Field-of-use restrictions in licensing agreements
AbstractA 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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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 8534.
Date of creation: 15 Jul 2007
Date of revision:
Other versions of this item:
- L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-05-05 (All new papers)
- NEP-CTA-2008-05-05 (Contract Theory & Applications)
- NEP-INO-2008-05-05 (Innovation)
- NEP-IPR-2008-05-05 (Intellectual Property Rights)
- NEP-LAB-2008-05-05 (Labour Economics)
- NEP-MIC-2008-05-05 (Microeconomics)
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