Field-of-use restrictions in licensing agreements

Research output: Contribution to journalArticleScientificpeer-review

Abstract

A widely used clause in license contracts – the field-of-use restriction (FOUR) – precludes licensees from operating outside of the technical field specified. When a technology has several distinct applications, FOUR allow the licensor to divide up his rights and attribute them to the lowest-cost producer in each field of use. This can improve production efficiency. With complex technologies, however, the boundaries of fields of use may be difficult to codify, entailing a risk of licensees' rights overlapping. We explore how this affects the optimal license contract in a moral hazard framework where the licensor's effort determines the probability of overlap. We show that depending on the contracting environment, the license agreement may include output restrictions and non‐linear royalty schemes.
Original languageEnglish
Pages (from-to)403-416
JournalInternational Journal of Industrial Organization
Volume30
Issue number5
DOIs
Publication statusPublished - 2012

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Hazards
Costs
Licensing
License
Royalty
Production efficiency
Moral hazard
Contracting
Overlapping

Cite this

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abstract = "A widely used clause in license contracts – the field-of-use restriction (FOUR) – precludes licensees from operating outside of the technical field specified. When a technology has several distinct applications, FOUR allow the licensor to divide up his rights and attribute them to the lowest-cost producer in each field of use. This can improve production efficiency. With complex technologies, however, the boundaries of fields of use may be difficult to codify, entailing a risk of licensees' rights overlapping. We explore how this affects the optimal license contract in a moral hazard framework where the licensor's effort determines the probability of overlap. We show that depending on the contracting environment, the license agreement may include output restrictions and non‐linear royalty schemes.",
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Field-of-use restrictions in licensing agreements. / Schuett, F.

In: International Journal of Industrial Organization, Vol. 30, No. 5, 2012, p. 403-416.

Research output: Contribution to journalArticleScientificpeer-review

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