Licensee Technological Potential And Exclusive Rights In International Licensing : A Multilevel Model

As firms are increasingly using inter-organizational licensing to enter foreign markets, licensing requires lower resource commitment and provides an initial establishment in exploring a foreign market. This paper concerns exclusive rights, this means that the licensor gives a licensee the rights to use the intellectual property for a period of time, to the exclusion of others, even the licensor. With exclusive licensing, the contracting parties can earn monopoly rents in the market, so this enhances the transactional value of the licensing agreement. The choice of the licensee will influence both the value created and the transaction hazards in an exclusive licensing. The licensor will be more likely to give exclusive rights to a licensee with strong technological potential, who can easily commercialize the licensed technology in the market. But the strong licensee will be more able to internalizing and appropriating the know-how and maybe becoming a future competitor of the licensor. Licensing exclusivity is surely a trade-off.

This paper wants to determine what conditions will favor the granting of exclusive rights to licensees with strong technological potential. In order to optimize returns from technology licensing, a licensor needs to take the licensee’s competence into consideration. This brings the first hypothesis of the paper, saying that the greater the licensee’s technological potential, the more it’s likely that an exclusive licensing agreement will be adopted. Then, the authors identifies three factors that will made the next three hypothesis. The first one is the Intellectual property rights (IPR) protection of the country. A strong IPR regime will be more attractive for a licensor to give exclusive rights to a licensee because it will prevent licensee or competitors to use the technology acquired. The second one is the rate of technology change in the industry. The higher the rate of technology change, the stronger the link between licensee technological potential and licensing exclusivity. A strong rate will prevent competitors to acquire the technology and licensee and licensor can work together to improve the technology. The last one is the licensor-licensee product overlap, and the paper argue that a licensee is less likely to be granted exclusive rights when there’s a high degree of overlap. There’s too much hazards with high product overlap and the licensee can substitute the licensor’s agreement and even improve the know-how.

In this paper, they followed a method to constituate their sample :

They used AeA database to divide high tech industries between high tech manufacturing and high tech services. They also included the biotech and pharmaceutical industries.Moreover, they also collected informations from the SDC database which is one of the primary surce to track licensing activities.Finally the sample totalized 375 US firms in 23 different countries.It exists 2 types of variables in order to calculate the potential of firms, to see if they are good enough to benefit of this.

The independent and moderator variables are constituted with the LTP (Licensee technological potential) ; the IPR protection ; the rate of technology change ; the licensor-licensee product overlap ; the control variables, the firm and transaction level factors, the industry level factors, the country level factors and the statistical approach.

In this part,

...