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Patent Remedies and Technology Licensing: Evidence from a Supreme Court Decision

Aydin Ozden, S. & Khashabi, P. (2022). Patent Remedies and Technology Licensing: Evidence from a Supreme Court Decision. Strategic Management Journal,

Abstract

Research Summary: Remedies for infringement are important determinants of the strength of patent protection. However, there has been little emphasis on the role of patent remedies in profiting from innovation via licensing. To address this gap, we examined the impact of patent remedies on technology licensing. Our study exploited a US Supreme Court decision that reduced the probability of issuing injunctions as a remedy to compare US firms’ licensing propensity with that of a matched control group of European firms. We found that the decision reduced, on average, US firms’ propensity to license. This effect is driven mainly by small firms and magnified in discrete technology industries. This research contributes to the literature on profiting from innovation and presents several implications for firms’ licensing strategies.

Managerial Summary: This study demonstrates how patent remedies (i.e., injunctions vs. ongoing royalties) differentially influence firms’ incentives to engage in technology licensing. We suggest that injunctions cast a credible threat to potential licensees’ product market activities, enhance the bargaining power of licensors in negotiations, and increase the likelihood of making a deal. Our research shows that when the probability of obtaining an injunction declines, firms are less likely to capture value by out-licensing their technological innovations. Especially for small firms, profiting from innovation via licensing becomes challenging. This effect exacerbates when small firms operate in discrete technology industries (e.g., chemicals and pharmaceuticals). These findings imply that in such conditions, firms may benefit from other value-capture mechanisms, such as entering the product market or forming partnerships with industry incumbents.

Publication Type: Article
Additional Information: This is the peer reviewed version of an article which will be published in final form at https://onlinelibrary.wiley.com/journal/10970266. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Use of Self-Archived Versions. This article may not be enhanced, enriched or otherwise transformed into a derivative work, without express permission from Wiley or by statutory rights under applicable legislation. Copyright notices must not be removed, obscured or modified. The article must be linked to Wiley’s version of record on Wiley Online Library and any embedding, framing or otherwise making available the article or pages thereof by third parties from platforms, services and websites other than Wiley Online Library must be prohibited.
Publisher Keywords: patent remedies, injunctions, ongoing royalties, profiting from innovation, technology licensing
Subjects: T Technology > T Technology (General)
T Technology > T Technology (General) > T201 Patents. Trademarks
Departments: Bayes Business School > Management
[img] Text - Accepted Version
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