What Does Success Look Like? the Role of Contractual Design in Performance of Technology Licensing Deals

Abstract: We combine theory and research on technology transfer transactions and on governance forms to investigate the impact of variation in design of technology licensing agreements (TLAs) on their early performance. We hypothesize that companies can enhance their deal’s performance by: 1) configuring agreements in a way that allows them to mitigate opportunistic hazards without bearing, however, additional costs of transacting, and 2) balancing interests of both licensor and licensee via the payment formula implemented in the agreement. We further test our hypothesis on the unique sample of 120 deals collected through the survey of technology transfer transactions on the French innovative. Overall, our findings demonstrate that governance selected according to Transaction Costs Economics (TCE) logic improves benefits from technology transfer transactions, especially as they relate to innovative performance and pecuniary benefits. In addition we show that the inclusion of balanced payment formula (consisting of both variable and fixed fees) in TLAs alone cannot bring to greater performance of a licensing deal. We finally discuss some implications for IP managers of the companies.