Field-of-use restrictions in licensing agreements

Florian Schuett ()

MPRA Paper from University Library of Munich, Germany

Abstract: A widely used clause in license contracts -- the field-of-use restriction (FOUR) -- precludes licensees from operating outside of the specified technical field. When a technology has several distinct applications, FOUR allow the licensor to slice up his rights and attribute them to the lowest-cost producer in each field of use. This can improve production efficiency. However, with complex technologies, the boundaries of fields of use may be difficult to codify, entailing a risk of overlap of licensees' rights. We explore how this affects the optimal license contract in a moral hazard framework where the licensor's effort determines the probability of overlap. We show that depending on the contracting environment, the license agreement may include output restrictions and nonlinear royalty schemes.

JEL-codes: L24 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cta, nep-ino, nep-ipr, nep-lab and nep-mic
Date: 2007-07-15
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http://mpra.ub.uni-muenchen.de/8534/ original version (application/pdf)
http://mpra.ub.uni-muenchen.de/9554/ revised version (application/pdf)

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Persistent link: http://EconPapers.repec.org/RePEc:pra:mprapa:8534

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