Intellectual Property Rights and Contract Structure
Property rights over knowledge and its output--intellectual property rights--are often weak. We treat the strength of property rights as a primitive of the environment. We examine the effects of the strengths of these rights on the structure of contracts and relationships employed by firms in intellectual property transfers. Variation in the adequacy of property rights across industries allows us to identify these effects. Using a unique dataset assembled for this purpose, we find that firms will structure contracts to optimally circumscribe the threat of imitators. In particular, weak property rights are associated with a lower absolute and relative incidence of licensing activity, fewer licensings of prospective technologies, a higher incidence of transfers to related parties and non-exclusive contracts, and more cross-licensings. The results are not explained by unobserved heterogeneity or jointness in a licenser's decisions concerning various contractual features.
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