An Analysis of Unilateral and Cross-licensing Based on an Inventor Survey in Japan: Effects of uncertainty, rent dissipation and a bundle of patents on corporate licenses

This paper analyzes the effects of uncertainty, rent dissipation, and a bundle of patents on corporate licenses. We use a newly developed data set, based on a large-scale survey (4,000 patents) of Japanese inventors, which uniquely covers the nature of the underlying research projects. Our major findings are the following. First, consistent with a theoretical prediction of our model, uncertainty of the licensing value of the patent increases significantly the licensor’s willingness to license, for a given license possibility. This effect significantly accounts for a substantial part of the observed gap between unilateral and cross-licensing for upstream inventions. Second, a higher quality patent is more likely to be offered for a license and more likely to be licensed once offered for a license. Third, the positive effect of the importance of the first mover advantage upon the licensor’s willingness to license is no weaker when the patent is used internally by the licensor. This suggests that the rent dissipation effect is significantly controlled contractually or is weak due to competition in the technology market. Fourth, the size of the bundle of the complementary patents enhances cross licenses and reduces unilateral licenses, with the former effect becoming increasingly dominant, and that inventions related to the core business of a licensor are more likely to be cross licensed.