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Hold-up and Patent Licensing of Cumulative Innovations with Private Information

25 Pages Posted: 14 Mar 2002  

James E. Bessen

Boston University - School of Law; Research on Innovation

Date Written: February 2002

Abstract

When innovation is cumulative, early patentees hold claims against later innovators. Then potential hold-up may cause prospective second stage innovators to forego investing in R&D. It is sometimes argued that ex ante licensing (before R&D) avoids hold-up. This paper explores ex ante licensing when information about development cost is private. In this case, contracts may not be written ex ante. Moreover, the socially optimal division of profit occurs with weak patents and ex post licensing. Empirical evidence on licensing conforms to a model with private information. In some innovative industries, little ex ante licensing occurs, suggesting hold-up remains a problem.

Keywords: Patents, licensing, innovation, intellectual property

JEL Classification: K3, L5, O3

Suggested Citation

Bessen, James E., Hold-up and Patent Licensing of Cumulative Innovations with Private Information (February 2002). Available at SSRN: https://ssrn.com/abstract=303461 or http://dx.doi.org/10.2139/ssrn.303461

James E. Bessen (Contact Author)

Boston University - School of Law ( email )

765 Commonwealth Avenue
Boston, MA 02215
United States

Research on Innovation ( email )

202 High Head Rd.
Harpswell, ME 04079
United States
617-531-2092 (Phone)

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