Bhattacharya, Sudipto and Guriev, Sergei (2008) Control rights over intellectual property: corporate venturing and bankruptcy regimes. Discussion paper, 618. Financial Markets Group, London School of Economics and Political Science, London, UK.
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We develop a theory of control rights in the context of licencing 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 interin 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 licencing fees as well as the mode of licensing, based either in 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 then 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.
|Item Type:||Monograph (Discussion Paper)|
|Additional Information:||© 2008 The Authors|
|Library of Congress subject classification:||H Social Sciences > HF Commerce
K Law > KD England and Wales
|Journal of Economic Literature Classification System:||K - Law and Economics > K1 - Basic Areas of Law > K12 - Contract Law
D - Microeconomics > D2 - Production and Organizations > D23 - Organizational Behavior; Transaction Costs; Property Rights
O - Economic Development, Technological Change, and Growth > O3 - Technological Change; Research and Development > O32 - Management of Technological Innovation and R&D
|Sets:||Research centres and groups > Financial Markets Group (FMG)
Collections > Economists Online
Collections > LSE Financial Markets Group (FMG) Working Papers
|Date Deposited:||09 Jul 2009 16:18|
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