Control Rights Over Intellectual Property: Corporate Venturing and Bankruptcy Regimes

26 Pages Posted: 2 Dec 2008

See all articles by Sudipto Bhattacharya

Sudipto Bhattacharya

London School of Economics; Centre for Economic Policy Research (CEPR)

Sergei Guriev

Sciences Po; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 3 versions of this paper

Date Written: August 2008

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

JEL Classification: D23, K12, O32

Suggested Citation

Bhattacharya, Sudipto and Guriev, Sergei, Control Rights Over Intellectual Property: Corporate Venturing and Bankruptcy Regimes (August 2008). CEPR Discussion Paper No. DP6927. Available at SSRN: https://ssrn.com/abstract=1307517

Sudipto Bhattacharya (Contact Author)

London School of Economics ( email )

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Centre for Economic Policy Research (CEPR)

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Sergei Guriev

Sciences Po ( email )

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Paris Cedex 07, 75337
France

HOME PAGE: http://econ.sciences-po.fr/staff/sergei-guriev

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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