Payment schemes in learning-related international technology licensing contracts (original) (raw)
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Technology royalty as a strategic impetus in knowledge exchange
Innovation: Management, Policy & Practice, 2012
Joint ventures and technology licensing can involve contracting and royalty-based payments. Payment behavior is not a simple consequence; it may be a strategic impetus to exchange knowledge. Extending the transaction cost economics, this study examines the effects of non-contractible variables on the strategic preference for payment modes. We test hypotheses using information from a survey of 104 Taiwanese firms and partial least square (PLS) analysis to examine the payment behavior in a technology licensing contract. Considering knowledge tacitness, the licensed technology incurring high transaction costs reduces the source intention to build long-term relationship with the recipient, and thus a fee-based payment is preferred. When shifting the focus of technology or knowledge per se to the heterogeneity of technology recipients, relationship exchange embedded in recipient dependence and learning potential becomes critical in a technology licensing contract, and increase the likelihood of royalty-based payment.
Payment Schemes in Technology Licensing Agreements: A Transaction Cost Approach
SSRN Electronic Journal, 2000
This article provides an empirical assessment of payment schemes implemented in technology licensing agreements. Using a new source of data (a French governmental database designed to observe international technology transfers) we analyze the choice of royalties vs. lump sum payments as reflecting the ex post contractual hazards that may impede the use of royalties in such agreements. Such costs evolve with the quality of the protection provided to the licensor by the institutional environment and with the nature of what is exchanged. Our empirical investigations highlight the key role played by the tastiness of the licensed knowledge and support transaction cost propositions. JEL: D82, L14, K33.
Journal of International Business Studies, 1980
The idea that the composition and organizational mode of a technology transfer between firms is a function of the recipient company's "technical absorbtive capacity" and of the recipient nation's level of development has appeared in the literature without enunciation or testing. These hypotheses are tested using data for 33 countries. * The idea that the composition and organizational mode of a technology transfer between firms is a function of the recipient company's "technical absorbtive capacity" and of the recipient nation's level of development has appeared in the literature without enunciation or testing.1 Broadly speaking, we can conceive of two types of ingredients in a technology licensing package, the conveyance of patent, trademark, and other rights, and, second, the provision of technical and managerial assistance to a licensee.2 In terms of the organizational mode of international transfers, licensing agreements can be described as being between equity affiliates or between unaffiliated companies. Using aggregate data for 33 developed and developing recipient countries for U.S. technology supplier firms, this paper tests the hypothesis that the relative proportion of assistance in the total package rendered to licensees decreases with increased industrialization and development of the recipient nation. Similarly, it tests the hypothesis that nonaffiliate licensing will increase relative to affiliate licensing in more industrialized and developed nations as the country's licensees become better able to assimilate the transferred technology on their own without the long-term equity involvement of a foreign investor. Whereas these hypotheses appear intuitively straightforward, just what they imply in terms of managerial behavior at the international firm level has to be examined with care. This is then the second objective of this paper, besides mere statistical validation. It is much more accurate to view technology transfer as a relationship rather than as an act. The naivete of assuming technology to be a public good was illustrated by the experience of some East European firms who, having purchased only the technical documentation and patent rights from Western suppliers in the early 1970s, found themselves unable to convert this into viable production output.3 In some instances these firms were later compelled to enter into auxiliary "technical assistance" agreements with the original supplier who sent engineers and other production personnel for extended periods of time. Certainly, this does not have to be true in all cases. Technologically advanced firms will frequently obtain bare patent rights and go on to produce on their own, because they have already "internalized" knowledge from past experience with similar products. But the majority of technology transfers do include organizational and production management assistance besides the transference of rights and documentation. *Dr. Farok J. Contractor teaches at the Graduate School of Management, Rutgers University. This paper was submitted and accepted while the author was at The Wharton School, University of Pennsylvania. The paper is part of his research on the determinants of compensation patterns and negotiations in international technology licensing, in which he has published several articles and a book, International Technology Licensing: Compensation, Costs, and Negotiations, Lexington Books, 1981, forthcoming. The author would like to thank the Multinational Enterprise Unit of The Wharton School for support given to this research. Lastly, the reviewers suggestions were very helpful.
2010
This article provides an empirical assessment of payment schemes implemented in technology licensing agreements. Following a new institutional and resource-based view analysis, we argue that transaction costs evolve with the quality of the protection provided to the licensor by the institutional environment, the nature of the resources exchanged, and the characteristics of partners. We develop propositions and test them using an original source of data (a French governmental database recording international technology transfers). While we observe no clear effect of the institutional environment on the design of payment schemes, our empirical investigations highlight the key role played by the tacit nature of the licensed knowledge. Our results suggest that precise data measuring what is exchanged might shed new light on previous studies focusing only on sector differences. Furthermore, our results also show that ex-post contractual hazards appear to be particularly acute in the case...
1Payment Schemes in Technology Licensing Agreements: A Transaction Cost Approach+
2016
This article provides a theoretical framework and an empirical assessment of payment schemes used in technology licensing agreements. Using a new source of data (a French governmental database designed to observe international technology tranfers) we show that results obtained by previous studies focusing on incentives constraints are no longer valid as soon as ex post enforcement problems are crucial as is the case in technology licensing agreements. Those ex post contractual problems made it necessary to reconsider the way economic agents choose payment schemes in contracts and to include in the analysis the institutional environment that greatly influences the way contractual agreements are shaped and the level of ex post enforcement costs.
Journal of Development Economics, 1996
Recent research on the economic payoff from new technology has emphasized the importance of tacit knowledge or know-how. This paper shows that arm's length contract can overcome the problems in contracting for know-how by bundling complementary inputs with know-how in a technology package, and leveraging the superior enforceability of contracts over the latter. In the empirical part of this paper, the relationship between bundling and transfer of know-how is analyzed, using Indian data. The results imply that tied sales of inputs may increase the efficiency of contracts involving the transfer of know-how. A striking result, in the context of the current North-South debates on intellectual property rights, is the packaging of patents with know-how.
Journal of International Business Studies, 1980
The fees or compensation charged by technology licensing companies to recipient firms overseas have long been subject to debate. Opinion has ranged from a costrelated pricing to a monopolistic pricing model where the price or compensation is considerably higher than the variable costs of effecting a transfer. The empirical study covering 102 technology licenses shows that whereas compensation levels greatly exceed transfer costs, statistically they are strongly related. Compensation levels are influenced by the extent of services rendered to the licensee and by his scale of production. Important differences were manifest between industrialized nations and LDCs, between product types, and between patented and unpatented technologies. *Farok J. Contractor teaches at the Wharton School, University of Pennsylvania. His research interest in the field of international technology transfer is based on four years' business experience with an LDC-based multinational company. He also holds two degrees in engineering and an MBA from the Wharton School. The author would like to thank, without implicating, Professors Irving Kravis and Franklin Root of the University of Pennsylvania for valuable suggestions. Support given to this research by the Multinational Enterprise Unit of the Wharton School is gratefully acknowledged. 40
Firm Heterogeneity and Learning by Technology Licensing: Empirical Evidence from China
… and VANHAVERBEKE …, 2011
Firm heterogeneity lies at the heart of the resource-based view of the firm in explaining a firm's innovation success. However, these studies focus on one or two limited perspectives of heterogeneity and more or less neglect the different learning mechanisms by which heterogeneous resources contribute to firms' success in innovation. In this study, we extend the perspectives of firm heterogeneity into five angles and carefully examine how these different aspects contribute to a firm's learning experiences, and consequently result in its innovation success. We set our study context under the newly identified external learning mechanism-learning through technology licensing. Using a dataset of 186 Chinese firms during the period 2000-2003 we test five hypotheses in relation to the link between a recipient firm's heterogeneity, learning experience and its innovation output. The empirical findings indicate that various perspectives of firm heterogeneity can be jointly used to explain a firm's learning experience and innovation output. That is, a firm with a longer history, stronger preexisting technological strengths and integrative capabilities, larger scale, and a stronger orientation for foreign knowledge sourcing are better positioned for learning through their technology licensing-ins, and thus achieve superior innovation performance.
License to learn: an investigation into thin and thick licensing contracts
R & D Management, 2015
This paper introduces the distinction between thin and thick contracts to the investigation of licensing-in as a mechanism for technological learning. Thick contracts include a clause specifying that the licensors are obligated to assist the licensees in assimilating and integrating the technology. Drawing on a sample of 133 licensees and an equal number of matched non-licensees, we present empirical evidence that thick contracts propel the licensees' likelihood of introducing new inventions. It is also found that thick contracts act as a substitute for licensees' absorptive capacity. Licensees that are more familiar with the licensed technology are in less need of assistance from the licensors to assimilate and integrate the knowledge. However, this substitution effect is neutralized once the hurdle of invention has been overcome, meaning that the licensees have succeeded to ignite the invention process, suggesting the exploitation of the learning curve, triggered by their mutual understanding.
Experiential Learning, Bargaining Power, and Exclusivity in Technology Licensing
Journal of Management, 2017
Licensing has become the central form of interfirm technology transfer and commercialization in the market for inventions. However, despite the large representation and growth of this business model, the resolution of key contractual provisions is still regarded as idiosyncratic, and little is known about how experience with prior relationships or bargaining power position affects contract outcomes. In an attempt to further understand how these transactions unfold, we present and test a theoretical framework disentangling experience benefits and transaction costs associated with licensors' prior involvement in out-versus in-licensing deals and how they affect the important, yet contentious, contractual provision of nonexclusivity. Drawing on transaction cost, experiential learning, and bargaining power theories, we develop new insights explaining when licensors are likely to realize nonexclusive contracts as a function of their prior licensing deals, and when bargaining power moderates the relationships between prior deals and nonexclusivity. Leveraging a 27-year sample of bioscience licensing transactions, this study reveals the dynamic tension between the benefits and transaction costs arising from prior interfirm collaborations, and how a firm's history of collaborations, alongside its bargaining power position, influences contractual outcomes.