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Shirking, Sharing Risk, and Shelving: The Role of University License Contracts

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  • Marie Thursby
  • Jerry Thursby
  • Emmanuel Dechenaux

Abstract

In this paper, we develop a theoretical model of university licensing to explain why university license contracts often include payment types that differ from the fixed fees and royalties typically examined by economists. Our findings suggest that milestone payments and annual payments are common because moral hazard, risk sharing, and adverse selection all play a role when embryonic inventions are licensed. Milestones address inventor moral hazard without the inefficiency inherent in royalties. The potential for a licensee to shelve inventions is an adverse selection problem which can be addressed by annual fees if shelving is unintentional, but may require an upfront fee if the firm licenses an invention with the intention to shelve it. Whether the licensing contract prevents shelving depends in part on the university credibly threatening to take the license back from a shelving firm. This supports the rationale for Bayh-Dole march-in rights but also shows the need for the exercise of these rights can be obviated by contracts.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 11128.

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Date of creation: Feb 2005
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Publication status: published as Dechenaux, Emmanuel & Thursby, Marie & Thursby, Jerry, 2009. "Shirking, sharing risk and shelving: The role of university license contracts," International Journal of Industrial Organization, Elsevier, vol. 27(1), pages 80-91, January.
Handle: RePEc:nbr:nberwo:11128

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Citations

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Cited by:
  1. Elfenbein, Daniel W., 2007. "Publications, patents, and the market for university inventions," Journal of Economic Behavior & Organization, Elsevier, vol. 63(4), pages 688-715, August.
  2. Jung Eun Lee & Younghoon Kim & Yeonbae Kim & Donghyuk Choi, 2010. "The Impact of Technology Licensing Payment Mechanisms on Firms' Innovative Performance," TEMEP Discussion Papers 201071, Seoul National University; Technology Management, Economics, and Policy Program (TEMEP), revised Dec 2010.
  3. Dechenaux, Emmanuel & Thursby, Marie & Thursby, Jerry, 2009. "Shirking, sharing risk and shelving: The role of university license contracts," International Journal of Industrial Organization, Elsevier, vol. 27(1), pages 80-91, January.
  4. Rothaermel, Frank T. & Thursby, Marie, 2005. "Incubator firm failure or graduation?: The role of university linkages," Research Policy, Elsevier, vol. 34(7), pages 1076-1090, September.
  5. Emmanuel Dechenaux & Brent Goldfarb & Scott Shane & Marie Thursby, 2008. "Appropriability and Commercialization: Evidence from MIT Inventions," Management Science, INFORMS, vol. 54(5), pages 893-906, May.
  6. Dechenaux, Emmanuel & Thursby, Jerry & Thursby, Marie, 2011. "Inventor moral hazard in university licensing: The role of contracts," Research Policy, Elsevier, vol. 40(1), pages 94-104, February.
  7. Kenney, Martin & Patton, Donald, 2011. "Does inventor ownership encourage university research-derived entrepreneurship? A six university comparison," Research Policy, Elsevier, vol. 40(8), pages 1100-1112, October.
  8. Macho-Stadler, Inés & Pérez-Castrillo, David, 2010. "Incentives in university technology transfers," International Journal of Industrial Organization, Elsevier, vol. 28(4), pages 362-367, July.
  9. Lee Davis, 2006. "Licensing Strategies of the Enterprising - but Vulnerable - "Intellectual Property" Vendors," DRUID Working Papers 06-12, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies.
  10. Celestine Chukumba & Richard Jensen, 2005. "University Invention, Entrepreneurship, and Start-Ups," NBER Working Papers 11475, National Bureau of Economic Research, Inc.

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