The Heterogeneous Effects of Patent Scope on Licensing Propensity

Abstract

How does patent scope influence licensing propensity of inventions? While broad scope can increase the value of licensing, it can also increase the value of self-commercialization by raising the inventor's market power. Accordingly, theoretical predictions around the effect of patent scope on licensing are ambiguous, and empirical findings from prior studies have been mixed. Also, while studies have explored certain settings and moderating factors that might influence the patent scope-licensing relationship, a systematic investigation of the heterogeneous effects of patent scope on licensing at the invention level has not been undertaken. This study uses a broad sample of publicly reported patent licensing agreements across multiple technology areas and a novel methodology that exploits an exogenous variation in patent scope to explore the relationship between patent scope and licensing. Additionally, it explores key inventor and invention characteristics that could influence the relationship. The results show that narrowed patent scope leads to a substantial decline in licensing propensity of inventions and that the effect is stronger for high-quality, science-based, and novel inventions as well as for inventions generated by small inventors.

Keywords: Patent scope, Licensing, Markets for technology