Abstract
This paper considers the impact of the intellectual property (IP) system on the
timing of cooperation/licensing by start-up technology entrepreneurs. If the
market for technology licenses is efficient, the timing of licensing is
independent of the patent grant date, and productive efficiency considerations
will result in licensing as early as possible after invention. In contrast, the
need for disclosure of unprotected knowledge on the part of the inventor,
asymmetric information between the licensor and potential licensees, or search
costs may retard efficient technology transfer. In these cases, the actual grant
of a patent may facilitate trade in the market for ideas by establishing the
scope of IP rights. Employing a dataset which combines information about the
timing of patent grants and cooperative licensing, we find that pre-grant
licensing is quite common, occurring in about 40% of our sample; moreover, the
hazard rate for achieving a cooperative licensing agreement increases
significantly with the granting of formal IP rights. Finally, the importance of
a patent grant for licensing depends on the strategic environment in which the
firm operates. When productive efficiency effects are important (as when
technology cycle times are short), or when alternative mechanisms such as
reputation may serve to mitigate expropriation concerns or reduce search costs,
patent grants are not as important. The findings suggest that imperfections in
the market for ideas may be important, and that formal IP rights may facilitate
gains from technological trade.
Journal of Economic Literature Classification Numbers: L24, O32, O34 Keywords: patents, intellectual property, licensing, commercialization, market for ideas, innovation, entrepreneurship.