The 'License As Tax' Fallacy

28 Pages Posted: 13 Dec 2019

Date Written: December 12, 2019

Abstract

Intellectual property licenses are commonly portrayed as a “tax” that limits access to technology assets, thereby stunting innovation by intermediate users and inflating prices for end-users. This presumptively skeptical view motivated postwar antitrust’s proliferation of per se rules against a wide array of licensing practices and, more recently, has driven recent Supreme Court decisions on IP licensing and enforcement actions by competition regulators in the U.S. and other commercially significant jurisdictions that would effectively rewrite licensing arrangements in wireless communication markets. Renewed skepticism toward IP licensing, and associated judicial and regulatory interventions, overlook the fact that IP licenses typically play an enabling rather than exclusionary function by mitigating expropriation risks that would otherwise frustrate transactions between the holders of complementary specialized IP and non-IP assets. These transactions support a robust innovation ecosystem by facilitating value-creating exchanges of knowledge assets, promoting the division of labor among innovation and production specialists, and lowering entry costs for firms that excel in innovation but lack capital-intensive production and distribution capacities. Illustrative evidence is drawn from paradigm transactional structures that illustrate the principal enabling functions of IP licensing arrangements in content and technology markets.

Suggested Citation

Barnett, Jonathan, The 'License As Tax' Fallacy (December 12, 2019). USC CLASS Research Paper No. CLASS19-35; USC Law Legal Studies Paper No. 19-35. Available at SSRN: https://ssrn.com/abstract=3503148 or http://dx.doi.org/10.2139/ssrn.3503148

Jonathan Barnett (Contact Author)

USC Gould School of Law ( email )

699 Exposition Boulevard
Los Angeles, CA 90089
United States

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