Control Rights over Intellectual Property: Corporate Venturing and Bankruptcy Regimes

Sudipto Bhattacharya and Sergei Guriev

No 6927, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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.

Keywords: Control rights; Corporate venturing; Patents; Trade secrets (search for similar items in EconPapers)
JEL-codes: D23 K12 O32 (search for similar items in EconPapers)
Date: 2008-08
New Economics Papers: this item is included in nep-ino, nep-ipr, nep-pr~ and nep-law
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Related works:
Working Paper: Control Rights over Intellectual Property: Corporate Venturing and Bankruptcy Regimes (2008)
Working Paper: Control Rights over Intellectual Property: Corporate Venturing and Bankruptcy Regimes (2008)
Working Paper: Control rights over intellectual property: corporate venturing and bankruptcy regimes (2008)
Working Paper: Control Rights over Intellectual Property: Corporate Venturing and Bankruptcy Regimes (2008)
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