Grantbacks, Territorial Restraints, and the Type of Follow-On Innovation: The "But for..." Defense

48 Pages Posted: 24 Oct 2016 Last revised: 4 Mar 2019

See all articles by Masahito Ambashi

Masahito Ambashi

University of Essex

Pierre Regibeau

Imperial College; Charles River Associates

Katharine Rockett

University of Essex - Department of Economics; Centre for Economic Policy Research (CEPR)

Date Written: October 2016

Abstract

We analyse the effect of grantback clauses in licensing contracts. While competition authorities fear that grantback clauses might decrease the licensee's ex post incentives to innovate, a standard defence is that grantback clauses are required for the patent-owner to agree to license its technology in the first place. We examine the validity of this "but for" defence and the equilibrium effect of grantback clauses on the innovation incentives of the licensee for both non-severable and severable innovations, which roughly correspond to infringing and non-infringing innovations. We show that grantback clauses do not increase the patent-holder's incentives to license when non-severable innovations are at stake but they do when severable innovations are concerned รข?? suggesting that the "but for" defence might be valid for severable innovations but not for non-severable ones, in direct contradiction to regulation in some jurisdictions. Moreover we show that, for severable innovations, grantback clauses can increase the range of parameters for which follow-on innovation by the licensee occurs. Our work extends the large literature on sequential innovation to an environment where information diffuses through licensing rather than through the mere act of patenting. In this different informational set up we show that Green and Scotchmer (1995)'s conclusion that the initial innovator should have a patent of infinite breadth no longer holds.

Keywords: grantbacks, Innovation, licensing, patent scope, policy, severable

JEL Classification: K21, L24, O31

Suggested Citation

Ambashi, Masahito and Regibeau, Pierre and Rockett, Katharine, Grantbacks, Territorial Restraints, and the Type of Follow-On Innovation: The "But for..." Defense (October 2016). CEPR Discussion Paper No. DP11575. Available at SSRN: https://ssrn.com/abstract=2858238

Masahito Ambashi (Contact Author)

University of Essex ( email )

Wivenhoe Park
Colchester CO4 3SQ
United Kingdom

Pierre Regibeau

Imperial College ( email )

South Kensington Campus
Exhibition Road
London, Greater London SW7 2AZ
United Kingdom

Charles River Associates ( email )

1201 F. St. NW
Ste. 700
Washington, DC 20004
United States

Katharine Rockett

University of Essex - Department of Economics ( email )

Wivenhoe Park
Colchester CO4 3SQ
United Kingdom
+44 1206 873 333 (Phone)
+44 1206 873 724 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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