Design of Technology Licensing Agreements: New Empirical Evidences

Abstract: It has always been argued in the economic literature that in the frame of technology transfer transactions attempts of licensor to mitigate misbehavior of the partners could undermine their ability to learn. We study a recent sample of 237 technology licensing agreements in various industries and across several countries and we show that companies design their collaborative relationships in a way that, from one side, allows them to constraint the temptation of the partners to exploit for private purposes information exchanged in the frame of a transaction, but from another side, does not limit learning possibilities built into relationships. For this purpose we create an integral measure of functional scope of a technology transfer transaction which embodies its learning potential and demonstrate its positive effect on the choice of the specific governance mechanisms by licensor. We do not find any support for the idea that licensing agreements are wider in terms of the rights given to the licensee when parties are engaged in a more complex joint technology development project. However we find a support for the view consisting in a partial substitution of formal governance mechanisms for relational ones. We show that in the presence of prior deals with the same partner licensor inclines to optimize its total contracting costs by sparing on costly implementation of explicit formal mechanisms and to rely instead on implicit relational mechanisms.