/233, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
  2. Sudipto Bhattacharya & Sergei Guriev, 2006. "Patents vs. Trade Secrets: Knowledge Licensing and Spillover," Journal of the European Economic Association, MIT Press, MIT Press, vol. 4(6), pages 1112-1147, December.
  3. Oliver Hart & John Moore, 2004. "Agreeing Now to Agree Later: Contracts that Rule Out but do not Rule In," ESE Discussion Papers, Edinburgh School of Economics, University of Edinburgh 109, Edinburgh School of Economics, University of Edinburgh.
  4. Paul A. Gompers & Josh Lerner, 1998. "The Determinants of Corporate Venture Capital Successes: Organizational Structure, Incentives, and Complementarities," NBER Working Papers 6725, National Bureau of Economic Research, Inc.
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  6. Bharat N. Anand & Alexander Galetovic, 2000. "Weak Property Rights and Holdup in R&D," Journal of Economics & Management Strategy, Wiley Blackwell, Wiley Blackwell, vol. 9(4), pages 615-642, December.
  7. Sudipto Bhattacharya & Sergei Guriev, 2004. "Knowledge disclosure, patents and optimal organization of research and development," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 19315, London School of Economics and Political Science, LSE Library.
  8. Samuel Kortum & Josh Lerner, 2000. "Assessing the Contribution of Venture Capital to Innovation," RAND Journal of Economics, The RAND Corporation, vol. 31(4), pages 674-692, Winter.
  9. Viral V. Acharya & Krishnamurthy V. Subramanian, 2009. "Bankruptcy Codes and Innovation," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 22(12), pages 4949-4988, December.
  10. Pisano, Gary P, 1989. "Using Equity Participation to Support Exchange: Evidence from the Biotechnology Industry," Journal of Law, Economics and Organization, Oxford University Press, Oxford University Press, vol. 5(1), pages 109-26, Spring.
  11. Bharant N. Anand & Alexander Galetovic, 1998. "Weak Property Rights and hold-up in R&D," Documentos de Trabajo, Centro de Economía Aplicada, Universidad de Chile 39, Centro de Economía Aplicada, Universidad de Chile.
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