Lihui Lin (2011) “Licensing Strategies in the Presence of Patent Thickets."Journal of Product Innovation Management, Volume 28, Issue 5, pages 698–725, September 2011. DOI: 10.1111/j.1540-5885.2011.00835.x. link to Wiley;；＊;
Notes by yinung
本文之理論模型是以 2-stage, backward-induction 的方式來推理，其模型之數學形式，可供參考。
文獻上未討論不同 licensing contracts 對 patent thickets, royalty stacking, double marginalization 之影響。
賽局理論模型； 研究下游廠商向上游尋求 N 個 licenses 授權, 其討論 5 種 licensing contract 如下：
- Quantity-Based Royalty Licenses
下游每單位 output 授權費 u
- Downstream ﬁrm with no bargaining power
上游完全決定 u (given 下游只能全盤接受， 在本文中稱之 researvation payoff = 0）
- Downstream ﬁrm with any reservation payoff
上游只要選一個 u 使下游的 payoffs >= reservation payoffs 即可；故下游 bargaining power 會大，則 u 會愈小
- Revenue-Based Royalty Licenses (by Goldscheider, 1995)
- Proﬁt-Based Royalty Licenses
the price of the ﬁnal product is independent of the royalty rate and the distribution of bargaining power.
- Fixed-Fee Licenses
just like a proﬁt-based royalty license, the price of the downstream product is not distorted by upstream costs.
- Hybrid Licenses: Royalty plus Fixed Fee
the introduction of a new product or service often requires many complementary technologies
Many key industries (e.g., biomedical, pharmaceuticals, telecommunications, and information technologies) are characterized by cumulative innovations, where the introduction of a new product or service often requires many complementary technologies. When these technologies are protected by intellectual property rights owned by many firms, patent thickets exist, which researchers have argued may hinder the development of cumulative innovations. Specifically, patent thickets may lead to excessive royalty burdens for potential licensees, which is called “royalty stacking,” and if such costs are passed on to consumers, prices of products based on cumulative technologies will be driven up, dubbed as “double marginalization.” The literature, however, does not address these issues under different forms of licensing contracts.
This article develops a game-theoretic model where a downstream firm seeks to license N patents that read on its product from upstream firms. It discusses a variety of licensing forms widely used in practice and attempts to discover whether royalty stacking and double marginalization occur under these forms of licenses. It also studies the impact of bargaining power between parties. It is found that when patent ownership becomes more fragmented, neither royalty stacking nor double marginalization occurs under profit-based royalty, fixed fee, and hybrid licenses. Such problems occur only under pure quantity-based or pure revenue-based royalty licenses when the downstream firm’s bargaining power is low. It is also shown that no matter how fragmented the ownership structure of patent is, hybrid licenses consisting of a fixed fee and a quantity- or revenue-based royalty rate lead to the same market outcomes as a fully integrated firm that owns all the patents and the downstream market.
This article has interesting implications for both research and practice. First, the results show that even under the same patent ownership structure, different forms of licenses lead to quite different market outcomes. Therefore, it is suggested that firms and policy makers pay more attention to contractual forms of licenses when trying to minimize the negative impact of patent thickets. Second, the extant literature has largely assumed that quantity-based royalties are used, where double marginalization is the most severe. In practice, revenue-based royalties are most common, under which double marginalization is much milder. Third, the results show that patent pools can be most effective in mitigating royalty stacking and double marginalization when quantity-based or revenue-based royalties are the sole or primary payment form, especially when downstream firms have low bargaining power.
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