A Dynamic Analysis of Licensing: The "Boomerang" Effect and Grant-Back Clauses

Jay Choi

International Economic Review, 2002, vol. 43, issue 3, 203-229

Abstract: This article develops an incomplete contract model of the licensing relationship to analyze the dynamic effects of licensing on R&D competition in the innovation market and to examine the rationale for often observed "grant-back" clauses. Of particular concern are how the consideration of future competition distorts the licensing relationship and how the grant-back clause can mitigate this distortion. I also evaluate the validity of the casual antitrust argument that grant-back clauses may adversely affect competition because they reduce the licensee's incentive to engage in R&D and thereby limit rivalry in innovation markets. Copyright Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association

Date: 2002
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Working Paper: A Dynamic Analysis of Licensing: The Boomerang Effect and Grant-Back Clauses (1999)
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