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Control rights over intellectual property

Bhattacharya, Sudipto and Guriev, Sergei (2013) Control rights over intellectual property. Journal of Industrial Economics, 61 (3). pp. 564-591. ISSN 0022-1821

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Identification Number: 10.1111/joie.12022

Abstract

We consider an incomplete contracting model of bilateral trade in intellectual property (IP) with sequential investments in its quality and with financial constraints. A financially-constrained inventor invests in an idea which she then sells to a buyer. The buyer in turn invests in developing this idea into a marketable product. We propose a novel formulation of ex ante control rights of an IP buyer, over the financially-constrained IP seller. We do not assume alienability of the inventor's ideas; the control right is defined as ex ante prescribed prohibition of ex interim financial contracting with third parties. We show that such an agreement strengthens the seller's ex ante incentives to invest in the quality of her product which is to be traded at the interim stage. The enforcement of this control right is credible, or renegotiation-proof, only for the controlling buyer (a downstream user of the IP), and not for other potential partners of the seller, such as independent venture capitalists. We thereby obtain a rationale for a key role of Corporate Venturing in promoting innovative activities.

Item Type: Article
Official URL: http://onlinelibrary.wiley.com/journal/10.1111/(IS...
Additional Information: © 2013 The Editorial Board of The Journal of Industrial Economics and John Wiley & Sons Ltd.
Divisions: Financial Markets Group
Subjects: H Social Sciences > HF Commerce
Sets: Research centres and groups > Financial Markets Group (FMG)
Date Deposited: 27 Nov 2013 15:13
Last Modified: 20 Jul 2019 01:47
URI: http://eprints.lse.ac.uk/id/eprint/54683

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