Licensing Fosters Rapid Innovation! The Effect of the Grant-Back clause and Technological Unfamiliarity

Drawing on contractual economics and innovation management, licensing-in is hypothesized to accelerate licensees’ invention process. Studying a matched dataset of licensees and nonlicensees, licensees are shown to be faster at inventing, but the effect is negated if the license includes a grant-back clause, shifting incentives from licensee to licensor. Also, the effect is significantly reduced if the licensee is unfamiliar with the licensed technology. The effect of the grant-back clause is offset if the licensee is unfamiliar with the licensed technology, suggesting that the licensee retains the incentives to invent under these circumstances.