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Licensing versus selling in transactions for exploiting patented technological knowledge assets in the markets for technology

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Abstract

This paper examines the determinants of the types of technology transactions in the markets for technology. On the basis of the relationship between the characteristics of a firm’s patents and the firm’s decision on whether to license out or sell these patented technologies, we empirically analyze the determinants of the decision. We employ interlocked patent data from the representative Korean market for technology, the National Technology Bank, using a bivariate probit regression model in a theoretical framework that includes the option and transaction cost perspectives. Overall, the results show that the relationship between licensing and selling, the major alternatives in technology transactions, is strongly substitutive. The major finding of this study is that firms in markets for technology tend to prefer licensing their patents when uncertainty is low or transaction cost is high, whereas they tend to prefer selling their patents under opposite conditions.

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Notes

  1. Elton et al. (2002) show that 10 % of patents from research-oriented firms have never been used, even for a protective purpose, and that if the unused patents were to be licensed, the annual profits of patent-owning firms would increase by 5 %.

  2. In reality, mixed licensing (i.e., lump sum plus running royalties) is a commonly chosen form of transaction (Chiesa et al. 2008). According to Thomson Financial’s Securities Data Company (SDC) Database, 66 % of all licensing contracts from 1997 to 2004 included royalties.

  3. Regardless of uncertainty, the cost of maintaining the ownership of patents increases every year, as does the financial burden of ownership (Bessen 2008). Therefore, firms are motivated to sell obsolete technologies for financial reasons as well.

  4. The Department of Defense (DoD) and the National Aeronautics and Space Administration (NASA) in the United States also use a similar definition of technology readiness level.

  5. Gambardella et al. (2007) have a different concept of importance. They consider a patent whose owner’s share in the technological field is high to be important.

  6. Palomeras (2007) defines core patent differently from our study by judging a patent in the technological field that accounts for more than 5 % of the patent holder’s entire patent portfolio to be a core patent.

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Authors and Affiliations

  1. Department of R&D Policy, Korea Institute of Machinery & Materials, 104 Sinseong-Ro, Yuseong-Gu, Daejeon, 305-343, Republic of Korea

    Seongkyoon Jeong

  2. IP Policy Team, Korea Institute of Intellectual Property, 647-9 Yeoksam-Dong, Gangnam-Gu, Seoul, 135-980, Republic of Korea

    Sungki Lee

  3. Technology Management, Economics and Policy Program (TEMEP), College of Engineering, Seoul National University, San 56-1, Shillim-Dong, Kwanak-Gu, Seoul, 151-744, Republic of Korea

    Yeonbae Kim

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  1. Seongkyoon Jeong
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  2. Sungki Lee
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Correspondence to Sungki Lee.

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Jeong, S., Lee, S. & Kim, Y. Licensing versus selling in transactions for exploiting patented technological knowledge assets in the markets for technology. J Technol Transf 38, 251–272 (2013). https://doi.org/10.1007/s10961-012-9252-0

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