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Control Rights over Intellectual Property: Corporate Venturing and Bankruptcy Regimes

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  • Bhattacharya, Sudipto
  • Guriev, Sergei

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. Control rights of a downstream development unit, a buyer of the interim innovation, arise from its 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, based either on trade secrets or on patents. We model explicitly the equilibrium choice of the temporal structure of licensing fees, and show that the innovator?s ex interim financial constraint is more likely to bind when the value of her innovation is low. By constraining the financial flexibility of the upstream unit vis-a-vis her choice over the mode of licensing of her interim knowledge, the controlling development unit is able to reduce the research unit?s payoff selectively in such contingencies. This serves to incentivise the research unit to expend more effort ex ante, to generate more promising interim innovations. We further show that such interim-inefficient control rights can nevertheless be renegotiation-proof.

Suggested Citation

  • Bhattacharya, Sudipto & Guriev, Sergei, 2008. "Control Rights over Intellectual Property: Corporate Venturing and Bankruptcy Regimes," CEPR Discussion Papers 6927, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:6927
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    More about this item

    Keywords

    Control rights; Corporate venturing; Patents; Trade secrets;
    All these keywords.

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • K12 - Law and Economics - - Basic Areas of Law - - - Contract Law
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D

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