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A Dynamic Analysis of Licensing: The "Boomerang" Effect and Grant-Back Clauses

  • Jay Pil Choi


This paper develops an incomplete contract model of the licensing relationship to analyze the dynamic effects of licensing on R& D competition in the innovation market and to examine the rationale for often observed grant-back clauses. Of particular concern are how the consideration of future competition distorts the licensing relatoinship and how the "grant-back" clause cna mitigate this distortion. I also evaluate the validity of the casual antitrust argument that grant-back clauses may adversely affect competition because they reduce the licensee's incentive to engage in R&D and thereby limit rivlry in innovation markets.

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Paper provided by Institute of Economic Research, Seoul National University in its series Working Paper Series with number no16.

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Date of creation: May 1999
Date of revision:
Handle: RePEc:snu:ioerwp:no16
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  1. Nancy T. Gallini & Brian D. Wright, 1990. "Technology Transfer under Asymmetric Information," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 147-160, Spring.
  2. Grossman, Gene M & Shapiro, Carl, 1987. "Dynamic R&D Competition," Economic Journal, Royal Economic Society, vol. 97(386), pages 372-87, June.
  3. Suzanne Scotchmer, 1991. "Standing on the Shoulders of Giants: Cumulative Research and the Patent Law," Journal of Economic Perspectives, American Economic Association, vol. 5(1), pages 29-41, Winter.
  4. Cohen, Wesley M & Levinthal, Daniel A, 1989. "Innovation and Learning: The Two Faces of R&D," Economic Journal, Royal Economic Society, vol. 99(397), pages 569-96, September.
  5. Jerry R. Green & Suzanne Scotchmer, 1995. "On the Division of Profit in Sequential Innovation," RAND Journal of Economics, The RAND Corporation, vol. 26(1), pages 20-33, Spring.
  6. Teece, David J., 1986. "Profiting from technological innovation: Implications for integration, collaboration, licensing and public policy," Research Policy, Elsevier, vol. 15(6), pages 285-305, December.
  7. repec:tpr:qjecon:v:101:y:1986:i:3:p:471-91 is not listed on IDEAS
  8. Grossman, Sanford J. & Hart, Oliver D., 1986. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Scholarly Articles 3450060, Harvard University Department of Economics.
  9. Fershtman, C. & Kamien, M.I., 1991. "Cross Licensing of Complementary Technologies," Papers 1-91, Tel Aviv.
  10. Gallini, Nancy T, 1984. "Deterrence by Market Sharing: A Strategic Incentive for Licensing," American Economic Review, American Economic Association, vol. 74(5), pages 931-41, December.
  11. O'DONOGHUE, Ted & SCOTCHMER, Suzanne & THISSE, Jacques-François, . "Patent breadth, patent life, and the pace of technological progress," CORE Discussion Papers RP 1314, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  12. Rockett, Katharine, 1990. "The quality of licensed technology," International Journal of Industrial Organization, Elsevier, vol. 8(4), pages 559-574, December.
  13. Nancy T. Gallini & Ralph A. Winter, 1985. "Licensing in the Theory of Innovation," RAND Journal of Economics, The RAND Corporation, vol. 16(2), pages 237-252, Summer.
  14. Suzanne Scotchmer, 1996. "Protecting Early Innovators: Should Second-Generation Products Be Patentable?," RAND Journal of Economics, The RAND Corporation, vol. 27(2), pages 322-331, Summer.
  15. Jay Pil Choi, 1999. "A Dynamic Analysis of Licensing: The "Boomerang" Effect and Grant-Back Clauses," Working Paper Series no16, Institute of Economic Research, Seoul National University.
  16. Kim, Linsu & Dahlman, Carl J., 1992. "Technology policy for industrialization: An integrative framework and Korea's experience," Research Policy, Elsevier, vol. 21(5), pages 437-452, October.
  17. Bulow, Jeremy I & Geanakoplos, John D & Klemperer, Paul D, 1985. "Multimarket Oligopoly: Strategic Substitutes and Complements," Journal of Political Economy, University of Chicago Press, vol. 93(3), pages 488-511, June.
  18. Aghion, Philippe & Bolton, Patrick, 1992. "An Incomplete Contracts Approach to Financial Contracting," Review of Economic Studies, Wiley Blackwell, vol. 59(3), pages 473-94, July.
  19. Sugato Bhattacharyya & Francine Lafontaine, 1995. "Double-Sided Moral Hazard and the Nature of Share Contracts," RAND Journal of Economics, The RAND Corporation, vol. 26(4), pages 761-781, Winter.
  20. Michael L. Katz & Carl Shapiro, 1985. "On the Licensing of Innovations," RAND Journal of Economics, The RAND Corporation, vol. 16(4), pages 504-520, Winter.
  21. Katz, Michael L & Shapiro, Carl, 1987. "R&D Rivalry with Licensing or Imitation," American Economic Review, American Economic Association, vol. 77(3), pages 402-20, June.
  22. Choi, Jay Pil, 1992. "Cooperative R&D with moral hazard," Economics Letters, Elsevier, vol. 39(4), pages 485-491, August.
  23. Morton I. Kamien & Yair Tauman, 1984. "Fees Versus Royalties and the Private Value of a Patent," Discussion Papers 583, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  24. Reinganum, Jennifer R., . "Innovation and Industry Evolution," Working Papers 426, California Institute of Technology, Division of the Humanities and Social Sciences.
  25. Kenneth Arrow, 1962. "Economic Welfare and the Allocation of Resources for Invention," NBER Chapters, in: The Rate and Direction of Inventive Activity: Economic and Social Factors, pages 609-626 National Bureau of Economic Research, Inc.
  26. Richard E. Romano, 1994. "Double Moral Hazard and Resale Price Maintenance," RAND Journal of Economics, The RAND Corporation, vol. 25(3), pages 455-466, Autumn.
  27. Teece, David J, 1977. "Technology Transfer by Multinational Firms: The Resource Cost of Transferring Technological Know-how," Economic Journal, Royal Economic Society, vol. 87(346), pages 242-61, June.
  28. Shapiro, Carl, 1985. "Patent Licensing and R&D Rivalry," American Economic Review, American Economic Association, vol. 75(2), pages 25-30, May.
  29. Kamien, Morton I., 1992. "Patent licensing," Handbook of Game Theory with Economic Applications, in: R.J. Aumann & S. Hart (ed.), Handbook of Game Theory with Economic Applications, edition 1, volume 1, chapter 11, pages 331-354 Elsevier.
  30. Davies, Howard, 1977. "Technology Transfer through Commercial Transactions," Journal of Industrial Economics, Wiley Blackwell, vol. 26(2), pages 161-75, December.
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