“Exploring the Boomerang Effect: The Role of Core Technologies and Uncertainty in Explaining the Use of the Grant-Back Clause in Technology Licensing”

Licensing is one of the most commonly observed inter-firm contractual agreements. Drawing on the resource-based view of the firm and contract economics, we argue that the inclusion of a grant-back clause in licensing agreements emerges as a consequence of licensor and licensee firms’ requirements to balance the needs to protect their technological resources and to learn through internal and external processes. We argue that licensing agreements are increasingly likely to contain a grant-back clause; (i) the closer to the core the licensed technology is to the licensor’s patent portfolio; and (ii) the more uncertain is the licensed technology. In contrast, we conjecture a decreasing likelihood of a grant-back clause, the closer to the core the licensed technology is to the licensee’s patent portfolio. Technological uncertainty is conjectured to positively moderate the results both when the licensed technology is core to the licensee and to the licensor. We test the proposed hypotheses using a sample of 404 licensed technologies over the period 1984-2004. We employ a hierarchical nested decision model to account for the inclusion of the grant-back clause in a licensing contract being nested in the decision regarding which technologies to out-license. We find broad support for our theoretical arguments.